<PAGE>
As filed with the Securities and Exchange Commission on July 11, 1996
Registration No. 33-_________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------
FORM S-11
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------------------------------
WELLS REAL ESTATE FUND X, L.P.
and
WELLS REAL ESTATE FUND XI, L.P.
(Exact name of registrant as specified in governing instruments)
3885 Holcomb Bridge Road
Norcross, Georgia 30092
(Address of principal executive offices)
Donald Kennicott, Esq.
Rosemarie A. Thurston, Esq.
Holland & Knight
One Atlantic Center, Suite 2000
1201 West Peachtree Street, N.W.
Atlanta, Georgia 30309-3400
(Name and address of agent for service)
-------------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable following effectiveness of this Registration Statement.
-------------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Amount Being Offering Price Aggregate Amount of
Securities Being Registered/(1)/ Registered Per Unit Offering Price Registration Fee
<S> <C> <C> <C> <C>
Class A Status Units of Limited
Partnership Interest
$70,000,000 $10.00 $70,000,000 $24,138
Class B Status Units of Limited
Partnership Interest
======================================================================================================
</TABLE>
(1) Class A Status Units and Class B Status Units will be offered in
combination, such that the aggregate dollar amount of Units sold will not
exceed $70,000,000.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET PURSUANT TO RULE 404(A)
<TABLE>
<CAPTION>
Form Number and Caption Location of Heading in Prospectus
------------------------------------------------ ----------------------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Facing Page, Cover Page
2. Inside Front and Outside Back Cover Pages of Inside Front Cover and Outside Back Cover Page of Prospectus
Prospectus......................................
3. Summary Information, Risk Factors and Ratio of Outside Front Cover Page; Summary of the Offering; Risk
Earnings to Fixed Charges....................... Factors; Compensation of the General Partners and Affiliates;
Estimated Use of Proceeds
4. Determination of Offering Price................. Risk Factors
5. Dilution........................................ Risk Factors
6. Selling Security Holders........................ *
7. Plan of Distribution............................ Outside Front Cover Page; Summary of the Offering; Estimated
Use of Proceeds; Plan of Distribution
8. Use of Proceeds................................. Estimated Use of Proceeds; Investment Objectives and Criteria
9. Selected Financial Data......................... *
10. Management's Discussion and Analysis of Management's Discussions and Analysis of Financial Conditions
Financial Condition and Results of Operations... and Results of Operations
11. General Information as to Registrant............ Summary of the Offering; Summary of Partnership Agreement;
Management
12. Policy with Respect to Certain Activities....... Investment Objectives and Criteria; Reports to Investors
13. Investment Policies of Registrant............... Investment Objectives and Criteria; Real Property Investments;
Conflicts of Interest
14. Description of Real Estate...................... Investment Objectives and Criteria; Real Property Investments
15. Operating Data.................................. *
16. Tax Treatment of Registrant and its Security Federal Income Tax Consequences; Investment by Tax-Exempt
Holders......................................... Entities and ERISA Considerations
17. Market Price of and Dividends on the *
Registrant's Common Entry and Related
Stockholder Matters.............................
18. Description of Registrant's Securities.......... Description of the Units; Distributions and Allocations;
Summary of the Partnership Agreement
19. Legal Proceedings............................... *
20. Security Ownership of Certain Beneficial Owners Management; Compensation of the General Partners and Affiliates
and Management..................................
21. Directors and Executive Officers................ Management
22. Executive Compensation.......................... Conflicts of Interest; Compensation of the General Partners and
Affiliates; Management
23. Certain Relationships and Related Transactions.. Conflicts of Interest; Compensation of the General Partners and
Affiliates; Management
24. Selection, Management and Custody of Management; Compensation of the General Partners and
Registrant's Investments........................ Affiliates; Conflicts of Interest; Custodial Agency Agreement;
Investment Objectives and Criteria; Real Property Investments
25. Policies with Respect to Certain Transactions... Conflicts of Interest; Compensation of the General Partners and
Affiliates; Management
26. Limitations of Liability........................ Fiduciary Duty of the General Partners; Summary of Partnership
Agreement
27. Financial Statements and Information............ Appendix I; Exhibit A
28. Interests of Named Experts and Counsel.......... Conflicts of Interest, Experts, Legal Opinions
29. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.. Fiduciary Duty of the General Partners
*Not Applicable.
</TABLE>
<PAGE>
WELLS REAL ESTATE FUND X, L.P. WELLS REAL ESTATE FUND XI, L.P.
$1,250,000 MINIMUM OFFERING $1,250,000 MINIMUM OFFERING
- -------------------------------------- --------------------------------------
Class A and Class B Status Units Class A and Class B Status Units
at a purchase price of $10.00 per Unit at a purchase price of $10.00 per Unit
- -------------------------------------- --------------------------------------
Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P. are
separate, newly organized Georgia limited partnerships which have been formed to
acquire and operate commercial properties on an all cash basis, including
properties which are under development or construction, are newly constructed or
have been constructed and have operating histories. The General Partners of
each partnership are Leo F. Wells, III ("Wells") and Wells Partners, L.P., a
Georgia limited partnership ("Wells Partners"; Wells and Wells Partners are
collectively referred to as the "General Partners").
Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P. will each
have the same purpose, business plan, investment objectives and management and
will each be organized and conduct its business pursuant to its limited
partnership agreement, a form of which is included in this Prospectus as Exhibit
"B." The acquisition of Units in one partnership will not give an investor any
ownership interest in the other partnership or its properties. Each of the
partnerships is referred to in this Prospectus as the "Partnership."
Each Partnership hereby offers for sale to the public 3,500,000 units of
limited partnership interest (the "Units") with respect to which each holder
thereof may elect to have treated as Class A Status Units (entitled to
distributions of cash flow from operations) or Class B Status Units (entitled to
a higher percentage of appreciation of the Partnership's real property
investments and tax allocations). The Partnership will offer the Class A Status
Units and Class B Status Units in combination, such that the Partnership will
not sell more than an aggregate of 3,500,000 Units. The minimum purchase is 100
Units ($1,000) (except in certain states as described herein). The purchasers
of the Units will become the Limited Partners of the Partnership. It is
estimated that approximately 81% of the proceeds from the sale of Units will be
used to acquire properties and the balance will be used to pay fees and
expenses.
AN INVESTMENT IN UNITS INVOLVES SIGNIFICANT RISKS INCLUDING THE FOLLOWING:
. The Partnership Agreement imposes restrictions on transfers of Units. No
public market for the Units currently exists or is likely to develop. If
investors are able to sell their Units at all, they will likely be able to
sell their Units only at a discount. (See "SUMMARY OF PARTNERSHIP AGREEMENT -
Transferability of Units.")
. The number of properties that the Partnership will acquire and diversification
of its investments will be reduced to the extent that less than the maximum
number of Units are sold.
. This Offering involves payment of substantial fees to the General Partners and
their Affiliates, which will be payable regardless of the success or failure
of the Partnership.
. Certain real estate programs previously sponsored by the General Partners and
their Affiliates have experienced fluctuating financial performance.
. The Partnership does not own any real property, and the General Partners have
not identified any properties in which there is a reasonable probability that
the Partnership will invest. Accordingly, investors will not have the
opportunity to evaluate the properties that the Partnership will acquire and
must rely totally upon the ability of the General Partners with respect to the
acquisition of properties. The unspecified nature of the offering may impair
the ability of investors to make an informed decision as to whether to elect
Class A Status or Class B Status for their Units in light of the different
features of Class A Status Units and Class B Status Units.
. There are no restrictions as to the mix of Class A Status Units and Class B
Status Units, and, accordingly, holders of Class A Status Units may receive
lower cash distributions than otherwise anticipated if the percentage of Class
A Status Units outstanding is substantially greater than the percentage of
Class B Status Units, and holders of Class B Status Units may receive smaller
tax allocations and a lesser amount of appreciation on investments than
otherwise anticipated if the percentage of Class B Status Units outstanding is
substantially greater than the percentage of Class A Status Units.
. Some or all of the proceeds available for investment in real properties may be
invested in the acquisition and construction of undeveloped properties, which
would involve risks relating to the builder's ability to control construction
costs, failure to perform, or failure to build in conformity with plan
specifications and timetables.
. The General Partners are involved in other partnerships and activities, and,
accordingly, will face certain conflicts of interest in managing the
Partnership's operations.
FOR A DISCUSSION OF THE RISK FACTORS CONCERNING THIS INVESTMENT, SEE "RISK
FACTORS."
WELLS REAL ESTATE FUND X, L.P. AND WELLS REAL ESTATE FUND XI, L.P. ARE NOT
MUTUAL FUNDS OR ANY OTHER TYPE OF INVESTMENT COMPANY AND ARE NOT REGISTERED OR
SUBJECT TO REGULATION UNDER THE INVESTMENT COMPANY ACT OF 1940.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
===========================================================================================
SELLING COMMISSIONS
PRICE TO AND DEALER PROCEEDS TO
PUBLIC (1) MANAGER FEE (1) PARTNERSHIP (2)
--------------- -------------------- ---------------
<S> <C> <C> <C>
PER UNIT........................... $ 10.00 $ 1.00 $ 9.00
TOTAL MINIMUM PER PARTNERSHIP (3).. $ 1,250,000.00 $ 125,000.00 $ 1,125,000.00
TOTAL MAXIMUM PER PARTNERSHIP...... $35,000,000.00 $3,500,000.00 $31,500,000.00
TOTAL MAXIMUM...................... $70,000,000.00 $7,000,000.00 $63,000,000.00
===========================================================================================
</TABLE>
(See footnotes on following page)
____________________________________________
WELLS INVESTMENT SECURITIES, INC.
____________________________________________
THE DATE OF THIS PROSPECTUS IS ____________ __, 1996.
<PAGE>
(Cover Page Continued From Previous Page)
Footnotes:
(1) Price to Public and Selling Commissions may be reduced in connection with
certain large volume purchases; however, in no event will the proceeds to
the Partnership be reduced thereby. In addition to Selling Commissions in
the amount of up to 8% of the Gross Offering Proceeds, the Partnership will
pay a dealer manager fee in the amount of 2% of the Gross Offering Proceeds
and may reimburse nonaffiliated broker-dealers participating in this
Offering expenses paid for due diligence purposes up to a maximum of .5% of
the Gross Offering Proceeds. Selling commissions are payable to Wells
Investment Securities, Inc., the Dealer Manager of the Offering and an
Affiliate of the General Partners, except to the extent reallowed to other
broker-dealers participating in the Offering. (See "PLAN OF DISTRIBUTION.")
(2) These figures are before deducting other expenses of the Offering to be paid
by the Partnerships in the estimated amount of $2,450,000, assuming the sale
of all 7,000,000 Units. The General Partners or their Affiliates will pay
Organization and Offering Expenses (not including underwriting compensation)
in excess of 5% of Gross Offering Proceeds. (See "ESTIMATED USE OF PROCEEDS"
and footnote 3 thereto.)
(3) The offering of Units of Wells Real Estate Fund X, L.P. will commence upon
the effective date of this Prospectus and will continue until and terminate
upon the earlier of (i) ____________ __, 1997, or (ii) the date on which all
$35,000,000 in Units of Wells Real Estate Fund X, L.P. have been sold. The
offering of Units of Wells Real Estate Fund XI, L.P. will commence
immediately upon the termination of the offering of Units of Wells Real
Estate Fund X, L.P. and will continue until and terminate upon the earlier
of (i) ___________ __, 1998, or (ii) the date on which all $35,000,000 in
Units of Wells Real Estate Fund XI, L.P. have been sold, provided that the
General Partners may elect to terminate the offering of Wells Real Estate
Fund XI, L.P. at any time subsequent to one year after its effective date in
the event that the offering of Units of Wells Real Estate Fund XI, L.P.
commences prior to ____________ __, 1997. Subscription proceeds will be
placed in an interest-bearing escrow account with The Bank of New York,
Atlanta, Georgia until subscriptions aggregating at least $1,250,000
(125,000 Units) have been received and accepted by the General Partners, at
which time the proceeds will be released to the Partnership to be held in
trust for the benefit of investors.
PROSPECTIVE INVESTORS ARE ENCOURAGED TO READ THE ENTIRE PROSPECTUS WHICH
CONTAINS A COMPLETE COPY OF THE PARTNERSHIP AGREEMENT AND WHICH INCLUDES THE
CURRENT SUPPLEMENT, IF ANY, INSIDE THE BACK COVER PAGE.
THE USE OF PROJECTIONS OR FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE
WHICH MAY FLOW FROM AN INVESTMENT IN THIS PROGRAM ARE NOT PERMITTED.
FOR FLORIDA RESIDENTS
DISTRIBUTION REINVESTMENT PLAN. UNITS PURCHASED PURSUANT TO THE
------------------------------
DISTRIBUTION REINVESTMENT PLAN WHICH ARE UNITS OF A SUBSEQUENT REAL ESTATE
LIMITED PARTNERSHIP MUST BE REGISTERED OR EXEMPT FROM REGISTRATION IN FLORIDA.
OFFERS AND SALES OF SUCH UNITS MUST BE CONDUCTED THROUGH BROKER-DEALERS WHICH
ARE REGISTERED IN FLORIDA OR EXEMPT FROM REGISTRATION IN FLORIDA. (SEE "SUMMARY
OF PARTNERSHIP AGREEMENT - DISTRIBUTION REINVESTMENT PLAN.")
INDETERMINATE MIX OF UNITS. LIMITED PARTNERS MUST ELECT TO HAVE EACH UNIT
--------------------------
TREATED EITHER AS A CLASS A STATUS UNIT OR CLASS B STATUS UNIT. THERE ARE NO
RESTRICTIONS AS TO THE MIX OF THE CLASS A STATUS UNITS AND CLASS B STATUS UNITS
AND, THEREFORE, THERE CAN BE NO ASSURANCE AS TO THE ACTUAL IMPACT OF THE SPECIAL
RIGHTS AND PRIORITIES TO WHICH HOLDERS OF THE TWO CLASSES OF UNITS ARE
RESPECTIVELY ENTITLED. THE EFFECT OF ANY ADVANTAGE ASSOCIATED WITH THE ELECTION
OF CLASS A OR CLASS B STATUS UNITS MAY BE SIGNIFICANTLY REDUCED (OR ELIMINATED),
DEPENDING UPON THE RATIO OF CLASS A STATUS UNITS TO CLASS B STATUS UNITS WHICH
ARE OUTSTANDING. (SEE "RISK FACTORS.")
FOR PENNSYLVANIA RESIDENTS
BECAUSE THE MINIMUM OFFERING IS LESS THAN $5,000,000, YOU ARE CAUTIONED TO
CAREFULLY EVALUATE THE PARTNERSHIP'S ABILITY TO FULLY ACCOMPLISH ITS STATED
OBJECTIVES AND INQUIRE AS TO THE CURRENT DOLLAR VOLUME OF PARTNERSHIP
SUBSCRIPTIONS.
<PAGE>
TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
<S> <C>
SUMMARY OF THE OFFERING................................. 1
RISK FACTORS............................................ 9
Investment Risks..................................... 9
Limited Transferability and Lack
of Liquidity of the Units......................... 9
Risks Regarding Reliance on the
General Partners.................................. 9
Limited and Illiquid Net Worth
of the General Partners........................... 9
Limitations of Rights of the
Limited Partners..................................10
Possible Lack of Diversification
Resulting from Subscriptions
for Less than the Maximum Number
of Units..........................................10
Potential Conflict Relating to the
General Partners' Right to
Purchase Units....................................10
Restrictions and Limitations on
Repurchase Reserve................................10
Potential Liability of Limited
Partners..........................................11
Offering Price Arbitrarily
Established.......................................11
Risks Relating to Management
Compensation......................................11
Risks Relating to Cash
Distributions.....................................11
Risk of Lack of Sources for
Funding of Future Capital Needs...................11
Risks Relating to Joint Ventures...................12
Special Risks Regarding Classes of Units.............12
Special Risks Relating to an
Election of Class A Status Units..................12
Special Risks Relating to an
Election of Class B Status Units..................12
Effect of Unspecified Nature of
Offering on Relative Performance
of Class A Status Units and
Class B Status Units..............................13
Risks Regarding Indeterminate
Ratio of Class A Status Units
to Class B Status Units...........................13
Real Estate Risks....................................13
Fluctuating Financial
Performance of Previously
Sponsored Partnerships............................13
Risks of Real Property
Ownership.........................................13
Risks Relating to an Unspecified
Property Offering.................................13
Risks Regarding Development
and Construction of Unimproved
Properties........................................14
Risks Resulting from
Competition.......................................14
Potential Adverse Effects of
Delays in Investments.............................14
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
Uncertainty of Timing of and
Market Conditions on Future
Disposition of Properties....................... 14
Environmental Matters.............................. 15
Federal Income Tax Risks.............................. 15
Risk of Failure of Counsel to
Form an Opinion on Certain
Material Tax Issues............................. 15
Potential Adverse Income Tax
Effects relating to Limited Partners
holding Class A Status Units.................... 16
Risk of Loss of Partnership Tax
Status.......................................... 16
Risk of Publicly Traded
Partnership Classification...................... 16
Limitations on Deductibility of
Losses.......................................... 16
Risk of Challenge to Allocations
of Profit and Loss.............................. 16
Risk of Potential Dealer Status.................... 17
Risks Regarding Deductibility of
Fees and Expenses Paid by
the Partnership................................. 17
Risk of Taxable Income Without
Cash Distributions.............................. 17
Risks Regarding Characterization
of Sale-Leaseback Transactions.................. 17
Risk of Applicability of
Anti-Abuse Rules................................ 17
Risk of Applicability of
Alternative Minimum Tax......................... 18
Audit Risk, Interest and
Penalties....................................... 18
Risks Regarding State and Local
Taxation and Requirements to
Withhold State Taxes............................ 18
Risk of Legislative or Regulatory
Action.......................................... 18
Risks Relating to Retirement Plan Investors........... 18
Plan Assets Risk................................... 19
Risks Relating to Minimum
Distribution Requirements....................... 19
Unrelated Business Taxable
Income ("UBTI")................................. 19
WHO SHOULD INVEST - SUITABILITY
STANDARDS............................................ 20
DESCRIPTION OF THE UNITS.............................. 23
Election of Class A Status or Class B Status.. 23
Summary of Distributions...................... 24
Summary of Allocations........................ 26
Class A Status Units.......................... 27
Class B Status Units.......................... 27
Effect of Change of Status of Units........... 28
ESTIMATED USE OF PROCEEDS............................. 28
COMPENSATION OF THE GENERAL PARTNERS
AND AFFILIATES....................................... 31
CONFLICTS OF INTEREST................................. 33
FIDUCIARY DUTY OF THE GENERAL
PARTNERS............................................. 36
PRIOR PERFORMANCE SUMMARY............................. 37
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
Publicly Offered Unspecified Property
Partnerships...................................... 38
MANAGEMENT............................................ 42
The General Partners............................... 42
Management......................................... 44
INVESTMENT OBJECTIVES AND CRITERIA.................... 46
General............................................ 46
Acquisition and Investment Policies................ 46
Development and Construction of
Properties........................................ 48
Terms of Leases and Lessee
Creditworthiness.................................. 48
Borrowing Policies................................. 49
Joint Venture Investments.......................... 50
Disposition Policies............................... 51
Other Policies..................................... 51
CUSTODIAL AGENCY AGREEMENT............................ 52
REAL PROPERTY INVESTMENTS............................. 54
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................ 55
INVESTMENT BY TAX-EXEMPT ENTITIES AND
ERISA CONSIDERATIONS................................. 55
Plan Assets - Generally............................ 56
Plan Assets - Current Law.......................... 56
Exemptions Under Plan Asset Regulations............ 57
Plan Asset Consequences -
Prohibited Transaction Excise Tax................. 58
Annual Valuation................................... 59
FEDERAL INCOME TAX CONSEQUENCES....................... 59
Tax Opinion........................................ 60
Partnership Status Generally....................... 62
Publicly Traded Partnerships....................... 63
General Principles of Partnership Taxation......... 64
Anti-Abuse Rules................................... 64
Basis Limitations.................................. 65
Passive Loss Limitations........................... 65
At Risk Limitations................................ 66
Allocations of Profit and Loss..................... 66
Risk of Taxable Income Without Cash
Distributions..................................... 68
Investment by Qualified Plans and Other
Tax-Exempt Entities............................... 68
Investment by Charitable Remainder Trusts.......... 69
Depreciation and Cost Recovery..................... 69
Syndication and Organizational Expenses............ 69
Activities Not Engaged in for Profit............... 69
Federal Income Tax Consequences Relating
to the Custodial Agency Agreement and
Other Potential Uses of Nominee Corporations...... 70
Characterization of Leases 71
Property Held Primarily for Sale................... 71
Sales of Partnership Properties 72
Sales of Limited Partnership Units................. 72
Dissolution and Liquidation of the
Partnership....................................... 72
Capital Gains and Losses........................... 72
Election for Basis Adjustments 73
Alternative Minimum Tax............................ 73
Penalties.......................................... 73
Tax Shelter Registration........................... 74
Audits............................................. 74
Foreign Investors as Limited Partners.............. 75
Proposed Tax Legislation and Regulatory
Proposals......................................... 75
State and Local Taxes.............................. 75
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
SUMMARY OF PARTNERSHIP AGREEMENT....................... 76
Powers of the General Partners................. 76
Liabilities of the Limited Partners............ 76
Other Activities of the General Partners....... 76
Rights and Obligations of Limited Partners;
Nonassessability of Units.................... 77
Voting Rights of the Limited Partners.......... 77
Mergers and Consolidations..................... 78
Special Partnership Provisions................. 78
Removal of General Partners.................... 78
Assignability of General Partners' Interests... 78
Books and Records; Rights to Information;
Annual Audits................................ 79
Meetings of Limited Partners................... 79
Transferability of Units....................... 79
Partnership Borrowing.......................... 80
Repurchase of Units............................ 80
Distribution Reinvestment Plan................. 81
Proxy to Liquidate............................. 83
Dissolution and Termination.................... 83
DISTRIBUTIONS AND ALLOCATIONS.......................... 84
Distributions of Net Cash From Operations...... 84
Distribution of Net Sale Proceeds.............. 85
Liquidating Distributions...................... 86
Return of Unused Capital Contributions......... 86
Partnership Allocations........................ 86
Monthly Distributions.......................... 89
REPORTS TO INVESTORS................................... 89
PLAN OF DISTRIBUTION................................... 91
SUPPLEMENTAL SALES MATERIAL............................ 96
LEGAL OPINIONS......................................... 96
EXPERTS................................................ 96
AUDITORS............................................... 96
ADDITIONAL INFORMATION................................. 97
GLOSSARY............................................... 97
------------------------------
FINANCIAL STATEMENTS........................... APPENDIX I
PRIOR PERFORMANCE TABLES........................ EXHIBIT A
FORM OF AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF WELLS REAL ESTATE
FUND X/XI, L.P................................. EXHIBIT B
FORM OF SUBSCRIPTION AGREEMENT
AND SUBSCRIPTION AGREEMENT
SIGNATURE PAGE................................. EXHIBIT C
</TABLE>
(iv)
<PAGE>
SUMMARY OF THE OFFERING
THIS SECTION SUMMARIZES CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND IS INTENDED FOR QUICK REFERENCE ONLY. THIS IS NOT A COMPLETE
DESCRIPTION OF THE INVESTMENT. POTENTIAL INVESTORS MUST READ AND EVALUATE THE
FULL TEXT OF THIS PROSPECTUS AND ALL SUPPORTING DOCUMENTS ATTACHED AS EXHIBITS
HERETO IN ORDER TO EVALUATE AN INVESTMENT IN THE PARTNERSHIP. THE FOLLOWING
SUMMARY THEREFORE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THIS PROSPECTUS AND THE SUPPORTING DOCUMENTS. TERMS THAT APPEAR WITH AN INITIAL
CAPITAL LETTER ARE MORE FULLY DEFINED IN THE GLOSSARY.
<TABLE>
<CAPTION>
<S> <C>
WELLS REAL ESTATE FUND X, L.P. AND Wells Real Estate Fund X, L.P. and
WELLS REAL ESTATE FUND XI, L.P.: Wells Real Estate Fund XI, L.P. are
each newly formed Georgia limited
partnerships whose principal place of
business and registered office is
located at the office of its General
Partners, 3885 Holcomb Bridge Road,
Norcross, Georgia 30092. (Telephone:
770-449-7800 or 800-448-1010 -
outside of Georgia.) AN INVESTOR WHO
PURCHASES UNITS IN ONE OF THE
PARTNERSHIPS WILL NOT THEREBY ACQUIRE
ANY OWNERSHIP INTEREST IN THE OTHER
PARTNERSHIP OR ITS PROPERTIES.
However, the Partnerships may acquire
interests in the same property
through joint ventures, and either or
both of the Partnerships may form
joint ventures with prior or future
public real estate limited
partnership programs sponsored by the
General Partners or their Affiliates.
Each Partnership is referred to in
this Prospectus as the "Partnership."
GENERAL PARTNERS: Leo F. Wells, III and Wells Partners,
L.P., a Georgia limited partnership,
are the General Partners and will
make all investment decisions for the
Partnership. (See "MANAGEMENT - The
General Partners.") For information
regarding the previous experience of
the General Partners and their
Affiliates in the management of real
estate limited partnerships, see
"PRIOR PERFORMANCE SUMMARY."
SECURITIES OFFERED: A minimum of 125,000 Units (the
"Minimum Offering") and a maximum of
3,500,000 Units in each Partnership
are being offered at $10 per Unit.
Upon subscription for Units,
investors will elect to have their
Units treated as either Class A
Status Units or Class B Status Units.
Class A Status Units and Class B
Status Units are entitled to
different rights and priorities as to
allocations of depreciation,
amortization, cost recovery and net
loss deductions and cash
distributions. Holders of Class A
Status Units will be entitled to
receive annual distributions of
operating cash flow but will be
allocated a lower percentage return
on the potential appreciation of the
Partnership's real estate
investments. However, since Class A
Status Units will be allocated
substantially all of the
Partnership's net income without
being allocated any deductions for
depreciation, amortization, cost
recovery or net losses, it is
expected that Limited Partners
holding Class A Status Units will be
allocated taxable income in excess of
distributions of cash flow from
operations received. Although
holders of Class B Status Units will
not be allocated any current cash
distributions, they will be allocated
a disproportionately larger share of
the Partnership's deductions for
depreciation, amortization, cost
recovery and net loss, and will be
allocated a higher percentage return
on the potential appreciation of the
Partnership's real estate
investments. However, since all such
losses allocated to holders of Class
B Status Units will be treated as
"passive" losses, which may only be
used to offset "passive" income and,
thus, may not be used to offset
active or portfolio income, such
allocation of losses may have no
current benefit to holders of Class B
Status Units unless such holders of
Class B Status Units are being
allocated passive income from other
sources with respect to such year.
Limited Partners will have the right
to change their prior election to
have some or all of their Units
treated as Class A Status Units or
Class B Status Units one time during
each accounting period, unless
prohibited by applicable state law.
Any such changed election shall be
effective commencing as of the first
day of the next succeeding accounting
period following notice to the
Partnership. Limited Partners
converting from
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Class A Status to Class B Status will
be entitled from the effective date
of the changed election to deductions
for depreciation, amortization, cost
recovery and net losses but no
distributions of cash flow from
operations, and Limited Partners
converting from Class B Status to
Class A Status will be entitled from
the effective date of the changed
election to receive annual
distributions of net cash flow from
operations. Distributions of
proceeds from the sale of properties
will be prorated to Limited Partners
based on the number of days during
which such Units were treated as
Class A Status Units and the number
of days during which such Units were
treated as Class B Status Units
(Class B Status Units being allocated
a higher percentage return on the
potential appreciation of the
Partnership's real estate
investments). (See "DESCRIPTION OF
THE UNITS," "RISK FACTORS" and
"DISTRIBUTIONS AND ALLOCATIONS.")
RISK FACTORS: Investment in the Units involves
various risks including the following:
. The Partnership Agreement imposes
restrictions on transfers of Units.
No public market for the Units
currently exists or is likely to
develop. If investors are able to
sell their Units at all, they will
likely be able to sell their Units
only at a discount. (See "SUMMARY OF
PARTNERSHIP AGREEMENT -
Transferability of Units.")
. Limited Partners will have limited
voting rights and, therefore, will
have minimal control over the
Partnership's operations.
. The Limited Partners must rely on
the General Partners and their
Affiliates, who will have full
responsibility for the day-to-day
management of the Partnership.
. The net worth of the General
Partners is limited in amount,
substantially illiquid and not
readily marketable. Accordingly,
there can be no guarantee that the
General Partners will be able to
fulfill their financial obligations
and responsibilities to the
Partnership.
. The number of properties that the
Partnership will acquire and
diversification of its investments
will be reduced to the extent that
less than the maximum number of Units
are sold. Lack of diversification of
the Partnership's investments will
have the effect of increasing the
risks associated with an investment
in the Units.
. This Offering involves payment of
substantial fees to the General
Partners and their Affiliates, which
will be payable regardless of the
success or failure of the Partnership.
. Holders of Class A Status Units will
be allocated substantially all of the
Partnership's net income, while
substantially all deductions for
depreciation, amortization, cost
recovery and net losses will be
allocated to holders of Class B
Status Units. As a result, it is
expected that Limited Partners
holding Class A Status Units will be
allocated taxable income in excess of
distributions of Cash Flow From
Operations received, although the
General Partners expect that cash
distributions will be sufficient to
cover the income tax liability
resulting from such allocations.
. Potential investors who plan to elect
Class B Status for their Units should
be aware that they will not receive
any distributions of Cash Flow From
Operations from the Partnership, but
will be allocated a
disproportionately larger share of
the Partnership's deductions for
depreciation, amortization, cost
recovery and net losses.
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. Certain real estate programs
previously sponsored by the General
Partners and their Affiliates have
experienced fluctuating financial
performance, and there are no
assurances that properties acquired
by the Partnership will be profitable.
. The Partnership will be subject to
market risks associated with
investments in real estate, which
means that both the amount of cash
the Partnership will receive from the
lessees of its properties and the
future value of its properties cannot
be predicted. Accordingly, the extent
to which investors will receive cash
distributions and realize potential
appreciation on real estate
investments will be dependent upon
fluctuating market conditions.
. The Partnership does not own any real
property and the General Partners
have not identified any properties in
which there is a reasonable
probability that the Partnership will
invest. Accordingly, investors will
not have the opportunity to evaluate
the properties that the Partnership
will acquire and must rely totally
upon the ability of the General
Partners with respect to the
acquisition of properties.
. Some or all of the proceeds available
for investment in real properties may
be invested in the acquisition and
construction of undeveloped
properties, which would involve risks
relating to the builder's ability to
control construction costs, failure
to perform, or failure to build in
conformity with plan specifications
and timetables, thus potentially
subjecting the Partnership to cost
overruns and time delays for
properties under construction.
Increased costs of newly constructed
properties may have the effect of
reducing returns to Limited Partners,
while construction delays may have
the effect of delaying distributions
of cash flow from operations.
. As a result of the fact that the
General Partners are also general
partners of other real estate limited
partnerships and will continue to
engage in other business activities,
the General Partners will have
conflicts of interest in allocating
their time between the Partnership
and other partnerships and
activities. They will also have
conflicts of interest when evaluating
potential investments for the
Partnership in deciding which entity
will acquire a particular property,
and in leasing properties in the
event that the Partnership and
another program managed by the
General Partners were to compete for
the same tenants in negotiating
leases.
. The Partnership is authorized to
borrow amounts up to 25% of the total
purchase price of Partnership
Properties in order to finance the
maintenance and repair or improvement
of Partnership Properties under
certain conditions; provided,
however, that (i) the Partnership
will be acquiring properties only on
an all cash basis and the General
Partners do not intend to cause the
Partnership to borrow any funds and
(ii) the Partnership will not borrow
any funds until it first obtains an
opinion of counsel that more likely
than not the indebtedness to be
obtained will not cause its income to
be taxed as unrelated business
taxable income (UBTI). (See
"INVESTMENT OBJECTIVES AND CRITERIA-
Borrowing Policies.")
See the "RISK FACTORS" section of
this Prospectus for a discussion of
the risk factors relating to an
investment in the Units.
TERMS OF THE OFFERING: The offering of Units of Wells Real
Estate Fund X, L.P. will commence
upon the effective date of this
Prospectus and will continue until
and terminate upon
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the earlier of (i) ,
1997, or (ii) the date on which all
$35,000,000 in Units of Wells Real
Estate Fund X, L.P. have been sold.
The offering of Units of Wells Real
Estate Fund XI, L.P. will commence
immediately upon the termination of
the offering of Units of Wells Real
Estate Fund X, L.P. and will continue
until and terminate upon the earlier
of (i) , 1998, or (ii)
the date on which all $35,000,000 in
Units of Wells Real Estate Fund XI,
L.P. have been sold, provided that in
the event that the offering of Units
of Wells Real Estate Fund XI, L.P.
commenced prior to ,
1997, the General Partners may elect
to terminate the offering of Wells
Real Estate Fund XI, L.P. at any time
subsequent to one year after its
effective date. Subscription
proceeds will be held in escrow until
subscriptions for at least $1,250,000
(125,000 Units) have been received
and accepted by the General Partners.
PROPERTIES: The Partnership will seek to acquire
and operate commercial and industrial
properties, including without
limitation, office buildings,
shopping centers, business and
industrial parks and other commercial
and industrial properties, on an all
cash basis, including properties
which are under construction or
development, are newly constructed,
or have been constructed and have
operating histories. All such
properties may be acquired, developed
and operated by the Partnership alone
or jointly with another party. The
Partnership is likely to enter into
one or more joint ventures with
Affiliated entities for the
acquisition of properties. In this
connection, the Partnerships may
enter into joint ventures for the
acquisition of properties with each
other, and either or both of the
Partnerships may enter into joint
ventures for the acquisition of
properties with prior or future real
estate limited partnership programs
sponsored by the General Partners or
their Affiliates. As of the date of
this Prospectus, the Partnership has
neither purchased nor contracted to
purchase any properties, nor have the
General Partners identified any
properties in which there is a
reasonable probability that the
Partnership will invest. (See "REAL
PROPERTY INVESTMENTS," "INVESTMENT
OBJECTIVES AND CRITERIA" and
"CONFLICTS OF INTEREST.")
ESTIMATED USE OF It is anticipated that approximately
PROCEEDS OF OFFERING: 81% of the proceeds of this Offering
will actually be invested in
Partnership Properties, and the
remainder will be used to pay selling
commissions and fees and expenses
relating to the selection and
acquisition of properties and the
costs of organizing the Partnership
and the Offering. (See "ESTIMATED
USE OF PROCEEDS" for a breakdown of
the Partnership's estimated use of
the capital raised in the Offering.
See also "COMPENSATION OF THE GENERAL
PARTNERS AND AFFILIATES" regarding
the compensation and fees to be paid
to the General Partners and their
Affiliates.)
INVESTMENT OBJECTIVES: The Partnership's objectives are: (i)
to maximize Net Cash From Operations;
(ii) to preserve, protect and return
the Capital Contributions of the
Partners; and (iii) to realize
capital appreciation upon the
ultimate sale of Partnership
Properties. These investment
objectives may not be changed except
upon approval of a majority in
interest of the Limited Partners.
Although certain real estate programs
previously sponsored by the General
Partners and their Affiliates have
experienced fluctuating financial
performance, as shown in the tables
included in Exhibit "A" hereto, such
prior programs, each of which have
investment objectives similar to
those of the Partnership, have
generally been successful to date in
achieving their objective of
providing distributions of Net Cash
From Operations to their limited
partners. However, these prior
programs have not yet sold any real
property investments and thus no
evaluation can be made as to whether
these prior programs will achieve
their objective of realizing capital
appreciation upon the sale of such
properties. (See "INVESTMENT
OBJECTIVES AND CRITERIA" and "PRIOR
PERFORMANCE SUMMARY.")
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CONFLICTS OF INTEREST: The General Partners and their
Affiliates will experience conflicts
of interest in connection with the
management of the Partnership,
including the following:
. The General Partners and their
Affiliates are also general partners
of other real estate limited
partnerships and expect that they
will organize additional real estate
partnerships in the future. As a
result, investors should be aware
that the General Partners and their
Affiliates will have to allocate
their time between the Partnership
and other such partnerships and
activities and may have conflicts of
interest in deciding which
partnership will acquire a particular
property.
. The Partnership may acquire
properties in the same geographic
areas where other properties owned or
managed by the General Partners and
their Affiliates are located,
resulting in potential conflicts in
the leasing or resale of the
Partnership's properties in the event
that the Partnership and another
program managed by the General
Partners or their Affiliates were to
attempt to compete for the same
tenants in negotiating leases or to
sell similar properties at the same
time.
. Since it is anticipated that the
Partnership's properties will be
managed by an Affiliate of the
General Partners, the Partnership
will not have the benefit of
independent property management, and
investors must rely on the General
Partners and their Affiliates for
management of the Partnership's
properties.
. The Partnership is likely to enter
into one or more joint ventures for
the acquisition and operation of
specific properties with Affiliates
of the General Partners, resulting in
potential conflicts of interest in
determining which partnership should
enter into a particular joint
venture, in structuring the terms of
the relationship and in managing the
joint venture.
. Fees payable to the General Partners
and their Affiliates in connection
with Partnership transactions
involving the purchase, management
and sale of Partnership Properties
are not the result of arm's-length
negotiations and will be payable
regardless of the quality of the
property acquired or the services
provided to the Partnership.
See the "CONFLICTS OF INTEREST"
section of this Prospectus for a
discussion of the various conflicts
of interest relating to an investment
in the Units.
PRIOR OFFERING SUMMARY: The General Partners and their
Affiliates have previously sponsored
ten publicly offered real estate
limited partnerships on an
unspecified property or "blind pool"
basis. The total amount of funds
raised from the approximately
investors in these limited
partnerships as of ,
1996 was approximately $ .
Certain of these previously sponsored
real estate programs have experienced
fluctuating financial performance in
recent years. The "PRIOR PERFORMANCE
SUMMARY" section of this Prospectus
contains a discussion of the public as
well as private real estate limited
partnerships sponsored by the General
Partners and their Affiliates during the
past ten years. Certain statistical data
relating to prior public limited
partnerships with investment objectives
similar to those of the Partnership are
contained in the "PRIOR PERFORMANCE
TABLES" included as Exhibit "A" to this
Prospectus.
COMPENSATION TO GENERAL PARTNERS AND The General Partners and their
AFFILIATES: Affiliates will receive compensation
and fees for services relating to
this Offering and in connection with
the investment and
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management of the Partnership's
assets which are not the result of
arm's-length negotiations and will be
paid regardless of the quality of the
property acquired or the services
provided to the Partnership. The
most significant items of
compensation are:
Offering Stage: Sales commissions of
8% of Gross Offering Proceeds, all or
a part of which may be reallowed to
participating broker-dealers; a
dealer manager fee of 2% of Gross
Offering Proceeds, a portion of which
may be reallowed to participating
broker-dealers as a marketing fee;
and up to 5% of Gross Offering
Proceeds as a reimbursement of costs
and expenses of organizing the
Partnership, including legal,
accounting, printing, marketing and
other offering expenses, a majority
of which will be paid to third
parties unaffiliated with the General
Partners.
Acquisition Stage: A fee of up to 5%
of Gross Offering Proceeds in
connection with the selection,
valuation and acquisition of
properties (subject to certain
overall limitations), which is
payable regardless of the quality of
the properties acquired by the
Partnership; and reimbursement of
costs and expenses for the
acquisition of properties.
Operational Stage: A property
management and leasing fee in the
amount of up to 6% of gross revenues
plus a one-time initial rent-up or
leasing-up fee for the leasing of
newly constructed properties, in an
amount not to exceed the customary
fee payable in an arm's-length
transaction; and, after Limited
Partners holding Class A Status Units
have received cash distributions
equal to 10% of their remaining
capital invested in the Partnership,
10% of current cash flow
distributions of the Partnership.
Liquidation Stage: After (i) Limited
Partners holding Units which at any
time have been treated as Class B
Status Units have received amounts
necessary to make up for the priority
cash distributions previously paid to
Limited Partners holding Units which
at all times have been treated as
Class A Status Units, (ii) Limited
Partners have received a return of
their invested capital, and (iii)
Limited Partners holding Class A
Status Units have received a 10% per
annum return on their invested
capital and Limited Partners holding
Class B Status Units have received a
15% per annum return on their
invested capital, then the General
Partners are entitled to receive the
following amounts of Nonliquidating
Net Sale Proceeds and Liquidating
Distributions: (a) an amount equal
to their Capital Contributions, and
(b) 20% of remaining amounts of
Nonliquidating Net Sale Proceeds and
Liquidating Distributions available
for distribution (provided, however,
that in no event will the General
Partners receive in the aggregate
more than the NASAA Guidelines Resale
Proceeds Maximum Amount); and a real
estate brokerage commission of up to
3% of the sale price of properties
sold by the Partnership, the payment
of which is subordinated to
distributions to Limited Partners in
aggregate amounts so that Limited
Partners will receive a return of
their remaining capital invested in
the Partnership plus a 6% per annum
return on their remaining capital
invested in the Partnership.
There may be a number of other
smaller items of incidental expense
reimbursement that the General
Partners and their Affiliates may
receive during the operation and
liquidation stages of the
Partnership. (See "COMPENSATION
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OF THE GENERAL PARTNERS AND
AFFILIATES" and "CONFLICTS OF
INTEREST.")
DEPRECIATION AND COST For income tax purposes, the
RECOVERY METHOD: Partnership intends to use the
straight-line method
of depreciation for the real
properties to be acquired. (See
"FEDERAL INCOME TAX CONSEQUENCES.")
PARTNERSHIP TERM: Each Partnership was formed on June
20, 1996, and will continue in
existence until all the Partnership's
properties have been sold or the
occurrence of certain other events
but, in any event, will terminate no
later than December 31, 2026. (See
"SUMMARY OF PARTNERSHIP AGREEMENT -
Dissolution and Termination.")
REPURCHASE RESERVE: One year following the termination of
this Offering, the General Partners
will have the option, in their sole
discretion, of establishing a
Repurchase Reserve in an amount of up
to 5% of Cash Flow on an annual
basis, pursuant to which the Limited
Partners may be able to resell their
Units to the Partnership at a
discount. The General Partners may
also terminate the Repurchase Reserve
at any time in their sole discretion.
(See "SUMMARY OF PARTNERSHIP
AGREEMENT.")
DISTRIBUTION The General Partners may establish a
REINVESTMENT PLAN: Distribution Reinvestment Plan which
will be available for Limited Partners
who wish to participate, pursuant to
which distributions of Net Cash From
Operations from the Partnership may be
automatically invested in (a) Units of
the Partnership during the Offering
period of each respective Partnership,
or (b) units of subsequent real estate
limited partnerships sponsored by the
General Partners or their Affiliates
which have substantially identical
investment objectives as the Partnership
following the expiration of the Offering
period. The General Partners in their
discretion may elect not to provide a
Distribution Reinvestment Plan. Limited
Partners who participate in the
Distribution Reinvestment Plan will be
allocated their share of the
Partnership's taxable income even though
such Partners will receive no cash
distributions from the Partnership,
which may result in tax liability for
such participants even though they would
receive no cash distributions with which
to pay such tax liability. (See "SUMMARY
OF PARTNERSHIP AGREEMENT - Distribution
Reinvestment Plan" and "RISK FACTORS -
Federal Income Tax Risks.")
DISTRIBUTIONS AND See the "DESCRIPTION OF THE UNITS"
ALLOCATIONS: and "DISTRIBUTIONS AND ALLOCATIONS"
sections of this Prospectus for a
description of the allocation and
distribution of current cash flow
from operations and the net proceeds
from the sale or exchange of
Partnership Properties and the
allocation of taxable income and loss
of the Partnership.
Distributions of cash flow from
operations to Limited Partners
holding Class A Status Units are
expected to commence no later than
the end of the sixth full quarter of
Partnership operations. No
distributions of cash flow from
operations will be allocated to
Limited Partners holding Class B
Status Units.
PARTNERSHIP AGREEMENT: The respective rights and obligations
of the Partners and the relationship
between the Limited Partners and the
General Partners will be governed by
the
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Partnership's Amended and Restated
Agreement of Limited Partnership (the
"Partnership Agreement"). Some of
the significant features of the
Partnership Agreement include the
following:
. Voting Rights. Limited Partners
owning a majority of the Units may
vote to: (a) amend the Partnership
Agreement, subject to certain
limitations, (b) change the business
purpose or investment objectives of
the Partnership, and (c) remove a
General Partner. In the event of any
such vote, Limited Partners not
voting with the majority will
nonetheless be bound by the majority
vote.
. Mergers and Consolidations. The
Partnership Agreement prohibits the
General Partners from initiating any
transaction wherein the Partnership
is merged or consolidated with any
other partnership or corporation, and
the General Partners are not
authorized to merge or consolidate
the Partnership with any other
partnership or corporation unless
such action is approved by Limited
Partners owning a majority of the
Units.
. Restrictions on Transferability of
Units. While the Partnership
Agreement does allow certain
transfers, there are a number of
significant restrictions on the
transferability of Units, including:
(a) securities laws restrictions, (b)
the application of suitability
standards to the proposed transferees
of Units, (c) restrictions regarding
the potential of the Partnership
becoming a "publicly traded
partnership" (generally a partnership
whose interests are publicly traded
or frequently transferred), and (d)
restrictions regarding potential
termination of the Partnership for
tax purposes. No public market for
the Units currently exists or is
expected to develop.
For a more detailed discussion
concerning the terms of the
Partnership Agreement, please refer
to the "SUMMARY OF PARTNERSHIP
AGREEMENT" section of this
Prospectus. All statements made
herein and elsewhere in this
Prospectus are qualified in their
entirety by reference to the
Partnership Agreement which is set
forth in its entirety as Exhibit "B"
to this Prospectus.
GLOSSARY: Certain terms which have initial
capital letters in this Prospectus
are defined under the caption
"GLOSSARY."
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RISK FACTORS
The purchase of Units involves a number of risk factors. In addition to the
factors set forth elsewhere in this Prospectus, prospective investors should
consider specifically the following:
INVESTMENT RISKS
LIMITED TRANSFERABILITY AND LACK OF LIQUIDITY OF THE UNITS. Except for
intra-family transfers by gift or inheritance, the Units have limited
transferability, including transfer limitations under the provisions of the
Partnership Agreement relating to the Repurchase Reserve. The Partnership and
certain state regulatory agencies have imposed certain restrictions relating to
the number of Units which may be transferred by a Limited Partner and, with the
exception of intra-family transfers or transfers made by gift, inheritance or
family dissolution, the
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suitability standards applied to initial purchasers of the Units may also be
applied to assignees as a condition to their substitution as Limited Partners.
It is not anticipated that a public trading market will develop for the Units
and, in fact, the Partnership Agreement restricts the ability of the Partnership
to participate in a public trading market or the substantial equivalent thereof.
Specifically, the Partnership Agreement provides that any transfer which may
cause the Partnership to be classified as a "publicly traded partnership" shall
be deemed void and shall not be recognized by the Partnership. Because of the
fact that the classification of the Partnership as a "publicly traded
partnership" would significantly decrease the value of the Units, the General
Partners intend to exercise fully their rights to prohibit transfers of Units
which could cause the Partnership to be classified as a "publicly traded
partnership." Limited Partners may not, therefore, be able to liquidate their
investment in the event of an emergency, and the Units may not be readily
accepted as collateral for a loan. Consequently, Units in the Partnership
should be considered only as a long-term investment. (See "SUMMARY OF
PARTNERSHIP AGREEMENT - Transferability of Units.")
RISKS REGARDING RELIANCE ON THE GENERAL PARTNERS. All decisions with
respect to the management of the Partnership will be made exclusively by the
General Partners. The Limited Partners will have no right or power to take part
in the management of the Partnership except through the exercise of their voting
rights, which are limited. The General Partners may be removed under certain
conditions, as set forth in the Partnership Agreement, subject to their receipt
of payment equal to the fair market value of their interests in the Partnership.
(See "SUMMARY OF PARTNERSHIP AGREEMENT.")
LIMITED AND ILLIQUID NET WORTH OF THE GENERAL PARTNERS. The General
Partners have represented that, as of July 31, 1996, they have a combined net
worth on an estimated fair market value basis in excess of $_________________
(exclusive of home, automobiles and home furnishings). When the net worth of
Wells Partners is calculated on a generally accepted accounting principles
(GAAP) basis (i.e., Wells Partners' investments are valued at cost instead of
estimated fair market value) as of July 31, 1996, the combined net worth of the
General Partners is approximately $_________________. The net worth of the
General Partners, however, consists primarily of interests in real estate and
interests in retirement plans and closely-held businesses, and thus such net
worth is substantially illiquid and not readily marketable. The limited net
worth of the General Partners and illiquid nature of such net worth, together
with the other commitments of the General Partners, may be relevant in
evaluating the ability of the General Partners to fulfill their financial
obligations and responsibilities to the Partnership, including but not limited
to, the General Partners' obligation to advance on an interest-free basis an
amount of up to 1% of Gross Offering Proceeds for maintenance and repairs of
Partnership Properties to the extent that the Partnership has insufficient funds
for such purposes. Such commitments include those relating to other limited
partnerships which have been formed in the past and other limited partnerships
which the General Partners may organize in the future. (See "CONFLICTS OF
INTEREST - Interests in Other Partnerships," "PRIOR PERFORMANCE SUMMARY" and
"MANAGEMENT.")
LIMITATIONS OF RIGHTS OF THE LIMITED PARTNERS. The Partnership is a limited
partnership formed under the Georgia Revised Uniform Limited Partnership Act
("GRULPA"), and accordingly, the rights of the Limited Partners are limited to
rights provided either under GRULPA or contained in the Partnership Agreement.
In this regard, the Partnership Agreement provides that Limited Partners owning
a majority of the outstanding Units may exercise certain voting rights,
including the right to amend the Partnership Agreement, to change the business
purpose or investment objectives of the Partnership, to remove the General
Partners, or to authorize a merger or a consolidation of the Partnership under
certain circumstances. Because Limited Partners owning a majority of the Units
may approve any of the foregoing actions, Limited Partners not voting with the
majority will nonetheless be bound by the majority vote. (See "SUMMARY OF
LIMITED PARTNERSHIP AGREEMENT.")
POSSIBLE LACK OF DIVERSIFICATION RESULTING FROM SUBSCRIPTIONS FOR LESS THAN
THE MAXIMUM NUMBER OF UNITS. To the extent that less than the maximum number of
Units are sold, the diversification of the Partnership's investments will be
decreased and the extent to which the Partnership's profitability will be
affected by any one of its investments will increase. For example, in the event
that the gross proceeds from the Offering of Units of the
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Partnership total only $1,250,000 (the minimum amount needed for the Partnership
to release initial funds from escrow and commence operations), the Partnership
may acquire an interest in only one property and, therefore, would not achieve
diversification of its investments. Lack of diversification of the
Partnership's investments will have the effect of increasing the risks
associated with an investment in the Units.
POTENTIAL CONFLICT RELATING TO THE GENERAL PARTNERS' RIGHT TO PURCHASE
UNITS. Pursuant to the terms of the Offering, the General Partners or their
Affiliates may purchase Units for their own account. In addition, as set forth
above, the General Partners have broad discretion in choosing between
investments in various types of income-producing and non-income-producing
properties, which will affect the relative performance between the Class A
Status Units and the Class B Status Units. Units acquired and held by the
General Partners or their Affiliates shall at all times be treated as Class A
Status Units. Accordingly, in the event the General Partners or their
Affiliates do purchase Units, they would then have an incentive to acquire
properties which would produce more favorable results for the Class A Status
Units, which could adversely affect Limited Partners electing Class B Status for
their Units. (See "INVESTMENT OBJECTIVES AND CRITERIA" and "PLAN OF
DISTRIBUTION.")
RESTRICTIONS AND LIMITATIONS ON REPURCHASE RESERVE. The Partnership may
establish a Repurchase Reserve of up to 5% of Cash Flow annually, whereby the
Partnership may, in the sole discretion of the General Partners and upon the
request of a Limited Partner, repurchase the Units held by such Limited Partner.
The Repurchase Reserve may be established only after the expiration of one year
following the termination of the Offering, and if established, the Repurchase
Reserve may be terminated at any time in the sole discretion of the General
Partners. Since the establishment of a Repurchase Reserve is in the sole
discretion of the General Partners, the Partnership is under no obligation to
establish a Repurchase Reserve or to repurchase Units from any Limited Partner.
In addition, even if a Repurchase Reserve is established, the Partnership
Agreement limits repurchases out of the Repurchase Reserve to an aggregate of
not more than 2% of Gross Offering Proceeds throughout the life of the
Partnership (excluding repurchases relating to death or legal incapacity of the
owner and repurchases relating to a substantial reduction in the owner's net
worth or income). Accordingly, in considering an investment in the Partnership,
prospective investors should not assume that they will be able to sell any of
their Units back to the Partnership. However, in the event that the Partnership
does establish a Repurchase Reserve, the purchase price per Unit will be equal
to 85% of the fair market value of the Units until three years from the
effective date of the Registration Statement and 90% of the fair market value of
the Units thereafter. Fair market value will be determined by the General
Partners based upon an estimate of the amount the Limited Partners would receive
if the Partnership's real estate investments were sold for their estimated value
and if such proceeds were distributed in a liquidation of the Partnership.
Accordingly, Limited Partners liquidating their Units by selling them back to
the Partnership may receive less than they would receive if the Partnership's
real estate investments were sold for their estimated value and such proceeds
were distributed in a liquidation of the Partnership. (See "SUMMARY OF
PARTNERSHIP AGREEMENT - Repurchase of Units.")
POTENTIAL LIABILITY OF LIMITED PARTNERS. A Limited Partner's liability, in
general, will be limited to the amount he agrees to contribute to the capital of
the Partnership plus his share of any undistributed profits and assets. While
GRULPA provides that Limited Partners would retain their limited liability even
if they exercise their rights under the Partnership Agreement, including without
limitation, the right to vote on certain matters such as the right to remove
General Partners and elect successor general partners, this provision of GRULPA
has not yet been interpreted by a court, and accordingly, no assurance can be
given that courts will ultimately uphold the limited liability of Limited
Partners in this regard. (See "SUMMARY OF PARTNERSHIP AGREEMENT - Voting Rights
of the Limited Partners.")
OFFERING PRICE ARBITRARILY ESTABLISHED. The selling price of the Units
offered hereby was determined arbitrarily by the General Partners and bears no
relationship to any established criteria for valuing issued or outstanding units
of limited partnership interest or other ownership interests at the present
time.
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RISKS RELATING TO MANAGEMENT COMPENSATION. The General Partners and their
Affiliates will perform services for the Partnership in connection with the
offer and sale of Units, the selection and acquisition of the Partnership's
properties, and the management and leasing of the Partnership's properties, and
will receive substantial compensation from the Partnership in consideration for
these services. The amount of such compensation has not been determined in
arm's-length negotiations, and such amounts will be payable regardless of the
quality of services provided to the Partnership and prior to any distributions
to Limited Partners. (See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES"
and "CONFLICTS OF INTEREST.")
RISKS RELATING TO CASH DISTRIBUTIONS. There is no assurance as to when or
whether sufficient cash will be available for distributions to the Limited
Partners from either Net Cash From Operations or Sale Proceeds. The Partnership
bears all expenses incurred in its operations, which are deducted from cash
funds generated by operations prior to computing the amount of Net Cash From
Operations to be distributed to the General and Limited Partners. In addition,
the General Partners, in their discretion, may retain any portion of such funds
for working capital purposes of the Partnership. Although gains from the sales
of properties typically represent a substantial portion of any profits
attributable to a real estate investment, there can be no assurance as to the
ability of the Partnership to realize gains on the resales of its properties,
and, in any event, distribution of such proceeds should not be expected to occur
during the early years of Partnership operations. Sales of properties developed
by the Partnership generally will not occur until after completion of the
development and construction of the properties and a period of ownership of at
least ten years thereafter. Further, receipt of the full proceeds of such sales
may be extended over a substantial period of time following the sales. In
addition, the amount of taxable gain allocated to a Limited Partner with respect
to the sale of a Partnership Property could exceed the cash proceeds received
from such sale. (See "INVESTMENT OBJECTIVES AND CRITERIA - Sale of Properties"
and "FEDERAL INCOME TAX CONSEQUENCES - Sales of Partnership Property.")
RISK OF LACK OF SOURCES FOR FUNDING OF FUTURE CAPITAL NEEDS. As the
Partnership raises capital from investors, substantially all of the gross
proceeds of the Offering will be used for investment in Partnership Properties
and for payment of various fees and expenses. (See "ESTIMATED USE OF
PROCEEDS.") In addition, it is not anticipated that the Partnership will
maintain any permanent working capital reserves. Accordingly, in the event that
the Partnership develops a need for additional capital in the future for the
improvement of its properties or for any other reason, no sources for such
funding have been identified, and no assurance can be made that such sources of
funding will be available to the Partnership for potential capital needs in the
future.
RISKS RELATING TO JOINT VENTURES. The Partnership is likely to enter into
one or more joint ventures with Affiliated entities for the acquisition,
development or improvement of properties. In this regard, the Partnerships may
enter into joint ventures with each other, and either or both of the
Partnerships may enter into joint ventures with future programs sponsored by the
General Partners or their Affiliates or Prior Wells Public Programs. The
Partnership may purchase and develop properties in joint ventures or in
partnerships, co-tenancies or other co-ownership arrangements with Affiliates of
the General Partners, the sellers of the properties, affiliates of the sellers,
developers or other persons. Such investments may under certain circumstances
involve risks not otherwise present, including, for example, the possibility
that the Partnership's co-venturer, co-tenant or partner in an investment might
become bankrupt, that such co-venturer, co-tenant or partner may at any time
have economic or business interests or goals which are inconsistent with the
business interests or goals of the Partnership, or that such co-venturer, co-
tenant or partner may be in a position to take action contrary to the
instructions or the requests of the Partnership or contrary to the Partnership's
policies or objectives. Actions by such a co-venturer, co-tenant or partner
might have the result of subjecting the property to liabilities in excess of
those contemplated and may have the effect of reducing returns to Limited
Partners. In addition, since there is no requirement that any joint venture
partner, co-tenant or other co-owner of properties purchased jointly with the
Partnership be subject to a custodial agency agreement, such investments may not
be afforded the same protections as investments in properties made directly by
the Partnership or in joint ventures with Affiliates of the General Partners.
Under certain joint venture arrangements, neither co-venturer may have the power
to control the venture, and an impasse could be reached regarding matters
pertaining to the joint venture, possibly detrimentally impacting the success of
the joint venture
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and decreasing potential returns to Limited Partners. In the event a co-
venturer has a right of first refusal to buy out the other co-venturer, it may
be unable to finance such buy-out at the time. It may also be difficult for the
Partnership to sell its interest in any such joint venture or partnership or as
a co-tenant in property. In addition, to the extent that the Partnership's co-
venturer or partner is an Affiliate of the General Partners, certain conflicts
of interest will exist. (See "CONFLICTS OF INTEREST - Joint Ventures with
Affiliates of the General Partners.")
SPECIAL RISKS REGARDING CLASSES OF UNITS
SPECIAL RISKS RELATING TO AN ELECTION OF CLASS A STATUS UNITS. Since
holders of Class A Status Units will be allocated substantially all of the
Partnership's net income, while substantially all deductions for depreciation,
amortization, cost recovery and net losses will be allocated to holders of Class
B Status Units, it is expected that Limited Partners holding Class A Status
Units will be allocated taxable income in excess of distributions of cash flow
from operations received. However, while there is no assurance that cash flow
will be available for distribution to Class A Limited Partners in any year,
based upon the cash distributions and taxable income allocations to Class A
Limited Partners in Prior Wells Public Programs, the General Partners expect
that cash distributions to Limited Partners holding Class A Status Units will be
sufficient to cover the income tax liability resulting from allocations of
taxable income of the Partnership. In addition, potential investors who plan to
elect Class A Status for their Units should be aware that, in the event that the
Partnership sells substantially more Class A Status Units than Class B Status
Units, Limited Partners purchasing Class A Status Units in the Partnership may
not receive appreciably greater cash flow distributions from the Partnership due
to the capital raised from the sale of Class B Status Units. There are no
restrictions as to the mix between Class A Status Units and Class B Status
Units, and the General Partners will not attempt to establish or maintain any
particular ratio between Class A Status Units and Class B Status Units.
SPECIAL RISKS RELATING TO AN ELECTION OF CLASS B STATUS UNITS. Potential
investors who plan to elect Class B Status for their Units should be aware that
they will not receive any distributions of cash flow from operations from the
Partnership. Further, although Limited Partners holding Class B Status Units
will be allocated a disproportionately larger share of the Partnership's
deductions for depreciation, amortization, cost recovery and net losses, all
such losses will be treated as "passive" losses, which may only be used to
offset "passive" income and may not be used to offset active or portfolio
income. Accordingly, a Class B Status Limited Partner's pro rata share of the
Partnership's passive losses may have no current benefit to such Class B Status
Limited Partner unless he is being allocated passive income from other sources
with respect to such year.
EFFECT OF UNSPECIFIED NATURE OF OFFERING ON RELATIVE PERFORMANCE OF CLASS A
STATUS UNITS AND CLASS B STATUS UNITS. As set forth above, the General Partners
have not identified any properties in which there is a reasonable probability
that the Partnership will invest. In addition, the General Partners have broad
discretion in choosing between investments in various types of income-producing
and non-income-producing properties, which will have an effect on the relative
performance between Class A Status Units and Class B Status Units. It is
anticipated that holders of Class A Status Units would potentially benefit to a
greater extent than holders of Class B Status Units if the majority of the
Partnership's investments are in properties which generate relatively high cash
flows but have lower potential for appreciation; conversely, a greater
percentage of investments in properties generating less current cash flow but
having greater potential for appreciation in value may benefit holders of Class
B Status Units to a greater extent than holders of Class A Status Units. The
unspecified nature of the Offering may impair the ability of investors to make
an informed decision as to whether to elect Class A Status or Class B Status in
light of the different features of Class A Status Units and Class B Status
Units. (See "INVESTMENT OBJECTIVES AND CRITERIA.")
RISKS REGARDING INDETERMINATE RATIO OF CLASS A STATUS UNITS TO CLASS B
STATUS UNITS. Class A Status Units and Class B Status Units each entitle the
holder thereof to different rights and priorities as to allocation of
depreciation, amortization and cost recovery deductions and as to Net Cash From
Operations. However, the effect
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of any advantage associated with the election of Class A Status or Class B
Status may be significantly reduced (or eliminated), depending upon the ratio of
Class A Status Units to Class B Status Units outstanding during any given
period. There are no restrictions as to the mix of Class A Status Units to
Class B Status Units, and the General Partners will not attempt to establish or
maintain any particular ratio. Therefore, there can be no assurance as to the
actual impact of the special rights and priorities to which holders of the two
classes of Units are respectively entitled.
REAL ESTATE RISKS
FLUCTUATING FINANCIAL PERFORMANCE OF PREVIOUSLY SPONSORED PARTNERSHIPS. The
real properties in which partnerships previously sponsored by the General
Partners and their Affiliates have invested have experienced the same economic
problems as other real estate investments in recent years, including without
limitation, general over-building and an excess of supply in many markets, along
with increased operating costs and a general downturn in the real estate
industry. The historical fluctuations in net income of partnerships previously
sponsored by the General Partners and their Affiliates were primarily due to
tenant turnover, resulting in increased vacancies and the requirement to expend
funds for tenant refurbishments, and increases in administrative and other
operating expenses. There are no assurances that properties acquired by the
Partnership will not also experience fluctuating financial performance. (See
"PRIOR PERFORMANCE SUMMARY.")
RISKS OF REAL PROPERTY OWNERSHIP. The Partnership will be subject to risks
generally incident to the ownership of real estate, including changes in general
economic or local conditions, changes in supply of or demand for similar or
competing properties in an area, changes in interest rates and availability of
permanent mortgage funds which may render the sale of a property difficult or
unattractive, and changes in tax, real estate, environmental and zoning laws.
Periods of high interest rates and tight money supply may make the sale of
properties more difficult. For these and other reasons, no assurance of
profitable operation or realization of gains from the sales of Partnership
Properties can be given.
RISKS RELATING TO AN UNSPECIFIED PROPERTY OFFERING. The General Partners
have not identified any properties in which there is a reasonable probability
that the Partnership will invest. Investors must rely upon the ability of the
General Partners with respect to the investment and management of the
unspecified properties and will not have an opportunity to evaluate for
themselves the relevant economic, financial and other information regarding the
specific properties in which the proceeds of this Offering will be invested.
Accordingly, the risk of investing in the Units may be increased. While the
Partnership is required to obtain an independent appraisal for each property
purchased reflecting an appraised value at least equal to the purchase price
paid for such property, it should be noted that appraisals are merely estimates
of value and should not be relied upon as precise measures of true worth or
realizable value. No assurance can be given that the Partnership will be
successful in obtaining suitable investments or that, if investments are made,
the objectives of the Partnership will be achieved.
RISKS REGARDING DEVELOPMENT AND CONSTRUCTION OF UNIMPROVED PROPERTIES. The
Partnership may invest some or all of the net proceeds available for investment
in the acquisition and development of properties upon which it will develop and
construct improvements at a fixed contract price, provided that the Partnership
may not invest more than 15% of the net offering proceeds available for
Investment in Properties in properties which are not expected to produce income
within two years of their acquisition. In this regard, the Partnership will be
subject to risks relating to the builder's ability to control construction costs
or to build in conformity with plans, specifications and timetables. The
builder's failure to perform may necessitate legal action by the Partnership to
rescind its purchase or the construction contract or to compel performance.
Performance may also be affected or delayed by conditions beyond the builder's
control. Delays in completion of construction could also give lessees the right
to terminate preconstruction leases for space at a newly developed project.
Additional risks may be incurred where the Partnership makes periodic progress
payments or other advances to such builders prior to completion of construction.
However, the Partnership will make such payments only after having received a
certification from an independent architect or an independent engineer, or both,
as to the percentage of the project
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which has been completed and as to the dollar amount of the construction then
completed. Factors such as those discussed above can result in increased costs
of a project and a corresponding depletion of the Partnership's working capital
reserves or loss of the Partnership's investment. In addition, the Partnership
will be subject to normal lease-up risks relating to newly constructed projects.
Furthermore, the price to be paid for a property upon which improvements are to
be constructed or completed, which price is normally agreed upon at the time of
acquisition, of necessity must be based upon projections of rental income and
expenses or fair market value of the property upon completion of construction
which are not certain until after a number of months of actual operation.
RISKS RESULTING FROM COMPETITION. The Partnership will experience
competition for real property investments from individuals, corporations and
bank and insurance company investment accounts, as well as other real estate
investment partnerships and other entities engaged in real estate investment
activities. Competition for investments may have the effect of increasing costs
and reducing returns to Limited Partners.
POTENTIAL ADVERSE EFFECTS OF DELAYS IN INVESTMENTS. Delays which may take
place in the selection, acquisition and development of properties could
adversely affect the return to an investor as a result of corresponding delays
in the commencement of distributions to Limited Partners holding Class A Status
Units and in the availability to the holders of Class B Status Units of income
tax deductions for depreciation, amortization and cost recovery. Also, where
properties are acquired prior to the commencement of construction or during the
early stages of construction, it will typically take several months to complete
construction and rent available space.
UNCERTAINTY OF TIMING OF AND MARKET CONDITIONS ON FUTURE DISPOSITION OF
PROPERTIES. The Partnership generally will hold the various real properties in
which it invests until such time as the General Partners determine that the sale
or other disposition appears to be advantageous to achieve the Partnership's
investment objectives or until it appears that such objectives will not be met.
The General Partners intend to sell properties acquired for development after
holding such properties for a minimum period of ten years from the date the
development is completed, and intend to sell existing income-producing
properties within ten to twelve years after their acquisition, or as soon
thereafter as market conditions permit. However, the General Partners may
exercise their discretion as to whether and when to sell a property, and the
Partnership will have no obligation to sell properties at any particular time,
except in the event that Limited Partners holding a majority of the Units vote
to liquidate the Partnership in response to a formal proxy to liquidate. (See
"SUMMARY OF PARTNERSHIP AGREEMENT - Proxy to Liquidate.") It is impossible to
predict with any certainty the various market conditions affecting real estate
investments which will exist at any particular time in the future. Due to the
uncertainty of market conditions which may affect the future disposition of the
Partnership's properties, there are no assurances that the Partnership will be
able to sell its properties at a profit in the future. Accordingly, the extent
to which Limited Partners will receive cash distributions and realize potential
appreciation on real estate investments will be dependent upon fluctuating
market conditions.
ENVIRONMENTAL MATTERS. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be liable for the cost of removal or remediation of hazardous
or toxic substances on, under or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. Environmental laws also may
impose restrictions on the manner in which property may be used or businesses
may be operated, and these restrictions may require expenditures. Environmental
laws provide for sanctions in the event of noncompliance and may be enforced by
governmental agencies or, in certain circumstances, by private parties. In
connection with the acquisition and ownership of the Partnership Properties, the
Partnership may be potentially liable for such costs. The cost of defending
against claims of liability, of compliance with environmental regulatory
requirements or of remediating any contaminated property could materially
adversely affect the business, assets or results of operations of the
Partnership and, consequently, amounts available for distribution to the Limited
Partners.
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FEDERAL INCOME TAX RISKS
An investment in Units involves certain material income tax risks, the
character and extent of which are, to some extent, a function of whether an
investor elects Class A Status or Class B Status. Each prospective purchaser of
Units is urged to consult with his own tax advisor with respect to the federal
(as well as state and foreign) tax consequences of an investment in either class
of Units. The Partnership will not seek any rulings from the Internal Revenue
Service (the "IRS") regarding any of the tax issues discussed herein. Although,
as described in the "FEDERAL INCOME TAX CONSEQUENCES" section of this
Prospectus, the Partnership has obtained an opinion from Holland & Knight
("Counsel") regarding the material federal income tax issues relating to an
investment in the Partnership, investors should be aware that an opinion of
Counsel represents only Counsel's best legal judgment. The Tax Opinion has no
binding effect on the IRS or any court, is based upon representations and
assumptions referred to therein and is conditioned upon the existence of certain
facts. No assurance can be given that the conclusions reached in the Tax
Opinion, if contested, would be sustained by any court. In addition, as set
forth below, Counsel in the Tax Opinion is unable to form an opinion as to the
probable outcome of certain material tax aspects of the transactions described
in this Prospectus if challenged by the IRS, litigated and judicially decided.
Moreover, Counsel in the Tax Opinion gives no opinion or conclusion as to the
tax consequences to Limited Partners with regard to tax issues which impact at
the individual or partner level. Accordingly, potential investors are urged to
consult with and rely upon their own tax advisors with respect to tax issues
which impact at the partner or individual level. (For a more complete
discussion of the tax risks and tax consequences associated with an investment
in the Partnership, see "FEDERAL INCOME TAX CONSEQUENCES.")
RISK OF FAILURE OF COUNSEL TO FORM AN OPINION ON CERTAIN MATERIAL TAX
ISSUES. As set forth above, Counsel in the Tax Opinion is unable to form an
opinion as to the probable outcome of certain material tax aspects of the
transactions described in this Prospectus if challenged by the IRS, litigated
and judicially decided, including (i) the deductibility of and timing of
deductions for certain payments made by the Partnership, (ii) the issue of
whether the Partnership will be considered to hold any or all of its properties
primarily for sale to customers in the ordinary course of business, and (iii)
whether the Partnership will be classified as a "tax shelter" for purposes of
determining certain potential exemptions from the applicability of the accuracy-
related penalty provisions of the Code. An adverse outcome of an IRS challenge
to one or more of the foregoing material tax issues attributable to the
transactions contemplated by the Partnership could have the effect of reducing
returns to Limited Partners from an investment in the Partnership.
POTENTIAL ADVERSE INCOME TAX EFFECTS RELATING TO LIMITED PARTNERS HOLDING
CLASS A STATUS UNITS. Since items of depreciation, amortization and cost
recovery will be specially allocated to Limited Partners holding Class B Status
Units, and Partnership Net Income (defined in the Partnership Agreement to mean
generally the net income of the Partnership for federal income tax purposes,
including any income exempt from tax, but excluding all deductions for
depreciation, amortization and cost recovery and Gain on Sale) in excess of the
amount of Net Cash From Operations distributed will be allocated to the Limited
Partners on a per Unit basis, Limited Partners holding Class A Status Units may
be allocated Net Income, and thus be subject to income tax liability, without
receiving any distributions of Net Cash From Operations from the Partnership.
Furthermore, it is likely that Limited Partners holding Class A Status Units
will be allocated taxable Net Income in excess of any distributions of Net Cash
From Operations to such Limited Partners. Such adverse income tax effects to
Limited Partners holding Class A Status Units may vary significantly depending
on the ratio of Class A Status Units to Class B Status Units outstanding. As
set forth above, there are no restrictions as to the mix of Class A Status Units
to Class B Status Units, and the General Partners will not attempt to establish
or maintain any particular ratio.
RISK OF LOSS OF PARTNERSHIP TAX STATUS. Even though Counsel in the Tax
Opinion has given its opinion that it is more likely than not that the
Partnership will be classified as a partnership for federal income tax purposes
and not as an association taxable as a corporation, this opinion is based upon
certain representations made by the General Partners and other matters, and it
is possible that the IRS could challenge the conclusion that the Partnership
should be treated as a partnership for tax purposes. Any contest by the
Partnership of such an IRS determination may impose representation expenses
payable from Partnership funds otherwise available for investment or
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distribution to Limited Partners. The ability to obtain the income tax
attributes anticipated from an investment in Units of the Partnership depends
upon the classification of the Partnership as a partnership for federal income
tax purposes and not as an association taxable as a corporation. If the
Partnership were reclassified as an association taxable as a corporation, its
net income would be taxable (at rates up to 35% under current tax law), all
items of income, gain, loss, deduction and credit would be reflected only on its
tax returns and would not be passed through to the Limited Partners, and
distributions to the Limited Partners would be treated as ordinary dividend
income to the extent of earnings and profits of the Partnership. In such event,
cash distributions to Limited Partners would be reduced and the potential tax
liability of Limited Partners with respect to distributions received from the
Partnership would be increased.
RISK OF PUBLICLY TRADED PARTNERSHIP CLASSIFICATION. Even though Counsel in
the Tax Opinion has given its opinion that it is more likely than not that the
Partnership will not be classified as a "publicly traded partnership" (generally
a partnership whose interests are publicly traded or frequently transferred)
based in part upon certain representations of the General Partners and the
provisions in the Partnership Agreement attempting to comply with certain safe
harbor provisions adopted by the IRS, due to the complex nature of such safe
harbor provisions and the lack of interpretive guidance with respect to such
provisions and because any determination in this regard will necessarily be
based upon future facts not yet in existence at this time, no assurances can be
given that the IRS will not challenge this conclusion in the future or that the
Partnership will not, at some time in the future, be treated as a publicly
traded partnership. Classification of the Partnership as a "publicly traded
partnership" could result in the Partnership being taxable as a corporation and
the treatment of net income of the Partnership as portfolio income rather than
passive income.
LIMITATIONS ON DEDUCTIBILITY OF LOSSES. Provisions of the Code enacted as
part of the Tax Reform Act of 1986 limit the allowance of deductions for losses
attributable to "passive activities" (generally activities in which the taxpayer
does not materially participate). Since tax losses from the Partnership, if
any, allocated to Limited Partners holding Class B Status Units will be
characterized as passive losses, the deductibility of such losses will be
subject to these and other limitations.
RISK OF CHALLENGE TO ALLOCATIONS OF PROFIT AND LOSS. Even though Counsel in
the Tax Opinion has given its opinion that it is more likely than not that
Partnership items of income, gain, loss, deduction and credit will be allocated
among the General Partners and the Limited Partners substantially in accordance
with the allocation provisions of the Partnership Agreement, no assurance can be
given that the IRS will not successfully challenge the allocations in the
Partnership Agreement and reallocate items of income, gain, loss, deduction and
credit in a manner which reduces the anticipated tax benefits to Limited
Partners electing Class B Status or increases the income allocated to Limited
Partners electing Class A Status.
RISK OF POTENTIAL DEALER STATUS. In the event the Partnership were deemed
for tax purposes to be a "dealer" (one who holds property primarily for sale to
customers in the ordinary course of business) with respect to one or more
Partnership Properties, any gain recognized upon a sale of such real property
would be taxable as ordinary income and would constitute UBTI to Limited
Partners who are tax-exempt entities. Because the issue is dependent upon facts
which will not be known until the time a property is sold or held for sale,
Counsel in the Tax Opinion is unable to render an opinion as to whether the
Partnership will be considered to hold any or all of its properties primarily
for sale to customers in the ordinary course of business.
RISKS REGARDING DEDUCTIBILITY OF FEES AND EXPENSES PAID BY THE PARTNERSHIP.
Disallowance by the IRS of any material portion of the fees and expenses payable
by the Partnership would result in an increase in the taxable income of the
Partnership allocable to its Partners with no associated increase in Net Cash
From Operations. Since the appropriate classification of fees and expenses paid
by the Partnership into proper categories and the determination of whether
certain fees and expenses are ordinary and necessary and reasonable in amount
depends upon facts relating to and existing at the times the services are to be
rendered to the Partnership, Counsel in the Tax Opinion is unable to render an
opinion as to the probable outcome if the IRS were to challenge the
deductibility or timing of deduction or amortization of those fees and expenses.
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RISK OF TAXABLE INCOME WITHOUT CASH DISTRIBUTIONS. A partner in a
partnership is required to report his allocable share of the partnership's
taxable income on his personal income tax return regardless of whether or not he
has received any cash distributions from the partnership. For example, a
Limited Partner electing Class A Status who participates in the Distribution
Reinvestment Plan will be allocated his share of the Partnership's Net Income
and Gain on Sale (including Net Income and Gain on Sale allocable to Units
acquired pursuant to the Distribution Reinvestment Plan) even though such
Partner would receive no cash distributions from the Partnership. In addition,
a Limited Partner electing Class A Status who purchases Units pursuant to the
Deferred Commission Option will be allocated his share of the Partnership's Net
Income with respect to such Units even though Net Cash From Operations otherwise
distributable to such Limited Partner will instead be paid to third parties to
satisfy the deferred commission obligations with respect to such Units for the
initial seven years following such Limited Partner's investment in the
Partnership.
RISKS REGARDING CHARACTERIZATION OF SALE-LEASEBACK TRANSACTIONS. In the
event that the Partnership enters into any sale-leaseback transaction which is
characterized as a financing, the Partnership would likely lose depreciation and
cost recovery deductions with respect to the property purchased and income
generated from such property would be deemed portfolio income which could not be
offset by passive losses. Although the General Partners will use their best
efforts to structure any such sale-leaseback transaction such that the lease
will be characterized as a "true lease" and the Partnership will be treated as
the owner of the property in question for federal income tax purposes, the
Partnership will not seek an advance ruling from the IRS or obtain an opinion of
counsel that it will be treated as the owner of any leased properties for
federal income tax purposes. Accordingly, no assurance can be given that any
such transaction would not be recharacterized as a financing transaction for
federal income tax purposes, which would have the result of depriving Limited
Partners holding Class B Status Units of potential deductions for depreciation
and cost recovery with respect to the property in question.
RISK OF APPLICABILITY OF ANTI-ABUSE RULES. In December 1994, the IRS
adopted Regulations setting forth "anti-abuse" rules under Code provisions
applicable to partnerships which rules authorize the Commissioner of Internal
Revenue to recast transactions involving the use of partnerships to either
reflect the underlying economic arrangement or to prevent the use of a
partnership to circumvent the intended purpose of a provision of the Code.
These rules generally apply to all transactions relating to a partnership
occurring on and after May 12, 1994, and thus would be applicable to the
Partnership's activities. In this regard, the General Partners are unaware of
any facts or circumstances which would cause the IRS to exercise its authority
to recast any transaction entered into by the Partnership; however, the
applicability of such rules to the Partnership's activities is very uncertain,
and no assurance can be given that the Commissioner would not, in the future,
attempt to recast or restructure certain of the Partnership's activities or
transactions.
RISK OF APPLICABILITY OF ALTERNATIVE MINIMUM TAX. The application of the
alternative minimum tax to a Limited Partner could reduce certain tax benefits
associated with the purchase of Units in the Partnership. The effect of the
alternative minimum tax upon a Limited Partner depends upon his particular
overall tax situation, and each Limited Partner should consult with and must
rely upon his own tax advisor with respect to the possible application of the
alternative minimum tax provisions of the Code.
AUDIT RISK, INTEREST AND PENALTIES. The federal income tax returns of the
Partnership may be audited by the IRS. In this regard, the Commissioner of
Internal Revenue has recently announced that increased emphasis is being placed
on partnership audit activities. Any audit of the Partnership could also result
in an audit of a Limited Partner's own tax return causing adjustments of items
unrelated to an investment in the Partnership, as well as an adjustment to
various Partnership items. In the event of any such adjustments, a Limited
Partner might incur attorneys' fees, court costs and other expenses contesting
protested deficiencies asserted by the IRS, in addition to interest on the
underpayment and certain penalties from the date the tax originally was due. In
addition, in the event of an audit, the tax treatment of all Partnership items
would be determined at the Partnership level in a single proceeding rather than
in separate proceedings with each Partner, and the General Partners are
primarily responsible for contesting federal income tax adjustments proposed by
the IRS. In this connection, the General Partners may
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extend the statute of limitations as to all Partners and, in certain
circumstances, may bind the Limited Partners to a settlement with the IRS.
RISKS REGARDING STATE AND LOCAL TAXATION AND REQUIREMENTS TO WITHHOLD STATE
TAXES. The state in which a Limited Partner is a resident may impose an income
tax upon his share of taxable income of the Partnership. Further, states in
which the Partnership will own Partnership Properties may impose income taxes
upon a Limited Partner's share of the Partnership's taxable income allocable to
any Partnership Property located in that state. In addition, many states have
implemented or are implementing programs to require partnerships to withhold and
pay state income taxes owed by non-resident partners relating to income-
producing properties located in their states, and the Partnership may be
required to withhold state taxes from cash distributions otherwise payable to
Limited Partners. In the event the Partnership is required to withhold state
taxes from cash distributions otherwise payable to Limited Partners, the amount
of the Net Cash From Operations otherwise payable to such Limited Partners may
be reduced. In addition, such collection and filing requirements at the state
level may result in increases in the Partnership's administrative expenses which
would have the effect of reducing cash available for distribution to the Limited
Partners. Prospective Limited Partners are urged to consult with their own tax
advisors with respect to the impact of applicable state and local taxes and
state tax withholding requirements on an investment in the Partnership.
RISK OF LEGISLATIVE OR REGULATORY ACTION. In recent years, numerous
legislative, judicial and administrative changes have been made in the
provisions of the federal income tax laws applicable to investments similar to
an investment in Units in the Partnership. Such changes are likely to continue
to occur in the future, and no assurances can be given that any such changes
will not adversely affect the taxation of a Limited Partner. Any such changes
could have an adverse effect on an investment in Units in the Partnership or on
the market value or the resale potential of Partnership Properties. Each
potential investor is urged to consult with his own tax advisor with respect to
the status of legislative, regulatory or administrative developments and
proposals and their potential effect on an investment in the Units. It should
also be noted that the Tax Opinion assumes that no legislation will be enacted
which will be applicable to an investment in Units in the Partnership.
RISKS RELATING TO RETIREMENT PLAN INVESTORS
In considering an investment in Units of a portion of the assets of a
Retirement Plan, the plan fiduciary should consider applicable provisions of the
Code and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including in particular the following factors: (i) whether the
investment is made in accordance with the plan documents and instruments
governing such plan, including the plan's investment policy; (ii) whether the
investment satisfies the prudence and diversification requirements of Sections
404(a)(1)(B) and 404(a)(1)(C) of ERISA; (iii) whether the investment will result
in sufficient liquidity for the plan; (iv) the need to value the assets of the
plan annually; and (v) whether the investment would constitute a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code. For a more
complete discussion of the foregoing issues and other risks associated with an
investment in the Units by Retirement Plans, see "INVESTMENT BY TAX-EXEMPT
ENTITIES AND ERISA CONSIDERATIONS."
PLAN ASSETS RISK. While the General Partners do not intend that the assets
of the Partnership will be deemed to be assets of the Qualified Plans investing
as Limited Partners ("Plan Assets") and have used their best efforts to
structure the Partnership so that the assets of the Partnership will not be
deemed to be Plan Assets, in the event that the assets of the Partnership were
deemed to be Plan Assets, the General Partners would be considered to be plan
fiduciaries and certain contemplated transactions described herein may be deemed
to be "prohibited transactions" subject to excise taxation under the Code.
Additionally, if the assets of the Partnership were deemed to be Plan Assets,
the standards of prudence and other provisions of ERISA would extend (as to all
plan fiduciaries) to the General Partners with respect to investments made by
the Partnership. The Partnership has not requested an opinion of counsel
regarding whether or not the assets of the Partnership would constitute Plan
Assets under ERISA nor has it obtained or sought any rulings from the U.S.
Department of Labor regarding classification of the Partnership's assets as Plan
Assets. However, existing U.S. Department of Labor Regulations defining Plan
Assets for purposes of ERISA contain exemptions from the treatment of assets of
a limited partnership as Plan Assets.
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While there can be no assurance that the Agreement and the Offering have been
structured so that the exemptions in such regulations would apply to the
Partnership, the General Partners intend to use their best efforts to take such
actions as may be required to insure that the assets of the Partnership will not
be deemed to be Plan Assets. Accordingly, an investment by a Qualified Plan in
Units should not be deemed an investment in the assets of the Partnership, but
no representations or warranties of any kind can be made regarding the
consequences of an investment in Units by Qualified Plans in this regard. Plan
fiduciaries are urged to consult with and rely upon their own advisors with
respect to ERISA issues which, if decided adversely to the Partnership, could
result in prohibited transactions, the imposition of excise taxation and the
imposition of co-fiduciary liability under the provisions of ERISA in the event
of actions undertaken by the Partnership which are deemed to be non-prudent
investments or prohibited transactions. In the event the Partnership's assets
constitute Plan Assets or certain transactions of the Partnership constitute
"prohibited transactions" under ERISA or the Code and no exemption for such
transactions is obtainable by the Partnership, the General Partners have the
right, but not the obligation (upon notice to all Limited Partners, but without
the consent of any Limited Partner), to (i) terminate the Offering of Units,
(ii) to compel a termination and dissolution of the Partnership or (iii)
restructure the Partnership's activities to the extent necessary to comply with
any exception in the Department of Labor Regulations or any prohibited
transaction exemption granted by the Department of Labor or any condition which
the Department of Labor might impose as a condition to granting a prohibited
transaction exemption. (See "INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA
CONSIDERATIONS.")
RISKS RELATING TO MINIMUM DISTRIBUTION REQUIREMENTS. Any potential investor
who intends to purchase Units in his Individual Retirement Account ("IRA") and
any trustee of an IRA or other fiduciary of a Retirement Plan considering an
investment in Units should consider particularly the limited liquidity of an
investment in the Units as it relates to applicable minimum distribution
requirements under the Code. If the Units are still held and the Partnership
Properties have not yet been sold at such time as mandatory distributions are
required to commence to an IRA beneficiary or Qualified Plan participant,
applicable provisions of the Code and Regulations will likely require that a
distribution in kind of the Units be made to the IRA beneficiary or Qualified
Plan participant. Any such distribution in kind of Units must be included in
the taxable income of the IRA beneficiary or Qualified Plan participant for the
year in which the Units are received at the fair market value of the Units
without any corresponding cash distributions with which to pay the income tax
liability arising out of any such distribution.
UNRELATED BUSINESS TAXABLE INCOME ("UBTI"). The Partnership will under no
circumstances incur indebtedness to acquire Partnership Properties.
Accordingly, it is not intended or anticipated that the Partnership will
generate income derived from an unrelated trade or business, which is generally
referred to as "UBTI." Notwithstanding the foregoing, the General Partners have
limited authority to borrow funds deemed necessary to finance improvements of
its properties to protect capital previously invested in a property, to protect
the value of the Partnership's investment in a property, or to make a property
more attractive for sale or lease; however, the General Partners have
represented that they will not cause the Partnership to incur indebtedness
unless the Partnership obtains an opinion of counsel that the proposed
indebtedness more likely than not will not cause the income of the Partnership
to be characterized as UBTI. It should be noted, however, that an opinion of
counsel has no binding effect on the IRS or any court and, accordingly, although
the General Partners will use their best efforts to avoid characterization of
the Partnership's income as UBTI, some risk remains that the Partnership may
generate UBTI in connection with any such financing (or in the event that the
Partnership were deemed to be a "dealer" in real property (one who holds real
estate primarily for sale to customers in the ordinary course of business)).
(See "FEDERAL INCOME TAX CONSEQUENCES - Investment by Qualified Plans and Other
Tax-Exempt Entities.")
WHO SHOULD INVEST - SUITABILITY STANDARDS
Investment in the Partnership involves some degree of risk. It may be
difficult to resell Units due to the restrictions on transferability contained
in the Partnership Agreement and because no public market for the Units
currently exists or is likely to develop. Investors who are able to sell their
Units at all will likely be able to sell
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such Units only at a discount. (See "SUMMARY OF THE PARTNERSHIP AGREEMENT -
Limited Transferability of Units.") In addition, it is contemplated that
properties to be purchased by the Partnership will be held for at least ten
years. Accordingly, the Units are suitable only for persons who have adequate
financial means and desire a relatively long-term investment with respect to
which they do not anticipate any need for immediate liquidity. Further, because
the Class A Status Units and the Class B Status Units have different rights and
priorities with respect to tax allocations and cash distributions from
operations and on sale of the Partnership Properties, prospective investors
should consider carefully the information set forth under "DESCRIPTION OF THE
UNITS" in determining whether to elect Class A Status or Class B Status, or some
combination of each, with respect to the Units to be purchased.
If the investor is an individual (including an individual beneficiary of a
purchasing IRA), or if the investor is a fiduciary (such as a trustee of a trust
or corporate pension or profit sharing plan, or other tax-exempt organization,
or a custodian under a Uniform Gifts to Minors Act), such individual or
fiduciary, as the case may be, must represent that he meets certain
requirements, as set forth in the Subscription Agreement attached as Exhibit "C"
to this Prospectus, including the following:
(i) that such individual (or, in the case of a fiduciary, that the fiduciary
account or the donor who directly or indirectly supplies the funds to purchase
the Units) has a minimum annual gross income of $45,000 and a net worth
(excluding home, furnishings and automobiles) of not less than $45,000; or
(ii) that such individual (or, in the case of a fiduciary, that the
fiduciary account or the donor who directly or indirectly supplies the funds to
purchase the Units) has a net worth (excluding home, furnishings and
automobiles) of not less than $150,000.
Transferees will also be required to comply with applicable standards,
except for intra-family transfers and transfers made by gift, inheritance or
family dissolution. In the case of purchases of Units by fiduciary accounts in
California, the suitability standards must be met by the beneficiary of the
account or, in those instances where the fiduciary directly or indirectly
supplies the funds for the purchase of Units, by such fiduciary.
The minimum purchase is 100 Units ($1,000) (except in certain states as
described below). No transfers will be permitted of less than the minimum
required purchase, nor (except in very limited circumstances) may an investor
transfer, fractionalize or subdivide such Units so as to retain less than such
minimum number thereof. For purposes of satisfying the minimum investment
requirement for Retirement Plans, unless otherwise prohibited by state law, a
husband and wife may jointly contribute funds from their separate Individual
Retirement Accounts ("IRAs"), provided that each such contribution is made in
increments of at least $25. It should be noted, however, that an investment in
the Partnership will not, in itself, create a Retirement Plan for any investor
and that, in order to create a Retirement Plan, an investor must comply with all
applicable provisions of the Code. Except in Maine, Minnesota and Washington,
investors who have satisfied the minimum purchase requirements and have
purchased units in Prior Wells Public Programs may purchase less than the
minimum number of Units set forth above, but in no event less than 2.5 Units
($25). After an investor has purchased the minimum investment, any additional
investments must be made in increments of at least 2.5 Units ($25), except for
(i) those made by investors in Maine, who must still meet the minimum investment
requirement for Maine residents of $1,000 for IRAs and $2,500 for non-IRAs, and
(ii) purchases of Units pursuant to the Distribution Reinvestment Plan, which
may be in lesser amounts.
Various states have established suitability standards for individual
investors and subsequent transferees different from those set by the
Partnership. Those requirements are set forth below.
ARIZONA - Investors shall have either (i) a net worth (excluding home,
furnishings and automobiles) of at least $225,000, or (ii) a net worth
(excluding home, furnishings and automobiles) of at least $60,000 and current
annual gross income of at least $60,000.
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CALIFORNIA - California requires the following legend to be placed on each
certificate evidencing the Units:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
IOWA - A husband and wife may not jointly contribute funds from their
separate IRAs in satisfaction of the minimum investment requirement. IRAs
investing in the Partnership must purchase a minimum of 250 Units ($2,500).
MAINE - Investors shall have either (i) current annual gross income of at
least $50,000 and a net worth (excluding home, furnishings and automobiles) of
at least $50,000, or (ii) a net worth (excluding home, furnishings and
automobiles) of at least $200,000.
A husband and wife may not jointly contribute funds from separate IRAs in
satisfaction of the minimum investment requirement. Investors must satisfy the
minimum purchase requirements whether or not they were also investors in Prior
Wells Public Programs.
Investors other than IRAs must purchase a minimum of 250 Units ($2,500).
MASSACHUSETTS - Investors shall have either (i) a net worth (excluding home,
furnishings and automobiles) of at least $225,000, or (ii) a net worth
(excluding home, furnishings and automobiles) of at least $60,000 and current
annual gross income of at least $60,000.
MICHIGAN - An investor may not invest in excess of 10% of his, her or its
net worth (excluding home, furnishings and automobiles).
MINNESOTA - A husband and wife may not jointly contribute funds from their
separate IRAs in satisfaction of the minimum investment requirement. Investors
must satisfy the minimum purchase requirements whether or not they were also
investors in Prior Wells Public Programs.
Investors other than IRAs and Qualified Plans must purchase a minimum of 250
Units ($2,500). IRAs and Qualified Plans must purchase a minimum of 200 Units
($2,000).
Investors must satisfy the minimum purchase requirements whether or not they
were also investors in Prior Wells Public Programs.
MISSISSIPPI - Investors shall have either (i) current annual gross income of
at least $60,000 and a net worth (excluding home, furnishings and automobiles)
of at least $60,000, or (ii) a net worth (excluding home, furnishings and
automobiles) of at least $225,000.
MISSOURI - Investors shall have either (i) current annual gross income of at
least $60,000 and a net worth (excluding home, furnishings and automobiles) of
at least $60,000, or (ii) a net worth (excluding home, furnishings and
automobiles) of at least $225,000. A husband and wife may not jointly
contribute funds from their separate IRAs in satisfaction of the minimum
investment requirement.
NEBRASKA - Investors other than IRAs, Keogh and Qualified Plans must
purchase a minimum of 500 Units ($5,000). Investments in additional Units
pursuant to the Distribution Reinvestment Plan must be made in minimum amounts
of $50 in any one year and must be made through a Nebraska registered broker-
dealer.
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Investors who require assistance in completing the Subscription Agreement
should not contact Wells Investment Securities, Inc., as directed on page C-6 of
the Subscription Agreement, but should contact a Nebraska registered broker-
dealer.
NEW HAMPSHIRE - Investors shall have either (i) a net worth (excluding home,
furnishings and automobiles) of at least $250,000, or (ii) a net worth
(excluding home, furnishings and automobiles) of at least $125,000 and current
annual gross income of at least $50,000.
NEW YORK - No subscription proceeds from New York investors will be released
from the escrow account until $2,500,000 has been raised in the Offering.
Investors shall have either (i) a net worth (excluding home, furnishings and
automobiles) of at least $50,000 and an annual gross income of at least $50,000,
or (ii) irrespective of annual gross income, a net worth (excluding home,
furnishings and automobiles) of at least $150,000.
The proceeds of this Offering will be received and held in trust for the
benefit of purchasers of Units and will be retained in trust after closing to be
used only for the purposes set forth in the "ESTIMATED USE OF PROCEEDS" section.
Investors other than IRAs must purchase a minimum of 250 Units ($2,500).
NORTH CAROLINA - Investors other than IRAs, Keogh and Qualified Plans must
purchase a minimum of 250 Units ($2,500).
OHIO - Investors other than IRAs must purchase a minimum of 250 Units
($2,500).
OKLAHOMA - A husband and wife may not jointly contribute funds from their
separate IRAs in satisfaction of the minimum investment requirement.
PENNSYLVANIA - Each Pennsylvania investor must meet the added suitability
requirement that such investor has a net worth of ten times the amount of his,
her or its investment in the Partnership. In addition, subscriptions for Units
from Pennsylvania investors will be held in escrow until the Partnership has
raised $2,500,000 from all sources including Pennsylvania investors, and
subscriptions held in such escrow more than 120 days will be returned to
investors unless an investor at the end of each 120 day period chooses to
reinvest.
SOUTH CAROLINA - Investors shall have either (i) a net worth (excluding
home, furnishings and automobiles) of at least $150,000, or (ii) state and
federal income subject to the maximum rate of income tax.
Investors other than IRAs, Keogh and Qualified Plans must purchase a minimum
of 250 Units ($2,500).
SOUTH DAKOTA - Investors shall have either (i) current annual gross income
of at least $60,000 and a net worth (excluding home, furnishings and
automobiles) of at least $60,000, or (ii) a net worth (excluding home,
furnishings and automobiles) of at least $225,000.
TENNESSEE - Investors shall have either (i) current annual gross income of
at least $60,000 and a net worth (excluding home, furnishings and automobiles)
of at least $60,000, or (ii) a net worth (excluding home, furnishings and
automobiles) of at least $225,000.
TEXAS - Investments in additional Units pursuant to the Distribution
Reinvestment Plan must be made through a Texas registered broker-dealer.
WASHINGTON - Investors must satisfy the minimum purchase requirements
whether or not they were also investors in Prior Wells Public Programs.
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WISCONSIN - A husband and wife may not jointly contribute funds from their
separate IRAs in satisfaction of the minimum investment requirement.
NET WORTH IN ALL CASES EXCLUDES HOME, FURNISHINGS AND AUTOMOBILES.
By executing the Subscription Agreement and Subscription Agreement Signature
Page (collectively, the "Subscription Agreement"), which is attached as Exhibit
"C" to this Prospectus, an investor represents to the General Partners that he
meets the foregoing applicable suitability standards for the state in which he
resides. The General Partners will not accept subscriptions from any person or
entity which does not represent that it meets such standards. The General
Partners have the unconditional right to accept or reject any subscription in
whole or in part.
The General Partners and each person selling Units on behalf of the
Partnership are required to (i) make reasonable efforts to assure that each
person purchasing Units in the Partnership is suitable in light of such person's
age, educational level, knowledge of investments, financial means and other
pertinent factors and (ii) maintain records for at least six years of the
information used to determine that an investment in Units is suitable and
appropriate for each investor. The agreements with the selling broker-dealers
require such broker-dealers to (i) make inquiries diligently as required by law
of all prospective investors in order to ascertain whether a purchase of the
Units is suitable for the investor, and (ii) transmit promptly to the
Partnership all fully completed and duly executed Subscription Agreements.
DESCRIPTION OF THE UNITS
ELECTION OF CLASS A STATUS OR CLASS B STATUS
Upon subscription for Units being offered hereby, investors must elect
whether such Units will be initially treated as Class A Status Units or Class B
Status Units. Regardless of which class status is selected for the Unit, each
Unit shall have a purchase price of $10.00 per Unit, less any discounts which
are specifically authorized by the "PLAN OF DISTRIBUTION" section of this
Prospectus. Class A Status Units and Class B Status Units entitle the holders
thereof to different rights and priorities as to cash distributions and
liquidating distributions and as to the allocation of deductions for
depreciation, amortization, cost recovery and Net Losses. In all other
respects, the Units have the same rights and privileges. Each Unit, when
issued, will be fully paid and nonassessable.
Limited Partners' elections of Class A Status or Class B Status made in the
initial Subscription Agreements shall be effective immediately upon acceptance.
Thereafter, unless prohibited by applicable state law or otherwise limited as
set forth below, Limited Partners have the right to change their prior election
to have some or all of their Units treated as Class A Status Units or Class B
Status Units one time during each quarterly accounting period by mailing or
delivering written notice to the Partnership (executed by the trustee or
authorized agent in the case of Retirement Plans). Any such changed election
shall be effective commencing as of the first day of the next succeeding
accounting period following the receipt by the Partnership of written notice of
such election. Any election to have Units treated as Class A Status Units or
Class B Status Units shall be binding upon the Limited Partner's successors and
assigns. Units acquired and held by the General Partners or their Affiliates
shall at all times be treated as Class A Status Units, and neither the General
Partners nor their Affiliates shall have the right to make an election to have
Units beneficially owned by them treated as Class B Status Units.
Notwithstanding the foregoing, any Limited Partner purchasing Units pursuant to
the Deferred Commission Option must elect upon subscription to have a sufficient
number of Units treated as Class A Status Units, in the discretion of the
General Partners, to generate at least the amount of Net Cash From Operations
distributable with respect to such Units needed to satisfy the deferred
commission obligations each year with respect to the total number of Units
purchased by such Limited Partner. In addition, Limited Partners electing the
Deferred Commission Option will have limited rights to elect to have their Class
A Status Units treated as Class B Status Units during the initial seven years
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following their investment in the Partnership since Limited Partners owning
Units purchased pursuant to the Deferred Commission Option must at all times own
a sufficient number of Class A Status Units, in the discretion of the General
Partners, to generate enough Net Cash From Operations to allow the Partnership
to satisfy the deferred commission obligations with respect to the total number
of Units purchased pursuant to the Deferred Commission Option. (See "PLAN OF
DISTRIBUTION.")
As set forth below, holders of Class A Status Units will be entitled to
receive annual distributions of Net Cash From Operations generated by the
Partnership following the payment of certain fees and expenses to the General
Partners and their Affiliates. Because deductions for depreciation,
amortization, cost recovery and Net Losses will initially be allocated to
holders of Class B Status Units, Class A Status Units will be generally more
suitable for investors which are Retirement Plans, including IRAs, or are
otherwise not income tax sensitive and which are primarily interested in current
distributions of Net Cash From Operations and the potential appreciation in
value of the Partnership's real estate investments.
Although holders of Class B Status Units will not be allocated any Net Cash
From Operations, they will be allocated a disproportionately larger share of the
Partnership's deductions for depreciation, amortization, cost recovery and Net
Losses, and will be allocated a higher percentage return on the potential
appreciation of the Partnership's real estate investments. Accordingly, Class B
Status Units will be generally more suitable for investors who are not seeking
current cash flow distributions but have a desire to participate to a greater
extent in "passive" losses expected to be generated by the Partnership's
operations or have a desire to participate to a greater extent in the potential
appreciation of the Partnership's real estate investments. (See "FEDERAL INCOME
TAX CONSEQUENCES - Passive Loss Limitations.") Each prospective investor should
carefully consider the following information in the context of his own
particular financial situation in determining whether to elect Class A Status or
Class B Status, or some combination of each.
SUMMARY OF DISTRIBUTIONS
Following is a summary of the Partnership's allocation of current cash flow
distributions and the net proceeds from the sale or exchange of Partnership
Properties:
CASH DISTRIBUTIONS. Distributions of Net Cash From Operations (defined
generally as the Partnership's cash flow from operations less any reserves and
after payment of the 6% property management and leasing fees to Affiliates of
the General Partners) will be distributed as follows:
1. First, to Limited Partners holding Class A Status Units until they have
received distributions in each year equal to 10% of their Net Capital
Contributions (defined in the Partnership Agreement to mean generally Capital
Contributions less prior distributions of Sale Proceeds);
2. Next, to the extent any Net Cash From Operations remains available for
distribution, to the General Partners until they receive an amount equal to one-
tenth of the total amount of Net Cash From Operations distributed in such year;
and
3. Although there can be no assurance that Net Cash From Operations will be
sufficient to make additional distributions, any remaining Net Cash From
Operations will be distributed 90% to Limited Partners holding Class A Status
Units and 10% to the General Partners.
Notwithstanding the foregoing, Limited Partners holding Class A Status Units
who have purchased Units pursuant to the Deferred Commission Option shall for a
period of seven years after termination of the Offering have deducted and
withheld from distributions of Net Cash From Operations otherwise payable to
such Limited Partners an annual amount equal to $0.10 per Unit purchased
pursuant to the Deferred Commission Option, which amounts
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shall instead be used by the Partnership to pay deferred commissions due with
respect to such Units. (See "PLAN OF DISTRIBUTION.")
No Net Cash From Operations will be distributed with respect to Class B
Status Units. (See "SUMMARY OF PARTNERSHIP AGREEMENT," "DISTRIBUTIONS AND
ALLOCATIONS" and "RISK FACTORS.")
SALE PROCEEDS. Sale Proceeds (generally the net proceeds from any sale or
exchange of Partnership Properties) will be distributed as follows:
1. First, to Limited Partners holding Units which at any time have been
treated as Class B Status Units in an amount necessary to make up for the
priority distributions of Net Cash From Operations previously paid to Limited
Partners holding Units which at all times have been treated as Class A Status
Units;
2. Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received an amount equal to his Net Capital Contribution (defined in
the Partnership Agreement to mean generally Capital Contributions less prior
distributions of Sale Proceeds);
3. Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received aggregate distributions equal to a cumulative
(noncompounded) 10% per annum return on his Net Capital Contribution;
4. Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received aggregate distributions equal to his Preferential Limited
Partner Return (defined as the sum of (a) a 10% per annum cumulative
(noncompounded) return on his Net Capital Contribution for all periods during
which such Unit was treated as a Class A Status Unit and (b) a 15% per annum
cumulative (noncompounded) return on his Net Capital Contribution for all
periods during which such Unit was treated as a Class B Status Unit);
5. Then, to the General Partners until they have received an amount equal
to their Capital Contributions;
6. Then, if and only in the event that Limited Partners have received any
Excess Limited Partner Distributions (defined as distributions to Limited
Partners over the life of their investment in excess of their Net Capital
Contribution plus their Preferential Limited Partner Return), to the General
Partners until they have received an amount equal to 20% of the sum of any such
Excess Limited Partner Distributions plus the amount distributed to the General
Partners pursuant to this provision; and
7. Then, to the extent any Sale Proceeds remain, 80% to the Limited
Partners on a per Unit basis and 20% to the General Partners. However, in no
event shall the General Partners receive in the aggregate in excess of the NASAA
Guidelines Resale Proceeds Maximum Amount (defined as an amount equal to 15% of
Sale Proceeds remaining after payments to Limited Partners from such proceeds of
amounts equal to the sum of their Net Capital Contributions plus a 6% per annum
return on their Net Capital Contributions calculated on a cumulative,
noncompounded basis). It is the intent of the foregoing limitation that the
General Partners receive no more of the net proceeds from the sale or financing
of Partnership Properties than is allowed pursuant to applicable provisions of
the NASAA Guidelines. Any such excess amounts otherwise distributable to the
General Partners would instead be reallocated and distributed to the Limited
Partners on a per Unit basis.
Notwithstanding the foregoing, the amount of Sale Proceeds distributable to
the Limited Partners holding Class B Status Units may be adjusted in favor of
Limited Partners holding Class A Status Units in the event that the Partnership
sells any Partnership Property at a sale price which is less than the purchase
price originally paid for such property. (See "SUMMARY OF PARTNERSHIP
AGREEMENT," "DISTRIBUTIONS AND
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ALLOCATIONS," "RISK FACTORS" and "FEDERAL INCOME TAX CONSEQUENCES - Allocations
of Profit and Loss.")
NO ASSURANCE CAN BE GIVEN AS TO THE TIMING OR AMOUNT OF ANY CASH
DISTRIBUTIONS TO THE LIMITED PARTNERS. (SEE "RISK FACTORS" and "DISTRIBUTIONS
AND ALLOCATIONS.")
SUMMARY OF ALLOCATIONS
Following is a summary of the allocation of the Partnership's taxable
income, loss and gain on sale of Partnership Properties:
NET INCOME. The Partnership's Net Income (defined generally as the net
income of the Partnership for federal income tax purposes, including any income
exempt from tax, but excluding all deductions for depreciation, amortization and
cost recovery and any net gain on the sale of assets) will be allocated each
year in the same proportions that Net Cash From Operations is distributed or
deemed distributed to the Partners. To the extent the Partnership's Net Income
in any year exceeds Net Cash From Operations, such excess Net Income will be
allocated 99% to Limited Partners holding Class A Status Units during such year
and 1% to the General Partners. (See "DISTRIBUTIONS AND ALLOCATIONS" and
"FEDERAL INCOME TAX CONSEQUENCES - Allocations of Profit and Loss.")
NET LOSS, DEPRECIATION, AMORTIZATION AND COST RECOVERY DEDUCTIONS.
Deductions for depreciation, amortization and cost recovery and the
Partnership's Net Loss (defined generally as the net loss of the Partnership for
federal income tax purposes, but excluding all deductions for depreciation,
amortization and cost recovery) for each fiscal year will be allocated as
follows:
1. 99% to Limited Partners holding Class B Status Units during such year
and 1% to the General Partners until their Capital Accounts (defined generally
as the sum of Capital Contributions and income allocated to a Partner less the
sum of distributions paid and losses allocated to a Partner) are reduced to
zero;
2. Then, to any Partner having a positive balance in his Capital Account in
an amount not to exceed such positive balance; and
3. Thereafter, all such deductions will be allocated to the General
Partners, who, at that time, would be the only Partners having any economic risk
of loss. (See "DISTRIBUTIONS AND ALLOCATIONS" and "FEDERAL INCOME TAX
CONSEQUENCES - Allocations of Profit and Loss.")
GAIN ON SALE. Gain on Sale (defined generally as the taxable income or gain
from a sale or exchange of Partnership Properties) will be allocated, first,
pursuant to the qualified income offset provision contained in the Partnership
Agreement, if applicable, then, to Partners having negative capital accounts, if
any, until negative capital accounts have been restored to zero, and,
thereafter, generally in accordance with the priorities for the distribution of
Sale Proceeds, as described above. (See "DISTRIBUTIONS AND ALLOCATIONS.")
CLASS A STATUS UNITS
As set forth above, Class A Status Limited Partners are entitled to an
annual 10% noncumulative distribution preference as to distributions of Net Cash
From Operations. However, holders of Class A Status Units will, except in
limited circumstances, be allocated none of the Partnership's Net Loss,
depreciation, amortization and cost recovery deductions for tax purposes. Thus,
tax benefits resulting from deductions for Net Loss, depreciation, amortization
and cost recovery will not be available to holders of Class A Status Units
during the initial period of Partnership operations.
26
<PAGE>
Upon a distribution of Sale Proceeds, Class B Status Limited Partners are
first entitled to a distribution of the amount necessary to make up for the
distributions of Net Cash From Operations previously paid to the holders of
Class A Status Units. Thereafter, both Class A Status Limited Partners and
Class B Status Limited Partners are entitled to an amount equal to their Net
Capital Contributions. Thereafter, Class A Status Limited Partners are entitled
to a 10% cumulative (noncompounded) return on their Net Capital Contributions
(as opposed to the 15% cumulative return on Net Capital Contributions payable to
Class B Status Limited Partners). (See "DISTRIBUTIONS AND ALLOCATIONS.")
CLASS B STATUS UNITS
Class B Status Limited Partners will receive a disproportionately larger
share of Partnership income tax deductions because all of the Limited Partners'
share of Partnership Net Loss, depreciation, amortization and cost recovery
deductions will be allocated to holders of Class B Status Units until their
Capital Account balances have been reduced to zero. Since the allocations of
Net Loss, depreciation, amortization and cost recovery deductions to holders of
Class B Status Units will reduce their Capital Account balances, and since
liquidation proceeds of the Partnership will be distributed among the Partners
in accordance with their Capital Account balances, holders of Class B Status
Units bear substantially greater risk of loss of their Capital Contributions
than do holders of Class A Status Units.
Class B Status Limited Partners will not receive any Net Cash From
Operations. On distributions of Sale Proceeds, since the preferential
allocation of Net Cash From Operations to holders of Class A Status Units is
intended to be a timing preference only, holders of Class B Status Units are
entitled to a preference on the distribution of Sale Proceeds to the extent
necessary to make up for the distributions of Net Cash From Operations
previously paid to the holders of Class A Status Units. Following such
distributions to holders of Class B Status Units, both Class A Status Limited
Partners and Class B Status Limited Partners are entitled to a return of their
Net Capital Contributions. Then, Class B Status Limited Partners are entitled
to a 15% cumulative (noncompounded) return on their Net Capital Contributions
(as opposed to the 10% cumulative return on Net Capital Contributions payable to
Class A Status Limited Partners). (See "DISTRIBUTIONS AND ALLOCATIONS.")
EFFECT OF CHANGE OF STATUS OF UNITS
As described above, Limited Partners shall have the right to change their
prior election to have some or all of their Units treated as Class A Status
Units or Class B Status Units one time during each accounting period, unless
prohibited by applicable state law or limited, as set forth above, by election
of the Deferred Commission Option. Any such changed election shall be effective
commencing as of the first day of the next succeeding accounting period
following receipt by the Partnership of written notice of such election. A
Limited Partner who changes his Units from Class A Status to Class B Status
will, upon the effective date of such change and until the Limited Partner
changes back to Class A Status, be entitled to a disproportionately larger share
of the Partnership's deductions for depreciation, amortization, cost recovery
and Net Losses, and no longer be entitled to receive annual distributions of Net
Cash From Operations during such period. A Limited Partner who changes his
Units from Class B Status to Class A Status will, from the effective date of
such change until the Limited Partner changes back to Class B Status, be
entitled to receive annual distributions of Net Cash From Operations and no
longer be allocated deductions for depreciation, amortization and cost recovery
and Net Loss. Distributions of Sale Proceeds will be prorated to each Limited
Partner based on the number of days during which his Units were treated as Class
A Status Units (and entitled to a return of 10% per annum on his Net Capital
Contribution) and the number days during which such Units were treated as Class
B Status Units (and entitled to a return of 15% per annum on his Net Capital
Contribution).
27
<PAGE>
ESTIMATED USE OF PROCEEDS
The following table sets forth information concerning the estimated use of
the gross proceeds of the Offering of Units made hereby. Many of the figures
set forth below represent the best estimate of the General Partners since they
cannot be precisely calculated at this time. The percentage of the gross
proceeds of the Offering of Units to be invested in Partnership Properties is
estimated to be approximately 81%.
WELLS REAL ESTATE FUND X, L.P.
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
--------------------- ----------------------
Amount Percent Amount Percent
----------- -------- ------------ --------
<S> <C> <C> <C> <C>
Gross Offering Proceeds (1) $1,250,000 100% $35,000,000 100%
Less Public Offering Expenses:
Selling Commissions and Dealer Manager Fee (2) 125,000 10% 3,500,000 10%
Organization and Offering Expenses (3) 62,500 5% 1,225,000 3.5%
---------- --- ----------- ----
Amount Available for Investment (4) $1,062,500 85% $30,275,000 86.5%
========== === =========== ====
Acquisition and Development:
Acquisition and Advisory Fees (5) $ 43,750 3.5% $ 1,750,000 5%
Acquisition Expenses (6) 6,250 .5% 175,000 .5%
Initial Working Capital Reserve (7) (7) - (7) -
Amount Invested in Properties (4)(8) $1,012,500 81% $28,350,000 81%
========== === =========== ====
</TABLE>
WELLS REAL ESTATE FUND XI, L.P.
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
--------------------- ----------------------
Amount Percent Amount Percent
----------- -------- ------------ --------
<S> <C> <C> <C> <C>
Gross Offering Proceeds (1) $1,250,000 100% $35,000,000 100%
Less Public Offering Expenses:
Selling Commissions and Dealer Manager Fee (2) 125,000 10% 3,500,000 10%
Organization and Offering Expenses (3) 62,500 5% 1,225,000 3.5%
---------- --- ----------- ----
Amount Available for Investment (4) $1,062,500 85% $30,275,000 86.5%
========== === =========== ====
Acquisition and Development:
Acquisition and Advisory Fees (5) $ 43,750 3.5% $ 1,750,000 5%
Acquisition Expenses (6) 6,250 .5% 175,000 .5%
Initial Working Capital Reserve (7) (7) - (7) -
Amount Invested in Properties (4)(8) $1,012,500 81% $28,350,000 81%
========== === =========== ====
</TABLE>
_________________________
(Footnotes to "ESTIMATED USE OF PROCEEDS")
(1) The amounts shown for Gross Offering Proceeds do not reflect the possible
discounts in commissions and other fees as described in "PLAN OF
DISTRIBUTION."
(2) Includes Selling Commissions equal to 8% of aggregate Gross Offering
Proceeds (which commissions may be reduced under certain circumstances) and
a dealer manager fee equal to 2% of aggregate Gross Offering Proceeds, both
of which are payable to the Dealer Manager, an Affiliate of the General
Partners. The Dealer Manager, in its sole discretion, may reallow Selling
Commissions of up to 8% of Gross Offering Proceeds to other broker-dealers
participating in this Offering attributable to the Units sold by them and
may reallow out of its dealer manager fee up to 1% of Gross Offering
Proceeds in marketing fees to broker-dealers participating in this Offering
based on such factors as the volume of Units sold by such participating
broker-dealers, marketing support provided by such participating broker-
dealers and bona fide conference fees incurred. In no event shall the total
underwriting compensation, including Selling Commissions, the dealer manager
fee and expense reimbursements, exceed 10% of Gross Offering Proceeds,
except for an additional .5% of Gross Offering Proceeds which may be paid as
a reimbursement
28
<PAGE>
of expenses incurred for due diligence purposes and which is included in the
Organization and Offering Expenses described in Footnote 3 below. (See
"PLAN OF DISTRIBUTION.")
(3) Organization and Offering Expenses consist of estimated legal, accounting,
printing and other accountable offering expenses (other than Selling
Commissions and the dealer manager fee) and reimbursements to the General
Partners and their Affiliates for payments to nonaffiliated broker-dealers
of certain bona fide due diligence expenses in an amount not to exceed .5%
of Gross Offering Proceeds. The General Partners and their Affiliates will
be responsible for the payment of Organization and Offering Expenses (other
than Selling Commissions and the dealer manager fee) to the extent they
exceed 5% of Gross Offering Proceeds without recourse against or
reimbursement by the Partnership.
(4) Until required in connection with the acquisition and development of
properties, substantially all of the net proceeds of the Offering and,
thereafter, the working capital reserves of the Partnership, may be invested
in short-term, highly-liquid investments including government obligations,
bank certificates of deposit, short-term debt obligations and interest-
bearing accounts.
(5) The Partnership will pay Acquisition and Advisory Fees to the General
Partners or their Affiliates in connection with the acquisition of the
Partnership's Properties up to a maximum amount of 5% of Gross Offering
Proceeds, provided that the Partnership shall in no event commit less than
80% of Capital Contributions to Investment in Properties, as required under
the NASAA Guidelines.
(6) Includes legal fees and expenses, travel and communication expenses, costs
of appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, title insurance premiums and other closing
costs and miscellaneous expenses relating to the selection, acquisition and
development of Partnership Properties. It is anticipated that substantially
all of such items will be directly related to the acquisition of specific
Partnership Properties and will be capitalized rather than currently
deducted by the Partnership.
(7) Because the Partnership will purchase properties on an all cash basis and
the vast majority of leases for the properties acquired by the Partnership
will provide for tenant reimbursement of operating expenses, it is not
anticipated that a permanent reserve for maintenance and repairs of
Partnership Properties will be established. However, to the extent that the
Partnership has insufficient funds for such purposes, the General Partners
will advance to the Partnership on an interest-free basis an aggregate
amount of up to 1% of Gross Offering Proceeds for maintenance and repairs of
Partnership Properties. The General Partners also may, but are not required
to, establish reserves from Gross Offering Proceeds, out of Cash Flow
generated by operating properties or out of Nonliquidating Net Sale
Proceeds.
(8) Includes amounts anticipated to be invested in Partnership Properties net of
fees and expenses. In no event shall the Partnership commit less than 80%
of Capital Contributions to Investment in Properties, as required under the
NASAA Guidelines.
29
<PAGE>
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES
The following table summarizes and discloses all of the compensation and
fees (including reimbursement of expenses) to be paid by each Partnership to the
General Partners and their Affiliates during the various phases of the
organization and operation of each Partnership.
<TABLE>
<CAPTION>
Form of Compensation Determination Estimated Maximum
and Entity Receiving of Amount Dollar Amount (1)
- -------------------- --------------- ----------------------
<S> <C> <C>
Organizational and Offering Stage
Selling Commissions - Up to 8% of Gross Offering Proceeds before reallowance of commissions earned $2,800,000
The Dealer Manager by participating broker-dealers. The Dealer Manager intends to reallow 100% ($100,000 in the
of commissions earned by participating broker-dealers. event the Partner-
ship sells only the
minimum of
125,000 Units)
Dealer Manager Fee - Up to 2% of Gross Offering Proceeds before reallowance to participating $ 700,000
The Dealer Manager broker-dealers. The Dealer Manager, in its sole discretion, may reallow a ($25,000 in the
portion of its dealer manager fee of up to 1% of the Gross Offering Proceeds event the Partner-
to be paid to such participating broker-dealers as a marketing fee, based on ship sells only the
such factors as the volume of Units sold by such participating minimum of
broker-dealers, marketing support and bona fide conference fees incurred. 125,000 Units)
Reimbursement of Up to 5% of Gross Offering Proceeds. All Organization and Offering Expenses $1,225,000
Organization and Offering (excluding Selling Commissions and the dealer manager fee) will be advanced ($62,500 in the
Expenses - The General by the General Partner and their Affiliates and reimbursed by the event the Partner-
Partners and their Partnership.(2) ship sells only the
Affiliates minimum of
125,000 Units)
Acquisition and Development Stage
Acquisition and Advisory For the review and evaluation of potential real property acquisitions, a fee $1,750,000
Fees - The General Partners of up to 5% of Gross Offering Proceeds, plus reimbursement of costs and (A maximum of
or their Affiliates expenses for the acquisition of properties. $62,500 in the
event the
Partnership sells
only the minimum
of 125,000 Units)
Operational Stage
Property Management and For supervising the management of the Partnership Properties, a fee equal to Actual amounts are
Leasing Fees - Wells the lesser of: (A)(i) in the case of industrial and commercial properties dependent upon
Management Company, which are leased for less than ten years, 3% of the gross revenues for results of operations
Inc. management and 3% of the gross revenues for leasing (aggregate maximum of and therefore
6%), and (ii) in the case of industrial and commercial properties which are cannot be
leased on a long-term net basis (ten or more years), 1% of the gross revenues determined at
plus, in the case of leases to new tenants, initial leasing fees equal to 3% the present time.
of the gross revenues over the first five years of the lease term, or (B) the
amounts charged by unaffiliated persons rendering comparable services in the
same geographic area; plus, a separate fee for the one-time initial rent-up
or leasing-up of newly constructed properties in an amount not to exceed the
fee customarily charged in arm's-length transactions by others rendering
similar services in the same geographic area for similar properties.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C>
Share of Net Cash From A noncumulative amount equal to one-tenth of Net Cash From Operations Actual amounts are
Operations - The subordinated in each fiscal year to distributions of Net Cash From Operations dependent upon
General Partners to Limited Partners holding Class A Status Units equal to 10% of their Net results of operations
Capital Contributions. and therefore
cannot be
determined at
the present time.
Liquidation Stage
Subordinated Participation After (i) Limited Partners holding Units which at any time have been treated Actual amounts are
in Nonliquidating Net Sale as Class B Status Units have received amounts necessary to make up for the dependent upon
Proceeds and Liquidating priority distributions of Net Cash From Operations previously paid to Limited results of operations
Distributions - The Partners holding Units which at all times have been treated as Class A Status and therefore
General Partners Units, (ii) Limited Partners have received a return of their Net Capital cannot be
Contributions, and (iii) Limited Partners have received their Preferential determined at
Limited Partner Return, then the General Partners are entitled to receive the the present time.
following amounts: (a) an amount equal to their Capital Contributions, (b)
then, if and only in the event that Limited Partners have received any Excess
Limited Partner Distributions, 20% of the sum of any such Excess Limited
Partner Distributions plus the amount distributed to the General Partners
pursuant to this provision, plus (c) 20% of remaining Residual Proceeds
available for distribution; provided, however, that in no event will the
General Partners receive in the aggregate more than the NASAA Guidelines
Resale Proceeds Maximum Amount. (See Sections 9.2, 9.3 and 9.4 of the
Partnership Agreement.)
Real Estate Commissions - In connection with the sale of Partnership Properties, an amount not Actual amounts are
The General Partners or exceeding the lesser of: (A) 50% of the reasonable, customary and dependent upon
Their Affiliates competitive real estate brokerage commissions customarily paid for the sale results of operations
of a comparable property in light of the size, type and location of the and therefore
property, or (B) 3% of the gross sales price of each property, subordinated cannot be
to distributions to Limited Partners from Sale Proceeds of an amount which, determined at
together with prior distributions to the Limited Partners, will equal (i) the present time.
100% of their Capital Contributions plus (ii) a 6% per annum cumulative
(noncompounded) return on their Net Capital Contributions. (See Section 12.6
of the Partnership Agreement.)
- -------------------------
</TABLE>
(Footnotes to "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES")
(1) The estimated maximum dollar amounts are based on the sale of a maximum of
3,500,000 Units.
(2) In the event that reimbursements of Organization and Offering Expenses by
Wells Real Estate Fund X, L.P. are made for organization, registration and
offering expenses relating to both of the Partnerships, it is anticipated
that Wells Real Estate Fund XI, L.P. would reimburse Wells Real Estate Fund
X, L.P. for its pro rata share of such expenses, subject to the 5% of Gross
Offering Proceeds limitation.
In addition, the General Partners and their Affiliates will be reimbursed
only for the actual cost of goods, services and materials used for or by the
Partnership as set forth in Section 11.4 of the Partnership Agreement. The
General Partners may be reimbursed for the administrative services necessary to
the prudent operation of the Partnership provided that the reimbursement shall
be at the lower of the General Partners' actual cost or the amount the
Partnership would be required to pay to independent parties for comparable
administrative services in the same geographic location. No payment or
reimbursement will be made for services for which the General Partners are
entitled to compensation by way of a separate fee. Excluded from allowable
reimbursement shall be: (i) rent or depreciation, utilities, capital equipment,
other administrative items; and (ii) salaries, fringe benefits, travel expenses
and other administrative items incurred by or allocated to any controlling
persons of the General Partners or their Affiliates.
31
<PAGE>
Since the General Partners and their Affiliates are entitled to differing
levels of compensation for undertaking different transactions on behalf of the
Partnership, such as the property management fees for operating the Partnership
Properties and the subordinated participation in proceeds from the sale of
Partnership Properties, the General Partners have the ability to affect the
nature of the compensation they receive by undertaking different transactions.
However, the General Partners are obligated to exercise good faith and integrity
in all their dealings with respect to Partnership Affairs pursuant to their
fiduciary duties to the Limited Partners. (See "FIDUCIARY DUTY OF THE GENERAL
PARTNERS.") As noted above, there are ceilings on certain categories of fees or
expenses payable to the General Partners and their Affiliates. Because these
fees or expenses are payable only with respect to certain transactions or
services, they may not be recovered by the General Partners or their Affiliates
by reclassifying them under a different category.
CONFLICTS OF INTEREST
The Partnership is subject to various conflicts of interest arising out of
its relationship with the General Partners and their Affiliates, including
conflicts related to the arrangements pursuant to which the General Partners and
their Affiliates will be compensated by the Partnership. (See "COMPENSATION OF
THE GENERAL PARTNERS AND AFFILIATES.")
The General Partners of the Partnership are Leo F. Wells, III and Wells
Partners, L.P., a Georgia limited partnership having Wells Capital, Inc., a
Georgia corporation, as its sole general partner. Leo F. Wells, III owns all of
the outstanding capital stock of Wells Capital, Inc., Wells Investment
Securities, Inc. (the Dealer Manager), and Wells Management Company, Inc. (the
Property Manager). (See "MANAGEMENT.")
The following chart indicates the relationship between the General Partners
and their Affiliates which will be providing services to the Partnership.
=========================================================================
LEO F. WELLS, III
(GENERAL PARTNER)
=========================================================================
| | |
| 100% | 100% | 100%
| | |
=================== ======================= =======================
WELLS CAPITAL, INC. WELLS INVESTMENT WELLS MANAGEMENT
SECURITIES, INC. COMPANY, INC.
(DEALER MANAGER) (PROPERTY MANAGER)
=================== ======================= =======================
|
| General Partner
|
===================
WELLS PARTNERS, L.P.
(GENERAL PARTNER)
===================
Because the Partnership was organized and will be operated by the General
Partners, these conflicts will not be resolved through arm's-length negotiations
but through the exercise of the General Partners' judgment consistent with their
fiduciary responsibility to the Limited Partners and the Partnership's
investment objectives and policies. (See "FIDUCIARY DUTY OF THE GENERAL
PARTNERS" and "INVESTMENT OBJECTIVES AND CRITERIA.") These conflicts include,
but are not limited to, the following:
32
<PAGE>
1. INTERESTS IN OTHER PARTNERSHIPS. The General Partners and their
Affiliates are also general partners of other real estate limited partnerships,
including partnerships which have investment objectives similar to those of the
Partnership, and it is expected that they will organize other such partnerships
in the future. The General Partners and such Affiliates have legal and
financial obligations with respect to these other partnerships which are similar
to their obligations to the Partnership. As general partners, they may have
contingent liability for the obligations of such partnerships as well as those
of the Partnership which, if such obligations were enforced against the General
Partners, could result in substantial reduction of the net worth of the General
Partners.
As described in the "PRIOR PERFORMANCE SUMMARY," the General Partners have
sponsored the following ten other public partnerships with substantially
identical investment objectives as those of the Partnership: (i) Wells Real
Estate Fund I ("Wells Fund I"), (ii) Wells Real Estate Fund II ("Wells Fund
II"), (iii) Wells Real Estate Fund II-OW ("Wells Fund II-OW"), (iv) Wells Real
Estate Fund III, L.P. ("Wells Fund III"), (v) Wells Real Estate Fund IV, L.P.
("Wells Fund IV"), (vi) Wells Real Estate Fund V, L.P. ("Wells Fund V"), (vii)
Wells Real Estate Fund VI, L.P. ("Wells Fund VI"), (viii) Wells Real Estate Fund
VII, L.P. ("Wells Fund VII"), (ix) Wells Real Estate Fund VIII, L.P. ("Wells
Fund VIII") and (x) Wells Real Estate Fund IX, L.P. ("Wells Fund IX"). All of
the proceeds of the offerings of Wells Fund I, Wells Fund II, Wells Fund II-OW,
Wells Fund III, Wells Fund IV, Wells Fund V and Wells Fund VI available for
investment in real properties have been invested. In addition, all of the
proceeds of the offering of Wells Fund VII available for investment in real
properties have either been invested in properties or are currently committed
for investment in properties. As of June 30, 1996, approximately 56% and 50% of
the proceeds of the offerings of Wells Fund VIII and Wells Fund IX,
respectively, available for investment in real properties had either been
invested in properties or were committed for investment in properties.
In the event that the Partnership, the General Partners or any Affiliate or
any entity formed or managed by the General Partners or their Affiliates is in
the market for similar properties, the General Partners will review the
investment portfolio of the Partnership and each such affiliated entity and will
decide which entity will acquire a particular property on the basis of such
factors as, among others, cash flow, the effect of the purchase on
diversification of the portfolio of each such entity, the estimated income tax
effects of the purchase on each such entity, the amount of funds available to
each and the length of time such funds have been available for investment. The
General Partners may acquire, for their own account or for private placement,
properties which they deem not suitable for purchase by the Partnership, whether
because of the greater degree of risk, the complexity of structuring inherent in
such transactions, financing considerations or for other reasons.
2. OTHER ACTIVITIES OF THE GENERAL PARTNERS AND THEIR AFFILIATES. The
Partnership will rely on the General Partners and their Affiliates for the day-
to-day operation of the Partnership and the management of its assets. As a
result of their interests in other partnerships and the fact that they have also
engaged and will continue to engage in other business activities, the General
Partners and their Affiliates will have conflicts of interest in allocating
their time between the Partnership and other partnerships and activities in
which they are involved. However, the General Partners believe that they and
their Affiliates have sufficient personnel to discharge fully their
responsibilities to all partnerships and ventures in which they are involved.
The Partnership will not purchase or lease any property in which the
General Partners or any of their Affiliates have an interest; provided, however,
that the General Partners or any of their Affiliates may temporarily enter into
contracts relating to investment in properties to be assigned to the Partnership
prior to closing or may purchase property in their own name and temporarily hold
title for the Partnership, provided that such property is purchased by the
Partnership at a price no greater than the cost of such property (including
acquisition and carrying costs) to the General Partners or the Affiliate, and
further provided that the General Partners or such Affiliate may not hold title
to any such property on behalf of the Partnership for more than 12 months, that
the General Partners or their Affiliates shall not sell property to the
Partnership if the cost of the property exceeds the funds reasonably anticipated
to be available for the Partnership to purchase any such property, and that all
profits and losses during the period any such property is held by the General
Partners or the Affiliate will accrue to the Partnership. In no event may the
Partnership (i) sell or lease real property to the General Partners or any of
their Affiliates; (ii) loan
33
<PAGE>
Partnership funds to the General Partners or any of their Affiliates; (iii)
obtain appraisals of real properties from the General Partners or any of their
Affiliates; or (iv) enter into agreements with the General Partners or their
Affiliates for the provision of insurance covering the Partnership or any
Partnership Property.
3. COMPETITION. Conflicts of interest will exist to the extent that the
Partnership may acquire properties in the same geographic areas where other
properties owned by the General Partners and their Affiliates are located. In
such a case, a conflict could arise in the leasing of Partnership Properties in
the event that the Partnership and another program managed by the General
Partners or their Affiliates were to compete for the same tenants in negotiating
leases, or a conflict could arise in connection with the resale of Partnership
Properties in the event that the Partnership and another program managed by the
General Partners or their Affiliates were to attempt to sell similar properties
at the same time. Conflicts of interest may also exist at such time as the
Partnership or Affiliates of the General Partners managing property on behalf of
the Partnership seek to employ developers, contractors or building managers as
well as under other circumstances. The General Partners will seek to reduce
conflicts relating to the employment of developers, contractors or building
managers by making prospective employees aware of all such properties seeking to
employ such persons. In addition, the General Partners will seek to reduce
conflicts which may arise with respect to properties available for sale or rent
by making prospective purchasers or lessees aware of all such properties.
However, these conflicts cannot be fully avoided in that the General Partners
may establish differing compensation arrangements for employees at different
properties or differing terms for resales or leasing of the various properties.
4. AFFILIATED DEALER MANAGER. Since Wells Investment Securities, Inc.,
the Dealer Manager, is an Affiliate of the General Partners, the Partnership
will not have the benefit of an independent due diligence review and
investigation of the type normally performed by an unaffiliated, independent
underwriter in connection with the offering of securities. (See "PLAN OF
DISTRIBUTION.")
5. AFFILIATED PROPERTY MANAGER. Since it is anticipated that Partnership
Properties will be managed and leased by Wells Management Company, Inc., an
Affiliate of the General Partners, the Partnership will not have the benefit of
independent property management. (See "MANAGEMENT" and "COMPENSATION OF THE
GENERAL PARTNERS AND AFFILIATES.")
6. LACK OF SEPARATE REPRESENTATION. Holland & Knight is counsel to the
Partnership, the General Partners, the Dealer Manager and their Affiliates in
connection with this Offering and may in the future act as counsel to the
Partnership, the General Partners, the Dealer Manager and their Affiliates.
There is a possibility that in the future the interests of the various parties
may become adverse. In the event that a dispute were to arise between the
Partnership, the General Partners, the Dealer Manager or their Affiliates, the
General Partners will cause the Partnership to retain separate counsel for such
matters as and when appropriate.
7. JOINT VENTURES WITH AFFILIATES OF THE GENERAL PARTNERS. The
Partnership is likely to enter into one or more joint venture agreements with
Affiliates of the General Partners for the acquisition, development or
improvement of properties. (See "INVESTMENT OBJECTIVES AND CRITERIA - Joint
Venture Investments.") The General Partners and their Affiliates may have
conflicts of interest in determining which partnerships should enter into any
joint venture agreement. Should any such joint venture be consummated, the
General Partners may face a conflict in structuring the terms of the
relationship between the interest of the Partnership and the interest of the
affiliated co-venturer. Since the General Partners and their Affiliates will
control both the Partnership and the affiliated co-venturer, agreements and
transactions between the co-venturers with respect to any such joint venture
will not have the benefit of arm's-length negotiation of the type normally
conducted between unrelated co-venturers.
8. RECEIPT OF FEES AND OTHER COMPENSATION BY GENERAL PARTNERS AND
AFFILIATES. Partnership transactions involving the purchase and sale of
Partnership Properties may result in the receipt of commissions, fees and other
compensation by the General Partners and their Affiliates, including Acquisition
and Advisory Fees, the
34
<PAGE>
dealer manager fee, property management and leasing fees, real estate brokerage
commissions, and participation in distributions of Net Cash From Operations,
Nonliquidating Net Sale Proceeds and Liquidating Distributions. However, the
fees and compensation payable to the General Partners and their Affiliates
relating to sale of Partnership Properties are subordinated to the return to the
Limited Partners of their Capital Contributions plus cumulative returns thereon.
Subject to their fiduciary duties and specific restrictions set forth in the
Partnership Agreement, the General Partners have considerable discretion with
respect to all decisions relating to the terms and timing of all Partnership
transactions. Therefore, the General Partners may have conflicts of interest
concerning certain actions taken on behalf of the Partnership, particularly due
to the fact that such fees will generally be payable to the General Partners and
their Affiliates regardless of the quality of the Partnership Properties
acquired or the services provided to the Partnership. (See "COMPENSATION OF THE
GENERAL PARTNERS AND AFFILIATES.")
The agreements and arrangements among the Partnership, the General Partners
and their Affiliates have been established by the General Partners, and the
General Partners believe the amounts to be paid thereunder to be reasonable and
customary under the circumstances. In an effort to establish standards for
minimizing and resolving these potential conflicts, the General Partners have
agreed to the guidelines and limitations set forth in Section 11.3 of the
Partnership Agreement entitled "Limitations on Powers of the General Partners"
and in Article XIII of the Partnership Agreement entitled "Transactions Between
General Partners and the Partnership." Among other things, these provisions (i)
set forth the specific conditions under which the Partnership may own or lease
property jointly or in a partnership with an Affiliate of the General Partners,
(ii) prohibit the Partnership from purchasing or leasing an investment property
from the General Partners or their Affiliates, (iii) prohibit loans by the
Partnership to the General Partners or their Affiliates, (iv) prohibit the
commingling of Partnership funds, and (v) prohibit the General Partners from
merging or consolidating the Partnership with another partnership or a
corporation or converting the Partnership to a real estate investment trust
unless the transaction complies with certain terms and conditions (including
first obtaining a Majority Vote of the Limited Partners). In addition, as
described below, the General Partners have a fiduciary obligation to act in the
best interests of both the Limited Partners and the investors in other programs
in which they act as general partners and will use their best efforts to assure
that the Partnership will be treated at least as favorably as any other such
program.
FIDUCIARY DUTY OF THE GENERAL PARTNERS
The General Partners will be accountable to the Partnership as fiduciaries
and, consequently, will be required to exercise good faith and integrity in all
their dealings with respect to Partnership affairs. Where the question has
arisen, courts have held that a limited partner may institute legal action on
behalf of himself or all other similarly situated limited partners (a class
action) to recover damages for a breach by a general partner of his fiduciary
duty or on behalf of the partnership (a partnership derivative action) to
recover damages from third parties. The Georgia Revised Uniform Limited
Partnership Act ("GRULPA") specifically permits a limited partner of a Georgia
limited partnership to bring a derivative action on behalf of the partnership if
(i) the general partner or partners of the partnership have refused to bring the
action on behalf of the partnership or it is apparent that an effort to cause
such general partner or partners to bring the action would not be likely to
succeed, and (ii) the limited partner was a partner at the time the transaction
complained of occurred or such partner became a partner by operation of law or
pursuant to the terms of the partnership agreement by assignment from a person
who was a partner at the time of such transaction.
Under GRULPA, a general partner of a Georgia limited partnership has the
same liabilities to the partnership and the other partners as a partner in a
partnership without limited partners. Accordingly, in any action alleging a
breach of fiduciary duty by the General Partners to either the Limited Partners
or the Partnership, it is not anticipated that the General Partners would be
able to successfully assert as a defense the general presumption which is often
referred to as the "business judgment rule" that actions taken by the directors
of a corporation on behalf of the corporation are reasonable. However, since
any such action would involve a rapidly developing and
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<PAGE>
changing area of the law, investors who believe that a breach of fiduciary duty
by the General Partners may have occurred should consult with their own counsel.
Under GRULPA, except to the extent of acceptable limitations in the
partnership agreement, a general partner of a limited partnership generally owes
a duty of loyalty and a duty of care to his partners. The Partnership Agreement
provides that the General Partners shall not be liable to the Partnership or any
Partner arising out of any act or failure to act which the General Partners in
good faith determined was in the best interest of the Partnership, provided that
the General Partners shall be liable for any liabilities resulting from a
General Partner's (i) own fraud, negligence, misconduct or knowing violation of
law, (ii) breach of fiduciary duty to the Partnership or any Partner, or (iii)
breach of the Partnership Agreement, regardless of whether or not any such act
was first determined by such General Partner, in good faith, to be in the best
interest of the Partnership. Since absent limitations in the Partnership
Agreement such as the foregoing, a General Partner of a limited partnership
would generally be liable under state law for damages caused by breach of
fiduciary duty or a breach of the Partnership Agreement, regardless of whether
or not such person received any personal benefit therefrom, Limited Partners may
have a more limited right of action than they would otherwise have absent the
foregoing provisions in the Partnership Agreement.
In addition, the Partnership Agreement provides that the Partnership shall
indemnify the General Partners and their Affiliates from and against liabilities
and related expenses (including attorneys' fees) incurred in dealing with third
parties while acting on behalf of or performing services for the Partnership
arising out of any act or failure to act which the General Partners in good
faith determined was in the best interest of the Partnership, provided that the
General Partners shall not be indemnified by the Partnership for any liabilities
resulting from a General Partner's (i) own fraud, negligence, misconduct or
knowing violation of law, (ii) breach of fiduciary duty to the Partnership or
any Partner, or (iii) breach of the Partnership Agreement, regardless of whether
or not any such act was first determined by such General Partner, in good faith,
to be in the best interest of the Partnership. Any indemnification of the
General Partners is recoverable only out of the assets of the Partnership and
not from the Limited Partners. The indemnification provisions contained in the
Partnership Agreement are generally consistent with the provisions of GRULPA,
and the General Partners will not be indemnified for a violation of the duty of
care to their Partners to the extent any such violation constitutes negligence
or misconduct.
Notwithstanding the foregoing, the Partnership will not indemnify the
General Partners or any person acting as a broker-dealer with respect to the
Units from any liabilities incurred by them arising under federal and state
securities laws unless (i) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as to the
particular person seeking indemnification, or (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular person seeking indemnification, or (iii) a court of competent
jurisdiction approves a settlement of the claims against the particular person
seeking indemnification and finds that indemnification of the settlement and
related costs should be made. In addition, prior to seeking a court approval
for indemnification, the General Partners are required to apprise the court of
the position of the Securities and Exchange Commission and various securities
regulatory authorities with respect to indemnification for securities
violations.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION
FOR LIABILITIES ARISING OUT OF THE SECURITIES ACT OF 1933 IS AGAINST PUBLIC
POLICY AND IS THEREFORE UNENFORCEABLE.
PRIOR PERFORMANCE SUMMARY
THE INFORMATION PRESENTED IN THIS SECTION REPRESENTS THE HISTORICAL
EXPERIENCE OF REAL ESTATE PROGRAMS MANAGED BY THE GENERAL PARTNERS AND THEIR
AFFILIATES. INVESTORS IN THE PARTNERSHIP SHOULD NOT ASSUME THAT THEY WILL
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EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN SUCH
PRIOR REAL ESTATE PROGRAMS.
The individual General Partner, Leo F. Wells, III, has served as a general
partner of a total of [TEN] real estate limited partnerships for which offerings
have been completed within the last 10 years. These [TEN] limited partnerships
and the year in which their offerings were completed are:
1. Wells Real Estate Fund I (1986)
2. Wells Real Estate Fund II (1988)
3. Wells Real Estate Fund II-OW (1988)
4. Wells Real Estate Fund III, L.P. (1990)
5. Wells Real Estate Fund IV, L.P. (1992)
6. Wells Real Estate Fund V, L.P. (1993)
7. Wells Real Estate Fund VI, L.P. (1994)
8. Wells Real Estate Fund VII, L.P. (1995)
9. Wells Real Estate Fund VIII, L.P. (1996)
10. Wells Real Estate Fund IX, L.P. (199__)
The tables included in Exhibit "A" attached hereto set forth information as
of the dates indicated regarding certain of these prior programs as to (i)
experience in raising and investing funds (Table I); (ii) compensation to
sponsor (Table II); and (iii) annual operating results of prior programs (Table
III). No information is given as to results of completed programs or sales or
disposals of property because, to date, none of the prior programs have sold any
of their properties.
PUBLICLY OFFERED UNSPECIFIED PROPERTY PARTNERSHIPS
The General Partners and their Affiliates have previously sponsored ten
publicly offered real estate limited partnerships which were offered on an
unspecified property or "blind pool" basis: Wells Fund I, Wells Fund II, Wells
Fund II-OW, Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI, Wells
Fund VII, Wells Fund VIII and Wells Fund IX. The total amount of funds raised
from investors in the offerings of these ten publicly offered partnerships, as
of ____________ __, 1996, was approximately $_______________, and the total
number of investors in such partnerships was approximately _______.
The investment objectives of Wells Fund I, Wells Fund II, Wells Fund II-OW,
Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII,
Wells Fund VIII and Wells Fund IX are substantially identical to the investment
objectives of the Partnership. All of the proceeds of the offerings of Wells
Fund I, Wells Fund II, Wells Fund II-OW, Wells Fund III, Wells Fund IV, Wells
Fund V and Wells Fund VI available for investment in real properties have been
invested in properties. In addition, all of the proceeds of the offering of
Wells Fund VII available for investment in real properties have either been
invested or are committed for investment in properties. As of June 30, 1996,
approximately 56% and 50% of the proceeds of the offerings of Wells Fund VIII
and Wells Fund IX, respectively, available for investment in real properties had
either been invested in properties or were committed for investment in
properties. For the fiscal year ended December 31, 1995, approximately three-
quarters of the aggregate gross rental income of nine of these ten publicly
offered partnerships (Wells Fund IX had not yet commenced its offering) was
derived from tenants which are U.S. corporations, each of which has net worth of
at least $100,000,000 or whose lease obligations are guaranteed by another
corporation with a net worth of at least $100,000,000. Although certain real
estate programs previously sponsored by the General Partners and their
Affiliates have experienced fluctuating financial performance, as indicated in
the prior performance tables included in Exhibit "A" hereto, the prior programs
have generally to date achieved their investment objective of providing
distributions of net cash from operations to limited partners. While the
General Partners believe that the prior programs' investments in real properties
will enable such programs to return the limited partners' capital contributions
and to realize capital appreciation upon the ultimate sale of the programs' real
properties, none of these
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prior programs has liquidated or sold any of its real properties to date and,
accordingly, no assurance can be made that the prior programs will ultimately be
successful in meeting such objectives.
The aggregate dollar amount of the acquisition and development costs of the
properties purchased by these ten publicly offered partnerships, as of
____________ __, 1996, was approximately $____________, of which $___________
(or approximately ___ percent) had not yet been expended on the development of
certain of the projects which are still under construction. Of the aggregate
amount, approximately ___% was or will be spent on acquiring or developing
office buildings, and approximately ___% was or will be spent on acquiring or
developing shopping centers. Of the aggregate amount, approximately ___% was or
will be spent on new properties, ___% on existing or used properties and ___% on
construction properties. Following is a table showing a breakdown of the
aggregate amount of the acquisition and development costs of the properties
purchased by these ten publicly offered partnerships as of ____________ __,
1996:
<TABLE>
<CAPTION>
Type of Property New Used Construction
---------------- ---- ----- -------------
<S> <C> <C> <C>
Office Buildings __% __% __%
Shopping Centers __% __% __%
</TABLE>
Wells Fund I terminated its offering on September 5, 1986, and received
gross proceeds of $35,321,000 representing subscriptions from 4,895 limited
partners. $24,679,000 of the gross proceeds were attributable to sales of Class
A Units, and $10,642,000 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund I have no right to change the
status of their Units from Class A to Class B or vice versa. Wells Fund I owns
interests in the following properties: (i) a medical office building in Atlanta,
Georgia; (ii) two commercial office buildings in Atlanta, Georgia; (iii) a
shopping center in DeKalb County, Georgia; (iv) a shopping center in Knoxville,
Tennessee; (v) a shopping center in Cherokee County, Georgia; and (vi) a project
consisting of seven office buildings and a shopping center in Tucker, Georgia.
Wells Fund II and Wells Fund II-OW terminated their offerings on September
7, 1988, and received aggregate gross proceeds of $36,870,250 representing
subscriptions from 4,659 limited partners. $28,829,000 of the gross proceeds
were attributable to sales of Class A Units, and $8,041,250 of the gross
proceeds were attributable to sales of Class B Units. Limited partners in Wells
Fund II and Wells Fund II-OW have no right to change the status of their Units
from Class A to Class B or vice versa. Wells Fund II and Wells Fund II-OW own
all of their properties through a joint venture, which owns interests in the
following properties: (i) a shopping center in Cherokee County, Georgia; (ii) a
project consisting of seven office buildings and a shopping center in Tucker,
Georgia; (iii) a two story office building in Charlotte, North Carolina; (iv) a
four story office building in Houston, Texas; (v) a restaurant in Roswell,
Georgia; and (vi) a combined retail and office development in Roswell, Georgia.
Wells Fund III terminated its offering on October 23, 1990, and received
gross proceeds of $22,206,310 representing subscriptions from 2,700 limited
partners. $19,661,770 of the gross proceeds were attributable to sales of Class
A Units, and $2,544,540 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund III have no right to change the
status of their Units from Class A to Class B or vice versa. Wells Fund III
owns interests in the following properties: (i) a four story office building in
Houston, Texas; (ii) a restaurant in Roswell, Georgia; (iii) a combined retail
and office development in Roswell, Georgia; (iv) a two story office building in
Greenville, North Carolina; (v) a shopping center in Stockbridge, Georgia; and
(vi) a two story office building in Richmond, Virginia.
Wells Fund IV terminated its offering on February 29, 1992, and received
gross proceeds of $13,614,655 representing subscriptions from 1,286 limited
partners. $13,229,150 of the gross proceeds were attributable to sales of Class
A Units, and $385,505 of the gross proceeds were attributable to sales of Class
B Units. Limited partners in Wells Fund IV have no right to change the status
of their Units from Class A to Class B or vice versa. Wells
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Fund IV owns interests in the following properties: a shopping center in
Stockbridge, Georgia; a four story office building in Jacksonville, Florida;
(iii) a two story office building in Richmond, Virginia; and (iv) two two-story
office buildings in Stockbridge, Georgia. Wells Fund IV recognized net income
of $10,045 in 1991 (at which time it had not invested in any property), $200,942
in 1992 (at which time it only owned interests in the shopping center in
Stockbridge, Georgia, the property in Jacksonville, Florida which was under
construction, and the first office building in Stockbridge, Georgia which was
under construction), $496,911 in 1993 (at which time the second office building
in Stockbridge, Georgia was under construction), $605,011 in 1994 and $623,867
in 1995.
Wells Fund V terminated its offering on March 3, 1993, and received gross
proceeds of $17,006,020 representing subscriptions from 1,667 limited partners.
$15,209,666 of the gross proceeds were attributable to sales of Class A Units,
and $1,796,354 of the gross proceeds were attributable to sales of Class B
Units. Limited partners in Wells Fund V who purchased Class B Units are
entitled to change the status of their Units to Class A, but limited partners
who purchased Class A Units are not entitled to change the status of their Units
to Class B. After taking into effect conversion elections made by limited
partners subsequent to their subscription for Units, as of ____________ __,
1996, $___________ of Units of Wells Fund V were treated as Class A Units, and
$___________ of Units were treated as Class B Units. Wells Fund V owns
interests in the following properties: a four story office building in
Jacksonville, Florida; two two-story office buildings in Stockbridge, Georgia; a
four story office building in Hartford, Connecticut; two restaurants in
Stockbridge, Georgia; and a three story office building in Appleton, Wisconsin.
Wells Fund V experienced an operating loss of $18,089 in 1992 (at which time it
only owned interests in the Jacksonville, Florida property which was under
construction and the first office building in Stockbridge, Georgia which was
under construction), recognized net income of $354,999 in 1993 (at which time it
had also acquired an interest in the Hartford, Connecticut property and the
second office building in Stockbridge, Georgia was under construction) and
recognized net income of $561,721 in 1994 (at which time it owned interests in
all of the properties listed above for which it currently holds an ownership
interest, with the exception that only one of the two restaurants had been
developed on the tract of land in Stockbridge, Georgia) and $689,639 in 1995.
Wells Fund VI terminated its offering on April 4, 1994, and received gross
proceeds of $25,000,000 representing subscriptions from 1,793 limited partners.
$19,332,176 of the gross proceeds were attributable to sales of Class A Units,
and $5,667,824 of the gross proceeds were attributable to sales of Class B
Units. Limited partners in Wells Fund VI are entitled to change the status of
their Units from Class A to Class B and vice versa. After taking into effect
conversion elections made by limited partners subsequent to their subscription
for Units, as of ____________ __, 1996, $______________ of Units of Wells Fund
VI were treated as Class A Units, and $____________ of Units were treated as
Class B Units. Wells Fund VI owns interests in the following properties: (i) a
four story office building in Hartford, Connecticut; (ii) two restaurants in
Stockbridge, Georgia; (iii) another restaurant and a retail building in
Stockbridge, Georgia; (iv) a shopping center in Stockbridge, Georgia; (v) a
three story office building in Appleton, Wisconsin; (vi) a shopping center in
Cherokee County, Georgia; (vii) a combined retail and office development in
Roswell, Georgia; (viii) a four story office building in Jacksonville, Florida;
and (ix) a tract of land in Clemmons, North Carolina upon which a shopping
center is being developed. Wells Fund VI recognized net income of $31,428 in
1993 (at which time it only owned an interest in the Hartford, Connecticut
property), $700,896 in 1994 (at which time it owned only interests in (i) the
four story office building in Hartford, Connecticut; (ii) the retail building
and an undeveloped tract of land in Stockbridge, Georgia; and (iii) the three
story office building in Appleton, Wisconsin) and $901,828 in 1995 (at which
time one of the retail buildings in Stockbridge, Georgia was under construction,
the combined retail and office development in Roswell, Georgia was under
construction, the office building in Jacksonville, Florida was under
construction, and the shopping center in Clemmons, North Carolina was under
construction).
Wells Fund VII terminated its offering on January 5, 1995 and received
gross proceeds of $24,180,174 representing subscriptions from 1,910 limited
partners. $16,788,095 of the gross proceeds were attributable to sales of Class
A Units, and $7,392,079 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund VII are entitled to change the
status of their Units from Class A to Class B and vice versa. After taking into
effect conversion elections made by limited partners subsequent to their
subscriptions for Units, as of ____________ __, 1996, $______________ of Units
in Wells Fund VII were treated as Class A Units, and $___________
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<PAGE>
of Units were treated as Class B Units. Wells Fund VII owns interests in the
following properties: (i) a three story office building in Appleton, Wisconsin;
(ii) a restaurant and a retail building in Stockbridge, Georgia; (iii) a
shopping center in Stockbridge, Georgia; (iv) a shopping center in Cherokee
County, Georgia; (v) a combined retail and office development in Roswell,
Georgia; (vi) a two story office building in Alachua County, Florida near
Gainesville; (vii) a four story office building in Jacksonville, Florida; (viii)
a tract of land in Clemmons, North Carolina upon which a shopping center is
being developed; and (ix) a retail development in Clayton County, Georgia.
Wells Fund VII recognized net income of $203,263 in 1994 (at which time it only
owned an interest in the three story office building in Appleton, Wisconsin and
an undeveloped tract of land in Stockbridge, Georgia) and $804,043 in 1995 (at
which time it only owned interests in the office building in Appleton,
Wisconsin, the developments in Stockbridge, Georgia, the office building in
Alachua County, Florida, the office building in Jacksonville, Florida, the tract
of land in Clemmons, North Carolina, which was under construction, and the
retail building in Stockbridge, Georgia, which was under construction).
Wells Fund VIII commenced its offering on January 6, 1995 and terminated
its offering on January 4, 1996. As of December 15, 1995, Wells Fund VIII had
received gross proceeds of approximately $27,432,220 (2,743,222 Units)
representing subscriptions from in excess of 1,919 limited partners,
approximately $22,098,100 of which were attributable to sales of Class A Status
Units (2,209,810 Class A Status Units), and approximately $5,334,120 of which
were attributable to sales of Class B Status Units (533,412 Class B Status
Units). Limited partners in Wells Fund VIII are entitled to change the status
of their Units from Class A to Class B and vice versa. After taking into effect
conversion elections made by limited partners subsequent to their subscriptions
for Units, as of _______________, 1996, $_____________ of Units in Wells Fund
VIII were treated as Class A Status Units, and $_____________ of Units were
treated as Class B Status Units. Wells Fund VIII owns interests in the
following properties: (i) a two story office building in Alachua County, Florida
near Gainesville; (ii) a four story office building in Jacksonville, Florida;
(iii) a tract of land in Clemmons, North Carolina, upon which a shopping center
is being developed; (iv) a retail development in Clayton County, Georgia; and
(v) a tract of land in Madison, Wisconsin, upon which a four story office
building is being developed. Wells Fund VIII recognized net income of $273,914
in 1995 (at which time it only owned interests in the office building in Alachua
County, Florida, the office building in Jacksonville, Florida, which was under
construction, and the tract of land in Clemmons, North Carolina, which was under
construction).
Wells Fund IX commenced its offering on January 5, 1996 and terminated its
offering on ______________, 1996. As of ______________, 1996, Wells Fund IX had
received gross proceeds of approximately $____________ (_____________ Units)
representing subscriptions from _______ limited partners, approximately
$______________ of which were attributable to sales of Class A Status Units
(___________ Class A Status Units) and approximately $______________ of which
were attributable to sales of Class B Status Units (___________ Class B Status
Units). Wells Fund IX owns an interest in a tract of land in Madison,
Wisconsin, upon which a four story office building is being developed.
The foregoing properties in which the above ten limited partnerships have
invested have all been acquired and developed on an all cash basis.
The General Partners of the Partnership, Leo F. Wells, III and Wells
Partners, L.P. ("Wells Partners"), are also the general partners of Wells Fund
IV, Wells Fund V, Wells Fund VI, Wells Fund VII and Wells Fund VIII. Wells
Capital, Inc., the general partner of Wells Partners, and Leo F. Wells, III are
the general partners of Wells Fund I, Wells Fund II, Wells Fund II-OW and Wells
Fund III.
The real properties in which partnerships previously sponsored by the
General Partners and their Affiliates have invested have experienced the same
economic problems as other real estate investments in recent years, including
without limitation, general over-building and an excess supply in many markets,
along with increased operating costs and a general downturn in the real estate
industry. In this regard, certain of the public partnerships previously
sponsored by the General Partners and their Affiliates have experienced
fluctuations in expenses and net income. These fluctuations were primarily due
to tenant turnover, resulting in increased vacancies and the requirement to
expend funds for tenant refurbishments, and increases in administrative and
other operating expenses.
40
<PAGE>
(See the "PRIOR PERFORMANCE TABLES" included as Exhibit "A" hereto.)
Additionally, while overall occupancy rates have not decreased significantly at
the properties owned by partnerships sponsored by the General Partners and their
Affiliates, some of these properties have experienced high tenant turnover, and
the partnerships owning these properties have generally been unable to raise
rental rates and have been required to make expenditures for tenant improvements
and to grant free rent and other concessions in order to attract new tenants.
Potential investors are encouraged to examine the Prior Performance Tables
attached as Exhibit "A" hereto for more detailed information regarding the prior
experience of the General Partners. In addition, upon request, prospective
investors may obtain from the General Partners without charge copies of offering
materials and any reports prepared in connection with these partnerships,
including a copy of the most recent Annual Report on Form 10-K filed by the
public partnerships with the Securities and Exchange Commission. Any such
request should be directed to the General Partners. Additionally, Table VI
contained in Part II of the Registration Statement (which is not part of this
Prospectus) gives certain additional information relating to properties acquired
by prior partnerships affiliated with the General Partners. The Partnership
will furnish, without charge, copies of such table upon request.
THE INFORMATION SET FORTH ABOVE SHOULD NOT BE CONSIDERED INDICATIVE OF
RESULTS TO BE EXPECTED FROM THE PARTNERSHIP.
MANAGEMENT
THE GENERAL PARTNERS
The General Partners of the Partnership are: Wells Partners, L.P., a
Georgia limited partnership, and Mr. Leo F. Wells, III, individually.
WELLS PARTNERS, L.P. Wells Partners, L.P. ("Wells Partners") has Wells
Capital, Inc. ("Wells Capital"), a Georgia corporation formed in April 1984, as
its sole general partner. The executive offices of both Wells Partners and
Wells Capital are located at 3885 Holcomb Bridge Road, Norcross, Georgia 30092.
Financial statements of Wells Partners and Wells Capital are included in this
Prospectus at Appendix I. Leo F. Wells, III is the sole shareholder, sole
Director and the President of Wells Capital. (See "CONFLICTS OF INTEREST.")
As of July 31, 1996, the net worth of Wells Partners was in excess of
$___________ on an estimated fair market value basis, and in excess of
$___________ on a generally accepted accounting principles (GAAP) basis;
however, the net worth of Wells Partners consists almost entirely of partnership
interests in real estate limited partnerships and, therefore, does not represent
liquid assets.
The principal officers and directors of Wells Capital are as follows:
Name Positions
- ---- ---------
Leo F. Wells, III President and Sole Director
Brian M. Conlon Executive Vice President
Louis A. Trahant Vice President of Sales and Operations
Edna B. King Vice President of Investor Services
Luther M. Boggs, Jr. Vice President of Marketing
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<PAGE>
LEO F. WELLS, III (age 52) is the President and sole Director of Wells
Capital. In addition, he is President of Wells & Associates, Inc., a real
estate brokerage and investment company formed in 1976 and incorporated in 1978,
for which he serves as principal broker. He is also the sole Director and
President of Wells Management Company, Inc., a property management company he
founded in 1983; Wells Investment Securities, Inc., a registered securities
broker-dealer he formed in 1984; and Wells Advisors, Inc., a company he
organized in 1991 to act as a non-bank custodian for IRAs. Mr. Wells was a real
estate salesman and property manager from 1970 to 1973 for Roy D. Warren &
Company, an Atlanta real estate company, and he was associated from 1973 to 1976
with Sax Gaskin Real Estate Company, during which time he became a Life Member
of the Atlanta Board of Realtors Million Dollar Club. From 1980 to February
1985, he served as Vice-President of Hill-Johnson, Inc., a Georgia corporation
engaged in the construction business. Mr. Wells holds a Bachelor of Business
Administration degree in Economics from the University of Georgia. Mr. Wells is
a member of the International Association for Financial Planning and a
registered NASD principal.
Mr. Wells has over 25 years of experience in real estate sales, management
and brokerage services. He is currently a co-general partner in a total of 23
real estate limited partnerships formed for the purpose of acquiring, developing
and operating office buildings and other commercial properties, a majority of
which are located in suburban areas of metropolitan Atlanta, Georgia. As of May
31, 1996, these 23 real estate limited partnerships represented investments
totaling approximately $224,219,656 from approximately 22,113 investors. (See
"PRIOR PERFORMANCE SUMMARY.")
As of July 31, 1996, Mr. Wells' net worth (exclusive of home, automobiles
and home furnishings) was approximately $_____________ on an estimated fair
market value basis. Mr. Wells' net worth consists principally of investments in
real estate, interests in retirement plans, notes receivable and his stock in
Wells Capital and other closely held corporations and, therefore, does not
represent liquid assets or assets which are readily marketable. (See "RISK
FACTORS.")
The combined net worth of the General Partners as of July 31, 1996, on an
estimated fair market value basis, was in excess of $___________. When the net
worth of Wells Partners is calculated on a generally accepted accounting
principles (GAAP) basis (i.e. Wells Partners' investments are valued at cost
instead of estimated fair market value), the combined net worth of the General
Partners as of July 31, 1996 was approximately $__________. However, the
General Partners' net worth consists primarily of interests in real estate and
closely-held businesses, and thus such net worth is substantially illiquid and
not readily marketable. (See "RISK FACTORS.")
BRIAN M. CONLON (age 38) is the Executive Vice President of Wells Capital.
Mr. Conlon joined Wells Capital in 1985 as a Regional Vice President, served as
Vice President and National Marketing Director from 1991 until April 1996 when
he assumed his current position. Previously, Mr. Conlon was Director of
Business Development for Tishman Midwest Management & Leasing Services Corp.
where he was responsible for marketing the firm's property management and
leasing services to institutions. Mr. Conlon also spent two years as an
Investment Property Specialist with Carter & Associates where he specialized in
acquisitions and dispositions of office and retail properties for institutional
clients. Mr. Conlon received a Bachelor of Business Administration degree from
Georgia State University and a Master of Business Administration degree from the
University of Dallas. Mr. Conlon is a member of the International Association
for Financial Planning (IAFP), a general securities principal and a Georgia real
estate broker. Mr. Conlon also holds the certified commercial investment member
(CCIM) designation of the Commercial Investment Real Estate Institute and the
certified financial planner (CFP) designation of the Certified Financial Planner
Board of Standards, Inc.
LOUIS A. TRAHANT (age 50) is Vice President of Sales and Operations for
Wells Capital. He is responsible for the internal sales support provided to
regional vice presidents and to registered representatives of broker-dealers
participating in offerings of the public partnerships. Mr. Trahant is also
responsible for statistical analysis of sales-related activities, development of
office and communication systems, and hiring of administrative personnel. Mr.
Trahant joined Wells Capital in 1993 as Vice President for Marketing of the
Southern Region and assumed his
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current position in 1995. Prior to joining Wells Capital, Mr. Trahant had
extensive sales and marketing experience in the commercial lighting industry.
He is a graduate of Southeastern Louisiana University, a member of the
International Association for Financial Planning (IAFP) and holds a Series 22
license.
EDNA B. KING (age 60) is the Vice President of Investor Services for Wells
Capital. She is responsible for processing new investments, sales reporting and
investors communications. Prior to joining Wells Capital in 1985, Ms. King
served as the Southeast Service Coordinator for Beckman Instruments and an
office manager for a regional office of Commerce Clearing House. Ms. King holds
an Associate Degree in Business Administration from DeKalb Community College in
Atlanta, Georgia and has completed various courses at the University of North
Carolina at Wilmington.
LUTHER M. BOGGS, JR. (age 28) is Vice President of Marketing for Wells
Capital. He coordinates the development of marketing and sales materials
promoting the public partnerships. Prior to joining Wells Capital in 1995, Mr.
Boggs was a marketing and public relations consultant. He is a graduate of the
University of Georgia and completed a post-graduate course of study at Ohio
University.
MANAGEMENT
The General Partners of the Partnership, Mr. Wells and Wells Partners, will
be responsible for the direction and management of the Partnership, including
acquisition, construction and property management. Any action required to be
taken by the General Partners shall be taken only if it is approved, in writing
or otherwise, by both General Partners, unless the General Partners agree
between themselves to a different arrangement for the approval of action of the
General Partners. The powers and duties of the General Partners are described
in Article XI of the Partnership Agreement. The compensation payable to the
General Partners for performance of their duties is set forth in "COMPENSATION
OF THE GENERAL PARTNERS AND AFFILIATES."
A change in management of the Partnership may be accomplished by removal of
the General Partners or the designation of a successor or additional General
Partner, in each case in accordance with the provisions of the Partnership
Agreement. The Partnership Agreement provides that a General Partner may be
removed and a new General Partner elected upon the written consent or
affirmative vote of Limited Partners owning more than 50% of the Units. The
Partnership Agreement further provides that a General Partner may designate a
successor or additional General Partner with the consent of all other General
Partners and Limited Partners holding more than 50% of the Units, after
providing 90 days written notice to the General Partners and Limited Partners
and provided that the interests of the Limited Partners are not affected
adversely thereby. Generally, except in connection with such a designation, no
General Partner shall have the right to retire or withdraw voluntarily from the
Partnership or to sell, transfer or assign his or its interest without the
consent of the Limited Partners holding more than 50% of the Units. (See
"SUMMARY OF PARTNERSHIP AGREEMENT.")
PROPERTY MANAGER. Partnership Properties will be managed and leased
initially by Wells Management Company, Inc., a Georgia corporation which is
owned by Mr. Wells. Its compensation for management of commercial and
industrial properties will be a 3% leasing fee and a 3% management fee
(totalling 6% of the gross revenues from the operations of each property). A
special one-time leasing fee may be paid on the first leases for newly
constructed properties. This fee must be competitive, and the amount of this
fee received by Wells Management Company, Inc. will be reduced by any amount
paid to an outside broker. The General Partners believe these terms will be no
less favorable to the Partnership than those customary for similar services in
the relevant geographic area. Depending upon the location of certain
Partnership Properties and other circumstances, unaffiliated property management
companies may be retained to render property management services for some
Partnership Properties. (See "COMPENSATION OF THE GENERAL PARTNERS AND
AFFILIATES.")
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In the event that Wells Management Company, Inc. assists a tenant with
tenant improvements, a separate fee may be charged to the tenant and paid by the
tenant. This fee will not exceed 5% of the cost of the tenant improvements.
Wells Management Company, Inc. is engaged in the business of real estate
management. It was organized and commenced active operations in 1983 to lease
and manage real estate projects which the General Partners and their Affiliates
operate or in which Mr. Wells owns an interest. Wells Management Company, Inc.
currently manages in excess of 1,500,000 square feet of office buildings and
shopping centers.
Mr. Wells is the sole shareholder, sole Director and President of Wells
Management Company, Inc. (See "CONFLICTS OF INTEREST.") The other principal
officers of Wells Management Company, Inc. are Michael C. Berndt, Vice President
and Chief Financial Officer, Annakay Warden, Vice President and Director of
National Leasing and Tenant Relations, M. Scott Meadows, Vice President of
Property Management, Robert H. Stroud, Vice President of Leasing, and Michael L.
Watson, Vice President of Development.
The property manager will hire, direct and establish policies for the
Partnership's employees who will have direct responsibility for each property's
operations, including resident managers and assistant managers, as well as
building and maintenance personnel. Some or all of the other Partnership
employees may be employed on a part-time basis and may also be employed by one
or more of the following: (i) the General Partners; (ii) the property manager;
(iii) other partnerships organized by the General Partners and their Affiliates;
and (iv) other persons or entities owning properties managed by the property
manager. The property manager will also direct the purchase of equipment and
supplies and will supervise all maintenance activity.
The management fees to be paid to Wells Management Company, Inc. will
cover, without additional expense to the Partnership, the property manager's
general overhead costs such as its expenses for rent and utilities. However,
certain salaries and other employee-related expenses, travel and other out-of-
pocket expenses of personnel of Wells Management Company, Inc. (other than
controlling persons of the General Partners or their Affiliates) may be
reimbursed by the Partnership to the extent such expenses are directly related
to the management of a specific Partnership Property.
The principal office of Wells Management Company, Inc. is located at 3885
Holcomb Bridge Road, Norcross, Georgia 30092.
DEALER MANAGER. Wells Investment Securities, Inc. (the "Dealer Manager"),
a member firm of the NASD, was organized in May 1984 for the purpose of
participating in and facilitating the distribution of securities of real estate
limited partnerships which may from time to time be sponsored by the General
Partners and their Affiliates.
The Dealer Manager will provide certain wholesaling, sales promotional and
marketing assistance services to the Partnership in connection with the
distribution of the Units offered hereby. It may also sell a limited number of
Units at the retail level. (See "PLAN OF DISTRIBUTION.")
Mr. Wells is the sole shareholder, the sole Director and President of Wells
Investment Securities, Inc. (See "CONFLICTS OF INTEREST.") Brian M. Conlon
serves as Vice President of Wells Investment Securities, Inc.
IRA CUSTODIAN. Wells Advisors, Inc. was organized in 1991 for the purpose
of acting as a non-bank custodian for IRAs investing in the securities of real
estate limited partnerships sponsored by the General Partners and their
Affiliates. Wells Advisors, Inc. charges no fees for such services. Wells
Advisors, Inc. was approved by the Internal Revenue Service to act as a
qualified non-bank custodian for IRAs on March 20, 1992. In circumstances where
Wells Advisors, Inc. acts as an IRA custodian, the authority of Wells Advisors,
Inc. is limited to holding the Units on behalf of the beneficiary of the IRA and
making distributions or reinvestments in Units solely at the discretion of the
beneficiary of the IRA. Wells Advisors, Inc. is not authorized to vote any of
the
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Units held in any IRA except in accordance with the written instructions of the
beneficiary of the IRA. Mr. Wells is the sole Director and President and owns
50% of the common stock and all of the preferred stock of Wells Advisors, Inc.
INVESTMENT OBJECTIVES AND CRITERIA
GENERAL
The Partnership is a limited partnership which was organized to invest in
commercial and industrial properties, including properties which are under
development or construction, are newly constructed or have been constructed and
have operating histories. The Partnership's objectives are: (i) to maximize Net
Cash From Operations; (ii) to preserve, protect and return the Capital
Contributions of the Partners; and (iii) to realize capital appreciation upon
the ultimate sale of Partnership Properties. No assurance can be given that
these objectives will be attained or that the Partnership's capital will not
decrease. The investment objectives of the Partnership may not be changed
except upon approval of a majority-in-interest of the Limited Partners.
Decisions relating to the purchase or sale of Partnership Properties will
be made by the General Partners. See "MANAGEMENT" for a description of the
background and experience of the General Partners.
ACQUISITION AND INVESTMENT POLICIES
The Partnership will seek to invest substantially all of the net Offering
proceeds available for investment on an all cash basis in the acquisition of
commercial and industrial properties, which are under development or
construction, are newly constructed or which have been previously constructed
and have operating histories. While not limited to such investments, the
General Partners will generally seek to invest in commercial properties such as
office buildings, shopping centers and industrial properties which are less than
five years old, the space in which has been leased or preleased to one or more
large corporate tenants who satisfy the General Partners' standards of
creditworthiness. It is anticipated that a majority of the tenants of the
Partnership Properties will be top U.S. corporations or other entities each of
which has a net worth in excess of $100,000,000 or whose lease obligations are
guaranteed by another corporation or entity with a net worth in excess of
$100,000,000. The Partnership may, however, invest in office buildings,
shopping centers or industrial properties which are not preleased to such
tenants or in other types of commercial or industrial properties such as hotels,
motels or business or industrial parks. Notwithstanding the foregoing, the
Partnership will not be actively engaged in the business of operating hotels,
motels or similar properties.
While the Partnership will seek to invest in properties that will satisfy
the primary objective of providing distributions of current cash flow to
investors, due to the fact that a significant factor in the valuation of income-
producing real properties is their potential for future income, the General
Partners anticipate that the majority of properties acquired by the Partnership
will satisfy both attributes of providing potential for capital appreciation and
providing distributions of current cash flow to investors. To the extent
feasible, the General Partners will strive to invest in a diversified portfolio
of properties that will satisfy the Partnership's investment objectives of
maximizing Net Cash From Operations, preserving investors' capital and realizing
capital appreciation upon the ultimate sale of Partnership Properties.
It is anticipated that approximately 81% of the proceeds from the sale of
Units will be used to acquire Partnership Properties and the balance will be
used to pay various fees and expenses. (See "ESTIMATED USE OF PROCEEDS.")
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Unimproved or non-income producing property shall not be acquired except in
amounts and on terms which can be financed by the Offering proceeds or Cash
Flow. Investment in unimproved or non-income producing property may not exceed
15% of the net offering proceeds available for Investment in Properties. A
property which is expected to produce income within two years of its acquisition
will not be considered a non-income producing property. The Partnership will
not acquire property in exchange for Units. Notwithstanding the foregoing, the
Partnership will not be actively engaged in the business of operating hotels,
motels or similar properties.
Investment in property generally will take the form of fee title or of a
leasehold estate having a term, including renewal periods, of at least 40 years,
and may be made either directly or indirectly through investments in joint
ventures, general partnerships, co-tenancies or other co-ownership arrangements
with the developers of the properties, Affiliates of the General Partners or
other persons. (See "Joint Venture Investments" below.) In addition, the
Partnership may purchase properties and lease them back to the sellers of such
properties. While the General Partners will use their best efforts to structure
any such sale-leaseback transaction such that the lease will be characterized as
a "true lease" and so that the Partnership will be treated as the owner of the
property for federal income tax purposes, no assurance can be given that the IRS
will not challenge such characterization. In the event that any such sale-
leaseback transaction is recharacterized as a financing transaction for federal
income tax purposes, deductions for depreciation and cost recovery relating to
such property would be disallowed or significantly reduced. (See "FEDERAL
INCOME TAX CONSEQUENCES - Characterization of Leases.")
The Partnership is not limited as to the geographic area where it may
conduct its operations, but the General Partners intend to invest in properties
located in the United States.
There are no specific limitations on the number or size of properties to be
acquired by the Partnership or on the percentage of net proceeds of this
Offering which may be invested in a single property. The number and mix of
properties acquired will depend upon real estate and market conditions and other
circumstances existing at the time the Partnership is acquiring its properties
and the amount of the net proceeds of this Offering.
In making investment decisions for the Partnership, the General Partners
will consider relevant real property and financial factors, including the
location of the property, its suitability for any development contemplated or in
progress, its income-producing capacity, the prospects for long-range
appreciation, its liquidity and income tax considerations. In this regard, the
General Partners will have substantial discretion with respect to the selection
of specific Partnership investments.
The Partnership will obtain independent appraisals for each property in
which it invests, and the purchase price of each such property will not exceed
its appraised value. However, the General Partners will rely on their own
independent analysis and not on such appraisals in determining whether to invest
in a particular property. It should be noted that appraisals are estimates of
value and should not be relied upon as measures of true worth or realizable
value. Copies of these appraisals will be available for review and duplication
by Limited Partners at the office of the Partnership and will be retained for at
least five years.
The Partnership's obligation to close the purchase of any investment will
generally be conditioned upon the delivery and verification of certain documents
from the seller or developer, including, where appropriate, plans and
specifications, environmental reports, surveys, evidence of marketable title
(subject only to such liens and encumbrances as are acceptable to the General
Partners), audited financial statements covering recent operations of any
properties having operating histories (unless such statements are not required
to be filed with the Securities and Exchange Commission and delivered to
investors), title and liability insurance policies and opinions of counsel in
certain circumstances. The Partnership will not close the purchase of any
property unless and until it obtains an environmental assessment (a minimum of a
Phase I review) for each property purchased and the General Partners are
generally satisfied with the environmental status of the property.
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The Partnership may also enter into arrangements with the seller or
developer of a property whereby the seller or developer agrees that if during a
stated period the property does not generate a specified cash flow, the seller
or developer will pay in cash to the Partnership a sum necessary to reach the
specified cash flow level, subject in some cases to negotiated dollar
limitations.
In determining whether to purchase a particular property, the Partnership
may, in accordance with customary practices, obtain an option on such property.
The amount paid for an option, if any, is normally surrendered if the property
is not purchased and is normally credited against the purchase price if the
property is purchased.
In purchasing, leasing and developing real properties, the Partnership will
be subject to risks generally incident to the ownership of real estate,
including changes in general economic or local conditions, changes in supply of
or demand for similar or competing properties in an area, changes in interest
rates and availability of permanent mortgage funds which may render the sale of
a property difficult or unattractive, and changes in tax, real estate,
environmental and zoning laws. Periods of high interest rates and tight money
supply may make the sale of properties more difficult. The Partnership may
experience difficulty in keeping the properties fully leased due to tenant
turnover, general overbuilding or excess supply in the market area. Development
of real properties is subject to risks relating to the builders' ability to
control construction costs or to build in conformity with plans, specifications
and timetables. (See "RISK FACTORS - Real Estate Risks.")
DEVELOPMENT AND CONSTRUCTION OF PROPERTIES
The Partnership may invest substantially all of the net proceeds available
for investment in properties on which improvements are to be constructed or
completed although the Partnership may not invest in excess of 15% of the net
offering proceeds available for Investment in Properties in properties which are
not expected to produce income within two years of their acquisition. To help
ensure performance by the builders of properties which are under construction,
completion of properties under construction shall be guaranteed at the price
contracted either by an adequate completion bond or performance bond, or, in
appropriate circumstances, the General Partners may rely upon the substantial
net worth of the contractor or developer or a personal guarantee accompanied by
financial statements showing a substantial net worth provided by an Affiliate of
the person entering into the construction or development contract as an
alternative to a completion bond or performance bond.
The Partnership may make periodic progress payments or other cash advances
to developers and builders of its properties prior to completion of construction
only upon receipt of an architect's certification as to the percentage of the
project then completed and as to the dollar amount of the construction then
completed. The Partnership intends to use such additional controls on its
disbursements to builders and developers as it deems necessary or prudent.
The Partnership may directly employ one or more project managers to plan,
supervise and implement the development of any unimproved properties which it
may acquire. Such persons would be compensated directly by the Partnership and,
other than through such employment, will not be affiliated with the General
Partners.
TERMS OF LEASES AND LESSEE CREDITWORTHINESS
The terms and conditions of any lease entered into by the Partnership with
regard to a tenant may vary substantially from those described herein. However,
a majority of leases are expected to be what is generally referred to as "triple
net" leases, which means that the lessee will be required to pay or reimburse
the Partnership for all real estate taxes, sales and use taxes, special
assessments, utilities, insurance and building repairs as well as lease
payments.
The General Partners have developed specific standards for determining the
creditworthiness of potential lessees of Partnership Properties. While
authorized to enter into leases with any type of lessee, the General Partners
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anticipate that a majority of the tenants of the Partnership Properties will be
top U.S. corporations or other entities each of which has a net worth in excess
of $100,000,000 or whose lease obligations are guaranteed by another corporation
or entity with a net worth in excess of $100,000,000.
BORROWING POLICIES
The Partnership will acquire properties on an all cash basis, and the
General Partners do not intend to cause the Partnership to borrow any funds.
However, in order to give the General Partners flexibility in the management of
the Partnership, the Partnership Agreement authorizes the Partnership to borrow
funds (a) for Partnership operating purposes in the event of unexpected
circumstances in which the Partnership's working capital reserves and other cash
resources available to the Partnership become insufficient for the maintenance
and repair of Partnership Properties or for the protection or replacement of the
Partnership's assets, and (b) in order to finance improvement of and
improvements to properties, when the General Partners deem such improvements to
be necessary or appropriate to protect the capital previously invested in the
properties, to protect the value of the Partnership's investment in a particular
property, or to make a particular property more attractive for sale or lease.
The Partnership cannot borrow funds for any other purposes. The aggregate
amount of Partnership borrowings at any given time may not exceed 25% of the
total purchase price of Partnership Properties. The General Partners have
represented that they will not cause the Partnership to incur indebtedness
unless the Partnership first obtains an opinion of counsel that the indebtedness
to be obtained more likely than not will not cause the income of the Partnership
to be characterized as UBTI. Investors should be aware, however, that an
opinion of counsel is based upon various representations and assumptions, and
has no binding effect on the IRS or any court. Accordingly, no assurance can be
given that the conclusions reached in any such opinion of counsel, if contested,
would be sustained by a court, or that any such indebtedness to be obtained by
the Partnership in the future would not cause the income allocated to Limited
Partners that are tax-exempt entities to be taxed as UBTI. (See "FEDERAL INCOME
TAX CONSEQUENCES - Investment by Qualified Plans and Other Tax-Exempt
Entitles.")
If the Partnership does incur indebtedness the repayment of which is
secured by Partnership Properties, it intends to incur only non-recourse
indebtedness in connection with such borrowings, meaning that neither the
Partnership nor any Partner will be personally liable therefor. The lender's
rights on default generally would be limited to foreclosure on the property
which secured the obligation. There is no limitation on the maximum amount of
mortgage indebtedness which may be incurred with respect to any single property;
however, the Partnership anticipates that mortgage indebtedness with respect to
any single property would not exceed 10% of the property's fair market value and
that aggregate borrowings relating to all properties would not exceed 10% of
their combined fair market value. The Partnership will not incur debt to fund
distributions to Limited Partners. If the Partnership incurs mortgage
indebtedness, it would endeavor to obtain level payment financing, meaning that
the amount of debt service payable would be substantially the same each year,
although some mortgages might provide for a so-called "balloon" payment.
The Partnership may borrow funds from the General Partners or their
Affiliates in such situations only if the following qualifications are met: (a)
any such borrowing cannot constitute a "financing" as that term is defined under
the NASAA Guidelines, i.e., all indebtedness encumbering Partnership Properties
or incurred by the Partnership, the principal amount of which is scheduled to be
paid over a period of not less than 48 months, and not more than 50% of the
principal amount of which is scheduled to be paid during the first 24 months;
(b) interest and other financing charges or fees must not exceed the amounts
which would be charged by unrelated lending institutions on comparable financing
for the same purpose in the same locality as the Partnership's principal place
of business; and (c) no prepayment charge or penalty shall be required.
Except in connection with a potential borrowing as described above, the
Partnership will not issue senior securities.
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JOINT VENTURE INVESTMENTS
The Partnership is likely to enter into one or more joint ventures with
Affiliated entities for the acquisition, development or improvement of
properties, under the conditions described below. The Partnership may invest
some or all of the proceeds of the Offering in such joint ventures. In this
connection, the Partnerships may enter into joint ventures with each other, and
either or both of the Partnerships may enter into joint ventures with future
programs sponsored by the General Partners or their Affiliates or Prior Wells
Public Programs. The General Partners also have the authority to enter into
joint ventures, general partnerships, co-tenancies and other participations with
real estate developers, owners and others for the purpose of developing, owning
and operating properties in accordance with the Partnership's investment
policies. (See "RISK FACTORS" and "CONFLICTS OF INTEREST.") In determining
whether to invest in a particular joint venture, the General Partners will
evaluate the real property which such joint venture owns or is being formed to
own under the same criteria described herein for the selection of real property
investments of the Partnership. (See "Acquisition and Investment Policies,"
Development and Construction of Properties," Terms of Leases and Lessee
Creditworthiness," and "Borrowing Practices.")
At such time as the General Partners believe that a reasonable probability
exists that the Partnership will enter into a joint venture with a Prior Wells
Public Program for the acquisition or development of a specific property, this
Prospectus will be supplemented to disclose the terms of such proposed
investment transaction. Based upon the General Partners' experience, in
connection with the development of a property which is currently owned by a
Prior Wells Public Program, this would normally occur upon the signing of
legally binding leases with one or more major tenants for commercial space to be
developed on such property, but may occur before or after any such signing,
depending upon the particular circumstances surrounding each potential
investment. It should be understood that the initial disclosure of any such
proposed transaction cannot be relied upon as an assurance that the Partnership
will ultimately consummate such proposed transaction nor that the information
provided in any such Supplement to this Prospectus concerning any such proposed
transaction will not change after the date of the Supplement. The only
undeveloped property which is currently owned by any of the Prior Wells Public
Programs in which the General Partners believe that there is a realistic
possibility that the Partnership may invest are the undeveloped portions of the
tract of land located in Clemmons, North Carolina, upon a portion of which a
shopping center is being developed by a joint venture among Wells Fund VI, Wells
Fund VII and Wells Fund VIII. (See "PRIOR PERFORMANCE SUMMARY.")
The Partnership may enter into a partnership, joint venture or co-tenancy
with unrelated parties if (i) the management of such partnership, joint venture
or co-tenancy is under the control of the Partnership; (ii) the Partnership, as
a result of such joint ownership or partnership ownership of a property, is not
charged, directly or indirectly, more than once for the same services; (iii) the
joint ownership, partnership or co-tenancy agreement does not authorize or
require the Partnership to do anything as a partner, joint venturer or co-tenant
with respect to the property which the Partnership or the General Partners could
not do directly because of the Partnership Agreement; and (iv) the General
Partners and their Affiliates are prohibited from receiving any compensation,
fees or expenses which are not permitted to be paid under the Partnership
Agreement. In the event that any such co-ownership arrangement contains a
provision giving each party a right of first refusal to purchase the other
party's interest, the Partnership may not have sufficient capital to finance any
such buy-out. (See "RISK FACTORS.")
The Partnership intends to enter into joint ventures with other publicly
registered Affiliated entities for the acquisition of properties, but may only
do so provided that (i) each such co-venturer has substantially identical
investment objectives as those of the Partnership; (ii) the Partnership, as a
result of such joint ownership or partnership ownership of a property, is not
charged, directly or indirectly, more than once for the same services; (iii)
compensation payable to the Partnership by such Affiliate is substantially
identical to that payable to the General Partners by the Partnership; (iv) the
Partnership will have a right of first refusal to buy if such co-venturer elects
to sell its interest in the property held by the joint venture; and (v) the
investment by the Partnership and such Affiliate are on substantially the same
terms and conditions, and each such entity's ownership interest in such joint
venture or partnership shall be based upon the respective proportion of funds
invested in such joint venture or
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partnership by the Partnership and such Affiliate. In the event that the co-
venturer were to elect to sell property held in any such joint venture, however,
the Partnership may not have sufficient funds to exercise its right of first
refusal to buy the other co-venturer's interest in the property held by the
joint venture. In the event that any joint venture with an Affiliated entity
holds interests in more than one property, the interest in each such property
may be specially allocated based upon the respective proportion of funds
invested by each co-venturer in each such property. Entering into such joint
ventures with Affiliated entities will result in certain conflicts of interest.
(See "RISK FACTORS" and "CONFLICTS OF INTEREST - Joint Ventures with Affiliates
of the General Partners.")
DISPOSITION POLICIES
The Partnership anticipates that prior to its termination and dissolution,
all of the Partnership's properties will be sold. The Partnership intends to
hold the various real properties in which it invests until such time as sale or
other disposition appears to be advantageous to achieve the Partnership's
investment objectives or until it appears that such objectives will not be met.
In deciding whether to sell properties, the Partnership will consider factors
such as potential capital appreciation, Cash Flow and federal income tax
considerations, including possible adverse federal income tax consequences to
the Limited Partners. The General Partners anticipate that the Partnership will
sell existing income-producing properties within ten to 12 years after
acquisition and will sell property acquired for development within ten to 12
years from the date of completion of such development. However, the General
Partners may exercise their discretion as to whether and when to sell a
property, and the Partnership will have no obligation to sell properties at any
particular time, except in the event that Limited Partners holding a majority of
the Units vote to liquidate the Partnership in response to a formal proxy to
liquidate. (See "SUMMARY OF PARTNERSHIP AGREEMENT - Proxy to Liquidate.")
Cash Flow will not be reinvested in Partnership Properties. In addition,
Sale Proceeds generally will not be reinvested but will be distributed to the
Partners. Thus, the Partnership is intended to be self-liquidating in nature.
However, Sale Proceeds need not be so distributed if such proceeds are, in the
discretion of the General Partners, (i) used to purchase land underlying any of
the Partnership's Properties, (ii) used to buy out the interest of any co-
venturer or joint venture partner in a property which is jointly owned, (iii)
held as working capital reserves, or (iv) used to make capital improvements in
existing Partnership Properties. Notwithstanding the above, reinvestment of
Sale Proceeds will not occur unless sufficient cash will be distributed to pay
any federal or state income tax (assuming Limited Partners will be subject to a
35% combined federal and state tax bracket) created by the sale of the property.
Although not required to do so, the Partnership will generally seek to sell
its properties for all cash. The Partnership may, however, accept terms of
payment from a buyer which include purchase money obligations secured by
mortgages as partial payment, depending upon then prevailing economic conditions
customary in the area in which the property being sold is located, credit of the
buyer and available financing alternatives. Some properties sold by the
Partnership may be sold on the installment basis under which only a portion of
the sales price will be received in the year of sale, with subsequent payments
spread over a number of years. In such event, the full distribution by the
Partnership of the net proceeds of any sale may be delayed until the notes are
paid, sold or financed.
OTHER POLICIES
The Partnership will not invest as a limited partner in other limited
partnerships.
Except in connection with sales of properties by the Partnership where
purchase money obligations may be taken by the Partnership as partial payment,
the Partnership will not make loans to any person, nor will the Partnership
underwrite securities of other issuers, offer securities (except potentially for
purchase money obligations to sellers) in exchange for property, or invest in
securities of other issuers for the purpose of exercising control.
Notwithstanding the foregoing, the Partnership may invest in joint ventures or
partnerships as described above and
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in a corporation where real estate is the principal asset and its acquisition
can best be effected by the acquisition of the stock of such corporation,
subject to the limitations set forth below.
In an attempt to comply with the "real estate operating company" exemption
under the Plan Asset Regulations (see "INVESTMENT BY TAX-EXEMPT ENTITIES AND
ERISA CONSIDERATIONS"), the General Partners intend to invest more than 50% of
the Partnership's assets in real estate which is managed or developed and with
respect to which the Partnership will have the right to participate
substantially in the management or development activities. Specifically, the
General Partners intend to structure the management and development activities
of the Partnership such that at all times more than 50% of the Partnership's
assets are invested in multi-tenant properties with individually negotiated
leases whereby maintenance of the common areas and general maintenance
activities with respect to such properties will be the Partnership's
responsibility and not passed through to the lessees of such properties.
In addition, in an attempt to qualify for the 90% qualified income
exception to the treatment of the Partnership as a publicly traded partnership
taxable as a corporation under Section 7704 of the Code, the General Partners
intend to operate the Partnership such that at all times more than 90% of the
gross income of the Partnership will be derived from interest, real property
rents (excluding rents which are contingent on the profits of the lessees and
rents from rental of personal property) and gains from the sale of real
property. (See "FEDERAL INCOME TAX CONSEQUENCES - Publicly Traded
Partnerships.")
The Partnership will not: (i) issue any Units after the termination of the
Offering or issue Units in exchange for property; (ii) make investments in real
estate mortgages (except in connection with the sale or other disposition of a
property); (iii) make loans to the General Partners or their Affiliates; (iv)
invest in or underwrite the securities of other issuers, including any publicly
offered or traded limited partnership interests, except for permitted temporary
investments pending utilization of Partnership funds as described below in
"CUSTODIAL AGENCY AGREEMENT," provided that following one year after the
commencement of operations of the Partnership no more than 45% of the value of
the Partnership's total assets (exclusive of Government securities and cash
items) will consist of, and no more than 45% of the Partnership's net income
after taxes (for the last four fiscal quarters combined) will be derived from,
securities other than (i) Government securities, or (ii) securities in a
corporation where real estate is the principal asset and the acquisition of such
real estate can best be effected by the acquisition of the stock of such
corporation, provided that any such corporation is either (A) a corporation
which is a majority owned subsidiary of the Partnership and which is not an
investment company, or (B) a corporation which is controlled primarily by the
Partnership, through which corporation the Partnership engages in the business
of acquisition and operation of real estate and which is not an investment
company.
CUSTODIAL AGENCY AGREEMENT
The Partnership entered into a Custodial Agency Agreement (the "Custodial
Agency Agreement") with The Bank of New York (the "Agent"), whereby all proceeds
of this Offering obtained from Limited Partners, all Partnership Properties to
be acquired by the Partnership, and the net proceeds from any sale of a
Partnership Property will be placed in the custody of the Agent, which will hold
such funds and properties as agent for the Partnership. The purpose for
entering into the Custodial Agency Agreement is to ensure that Partnership funds
and Partnership Properties are protected against fraud and theft. The Agent is
not in any way affiliated with the General Partners or their Affiliates.
The Agent will initially act as the Escrow Agent until the closing of the
Minimum Offering. Thereafter, under the terms of the Custodial Agency
Agreement, cash obtained from investors representing proceeds of this Offering
will continue to be delivered to the Agent and will be deposited into a
custodial account. Twenty percent of such Offering proceeds (representing
selling commissions, organizational and offering expenses, acquisition advisory
fees and initial working capital reserves) will immediately be redeposited into
a separate account in the
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name of the Partnership. The remaining 80% of such proceeds will be invested in
certificates of deposit, short-term debt obligations and interest-bearing
accounts. All interest and other income earned on the proceeds held by the
Agent in the custodial account, less the applicable fees described below, will
accrue to the benefit of the Partnership and be deposited into the Partnership's
account on a monthly basis.
When a property to be acquired by the Partnership is identified, upon
written instructions from the Partnership and receipt of an appraisal from an
independent appraiser, the Agent is authorized and directed under the Custodial
Agency Agreement to disburse funds held in the custodial account for the
acquisition of such property. The purchase price for any property shall not
exceed its appraised value. Title to properties acquired on behalf of the
Partnership or, in certain instances, title to joint venture or partnership
interests in which the Partnership may invest, will be held in the name of the
Agent, as agent for the Partnership. Title to properties may be held in any
legally recognized form, including in fee simple, undivided interest, as a co-
tenant or as a lessee. There is no requirement that any joint venture partner,
co-tenant or other co-owner of properties purchased jointly with the Partnership
also be subject to a custodial agency agreement.
All properties acquired will be managed by Wells Management Company, Inc.
or by such other management companies that may be designated by the Partnership.
All rents, revenues and other income relating to Partnership Properties shall be
payable to the Partnership, and the Partnership will be responsible for paying
all operating expenses, maintenance, repairs, taxes, insurance and liabilities
relating to such properties and for making distributions of Net Cash From
Operations, if any.
When the Partnership decides to sell any of its properties, upon written
instruction from the Partnership and the receipt of an appraisal from an
independent appraiser evidencing that the sales price of the property to be sold
is not less than 90% of the appraised value of such property, the Agent will be
authorized to execute such real estate transfer documents as may be necessary to
effect any such sale of a Partnership property. After the closing, the
Partnership's allocable share of Sale Proceeds shall be paid to the Agent and
deposited into the custodial account. All such Sale Proceeds will be disbursed
to the Limited Partners and the General Partners of the Partnership directly by
the Agent upon receipt of and pursuant to a list obtained from the General
Partners setting forth the names, amounts to be disbursed and addresses of the
Limited Partners of the Partnership.
The Custodial Agency Agreement provides that the Agent shall in all
instances hold itself out as agent of the Partnership and not as principal in
all dealings with third parties. The Custodial Agency Agreement prohibits the
Agent from applying funds or properties held on behalf of the Partnership in any
manner except for the exclusive benefit of the Partnership. While the Agent
will have certain fiduciary duties to the Partnership pursuant to the Custodial
Agency Agreement, the General Partners will not be contracting away their
fiduciary duties under common law, and the existence of the Custodial Agency
Agreement between the Agent and the Partnership will not in any way reduce or
eliminate the fiduciary duties the General Partners have to the Partnership and
the Limited Partners. Under the Custodial Agency Agreement, the Partnership
agrees to indemnify and hold the agent harmless from any liabilities, losses,
claims, damages and expenses which the Agent might sustain as a result of acting
as agent for the Partnership, provided that any such liability is not the result
of gross negligence or willful misconduct by the Agent.
The Custodial Agency Agreement provides that the Agent shall be paid during
the term of the Custodial Agency Agreement an annual administrative fee equal to
five basis points ($500 per $1,000,000 held) and an automated cash management
fee of .25% per annum, each of which fees are calculated based on the market
value of assets held as agent for the Partnership.
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REAL PROPERTY INVESTMENTS
As of the date of this Prospectus, the Partnership has not acquired nor
contracted to acquire any specific real properties. The General Partners are
continually evaluating various potential property investments and engaging in
discussions and negotiations with sellers, developers and potential tenants
regarding the purchase and development of properties for the Partnership and
prior programs. At such time during the negotiations for a specific property as
the General Partners believe that a reasonable probability exists that the
Partnership will acquire such property, this Prospectus will be supplemented to
disclose the negotiations and pending acquisition. Based upon the General
Partners' experience and acquisition methods, this will normally occur on the
signing of a legally binding purchase agreement for the acquisition of a
specific property, but may occur before or after such signing or upon the
satisfaction or expiration of major contingencies in any such purchase
agreement, depending on the particular circumstances surrounding each potential
investment. A supplement to this Prospectus will describe any improvements
proposed to be constructed thereon and other information considered appropriate
for an understanding of the transaction. Further data will be made available
after any pending acquisition is consummated, also by means of a supplement to
this Prospectus, if appropriate. IT SHOULD BE UNDERSTOOD THAT THE INITIAL
DISCLOSURE OF ANY PROPOSED ACQUISITION CANNOT BE RELIED UPON AS AN ASSURANCE
THAT THE PARTNERSHIP WILL ULTIMATELY CONSUMMATE SUCH PROPOSED ACQUISITION NOR
THAT THE INFORMATION PROVIDED CONCERNING THE PROPOSED ACQUISITION WILL NOT
CHANGE BETWEEN THE DATE OF SUCH SUPPLEMENT AND ACTUAL PURCHASE.
It is intended that the proceeds of this Offering will be invested in
properties in accordance with the Partnership's investment policies. In the
event that all of the Units offered hereby are sold, it is anticipated that the
Partnership will invest in four to six properties. Funds available for
investment in Partnership Properties which are not expended or committed to the
acquisition or development of specific real properties on or before the later of
the second anniversary of the effective date of the Registration Statement or
one year after the termination of the Offering and not reserved for working
capital purposes will be returned to the Limited Partners. (See "DISTRIBUTIONS
AND ALLOCATIONS" as to when funds shall be deemed committed for this purpose.)
Adequate insurance coverage will be obtained for all properties in which
the Partnership will invest.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of the date of this Prospectus, the Partnership had not yet commenced
active operations. The Partnership will not commence active operations until it
has received and accepted subscriptions for a minimum of 125,000 Units
($1,250,000).
Following achievement of such funding level, subscription proceeds may be
released to the Partnership from escrow and applied to the payment or
reimbursement of selling commissions and other Organization and Offering
Expenses, leaving estimated net proceeds available for investment and operations
of approximately $1,062,500. (See "ESTIMATED USE OF PROCEEDS.") Thereafter,
the Partnership will experience a relative increase in liquidity as additional
subscriptions for Units are received, and a relative decrease in liquidity as
net Offering proceeds are expended in connection with the acquisition,
development and operation of Partnership Properties.
As of the initial date of this Prospectus, the Partnership has not entered
into any arrangements creating a reasonable probability that any specific
property will be acquired by the Partnership. The number of Partnership
Properties to be acquired by the Partnership will depend upon the number of
Units sold and the resulting amount of the net proceeds available for investment
in properties available to the Partnership. (See "RISK FACTORS.")
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The General Partners are not aware of any material trends or uncertainties,
favorable or unfavorable, other than national economic conditions affecting real
estate generally, which may be reasonably anticipated to have a material impact
on either capital resources or the revenues or income to be derived from the
operation of Partnership Properties.
Until required for the acquisition, development or operation of properties,
net Offering proceeds will be kept in short-term, liquid investments. Because
the Partnership will purchase properties on an all cash basis and the vast
majority of leases for the properties acquired by the Partnership will provide
for tenant reimbursement of operating expenses, it is not anticipated that a
permanent reserve for maintenance and repairs of Partnership properties will be
established. However, to the extent that the Partnership has insufficient funds
for such purposes, the General Partners will advance to the Partnership an
aggregate amount of up to 1% of Gross Offering Proceeds for maintenance and
repairs of Partnership Properties. The General Partners also may, but are not
required to, establish reserves from Gross Offering Proceeds, out of Cash Flow
generated by operating properties or out of Nonliquidating Net Sale Proceeds.
INVESTMENT BY TAX-EXEMPT ENTITIES AND
ERISA CONSIDERATIONS
While the General Partners have attempted to structure the Partnership in
such a manner that it will be an attractive investment vehicle for Qualified
Plans, IRAs and other tax-exempt entities, in considering an investment in the
Partnership of a portion of the assets of a Retirement Plan, the plan's
fiduciary should consider all applicable provisions of the Code and ERISA. In
this regard, IRAs which are not sponsored or endorsed by an employer or by an
employee organization and Keogh Plans under which only partners or a sole
proprietor are participants generally are not subject to the provisions of
ERISA; however, fiduciaries of such accounts should review carefully the
exceptions set forth below. In general, Qualified Plan fiduciaries should
consider: (i) whether the investment is in accordance with the documents and
instruments governing such Qualified Plan; (ii) whether the investment satisfies
the prudence and diversification requirements of Sections 404(a)(1)(B) and
404(a)(1)(C) of ERISA; (iii) whether the investment will result in UBTI to the
Qualified Plan (or to an investing IRA, Keogh Plan or other tax-exempt entity)
(see "FEDERAL INCOME TAX CONSEQUENCES - INVESTMENT BY QUALIFIED PLANS AND OTHER
TAX-EXEMPT ENTITIES"); (iv) whether there is sufficient liquidity for the
Qualified Plan after taking this investment into account; (v) the need to value
the assets of the Qualified Plan annually; and (vi) whether the investment would
constitute or give rise to a prohibited transaction under either Section 406 of
ERISA or Section 4975 of the Code.
ERISA also requires generally that the assets of employee benefit plans be
held in trust and that the trustee, or a duly authorized investment manager
(within the meaning of Section 3(38) of ERISA), have exclusive authority and
discretion to manage and control the assets of the plan. Persons who are
fiduciaries of employee benefit plans subject to ERISA have certain duties
imposed on them by ERISA and, as noted above, certain transactions between an
employee benefit plan and the parties in interest with respect to such plan
(including fiduciaries) are prohibited. Similar prohibitions apply to
Retirement Plans under the Code, and IRAs and Keogh Plans covering only self-
employed individuals which are not subject to ERISA are, nevertheless, subject
to the prohibited transaction rules under the Code. For purposes of both ERISA
and the Code, any person who exercises any authority or control with respect to
the management or disposition of the assets of a Retirement Plan is considered
to be a fiduciary of such Retirement Plan (subject to certain exceptions not
here relevant).
Potential investors who intend to purchase Units in their IRAs and any
trustee of an IRA or other fiduciary of a Retirement Plan considering an
investment in Units should take into consideration the limited liquidity of an
investment in the Units as it relates to applicable minimum distribution
requirements under the Code for the IRA or other Retirement Plan. If the Units
are still held in the IRA or Retirement Plan and the Partnership Properties have
not yet been sold at such time as mandatory distributions are required to
commence to the IRA beneficiary
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or Qualified Plan participant, applicable provisions of the Code and Regulations
will likely require that a distribution in kind of the Units be made to the IRA
beneficiary or Qualified Plan participant. Any such distribution in kind of
Units must be included in the taxable income of the IRA beneficiary or Qualified
Plan participant for the year in which the Units are received at the then
current fair market value of the Units without any corresponding cash
distributions with which to pay the income tax liability arising out of any such
distribution. (See "RISK FACTORS.")
PLAN ASSETS - GENERALLY
ERISA provides a comprehensive statutory scheme regarding the investment in
and management of a plan's assets. While the General Partners have used their
best efforts to structure the Partnership so that the assets of the Partnership
will not be deemed to be assets of the Retirement Plans investing as Limited
Partners ("Plan Assets"), in the event that the assets of the Partnership were
deemed to be Plan Assets, the General Partners would be considered to be plan
fiduciaries under ERISA (and the Code), and certain contemplated transactions
between the Partnership and the General Partners may be deemed to be "prohibited
transactions." Additionally, if the assets of the Partnership are deemed to be
Plan Assets, the standards of prudence and other provisions of Title I of ERISA
applicable to investments by Retirement Plans would extend (as to all plan
fiduciaries) to the General Partners with respect to investments made by the
Partnership.
PLAN ASSETS - CURRENT LAW
The definition of Plan Assets was addressed initially by the Department of
Labor in 1975 by the adoption of Interpretive Bulletin 75-2, which provided that
the assets of a corporation or partnership in which an employee benefit plan
invested would not generally be treated as assets of such plan. The Department
stated that:
Generally, investment by a plan in securities (within the meaning of
section 3(20) of the Employee Retirement Income Security Act of 1974) of a
corporation or partnership will not, solely by reason of such investment,
be considered to be an investment in the underlying assets of such
corporation or partnership so as to make such assets of the entity "plan
assets" and thereby make a subsequent transaction between the party in
interest and the corporation or partnership a prohibited transaction under
Section 406 of the Act.
On November 13, 1986, the Department of Labor issued final regulations (the
"Plan Asset Regulations") relating to the definition of Plan Assets, which
became effective generally for the characterization of assets in investments
made after March 13, 1987. The Plan Asset Regulations adopt the general
statement regarding Plan Assets set forth in Interpretive Bulletin 75-2;
however, the Plan Asset Regulations further provide that assets of investment
entities in which Retirement Plans make equity investments will be treated as
assets of such plans unless such investments are in publicly offered securities,
are in securities offered by an investment company registered under the
Investment Company Act of 1940, or come within one of the specific exemptions
set forth below. As the Partnership is not a registered investment company, the
exemptions contained in the Plan Asset Regulations which may apply to the
Partnership include: (i) investments in "publicly offered securities"
(generally interests which are freely transferable, widely-held and registered
with the Securities and Exchange Commission); (ii) investments in interests in
"real estate operating companies;" and (iii) investments in which equity
participation by "benefit plan investors" is not significant. The Plan Asset
Regulations provide that equity participation in an entity would be
"significant" if at any time 25% or more of the value of any class of equity
interest is held by benefit plan investors. The term "benefit plan investors"
is broadly defined to include any employee pension or welfare benefit plan,
whether or not subject to ERISA, any plan described in Section 4975(e)(1) of the
Code and any entity whose underlying assets include Plan Assets by reason of
plan investment in the entity. The General Partners do not anticipate that the
Partnership will qualify for the exemption described in (iii) above.
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EXEMPTIONS UNDER PLAN ASSET REGULATIONS
As noted above, if a Retirement Plan acquires "publicly offered
securities," the assets of the issuer of the securities are not deemed to be
Plan Assets. Under the Plan Asset Regulations, the definition of publicly
offered securities requires that such securities must be "widely-held," "freely
transferable" and must satisfy certain registration requirements under federal
securities laws. Although the Partnership should satisfy the registration
requirements under this definition, the determinations of whether a security is
"widely-held" and "freely transferable" are inherently factual matters. The
Plan Asset Regulations provide that a class of securities will be "widely-held"
if it is held by 100 or more persons. Accordingly, to preserve the ability of
the Partnership to qualify for this exemption, the General Partners may suspend
the offering of Units to Retirement Plans, if upon the closing of the Minimum
Offering less than 100 persons have acquired each class of Units and, in such
case, would continue the offering to Retirement Plans only after at least 100
persons have acquired each class of Units.
With respect to the "freely transferable" requirement, the Plan Asset
Regulations provide several examples of restrictions on transferability with
respect to offerings in which the minimum investment is $10,000 or less which,
absent unusual circumstances, will not, either alone or in any combination,
cause the rights of ownership to be considered not "freely transferable." The
allowed restrictions are based upon restrictions commonly found in public real
estate limited partnerships which are imposed to comply with state and federal
law, to assure continued eligibility for favorable tax treatment and to avoid
certain practical administrative problems. The Partnership Agreement is
intended to satisfy the freely transferable requirement with respect to the
Units. It should be noted in this regard, however, that because certain adverse
tax consequences can result if the Partnership were to be characterized as a
"publicly traded partnership" under Section 7704 of the Code (see "FEDERAL
INCOME TAX CONSEQUENCES - PUBLICLY TRADED PARTNERSHIPS"), certain additional
restrictions on the transferability of Units have been incorporated into the
Partnership Agreement which are intended to prevent such reclassification of the
Partnership as a publicly traded partnership (the "Section 7704 Restrictions").
In this regard, the Plan Asset Regulations provide specifically that any
"restriction on, or prohibition against, any transfer or assignment which would
either result in a termination or reclassification of the entity for federal or
state tax purposes" will ordinarily not alone or in combination with other
restrictions affect a finding that securities are "freely transferable." The
Plan Asset Regulations were promulgated prior to the enactment of Section 7704
of the Code, however, and accordingly, the incorporation of the Section 7704
Restrictions into the Partnership Agreement may have the effect of making the
"publicly offered securities" exemption unavailable to the Partnership.
On the other hand, if the Department of Labor interprets the Section 7704
Restrictions in the Partnership Agreement consistently with the specific
exemption language in the Plan Asset Regulations set forth above, the
Partnership should qualify for the publicly offered securities exemption
contained in the Plan Asset Regulations. However, because of the factual nature
of the determination and lack of guidance as to the meaning of the term "freely
transferable," particularly in light of the Section 7704 Restrictions, there can
be no assurance that the Partnership will, in fact, qualify for this exemption.
Even if the Partnership were not to qualify for the "publicly offered
securities" exemption, the Plan Asset Regulations also provide an exemption from
the Plan Assets definition with respect to securities issued by a "real estate
operating company." An entity is a real estate operating company if, during the
relevant valuation periods defined in the Plan Asset Regulations, at least 50%
of its assets (other than short-term investments pending long-term commitment or
distribution to investors) valued at cost, are invested in real estate which is
managed or developed and with respect to which the Partnership has the right to
participate substantially in the management or development activities. The
Partnership intends to devote more than 50% of its assets to management and
development of real estate; however, an example contained in the Plan Asset
Regulations indicates that, although some management and development activities
may be performed by independent contractors rather than by the entity itself, if
over one-half of the entity's properties are acquired subject to long-term
leases under which substantially all management and maintenance activities with
respect to the properties are the responsibility of the lessees thereof, then
the entity is not eligible for the real estate operating company exemption.
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In an attempt to comply with the real estate operating company exemption
under the Plan Asset Regulations, the General Partners intend to structure the
management and development activities of the Partnership such that at all times
more than 50% of the Partnership's assets are invested in multi-tenant
properties with individually negotiated leases whereby maintenance of the common
areas and general maintenance activities with respect to such properties will be
the Partnership's responsibility and not passed through to the lessees of such
properties. (See "INVESTMENT OBJECTIVES AND CRITERIA.") Due to the uncertainty
of the application of the standards set forth in the examples in the Plan Asset
Regulations, however, there can be no assurance as to the Partnership's ability
to qualify for the real estate operating company exemption.
PLAN ASSET CONSEQUENCES - PROHIBITED TRANSACTION EXCISE TAX
If the Partnership were deemed to hold Plan Assets, additional issues
relating to the "Plan Assets" and "prohibited transaction" concepts of ERISA and
the Code arise by virtue of the General Partners' ownership of interests in the
Partnership and the possible relationship between the General Partners or the
Partnership and any Retirement Plan which may purchase Units. Section 406 of
ERISA and Section 4975 of the Code prohibit Retirement Plans from engaging in
certain transactions with specified parties involving Plan Assets. These
parties are referred to as "parties in interest," as defined in Section 3(14) of
ERISA, and as "disqualified persons," as defined in Section 4975(e)(2) of the
Code. These definitions include "persons providing services to the plan" and
certain of their affiliates. Thus, if the General Partners' interest in the
Partnership were deemed to exceed certain threshold levels set forth in the Code
and ERISA, the Partnership, itself, could be deemed to be a disqualified person
and an investment in Units could be a prohibited transaction; however, the
General Partners do not believe such thresholds have been exceeded with respect
to their interest in the Partnership or that the Partnership should otherwise be
deemed to be a party in interest or a disqualified person. Further, any
transaction between the Partnership and a party in interest or disqualified
person with respect to an investing Retirement Plan could be a prohibited
transaction if the Partnership were deemed to hold Plan Assets.
In addition, if the Partnership is deemed to hold Plan Assets, each General
Partner could be characterized as a "fiduciary" with respect to such assets, and
would thus be a "party in interest" under ERISA and a "disqualified person"
under the Code with respect to investing Retirement Plans. If such relationship
were to exist, various transactions between the General Partners or their
Affiliates and the Partnership could constitute prohibited transactions because
a fiduciary may not deal with Plan Assets in its own interest or represent a
person whose interests are adverse to those of the plan in a transaction
involving Plan Assets. In addition, it could be argued that, because the
General Partners share in certain Partnership distributions and tax allocations
in a manner disproportionate to their Capital Contributions to the Partnership,
the General Partners are being compensated directly out of Plan Assets rather
than the Partnership assets in exchange for the provision of services, i.e.,
establishment of the Partnership and making it available as an investment to
Retirement Plans. If this were the case, absent a specific exemption applicable
to the transaction, a prohibited transaction could be deemed to have occurred
between investing Retirement Plans and the General Partners.
If it is determined by the Department of Labor or the IRS that a prohibited
transaction has occurred, the General Partners and any party in interest that
has engaged in any such prohibited transaction would be required to eliminate
the prohibited transaction by reversing the transaction and make good to the
Retirement Plan any loss resulting from the prohibited transaction. In
addition, each party in interest would be liable to pay an excise tax equal to
5% of the amount involved in the transaction for each year in which the
transaction remains uncorrected. Moreover, if the fiduciary or party in
interest does not correct the transaction within a specified period, the party
in interest could also be liable for an additional excise tax in an amount equal
to 100% of the amount involved. Plan fiduciaries who make the decision to
invest in Units could, under certain circumstances, be liable as co-fiduciaries
for actions taken by the Partnership or the General Partners.
Special rules apply to an investing IRA. If the Partnership were deemed to
be a party in interest or disqualified person, as described above, the tax-
exempt status of the IRA could be lost by reason of such investment
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because a transaction between the Partnership and the account would be deemed
under Section 4975 of the Code to constitute a prohibited transaction.
It should be noted that even if the assets of the Partnership are deemed,
as the General Partners anticipate, not to be Plan Assets under the Plan Asset
Regulations, Interpretive Bulletin 75-2 indicates that in certain circumstances
an investment in the Partnership by a Retirement Plan may still be a prohibited
transaction. For example, if a Retirement Plan may, by reason of its
investment, compel the Partnership to invest in a property or engage in
transactions which such Retirement Plan could not enter into directly under the
prohibited transaction rules, then the provisions of Interpretive Bulletin 75-2
and the Plan Asset Regulations would not preclude recharacterization of such
investment as a prohibited transaction. The General Partners have represented
in this regard that no such arrangements will be entered into with investing
Retirement Plans, and therefore it is unlikely that these provisions of
Interpretive Bulletin 75-2 would be invoked by the Department of Labor.
ANNUAL VALUATION
Fiduciaries of Retirement Plans are required to determine annually the fair
market value of the assets of such Retirement Plans, typically, as of the close
of a plan's fiscal year. To enable the fiduciaries of Retirement Plans subject
to the annual reporting requirements of ERISA to prepare reports relating to an
investment in the Partnership, Limited Partners will be furnished with an annual
statement of estimated Unit value. This annual statement will report the
estimated value of each Unit based upon the estimated amount a Unit holder would
receive if all Partnership assets were sold as of the close of the Partnership's
fiscal year for their estimated values and if such proceeds (without reduction
for selling expenses), together with the other funds of the Partnership, were
distributed in liquidation of the Partnership. Such estimated values will be
based upon annual appraisals of Partnership Properties performed by the General
Partners, and no independent appraisals will be obtained. However, the General
Partners are required to obtain the opinion of an independent third party
stating that their estimates of value are reasonable and were prepared in
accordance with appropriate methods for valuing real estate. For the first
three full fiscal years following the termination of the Offering, the value of
a Unit will be deemed to be $10.00, and no valuations will be performed. The
estimated value per Unit will be reported to Limited Partners in the
Partnership's next annual or quarterly report on Form 10-K or 10-Q sent to the
Limited Partners for the period immediately following completion of the
valuation process. There can be no assurance that: (i) the estimated value per
Unit will actually be realized by the Partnership or by the Limited Partners
upon liquidation (in part because estimates do not necessarily indicate the
price at which properties could be sold and because no attempt will be made to
estimate the expenses of selling any property); or (ii) Limited Partners could
realize estimated net asset value if they were to attempt to sell their Units,
because no public market may exist for such Units.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended to summarize all of the federal income
tax considerations material to an investment in the Partnership. This summary
is based upon the Code, Treasury Regulations (including Temporary and Proposed
Regulations) promulgated thereunder ("Regulations"), current positions of the
Internal Revenue Service (the "IRS") contained in revenue rulings and revenue
procedures, other current administrative positions of the IRS and existing
judicial decisions in effect as of the date of this Prospectus. Investors
should note that it is not feasible to comment on all aspects of federal, state
and local tax laws that may affect each Limited Partner in the Partnership. The
federal income tax considerations discussed below are necessarily general in
nature, and their application may vary depending upon a Limited Partner's
particular circumstances. No representations are made as to state and local tax
consequences. Further, the Partnership does not intend to request a ruling from
the IRS with respect to any of the federal income tax matters discussed below,
and on certain matters no ruling could be obtained even if requested.
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Investors should also note that a great deal of uncertainty exists with
respect to certain recently enacted and amended provisions of the Code. There
can be no assurance that the present federal income tax laws applicable to
Limited Partners and the operation of the Partnership will not be further
changed prospectively or retroactively by additional legislation, by new
Regulations, by judicial decisions or by administrative interpretations, any of
which could adversely affect a Limited Partner, nor is there any assurance that
there will not be a difference of opinion as to the interpretation or
application of current federal income tax laws as discussed herein.
FOR THE FOREGOING REASONS, EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT
WITH HIS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE AND LOCAL INCOME TAX
CONSEQUENCES ARISING FROM THE PURCHASE OF UNITS. NOTHING IN THIS PROSPECTUS (OR
ANY PRIOR OR SUBSEQUENT COMMUNICATION FROM THE GENERAL PARTNERS, THEIR
AFFILIATES, EMPLOYEES OR ANY PROFESSIONAL ASSOCIATED WITH THIS OFFERING) IS OR
SHOULD BE CONSTRUED AS LEGAL OR TAX ADVICE TO A POTENTIAL INVESTOR IN THE
PARTNERSHIP. INVESTORS SHOULD BE AWARE THAT THE IRS MAY NOT AGREE WITH ALL TAX
POSITIONS TAKEN BY THE PARTNERSHIP AND THAT LEGISLATIVE, ADMINISTRATIVE OR
JUDICIAL DECISIONS MAY REDUCE OR ELIMINATE ANTICIPATED TAX BENEFITS OF AN
INVESTMENT IN THE PARTNERSHIP.
IT IS NOT ANTICIPATED THAT LIMITED PARTNERS HOLDING CLASS A STATUS UNITS
WILL RECEIVE ANY TAX BENEFITS WHATSOEVER. THEREFORE, ANY DISCUSSION HEREIN OF
THE AVAILABILITY AND EXTENT OF INCOME TAX BENEFITS TO LIMITED PARTNERS WILL
APPLY PRINCIPALLY TO LIMITED PARTNERS HOLDING CLASS B STATUS UNITS.
PROSPECTIVE INVESTORS WHO ARE FIDUCIARIES OF RETIREMENT PLANS SHOULD
CAREFULLY READ "INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA CONSIDERATIONS" AND
"INVESTMENT BY QUALIFIED PLANS AND OTHER TAX-EXEMPT ENTITIES" IN THIS SECTION.
The discussion below is directed primarily to individual taxpayers who are
citizens of the United States. Accordingly, persons who are trusts, corporate
investors in general, corporate investors that are subject to specialized rules
(such as Subchapter S corporations) and any potential investor who is not a
United States citizen are cautioned to consult their own personal tax advisors
before investing in the Partnership.
TAX OPINION
The Partnership retained Holland & Knight ("Counsel") to render an opinion
concerning the material federal income tax issues relating to an investment in
the Partnership (the "Tax Opinion"). Potential investors should be aware that
the opinions of Counsel in the Tax Opinion are based upon the accuracy of the
facts described in this Prospectus and facts represented to Counsel by the
General Partners, and assume that the Partnership will be operated strictly in
accordance with the Partnership Agreement. The accuracy of such facts and
representations is absolutely critical to the accuracy of the Tax Opinion, and
any alteration of the facts may adversely affect the opinions rendered.
Furthermore, the opinions of Counsel in the Tax Opinion are based upon existing
law, applicable Regulations and current published administrative positions of
the IRS contained in revenue rulings, revenue procedures and judicial decisions,
all of which are subject to change either prospectively or retroactively.
Changes in the Code and the Regulations subsequent to the date of the Tax
Opinion are not addressed therein, and any such changes could have a material
adverse effect upon the tax treatment of an investment in the Partnership.
In reliance on certain representations and assumptions described herein and
in the Tax Opinion, and subject to the qualifications set forth herein and in
the Tax Opinion, Counsel in the Tax Opinion concludes that, in the aggregate,
substantially more than half of the material federal income tax benefits, in
terms of their financial impact on a typical investor, will more likely than not
be realized by an investor in the Partnership, and that the following material
tax issues are more likely than not to have a favorable outcome on the merits
for federal income tax purposes if challenged by the IRS, litigated and
judicially decided:
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(1) The Partnership will be classified as a partnership for federal income
tax purposes and not as an association taxable as a corporation;
(2) The Partnership will not be classified as a "publicly traded
partnership" under Section 7704 of the Code since the Partnership Agreement
limits transfers of Units, except for transfers of Units which satisfy
applicable safe harbors from "publicly traded partnership" status adopted by the
IRS;
(3) A Limited Partner's interest in the Partnership will be treated as a
passive activity;
(4) Partnership items of income, gain, loss, deduction and credit will be
allocated among the General Partners and the Limited Partners substantially in
accordance with the allocation provisions of the Partnership Agreement;
(5) The Partnership will be treated for income tax purposes as the owner of
Partnership Properties, title to which is held in the name of the Agent under
the terms of the Custodial Agency Agreement;
(6) The activities contemplated by the Partnership will be considered
activities entered into for profit by the Partnership; and
(7) The Partnership is not currently required to register as a tax shelter
with the IRS under Section 6111 of the Code prior to the offer and sale of the
Units based upon the General Partners' representation that the "tax shelter
ratio" (which is generally determined by dividing an investor's share of
aggregate deductions from the investment, determined without regard to income,
by the amount of the investor's capital contributions) with respect to an
investment in the Partnership will not exceed 2 to 1 for any investor as of the
close of any year in the Partnership's first five calendar years.
Investors should note that any statement that it is "more likely than not"
that a tax position would be sustained means that in Counsel's judgment at least
a 51% chance of prevailing exists if the IRS were to challenge the allowability
of such tax position and such challenge were to be litigated and judicially
decided.
It should be further noted that Counsel in the Tax Opinion is unable to
form opinions as to the probable outcome of certain material tax aspects of the
transactions described in this Prospectus if challenged by the IRS, litigated
and judicially decided, including (i) the deductibility of and timing of
deductions for certain payments made by the Partnership, including but not
limited to fees paid to the General Partners and their Affiliates, (ii) the
issue of whether the Partnership will be considered to hold any or all of its
properties primarily for sale to customers in the ordinary course of business,
and (iii) whether the Partnership will be classified as a "tax shelter" under
Section 6662(d) of the Code for purposes of determining certain potential
exemptions from the applicability of the accuracy-related penalty provisions.
(See "RISK FACTORS.")
In addition, potential investors should note that the IRS may also attempt
to disallow or limit some of the tax benefits derived from an investment in the
Partnership by applying certain provisions of the Code at the individual or
partner level rather than at the partnership level. In this connection, Counsel
in the Tax Opinion gives no opinion or conclusion as to the tax consequences to
Limited Partners with regard to any material tax issue which impacts at the
individual or partner level and is dependent upon an individual Limited
Partner's tax circumstances, including but not limited to, issues relating to
the alternative minimum tax, investment interest limitations or the application
of Section 183 of the Code at the partner level. Accordingly, potential
investors are urged to consult with and rely upon their own tax advisors with
respect to all tax issues which impact at the partner or individual level.
As of the date of the Tax Opinion, no properties have been acquired by the
Partnership, nor has the Partnership entered into any contracts to acquire any
properties. Therefore, it is impossible at this time for Counsel
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to opine on the application of the federal income tax law to the specific facts
which will exist when properties are acquired by the Partnership.
Neither the Tax Opinion nor this description of the tax consequences of an
investment in the Partnership is a guarantee of the tax results of an investment
in the Partnership, nor does either have any binding effect or official status
of any kind. No assurance can be given that the conclusions reached in the Tax
Opinion would be sustained by a court if such were contested by the IRS. The
Tax Opinion should not be viewed as a guarantee that the income tax effects
described in this Prospectus will be achieved or that a court would hold that
there is "substantial authority" for the positions taken by the Partnership with
respect to any income tax issues.
PARTNERSHIP STATUS GENERALLY
The ability to obtain the income tax attributes anticipated from an
investment in Units of the Partnership depends upon the classification of the
Partnership as a partnership for federal income tax purposes and not as an
association taxable as a corporation. The General Partners do not intend to
request a ruling from the IRS as to the classification of the Partnership as a
partnership for income tax purposes.
The current Regulations provide that an organization that qualifies as a
limited partnership under state law such as the Partnership will be classified
as a partnership unless it has more corporate characteristics than noncorporate
characteristics. For this purpose, four major corporate characteristics are
identified in applicable Regulations. Of these major corporate characteristics,
the Partnership will have the corporate characteristic of centralized
management; however, it should not be deemed to have the corporate
characteristics of: (i) continuity of life (because the retirement, withdrawal
or removal of both General Partners or the last remaining General Partner will
cause a dissolution of the Partnership unless a majority in interest of the
Limited Partners elect to continue the business of the Partnership); (ii)
limited liability (because the General Partners have "substantial assets" in
addition to their interests in the Partnership and will be exposed to general
liability to creditors of the Partnership); and (iii) free transferability of
interests (because the Partnership Agreement contains substantial restrictions
on the transferability of the Units, which are intended to avoid termination or
reclassification of the Partnership, to effect compliance with federal and state
securities laws and to facilitate administration of Partnership affairs).
Based upon the current Regulations, IRS rulings and judicial decisions
under Section 7701(a) of the Code, all of which are subject to change, and based
upon certain representations of the General Partners and other assumptions,
Counsel in the Tax Opinion has concluded that the Partnership will more likely
than not be treated as a partnership for federal income tax purposes and not as
an association taxable as a corporation, if such issue were challenged by the
IRS, litigated and judicially decided. In rendering such opinion, Counsel has
also relied upon the fact that the Partnership is duly organized as a limited
partnership under the laws of the State of Georgia and upon the representation
by the General Partners that the Partnership will be organized and operated
strictly in accordance with the provisions of the Partnership Agreement.
It should be noted in this regard that the IRS has issued proposed
regulations regarding entity classification which would supersede the current
Regulations regarding partnership tax status upon which the Tax Opinion is
based. The proposed regulations define a "partnership" to include any business
entity that has at least two members and that is not required to be classified
as a corporation. In effect, the proposed regulations permit an "eligible
entity" to elect its status for federal income tax purposes. Under the
proposal, the Partnership would be an "eligible entity," provided the
Partnership is not taxed as a corporation pursuant to the application of the
publicly traded partnership rules discussed below, and accordingly, if the
proposed regulations regarding entity classification were to be adopted
substantially in the form issued, the Partnership would be eligible to elect
partnership status for federal income tax purposes. Further, under proposed
transition rules, even if the Partnership were deemed not to be an "eligible
entity" under any final version of such regulations, the IRS would not challenge
the tax status of existing entities, such as the Partnership, so long as any
such entity had a reasonable basis for its classification and had not received
notice that its classification was under examination by the IRS.
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In the event that the Partnership, for any reason, were to be treated for
federal income tax purposes as an association taxable as a corporation, the
Partners of the Partnership would be treated as stockholders with the following
results, among others: (i) the Partnership would become a taxable entity subject
to the federal income tax imposed on corporations; (ii) items of income, gain,
loss, deduction and credit would be accounted for by the Partnership on its
federal income tax return and would not flow through to the Partners; and (iii)
distributions of cash would generally be treated as dividends taxable to the
Partners at ordinary income rates, to the extent of current or accumulated
earnings and profits, and would not be deductible by the Partnership in
computing its income tax.
The remaining summary of federal income tax consequences in this Section
assumes that the Partnership will be classified as a partnership for federal
income tax purposes.
PUBLICLY TRADED PARTNERSHIPS
Classification of the Partnership as a "publicly traded partnership" could
result in (a) the Partnership being taxable as a corporation (see "Partnership
Status Generally" above), and (b) the treatment of net income of the Partnership
as portfolio income rather than passive income (see "Passive Loss Limitations"
below).
A publicly traded partnership is generally defined under Section 7704 of
the Code as any partnership whose interests are traded on an established
securities market or are readily tradeable on a secondary market or the
substantial equivalent thereof. In this regard, in June 1988, the IRS issued
Notice 88-75 to provide certain interim safe harbor exclusions from
classification as a publicly traded partnership prior to the issuance of
Regulations giving final guidance on such classification. On November 29, 1995,
the IRS issued final Regulations (the "Section 7704 Regulations") effective for
taxable years of a partnership beginning after 1995 which would apply to the
Partnership.
The Section 7704 Regulations contain definitions of what constitutes an
established securities market and a secondary market or the substantial
equivalent thereof and what transfers may be disregarded in determining whether
such definitions are satisfied with respect to the activities of a partnership.
The Section 7704 Regulations further provide certain safe harbors (the
"secondary market safe harbors") which, after taking into consideration all
transfers other than those deemed disregarded, may be satisfied in order to
avoid classification of such transfers as being made on a secondary market or
the substantial equivalent thereof. One of the secondary market safe harbors
provides that interests in a partnership will not be considered tradeable on a
secondary market or the substantial equivalent thereof if the sum of the
partnership interests transferred during any taxable year, other than certain
disregarded transfers, does not exceed 2% of the total interest in the
partnership's capital or profits. Disregarded transfers include, among other
things, transfers by gift, transfers at death, transfers between family members,
distributions from a qualified retirement plan and block transfers, which are
defined as transfers by a partner during any 30 calendar day period of
partnership units representing more than 2% of the total interest in a
partnership's capital or profits. Another safe harbor from the definition of a
publicly traded partnership dealing with redemption and repurchase agreements is
also provided in the Section 7704 Regulations. Unlike Notice 88-75, however,
the Section 7704 Regulations provide that the failure to satisfy a safe harbor
provision under the Regulations will not cause a partnership to be treated as a
publicly traded partnership if, after taking into account all facts and
circumstances, partners are not readily able to buy, sell or exchange their
partnership interests in a manner that is comparable, economically, to trading
on an established securities market.
The General Partners do not believe that Units in the Partnership are
traded on an established securities market or a secondary market or a
substantial equivalent thereof as defined in the Section 7704 Regulations. The
General Partners have further represented that they do not intend to cause the
Units to be traded on an established securities market or a secondary market in
the future. Further, the Partnership Agreement limits Unit transfers of all
types to transfers of Units which satisfy an applicable safe harbor contained in
the Section 7704 Regulations (or any other applicable safe harbor from "publicly
traded partnership" status which may be adopted by the IRS). The General
Partners have represented that the Partnership will be operated strictly in
accordance with the Partnership Agreement and that they will void any transfers
or assignments of Units if they believe that such transfers or
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assignments will cause the Partnership to be treated as a publicly traded
partnership under the Section 7704 Regulations or any Regulations adopted by the
IRS in the future.
Based upon representations of the General Partners, and assuming the
Partnership will be operated strictly in accordance with the terms of the
Partnership Agreement, Counsel in the Tax Opinion has concluded that it is more
likely than not the Partnership will not be classified as a publicly traded
partnership under Section 7704 of the Code, if such issue were challenged by the
IRS, litigated and judicially decided. However, due to the complex nature of
the safe harbor provisions contained in the Section 7704 Regulations with
respect to such provisions and because any determination in this regard will
necessarily be based upon future facts not yet in existence at this time, no
assurance can be given that the IRS will not challenge this conclusion or that
the Partnership will not, at some time in the future, be deemed to be a publicly
traded partnership.
Even if the Partnership were deemed to be a publicly traded partnership,
Section 7704(c) of the Code provides an exception to taxation of an entity as a
corporation if 90% or more of the gross income of such entity for each taxable
year consists of "qualifying income." Qualifying income includes interest, real
property rents and gain from the sale or other disposition of real property.
According to the legislative history of Section 7704, qualifying income does not
include real property rents which are contingent on the profits of the lessees
or income from the rental or lease of personal property. The General Partners
intend to operate the Partnership in such a manner as to qualify for the 90%
qualifying income exception. (See "INVESTMENT OBJECTIVES AND CRITERIA.")
Investors should note, however, that even if the Partnership satisfies the
qualifying income exception, being deemed to be a publicly traded partnership
would result in certain other material adverse tax consequences to Limited
Partners, including the treatment of net income of the Partnership as portfolio
income rather than passive income. (See "Passive Loss Limitations" below.)
GENERAL PRINCIPLES OF PARTNERSHIP TAXATION
Under the Code, no federal income tax is paid by a partnership.
Accordingly, if as anticipated the Partnership is treated as a partnership for
federal income tax purposes, the Partnership will not be treated as a separate
taxable entity subject to federal income tax, but instead each Partner will be
required to report on his federal income tax return for each year his
distributive share of the Partnership's items of income, gain, loss, deduction
or credit for that year, without regard to whether any actual cash distributions
have been made to him. Investors should note that a Partner's share of the
taxable income of the Partnership, and a Partner's income tax liability
resulting therefrom, may exceed a Partner's cash distributions from the
Partnership.
The Partnership will furnish to each Partner and any assignee of Units on
an annual basis the information necessary for preparation of his federal income
tax return. Investors should note that information returns filed by the
Partnership will be subject to audit by the IRS and that the Commissioner of the
IRS has announced that the IRS will devote greater attention to the proper
application of the tax laws to partnerships. (See "Audits" below.)
ANTI-ABUSE RULES
As noted under "General Principles of Partnership Taxation" above,
partnerships as such are not liable for income taxes imposed by the Code. In
December 1994, however, the IRS adopted final Regulations setting forth "anti-
abuse" rules under the Code provisions applicable to partnerships, which rules
authorize the Commissioner of Internal Revenue to recast transactions involving
the use of partnerships either to reflect the underlying economic arrangement or
to prevent the use of a partnership to circumvent the intended purpose of any
provision of the Code. These rules generally apply to all transactions relating
to a partnership occurring on or after May 12, 1994, and thus would be
applicable to the Partnership's activities. If any of the transactions entered
into by the Partnership were to be recharacterized under these rules, or the
Partnership, itself, were to be recast as a taxable entity under these rules,
material adverse tax consequences to all of the Partners would occur as
otherwise described herein. In this regard, the General Partners are not aware
of any fact or circumstance which could cause the IRS to exercise its
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authority under these rules to recast any of the transactions to be entered into
by the Partnership or to restructure the Partnership itself.
BASIS LIMITATIONS
A Limited Partner may not deduct his share of Partnership losses and
deductions in excess of the adjusted basis of his Partnership interest
determined as of the end of the taxable year. Losses which exceed a Limited
Partner's basis will not be allowed but may be carried over indefinitely and
claimed as a deduction in a subsequent year to the extent that such Limited
Partner's adjusted basis in his Units has increased above zero. A Limited
Partner's adjusted basis in his Units will include his cash investment in the
Partnership along with his pro rata share of any Partnership liabilities as to
which no Partner is personally liable. A Limited Partner's basis in his Units
will be increased by his distributive share of the Partnership's taxable income
and decreased (but not below zero) by his distributive share of the
Partnership's losses and by the amount of any cash distributions which are made
to him. A cash distribution to a Limited Partner will generally constitute a
return of capital to the extent of the basis of his Units but, in the event that
a Limited Partner has no remaining basis in his Units, will generally be taxable
to him as gain from the sale of his Units. (See "Sales of Limited Partnership
Units" below.)
PASSIVE LOSS LIMITATIONS
The Code substantially restricts the ability of many taxpayers (including
individuals, estates, trusts, certain closely-held corporations and certain
personal service corporations) to deduct losses derived from so-called "passive
activities." Passive activities generally include any activity involving the
conduct of a trade or business in which the taxpayer does not materially
participate (including the activity of a limited partnership in which the
taxpayer is a limited partner) and certain rental activities (including the
rental of real estate). In the opinion of Counsel, it is more likely than not
that a Limited Partner's interest in the Partnership will be treated as a
passive activity, if such issue were challenged by the IRS, litigated and
judicially decided. Accordingly, income and loss of the Partnership, other than
interest or other similar income earned on temporary investments and working
capital reserves (which would constitute portfolio income), will constitute
passive activity income and passive activity loss, as the case may be, to
Limited Partners.
Generally, losses from passive activities are deductible only to the extent
of a taxpayer's income or gains from passive activities and will not be allowed
as an offset against other income, including salary or other compensation for
personal services, active business income or "portfolio income," which includes
nonbusiness income derived from dividends, interest, royalties, annuities and
gains from the sale of property held for investment. Passive activity losses
that are not allowed in any taxable year are suspended and carried forward
indefinitely and allowed in subsequent years as an offset against passive
activity income in future years.
Upon a taxable disposition of a taxpayer's entire interest in a passive
activity to an unrelated party, suspended losses with respect to that activity
will then be allowed as a deduction against: (i) first, any remaining income or
gain from that activity including gain recognized on such disposition; (ii)
then, net income or gain for the taxable year from other passive activities; and
(iii) finally, any other non-passive income or gain. Temporary Regulations
provide, however, that similar undertakings which are under common control and
owned by pass-through entities such as partnerships are generally aggregated
into a single activity. Accordingly, it is unlikely that suspended passive
activity losses derived from a specific Partnership Property would be available
to Limited Partners to offset non-passive income from other sources until the
sale or other disposition of all Partnership Properties has been consummated.
The Code provides that the passive activity loss rules will be applied
separately with respect to items attributable to each publicly traded
partnership. Accordingly, if the Partnership were deemed to be a publicly
traded partnership, Partnership losses, if any, would be available only to
offset future non-portfolio income of the Partnership. In addition, if the
Partnership were deemed to be a publicly traded partnership which is not treated
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as a corporation because of the qualifying income exception, Partnership income
would generally be treated as portfolio income rather than passive income. (See
"Publicly Traded Partnerships" above.)
AT RISK LIMITATIONS
The deductibility of Partnership losses is limited further by the "at risk"
limitations in the Code. Limited Partners who are individuals, estates, trusts
and certain closely-held corporations are not allowed to deduct Partnership
losses in excess of the amounts which such Limited Partners are determined to
have "at risk" at the close of the Partnership's year. Generally, a Limited
Partner's amount "at risk" will include the amount of his cash Capital
Contribution to the Partnership. A Limited Partner's amount "at risk" will be
reduced by his allocable share of Partnership losses and by Partnership
distributions and increased by his allocable share of Partnership income. Any
deductions which are disallowed under this limitation may be carried forward
indefinitely and utilized in subsequent years to the extent that a Limited
Partner's amount "at risk" is increased in those years.
ALLOCATIONS OF PROFIT AND LOSS
Allocations of Net Income, Net Loss, depreciation, amortization and cost
recovery deductions and Gain on Sale are described in this Prospectus in the
Section entitled "DISTRIBUTIONS AND ALLOCATIONS." Investors should note in this
regard that the Partnership Agreement defines the terms "Net Income" and "Net
Loss" to mean the net income or loss realized or recognized by the Partnership
for a fiscal year, as determined for federal income tax purposes, including any
income exempt from tax, but excluding all deductions for depreciation,
amortization and cost recovery and Gain on Sale. (See "GLOSSARY.")
Generally, partnership items of income, gain, loss, deduction and credit
are allocated among partners as set forth in the relevant partnership agreement
pursuant to Section 704(a) of the Code. Section 704(b) provides, however, that
if an allocation to a partner under the partnership agreement of income, gain,
loss, deduction or credit (or items thereof) does not have substantial economic
effect, such allocation will instead be made in accordance with the partner's
interest in the partnership (determined by taking into account all facts and
circumstances).
The Partnership has not received an advance ruling with respect to whether
its allocations of profits and losses will be recognized for federal income tax
purposes, and the IRS may attempt to challenge the allocations of profits and
losses made by the Partnership, which challenge, if successful, could adversely
affect the Limited Partners by changing their respective shares of taxable
income or loss. No assurance can be given that the IRS will not challenge one
or more of the special allocation provisions contained in the Partnership
Agreement.
Regulations under Section 704(b) of the Code (the "Section 704(b)
Regulations") provide complex rules for determining whether allocations will be
deemed to have economic effect, whether the economic effect of allocations will
be deemed to be substantial and whether allocations not having substantial
economic effect will be deemed to be made in accordance with a partner's
interest in the partnership.
The relevant portions of the Section 704(b) Regulations provide generally
that an allocation will be considered to have economic effect if: (i) partners'
capital accounts are determined and maintained in accordance with the
Regulations; (ii) upon the liquidation of the partnership, liquidating
distributions are made in accordance with the positive capital account balances
of the partners after taking into account all capital account adjustments for
the year during which such liquidation occurs; and (iii) the partnership
agreement contains a "qualified income offset" provision and the allocation in
question does not cause or increase a deficit balance in a partner's capital
account at the end of the partnership's taxable year. A partnership agreement
contains a "qualified income offset" if it provides that a partner who
unexpectedly receives an adjustment, allocation or distribution of certain items
which causes a deficit or negative capital account balance (which means
generally that the sum of losses allocated and cash distributed to a partner
exceeds the sum of his capital contributions to the partnership and any income
allocated to such partner), will be allocated items of income and gain in an
amount and manner sufficient to eliminate the deficit balance as quickly as
possible.
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The Partnership Agreement (i) provides for the determination and
maintenance of Capital Accounts pursuant to the Section 704(b) Regulations, (ii)
provides that liquidation proceeds are to be distributed in accordance with
Capital Accounts, and (iii) contains a qualified income offset provision. (See
"DISTRIBUTIONS AND ALLOCATIONS.") The qualified income offset provision in the
Partnership Agreement has the effect of prohibiting a Limited Partner from being
allocated items of loss or deduction which would cause his Capital Account to be
reduced below zero.
It should be further noted, however, that the Partnership Agreement
contains a provision specially allocating deductions for depreciation,
amortization and cost recovery to Limited Partners holding Class B Status Units
up to the amount which would reduce their Capital Accounts to zero. In an
attempt to ensure that Limited Partners holding Class B Status Units will bear
the risk of actual economic loss in the event that a Partnership Property is
sold at a loss, the Partnership Agreement also provides for a special allocation
of Nonliquidating Net Sale Proceeds in favor of Limited Partners holding Class A
Status Units which applies only if a Partnership Property is sold for less than
its original purchase price. Under this provision, Limited Partners holding
Class A Status Units are allocated the first Sale Proceeds generated from any
such sale in an amount equal to the excess of the original purchase price of
such Partnership Property over the sale price of the Partnership Property sold
but not in excess of the amount of the special allocation to Limited Partners
holding Class B Status Units of deductions for depreciation, amortization and
cost recovery with respect to the specific Partnership Property sold.
A Limited Partner who acquires Units from a prior owner should note that
the foregoing allocation of Gain on Sale to Limited Partners holding Class B
Status Units in an amount equal to the deductions for depreciation, amortization
and cost recovery which were previously allocated to them could have the effect
of allocating substantial income to such Limited Partner upon a sale or other
disposition of a Partnership Property caused by the special allocation of
deductions for depreciation, amortization and cost recovery previously allocated
to the prior owner even though such new Limited Partner would not have received
any benefit from such prior allocation of deductions.
Even if the allocations of profits and losses of a partnership are deemed
to have economic effect under the Section 704(b) Regulations, however, an
allocation will not be upheld unless the economic effect of such allocation is
"substantial." In this regard, the Section 704(b) Regulations generally provide
that the economic effect of an allocation is "substantial" if there is a
reasonable possibility that the allocation will affect the dollar amounts to be
received by partners from a partnership, independent of tax consequences. The
economic effect of an allocation is presumed not to be substantial if there is a
strong likelihood that the net adjustments to the partner's capital account for
any taxable year will not differ substantially from the net adjustments which
would have been made for such year in the absence of such allocation and the
total tax liability of the partners for such year is less than it would have
been in the absence of such allocations. The economic effect will also be
presumed not to be substantial where: (i) the partnership agreement provides
for the possibility that the allocation will be largely offset by one or more
other allocations; (ii) the net adjustments to the partners' capital accounts
for the taxable years to which the allocations relate will not differ
substantially from the net adjustments which would have been recorded in such
partners' respective capital accounts for such years if the original allocations
and the offsetting allocations were not contained in the partnership agreement;
and (iii) the total tax liability of the partners for such year is less than it
would have been in the absence of such allocations. With respect to the
foregoing provision, the Section 704(b) Regulations state that original
allocations and offsetting allocations will not be deemed to not be substantial
if, at the time the allocations become part of the partnership agreement, there
is a strong likelihood that the offsetting allocations will not, in large part,
be made within five years after the original allocations are made. The Section
704(b) Regulations further state that for purposes of testing substantiality,
the adjusted tax basis of partnership property will be presumed to be the fair
market value of such property, and adjustments to the adjusted tax basis of
partnership property (such as depreciation or cost recovery deductions) will be
presumed to be matched by corresponding changes in the property's fair market
value.
There are no assurances that the IRS will not challenge the special
allocation of Partnership deductions for depreciation, amortization and cost
recovery to Limited Partners holding Class B Status Units or other allocations
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set forth in the Partnership Agreement on the basis that such allocations are
either "insubstantial," within the meaning of the Section 704(b) Regulations, or
otherwise fail to comply with the Section 704(b) Regulations.
If the allocations of profits and losses set forth in a partnership
agreement are deemed not to have substantial economic effect, the allocations
are then to be made in accordance with the partners' interests in the
partnership as determined by taking into account all facts and circumstances.
The Section 704(b) Regulations provide in this regard that a partner's interest
in a partnership will be determined by taking into account all facts and
circumstances relating to the economic arrangement of the partners, including:
(i) the partners' relative contributions to the partnership; (ii) the interests
of the partners in economic profits and losses (if different from those in
taxable income or loss); (iii) the interests of the partners in cash flow and
other nonliquidating distributions; and (iv) the rights of the partners to
distributions of capital upon liquidation.
Since the Partnership Agreement: (i) provides for the determination and
maintenance of Capital Accounts in accordance with the Section 704(b)
Regulations; (ii) provides that liquidation proceeds will be distributed to the
Partners in accordance with Capital Accounts; (iii) contains a qualified income
offset provision; and (iv) shifts the economic risk of loss to the Limited
Partners holding Class B Status Units, assuming the allocations of deductions
for depreciation, amortization and cost recovery to such Limited Partners were
matched by corresponding reductions in the fair market value of the
Partnership's Property; and assuming the accuracy of the representations of the
General Partners, including that the Partnership will be operated strictly in
accordance with the terms of the Partnership Agreement, Counsel has concluded
that it is more likely than not that Partnership items of income, gain, loss,
deduction and credit will be allocated among the General Partners and the
Limited Partners substantially in accordance with the allocation provisions of
the Partnership Agreement.
RISK OF TAXABLE INCOME WITHOUT CASH DISTRIBUTIONS
A partner in a partnership is required to report his allocable share of the
partnership's taxable income on his personal income tax return regardless of
whether or not he has received any cash distributions from the partnership. For
example, a Limited Partner electing Class A Status Units who participates in the
Distribution Reinvestment Plan will be allocated his share of the Partnership's
Net Income and Gain on Sale (including Net Income and Gain on Sale allocable to
Units acquired pursuant to the Distribution Reinvestment Plan) even though such
Partner would receive no cash distributions from the Partnership. The
Partnership Agreement also provides for a "qualified income offset," as
described hereinabove, which could result in the allocation of income or gain to
a Limited Partner in the absence of cash distributions from the Partnership.
There are no assurances that a Limited Partner will not be allocated items of
Partnership income or gain in an amount which gives rise to an income tax
liability in excess of cash, if any, received from the Partnership for the tax
year in question, and investors are urged to consult with their personal tax
advisors in this regard.
INVESTMENT BY QUALIFIED PLANS AND OTHER TAX-EXEMPT ENTITIES
Although the General Partners have used their best efforts to structure the
Partnership's activities to avoid having the Partnership's income characterized
as UBTI, any person who is a fiduciary of an IRA, Keogh Plan, Qualified Plan or
other tax-exempt entity (collectively referred to as "Exempt Organizations")
considering an investment in the Units should be aware that some risk remains
that income derived from ownership of Units may be subject to federal income tax
in the event that any portion of the Partnership's income is deemed to be UBTI
(generally defined as income derived from any unrelated trade or business
carried on by a tax-exempt entity or by a partnership of which it is a member).
A trustee of a charitable remainder trust should be aware that if any portion of
the income derived from its ownership of Units is deemed to be UBTI, the trust
will lose its exemption from income taxation with respect to all of its income
for the tax year in question. (See "Investment by Charitable Remainder Trusts"
below.) A tax-exempt Limited Partner (other than a charitable remainder trust)
which has UBTI in any tax year from all sources of more than $1,000 will be
subject to taxation on such income.
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While the types of Partnership income and gain which should be realized by
investing Exempt Organizations would not generally constitute UBTI, such income
would constitute UBTI if the Partnership were to own "debt-financed property"
which is subject to "acquisition indebtedness." The portion of income or gain
from "debt-financed property" that will constitute UBTI is based on the ratio of
the "average acquisition indebtedness" to the basis of the property. In
computing the portion of gain from a sale which constitutes UBTI, "average
acquisition indebtedness" means the highest amount of the acquisition
indebtedness with respect to such property during the 12 month period ending on
the date of sale while, for determining the portion of income from sources other
than a sale, "average acquisition indebtedness" means the average monthly level
of acquisition indebtedness during the taxable year for the year in which such
income was recognized. Acquisition indebtedness includes: (i) indebtedness
incurred in acquiring or improving property; (ii) indebtedness incurred before
the acquisition or improvement of property if such indebtedness would not have
been incurred but for such acquisition or improvement; and (iii) indebtedness
incurred after the acquisition or improvement of property if such indebtedness
would not have been incurred but for such acquisition or improvement and the
incurrence of such indebtedness was reasonably foreseeable at the time of such
acquisition or improvement.
The Partnership will under no circumstances incur indebtedness to acquire
Partnership Properties. The Partnership's authority to incur indebtedness
thereafter may be exercised only in limited circumstances. Specifically, the
General Partners have the authority to incur indebtedness only in the event that
they deem such borrowing necessary to finance improvements of its properties, to
protect the capital previously invested in a property, to protect the value of
the Partnership's investment in a property or to make a property more attractive
for sale or lease. (See "INVESTMENT OBJECTIVES AND CRITERIA - Borrowing
Policies.") The General Partners have represented, however, that they will not
cause the Partnership to incur indebtedness unless the Partnership first
receives an opinion of counsel that the proposed indebtedness more likely than
not will not cause income of the Partnership to be characterized as UBTI.
Investors should be aware, however, that an opinion of counsel is based upon
various representations and assumptions, and has no binding effect on the IRS or
any court. Accordingly, no assurance can be given that the conclusions reached
in any such opinion of counsel, if contested, would be sustained by a court, or
that any such indebtedness to be incurred by the Partnership in the future would
not cause the income allocated to Limited Partners that are tax-exempt entities
to be taxed as UBTI. In addition, Partnership income could also constitute UBTI
in the event that the Partnership were deemed to hold Partnership Properties
primarily for sale to customers in the ordinary course of business. (See
"Property Held Primarily for Sale" below.)
Any person who is a fiduciary of an Exempt Organization considering an
investment in Units should also consider the impact of minimum distribution
requirements under the Code. The Code provides that certain minimum
distributions from Retirement Plans must be made commencing no later than the
April 1st following the calendar year during which the recipient attains age 70
1/2. Accordingly, if Units are still held by Retirement Plans and Partnership
Properties have not yet been sold at such time as mandatory distributions are
required to commence to an IRA beneficiary or a Qualified Plan participant, it
is likely that a distribution in kind of the Units will be required to be made,
which distribution will be includable in the taxable income of said IRA
beneficiary or Qualified Plan participant for the year in which the Units are
received at the fair market value of the Units without any corresponding cash
distributions with which to pay the income tax liability arising out of any such
distribution. In certain circumstances, a distribution in kind of the Units may
be deferred beyond the date for required distributions, but only upon a showing
of compliance with the minimum distribution requirements of the Code by reason
of distributions from other Retirement Plans established for the benefit of the
recipient. Compliance with these requirements is complex, however, and
potential investors are urged to consult with and rely upon their individual tax
advisors with regard to all matters concerning the tax effects of distributions
from Retirement Plans. No assurances can be given that Partnership Properties
will be sold or otherwise disposed of in a fashion which would permit sufficient
liquidity in any Retirement Plan holding Units for the Retirement Plan to be
able to avoid making a mandatory distribution in kind of Units. ("See "RISK
FACTORS.")
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INVESTMENT BY CHARITABLE REMAINDER TRUSTS
A charitable remainder trust ("CRT") is a trust created to provide income
for the benefit of one or more non-charitable beneficiaries during their
lifetime, with the property comprising the trust corpus then transferred to a
charitable beneficiary upon the death of the last non-charitable beneficiary.
Upon the creation of a CRT, the grantor of the CRT is entitled to a charitable
income tax deduction equal to the current fair market value of the remainder
interest which will ultimately pass to charity. A CRT is also exempt from
federal income taxation if the trust is established and maintained in compliance
with highly complex rules contained in the Code and underlying Treasury
Regulations. Among these rules is a requirement that the CRT incur no income
which is deemed to be UBTI. Accordingly, if any portion of income derived by a
CRT is deemed to be UBTI, all of the CRT's income for the taxable year in which
UBTI is incurred, from whatever sources derived, will be subject to income
taxes. As set forth above in "Investment by Qualified Plans and Other Tax-
Exempt Entities," the General Partners have used their best efforts to structure
the Partnership's activities to avoid having the Partnership's income
characterized as UBTI. In summary, unless the Partnership incurs indebtedness
for the purpose of acquiring or improving real properties, and hence is deemed
to be holding property subject to "acquisition indebtedness," or is deemed to
hold its properties primarily for sale to customers in the ordinary course of
business, under current law the Partnership's income should not be deemed to
constitute UBTI. (See "Investment by Qualified Plans and Other Tax-Exempt
Entities" above.)
DEPRECIATION AND COST RECOVERY
It is currently anticipated that the real property improvements acquired or
constructed by the Partnership and any personal property acquired by the
Partnership will be depreciated for tax purposes using the Alternative
Depreciation System set forth in the Code for partnerships (such as the
Partnership) having both taxable and tax-exempt partners; i.e., real property
improvements on a straight-line basis over a recovery period of 40 years, and
personal property acquired by the Partnership over a recovery period of 12 years
on a straight-line basis.
SYNDICATION AND ORGANIZATIONAL EXPENSES
No deduction is allowed for expenses incurred in connection with organizing
the Partnership or syndicating the Partnership. Syndication expenses include
costs and expenses incurred in connection with promoting and marketing the Units
such as sales commissions, professional fees and printing costs and are neither
deductible nor amortizable. Amounts which qualify as organizational expenses,
however, as well as other start-up expenditures, may, if so elected, be
amortized ratably over 60 months. There are no assurances that the IRS will not
attempt to recharacterize as nondeductible syndication expenses certain costs
and expenses which the Partnership attempts to deduct or amortize over 60
months.
Since the appropriate classification of fees and expenses paid by the
Partnership into their proper categories and a determination of whether certain
fees and expenses are ordinary and necessary and reasonable in amount depends
upon facts relating to and existing at the time the services are to be rendered
to the Partnership, Counsel is unable to render an opinion as to the probable
outcome if the IRS were to challenge the deductibility or the timing of
deduction or amortization of those fees and expenses, if such challenge to any
or all of such fees and expenses were to be litigated and judicially decided.
Disallowance by the IRS of any of these fees and expenses would result in an
increase in the taxable income of the Partnership and its Partners with no
associated increase in Net Cash From Operations.
ACTIVITIES NOT ENGAGED IN FOR PROFIT
Section 183 of the Code provides for the disallowance of deductions
attributable to activities "not engaged in for profit." The term "not engaged
in for profit" is defined as any activity other than an activity that
constitutes a trade or business or an activity that is engaged in for the
production or collection of income. In general, an
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activity will be considered as entered into for profit where there is a
reasonable expectation of profit in the future. The determination of whether an
activity is engaged in for profit is based upon the facts and circumstances of
each case.
Based upon the investment objectives of the Partnership and the
representation of the General Partners that the Partnership will be operated in
a business-like manner in all material respects and strictly in accordance with
the Partnership Agreement and this Prospectus, and assuming the determination as
to whether the activities of the Partnership are activities entered into for
profit under Section 183 is made at the partnership level, Counsel in the Tax
Opinion has concluded that it is more likely than not that the activities
contemplated by the Partnership will be considered activities entered into for
profit by the Partnership, if such issue were challenged by the IRS, litigated
and judicially decided. However, the IRS may also apply Section 183 to Limited
Partners notwithstanding any determination made with respect to the Partnership
in this regard, and since the test of whether an activity is deemed to be
engaged in for profit is based upon facts and circumstances that exist from time
to time, no assurance can be given that Section 183 of the Code may not be
applied in the future to disallow deductions allocable to Limited Partners from
Partnership operations. Investors should also be aware that Counsel in the Tax
Opinion gives no opinion as to the application of Section 183 of the Code at the
partner level. Accordingly, prospective investors should consult with their own
tax advisors regarding the impact of Section 183 on their particular situations.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE CUSTODIAL AGENCY AGREEMENT AND
OTHER POTENTIAL USES OF NOMINEE CORPORATIONS
As previously discussed, title to properties acquired on behalf of the
Partnership will be held in the name of The Bank of New York (the "Agent"), as
agent for the Partnership. (See "CUSTODIAL AGENCY AGREEMENT.") In addition,
the Partnership may be required to utilize other nominee corporations or land
trusts to hold title to property by reason of local, state or other
jurisdiction's laws. The use of the Agent to hold legal title to a Partnership
Property and the use of any other nominee corporation or land trust to hold
legal title to properties for the benefit of the Partnership will be with the
intention that for tax purposes the entity would be disregarded and the
Partnership would be treated as the owner of the property.
In the event the Partnership is not treated as the owner of a Partnership
Property, the Partnership would lose the benefit of depreciation and other
deductions ordinarily claimed by the equitable owner of a property.
Accordingly, a determination by the IRS that the Partnership is not the owner of
a Partnership Property for tax purposes could result in substantial adverse tax
consequences, including depriving Limited Partners holding Class B Status Units
of deductions for depreciation and cost recovery. In this connection, however,
recent judicial decisions have held that in instances where an agent, pursuant
to a written agency agreement, holds title to real property as an agent for
limited purposes, holds itself out as an agent and not as a principal in all
dealings with third parties, has no obligation to maintain the property, and is
indemnified and held harmless by the principal from and against liabilities
which it might sustain as agent, the principal rather than the agent will be
treated as the owner of the real property for federal income tax purposes.
Under the terms of the Custodial Agency Agreement, the Agent will hold
title to properties as agent for the Partnership, the Agent is required to hold
itself out as agent for the Partnership and not as principal in all dealings
with third parties, the Agent has no obligation to maintain Partnership
Properties, and the Partnership and the General Partners have agreed to
indemnify and hold the Agent harmless from and against liabilities which it
might sustain as agent under the Custodial Agency Agreement. Based upon
Counsel's review of the judicial decisions in this area and the Custodial Agency
Agreement between the Partnership and the Agent, Counsel has concluded that it
is more likely than not the Partnership will be treated for income tax purposes
as the owner of Partnership Properties, title to which is held in the name of
the Agent under the terms of the Custodial Agency Agreement.
In other instances where nominee corporations are deemed necessary in
connection with a particular Partnership Property, it is the Partnership's
intention, if and to the extent practical, and on advice of counsel
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(although the Partnership will not be required to obtain an opinion of counsel
with respect to such matter) (i) to contract on an arm's-length basis with the
nominee corporation which will not be controlled by either the Partnership or a
majority in interest of its Partners, and (ii) to seek to provide real estate
documentation of the arrangement between the nominee corporation and the
Partnership in a manner which, under applicable tax law principles, will result
in the Partnership being treated as the owner of the property for tax purposes.
No assurances can be given, however, that such efforts will be successful, and
in the event a nominee corporation or land trust is deemed to be the equitable
owner of a Partnership Property for tax purposes, items of income, gain, loss,
deduction or credit attributable to any such property would be required to be
reported by the corporation or trust and would not flow through to the Limited
Partners.
CHARACTERIZATION OF LEASES
The Partnership has the authority to purchase properties and lease them
back to the sellers of such properties pursuant to "sale-leaseback" transactions
as described in "INVESTMENT OBJECTIVES AND CRITERIA." The tax benefits
described herein associated with ownership of a property, such as depreciation
or cost recovery deductions, depend on having the lease in any such leaseback
transaction treated as a "true lease" under which the Partnership is treated as
the owner of the property for federal income tax purposes, rather than having
such transaction treated as a conditional sale of the property or a financing
transaction entered into with the seller.
While the General Partners will use their best efforts to structure any
such sale-leaseback transaction to insure that the lease will be characterized
as a "true lease," so that the Partnership will be treated as the owner of the
property in question for federal income tax purposes, the Partnership will not
seek an advance ruling from the IRS or obtain an opinion of counsel that it will
be treated as the owner of any leased properties for federal income tax
purposes. A determination by the IRS that the Partnership is not the owner of
leased properties could result in substantial adverse tax consequences,
including depriving Limited Partners holding Class B Status Units of deductions
for depreciation and cost recovery. In addition, if a sale-leaseback
transaction is recharacterized as a financing for federal income tax purposes,
any Partnership income derived from such leaseback would be treated as interest
which is portfolio income, rather than passive activity income which may be
offset by passive activity losses generated by the Partnership or from
investments in other passive activities. (See "Passive Loss Limitations"
above.)
PROPERTY HELD PRIMARILY FOR SALE
The Partnership has been organized for the purpose of acquiring and
developing real estate for investment and rental purposes. However, if the
Partnership were at any time deemed for tax purposes to be a "dealer" in real
property (one who holds real estate primarily for sale to customers in the
ordinary course of business), any gain recognized upon a sale of such real
property would be taxable as ordinary income, rather than as capital gain, and
would constitute UBTI to Limited Partners which are tax-exempt entities.
Under existing law, whether property is or was held primarily for sale to
customers in the ordinary course of business must be determined from all the
facts and circumstances surrounding the particular property and sale in
question. The Partnership intends to acquire real estate and construct
improvements thereon for investment and rental only and to engage in the
business of owning and operating such improvements. The Partnership will make
sales thereof only as, in the opinion of the General Partners, are consistent
with the Partnership's investment objectives. Although the General Partners do
not anticipate that the Partnership will be treated as a dealer with respect to
any of its properties, there is no assurance that the IRS will not take a
contrary position. Because the issue is dependent upon facts which will not be
known until the time a property is sold or held for sale and due to the lack of
judicial authority in this area, Counsel is unable to render an opinion as to
whether the Partnership will be considered to hold any or all of its properties
primarily for sale to customers in the ordinary course of business.
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SALES OF PARTNERSHIP PROPERTIES
Upon the sale of Partnership Properties, the Partnership will recognize
gain or loss to the extent that the amount realized is more or less than the
adjusted basis of the Partnership Property sold. The amount realized upon the
sale of a Partnership Property will generally be equal to the sum of the cash
received plus the amount of indebtedness encumbering the property, if any,
assumed by the purchaser or to which the property remains subject upon the
transfer of the property to the purchaser. The adjusted basis of Partnership
Property will in general be equal to the original cost of the property less
depreciation and cost recovery allowances allowed to the Partnership with
respect to such property.
Assuming that the Partnership is not deemed to be a dealer with respect to
its properties (see "Property Held Primarily for Sale" above), such gain or loss
will generally be taxable under Section 1231 of the Code. A Limited Partner's
share of the gains or losses resulting from the sale of Partnership Properties
would generally be combined with any other Section 1231 gains or losses realized
by the Limited Partner in that year from sources other than the Partnership, and
the net Section 1231 gain or loss is generally treated as long-term capital gain
(subject to depreciation or cost recovery allowance recapture, if any) or
ordinary loss, as the case may be. Investors should be aware that the amount of
taxable gain allocated to a Limited Partner with respect to the sale of a
Partnership Property may exceed the cash proceeds received by such Limited
Partner with respect to such sale. (See "RISK FACTORS.")
SALES OF LIMITED PARTNERSHIP UNITS
A Limited Partner may be unable to sell any of his Units by reason of the
nonexistence of any market therefor. In the event that Units are sold, however,
the selling Limited Partner will realize gain or loss equal to the difference
between the gross sale price or proceeds received from sale and the Limited
Partner's adjusted tax basis in his Units. Assuming the Limited Partner is not
a "dealer" with respect to such Units and has held the Units for more than one
year, his gain or loss will be long-term capital gain or loss, except for that
portion of any gain attributable to such Limited Partner's share of the
Partnership's "unrealized receivables" and "substantially appreciated
inventory," as defined in Section 751 of the Code, which would be taxable as
ordinary income. Any recapture of cost recovery allowance taken previously by
the Partnership with respect to personal property associated with Partnership
Properties will be treated as "unrealized receivables" for this purpose.
Investors should note in this regard that the Code requires the Partnership to
report any sale of Units to the IRS if any portion of the gain realized upon
such sale is attributable to the transferor's share of the Partnership's Section
751 property.
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
The dissolution and liquidation of the Partnership will involve the
distribution to the Partners of the cash remaining after the sale of its assets,
if any, and after payment of all the Partnership's debts and liabilities. If a
Limited Partner receives cash in excess of the basis of his Units, such excess
will be taxable as a gain. If a Limited Partner were to receive only cash upon
dissolution and liquidation, he would recognize a loss to the extent, if any,
that the adjusted basis of his Units exceeded the amount of cash received. No
loss would be recognized if a Limited Partner were to receive property other
than money, unrealized receivables and substantially appreciated inventory (as
defined in Section 751 of the Code). There are a number of exceptions to these
general rules, including but not limited to, the effect of a special basis
election under Section 732(d) of the Code for a Limited Partner who may have
acquired his Partnership interest within the two years prior to the dissolution,
and the effects of distributing one kind of property to some Partners and a
different kind of property to others as determined under Section 751(b) of the
Code.
CAPITAL GAINS AND LOSSES
Ordinary income for individual taxpayers is currently taxed at a maximum
marginal rate of 39.6%, while capital gains are currently taxed at a maximum
marginal rate of 28%. It should be noted in this regard, however,
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that the phase-out of personal exemptions and itemized deductions for taxpayers
having adjusted gross incomes in excess of $100,000 ($50,000 in the case of a
married individual filing a separate return) may reduce the impact of such
preferential rate. Capital losses may generally be used to offset capital gains
and, in addition, may be deductible against ordinary income on a dollar-for-
dollar basis up to a maximum annual deduction of $3,000 ($1,500 in the case of a
married individual filing a separate return).
ELECTION FOR BASIS ADJUSTMENTS
Under Section 754 of the Code, partnerships may elect to adjust the basis
of partnership property upon the transfer of an interest in the partnership so
that the transferee of a partnership interest will be treated for purposes of
calculating depreciation and realizing gain as though he had acquired a direct
interest in the partnership's assets. However, as a result of the complexities
and added expense of the tax accounting required to implement such an election,
the General Partners do not intend to cause the Partnership to make any such
election on behalf of the Partnership. As a consequence, depreciation available
to a transferee of Units will be limited to the transferor's share of the
remaining depreciable basis of Partnership Properties, and upon a sale of a
Partnership Property, taxable income or loss to the transferee of the Units will
be measured by the difference between his share of the amount realized upon such
sale and his share of the Partnership's tax basis in the property, which may
result in greater tax liability to him than if a Section 754 election had been
made. In addition, the absence of such an election by the Partnership may
result in Limited Partners having greater difficulty in selling their Units.
ALTERNATIVE MINIMUM TAX
Alternative minimum tax is payable to the extent that a taxpayer's
alternative minimum tax exceeds his regular federal income tax liability for the
taxable year. Alternative minimum tax for individual taxpayers is a percentage
of "alternative minimum taxable income" ("AMTI") in excess of certain exemption
amounts. The first $175,000 of AMTI in excess of the exemption amount is taxed
currently at 26%, and AMTI in excess of $175,000 over the exemption amount is
taxed currently at 28%. Alternative minimum taxable income is generally
computed by adding what are called "tax preference items" to the taxpayer's
regular taxable income, with certain adjustments. While it is not anticipated
that an investment in the Partnership will give rise to any specific tax
preference items, the amount of alternative minimum tax imposed depends upon
various factors unique to each particular taxpayer. Accordingly, each Limited
Partner should consult with his own personal tax advisor regarding the possible
application of the alternative minimum tax.
PENALTIES
Under Section 6662 of the Code, a 20% penalty is imposed on any portion of
an underpayment of tax attributable to a "substantial understatement of income
tax." In general, a "substantial understatement of income tax" will exist if
the actual income tax liability of the taxpayer exceeds the income tax liability
shown on his return by the greater of 10% of the actual income tax liability or
$5,000. Unless the understatement is attributable to a "tax shelter," the
amount of an understatement is reduced by any portion of such understatement
which is attributable to (i) the income tax treatment of any item shown on the
return if there is "substantial authority" for the taxpayer's treatment of such
item on his return or (ii) any item with respect to which the taxpayer
adequately discloses on his return the relevant facts affecting the item's
income tax treatment. In the case of a "tax shelter," which is defined in
Section 6662 of the Code as a partnership or other entity that has as its
principal purpose the avoidance or evasion of federal income tax, this reduction
in the understatement only will apply in cases where, in addition to having
"substantial authority" for treatment of the item in question, the taxpayer
reasonably believed that the income tax treatment of that item was more likely
than not the proper treatment.
Although the Partnership is not intended to be a so-called "tax shelter,"
it is possible that it may be considered a tax shelter for purposes of Section
6662 of the Code and that certain Partnership tax items could be considered tax
shelter items within the meaning of Section 6662. The Regulations under Section
6662 provide that an entity will be deemed to be a tax shelter if the tax
avoidance or evasion motive exceeds all other motives. Based
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on the investment objectives of the Partnership, the General Partners believe
there are substantial grounds for a determination that the Partnership does not
constitute a tax shelter; however, because the issue is dependent upon facts
relating to future Partnership operations, the acquisition and disposition of
Partnership Properties and other factual determinations which are not known at
this time, Counsel is unable to render an opinion as to whether an investment in
the Partnership will be considered a tax shelter for purposes of Section 6662 of
the Code.
In addition to the substantial understatement penalty, Section 6662 of the
Code also imposes a 20% penalty on any portion of an underpayment of tax (i)
attributable to any substantial valuation misstatement (generally where the
value or adjusted basis of a property claimed on a return is 200% or more of the
correct value or adjusted basis), or (ii) attributable to negligence, defined as
any failure to make a reasonable attempt to comply with the Code, or a careless,
reckless or intentional disregard of federal income tax rules or regulations.
TAX SHELTER REGISTRATION
Any entity deemed to be a "tax shelter," as defined in Section 6111 of the
Code, is required to register with the IRS. Regulations under Section 6111
define a "tax shelter" as an investment in connection with which an investor can
reasonably infer from the representations made that the "tax shelter ratio" may
be greater than 2 to 1 as of the close of any of the first five years ending
after the date in which the investment is offered for sale. The "tax shelter
ratio" is generally determined by dividing the investor's share of the aggregate
deductions derived from the investment, determined without regard to income, by
the amount of the investor's capital contributions.
The Partnership is not intended to constitute a "tax shelter." Further,
the General Partners have represented that, in the absence of events which are
unlikely to occur, the aggregate amount of deductions derived from any Limited
Partner's investment in the Partnership, determined without regard to income,
will not exceed twice the amount of any such Limited Partner's investment in the
Partnership as of the close of any year in the Partnership's first five calendar
years.
Based upon the authority of the Regulations under Section 6111 and the
representations of the General Partners that, in the absence of events which are
unlikely to occur, the "tax shelter ratio" with respect to an investment in the
Partnership will not exceed 2 to 1 for any investor as of the close of any year
in the Partnership's first five calendar years, Counsel in the Tax Opinion has
concluded that it is more likely than not the Partnership is not currently
required to register as a tax shelter with the IRS under Section 6111 of the
Code prior to the offer and sale of the Units.
AUDITS
The IRS has recently undertaken an intensified audit program with respect
to partnerships and partnership returns. While this should generally not affect
Units which are being treated as Class A Status Units, prospective investors in
Class B Status Units should be aware that deductions which are claimed on the
Partnership's return may be challenged and disallowed by the IRS. Any such
disallowance may deprive Limited Partners holding Units treated as Class B
Status Units of some or all of the tax benefits incidental to an investment in
the Partnership.
In the event of an audit of the Partnership's tax return, the General
Partners will take primary responsibility for contesting federal income tax
adjustments proposed by the IRS, to extend the statute of limitations as to all
Partners and, in certain circumstances, to bind the Limited Partners to such
adjustments. Although the General Partners will attempt to inform each Limited
Partner of the commencement and disposition of any such audit or subsequent
proceedings, Limited Partners should be aware that their participation in
administrative or judicial proceedings relating to Partnership items will be
substantially restricted. An audit of the Partnership could result in
substantial legal and accounting fees required to be paid to substantiate the
reporting positions taken, and any such fees would reduce the cash otherwise
available for distribution to the Limited Partners. Any such audit may result
in adjustments to the tax returns of the Partnership which would require
adjustments to each Limited Partner's personal income tax return and may require
such Limited Partners to pay additional taxes plus interest,
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compounded daily. In addition, any audit of a Limited Partner's return could
result in adjustments of other items of income and deductions not related to the
Partnership.
FOREIGN INVESTORS AS LIMITED PARTNERS
As a general matter, foreign investors may purchase Units in the
Partnership. A foreign investor who purchases Units and becomes a Limited
Partner in the Partnership will generally be required to file a United States
tax return on which he must report his distributive share of the Partnership's
items of income, gain, loss, deduction and credit, and pay United States federal
income tax at regular United States tax rates on his share of any net income,
whether ordinary or capital gains. A foreign investor may also be subject to
tax on his distributive share of the Partnership's income and gain in his
country of nationality or residence or elsewhere. In addition, cash
distributions of Net Cash From Operations or Sale Proceeds otherwise payable to
a foreign investor from the Partnership or amounts payable upon the sale of a
foreign investor's Units may be reduced by United States tax withholdings made
pursuant to applicable provisions of the Code.
FOREIGN INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE
EFFECT OF BOTH THE UNITED STATES TAX LAWS AND FOREIGN LAWS ON AN INVESTMENT IN
THE PARTNERSHIP AND THE POTENTIAL THAT THE PARTNERSHIP WILL BE REQUIRED TO
WITHHOLD FEDERAL INCOME TAXES FROM AMOUNTS OTHERWISE PAYABLE TO FOREIGN
INVESTORS.
PROPOSED TAX LEGISLATION AND REGULATORY PROPOSALS
Legislative proposals have been made which could significantly change the
federal income tax laws as they relate to an investment in the Partnership. It
is impossible at this time, however, to predict whether or in what form any such
legislation will be enacted. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT HIS
OWN TAX ADVISOR WITH RESPECT TO HIS OWN TAX SITUATION, THE EFFECT OF ANY
LEGISLATIVE, REGULATORY OR ADMINISTRATIVE DEVELOPMENTS OR PROPOSALS ON AN
INVESTMENT IN UNITS IN THE PARTNERSHIP, OR OTHER POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
STATE AND LOCAL TAXES
In addition to the federal income tax aspects described above, prospective
investors should consider potential state and local tax consequences of an
investment in the Partnership. This Prospectus makes no attempt to summarize
the state and local tax consequences to an investor in those states in which the
Partnership may own properties or carry on activities, and each investor is
urged to consult his own tax advisor on all matters relating to state and local
taxation, including the following: (i) whether the state in which he resides
will impose a tax upon his share of the taxable income of the Partnership, (ii)
whether an income tax or other return must also be filed in those states where
the Partnership will own properties, and (iii) whether he will be subject to
state income tax withholding in states where the Partnership will own
properties.
Because the Partnership will conduct its activities and own properties in
different taxing jurisdictions, an investment in the Partnership may impose upon
a Limited Partner the obligation to file annual tax returns in a number of
different states or localities, as well as the obligation to pay taxes to a
number of different states or localities. Additional costs incurred in having
to prepare various state and local tax returns, as well as the additional state
and local tax which may be payable, should be considered by prospective
investors in deciding whether to make an investment in the Partnership.
It should be noted that many states have implemented or are in the process
of implementing programs to require partnerships to withhold and pay state
income taxes owed by non-resident partners relating to income-producing
properties located in their states. Effective January 1, 1994, all partnerships
which own property or do business within the State of Georgia are subject to a
withholding tax in the amount of 4% of distributions paid to
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non-resident partners receiving annual distributions of $1,000 or more. The new
Georgia withholding requirements apply to all cash distributions except
distributions constituting a return of capital and may have the effect of
reducing the amount of cash which the Partnership would otherwise be able to
distribute to non-resident Limited Partners receiving distributions from the
Partnership. In addition, the State of North Carolina has required certain of
the Prior Wells Public Programs to withhold and pay state taxes relating to
income-producing properties located in North Carolina. In the event that the
Partnership is required to withhold state taxes from cash distributions
otherwise payable to Limited Partners, the amount of the Net Cash From
Operations otherwise payable to such Limited Partners would likely be reduced.
In addition, such collection and filing requirements at the state level may
result in increases in the Partnership's administrative expenses which would
likely have the effect of reducing returns to the Limited Partners. (See "RISK
FACTORS.")
EACH PROSPECTIVE PURCHASER OF UNITS IS URGED TO CONSULT WITH HIS OWN TAX
ADVISOR WITH RESPECT TO THE IMPACT OF APPLICABLE STATE AND LOCAL TAXES ON HIS
PROPOSED INVESTMENT IN THE PARTNERSHIP.
SUMMARY OF PARTNERSHIP AGREEMENT
The Partnership is a Georgia limited partnership whose General Partners are
Leo F. Wells, III and Wells Partners, L.P., a Georgia limited partnership having
Wells Capital, Inc., a Georgia corporation, as its sole General Partner. (See
"MANAGEMENT.")
The rights and obligations of the Partners in the Partnership will be
governed by the Partnership Agreement, the form of which is set out in its
entirety as Exhibit "B" to this Prospectus. The Amended and Restated Agreement
of Limited Partnership of Wells Real Estate Fund X, L.P. will be executed and
become effective as of the effective date of this Prospectus, and the Amended
and Restated Agreement of Limited Partnership of Wells Real Estate Fund XI, L.P.
will be executed and become effective immediately upon the effective date of the
commencement of the offering of Units of Wells Real Estate Fund XI, L.P..
Prospective investors should study carefully the Partnership Agreement before
making any investment decision with regard to the Units. The following
statements are intended to supplement other statements in this Prospectus
concerning the Partnership Agreement and related matters, are intended to be a
summary only and, since they do not purport to be complete, are qualified in
their entirety by reference to the Partnership Agreement.
POWERS OF THE GENERAL PARTNERS
The General Partners have full, exclusive and complete authority and
discretion in the management and control of the business of the Partnership.
Limited Partners have no right or power to take part in the management of, or to
bind, the Partnership. (Articles XI and XVI.)
LIABILITIES OF THE LIMITED PARTNERS
The Partnership was organized as a limited partnership under the Georgia
Revised Uniform Limited Partnership Act ("GRULPA"). Investors whose
subscriptions are accepted by the General Partners will be admitted as Limited
Partners. Under GRULPA, Limited Partners have no personal liability for
Partnership debts or obligations in excess of their Capital Contributions.
OTHER ACTIVITIES OF THE GENERAL PARTNERS
The General Partners may engage in or possess interests in other business
ventures of every kind and description for their own account, including, without
limitation, the syndication, ownership or management of other
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real estate. They shall incur no liability to the Partnership, or to the
Limited Partners, as a result of engaging in any other business or venture.
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS;
NONASSESSABILITY OF UNITS
Limited Partners are not permitted to participate in the management and
control of the business of the Partnership and may not transact any business in
the name of the Partnership. Pursuant to the Partnership Agreement, each
Limited Partner appoints the General Partners, with full power and substitution,
as his lawful attorneys-in-fact to act in his name, place and stead: (i) to
amend the Certificate of Limited Partnership and the Partnership Agreement,
including amendments necessary to properly reflect allocations of profits and
losses as may be required for tax purposes; and (ii) to take any further action
which the General Partners deem necessary or advisable in connection with the
foregoing.
Units acquired by Limited Partners pursuant to the Partnership Agreement
will be fully paid and nonassessable. (Section 8.5(d).) No Limited Partner has
the right to withdraw all or any portion of his Capital Contribution until the
full and complete winding up and liquidation of the business of the Partnership,
except as otherwise provided by law. (Section 8.10(b).) No Limited Partner
will be liable for any debts or obligations of the Partnership in excess of his
Capital Contribution. (Section 16.3.)
VOTING RIGHTS OF THE LIMITED PARTNERS
Limited Partners may, with the affirmative vote of those holding more than
50% of the Units in the aggregate, take action on the following matters: (i) the
approval or disapproval of any sale, exchange or pledge of all or substantially
all of the Partnership's real properties; (ii) dissolution of the Partnership;
(iii) removal of a General Partner or any successor general partner; (iv)
election of a new General Partner upon the retirement, withdrawal or removal of
a General Partner or upon the death or the occurrence of another Event of
Withdrawal of a General Partner; (v) change in the business purpose or
investment objectives of the Partnership; and (vi) amendment to the Partnership
Agreement, except as to certain matters specified in Section 11.2(b) which the
General Partners alone may amend without a vote of the Limited Partners.
(Section 16.1.) In addition, Limited Partners holding a majority of the Units
have the right to authorize a proposed merger or consolidation of the
Partnership under certain circumstances. (Section 11.3(u).) Accordingly,
Limited Partners holding a majority of the Units may amend the Partnership
Agreement, change the business purpose or investment objectives of the
Partnership, remove a General Partner and authorize a merger or consolidation of
the Partnership. Except as otherwise provided in the Partnership Agreement in
connection with a "partnership roll-up" transaction as described below, Limited
Partners not voting with the majority on such transactions will nonetheless be
bound by the majority vote and will have no right to dissent from the majority
vote and obtain fair value for their Units. (See "RISK FACTORS.")
Notwithstanding the foregoing, the Partnership Agreement may not be amended
to change the limited liability of the Limited Partners without the vote or
consent of all Limited Partners or to diminish the rights or benefits to which
the General Partners or Limited Partners are entitled without the consent of the
Limited Partners holding a majority of the Units who would be adversely
effected, in the case of diminishing the rights or benefits of the Limited
Partners, or the majority vote of the General Partners, in the case of
diminishing the rights or benefits of the General Partners. (Section 16.2.)
Amendments to the Partnership Agreement receiving the requisite vote will
be executed by a General Partner on behalf of all Limited Partners acting
pursuant to the power of attorney contained in the Partnership Agreement.
(Section 19.1.)
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MERGERS AND CONSOLIDATIONS
The Partnership Agreement prohibits the General Partners from initiating
any transaction wherein the Partnership is merged or consolidated with any other
partnership or corporation, which type of transaction is commonly referred to as
a "partnership roll-up," and further provides that the General Partners shall
not be authorized to merge or consolidate the Partnership with any other
partnership or corporation or to convert the Partnership into a real estate
investment trust, which is often referred to as an "REIT," unless Limited
Partners owning more than 50% of the Units consent in writing to such
transaction. (Section 11.3(u).)
In addition, the Partnership Agreement contains a further provision
prohibiting the General Partners from entering into any acquisition, merger,
conversion or consolidation unless the Partnership obtains a current appraisal
of the Partnership's assets by an independent appraiser and Limited Partners who
vote against or dissent from the proposal have the choice of: (a) accepting the
securities offered in the proposed roll-up; or (b) one of the following: (i)
remaining as Limited Partners in the Partnership and preserving their interests
in the Partnership on the same terms and conditions as existed previously, or
(ii) receiving cash in an amount equal to the Limited Partners' pro rata share
of the appraised value of the net assets of the Partnership. (Section 11.3(u).)
SPECIAL PARTNERSHIP PROVISIONS
Leo F. Wells, III, who owns 100% of the issued and outstanding common stock
of Wells Capital, Inc. ("Wells Capital"), the sole general partner of Wells
Partners, L.P., has agreed that he will not transfer, sell or otherwise
voluntarily convey a majority or controlling interest in the outstanding common
stock of Wells Capital unless Limited Partners owning more than 50% of the Units
consent in writing to any such transfer, sale or conveyance. (Section 17.1(a).)
The Partnership Agreement also prohibits the General Partners and their
Affiliates from receiving any rebates or give-ups or participating in any
reciprocal business arrangements which would circumvent the provisions of the
Partnership Agreement. (Section 12.7(a).)
REMOVAL OF GENERAL PARTNERS
The Partnership Agreement provides that a General Partner may be removed
and a new General Partner elected upon the written consent or affirmative vote
of Limited Partners owning more than 50% of the Units. (Section 17.1(d).) If a
General Partner is removed, the fair market value of the interest of the removed
General Partner in the Partnership will be determined by independent appraisers
and will be paid to him or it as provided in Section 20.4 of the Partnership
Agreement. Payment of this amount may be made by the delivery of a promissory
note of the Partnership for such fair market value payable in equal consecutive
annual installments over a period of not less than five years commencing on the
first anniversary of the date of such note. Such promissory note shall bear
interest at the rate of 9% per annum. Within 120 days after the determination
of the fair market value of the former General Partner's interest, the
Partnership may, with the consent of a majority in interest of the Limited
Partners, sell such interest to one or more persons who may be Affiliates of the
remaining General Partner or General Partners, and admit such person or persons
to the Partnership as substitute General Partners; provided, however, that the
purchase price to be paid to the Partnership for the Partnership interest of the
former General Partner shall not be less than its fair market value as
determined by the appraisal described above. Such substitute General Partner or
Partners may pay said purchase price in installments in the manner set forth
above.
ASSIGNABILITY OF GENERAL PARTNERS' INTERESTS
With the consent of all other General Partners and Limited Partners holding
more than 50% of the Units, after providing 90 days written notice to the other
General Partners and Limited Partners, a General Partner may designate a
successor or additional general partner, in each case with such participation in
such General Partner's interest as such General Partner and such successor or
additional General Partner may agree upon, provided that
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the interests of the Limited Partners are not adversely affected thereby.
Generally, except in connection with such a designation, no General Partner
shall have the right to retire or withdraw voluntarily from the Partnership or
to sell, transfer or assign his or its interest without the consent of the
Limited Partners holding more than 50% of the Units. (Section 17.1.)
BOOKS AND RECORDS; RIGHTS TO INFORMATION; ANNUAL AUDITS
The General Partners are required to maintain at the Partnership's
principal office full and accurate books and records for the Partnership. All
Limited Partners have the right to inspect, examine and obtain copies at their
reasonable cost of such books and records at all reasonable times. In addition,
an alphabetical list of the names, addresses and business telephone numbers of
all Limited Partners, along with the number of Units owned by each of them,
shall be available for inspection and copying by the Limited Partners or their
designated representatives. (Section 15.1.) Annual audits of the Partnership's
affairs will be conducted by such firm of independent certified public
accountants as may from time to time be engaged by the Partnership. (Section
15.2(b).)
MEETINGS OF LIMITED PARTNERS
There will generally be no annual or periodic meetings of Limited Partners.
However, the General Partners shall be required to call a meeting of the Limited
Partners upon the written request of Limited Partners holding 10% or more of the
outstanding Units. In such event, a detailed statement of the action proposed,
including a verbatim statement of the wording of any resolution proposed for
adoption by the Limited Partners and any proposed amendment to the Partnership
Agreement, shall be included with the notice of the meeting. (Section 16.4.)
TRANSFERABILITY OF UNITS
There are a number of restrictions on the transferability of Units. Except
for intra-family transfers and transfers by gift, inheritance or family
dissolution, no Units may be transferred unless the proposed transferee meets
the minimum suitability standards set forth in this Prospectus. Investors
transferring less than all of their Units must transfer a number of Units such
that, after the transfer, both the transferor and transferee shall own no less
than the minimum number of Units required to be purchased by an investor, unless
such transfer is made on behalf of a Retirement Plan, or by gift, inheritance,
intra-family transfer, family dissolution or to an affiliate. Payment of a
transfer fee in an amount sufficient to cover transfer costs, as established by
the General Partners, is a condition to effectiveness of a transfer. All
transfers of Units must be pursuant to documentation satisfactory in form and
substance to the General Partners. Additional restrictions on transfers of
Units are imposed under the securities laws of various states upon the residents
of such states. Further, no Unit may be sold, assigned or exchanged if the sale
of such Unit, when added to the total of all other sales or exchanges of Units
within the period of 12 consecutive months prior to the proposed date of sale or
exchange, would, in the opinion of counsel for the Partnership, result in the
termination of the Partnership under Section 708 of the Code (dealing with
transfers of 50% or more of the outstanding interests of a partnership) unless
the Partnership and the transferring holder shall have received a ruling from
the IRS that the proposed sale or exchange will not cause such a termination.
(Section 17.3(a).)
In addition to the foregoing restrictions, the Partnership Agreement
contains substantial restrictions on the transfer or assignment of Units in
order to prevent the Partnership from being deemed a "publicly traded
partnership." These restrictions are those described in the Section 7704
Regulations, the most significant of which prohibits the transfer during any
taxable year of more than 2% of the total interest in the Partnership's capital
or profits excluding transfers by gift, transfers at death, transfers between
family members, distributions from a qualified retirement plan and block
transfers, which are defined as transfers by a partner during any 30 calendar
day period of partnership interests representing more than 2% of the total
interest in a partnership's capital or profits. Further, the Partnership
Agreement provides that any transfer or assignment of Units which the General
Partners believe will cause the Partnership to be treated as a publicly traded
partnership will be void ab initio and
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will not be recognized by the Partnership. (See "FEDERAL INCOME TAX
CONSEQUENCES - Publicly Traded Partnerships" and Section 17.3(g) of the
Partnership Agreement.)
Transferees of Units are not eligible to participate in the Partnership's
Distribution Reinvestment Plan with respect to investment of their distributions
from the Partnership in additional Units of the same Partnership. However, such
transferees are not disqualified from participation in the Distribution
Reinvestment Plan with respect to investment of their distributions from the
Partnership in Units issued by subsequent limited partnerships sponsored by the
General Partners, if such Plan is established and the transferee meets the
Plan's requirements for participation. (See "Distribution Reinvestment Plan.")
An assignee of Units shall not become a substituted Limited Partner in
place of his assignor unless the assignee shall have expressly agreed to become
a party to the Partnership Agreement. (Section 17.4.) An assignee of Units who
does not become a substituted Limited Partner shall be entitled to receive
distributions attributable to the Units properly transferred to him (Section
17.5), but shall not have any of the other rights of a Limited Partner,
including the right to vote as a Limited Partner and the right to inspect and
copy the Partnership's books. Assignments of Units are restricted similarly to
transfers of Units.
PARTNERSHIP BORROWING
The General Partners are prohibited from borrowing to finance the
acquisition, construction or ownership of the Partnership's properties.
However, the Partnership may incur debt for the following limited purposes: (a)
in the event of unforseen circumstances in which the Partnership's working
capital reserves and other cash resources available to the Partnership are
insufficient for operating purposes; and (b) in order to finance property
improvements, when the General Partners deem such improvements to be necessary
or appropriate to protect the capital previously invested in the properties, to
protect the value of the Partnership's investment in a particular property or to
make a particular property more attractive for sale or lease. The aggregate
amount of Partnership borrowings at any given time may not exceed 25% of the
total purchase price of Partnership Properties. (See "INVESTMENT OBJECTIVES AND
CRITERIA - Borrowing Policies" and Section 11.3(e) of the Partnership
Agreement.)
REPURCHASE OF UNITS
After a period of one year following the termination of the Offering of
Units, the Partnership may establish a Repurchase Reserve of up to 5% of Cash
Flow in any year, subject to the various restrictions and limitations set forth
below. (Sections 8.11 and 11.3(h).) The establishment of the Repurchase
Reserve is in the sole discretion of the General Partners, and if established,
the Repurchase Reserve may be terminated at any time in the sole discretion of
the General Partners. The Partnership Agreement provides that under certain
circumstances the Partnership may, in the sole discretion of the General
Partners and upon the request of a Limited Partner, repurchase the Units held by
such Limited Partner, provided that no such repurchase may be made if either (i)
following the repurchase such Limited Partner's interests would not be fully
redeemed but such Limited Partner would hold less than the minimum investment in
the Offering (100 Units) or (ii) such repurchase would impair the capital or
operations of the Partnership. In no event will a Limited Partner be permitted
to have his Units repurchased prior to termination of the Offering. Units owned
by the General Partners or their Affiliates may not be repurchased by the
Partnership. Further, in order to prevent the classification of the Partnership
as an investment company under the Investment Company Act of 1940 and to prevent
the Partnership from being deemed a "publicly traded partnership" under the
Code, the opportunity of Limited Partners to have their Units repurchased has
been substantially restricted under the Partnership Agreement.
A Limited Partner wishing to have Units repurchased must mail or deliver a
written request to the Partnership, executed by his or its trustee or authorized
agent in the case of qualified profit sharing, pension and other retirement
trusts, indicating his or its desire to have such Units repurchased. Such
requests will be considered by the General Partners in the order in which they
are received. Except for the fact that the Repurchase Reserve
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will not be established, if at all, until at least one year after the
termination of the Offering, Limited Partners are not required to hold Units for
any specified period of time prior to making such a redemption request.
In the event that the General Partners decide to honor a request, they will
notify the requesting Limited Partner in writing of such fact, of the purchase
price for the repurchased Units and of the effective date of the repurchase
transaction (which will be not less than 60 nor more than 75 calendar days
following the receipt of the written request by the Partnership) and will
forward to such Limited Partner the documents necessary to effect such
repurchase transaction. The purchase price per Unit will be equal to 85% of the
fair market value of the Units until three years from the effective date of the
Registration Statement and 90% of the fair market value of the Units thereafter.
Fair market value shall be determined by the General Partners based upon an
estimate of the amount the Limited Partners would receive if the Partnership's
real estate investments were sold for their estimated value and if such proceeds
were distributed in a liquidation of the Partnership. For the first three full
fiscal years following the year in which the Offering of Units terminates, the
fair market value of the Units will be deemed to be their initial purchase price
of $10.00. Thereafter, the fair market value will be based on annual appraisals
of Partnership Properties performed by the General Partners and not by an
independent appraiser. However, the General Partners will obtain an opinion of
an independent third party annually that their estimate of the fair market value
of each Unit for such year is reasonable and was prepared in accordance with
appropriate methods for valuing real estate. Fully executed documents must be
returned to the Partnership at least 30 days prior to the effective date. The
Partnership will, as soon as possible following return of such documents from
the Limited Partner, repurchase the Units of the Limited Partner, provided, that
if insufficient amounts are then available in the Repurchase Reserve to
repurchase all of such Units, only a portion of such Units will be repurchased;
and provided further, that the Partnership may not repurchase less than all of
the Units of such Limited Partner if as a result thereof the Limited Partner
would own less than the minimum investment in the Offering (100 Units). Units
repurchased by the Partnership will be canceled. In the event that insufficient
funds are available in the Repurchase Reserve to repurchase all of such Units,
the Limited Partner will be deemed to have priority for subsequent Partnership
repurchases over other Limited Partners who subsequently request repurchases.
In addition to the other restrictions described herein, the Partnership
Agreement provides that (i) repurchases out of the Repurchase Reserve may not
exceed in the aggregate more than 2% of total Gross Offering Proceeds throughout
the life of the Partnership excluding repurchases of Units relating to the death
or legal incapacity of the owner or a substantial reduction in the owner's net
worth or income (defined to mean an involuntary loss of not less than 50% in
income or net worth during the year in which such repurchase occurs), and (ii)
not more than 2% of the outstanding Units may be purchased in any year, provided
in each case that the Partnership has sufficient cash to make the purchase and
that the purchase will not be in violation of any other applicable legal
requirements. (Section 8.11(k).) Due to the various restrictions and
limitations relating to the potential establishment of a Repurchase Reserve by
the Partnership, in considering an investment in the Partnership, prospective
investors should not assume that they will be able to resell their Units to the
Partnership. (See "RISK FACTORS.") In addition, prospective investors should
consider that a resale of their Units to the Partnership may result in adverse
tax consequences to the Limited Partner. (See "FEDERAL INCOME TAX CONSEQUENCES
- - Sales of Limited Partnership Units.")
DISTRIBUTION REINVESTMENT PLAN
It is anticipated that a Distribution Reinvestment Plan (the "Distribution
Reinvestment Plan") will be available which will be designed to enable Limited
Partners holding Class A Status Units to have their distributions of Net Cash
From Operations from the Partnership invested in additional Units of the
Partnership during the Offering or in units issued by subsequent limited
partnerships sponsored by the General Partners or their Affiliates which have
substantially identical investment objectives as the Partnership. (Section
8.15.) In addition, in the event the Distribution Reinvestment Plan is
effected, it is anticipated that Limited Partners in Wells Fund III and Limited
Partners holding Class A Units (or Class A Status Units) in Wells Fund IV, Wells
Fund V, Wells Fund VI, Wells Fund VII, Wells Fund VIII and Wells Fund IX will
have the opportunity to have their distributions of Net Cash From Operations
from Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII,
Wells Fund
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VIII and Wells Fund IX invested in Units in the Partnership during the Offering
period. Units issued by Wells Real Estate Fund X, L.P. pursuant to the
Distribution Reinvestment Plan will be available only until the termination of
its Offering, and Units issued by Wells Real Estate Fund XI, L.P. pursuant to
the Distribution Reinvestment Plan will be available only until the expiration
of its Offering. The General Partners in their discretion may elect not to
provide a Distribution Reinvestment Plan or to terminate any existing
Distribution Reinvestment Plan. Limited Partners will not be eligible to
participate in the Distribution Reinvestment Plan with respect to Class B Status
Units since no distributions of Net Cash From Operations are payable with
respect to Class B Status Units. Limited Partners who acquire their Units
outside the Offering (i.e., transferees of Units) may not participate in the
Distribution Reinvestment Plan with respect to Units in the Partnership in which
they are Limited Partners, but may have their distributions from the Partnership
invested in Units of a subsequent limited partnership sponsored by the General
Partners or their Affiliates if such a distribution reinvestment plan is made
available by the General Partners in their discretion.
Limited Partners participating in the Distribution Reinvestment Plan may
purchase fractional Units and shall not be subject to minimum investment
requirements, although the General Partners may, at their option, impose certain
minimum investment requirements and other restrictions with respect to purchases
of Units pursuant to the Distribution Reinvestment Plan. Limited Partners
electing to participate in the Distribution Reinvestment Plan will receive with
each confirmation a notice advising such Limited Partner that he is entitled to
change his election with respect to subsequent distributions by returning a
notice to the Partnership. If sufficient Units are not available for purchase
pursuant to the Distribution Reinvestment Plan, the Partnership will remit all
excess distributions of Net Cash From Operations to the participants.
Net Cash From Operations may only be reinvested in units issued by
subsequent limited partnerships sponsored by the General Partners or their
Affiliates if: (i) prior to the time of such reinvestment, the Limited Partner
has received the final prospectus (and any supplements thereto) offering
interests in the subsequent limited partnership and such prospectus allows
investment pursuant to a distribution reinvestment plan; (ii) a registration
statement covering the interests in the subsequent limited partnership has been
declared effective under the Securities Act of 1933; (iii) the offer and sale of
such interests is qualified for sale under the applicable state securities laws;
(iv) the participant executes the subscription agreement included with the
prospectus for the subsequent limited partnership; (v) the participant qualifies
under applicable investor suitability standards as contained in the prospectus
for the subsequent limited partnership; and (vi) the subsequent limited
partnership has substantially identical investment objectives as the
Partnership.
EACH LIMITED PARTNER ELECTING TO PARTICIPATE IN THE DISTRIBUTION
REINVESTMENT PLAN AGREES THAT IF AT ANY TIME HE FAILS TO MEET THE APPLICABLE
REAL ESTATE LIMITED PARTNERSHIP INVESTOR SUITABILITY STANDARDS OR CANNOT MAKE
THE OTHER INVESTOR REPRESENTATIONS OR WARRANTIES SET FORTH IN THE THEN CURRENT
REAL ESTATE LIMITED PARTNERSHIP PROSPECTUS, THE SUBSCRIPTION AGREEMENT OR
PARTNERSHIP AGREEMENT RELATING THERETO, HE WILL PROMPTLY NOTIFY THE GENERAL
PARTNERS IN WRITING.
Subscribers should note that affirmative action must be taken to change or
withdraw from participation in the Distribution Reinvestment Plan. Change in or
withdrawal from participation in the Distribution Reinvestment Plan shall be
effective only with respect to distributions made more than 30 days following
receipt by the General Partners of written notice of such change or withdrawal.
In the event a Limited Partner transfers his Units, such transfer shall
terminate the Limited Partner's participation in the Distribution Reinvestment
Plan as of the first day of the quarter in which such transfer is effective.
Selling Commissions not to exceed 8% and dealer management fees not to
exceed 2% may be paid by the Partnership with respect to Units purchased
pursuant to the Distribution Reinvestment Plan. Payment of selling commissions
may be subject to certain minimum levels of additional investment. Each holder
of Units is permitted
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to identify, change or eliminate the name of his account executive at a
participating dealer. Identification of such account executive may be retained,
changed or eliminated for subsequent distributions. In the event that no
account executive is identified at any time during the Offering, or in the event
that the account executive is not employed by a broker-dealer having a valid
selling agreement with the Dealer Manager, no selling commission will be paid
with respect to distributions which are then being reinvested, and the
Partnership will retain for additional investments in real estate any amounts
otherwise payable as selling commissions. All holders of Units, based on the
number of Units owned by each of them, will receive the benefit of savings
realized by the Partnership from investors who do not identify account
executives. Accordingly, the economic benefit to investors who do not identify
account executives will be diluted and shared with all holders, including those
for whose contributions the Partnership has paid selling commissions.
Unless the General Partners are otherwise notified in writing, Units issued
pursuant to the Distribution Reinvestment Plan will initially be treated as
Class A Status Units. Units purchased pursuant to the Distribution Reinvestment
Plan will entitle participants to the same rights and to be treated in the same
manner as Units issued pursuant to the Offering.
Following the reinvestment, each participant will be sent a statement and
accounting showing the distributions received, the number and price of Units
purchased, and the total amount of Units acquired under the Distribution
Reinvestment Plan. Taxable participants will incur tax liability for
Partnership income allocated to them even though they have elected not to
receive their distributions in cash but rather to have their distributions held
in their account under the Distribution Reinvestment Plan. (See "RISK FACTORS -
Federal Income Tax Risks - Risk of Taxable Income Without Cash Distributions.")
The Partnership reserves the right to amend any aspect of the Distribution
Reinvestment Plan effective with respect to any distribution paid subsequent to
the notice, provided that the notice is sent to participants in the Distribution
Reinvestment Plan at least ten days before the record date for a distribution.
The Partnership also reserves the right to terminate the Distribution
Reinvestment Plan for any reason at any time, by sending written notice of
termination to all participants.
Nothing contained herein shall be construed as obligating the General
Partners or their Affiliates to continue to offer units in subsequent real
estate limited partnerships or to include a distribution reinvestment plan as
part of the offering of such partnerships or to permit reinvestment of
distributions therein.
PROXY TO LIQUIDATE
At any time commencing eight years after the termination of the Offering,
if the General Partners receive written requests from Limited Partners holding
10% or more of the outstanding Units (the "Proxy Request") directing that the
General Partners formally proxy the Limited Partners to determine whether the
assets of the Partnership should be liquidated (the "Proxy to Liquidate"), the
General Partners will send a Proxy to Liquidate to each Limited Partner. The
General Partners shall not be required to send Proxies to Liquidate to the
Limited Partners more frequently than once during every two year period. If the
Proxy to Liquidate results in Limited Partners owing more than 50% of the Units
(without regard to Units owned or otherwise controlled by the General Partners)
voting in favor of a liquidation of the Partnership, the assets of the
Partnership will be fully liquidated within 30 months from the close of the 45-
day deadline applicable to the Proxy to Liquidate. (Section 20.2.)
DISSOLUTION AND TERMINATION
The Partnership is to continue until December 31, 2026, but may be
dissolved earlier as provided in the Partnership Agreement or by law. (Article
VI.) The Partnership will also be dissolved upon: (a) the decision by holders
of more than 50% of the Units to dissolve and terminate the Partnership; (b) the
retirement or withdrawal of a General Partner unless within 90 days from the
date of such event, (i) the remaining General Partner, if any,
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elects to continue the business of the Partnership, or (ii) if there is no
remaining General Partner, a majority in interest of the Limited Partners elect
to continue the business of the Partnership; (c) the removal of a General
Partner unless within 90 days from the date of such removal, (i) the remaining
General Partner, if any, elects to continue the business of the Partnership, or
(ii) if there is no remaining General Partner, a majority in interest of the
Limited Partners elect to continue the business of the Partnership; (d) the sale
or disposition of all interests in real property and other assets of the
Partnership; (e) the effective date of the occurrence of an Event of Withdrawal
of the last remaining General Partner unless, within 120 days from such event, a
majority in interest of the Limited Partners elect to continue the business of
the Partnership; or (f) the happening of any other event causing the dissolution
of the Partnership under the laws of Georgia. (Section 20.1.) However, the
retirement or withdrawal of a General Partner will not dissolve the Partnership
if any remaining General Partner or General Partners, within 90 days of the date
of such event, elect to continue the business of the Partnership, or in the
event that there is no remaining General Partner within 120 days, a majority in
interest of the Limited Partners elect to continue the business of the
Partnership and elect a successor General Partner or General Partners. (Section
20.3.)
In addition to the foregoing events, the General Partners may also
terminate the Offering, compel a termination and dissolution of the Partnership,
or restructure the Partnership's affairs, upon notice to all Limited Partners
but without the consent of any Limited Partner, if upon the advice of counsel to
the Partnership, either (a) the Partnership's assets constitute "Plan Assets,"
as such term is defined for purposes of ERISA, or (b) any of the transactions
contemplated in the Partnership Agreement constitute "prohibited transactions"
under ERISA.
In the event the Partnership is dissolved, the assets of the Partnership
shall be converted to cash. The General Partners shall be given a reasonable
amount of time to collect any notes receivable with respect to the sale of
Partnership assets and to collect any other outstanding debts. All cash on hand
shall be distributed first to creditors to satisfy debts and liabilities of the
Partnership other than loans or advances made by Partners to the Partnership,
including the establishment of reserves deemed reasonably necessary to satisfy
contingent or unforeseen liabilities or obligations of the Partnership. Any
remaining cash will then be used to repay loans or advances made by any of the
Partners to the Partnership and to pay any fees due the General Partners. The
balance, if any, shall be distributed among the Partners in accordance with the
positive balance in their Capital Accounts as of the date of distribution. Upon
completion of the foregoing distributions, the Partnership shall be terminated.
(Section 9.3.)
DISTRIBUTIONS AND ALLOCATIONS
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Net Cash From Operations (defined in the Partnership Agreement to mean
generally the Partnership's cash flow from operations, after payment of all
operating expenses and adjustments for reserves), if any, will be distributed in
each year as follows and in the following priority:
(i) First, to Limited Partners holding Class A Status Units on a per Unit
basis until they have received a 10% annual return on their Net Capital
Contributions (defined in the Partnership Agreement to mean generally the amount
of cash contributed to the Partnership reduced by prior distributions of net
proceeds from any sale or exchange of Partnership Properties);
(ii) Then, to the General Partners until they have received an amount equal
to 10% of the total amount thus far distributed; and
(iii) Then, 90% to Limited Partners holding Class A Status Units and 10%
to the General Partners.
Notwithstanding the foregoing, Limited Partners holding Class A Status
Units who have purchased Units pursuant to the Deferred Commission Option shall
for a period of seven years after termination of the Offering have
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deducted and withheld from distributions of Net Cash From Operations otherwise
payable to such Limited Partners an annual amount equal to $0.10 per Unit
purchased pursuant to the Deferred Commission Option, which amounts shall
instead be used by the Partnership to pay deferred commissions due with respect
to such Units. (See "PLAN OF DISTRIBUTION.")
No distributions of Net Cash From Operations shall be made out of Capital
Contributions, and no Net Cash From Operations will be distributed with respect
to Class B Status Units.
The Partnership Agreement prohibits the General Partners from making any
distributions of Net Cash From Operations out of Capital Contributions.
Distributions of Net Cash From Operations will be allocated among the Limited
Partners on a daily basis based on the ratio which the number of Units owned by
each Limited Partner as of the last day of the preceding quarter bears to the
total number of Units outstanding. A transferee of Units will be deemed the
owner of such Units as of the first day of the quarter following the quarter
during which the transfer occurred and, therefore, will not participate in
distributions made with respect to the quarter in which such transfer occurs.
It is anticipated that distributions of Net Cash From Operations will be made on
a quarterly basis, unless Limited Partners elect to receive distributions on a
monthly basis. (See "Monthly Distributions" below.)
DISTRIBUTION OF NET SALE PROCEEDS
Nonliquidating Net Sale Proceeds (defined in the Partnership Agreement to
mean generally the net proceeds from any sale or exchange of Partnership
Properties) will be distributed generally as follows and in the following
priority:
(i) First, to Limited Partners holding Units which have at any time been
treated as Class B Status Units, in amounts necessary to make up for the
priority distributions of Net Cash From Operations previously paid or deemed
paid to Limited Partners holding Units which at all times have been treated as
Class A Status Units;
(ii) Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received or has been deemed to have received an amount equal to his
Net Capital Contribution;
(iii) Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received or has been deemed to have received aggregate distributions
equal to a 10% per annum cumulative (noncompounded) return on his Net Capital
Contribution;
(iv) Then, to Limited Partners on a per Unit basis until each Limited
Partner has received or has been deemed to have received aggregate distributions
equal to his Preferential Limited Partner Return (defined as the sum of (a) a
10% per annum cumulative return on his Net Capital Contribution with respect to
such Unit for all periods during which such Unit was treated as a Class A Status
Unit, and (b) a 15% per annum cumulative return on his Net Capital Contribution
with respect to such Unit for all periods during which such Unit was treated as
a Class B Status Unit);
(v) Then, to the General Partners until they have received an amount equal
to their Capital Contributions;
(vi) Then, if and only in the event that Limited Partners have received any
Excess Limited Partner Distributions, to the General Partners until they have
received an amount equal to 20% of the sum of any such Excess Limited Partner
Distributions plus the amount distributed to the General Partners pursuant to
this provision; and
(vii) Then, 80% to the Limited Partners on a per Unit basis and 20% to the
General Partners; provided, however, that in no event will the General Partners
receive in the aggregate in excess of the NASAA Guidelines Resale Proceeds
Maximum Amount. It is the intent of the foregoing limitation that the General
Partners receive
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no more of the net proceeds from the sale or financing of Partnership Properties
than is allowed pursuant to applicable provisions of the NASAA Guidelines. Any
such excess amounts otherwise distributable to the General Partners will instead
be reallocated and distributed to the Limited Partners on a per Unit basis.
Potential investors should be aware that their share of distributions of
Sale Proceeds may be less than their Net Capital Contributions unless the
Partnership's aggregate Sale Proceeds are sufficient to fund the sum of the
required payments to Limited Partners holding Units which have been treated as
Class B Status Units in such amounts as may be necessary to make up for the
priority distributions of Net Cash From Operations previously paid to Limited
Partners holding Units which at all times were treated as Class A Status Units
plus the amount required to repay aggregate Net Capital Contributions to all
Limited Partners.
Notwithstanding the foregoing, in the event the Partnership sells any
Partnership Property at a net sale price which is less than the purchase price
originally paid for such property, prior to the foregoing distribution of
Nonliquidating Net Sale Proceeds, Limited Partners holding Class A Status Units
shall first receive distributions of Nonliquidating Net Sale Proceeds in an
amount equal to the following: the excess of the original purchase price of the
Partnership Property sold over the sale price of such Partnership Property, but
not greater than the amount of special allocations of deductions for
depreciation, amortization and cost recovery with respect to such Partnership
Property previously made to Limited Partners holding Class B Status Units. The
General Partners have included the foregoing provision in the Partnership
Agreement for distributions of Nonliquidating Net Sale Proceeds in favor of
Limited Partners holding Class A Status Units in order to ensure that Limited
Partners holding Class B Status Units will bear the actual economic risk of loss
in the event a Partnership Property is sold at a loss, in order to support the
special allocation of depreciation, amortization and cost recovery deductions to
such Limited Partners.
LIQUIDATING DISTRIBUTIONS
Liquidating Distributions (defined in the Partnership Agreement to mean
generally the distribution of the net proceeds from a dissolution and
termination of the Partnership or from the sale of substantially all of the last
remaining assets of the Partnership) will be distributed among the General
Partners and the Limited Partners in accordance with each such Partner's
positive Capital Account balance, after the allocation of Gain on Sale and other
appropriate Capital Account adjustments.
RETURN OF UNUSED CAPITAL CONTRIBUTIONS
Funds not expended, committed or reserved for working capital purposes by
the later of the second anniversary of the effective date of the Registration
Statement or one year after the termination of the Offering will be returned to
Limited Partners, without reduction for Front-End Fees or Selling Commissions
relating to such uncommitted funds and without interest thereon. For purposes
of the foregoing, funds will be deemed to have been committed and will not be
returned to the extent that such funds would be required to complete the
acquisition of Partnership Properties with respect to which contracts,
agreements in principle or letters of understanding have been executed,
regardless of whether such property is actually acquired. Any funds reserved in
order to make contingent payments in connection with the acquisition of any
Partnership Property will be treated as committed whether or not any such
payments are actually made.
PARTNERSHIP ALLOCATIONS
Since the Partnership does not intend to borrow funds, no Partner's Capital
Account will be allocated items that will cause the Capital Account to have a
deficit balance. This means that, although holders of Class B Status Units may
receive allocations of certain deductions over the life of the Partnership equal
to their Capital Contributions, they cannot be allocated additional deductions.
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NET LOSS. Net Loss (defined in the Partnership Agreement to mean generally
the net losses of the Partnership for federal income tax purposes, but excluding
deductions for depreciation, amortization and cost recovery, which will be
allocated separately as set forth below) for each fiscal year shall be allocated
as follows:
(i) 99% to Limited Partners holding Class B Status Units and 1% to the
General Partners until the Capital Accounts of all such Partners have been
reduced to zero;
(ii) Then, to any Partner having a positive balance in his Capital Account
in an amount not to exceed such positive balance as of the last day of the
fiscal year; and
(iii) Then, 100% to the General Partners.
Notwithstanding the foregoing, in any fiscal year with respect to which the
Partnership incurs an aggregate Net Loss, interest income of the Partnership
shall be specially allocated to Limited Partners holding Class A Status Units
and the Net Loss of the Partnership for such fiscal year shall be determined
without regard to such interest income.
All deductions for depreciation, amortization and cost recovery for each
fiscal year shall be allocated as follows:
(i) 99% to Limited Partners holding Class B Status Units and 1% to the
General Partners until the Capital Accounts of all such Partners have been
reduced to zero;
(ii) Then, to any Partner having a positive balance in his Capital Account
in an amount not to exceed such positive balance as of the last day of the
fiscal year; and
(iii) Then, 100% to the General Partners.
NET INCOME. Net Income (defined in the Partnership Agreement to mean
generally the net income of the Partnership for federal income tax purposes,
including any income exempt from tax, but excluding all deductions for
depreciation, amortization and cost recovery and Gain on Sale) for each fiscal
year shall be allocated as follows:
(i) To Limited Partners holding Class A Status Units and to the General
Partners in the same proportion as and to the extent that Net Cash From
Operations is distributed or deemed distributed; and
(ii) To the extent Net Income exceeds Net Cash From Operations with respect
to such fiscal year, such excess Net Income shall be allocated 99% to Limited
Partners holding Class A Status Units and 1% to the General Partners.
GAIN ON SALE. Gain on Sale (defined in the Partnership Agreement to mean
generally the taxable income or gain from the sale or exchange of Partnership
Properties) for each fiscal year shall be allocated as follows:
(i) First, pursuant to the qualified income offset provision described
below;
(ii) Then, to Partners having negative Capital Accounts until all negative
Capital Accounts have been restored to zero;
(iii) Then, to Limited Partners holding Units which at any time have been
treated as Class B Status Units, in amounts equal to the deductions for
depreciation, amortization and cost recovery previously allocated to them with
respect to the specific Partnership Property, the sale or other disposition of
which resulted in Gain on
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Sale being allocated, but not in excess of the amount of Gain on Sale recognized
by the Partnership pursuant to the sale or other disposition of said Partnership
Property;
(iv) Then, to the Limited Partners in amounts equal to the deductions for
depreciation, amortization and cost recovery previously allocated to said
Limited Partners with respect to the specific Partnership Property, the sale or
other disposition of which resulted in Gain on Sale being allocated;
(v) Then, to Limited Partners holding Units which at any time have been
treated as Class B Status Units, in an amount necessary to make up for the
priority distributions of Net Cash From Operations in favor of Limited Partners
holding Units which at all times have been treated as Class A Status Units;
(vi) Then, to Limited Partners on a per Unit basis in amounts equal to the
excess of each Limited Partner's Net Capital Contribution over all prior
distributions to such Limited Partner of net proceeds from the sale of
Partnership Properties;
(vii) Then, to the Limited Partners on a per Unit basis until each Limited
Partner has been allocated an amount equal to the excess of a 10% cumulative
(noncompounded) return on his Net Capital Contribution over prior distributions
to such Limited Partner of Net Cash From Operations;
(viii) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an aggregate amount equal to the excess of
his Preferential Limited Partner Return over prior distributions to such Limited
Partner of Net Cash From Operations;
(ix) Then, to the General Partners in an amount equal to their Capital
Contributions;
(x) Then, to the General Partners until the General Partners have been
allocated Gain on Sale equal to 20% of the sum of any Excess Limited Partner
Distributions plus any Gain on Sale allocated to the General Partners pursuant
to this provision; and
(xi) Then, 80% to the Limited Partners and 20% to the General Partners;
provided, however, that in no event will the General Partners be allocated Gain
on Sale which would result in distributions to the General Partners in excess of
the NASAA Guidelines Resale Proceeds Maximum Amount. Any such excess
allocations of Gain on Sale will instead be reallocated to the Limited Partners
on a per Unit basis.
The Partnership Agreement contains a "qualified income offset" provision
which provides that in the event that any Partner receives an adjustment,
allocation or distribution of certain items which causes a deficit or negative
balance in such Partner's Capital Account, such Partner will be allocated items
of income or gain (consisting of a pro rata portion of each item of Partnership
income, including gross income, and gain for such year) in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible. The intent
of the foregoing provision is to prohibit allocations of losses or distributions
of cash to a Limited Partner which would cause his Capital Account to become
negative (which would occur in the event that the aggregate amount of losses
allocated and cash distributed to such Limited Partner exceeded the sum of his
Capital Contributions plus any income allocated to him) or, in the event such
allocation or distribution did cause his Capital Account to become negative,
such Limited Partner would be allocated income or gain in an amount necessary to
bring his Capital Account back to zero. (See "FEDERAL INCOME TAX CONSEQUENCES -
Allocations of Profit and Loss.")
THE QUALIFIED INCOME OFFSET PROVISION MAY RESULT IN INCOME BEING SPECIALLY
ALLOCATED TO LIMITED PARTNERS EVEN IN A FISCAL YEAR WHEN THE PARTNERSHIP HAS A
NET LOSS FROM OPERATIONS OR FROM THE SALE OF PROPERTY.
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Income, losses and distributions of cash relating to Units which are
acquired directly from the Partnership during the Offering will be allocated
among the Limited Partners on a pro rata basis based on the number of days such
Units have been owned by such Limited Partner.
MONTHLY DISTRIBUTIONS
Limited Partners holding Class A Status Units may, at their option, elect
to receive distributions of Net Cash From Operations, if any, on a monthly
basis. This program is called the Monthly Distribution Option (the "MDO"). It
should be understood, however, that Limited Partners electing the MDO will in
all likelihood receive lower distributions per Unit, on an annual basis, than
Limited Partners receiving their distributions on a quarterly basis due to the
fact that income received by the Partnership during the early portion of a
quarter will be invested and will earn interest until distribution shortly after
the end of the quarter. This compounding effect will be available to Limited
Partners selecting the MDO to a lesser degree due to the greater frequency of
their distributions.
Limited Partners holding Class A Status Units that elect the MDO will begin
receiving their distributions on a monthly basis with respect to the calendar
quarter following the calendar quarter in which the General Partners receive the
Limited Partner's written election along with a check for the MDO fee, described
below. Monthly distributions will be paid to the Limited Partner during the
month following the month to which the distribution is attributable. For
example, if a Limited Partner elects the MDO during the first calendar quarter
of a year, his election is effective at the beginning of the second calendar
quarter (i.e., April 1). Accordingly, the Limited Partner would receive a
distribution, if at all, for the first calendar quarter of the year, and
beginning in April, the Limited Partner electing the MDO would receive monthly
distributions for the remainder of the year, with the first monthly distribution
being paid during the month of May.
There is an annual fee of $20 per Limited Partner electing the MDO. This
annual fee is designed to cover additional administrative expenses, postage and
handling costs associated with more frequent distributions and will in no event
result in any additional compensation to the General Partners or their
Affiliates. In the event the actual administrative expenses, postage and
handling costs are less than $20 per Limited Partner per year, which is not
anticipated, any such savings will be reimbursed to Limited Partners electing
the MDO. The first fee payment is due at the time of the initial election, and
each subsequent fee payment is due by each December 31. Each Limited Partner
electing the MDO will receive a bill for the annual fee in conjunction with his
November distribution. Limited Partners may elect to have the Partnership
deduct subsequent annual MDO fees from the distributions.
A Limited Partner holding Class A Status Units may withdraw from the MDO by
either notifying the General Partners in writing or by simply failing to pay the
annual fee on a timely basis. A Limited Partner will then begin to receive his
distributions on a quarterly basis at the beginning of the following calendar
year. If payment is not received by the due date, then the MDO with respect to
that Limited Partner is canceled. To reinstate the MDO, the Limited Partner may
make his $20 payment, and the MDO will again be effective at the beginning of
the calendar quarter following the calendar quarter in which payment is made. A
Limited Partner holding Class A Status Units may elect the MDO by sending a
completed MDO form to the Partnership (which form may be obtained by calling or
writing the Partnership).
REPORTS TO INVESTORS
Within 75 days after the end of each fiscal year of the Partnership, the
General Partners will deliver to each Limited Partner and any assignee such
information as is necessary for the preparation of his federal income tax return
and state income or other tax returns with regard to jurisdictions in which
Partnership Properties are located. Within 120 days after the end of the
Partnership's fiscal year, the General Partners will deliver to each Limited
Partner and any assignee an annual report which includes financial statements of
the Partnership, audited
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by independent certified public accountants and prepared in accordance with
generally accepted accounting principles. Such financial statements will
include a profit and loss statement, a balance sheet of the Partnership, a cash
flow statement and a statement of changes in Partners' capital. The notes to
the annual financial statements will contain a detailed reconciliation of the
Partnership's net income for financial reporting purposes to net income for tax
purposes for the periods covered by the report. The annual report for each year
will report on the Partnership's activities for that year, identify the source
of Partnership distributions, set forth the compensation paid to the General
Partners and their Affiliates and a statement of the services performed in
consideration therefor, provide a category-by-category breakdown of the general
and administrative expenses incurred, including a breakdown of all costs
reimbursed to the General Partners and their Affiliates in accordance with
Section 11.4(b) of the Partnership Agreement, and contain such other information
as is deemed reasonably necessary by the General Partners to advise the Limited
Partners of the affairs of the Partnership.
For as long as the Partnership is required to file quarterly reports on
Form 10-Q with the Securities and Exchange Commission, financial information
substantially similar to the financial informed contained in each such report
shall be sent to the Limited Partners within 60 days after the end of such
quarter. Whether or not such reports are required to be filed, each Limited
Partner will be furnished, within 60 days after the end of each of the first
three quarters of the Partnership's fiscal year, an unaudited financial report
for that period including a profit and loss statement, a balance sheet and a
cash flow statement. The foregoing reports for any period in which fees are
paid to the General Partners or their Affiliates for services shall set forth
the fees paid and the services rendered. In addition, until all of the net
proceeds from the Offering are expended or committed (or used to establish a
working capital reserve) or returned to the Partners, each Limited Partner shall
be furnished, at least quarterly within 60 days after the end of each quarter
during which the Partnership has acquired real property, an acquisition report
describing the properties acquired since the prior special report and including
a description of locations and of the market upon which the General Partners are
relying in projecting successful operation of the properties. The acquisition
report shall include a description of the present or proposed use of the
property and its suitability or adequacy for such use and the terms of any
material lease affecting the property, a statement of the appraised value,
purchase price, terms of purchase, all costs related to the acquisition, and an
estimate of all proposed subsequent expenditures for development or other
improvements of the property, a statement that title insurance and any required
performance bonds or other assurances in accordance with Section 11.3(k) of the
Partnership Agreement with respect to builders have been or will be obtained on
the property, and a statement regarding the amount of proceeds (in both dollar
amount and as a percentage of the total amount of the Offering) to the
Partnership which remain unexpended or uncommitted. In addition, the
acquisition report will identify any real property which the General Partners
presently intend to be acquired by or leased to the Partnership, providing its
location and a description of its general character.
The appraisal received by the Partnership at the time of each acquisition
of property shall be maintained in its records for at least five years
thereafter and, during such time, shall be made available to the Limited
Partners for inspection and duplication at reasonable times.
The Partnership will distribute annually to Limited Partners a report on
the estimated value of each Unit in the next annual or quarterly report on Form
10-K or Form 10-Q sent to Limited Partners following the valuation process.
Such estimated value will be based upon annual appraisals of Partnership
Properties performed by the General Partners and not by an independent
appraiser. The General Partners are, however, required to obtain the opinion of
an independent third party that their estimate of the value of each Unit is
reasonable and was prepared in accordance with appropriate methods for valuing
real estate. For the first three full fiscal years following the year in which
the Offering of Units terminates, the value of the Units will be deemed to be
their initial purchase price of $10.00, and no valuation of Partnership
Properties will be performed. (See "INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA
CONSIDERATIONS - Annual Valuation.")
In addition, upon request from any prospective investor or Limited Partner,
the Partnership will provide without charge a copy of the NASAA Guidelines (as
referred to elsewhere herein).
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PLAN OF DISTRIBUTION
A minimum of 125,000 Units and a maximum of 7,000,000 Units (3,500,000
Units per Partnership) are being offered to the public through Wells Investment
Securities, Inc. (the "Dealer Manager"), a registered broker-dealer affiliated
with the General Partners. (See "CONFLICTS OF INTEREST" and "MANAGEMENT.") The
Units are being offered at a per Unit price of $10.00 per Unit on a "best
efforts" basis (which means generally that the Dealer Manager will be required
to use only its best efforts to sell the Units and has no firm commitment or
obligation to purchase any of the Units).
Except as provided below, the Dealer Manager will receive commissions of 8%
of the Gross Offering Proceeds. The Dealer Manager will also receive 2% of the
Gross Offering Proceeds in the form of a dealer manager fee as compensation for
acting as the Dealer Manager and for expenses incurred in connection with
coordinating sales efforts, training of personnel and generally performing
"wholesaling" functions. In addition, the Partnership may reimburse the
expenses incurred by nonaffiliated dealers for actual due diligence purposes in
the maximum amount of .5% of the Gross Offering Proceeds. The Partnership will
not pay referral or similar fees to any accountants, attorneys or other persons
in connection with the distribution of the Units. Limited Partners who elect to
participate in the Distribution Reinvestment Plan will be charged Selling
Commissions and dealer manager fees on Units purchased pursuant to the
Distribution Reinvestment Plan on the same basis as Limited Partners purchasing
Units other than pursuant to the Distribution Reinvestment Plan. Units issued
by the Partnership under the Distribution Reinvestment Plan will be available
only until the termination of the Offering, as described above.
The Dealer Manager may authorize certain other broker-dealers who are
members of the National Association of Securities Dealers, Inc. (the "NASD") to
sell Units. In the event of the sale of Units by such other broker-dealers, the
Dealer Manager may reallow its commissions in the amount of up to 8% of the
Gross Offering Proceeds to such participating broker-dealers. In addition, the
Dealer Manager, in its sole discretion, may reallocate to any broker-dealer
participating in the Offering a portion of its dealer manager fee in the
aggregate amount of up to 1% of Gross Offering Proceeds to be paid to such
participating broker-dealer as a marketing fee, based on such factors as the
number of Units sold by such participating broker-dealer, the assistance of such
participating broker-dealer in marketing the Offering and bona fide conference
fees incurred.
In no event shall the total underwriting compensation, including sales
commissions, the dealer manager fee and expense reimbursements, exceed 10% of
Gross Offering Proceeds, except for the additional .5% of Gross Offering
Proceeds which may be paid by the Partnership in connection with due diligence
activities.
The General Partners have agreed to indemnify the participating broker-
dealers, including the Dealer Manager, against certain liabilities arising under
the Securities Act of 1933, as amended.
The broker-dealers are not obligated to obtain any subscriptions, and there
is no assurance that any Units will be sold.
The General Partners may at their option purchase Units offered hereby at
the public offering price, in which case they would expect to hold such Units as
Limited Partners for investment and not for distribution. Units purchased by
the General Partners or their Affiliates shall not be entitled to vote on any
matter presented to the Limited Partners for a vote. No selling commissions
will be payable by the Partnership in connection with any Units purchased by the
General Partners. (See "RISK FACTORS.")
Payment for Units should be made by check payable to "The Bank of New York,
as Agent." Subscriptions will be effective only upon acceptance by the General
Partners, and the General Partners reserve the right to reject any subscription
in whole or in part. In no event may a subscription for Units be accepted until
at least five business days after the date the subscriber receives this
Prospectus. Each subscriber will receive a confirmation of the investor's
purchase. Except for purchases pursuant to the Distribution Reinvestment Plan,
all accepted
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subscriptions will be for whole Units and for not less than 100 Units ($1,000).
(See "WHO SHOULD INVEST - SUITABILITY STANDARDS.") Except in Maine, Minnesota
and Washington, investors who have satisfied the minimum purchase requirement
and have purchased units in Prior Wells Public Programs may purchase less than
the minimum number of Units discussed above, provided that such investors
purchase a minimum of 2.5 Units ($25). After investors have satisfied the
minimum purchase requirement, minimum additional purchases must be in increments
of at least 2.5 Units ($25), except for purchases pursuant to the Distribution
Reinvestment Plan.
Subscription proceeds will be placed in an interest-bearing account with
The Bank of New York, Atlanta, Georgia (the "Escrow Agent") until such
subscriptions aggregating at least $1,250,000 (exclusive of any subscriptions
for Units by the General Partners or their Affiliates) have been received and
accepted by the General Partners (the "Minimum Offering"). Any Units purchased
by the General Partners or their Affiliates will not be counted in calculating
the Minimum Offering. Subscription proceeds held in the escrow account will be
invested in obligations of, or obligations guaranteed by, the United States
government or bank money-market accounts or certificates of deposit of national
or state banks that have deposits insured by the Federal Deposit Insurance
Corporation (including certificates of deposit of any bank acting as depository
or custodian for any such funds), as directed by the General Partners.
Subscribers may not withdraw funds from the escrow account.
Investors who desire to establish an IRA for purposes of investing in Units
may do so by having Wells Advisors, Inc., a qualified non-bank IRA custodian
affiliated with the General Partners, act as their IRA custodian. In the event
that an IRA is established having Wells Advisors, Inc. as the IRA custodian, the
authority of Wells Advisors, Inc. will be limited to holding the Units on behalf
of the beneficiary of the IRA and making distributions or reinvestments in Units
solely at the discretion of the beneficiary of the IRA. Wells Advisors, Inc.
will not have the authority to vote any of the Units held in an IRA except
strictly in accordance with the written instructions of the beneficiary of the
IRA. (See "MANAGEMENT.")
If the Minimum Offering of Wells Real Estate Fund X, L.P. has not been
received and accepted by ____________ __, 1997, the Escrow Agent will promptly
so notify the Partnership and this Offering will be terminated. In such event,
the Escrow Agent is obligated to use its best efforts to obtain an executed IRS
Form W-9 from each subscriber within thirty (30) days of such notice and to
promptly thereafter refund and return all monies to subscribers and any interest
earned thereon after deducting escrow expenses (except for Maine, Missouri, Ohio
and Pennsylvania residents). Any Units purchased by the General Partners will
not be counted for the purpose of achieving the Minimum Offering. During the
period in which subscription proceeds are held in escrow, interest earned
thereon will be allocated among subscribers on the basis of the respective
amounts of their subscriptions and the number of days that such amounts were on
deposit. Such interest net of escrow expenses will be paid to subscribers upon
the termination of the escrow period.
Initial subscribers may be admitted to the Partnership and the payments
transferred from escrow to the Partnership at any time after the Partnership has
received and accepted the Minimum Offering, except that subscribers residing in
New York and Pennsylvania may not be admitted to the Partnership until
subscriptions have been received and accepted for 250,000 Units ($2,500,000)
from all sources. The funds representing subscriptions for Units from New York
and Pennsylvania residents will not be released from the escrow account until
subscriptions for at least $2,500,000 have been received from all sources.
Subscriptions from New York residents may not be included in determining whether
subscriptions for the Minimum Offering have been obtained. In addition, certain
other states may impose different requirements than those set forth herein. Any
such additional requirements will be set forth in a supplement to this
Prospectus.
The offering of Units of Wells Real Estate Fund X, L.P. will commence upon
the effective date of this Prospectus and will continue until and terminate upon
the earlier of (i) ____________ __, 1997, or (ii) the date on which all
$35,000,000 in Units of Wells Real Estate Fund X, L.P. have been sold. The
offering of Units of Wells Real Estate Fund XI, L.P. will commence immediately
upon the termination of the offering of Units of Wells Real Estate Fund X, L.P.
and will continue until and terminate upon the earlier of (i) ____________ __,
1998, or (ii) the date on which all $35,000,000 in Units of Wells Real Estate
Fund XI, L.P. have been sold, provided that in the event that
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the offering of Units of Wells Real Estate Fund XI, L.P. commences prior to
____________ __, 1997, the General Partners may elect to terminate the offering
of Wells Real Estate Fund XI, L.P. at any time subsequent to one year after the
effective date of such offering due to the fact that certain states may limit
the offering period of Wells Real Estate Fund XI, L.P. to a maximum of one year.
Upon the termination of the offering in Units of Wells Real Estate Fund X,
L.P., the foregoing provisions relating to escrowing of subscription proceeds
shall also apply with respect to the offering of Units in Wells Real Estate Fund
XI, L.P., which will remain in escrow with the Escrow Agent until subscriptions
aggregating at least $1,250,000 (the "Minimum Offering") have been received and
accepted by the General Partners, except again that subscribers residing in New
York and Pennsylvania will not be admitted to Wells Real Estate Fund XI, L.P.
until subscriptions have been received and accepted for 250,000 Units
($2,500,000) in Wells Real Estate Fund XI, L.P. If subscriptions for at least
the Minimum Offering have not been received and accepted on or before six months
after the commencement of the offering of Units in Wells Real Estate Fund XI,
L.P., the offering of Wells Real Estate Fund XI, L.P. will be terminated, and in
such event, all monies will be refunded and returned to investors in the same
manner as previously described in connection with the offering of Units in Wells
Real Estate Fund X, L.P.
The proceeds of this Offering will be received and held in trust for the
benefit of purchasers of Units and will be retained in trust after closing to be
used only for the purposes set forth in the "ESTIMATED USE OF PROCEEDS" section.
After the close of the Minimum Offering, subscriptions will be accepted or
rejected within 30 days of receipt by the Partnership, and if rejected, all
funds shall be returned to subscribers within 10 business days. Investors whose
subscriptions are accepted will be deemed admitted as Limited Partners of the
Partnership on the day on which their subscriptions are accepted.
The General Partners may sell Units to Retirement Plans of broker-dealers
participating in the Offering, to broker-dealers in their individual capacities,
to IRAs and Qualified Plans of their registered representatives or to any one of
their registered representatives in their individual capacities for 92% of the
Unit's public offering price in consideration of the services rendered by such
broker-dealers and registered representatives in the distribution. The net
proceeds to the Partnership from such sales will be identical to the
Partnership's net proceeds from other sales of Units.
In connection with sales of 25,000 or more Units ($250,000) to a
"purchaser" (as defined below), investors may agree with their registered
representatives to reduce the amount of selling commissions payable to
participating broker-dealers. Such reduction will be credited to the purchaser
by reducing the total purchase price payable by such purchaser. The following
table illustrates the various discount levels:
<TABLE>
<CAPTION>
DOLLAR NET
VOLUME SALES COMMISSIONS PURCHASE PROCEEDS TO
OF UNITS ------------------------------ PRICE PARTNERSHIP
PURCHASED PERCENT PER UNIT PER UNIT PER UNIT
----------- ------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Under $250,000 8.0% $ 0.80 $ 10.00 $9.20
$250,000-$499,999 7.0% $0.6925 $9.8925 $9.20
$500,000-$749,999 6.0% $0.5872 $9.7872 $9.20
$750,000-$999,999 3.0% $0.2845 $9.4845 $9.20
$1,000,000-$1,999,999 1.0% $0.0929 $9.2929 $9.20
Over $2,000,000 0.5% $0.0462 $9.2462 $9.20
</TABLE>
For example, if an investor purchases 100,000 Units in the Partnership, he
could pay as little as $929,290 rather than $1,000,000 for the Units, in which
event the commission on the sale of such Units would be $9,290 ($0.0929 per
Unit), and the Partnership would receive net proceeds of $920,000 ($9.20 per
Unit). The net proceeds to the Partnership will not be affected by volume
discounts.
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Because all investors will be deemed to have contributed the same amount
per Unit to the Partnership for purposes of tax allocations and distributions of
Net Cash From Operations and Sale Proceeds, an investor qualifying for a volume
discount will receive a higher return on his investment in the Partnership than
investors who do not qualify for such discount.
Subscriptions may be combined for the purpose of determining the volume
discounts in the case of subscriptions made by any "purchaser," as that term is
defined below, provided all such Units are purchased through the same broker-
dealer. The volume discount shall be prorated among the separate subscribers
considered to be a single "purchaser." Any request to combine more than one
subscription must be made in writing, and must set forth the basis for such
request. Any such request will be subject to verification by the General
Partners that all of such subscriptions were made by a single "purchaser."
For the purposes of such volume discounts, the term "purchaser" includes
(i) an individual, his or her spouse and their children under the age of 21 who
purchase the Units for his, her or their own accounts; (ii) a corporation,
partnership, association, joint-stock company, trust fund or any organized group
of persons, whether incorporated or not; (iii) an employees' trust, pension,
profit sharing or other employee benefit plan qualified under Section 401(a) of
the Code; and (iv) all commingled trust funds maintained by a given bank.
Notwithstanding the above, in connection with volume sales made to
investors in the Partnership, the General Partners may, in their sole
discretion, waive the "purchaser" requirements and aggregate subscriptions
(including subscriptions to Prior Wells Public Programs) as part of a combined
order for purposes of determining the number of Units purchased, provided that
any aggregate group of subscriptions must be received from the same broker-
dealer, including the Dealer Manager. Any such reduction in selling commission
will be prorated among the separate subscribers except that, in the case of
purchases through the Dealer Manager, the Dealer Manager may allocate such
reduction among separate subscribers considered to be a single "purchaser" as it
deems appropriate. An investor may reduce the amount of his purchase price to
the net amount shown in the foregoing table, if applicable. If such investor
does not reduce the purchase price, the excess amount submitted over the
discounted purchase price shall be returned to the actual separate subscribers
for Units. Except as provided in this paragraph, separate subscriptions will
not be cumulated, combined or aggregated.
In addition, in order to encourage purchases in amounts of 500,000 or more
Units, a potential purchaser who proposes to purchase at least 500,000 Units in
the Partnership may agree with the General Partners and the Dealer Manager to
have the Acquisition and Advisory Fees payable to the General Partners with
respect to the sale of such Units reduced to 0.5%, to have the dealer manager
fee payable to the Dealer Manager with respect to the sale of such Units reduced
to 0.5%, and to have the selling commissions payable with respect to the sale of
such Units reduced to 0.5%, in which event the aggregate fees payable with
respect to the sale of such Units would be reduced by $1.35 per Unit, and the
purchaser of such Units would be required to pay a total of $8.65 per Unit
purchased, rather than $10.00 per Unit. The net proceeds to the Partnership
would not be affected by such fee reductions. Of the $8.65 paid per Unit, it is
anticipated that approximately $8.15 per Unit (or approximately 94%) will be
used to acquire Partnership Properties and pay required acquisition expenses
relating to the acquisition of Partnership Properties. All such sales must be
made through registered broker-dealers.
California residents should be aware that volume discounts will not be
available in connection with the sale of Units made to California residents to
the extent such discounts do not comply with the provisions of Rule 260.140.51
adopted pursuant to the California Corporate Securities Law of 1968. Pursuant
to this Rule, volume discounts can be made available to California residents
only in accordance with the following conditions: (i) there can be no variance
in the net proceeds to the Partnership from the sale of the Units to different
purchasers of the same offering, (ii) all purchasers of the Units must be
informed of the availability of quantity discounts, (iii) the same volume
discounts must be allowed to all purchasers of Units which are part of the
offering, (iv) the minimum amount of Units as to which volume discounts are
allowed cannot be less than $10,000, (v) the variance in the price of the Units
must result solely from a different range of commissions, and all discounts
allowed must be based on a uniform scale of commissions, and (vi) no discounts
are allowed to any group of purchasers. Accordingly,
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volume discounts for California residents will be available in accordance with
the foregoing table of uniform discount levels based on dollar volume of Units
purchased, but no discounts are allowed to any group of purchasers, and no
subscriptions may be aggregated as part of a combined order for purposes of
determining the number of Units purchased.
Investors who, in connection with their purchase of Units, have engaged the
services of a registered investment advisor with whom the investor has agreed to
pay a fee for investment advisory services in lieu of normal commissions based
on the volume of securities sold may agree with the participating broker-dealer
selling such Units and the Dealer Manager to reduce the amount of selling
commissions payable with respect to such sale to zero. The net proceeds to the
Partnership will not be affected by eliminating the commissions payable in
connection with sales to investors purchasing through such investment advisors.
All such sales must be made through registered broker-dealers.
Neither the Dealer Manager nor its Affiliates will directly or indirectly
compensate any person engaged as an investment advisor by a potential investor
as an inducement for such investment advisor to advise favorably for investment
in the Partnership.
In addition, subscribers for Units may agree with their participating
broker-dealers and the Dealer Manager to have sales commissions due with respect
to the purchase of their Units paid over an eight year period pursuant to a
deferred commission arrangement (the "Deferred Commission Option"). Limited
Partners electing the Deferred Commission Option will be required to pay a total
of $9.30 per Unit purchased upon subscription, rather than $10.00 per Unit, with
respect to which $0.10 per Unit will be payable as commissions due upon
subscription. For each of the seven years following termination of the
Offering, $0.10 per Unit will be paid by the Partnership as deferred commissions
with respect to Units sold pursuant to the Deferred Commission Option, which
amounts will be deducted from and paid out of distributions of Net Cash From
Operations otherwise payable to Limited Partners holding such Units. The net
proceeds to the Partnership will not be affected by the election of the Deferred
Commission Option. Under this arrangement, a Limited Partner electing the
Deferred Commission Option will pay a 1% commission upon subscription, rather
than an 8% commission, and an amount equal to a 1% commission per year
thereafter for the next seven years will be deducted from and paid by the
Partnership out of Net Cash From Operations otherwise distributable to such
Limited Partner. (See "DISTRIBUTIONS AND ALLOCATIONS -Distributions of Net Cash
From Operations.")
Each Limited Partner purchasing Units pursuant to the Deferred Commission
Option must elect upon subscription to have a sufficient number of Units treated
as Class A Status Units, in the discretion of the General Partners, to generate
at least the amount of Net Cash From Operations distributable with respect to
such Units needed to satisfy the deferred commission obligations each year with
respect to the total number of Units purchased. In addition, Limited Partners
electing the Deferred Commission Option will have limited rights to elect to
have their Class A Status Units treated as Class B Status Units during the
initial seven years following termination of the Offering since Limited Partners
owning Units purchased pursuant to the Deferred Commission Option must own a
sufficient number of Class A Status Units during the initial seven years of the
Partnership to generate enough Net Cash From Operations to allow the Partnership
to satisfy the deferred commission obligations with respect to the total number
of Class A and Class B Status Units purchased. (See "DESCRIPTION OF THE UNITS -
Election of Class A or Class B Status.") Further, taxable participants electing
the Deferred Commission Option will incur tax liability for Partnership income
allocated to them with respect to their Units even though distributions of Net
Cash From Operations otherwise distributable to such Limited Partners will
instead be paid to third parties to satisfy the deferred commission obligations
with respect to such Units for the initial seven years of the Partnership. (SEE
"RISK FACTORS - Federal Tax Risks - Risk of Taxable Income Without Cash
Distributions.")
As set forth above, in no event shall the total underwriting compensation,
including sales commissions, the dealer manager fee and expense reimbursements,
exceed 10% of Gross Offering Proceeds, except for the
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additional .5% of Gross Offering Proceeds which may be paid by the Partnership
in connection with due diligence activities.
SUPPLEMENTAL SALES MATERIAL
In addition to this Prospectus, the Partnership may utilize certain sales
material in connection with the Offering of the Units, although only when
accompanied by or preceded by the delivery of this Prospectus. In certain
jurisdictions, some or all of such sales material may not be available. This
material may include information relating to this Offering, the past performance
of the General Partners and their Affiliates, property brochures and articles
and publications concerning real estate. In addition, the sales material may
contain certain quotes from various publications without obtaining the consent
of the author or the publication for use of the quoted material in the sales
material.
The Partnership will use only sales material which has been approved by
such appropriate regulatory bodies as may be required. The Offering of Units in
the Partnership is made only by means of this Prospectus. Although the
information contained in such sales material does not conflict with any of the
information contained in this Prospectus, such material does not purport to be
complete, and should not be considered a part of this Prospectus or the
Registration Statement of which this Prospectus is a part, or as incorporated by
reference in this Prospectus or said Registration Statement or as forming the
basis of the Offering of the Units.
LEGAL OPINIONS
The legality of the Units being offered hereby has been passed upon for the
Partnership by Holland & Knight, Atlanta, Georgia ("Counsel"). The statements
under the caption "FEDERAL INCOME TAX CONSEQUENCES" as they relate to federal
income tax matters have been reviewed by Counsel. Counsel has represented the
General Partners, as well as Affiliates of the General Partners, in other
matters and may continue to do so in the future. (See "CONFLICTS OF INTEREST.")
EXPERTS
The balance sheet of Wells Real Estate Fund X, L.P. as of July 31, 1996,
the balance sheet of Wells Real Estate Fund XI, L.P. as of July 31, 1996, the
financial statements of Wells Partners, L.P. as of December 31, 1995 and 1994,
and for each of the years in the two year period ended December 31, 1995, and
the financial statements of Wells Capital, Inc. as of December 31, 1995 and
1994, and for each of the years in the two year period ended December 31, 1995,
included in Appendix I to this Prospectus, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP and KPMG
Peat Marwick LLP, independent certified public accountants, and are included
herein in reliance upon the authority of said firms as experts in giving said
reports. The interim financial information of Wells Partners, L.P. and Wells
Capital, Inc. for the seven-month periods ended July 31, 1996 and 1995 included
in Appendix I to this Prospectus has not been audited.
INDEPENDENT AUDITORS
Effective September 11, 1995, each of Wells Partners, L.P. ("Wells
Partners") and Wells Capital, Inc. ("Wells Capital") dismissed KPMG Peat Marwick
LLP ("KPMG"), the independent accounting firm which was previously engaged as
the principal accountant to audit its financial statements. KPMG's report on
the financial statements of each of Wells Partners and Wells Capital did not
contain, for either of the past two fiscal years preceding KPMG's dismissal, an
adverse opinion or a disclaimer of opinion, nor was it qualified or modified as
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to uncertainty, audit scope, or accounting principles. Wells Partners' decision
to change accountants was recommended and approved by Wells Capital and its
board of directors, and Wells Capital's decision to change accountants was
recommended and approved by its board of directors. During the two most recent
fiscal years and all subsequent interim periods preceding KPMG's dismissal,
there was no disagreement between either Wells Partners or Wells Capital and
KPMG on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement, if not resolved
to the satisfaction of KPMG, would have caused KPMG to make reference to the
subject of the disagreement in connection with its report. During the two most
recent fiscal years and all subsequent interim periods preceding KPMG's
dismissal, no events occurred which would be required to be disclosed in this
Prospectus under applicable securities regulations in connection with the change
in accountants.
Effective September 11, 1995, each of Wells Partners and Wells Capital
engaged Arthur Andersen LLP ("Arthur Andersen") as the principal accountant to
audit its financial statements. During the two most recent fiscal years and any
subsequent interim periods prior to engaging Arthur Andersen, neither Wells
Partners or Wells Capital nor anyone on their behalf consulted Arthur Andersen
regarding any matter which would be required to be disclosed in this Prospectus
under applicable securities regulations in connection with the change in
accountants.
ADDITIONAL INFORMATION
The Partnership has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Units offered pursuant to this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits related thereto filed with the Securities and
Exchange Commission, reference to which is hereby made. Copies of the
Registration Statement and exhibits related thereto are on file at the offices
of the Securities and Exchange Commission in Washington, D.C. and may be
obtained upon payment of the fees prescribed by the Commission, or may be
examined at the offices of the Commission without charge.
GLOSSARY
The following are definitions of certain terms used in this Prospectus and
not otherwise defined herein or in the Partnership Agreement:
"ACQUISITION EXPENSES" means expenses incurred in connection with the
selection and acquisition of properties, whether or not acquired, including, but
not limited to, legal fees and expenses, travel and communications expenses,
costs of appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses and title insurance and other miscellaneous costs
and expenses relating to the selection and acquisition of properties.
"ACQUISITION FEES" means the total of all fees and commissions paid by any
party to any person in connection with the purchase, development or construction
of property by the Partnership, including Acquisition and Advisory Fees payable
to the General Partners or their Affiliates, real estate brokerage commissions,
investment advisory fees, finder's fees, selection fees, development fees,
construction fees, nonrecurring management fees, or any other fees of a similar
nature, however designated, except development fees and construction fees paid
to a person not affiliated with the Sponsor in connection with the actual
development or construction of a Partnership Property.
"AFFILIATE" means (i) any person directly or indirectly controlling,
controlled by or under common control with a General Partner, (ii) any person
owning or controlling 10% or more of the outstanding voting securities of
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a General Partner, (iii) any officer, director or partner of a General Partner,
and (iv) if such other person is an officer, director or partner, any company
for which such person acts in any such capacity.
"CAPITAL ACCOUNT" means the account established for each Partner pursuant
to Section 8.1 of the Partnership Agreement. Each Partner's Capital Account
shall be determined in accordance with Treasury Regulations Section 1.704-1(b).
Capital Accounts generally will be adjusted as follows. Each Partner's Capital
Account shall be credited with: (i) the amount of the cash contributed to the
Partnership by him; and (ii) his distributive share of Partnership income and
gain; and each Partner's Capital Account shall be debited with: (iii) his
distributive share of Partnership losses and deductions or items thereof; and
(iv) the cash distributed to him.
"CAPITAL CONTRIBUTION" means the amount of cash contributed to the capital
of the Partnership by a Partner.
"CASH FLOW" means cash funds derived from operations of the Partnership,
including without limitation interest and investment income, but excluding
Capital Contributions, and without deduction for depreciation or amortization,
after deducting funds used to pay or to provide for the payment of all operating
expenses of the Partnership and each Partnership Property and debt service, if
any, capital improvements and replacements.
"CLASS A STATUS UNIT" means a Unit with respect to which the Limited
Partner holding such Unit has made an effective election pursuant to Section
8.16 of the Partnership Agreement to be treated as a Class A Status Unit for the
applicable accounting period.
"CLASS B STATUS UNIT" means a Unit with respect to which the Limited
Partner holding such Unit has made an effective election pursuant to Section
8.16 of the Partnership Agreement to be treated as a Class B Status Unit for the
applicable accounting period.
"CODE" means the Internal Revenue Code of 1986, as amended.
"EXCESS LIMITED PARTNER DISTRIBUTIONS" means any distributions to Limited
Partners over the life of their investment in the Partnership in excess of the
sum of their Net Capital Contributions plus their Preferential Limited Partner
Return.
"FRONT-END FEES" means fees and expenses paid by any party for any services
rendered during the Partnership's organizational or acquisition phase including
Organization and Offering Expenses, Acquisition Fees, Acquisition Expenses,
interest on deferred fees and expenses, if applicable, and any other similar
fees, however designated.
"GAIN ON SALE" means the taxable income or gain for federal income tax
purposes in the aggregate for each fiscal year from the sale or exchange of all
or any portion of a Partnership asset after netting losses from such sales or
exchanges against the gains from such transactions.
"GROSS OFFERING PROCEEDS" means the total gross proceeds from the sale of
the Units.
"GRULPA" means the Georgia Revised Uniform Limited Partnership Act,
O.C.G.A. (S) 14-9-100, et seq.
"INITIAL LIMITED PARTNER" means Brian M. Conlon.
"INVESTMENT IN PROPERTIES" means the amount of Capital Contributions
actually paid or allocated to the purchase, development, construction or
improvement of properties acquired by the Partnership, including the purchase of
properties, working capital reserves allocable thereto (except that working
capital reserves in excess of 5% shall not be included) and other cash payments
such as interest and taxes, but excluding Front-End Fees.
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"IRA" means an Individual Retirement Account established pursuant to
Section 408 of the Code.
"LIQUIDATING DISTRIBUTIONS" means the net cash proceeds received by the
Partnership from (a) the sale, exchange, condemnation, eminent domain taking,
casualty or other disposition of substantially all of the assets of the
Partnership or the last remaining assets of the Partnership or (b) a liquidation
of the Partnership's assets in connection with a dissolution of the Partnership,
after (i) payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty, other disposition or liquidation, including real estate
commissions, if applicable, (ii) the payment of any outstanding indebtedness and
other liabilities of the Partnership, (iii) any amounts used to restore any such
assets of the Partnership, and (iv) any amounts set aside as reserves which the
General Partners in their sole discretion may deem necessary or desirable.
"MINIMUM OFFERING" means the receipt and acceptance by the General Partners
of subscriptions for Units aggregating at least $1,250,000 in offering proceeds.
"NASAA GUIDELINES" means the Statement of Policy Regarding Real Estate
Programs of the North American Securities Administrators Association, Inc.
adopted on October 9 and 12, 1988, effective January 1, 1989, as amended.
"NASAA GUIDELINES RESALE PROCEEDS MAXIMUM AMOUNT" means an amount equal to
15% of Sale Proceeds remaining after payments to Limited Partners from such
proceeds of amounts equal to the sum of 100% of their Net Capital Contributions
plus a 6% per annum return on their Net Capital Contributions, calculated on a
cumulative (noncompounded) basis.
"NET CAPITAL CONTRIBUTION" means, with respect to any Partner, the
Partner's Capital Contribution as reduced from time to time by distributions
constituting a return of unused capital or of Nonliquidating Net Sale Proceeds,
but not reduced by (i) distributions of Sale Proceeds made to Limited Partners
holding Units which at any time were treated as Class B Status Units in an
amount necessary to make up for the priority distributions of Net Cash From
Operations previously paid to Limited Partners holding Units which at all times
have been treated as Class A Status Units, or (ii) distributions of Net Cash
From Operations. (See "DISTRIBUTIONS AND ALLOCATIONS.")
"NET CASH FROM OPERATIONS" means Cash Flow, less adequate cash reserves for
other obligations of the Partnership for which there is no provision, and the
Repurchase Reserve, if any.
"NET INCOME" or "NET LOSS" means the net income or loss realized or
recognized by the Partnership for a fiscal year, as determined for federal
income tax purposes, including any income exempt from tax, but excluding all
deductions for depreciation, amortization and cost recovery and Gain on Sale.
"NET WORTH" means, except where otherwise provided herein, the excess of
total assets over total liabilities as determined by generally accepted
accounting principles, except that if any of such assets have been depreciated,
then the amount of depreciation relative to any particular asset may be added to
the depreciated cost of such asset to compute total assets, provided that the
amount of depreciation may be added only to the extent that the amount resulting
after adding such depreciation does not exceed the fair market value of such
asset.
"NONLIQUIDATING NET SALE PROCEEDS" means the net cash proceeds received by
the Partnership from a sale, exchange, condemnation, eminent domain taking,
casualty or other disposition of assets of the Partnership, which does not
constitute substantially all of the remaining assets of the Partnership, after
(i) the payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty, sale or other disposition, including real estate
commissions, if applicable, (ii) the payment of any outstanding indebtedness and
other Partnership liabilities relating to such assets, (iii) any amounts used to
restore any such assets of the Partnership, and (iv) any amounts set aside as
reserves which the General Partners in their sole discretion may deem necessary
or desirable.
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"OFFERING" means the offering and sale of the Units pursuant to the terms
and conditions of this Prospectus.
"ORGANIZATION AND OFFERING EXPENSES" means those expenses incurred in
connection with organizing the Partnership, preparing the Partnership for
registration and subsequently offering and distributing the Units to the public,
including without limitation, legal and accounting fees, sales commissions paid
to broker-dealers in connection with the distribution of the Units and all
advertising expenses.
"PARTNERS" means, collectively, the General Partners and the Limited
Partners.
"PARTNERSHIP" means Wells Real Estate Fund X, L.P. and/or Wells Real Estate
Fund XI, L.P., the Georgia limited partnerships which will be organized pursuant
to the Partnership Agreement.
"PARTNERSHIP AGREEMENT" means the Amended and Restated Agreement of Limited
Partnership in the form attached hereto as Exhibit "B" entered into by the
General Partners and the Initial Limited Partner and to be adopted by the
Limited Partners.
"PARTNERSHIP PROPERTY" or "PARTNERSHIP PROPERTIES" means any and all land
and improvements as may be purchased or constructed by the Partnership and all
repairs, replacements or renewals thereof, together with all personal property
acquired by the Partnership which is from time to time located thereon or
specifically used in connection therewith.
"PREFERENTIAL LIMITED PARTNER RETURN" means with respect to each Limited
Partner Unit the sum of (i) a cumulative (noncompounded) 10% per annum on a
Limited Partner's Net Capital Contribution with respect to such Unit for all
periods during which such Unit was treated as a Class A Status Unit, and (ii) a
cumulative (noncompounded) 15% return on such Limited Partner's Net Capital
Contribution with respect to such Unit for all periods during which such Unit
was treated as a Class B Status Unit. Each Limited Partner's Preferential
Limited Partner Return shall be calculated from the date on which such Limited
Partner's Capital Contribution was made to the Partnership.
"PRIOR WELLS PUBLIC PROGRAMS" means the prior public real estate limited
partnership programs sponsored
by the General Partners or their Affiliates having substantially identical
investment objectives as the Partnership, specifically, Wells Real Estate Fund
I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real Estate
Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate Fund V, L.P.,
Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII, L.P., Wells Real
Estate Fund VIII, L.P., Wells Real Estate Fund IX, L.P. and, in the case of
Wells Real Estate Fund XI, L.P., including Wells Real Estate Fund X, L.P.
"PROPERTY MANAGEMENT AND LEASING FEE" means the fee payable for day-to-day
professional property management services rendered in connection with the
Partnership Properties, initially payable to Wells Management Company, Inc.
"QUALIFIED PLAN" means a qualified sole proprietorship, partnership or
corporate pension or profit sharing plan established under Section 401(a) of the
Code.
"REGISTRATION STATEMENT" means the Registration Statement filed by the
Partnership with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, in order to register the Units for sale to
the public.
"RESIDUAL PROCEEDS" means any Sale Proceeds available for distribution to
the Partners after the Limited Partners have first received distributions of
Sale Proceeds in an amount equal to 100% of their Capital Contributions plus
their Preferential Limited Partner Return (reduced by all prior distributions of
Net Cash From Operations) and
100
<PAGE>
after the General Partners have received distributions of Sale Proceeds in an
amount equal to 100% of their Capital Contributions.
"RETIREMENT PLANS" means Individual Retirement Accounts ("IRAs")
established under Section 408 of the Code and Qualified Plans.
"SALE PROCEEDS" means, collectively, Nonliquidating Net Sale Proceeds and
Liquidating Distributions.
"SPONSOR" means any individual, partnership, corporation or other legal
entity which (i) is directly or indirectly instrumental in organizing, wholly or
in part, the Partnership, (ii) will manage or participate in the management of
the Partnership, and any Affiliate of any such person, other than a person whose
only relationship with the Partnership is that of an independent property
manager, whose only compensation is as such, (iii) takes the initiative,
directly or indirectly, in founding or organizing the Partnership, either alone
or in conjunction with one or more other persons, (iv) receives a material
participation in the Partnership in connection with the founding or organizing
of the business of the Partnership, in consideration of services or property, or
both services and property, (v) has a substantial number of relationships and
contacts with the Partnership, (vi) possesses significant rights to control
Partnership Properties, (vii) receives fees for providing services to the
Partnership which are paid on a basis that is not customary in the industry, or
(viii) provides goods or services to the Partnership on a basis which was not
negotiated at arm's-length with the Partnership. Based upon the foregoing,
Sponsors of the Partnership include the General Partners, Wells Capital, Inc.,
Wells Investment Securities, Inc., Wells Management Company, Inc. and Prior
Wells Public Programs.
"UBTI" means unrelated business taxable income, as that term is defined in
Sections 511 through 514 of the Code.
"UNUSED CAPITAL CONTRIBUTIONS" means so much of the Capital Contributions
of Partners which are not required to acquire property and improvements thereon
with respect to which contracts, agreements in principle or letters of
understanding have been executed within the later of two years following the
effective date of the Registration Statement or one year after the termination
of the Offering of the Units.
"WELLS CAPITAL" means Wells Capital, Inc., a Georgia corporation which is
the sole general partner of Wells Partners, L.P.
"WELLS PARTNERS" means Wells Partners, L.P., a Georgia limited partnership
which has Wells Capital, Inc. as its sole general partner and is a General
Partner of the Partnership.
For additional definitions, see Article III of the Partnership Agreement.
101
<PAGE>
APPENDIX I
FINANCIAL STATEMENTS
<PAGE>
INDEX TO AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
WELLS PARTNERS, L.P.
Audited Financial Statements
Independent Auditors' Reports I-1
Balance Sheets as of December 31, 1995 and 1994 I-3
Statements of Operations for the years ended December 31, 1995 and 1994 I-4
Statements of Partners' Capital for the years ended December 31, 1995 and 1994 I-5
Statements of Cash Flows for the years ended December 31, 1995 and 1994 I-6
Notes to Financial Statements I-7
WELLS CAPITAL, INC.
Audited Financial Statements
Independent Auditors' Reports I-10
Balance Sheets as of December 31, 1995 and 1994 I-12
Statements of Income for the years ended December 31, 1995 and 1994 I-13
Statements of Stockholder's Equity for the years ended December 31, 1995 and 1994 I-14
Statements of Cash Flows for the years ended December 31, 1995 and 1994 I-15
Notes to Financial Statements I-16
WELLS REAL ESTATE FUND X, L.P.
Audited Balance Sheet
Independent Auditors' Report I-20
Balance Sheet as of July 31, 1996 I-22
Notes to Balance Sheet I-23
WELLS REAL ESTATE FUND XI, L.P.
Audited Balance Sheet
Independent Auditors' Report I-24
Balance Sheet as of July 31, 1996 I-26
Notes to Balance Sheet I-27
</TABLE>
<PAGE>
INDEX TO UNAUDITED FINANCIAL STATEMENTS
<TABLE>
Page
----
<S> <C>
WELLS PARTNERS, L.P.
Unaudited Financial Statements
Balance Sheets as of July 31, 1996 and December 31, 1995 I-28
Statements of Operations for the seven months ended July 31, 1996 and 1995 I-__
Statements of Cash Flows for the seven months ended July 31, 1996 and 1995 I-__
Notes to Financial Statements I-__
WELLS CAPITAL, INC.
Unaudited Financial Statements
Balance Sheets as of July 31, 1996 and December 31, 1995 I-__
Statements of Earnings for the seven months ended July 31, 1996 and 1995 I-__
Statements of Stockholder's Equity for the seven months ended July 31,
1996 and the year ended December 31, 1995 I-__
Statements of Cash Flows for the seven months ended July 31, 1996 and 1995 I-__
Notes to Financial Statements I-__
</TABLE>
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (the "Tables") provide information
relating to real estate investment programs sponsored by the General Partners or
their Affiliates ("Prior Programs") which have investment objectives similar to
the Partnership.
Prospective investors should read these Tables carefully together with the
summary information concerning the Prior Programs as set forth in "PRIOR
PERFORMANCE SUMMARY" elsewhere in this Prospectus.
INVESTORS IN THE PARTNERSHIP WILL NOT OWN ANY INTEREST IN THE PRIOR PROGRAMS
AND SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE TO
THOSE EXPERIENCED BY INVESTORS IN THE PRIOR PROGRAMS.
These Tables present actual results of Prior Programs that have investment
objectives similar to those of the Partnership. The Partnership's investment
objectives are to maximize Net Cash From Operations; to preserve original
Capital Contributions; and to realize capital appreciation over a period of
time. All of the General Partners' Prior Programs have used a substantial
amount of capital and not acquisition indebtedness to acquire their properties.
The General Partners are responsible for the acquisition, operation,
maintenance and resale of the Partnership Properties. The financial results of
the Prior Programs thus provide an indication of the General Partners'
performance of their obligations during the periods covered. However, general
economic conditions affecting the real estate industry and other factors
contribute significantly to financial results.
The following tables are included herein:
TABLE I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
TABLE II - Compensation to Sponsor (in Dollars)
TABLE III - Annual Operating Results of Prior Programs
TABLE IV (Results of completed programs) and TABLE V (sales or disposals of
property) have been omitted since none of the Prior Programs have sold any of
their properties to date.
Additional information relating to the acquisition of properties by the Prior
Programs is contained in TABLE VI, which is included in the Registration
Statement which the Partnership has filed with the Securities and Exchange
Commission. As described above, no Prior Program has sold or disposed of any
property held by it. Copies of any or all information will be provided to
prospective investors at no charge upon request.
The following are definitions of certain terms used in the Tables:
"ACQUISITION FEES" shall mean fees and commissions paid by a partnership in
connection with its purchase or development of a property, except development
fees paid to a person not affiliated with the partnership or with a general
partner of the partnership in connection with the actual development of a
project after acquisition of the land by the partnership.
"ORGANIZATION EXPENSES" shall include legal fees, accounting fees, securities
filing fees, printing and reproduction expenses and fees paid to the general
partners or their affiliates in connection with the planning and formation of
the partnership.
"UNDERWRITING FEES" shall include selling commissions and wholesaling fees
paid to broker-dealers for services provided by the broker-dealers during the
offering.
A-1
<PAGE>
TABLE I
(UNAUDITED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
This Table provides a summary of the experience of the General Partners and
their Affiliates in Prior Programs for which offerings have been completed since
December 31, 1992. Information is provided with regard to the manner in which
the proceeds of the offerings have been applied. Also set forth is information
pertaining to the timing and length of these offerings and the time period over
which the proceeds have been invested in the properties.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real
Estate Fund Estate Fund Estate Fund Estate Fund
V, L.P. VI, L.P. VII, L.P. VIII, L.P.
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Dollar Amount Raised $17,006,020/(3)/ $25,000,000/(4)/ $23,374,961/(5)/ $30,144,542/(6)/
================ ================ ================ ================
Percentage Amount Raised 100.0%/(3)/ 100.0%/(4)/ 100.0%/(5)/ 100.0%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 10.0% 10.0%
Organizational Expenses 3.0% 5.0% 5.0% 5.0%
Reserves/(1)/ 1.0% 1.0% 1.0% 0.0%
---- ---- ---- ----
Percent Available for Investment 86.0% 84.0% 84.0% 85.0%
Acquisition and Development Costs
Prepaid Items and Fees related to Purchase
of Property 1.2% 0.3% 0.0% 0.0%
Cash Down Payment 36.1% 40.4% 16.3% 0.0%
Acquisition Fees/(2)/ 5.5% 3.7% 3.5% 3.5%
Development and Construction Costs 43.2% 39.6% 64.2% 24.2%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0% 0.0%
---- ---- ---- ----
Total Acquisition and Development Cost 86.0% 84.0% 84.0% 27.7%
---- ---- ---- ----
Percent Leveraged 0.0% 0.0% 0.0% 0.0%
==== ==== ==== ====
Date Offering Began 03/06/92 04/05/93 04/24/94 01/06/95
Length of Offering 12 mo./(3)/ 12 mo./(4)/ 12 mo. 12 mo.
Months to Invest 90% of Amount Available for
Investment (Measured from Beginning of Offering) 22 mo. 15 mo. 12 mo. /(7)/
Number of Investors 1,665 1,791 1,865
- --------------------
</TABLE>
(1) Does not include General Partner contributions held as part of reserves.
(2) Includes development fees, real estate commissions, general contractor fees
and/or architectural fees paid to Affiliates of the General Partners.
(3) Total dollar amount registered and available to be offered was $25,000,000.
Wells Real Estate Fund V, L.P. closed its offering on March 3, 1993 and the
total dollar amount raised was $17,006,020.
(4) Total dollar amount registered and available to be offered was $25,000,000.
Wells Real Estate Fund VI, L.P. closed its offering on April 4, 1994 and the
total dollar amount raised was $25,000,000.
(5) Total dollar amount registered and available to be offered was $25,000,000.
Wells Real Estate Fund VII, L.P. closed its offering on January 5, 1995 and
the total dollar amount raised was $24,180,174.
(6) Total dollar amount registered and available to be offered was $35,000,000.
As of December 31, 1995, Wells Real Estate Fund VIII, L.P. had not yet
completed its offering. The total dollar amount received as of that date
was $30,144,542.
(7) As of December 31, 1995, Wells Real Estate Fund VIII, L.P. had not yet
invested 90% of the amount available for investment. The amount invested in
properties (including Acquisition Fees paid but not yet associated with a
specific property) at December 31, 1995 was 23% of the total dollar amount
raised.
A-2
<PAGE>
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by General Partners or
Affiliates of the General Partners, including compensation paid out of offering
proceeds and compensation paid in connection with the ongoing operations of
Prior Programs having similar or identical investment objectives the offerings
of which have been completed since December 31, 1992. These partnerships have
not sold or refinanced any of their properties to date. All figures are as of
December 31, 1995.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real Other
Estate Fund Estate Fund Estate Fund Estate Fund Public
V, L.P. VI, L.P. VII, L.P. VIII, L.P. Programs/(1)/
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Date Offering Commenced 03/06/92 04/05/93 04/06/94 01/06/95
Dollar Amount Raised /(2)/ $17,006,020 $25,000,000 $24,180,174 $30,144,542 --
to Sponsor from Proceeds of Offering:
Underwriting Fees/(3)/ $ 200,432 $ 119,936 $ 178,122 $ 172,929 --
Acquisition Fees
Real Estate Commissions -- -- -- -- --
Acquisition and Advisory Fees/(4)/ $ 935,331 $ 932,216 $ 846,306 $ 1,055,059 --
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor/(5)/ $ 2,272,483 $ 1,644,885 $ 971,752 $ 236,953 $21,059,211
Amount Paid to Sponsor from Operations:
Property Management Fee/(1)/ $ 238,457 $ 36,712 $ 15,574 $ 373 $ 682,201
Partnership Management Fee -- -- -- -- --
Reimbursements $ 168,481 $ 70,146 $ 31,674 $ 11,130 $ 1,095,919
Leasing Commissions $ 80,793 $ 15,646 $ 6,634 $ 373 $ 785,840
General Partner Distributions -- -- -- -- 15,205
Other -- -- -- -- --
Dollar Amount of Property Sales and Refinancing
Payments to Sponsors:
Cash -- -- -- -- --
Notes -- -- -- -- --
Amount Paid to Sponsor from Property Sales
and Refinancing:
Real Estate Commissions -- -- -- -- --
Incentive Fees -- -- -- -- --
Other -- -- -- -- --
- ----------------
</TABLE>
(1) Includes compensation paid to General Partners from Wells Real Estate Fund
I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real
Estate Fund III, L.P. and Wells Real Estate Fund IV, L.P. during the past
three years. General Partners of Wells Real Estate Fund I are entitled to
certain property management and leasing fees but have elected to defer the
payment of such fees until a later year on properties owned by Fund I and
properties owned jointly by Fund I and Fund II. At December 31, 1995, the
amount of such fees due the General Partners totaled $1,170,611.
(2) Represents amount raised as of December 31, 1995. Wells Real Estate Fund
VIII, L.P. had not yet completed its offering of Limited Partnership Units
as of that date.
(3) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offerings of Wells Real
Estate Funds V, VI, VII and VIII, which were not reallowed to participating
broker-dealers.
(4) Fees paid to the General Partners or their Affiliates for acquisition
advisory services in connection with the review and evaluation of potential
real property acquisitions.
(5) Includes $38,628 in net cash used by operating activities, $1,823,380 in
distributions paid to limited partners and $487,731 in payments to sponsors
for Wells Real Estate Fund V, L.P.; $15,549 in net cash provided by
operating activities, $1,506,832 in distributions paid to limited partners
and $122,504 in payments to sponsor for Wells Real Estate Fund VI, L.P.;
$22,064 in net cash used by operating activities, $939,934 in distributions
paid to limited partners and $53,882 in payments to sponsor for Wells Real
Estate Fund VII, L.P.; $225,077 in net cash provided by operating activities
and $11,876 in payments to sponsor for Wells Real Estate Fund VIII, L.P.;
and $1,140,651 in net cash provided by operating activities, $17,339,395 in
distributions paid to limited partners and $2,579,165 in payments to sponsor
for other public programs.
A-3
<PAGE>
TABLE III
(UNAUDITED)
The tables on the following five (5) pages set forth operating results
of prior programs sponsored by the General Partners the offerings of which have
been completed since December 31, 1990. The information relates only to public
programs with investment objectives similar to those of the Partnership. All
figures are as of December 31 of the year indicated.
A-4
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IV, L.P.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $694,521 $ 678,591 $ 570,709 $ 421,532 $ 94,279
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 64,404 67,330 67,548 214,340 79,026
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250 5,208
-------- --------- ----------- ---------- ----------
Net Income GAAP Basis/(4)/ $623,867 $ 605,011 $ 496,911 $ 200,942 $ 10,045
======== ========= =========== ========== ==========
Taxable Income: Operations $655,474 $ 541,939 $ 420,649 $ 179,790 $ 12,983
======== ========= =========== ========== ==========
Cash Generated (Used By):
Operations (56,817) (58,610) (22,444) 29,139 (28,635)
Joint Ventures 975,911 864,771 465,951 124,696 --
-------- --------- ----------- ---------- ----------
$919,094 $ 806,161 $ 443,507 $ 153,835 $ (28,635)
Less Cash Distributions to Investors:
Operating Cash Flow 919,094 787,029 443,507 153,835 --
Return of Capital -- -- 20,271 80,567 --
Undistributed Cash Flow from Prior
Year Operations 3,613
--------
Cash Generated (Deficiency) after Cash Distributions $ (3,613) $ 19,132 $ (20,271) $ (80,567) $ (28,635)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- 500
Increase in Limited Partner Contributions -- -- -- 4,572,355 9,042,297
-------- --------- ----------- ---------- ----------
$ (3,613) $ 19,132 $ (20,271) $4,491,788 $9,014,162
Use of Funds:
Sales Commissions and Offering Expenses -- -- 667,701 1,067,372
Property Acquisitions and Deferred Project Costs 13,541 289,608 3,627,673 4,949,701 2,737,108
-------- --------- ----------- ---------- ----------
Cash Generated (Deficiency) after Cash Distributions
and Special Items $(17,154) $(270,476) $(3,647,944) $1,125,614 $5,209,682
======== ========= =========== ========== ==========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 47 47 54 23 5
- Operations Class B Units 0 (27) (561) (262) (54)
Capital Gain (Loss) 0 0 0 0 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 53 42 48 21 3
- Operations Class B Units (126) (11) (565) (262) (40)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 47 47 35 18 --
- Return of Capital Class A Units 23 13 -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 70 60 33 12 --
- Return of Capital Class A Units -- -- 2 6 --
- Operations Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported
in the Table 100%
</TABLE>
- -------------------
(1) Includes $4,105 in equity in earnings of joint ventures and $90,174 from
investment of reserve funds in 1991; $194,776 in equity in earnings of
joint ventures and $226,756 from investment of reserve funds in 1992;
$522,210 in equity in earnings of joint ventures and $48,499 from
investment of reserve funds in 1993; $668,076 in equity in earnings of
joint ventures and $10,515 from investment of reserve funds in 1994; and
$683,934 in equity in earnings of joint ventures and $10,587 from
investment of reserve funds in 1995. At December 31, 1995, the leasing
status of all developed property was 93.17% including developed property in
initial lease-up.
(2) Includes partnership administrative expenses and property taxes.
(3) Included in equity in earnings of joint ventures in gross revenue is
depreciation and amortization of $5,484 for 1991, $95,155 for 1992,
$218,173 for 1993, $309,421 for 1994, and $368,943 for 1995.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated as follows: $20,738 to Class A
Limited Partners, $(10,586) to Class B Limited Partners and $(107) to
General Partners for 1991; $302,347 to Class A Limited Partners, $(101,012)
to Class B Limited Partners and $(393) to General Partners for 1992;
$713,069 to Class A Limited Partners and $(216,158) to Class B Limited
Partners for 1993; $615,309 to Class A Limited Partners and $(10,298) to
Class B Limited Partners for 1994; and $623,867 to Class A Limited
Partners, $0 to Class B Limited Partners and $0 to General Partners for
1995.
A-5
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND V, L.P.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------- ------------- ------------ ------------- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 764,624 $ 656,958 $ 458,213 $ 58,640 N/A
Profit on Sale of Properties -- -- -- --
Less: Operating Expenses/(2)/ 68,735 88,987 96,964 71,521
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 5,208
---------- ----------- ----------- -----------
Net Income (Loss) GAAP Basis/(4)/ $ 689,639 $ 561,721 $ 354,999 $ (18,089)
========== =========== =========== ===========
Taxable Income (Loss): Operations $ 676,367 $ 528,025 $ 280,000 $ (18,089)
========== =========== =========== ===========
Cash Generated (Used By):
Operations (46,235) (10,395) 112,594 (33,006)
Joint Ventures 1,020,905 653,729 54,154 --
---------- ----------- ----------- -----------
$ 974,670 $ 643,334 $ 166,748 $ (33,006)
Less Cash Distributions to Investors:
Operating Cash Flow 969,011 643,334 151,336 --
Return of Capital -- 44,257 -- --
Undistributed Cash Flow from Prior Year Operations -- 15,412
---------- ----------- ----------- -----------
Cash Generated (Deficiency) after Cash Distributions $ 5,659 $ (59,669) $ 15,412 $ (33,006)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- --
Increase in Limited Partner Contributions -- -- 5,589,786 11,416,234
---------- ----------- ----------- -----------
$ 5,659 $ (59,699) $ 5,605,198 $11,383,228
Use of Funds:
Sales Commissions and Offering Expenses -- -- 764,599 1,377,645
Return of Original Limited Partner's Investment -- -- -- 100
Property Acquisitions and Deferred Project Costs (233,501) 2,366,507 7,755,116 4,181,338
---------- ----------- ----------- -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (227,842) $(2,426,206) $(2,914,517) $ 5,824,145
========== =========== =========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 73 58 29 0
- Operations Class B Units (272) (180) (54) (65)
Capital Gain (Loss) 0 0 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 69 55 36 --
- Operations Class B Units (246) (181) (58) (21)
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 63 46 10 --
- Return of Capital Class A Units -- -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 63 43 10 --
- Return of Capital Class A Units -- 3 -- --
- Operations Class B Units -- -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
- -------------------
(1) Includes $19,125 in equity in loss of joint ventures and $77,765 from
investment of reserve funds in 1992; $207,234 in equity in earnings of
joint ventures and $250,979 from investment of reserve funds in 1993;
$592,902 in equity in earnings of joint ventures and $64,056 from
investment of reserve funds in 1994; and $745,173 in equity in earnings of
joint ventures and $19,451 from investment of reserve funds in 1995. At
December 31, 1995, the leasing status of all developed property was 92.32%
including developed property in initial lease-up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings (loss) of joint ventures in gross revenue is
depreciation and amortization of $100,796 for 1993, $324,578 for 1994, and
$440,333 for 1995.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated as follows: $(17,908) to Class
B Limited Partners and $(181) to General Partners for 1992; $442,135 to
Class A Limited Partners, $(87,868) to Class B Limited Partners and $732 to
General Partners for 1993; $879,232 to Class A Limited Partners, $(316,460)
to Class B Limited Partners and $(1,051) to General Partners for 1994; and
$1,124,203 to Class A Limited Partners and $(434,564) to Class B Limited
Partners and $0 for 1995.
A-6
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VI, L.P.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,002,567 $ 819,535 $ 82,723 N/A N/A
Profit on Sale of Properties -- -- --
Less: Operating Expenses/(2)/ 94,489 112,389 46,608
Depreciation and Amortization/(3)/ 6,250 6,250 4,687
------------ ----------- -----------
Net Income GAAP Basis/(4)/ $ 901,828 $ 700,896 $ 31,428
============ =========== ===========
Taxable Loss: Operations $ 916,531 $ 667,682 $ 31,428
============ =========== ===========
Cash Generated (Used By):
Operations 278,728 276,376 (2,478)
Joint Ventures 766,212 203,543 --
------------ ----------- -----------
$ 1,044,940 $ 479,919 $ (2,478)
Less Cash Distributions to Investors:
Operating Cash Flow 1,044,940 245,800 --
Return of Capital -- -- --
Undistributed Cash Flow from Prior Year Operations 216,092 -- --
------------ ----------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (216,092) $ 234,119 $ (2,478)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions -- 12,163,461 12,836,539
------------ ----------- -----------
$ -- $12,397,580 $12,834,061
Use of Funds:
Sales Commissions and Offering Expenses -- 1,776,909 1,781,724
Return of Original Limited Partner's Investment -- -- 100
Property Acquisitions and Deferred Project Costs 10,721,376 5,912,454 3,856,239
------------ ----------- -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(10,937,468) $ 4,708,217 $ 7,195,998
============ =========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 57 43 9
- Operations Class B Units (60) (12) (5)
Capital Gain (Loss) -- -- 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 56 41 1
- Operations Class B Units (51) (22) --
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 57 14 --
- Return of Capital Class A Units 4 -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 61 14 --
- Operations Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
- -----------------
(1) Includes $3,436 in equity in loss of joint ventures and $86,159 from
investment of reserve funds in 1993, $285,711 in equity in earnings of
joint ventures and $533,824 from investment of reserve funds in 1994, and
$681,033 in equity in earnings of joint ventures and $321,534 from
investment of reserve funds in 1995. At December 31, 1995, the leasing
status was 94%.
(2) Includes partnership administrative expenses.
(3) Included in equity in loss of joint ventures in gross revenues is
depreciation of $3,436 for 1993, $107,807 for 1994, and $264,866 for 1995.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $39,551 to Class A Limited
Partners, $(8,042) to Class B Limited Partners and $(81) to the General
Partner for 1993; $762,218 to Class A Limited Partners, $(62,731) to Class
B Limited Partners and $1,409 to the General Partners for 1994; and
$1,172,944 to Class A Limited Partners and $(269,288) to Class B Limited
Partners and $(1,828) to the General Partners for 1995.
A-7
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 925,246 $ 286,371 N/A N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 114,953 78,420
Depreciation and Amortization/(3)/ 6,250 4,688
------------ -----------
Net Income GAAP Basis/(4)/ $ 804,043 $ 203,263
============ ===========
Taxable Loss: Operations $ 812,402 $ 195,067
============ ===========
Cash Generated (Used By):
Operations 431,728 47,595
Joint Ventures 424,304 14,243
------------ -----------
$ 856,032 $ 61,838
Less Cash Distributions to Investors:
Operating Cash Flow 856,032 52,195
Return of Capital 22,064 --
Undistributed Cash Flow from Prior Year Operations 9,643 --
------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ (31,707) $ 9,643
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- --
Increase in Limited Partner Contributions $ 805,212 $23,374,961
------------ -----------
$ 773,505 $23,384,604
Use of Funds:
Sales Commissions and Offering Expenses 244,207 3,351,569
Return of Original Limited Partner's Investment 100 --
Property Acquisitions and Deferred Project Costs 14,971,002 4,477,765
------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(14,441,804) $15,555,270
============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 57 29
- Operations Class B Units (20) 9
Capital Gain (Loss) --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 55 28
- Operations Class B Units (16) 17
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 52 7
- Return of Capital Class A Units -- --
- Return of Capital Class B Units -- --
Source (on Cash Basis)
- Operations Class A Units 51 7
- Return of Capital Class A Units 1 --
- Operations Class B Units -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
- -------------------
(1) Includes $78,799 in equity in earnings of joint ventures and $207,572 from
investment of reserve funds in 1994, and $403,325 in equity in earnings of
joint ventures and $521,921 from investment of reserve funds in 1995. At
December 31, 1995, the leasing status was 89.6%.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,468 for 1994, and $140,533 for 1995.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $233,337 to Class A Limited
Partners, $(29,854) to Class B Limited Partners and $(220) to the General
Partner for 1994; and $950,826 to Class A Limited Partners, $(146,503) to
Class B Limited Partners and $(280) to the General Partners for 1995.
A-8
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 402,428 N/A N/A N/A N/A
Profit on Sale of Properties
Less: Operating Expenses/(2)/ 122,264
Depreciation and Amortization/(3)/ 6,250
-----------
Net Income GAAP Basis/(4)/ $ 273,914
===========
Taxable Loss: Operations $ 404,348
===========
Cash Generated (Used By):
Operations 204,790
Joint Ventures 20,287
-----------
$ 225,077
Less Cash Distributions to Investors:
Operating Cash Flow --
-----------
Cash Generated (Deficiency) after Cash Distributions $ 225,077
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions
Increase in Limited Partner Contributions/(5)/ 30,144,542
-----------
$30,369,619
Use of Funds:
Sales Commissions and Offering Expenses 4,310,028
Return of Original Limited Partner's Investment --
Property Acquisitions and Deferred Project Costs 6,618,273
-----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $19,441,318
===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 28
- Operations Class B Units (7)
Capital Gain (Loss)
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 17
- Operations Class B Units (3)
Capital Gain (Loss)
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units --
- Return of Capital Class A Units --
- Return of Capital Class B Units --
Source (on Cash Basis)
- Operations Class A Units --
- Operations Class B Units --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
- ---------------
(1) Includes $28,377 in equity in earnings of joint ventures and $374,051 from
investment of reserve funds in 1995. At December 31, 1995, the leasing
status was 93.7%.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $14,058 for 1995.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $294,221 to Class A Limited
Partners, $(20,104) to Class B Limited Partners and $(203) to the General
Partners for 1995.
(5) At December 31, 1995, Wells Real Estate Fund VIII, L.P. had not yet
completed its offering of Limited Partnership Units.
A-9
<PAGE>
EXHIBIT B
FORM OF AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
WELLS REAL ESTATE FUND X/XI, L.P.
<PAGE>
WELLS REAL ESTATE FUND X/XI, L.P.
TABLE OF CONTENTS TO PARTNERSHIP AGREEMENT
Page
----
I FORMATION................................................ B-1
II NAME..................................................... B-1
III DEFINITIONS.............................................. B-1
IV BUSINESS................................................. B-7
V NAMES AND ADDRESSES OF PARTNERS.......................... B-7
VI TERM..................................................... B-8
VII PRINCIPAL AND REGISTERED OFFICE AND REGISTERED AGENT..... B-8
VIII CAPITAL CONTRIBUTIONS.................................... B-8
IX DISTRIBUTIONS............................................ B-13
X ALLOCATIONS.............................................. B-16
XI MANAGEMENT OF THE PARTNERSHIP............................ B-19
XII SERVICES TO PARTNERSHIP BY GENERAL PARTNERS.............. B-29
XIII TRANSACTIONS BETWEEN GENERAL PARTNERS AND THE PARTNERSHIP B-31
XIV INDEPENDENT ACTIVITIES OF PARTNERS....................... B-31
XV BOOKS, REPORTS, FISCAL AND TAX MATTERS................... B-32
XVI RIGHTS AND LIABILITIES OF THE LIMITED PARTNERS........... B-35
XVII WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS;
ASSIGNABILITY OF GENERAL PARTNERS'
AND LIMITED PARTNERS' INTERESTS......................... B-37
XVIII LOANS TO PARTNERSHIP B-40
XIX POWER OF ATTORNEY, CERTIFICATES AND OTHER DOCUMENTS...... B-40
XX DISSOLUTION AND TERMINATION OF THE PARTNERSHIP........... B-42
XXI DISTRIBUTION ON TERMINATION OF PARTNERSHIP............... B-45
XXII GENERAL PROVISIONS....................................... B-46
<PAGE>
FORM OF AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
WELLS REAL ESTATE FUND X/XI, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made and entered
into effective as of the _____ day of ___________, 199__, by and among LEO F.
WELLS, III, a Georgia resident, and WELLS PARTNERS, L.P., a Georgia limited
partnership, as the General Partners, and Brian M. Conlon, a Georgia resident,
as the Initial Limited Partner, and those parties who from time to time become
Limited Partners as provided in this Agreement, as the Limited Partners.
WHEREAS, on June 20, 1996, a Certificate of Limited Partnership was filed with
the Secretary of State of the State of Georgia, pursuant to which the General
Partners and the Initial Limited Partner formed a limited partnership (the
"Partnership") under the Georgia Revised Uniform Limited Partnership Act,
O.C.G.A. (S) 14-9-100, et seq. (the "Act"); and
WHEREAS, the parties hereto desire to amend, restate and supersede in its
entirety the original partnership agreement pursuant to the terms and provisions
of this Amended and Restated Agreement of Limited Partnership.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
conditions herein contained, the parties hereto hereby agree, and the limited
partnership agreement of the Partnership shall hereafter be restated and amended
in its entirety, as follows:
ARTICLE I
FORMATION
The General Partners have executed and filed a Certificate of Limited
Partnership dated August 15, 1994, with the Secretary of State of the State of
Georgia in accordance with the provisions of Section 14-9-201 of the Act,
pursuant to which the parties hereto have previously formed the Partnership.
ARTICLE II
NAME
The business of the Partnership shall be conducted under the name of "WELLS
REAL ESTATE FUND __, L.P." or such other name as the General Partners shall
hereafter designate in their discretion from time to time.
ARTICLE III
DEFINITIONS
3.1 "ACT" shall mean the provisions of the Georgia Revised Uniform Limited
Partnership Act, O.C.G.A. (S)14-9-100, et seq.
3.2 "ACQUISITION EXPENSES" shall mean expenses, including, but not limited
to, legal fees and expenses, travel and communications expenses, costs of
appraisals, nonrefundable option payments on property not acquired, accounting
fees
B-1
<PAGE>
and expenses, title insurance and miscellaneous expenses related to selection
and acquisition of properties, whether or not acquired.
3.3 "ACQUISITION FEES" shall mean the total of all fees and commissions paid
by any party to any Person in connection with the purchase, development or
construction of property by the Partnership, including the Acquisition and
Advisory Fees payable to the General Partners or their Affiliates, real estate
brokerage commissions, investment advisory fees, finder's fees, selection fees,
Development Fees, Construction Fees, nonrecurring management fees, or any other
fees of a similar nature, however designated, but excluding any Development Fees
and Construction Fees paid to a Person not affiliated with the Sponsor in
connection with the actual development or construction of a property.
3.4 "ACQUISITION AND ADVISORY FEE" shall mean the fee payable to the General
Partners or their Affiliates pursuant to Section 12.1 hereof for performing
acquisition advisory services in connection with the review and evaluation of
potential real property acquisitions for the Partnership.
3.5 "ADDITIONAL LIMITED PARTNERS" shall refer to all persons who are admitted
as Limited Partners pursuant to the provisions hereof.
3.6 "AFFILIATE" shall mean (a) any Person directly or indirectly controlling,
controlled by or under common control with a General Partner, (b) any Person
owning or controlling 10% or more of the outstanding voting securities of a
General Partner, (c) any officer, director or partner of a General Partner, and
(d) if such other Person is an officer, director or partner, any company for
which a General Partner acts in any such capacity.
3.7 "AGREEMENT" shall mean this Agreement of Limited Partnership as amended,
modified or supplemented from time to time.
3.8 "ASSIGNEE" shall mean a Person who has acquired a Limited Partner's
beneficial interest in one or more Units and has not become a substituted
Limited Partner.
3.9 "CAPITAL ACCOUNT" shall mean the account established and maintained for
each Partner pursuant to Section 8.1 hereof.
3.10 "CAPITAL CONTRIBUTION" shall mean, in the case of the General Partners,
the aggregate amount of cash contributed by the General Partners to the
Partnership and, in the case of a Limited Partner, the gross amount of
investment in the Partnership by such Limited Partner, which shall be an amount
equal to $10.00 multiplied by the number of Units purchased by such Limited
Partner.
3.11 "CASH FLOW" shall mean cash funds from operations of the Partnership,
including without limitation interest and other investment income but excluding
Capital Contributions and without deduction for depreciation or amortization,
after deducting funds used to pay or to provide for the payment of all operating
expenses of the Partnership and each Partnership Property and debt service, if
any, capital improvements and replacements.
3.12 "CERTIFICATE" shall mean the Certificate of Limited Partnership filed by
the General Partners with the Secretary of State of Georgia dated June 20, 1996.
3.13 "CLASS A STATUS UNIT" shall mean a Unit with respect to which the
Limited Partner holding such Unit has made an effective election pursuant to
Section 8.16 hereof to be treated as a Class A Status Unit for the applicable
accounting period.
3.14 "CLASS B STATUS UNIT" shall mean a Unit with respect to which the
Limited Partner holding such Unit has made an effective election pursuant to
Section 8.16 hereof to be treated as a Class B Status Unit for the applicable
accounting period.
B-2
<PAGE>
3.15 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
3.16 "CONSTRUCTION FEES" shall mean any fees or other remuneration for acting
as general contractor and/or construction manager to construct, supervise and/or
coordinate improvements in connection with the actual development or
construction of a Partnership Property.
3.17 "DEVELOPMENT FEES" shall mean any fees or other remuneration for the
packaging of a Partnership Property, including negotiating and approving plans,
assisting in obtaining zoning and necessary variances for a specific property,
and related matters.
3.18 "DISSENTING LIMITED PARTNER" shall mean any Limited Partner who casts a
vote against a Roll-Up; except that, for purposes of a transaction constituting
a Roll-Up which involves an exchange or a tender offer, Dissenting Limited
Partner shall mean any person who files a dissent from the terms of the
transaction with the party responsible for tabulating the votes or tenders to be
received in connection with the transaction during the period in which the offer
is outstanding.
3.19 "DISTRIBUTION REINVESTMENT PLAN" shall mean the plan established
pursuant to Section 8.15 hereof.
3.20 "EVENT OF WITHDRAWAL" shall mean, as to the General Partners (a) the
dissolution, death or permanent disability of a General Partner; (b) if such
General Partner (i) makes an assignment for the benefit of the creditors; (ii)
files a voluntary petition in bankruptcy; (iii) is adjudicated a bankrupt or
insolvent; (iv) files a petition or answer speaking for himself or itself in the
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation; (v) files an answer or
other pleading admitting or failing to contest the material allegations of the
petition filed against him or it in any proceeding of this nature; (vi) seeks,
consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of such General Partner of all or a substantial part of his or its
property; or (c) upon (i) the filing of a certificate of dissolution of a
General Partner or the revocation of a General Partner's charter and lapse of 90
days after notice to the General Partner of revocation without reinstatement of
its charter; (ii) 120 days after the commencement of any proceeding against a
General Partner seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or regulation,
if the proceeding has not been dismissed; or (iii) the expiration of 90 days
after the appointment without such General Partner's consent or acquiescence of
a trustee, receiver or liquidator of such General Partner or of all or any
substantial part of its properties, the appointment of which is not vacated or
stayed within 90 days after the expiration of any stay or, if within 90 days
after the expiration of any stay the appointment is not vacated. If there is at
least one remaining General Partner, an Event of Withdrawal of a General Partner
shall be effective as of the date of any such event; however, if an Event of
Withdrawal shall occur with respect to the last remaining General Partner, the
Event of Withdrawal shall not be effective until 120 days after the event giving
rise to the Event of Withdrawal has occurred.
3.21 "EXPIRATION DATE" shall mean the date on which the Offering terminates
as provided in the Prospectus.
3.22 "FRONT-END FEES" shall mean fees and expenses paid by any party for any
services rendered during the Partnership's organizational or acquisition phase
including Organization and Offering Expenses, Acquisition Fees (including
Acquisition and Advisory Fees), Acquisition Expenses, interest on deferred fees
and expenses, if applicable, and any other similar fees, however designated.
3.23 "GAIN ON SALE" shall mean the taxable income or gain for federal income
tax purposes (including gain exempt from tax) in the aggregate for each fiscal
year from the sale, exchange or other disposition of all or any portion of a
Partnership asset after netting losses from such sales, exchanges or other
dispositions against the gains from such transactions.
3.24 "GENERAL PARTNERS" shall refer collectively to Leo F. Wells, III and
Wells Partners, or any other Person or Persons who succeed any or all of them in
that capacity.
B-3
<PAGE>
3.25 "GROSS REVENUES" shall mean all amounts actually collected as rents or
other charges for the use and occupancy of Partnership Properties, but shall
exclude interest and other investment income of the Partnership and proceeds
received by the Partnership from a sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of assets of the Partnership.
3.26 "IRS" means Internal Revenue Service.
3.27 "INITIAL LIMITED PARTNER" shall mean Brian M.
Conlon.
3.28 "INDEPENDENT EXPERT" shall mean a Person with no material current or
prior business or personal relationship with the Sponsor who is engaged to a
substantial extent in the business of rendering opinions regarding the value of
assets of the type held by the Partnership and who is qualified to perform such
work.
3.29 "INVESTMENT IN PROPERTIES" shall mean the amount of Capital
Contributions actually paid or allocated to the purchase, development,
construction or improvement of properties acquired by the Partnership (including
the purchase of properties, working capital reserves allocable thereto [except
that working capital reserves in excess of 5% shall not be included] and other
cash payments such as interest and taxes, but excluding Front-End Fees).
3.30 "LIMITED PARTNERS" shall refer to the Initial Limited Partner, the
Additional Limited Partners and to all other Persons who are admitted to the
Partnership as additional or substituted Limited Partners.
3.31 "LIQUIDATING DISTRIBUTIONS" shall mean the net cash proceeds received by
the Partnership from (a) the sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of substantially all of the assets of the
Partnership or the last remaining assets of the Partnership or (b) a liquidation
of the Partnership's assets in connection with a dissolution of the Partnership,
after (i) payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty or other disposition or liquidation, including real
estate commissions, if applicable, (ii) the payment of any outstanding
indebtedness and other liabilities of the Partnership, (iii) any amounts used to
restore any such assets of the Partnership, and (iv) any amounts set aside as
reserves which the General Partners in their sole discretion may deem necessary
or desirable.
3.32 "MAJORITY VOTE" shall mean the affirmative vote or written consent of
Limited Partners then owning of record more than 50% of the outstanding Units of
the Partnership, without distinction as to the class of such Units; provided,
however, that any Units owned or otherwise controlled by the General Partners or
their Affiliates may not be voted and will not be included in the total number
of outstanding Units for purposes of this definition.
3.33 "MINIMUM GAIN" shall have the meaning set forth in Treasury Regulations
Section 1.704-2(d).
3.34 "MINIMUM OFFERING" shall mean the receipt and acceptance by the General
Partners of subscriptions for Units aggregating at least $1,250,000 in offering
proceeds.
3.35 "MINIMUM OFFERING EXPIRATION DATE" shall mean six (6) months after the
commencement of the Offering of the Units.
3.36 "NASAA GUIDELINES" shall mean the Statement of Policy Regarding Real
Estate Programs of the North American Securities Administrators Association,
Inc. adopted on October 9 and 12, 1988, effective January 1, 1989, as amended.
3.37 "NET CAPITAL CONTRIBUTION" shall mean, with respect to any Partner, the
Partner's Capital Contribution as reduced from time to time by distributions to
such Partner constituting a return of unused capital pursuant to Section 8.10
hereof or by distributions to such Partner of Nonliquidating Net Sale Proceeds
and Liquidating Distributions pursuant to
B-4
<PAGE>
Sections 9.2 and 9.4 hereof, but excluding distributions made to Limited
Partners pursuant to Section 9.2(a) hereof, and without reduction for
distributions of Net Cash From Operations made pursuant to Section 9.1 hereof.
3.38 "NET CASH FROM OPERATIONS" shall mean Cash Flow, less adequate cash
reserves for other obligations of the Partnership for which there is no
provision and the Repurchase Reserve, if any.
3.39 "NET INCOME" or "NET LOSS" shall mean the net income or loss realized or
recognized by the Partnership for a fiscal year, as determined for federal
income tax purposes, including any income exempt from tax, but excluding all
deductions for depreciation, amortization and cost recovery and Gain on Sale.
3.40 "NONLIQUIDATING NET SALE PROCEEDS" shall mean the net cash proceeds
received by the Partnership from a sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of assets of the Partnership, which does
not constitute substantially all of the remaining assets of the Partnership,
after (a) payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty or other disposition, including real estate commissions,
if applicable, (b) the payment of any outstanding indebtedness and other
Partnership liabilities relating to such assets, (c) any amounts used to restore
any such assets of the Partnership, and (d) any amounts set aside as reserves
which the General Partners in their sole discretion may deem necessary or
desirable.
3.41 "OFFERING" shall mean the offering and sale of Units to the public
pursuant to the terms and conditions set forth in the Prospectus.
3.42 "ORGANIZATION AND OFFERING EXPENSES" shall mean those expenses incurred
in connection with organizing the Partnership, preparing the Partnership for
registration and subsequently offering and distributing the Units to the public,
including without limitation, legal and accounting fees, sales commissions paid
to broker-dealers in connection with the distribution of the Units and all
advertising expenses.
3.43 "PARTICIPATING PERCENTAGE" shall mean at any given time, as to each
holder of a Unit or Units, the percentage of that Person's Unit or Units to the
total Units being measured and shall be determined by dividing the total number
of Units held by such Person by the total number of outstanding Units in the
class or classes being measured and multiplying the quotient thereof by 100.
3.44 "PARTNERS" shall refer collectively to the General Partners and to the
Limited Partners, and reference to a "Partner" shall be to any one of the
Partners.
3.45 "PARTNERSHIP" shall refer to the limited partnership created under this
Agreement.
3.46 "PARTNERSHIP PROPERTY" or "PARTNERSHIP PROPERTIES" shall mean any and
all land and improvements purchased or constructed by the Partnership and all
repairs, replacements or renewals thereof, together with all personal property
acquired by the Partnership which is from time to time located thereon or
specifically used in connection therewith.
3.47 "PERSON" shall mean any natural person, partnership, corporation,
association, or other legal entity, including without limitation, qualified
pension and profit sharing trusts.
3.48 "PREFERENTIAL LIMITED PARTNER RETURN" shall mean with respect to each
Limited Partner Unit the sum of (a) a cumulative (but not compounded) 10% per
annum return on a Limited Partner's Net Capital Contribution with respect to
such Unit for all periods during which such Unit was treated as a Class A Status
Unit, and (b) a cumulative (but not compounded) 15% per annum return on such
Limited Partner's Net Capital Contribution with respect to such Unit for all
periods during which such Unit was treated as a Class B Status Unit. Each
Limited Partner's Preferential Limited Partner Return shall be calculated from
the date on which such Limited Partner's initial Capital Contribution was made
to the Partnership.
B-5
<PAGE>
3.49 "PRIOR WELLS PUBLIC PROGRAMS" shall mean the prior public real estate
limited partnerships sponsored by the General Partners or their Affiliates
having substantially identical investment objectives as the Partnership.
3.50 "PROSPECTUS" shall mean the prospectus used by the Partnership in
connection with its offer and sale of Units pursuant to a Registration Statement
filed under the Securities Act of 1933, as amended.
3.51 "PURCHASE PRICE" shall mean the sum of the prices paid for all
properties by the Partnership (including all Acquisition Fees, liens and
mortgages on the properties, but excluding points and prepaid interest) plus all
costs of improvements, if any, reasonably and properly allocable to the
properties.
3.52 "REGISTRATION STATEMENT" shall mean the registration statement filed by
the Partnership with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, in order to register the Units for sale to
the public.
3.53 "REPURCHASE RESERVE" shall mean the cash reserve established under
Section 11.3(h) hereof, which may be used to repurchase Units from the Limited
Partners in accordance with Section 8.11 hereof.
3.54 "RETIREMENT PLANS" shall mean Individual Retirement Accounts established
under Section 408 of the Code and Keogh or corporate pension or profit sharing
plans established under Section 401(a) of the Code.
3.55 "ROLL-UP" shall mean any transaction or series of transactions that
through acquisition or otherwise involves the combination, reorganization,
merger, conversion or consolidation, either directly or indirectly, of the
Partnership and either the offer, sale or issuance of securities of a Roll-Up
Entity or the acquisition of the Roll-Up Entity's securities by the Partnership;
provided, however, that such term does not include a transaction that (a)
involves securities of the Partnership that have been listed for at least 12
months on a national securities exchange or traded through the National
Association of Securities Dealers Automated Quotation National Market System; or
(b) involves the conversion to corporate, trust or association form of only the
Partnership if, as a consequence of the transaction, there will be no
significant adverse change in any of the following: (i) Limited Partners' voting
rights, (ii) the term of existence of the Partnership, (iii) compensation to the
General Partners or their Affiliates, or (iv) the Partnership's investment
objectives.
3.56 "ROLL-UP ENTITY" shall mean a partnership, real estate investment trust,
corporation, trust or other entity that would be created or would survive after
the successful completion of a proposed Roll-Up.
3.57 "ROLL-UP TRANSACTION COSTS" shall mean the costs of printing and mailing
the proxy, prospectus, or other documents; legal fees; financial advisory fees;
investment banking fees; appraisal fees; accounting fees; independent committee
expenses; travel expenses; and all other fees relating to the preparatory work
of the transaction, but not including costs that would have otherwise been
incurred by the subject limited partnerships in the ordinary course of business.
3.58 "SALE DATE" shall mean the day on which the Partnership realizes any
gain or loss from the sale, exchange or other disposition of Partnership assets
which it is required to allocate to the Partners under Section 10.4 hereof.
3.59 "SPONSOR" shall mean any individual, partnership, corporation or other
legal entity which (i) is directly or indirectly instrumental in organizing,
wholly or in part, the Partnership, (ii) will manage or participate in the
management of the Partnership, and any Affiliate of any such Person, other than
a Person whose only relationship with the Partnership is that of an independent
property manager, whose only compensation is as such, (iii) takes the
initiative, directly or indirectly, in founding or organizing the Partnership,
either alone or in conjunction with one or more other Persons, (iv) receives a
material participation in the Partnership in connection with the founding or
organizing of the business of the Partnership, in consideration of services or
property, or both services and property, (v) has a substantial number of
relationships and contacts with the Partnership, (vi) possesses significant
rights to control Partnership Properties, (vii) receives fees for providing
services to the Partnership which are paid on a basis that is not customary in
the industry, or (viii) provides goods or services to the Partnership on a basis
which was not negotiated at arm's-length with the Partnership.
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3.60 "TREASURY REGULATIONS" shall mean the Income Tax Regulations promulgated
under the Code by the United States Treasury Department.
3.61 "UNIT" shall mean the limited partnership interest entitling the holder
thereof to all rights and benefits under this Agreement including, but not
limited to, an interest in the income, loss, distributions and capital of the
Partnership to be allocated to holders of Units, as set forth in Articles IX and
X hereof. Limited Partners holding Units shall have the right to elect to have
their Units treated as Class A Status Units or Class B Status Units pursuant to
the provisions of Section 8.16 hereof. All Units, whether they be treated as
Class A Status Units or Class B Status Units, shall represent a Capital
Contribution of $10.00 each (irrespective of the fact that because of discounts
in sales commissions and other fees under certain circumstances, certain Units
may be sold and issued for a gross consideration of less than $10.00 per Unit),
shall be issued as fully paid and nonassessable and shall have the same rights,
privileges and preferences except as expressly provided herein.
3.62 "WELLS CAPITAL" shall mean Wells Capital, Inc., a Georgia corporation.
3.63 "WELLS PARTNERS" shall mean Wells Partners, L.P., a Georgia
limited partnership.
ARTICLE IV
BUSINESS
4.1 PURPOSE. The principal purpose of the Partnership is to acquire,
-------
develop, construct, own, operate, improve, lease and otherwise manage for
investment purposes, either alone or in association with others, a diversified
portfolio of income-producing commercial or industrial properties as shall from
time to time be acquired by the Partnership and to engage in any or all general
business activities related to or incidental to such principal purpose.
4.2 OBJECTIVES. The business of the Partnership shall be conducted with
----------
the following objectives:
(a) To maximize Net Cash From Operations;
(b) To preserve, protect and return the Partners' investment in the
Partnership; and
(c) To realize appreciation in value of Partnership Properties.
ARTICLE V
NAMES AND ADDRESSES OF PARTNERS
The names of the General Partners are Wells Partners, L.P., a Georgia limited
partnership, and Leo F. Wells, III. The name of the Initial Limited Partner is
Brian M. Conlon. The business address of the General Partners and the Initial
Limited Partner is 3885 Holcomb Bridge Road, Norcross, Georgia 30092. The names
and addresses of all the Additional Limited Partners shall be set forth in the
books and records of the Partnership.
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ARTICLE VI
TERM
The Partnership term commenced upon the filing of the Certificate and
shall continue until December 31, 2026, unless sooner terminated as hereinafter
provided.
ARTICLE VII
PRINCIPAL AND REGISTERED OFFICE AND REGISTERED AGENT
The principal and registered office of the Partnership shall be 3885
Holcomb Bridge Road, Norcross, Georgia 30092. The General Partners may from
time to time change the principal place of business and, in such event, shall
notify the Limited Partners in writing of the change and the effective date of
such change. The registered agent for the Partnership at such address shall be
Wells Capital, Inc.
ARTICLE VIII
CAPITAL CONTRIBUTIONS
8.1 CAPITAL ACCOUNTS. A separate Capital Account shall be maintained
----------------
for each Partner. The Capital Accounts of the Partners shall be determined and
maintained throughout the term of the Partnership in accordance with the capital
accounting rules of Treasury Regulations Section 1.704-1(b), as it may be
amended or revised from time to time.
8.2 GENERAL PARTNERS. The General Partners shall make Capital
----------------
Contributions to the Partnership as follows:
Name Dollar Amount
---- -------------
Wells Partners, L.P. $400
Leo F. Wells, III 100
----
Total $500
8.3 GENERAL PARTNER PURCHASE OF UNITS. The Capital Contributions
---------------------------------
of General Partners, together with the Capital Contribution of the Initial
Limited Partner, shall constitute the initial capital of the Partnership and
shall not entitle the General Partners to any Units. The General Partners may,
in their discretion, make additional Capital Contributions to the capital of the
Partnership in exchange for the purchase of Units. Any General Partner who
purchases Units shall continue, in all respects, to be treated as a General
Partner but shall receive the income, losses and cash distributions with respect
to any Units purchased by such General Partner on the same basis as other
Partners may receive with respect to their Units. Units purchased by the General
Partners or their Affiliates shall not be entitled to vote on any transaction
requiring Limited Partner approval.
8.4 INITIAL LIMITED PARTNER. The Initial Limited Partner shall
-----------------------
contribute $100 in cash to the Partnership and agrees that his interest shall
automatically be redeemed for $100 upon the admission of any Additional Limited
Partners to the Partnership.
8.5 LIMITED PARTNER CONTRIBUTIONS. The General Partners are
-----------------------------
authorized and directed to raise capital for the Partnership as provided in the
Prospectus by offering and selling not more than an aggregate of 3,500,000 Units
as follows:
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(a) Each Unit shall be issued for a purchase price of $10.00 less
any discounts authorized in the Prospectus.
(b) Except as set forth below, the minimum purchase of either
class or combination of Units shall be 100 Units (or such greater minimum number
of Units as may be required under applicable state or federal laws). Except in
certain states, subscribers who have satisfied the minimum purchase requirements
and have purchased units in Prior Wells Public Programs may purchase less than
the minimum number of Units described above, but in no event less than 2.5
Units. In addition, after subscribers have satisfied the minimum purchase
requirements, the minimum additional investment in the Partnership shall not be
less than 2.5 Units. Fractional Units may be sold at the discretion of the
General Partners. Notwithstanding the foregoing, the provisions set forth above
relating to the minimum number of Units which may be purchased shall not apply
to purchases of Units pursuant to the Distribution Reinvestment Plan described
in Section 8.15 hereof or a qualified Distribution Reinvestment Plan authorized
by the partnership agreement of one of the Prior Wells Public Programs. The
suitability standards set forth in the Prospectus will not be decreased with
respect to any investment in Units of the Partnership.
(c) The General Partners may refuse to accept subscriptions for
Units and contributions tendered therewith for any reason whatsoever.
Subscriptions shall be so accepted or rejected by the General Partners within 30
days of their receipt. If rejected, all funds will be returned to the subscriber
within ten business days. Once accepted, such subscription amounts shall be
deposited in escrow within 48 hours or deposited to the Partnership's account,
as may then be appropriate under this Agreement.
(d) Each Unit sold to a subscriber shall be fully paid and
nonassessable.
8.6 ADMISSION OF LIMITED PARTNERS. No action or consent by any
-----------------------------
Limited Partners shall be required for the admission of Additional Limited
Partners to the Partnership, provided that the Partnership may not issue more
than 3,500,000 Units. Funds of subscribers for Units shall be held in the escrow
account described in Section 8.8 below. Such funds shall not be released from
escrow, and no subscribers for Units shall be admitted to the Partnership unless
and until the receipt and acceptance by the Partnership of the Minimum Offering.
At any time thereafter, the Capital Contributions of such subscribers may be
released directly to the Partnership, provided that such subscribers shall be
admitted to the Partnership within 15 days after such release. Subscriptions
from subsequent subscribers shall be accepted or rejected within 30 days of
receipt by the Partnership, and if rejected, all funds shall be returned to
subscribers within 10 business days. Subsequent subscribers shall be deemed
admitted as Limited Partners of the Partnership on the day on which the
subscriptions from such Persons are accepted by the Partnership.
No Person shall be admitted as a Limited Partner who has not executed
and delivered to the Partnership the Subscription Agreement specified in the
Prospectus, together with such other documents and instruments as the General
Partners may deem necessary or desirable to effect such admission, including,
but not limited to, the written acceptance and agreement by such Person to be
bound by the terms and conditions of this Agreement.
8.7 MINIMUM CAPITALIZATION. The Offering will terminate if the
----------------------
Partnership has not received and accepted subscriptions for the Minimum Offering
on or before the Minimum Offering Expiration Date.
8.8 ESCROW. Until subscriptions for the Minimum Offering are
------
received and accepted by the General Partners, or until the Minimum Offering
Expiration Date, whichever first occurs, all subscription proceeds shall be held
in an escrow account separate and apart from all other funds and invested in
obligations of, or obligations guaranteed by, the United States government, or
bank money-market accounts or certificates of deposit of national or state banks
that have deposits insured by the Federal Deposit Insurance Corporation
(including certificates of deposit of any bank acting as a depository or
custodian for any such funds), which mature on or before the Minimum Offering
Expiration Date, unless such instrument cannot be readily sold or otherwise
disposed of for cash by the Minimum Offering Expiration Date without any
dissipation of the subscription proceeds invested, all in the discretion of such
escrow agent or agents appointed by the General Partners. All moneys tendered by
Persons whose subscriptions are rejected shall be returned, without interest, to
such Persons
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promptly after such rejection. If subscriptions for the Minimum Offering are
not received and accepted before the Minimum Offering Expiration Date, those
subscriptions and funds in escrow on such date shall be returned to the
subscribers, together with any interest earned thereon after deducting escrow
expenses (except for Maine, Missouri, Ohio and Pennsylvania residents).
Notwithstanding the above, subscriptions from residents of New York and
Pennsylvania may not be released from escrow to the Partnership until the
receipt and acceptance by the General Partners of subscriptions from all sources
for not less than 250,000 Units.
8.9 PUBLIC OFFERING. Except as otherwise
---------------
provided in this Agreement, the General Partners shall have sole and complete
discretion in determining the terms and conditions of the offer and sale of
Units and are hereby authorized and directed to do all things which they deem to
be necessary, convenient, appropriate and advisable in connection therewith,
including, but not limited to, the preparation and filing of the Registration
Statement with the Securities and Exchange Commission and the securities
commissioners (or similar agencies or officers) of such jurisdictions as the
General Partners shall determine, and the execution or performance of agreements
with selling agents and others concerning the marketing of the Units, all on
such basis and upon such terms as the General Partners shall determine.
8.10 RETURN AND WITHDRAWAL OF CAPITAL.
--------------------------------
(a) Any proceeds of the Offering of the Units not invested or
committed to the acquisition or development of specific real properties within
the later of two years from the effective date of the Registration Statement or
one year after the termination of the Offering (except for necessary operating
expenses and any reserves under Section 11.3(h) of this Agreement) shall be
distributed pro rata to the Limited Partners as a return of capital. In such
event, the amount paid to the Limited Partners shall include Front-End Fees but
only to the extent such fees exceed the adjusted allowable Front-End Fees based
on the obligation of the General Partners pursuant to Section 12.2(b) hereof to
commit at least 80% of the remaining Capital Contributions to Investment in
Properties. For purposes of the foregoing, funds will be deemed to have been
committed and will not be distributed to the extent such funds would be required
to acquire property with respect to which contracts, agreements in principle or
letters of understanding have been executed, regardless of whether such property
is actually acquired, and to the extent such funds have been reserved to make
contingent payments in connection with the acquisition, development or
improvement of any property, whether or not any such payments are made. No such
return shall be made until this Agreement has been amended to reflect such
reduction of capital. Any distribution pursuant to this Section 8.10(a) shall
be deemed to have been consented to by the Limited Partners.
(b) No Partner, including a withdrawing Partner, shall have any right
to withdraw or make a demand for withdrawal of any such Partner's Capital
Contribution (or the capital interest reflected in such Partner's Capital
Account) until the full and complete winding up and liquidation of the business
of the Partnership unless such withdrawal is provided for herein.
8.11 REPURCHASE OF UNITS. After one year
-------------------
following the termination of the Offering of Units, the Partnership shall have
the right, in the sole discretion of the General Partners, to use funds held in
the Repurchase Reserve to purchase Units upon written request of a Limited
Partner. The establishment of a Repurchase Reserve is in the sole discretion of
the General Partners, and if established, the Repurchase Reserve may be
terminated and/or reestablished at any time in the sole discretion of the
General Partners.
(a) In no event shall the Repurchase Reserve exceed 5% of the Cash
Flow in any given year.
(b) A Limited Partner wishing to have his Units repurchased must mail
or deliver a written request to the Partnership (executed by the trustee or
authorized agent in the case of Retirement Plans) indicating his desire to have
such Units repurchased. Such requests will be considered by the General
Partners in the order in which they are received.
(c) In the event that the General Partners decide to honor a request,
they will notify the requesting Limited Partner in writing of such fact, of the
purchase price for the repurchased Units and of the effective date of the
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repurchase transaction (which shall be not less than 60 nor more than 75
calendar days following the receipt of the written request by the Partnership)
and will forward to such Limited Partner the documents necessary to effect such
repurchase transaction.
(d) Fully executed documents to effect the repurchase transaction must
be returned to the Partnership at least 30 days prior to the effective date of
the repurchase transaction.
(e) The purchase price for the repurchased Units shall be established
by the Partnership no more often than on a quarterly basis.
(f) The purchase price for repurchased Units will be equal to 85% of
the fair market value of the Units until three years from the effective date of
the Registration Statement, and 90% of the fair market value of the Units
thereafter. Fair market value shall be determined by the General Partners based
upon an estimate of the amount the Limited Partners would receive if the
Partnership's real estate investments were sold for their estimated value and if
such proceeds were distributed in a liquidation of the Partnership.
(g) Only amounts then held in the Repurchase Reserve may be used to
repurchase Units.
(h) Upon receipt of the required documentation, the Partnership will,
on the effective date of the repurchase transaction, repurchase the Units of the
Limited Partner, provided that if sufficient amounts are not then available in
the Repurchase Reserve to repurchase all of such Units, only a portion of such
Units will be repurchased; and provided further, that the Partnership may not
repurchase any Units of such Limited Partner if, as a result thereof, the
Limited Partner would own less than the minimum investment. Units repurchased
by the Partnership pursuant to this Section 8.11 shall be promptly canceled.
(i) In the event that insufficient funds are available in the
Repurchase Reserve to repurchase all of such Units, the Limited Partner will be
deemed to have priority for subsequent Partnership repurchases over Limited
Partners who subsequently request repurchases.
(j) Repurchases of Units out of the Repurchase Reserve shall be
subject to the restrictions set forth in Section 17.3(g) hereof.
(k) In addition to the restrictions set forth in Section 17.3(g)
hereof, (i) repurchase out of the Repurchase Reserve may not exceed in the
aggregate more than 2% of total Capital Contributions throughout the life of the
Partnership excluding repurchases of Units relating to the death or legal
incapacity of the owner or a substantial reduction in the owner's net worth or
income (defined to mean an involuntary loss of not less than 50% of income or
net worth during the year in which such repurchase occurs); and (ii) not more
than 2% of the outstanding Units may be purchased in any year, provided in each
case that the Partnership has sufficient cash to make the purchase and that the
purchase will not be in violation of any other applicable legal requirements.
(l) In no event shall Units owned by the
General Partners or their Affiliates be repurchased by the Partnership.
8.12 INTEREST ON CAPITAL CONTRIBUTIONS. No
---------------------------------
interest shall be paid on any Capital Contributions.
8.13 OWNERSHIP BY LIMITED PARTNER OF INTEREST IN AFFILIATES OF
---------------------------------------------------------
GENERAL PARTNERS. No Limited Partner (other than a General Partner, in the event
- ----------------
that he or it is also a Limited Partner) shall at any time, either directly or
indirectly, own any stock or other interest in any Affiliate of any General
Partner if such ownership, by itself or in conjunction with the stock or other
interest owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partners shall be
entitled
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to make such reasonable inquiry of the Limited Partners and prospective Limited
Partners as is required to establish compliance by the Limited Partners with the
provisions of this Section 8.13.
8.14 DEFICIT CAPITAL ACCOUNTS. The Limited Partners shall not be
------------------------
required to reimburse the Partnership or any other Partner for deficiencies in
their Capital Accounts. In addition, except as may be required under state law,
the General Partners shall not be required to reimburse the Partnership or the
Limited Partners for deficiencies in their Capital Accounts.
8.15 DISTRIBUTION REINVESTMENT PLAN.
------------------------------
(a) A Limited Partner who acquired his Units in the Offering may elect
to participate in a program for the reinvestment of his distributions (the
"Distribution Reinvestment Plan") and have his distributions of Net Cash From
Operations reinvested in Units of the Partnership during the offering period or
in units issued by a subsequent limited partnership sponsored by the General
Partners or their Affiliates which has substantially identical investment
objectives as the Partnership. A Limited Partner who acquired his Units by
transfer from a former Limited Partner is not eligible to have his distributions
of Net Cash From Operations reinvested in Units of the Partnership, but may
participate in the Distribution Reinvestment Plan with respect to reinvestment
in units issued by a subsequent limited partnership sponsored by the General
Partners or their Affiliates which has substantially identical investment
objectives as the Partnership. Limited Partners participating in the
Distribution Reinvestment Plan may purchase fractional Units and shall not be
subject to minimum investment requirements, although the General Partners may,
at their option, impose certain minimum investment requirements or restrictions
with respect to purchases of Units pursuant to the Distribution Reinvestment
Plan. Each Limited Partner electing to have such distributions of Net Cash From
Operations reinvested will receive, with each confirmation of distributions, a
notice advising such Limited Partner that he is entitled to change his election
with respect to subsequent distributions by return of a notice to the
Partnership by a date to be specified by the General Partners.
(b) If a Limited Partner withdraws from participation in the
Distribution Reinvestment Plan, such withdrawal shall be effective only with
respect to distributions made more than 30 days following receipt by the General
Partners of written notice of such withdrawal. In the event a Limited Partner
transfers his Units, such transfer shall terminate the Limited Partner's
participation in the plan as of the first day of the quarter in which such
transfer is effective.
(c) Distributions may be reinvested in a subsequent limited
partnership only if (i) prior to the time of such reinvestment, the Limited
Partner has received the final prospectus (and any supplements thereto) offering
interests in the subsequent limited partnership and such prospectus allows
investment pursuant to a distribution reinvestment plan; (ii) a registration
statement covering the interests in the subsequent limited partnership has been
declared effective under the Securities Act of 1933; (iii) the offer or sale of
such interests is qualified for sale under the applicable state securities laws;
(iv) the participant executes the subscription agreement included with the
prospectus for the subsequent limited partnership; (v) the participant qualifies
under the applicable investor suitability standards as contained in the
prospectus for the subsequent limited partnership; and (vi) the subsequent
limited partnership has substantially identical investment objectives as the
Partnership. If (A) any of the foregoing conditions are not satisfied at the
time of a distribution or (B) no interests are available to be purchased, such
distributions will be paid in cash.
(d) Each Limited Partner electing to participate in the Distribution
Reinvestment Plan hereby agrees that his investment in this Partnership or any
subsequent limited partnership sponsored by the General Partners or their
Affiliates shall be deemed to constitute his agreement to be a limited partner
of the partnership in which such investment is made and to be bound by the terms
and conditions of the agreement of limited partnership of such partnership, and
if, at any time, he fails to meet the applicable limited partnership investor
suitability standards or cannot make the other investor representations or
warranties set forth in the then current limited partnership prospectus,
partnership agreement or subscription agreement relating thereto, he will
promptly notify the General Partners in writing.
(e) The General Partners may, at their option, elect not to provide
the Distribution Reinvestment Plan or terminate any such plan at any time
without notice to the Limited Partners.
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8.16 CLASS A STATUS UNITS AND CLASS B STATUS UNITS.
---------------------------------------------
Upon subscription for Units, each Limited Partner shall elect to have
his Units treated either as Class A Status Units or Class B Status Units, or a
combination thereof. Notwithstanding the foregoing, each Limited Partner
purchasing Units pursuant to the Deferred Commission Option, as defined in the
Prospectus, must elect upon subscription to have a sufficient number of Units
treated as Class A Status Units, in the discretion of the General Partners, to
generate at least the amount of Net Cash From Operations distributable with
respect to such Units needed to satisfy the deferred commission obligations each
year with respect to the total number of Units purchased by such Limited Partner
pursuant to the Deferred Commission Option. Elections to be treated as Class A
Status Units or Class B Status Units will be in effect for each fiscal year of
the Partnership, or such shorter applicable accounting period as the General
Partners, in their sole discretion, may determine and use for accounting
purposes. Units with respect to which the Limited Partner owning such Units has
elected to be treated as Class A Status Units with respect to an accounting
period shall be referred to as herein as "Class A Status Units" for such
accounting period, and Units with respect to which the Limited Partner owning
such Units has elected to have treated as Class B Status Units with respect to
an accounting period shall be referred to herein as "Class B Status Units" for
such accounting period. Limited Partners holding Class A Status Units and
Limited Partners holding Class B Status Units shall have such interests in the
income, distributions, allocations and capital of the Partnership as are
described in Articles IX and X below. Except as specifically described in
Articles IX and X below, all Limited Partners shall have the same rights under
this Agreement as all other Limited Partners regardless of whether their Units
are treated as Class A Status Units or Class B Status Units. Limited Partners
shall initially elect to have their Units treated as Class A Status Units or
Class B Status Units in their Subscription Agreement for Units. Thereafter,
except as set forth below or as may be otherwise limited or prohibited by
applicable state law, Limited Partners may change their election by mailing or
delivering written notice to the Partnership (executed by the trustee or
authorized agent in the case of Retirement Plans). Elections made in
Subscription Agreements shall be effective immediately upon acceptance.
Thereafter, Limited Partners shall have the right to change their prior election
with respect to the Class A Status or Class B Status treatment of their Units
(except where prohibited by applicable state law) one time during each
accounting period, and any such election shall be effective commencing as of the
first day of the next succeeding accounting period following the receipt by the
Partnership of written notice of such election. Any such election to be treated
as Class A Status Units or Class B Status Units shall remain in effect until the
first day of the next succeeding accounting period following receipt by the
Partnership of written notice to change such election, and all such elections
shall be binding upon the Limited Partner's successors and assigns.
Notwithstanding the foregoing, during the initial seven years following
termination of the Offering, Limited Partners purchasing Units pursuant to the
Deferred Commission Option, as defined in the Prospectus, will be permitted to
elect to have their Class A Status Units treated as Class B Status Units only to
the extent that such Limited Partners at all times maintain a sufficient number
of Class A Status Units during such initial seven year period, in the discretion
of the General Partners, to generate enough Net Cash From Operations to allow
the Partnership to satisfy the deferred commission obligations relating to the
total number of Units purchased by such Limited Partners pursuant to the
Deferred Commission Option. Notwithstanding anything to the contrary contained
herein, Units acquired and held by the General Partners or their Affiliates
shall at all times be treated as Class A Status Units, and neither the General
Partners nor their Affiliates shall have the right to make an election to have
Units beneficially owned by them treated as Class B Status Units.
ARTICLE IX
----------
DISTRIBUTIONS
9.1 NET CASH FROM OPERATIONS. Except as otherwise provided for in a
------------------------
liquidation in Sections 9.3 and 9.4 hereof, Net Cash From Operations for each
applicable accounting period shall be distributed to the Partners as follows:
(a) First, to the Limited Partners holding Class A Status Units on a
per Unit basis until each of such Limited Partners has received distributions of
Net Cash From Operations with respect to such fiscal year, or applicable portion
thereof, equal to 10% per annum of his Net Capital Contribution;
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(b) Then, to the General Partners until they have received
distributions of Net Cash From Operations with respect to such fiscal year equal
to 10% of the total distributions under Section 9.1(a) above and this Section
9.1(b) with respect to such fiscal year; and
(c) Thereafter, 90% to the Limited Partners holding Class A Status
Units on a per Unit basis, and 10% to the General Partners.
Notwithstanding the foregoing, Limited Partners holding Class A Status
Units who purchased Units pursuant to the Deferred Commission Option, as defined
in the Prospectus, shall for a period of seven years following termination of
the Offering have deducted and withheld from distributions of Net Cash From
Operations otherwise payable to such Limited Partners an annual amount equal to
$0.10 per Unit purchased pursuant to said Deferred Commission Option, which
amounts shall be used by the Partnership to pay deferred commissions due with
respect to such Units. All such amounts withheld from Net Cash From Operations
shall be deemed to have been distributed to, and be deemed to have been received
by, such Limited Partners as Net Cash From Operations.
The General Partners shall be prohibited from making any distributions
of Net Cash From Operations out of Capital Contributions, and distributions of
Net Cash From Operations shall not reduce Partners' Net Capital Contributions.
No distributions of Net Cash From Operations will be made with respect to Class
B Status Units.
The General Partners shall not incur any liability as a result of
their determination to distribute Net Cash From Operations, even though such
distribution may result in the Partnership's retaining insufficient funds for
the operation of its business, provided their determination was made in good
faith and not as a result of their negligence or misconduct.
9.2 NONLIQUIDATING NET SALE PROCEEDS.
--------------------------------
Except as otherwise provided for in Sections 9.3 and 9.4 hereof and except for
the potential reinvestment of Nonliquidating Net Sale Proceeds as provided in
Section 11.3(f) hereof, Nonliquidating Net Sale Proceeds, after the payment of
all Partnership debts and liabilities and the establishment of any reserves
which the General Partners in their sole discretion may deem reasonably
necessary or desirable, shall be distributed to the Partners as follows:
(a) To Limited Partners holding Units which at any time have been
treated as Class B Status Units, such amounts as may be necessary to give each
such Limited Partner an amount of Nonliquidating Net Sale Proceeds which, when
added to distributions received or deemed received by such Limited Partner with
respect to any period during which his Units were treated as Class A Status
Units, would be equal on a per Unit basis to the Net Cash From Operations
allocated and distributed pursuant to Section 9.1 hereof received or deemed
received by Limited Partners holding Units which at all times have been treated
as Class A Status Units, assuming such Limited Partners purchased an equivalent
number of Units on the same date (it being the intent of the Partners that the
distribution preference provided by Section 9.1 hereof be only a timing
preference on distributions and that this provision have the effect of
equalizing distributions to Limited Partners on a per Unit basis so that, after
receipt of distributions under this Section 9.2(a), all Limited Partners, to the
extent possible, be in the receipt of the same aggregate amount of distributions
under this Article IX on a per Unit basis);
(b) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received or has been deemed to have received distributions
under Section 8.10 hereof, this Section 9.2(b) and Section 9.4 hereof totalling
100% of his Net Capital Contribution;
(c) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received or has been deemed to have received aggregate
distributions under Sections 9.1, 9.2(a) and this 9.2(c) equal to a cumulative
(but not compounded) 10% per annum return on his Net Capital Contribution;
(d) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received or has been deemed to have received aggregate
distributions under Sections 9.1, 9.2(a), 9.2(c) and this 9.2(d) equal to his
Preferential Limited Partner Return, as defined in Section 3.48 hereof;
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(e) Then, to the General Partners until the General Partners have
received distributions totalling 100% of their Capital Contributions;
(f) Then, if and only in the event that Limited Partners have received
Excess Limited Partner Distributions, as hereinafter defined, to the General
Partners until they have received distributions of Nonliquidating Net Sale
Proceeds equal to 20% of the sum of any such Excess Limited Partner
Distributions and distributions to the General Partners pursuant to this Section
9.2(f) (the term "Excess Limited Partner Distributions" means any distributions
to Limited Partners over the life of their investment in the Partnership in
excess of the sum of their Net Capital Contributions plus their Preferential
Limited Partner Return); and
(g) Thereafter, 80% to the Limited Partners on a per Unit basis and
20% to the General Partners; provided, however, that in no event will the
General Partners be allocated or receive distributions in excess of the NASAA
Guidelines Resale Proceeds Maximum Amount, as defined herein. It is the intent
of the foregoing proviso that the General Partners receive no more of the net
proceeds from the sale or financing of Partnership Properties than is allowed
pursuant to Article IV, Section E.2.b. of the NASAA Guidelines, and in the event
the allocations pursuant to this Article IX would otherwise result in the
General Partners receiving any such excess distributions, such excess
distributions otherwise distributable to the General Partners will instead be
reallocated in favor of and distributed to the Limited Partners on a per Unit
basis. As used herein, the term "NASAA Guidelines Resale Proceeds Maximum
Amount" means an amount equal to 15% of aggregate Nonliquidating Net Sale
Proceeds and Liquidating Distributions remaining after payments to all Limited
Partners from such proceeds of amounts equal to 100% of their Net Capital
Contributions plus amounts equal to a 6% per annum return on their Net Capital
Contributions, calculated on a cumulative (noncompounded) basis.
Notwithstanding the foregoing, in the event that the Partnership sells
any Partnership Property at a sale price which is less than the Purchase Price
originally paid for such Partnership Property, then prior to the distribution of
Nonliquidating Net Sale Proceeds under Section 9.2(a) above, the Limited
Partners holding Class A Status Units shall first receive distributions of
Nonliquidating Net Sale Proceeds in an amount equal to the excess of the
original Purchase Price of such Partnership Property sold over the sale price of
such Partnership Property, but not in excess of the amount of the special
allocations of deductions for depreciation, amortization and cost recovery with
respect to such Partnership Property previously made to the Limited Partners
holding Class B Status Units made pursuant to Sections 10.2(a) and 10.2(b)
hereof.
9.3 DISSOLUTION. Upon dissolution, the Partnership shall proceed
-----------
to liquidate its assets as follows:
(a) Subject to any applicable limitations of law, upon dissolution of
the Partnership, the assets of the Partnership shall be converted to cash. The
Partnership shall be given adequate time to collect any notes received with
respect to the sale of such assets and collect any other debts outstanding. All
cash on hand, including all cash received after the happening of an event of
dissolution set forth in Section 20.1 hereof, shall be applied and distributed
as follows:
(i) All of the debts and liabilities of the Partnership, except
indebtedness to Partners, shall first be paid and satisfied or adequate
provision, including the setting up of any reserves which the General Partners
in their sole discretion deem reasonably necessary or desirable, shall be made
for the payment or satisfaction thereof;
(ii) All debts of the Partnership to Partners shall next be paid on a
pro rata basis without respect to the date on which such debts were incurred;
(iii) Any fees due to the General Partners shall next be paid; and
(iv) The balance of the assets of the Partnership shall be distributed
to each Partner in accordance with the positive balance in his Capital Account
as of the date of distribution, as provided in Section 9.4 below.
(b) Upon dissolution, each Limited Partner shall look solely to the
assets of the Partnership for the return of his investment, and if the
Partnership Property remaining after payment or discharge of the debts and
liabilities
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of the Partnership, including debts and liabilities owed to one or more of the
Partners, is insufficient to return the aggregate Capital Contributions of each
Limited Partner, such Limited Partners shall have no recourse against the
General Partners or any other Limited Partner.
9.4 LIQUIDATING DISTRIBUTIONS. After the
-------------------------
payment of all Partnership debts and liabilities and the establishment of any
reserves which the General Partners in their sole discretion may deem reasonably
necessary or desirable, Liquidating Distributions shall be distributed to each
Partner in accordance with the positive balance in his Capital Account as of the
date of distribution (after allocation of the Gain on Sale as provided in
Section 10.4 hereof).
9.5 DISTRIBUTION DATES. Partnership
------------------
distributions under this Article IX will be made at least quarterly, but no more
often than monthly, in the discretion of the General Partners (the "Distribution
Period").
9.6 ALLOCATION AMONG GENERAL PARTNERS. All
---------------------------------
amounts distributed to the General Partners under this Article IX shall be
apportioned among the General Partners in such percentages as they may from time
to time agree upon among themselves.
9.7 ALLOCATION AMONG LIMITED PARTNERS. All
---------------------------------
allocations and distributions made to the Limited Partners pursuant to this
Article IX shall be paid to those Persons who were Limited Partners or Assignees
as of the last day of the Distribution Period preceding the time of the
distribution (the "Allocation Date") on a pro rata basis according to the number
of Units held on the Allocation Date; provided, however, with respect to any
Unit issued by the Partnership during such Distribution Period, allocations and
distributions made with respect to such Unit for such Distribution Period shall
be equal to the pro rata share for such Unit determined in accordance with the
first clause of this Section 9.7 multiplied by a fraction, the numerator of
which is the number of days contained in the Distribution Period during which
the Unit in question was issued, and the denominator of which is the total
number of days contained in such Distribution Period.
ARTICLE X
ALLOCATIONS
10.1 NET LOSS. Net Loss for each applicable
--------
accounting period shall be allocated to the Partners as follows:
(a) 99% to the Limited Partners holding Class B Status Units with
respect to such accounting period on a per Unit basis, and 1% to the General
Partners until the Capital Accounts of all such Partners have been reduced to
zero;
(b) Then, to any Partner having a positive balance in his Capital
Account (in proportion to the aggregate positive balances in all Capital
Accounts) in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
(c) Then, 100% to the General Partners.
Notwithstanding the foregoing, in any fiscal year with respect to
which the Partnership incurs an aggregate Net Loss, interest income of the
Partnership shall be specially allocated to the Limited Partners holding Class A
Status Units with respect to such accounting period on a per Unit basis, and Net
Loss of the Partnership for such accounting period shall be determined without
regard to such interest income.
10.2 DEPRECIATION, AMORTIZATION AND COST RECOVERY DEDUCTIONS.
-------------------------------------------------------
All deductions for depreciation, amortization and cost recovery for each
applicable accounting period shall be allocated to the Partners as follows:
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(a) 99% to the Limited Partners holding Class B Status Units with
respect to such accounting period on a per Unit basis, and 1% to the General
Partners until the Capital Accounts of all such Partners have been reduced to
zero;
(b) Then, to any Partner having a positive balance in his Capital
Account (in proportion to the aggregate positive balances in all Capital
Accounts) in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
(c) Then, 100% to the General Partners.
This Section 10.2 notwithstanding, all Net Loss and Net Income for
each fiscal year shall be allocated to the Partners in the manner provided in
Sections 10.1 and 10.3 hereof and shall be reflected in each Partner's Capital
Account as of the last day of such fiscal year before any allocation of
depreciation, amortization or cost recovery deductions is made to the Partners
under this Section 10.2.
10.3 NET INCOME. Subject to the Qualified
----------
Income Offset provisions of Section 10.5 hereof, Net Income for each applicable
accounting period shall be allocated to the Partners as follows:
(a) To the General Partners and the Limited Partners holding Class A
Status Units with respect to such accounting period on a per Unit basis, in the
same proportion as, and to the extent that, Net Cash From Operations is
distributed or deemed distributed to them under Section 9.1 hereof with respect
to such accounting period; and
(b) Then, to the extent Net Income exceeds the actual distribution of
Net Cash From Operations with respect to such accounting period, such excess Net
Income shall be allocated 99% to the Limited Partners holding Class A Status
Units with respect to such accounting period on a per Unit basis, and 1% to the
General Partners.
10.4 GAIN ON SALE. Gain on Sale for each
------------
applicable accounting period shall be allocated to the Partners as follows:
(a) First, to the extent applicable, pursuant to the Qualified Income
Offset provisions of Section 10.5 hereof;
(b) Then, to those Partners having negative Capital Accounts, if any,
in the ratio that the negative Capital Account of each Partner having a negative
Capital Account bears to the aggregate amount of negative Capital Accounts of
all such Partners until all negative Capital Accounts have been restored to
zero;
(c) Then, to Limited Partners holding Units which at any time have
been treated as Class B Status Units, in amounts equal to the deductions for
depreciation, amortization and cost recovery specially allocated to such Limited
Partners pursuant to Section 10.2(a) hereof, with respect to the specific
Partnership Property, the sale, exchange or other disposition of which resulted
in the allocation of Gain on Sale hereunder, but not in excess of the amount of
Gain on Sale recognized by the Partnership pursuant to the sale, exchange or
other disposition of said specific Partnership Property;
(d) Then, to the Limited Partners in amounts equal to the deductions
for depreciation, amortization and cost recovery allocated to such Limited
Partners pursuant to Section 10.2(b) hereof with respect to the specific
Partnership Property, the sale, exchange or other disposition of which resulted
in the allocation of Gain on Sale hereunder;
(e) Then, to Limited Partners holding Units which at any time have
been treated as Class B Status Units, such amounts as may be necessary to give
each such Limited Partner, after the allocation of Gain on Sale under this
Section 10.4(e), distributions which, when added to distributions received or
deemed received by such Limited Partner with respect to any period during which
his Units were treated as Class A Status Units, would be equal on a per Unit
basis to the Net Cash From Operations allocated and distributed pursuant to
Section 9.1 hereof received or deemed received by
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Limited Partners holding Units which at all times have been treated as Class A
Status Units, assuming said Limited Partners purchased an equivalent number of
Units on the same day (it being the intent of the Partners that the distribution
preference provided in Section 9.1 hereof be only a timing preference on
distributions and that Section 9.2(a) hereof and this provision have the effect
of equalizing distributions to Limited Partners on a per Unit basis so that,
after receipt of distributions under Section 9.2(a) hereof and distributions
resulting from the allocation of Gain on Sale pursuant to this Section 10.4(e),
all Limited Partners, to the extent possible, be in receipt of the same
aggregate amount of distributions under Article IX on a per Unit basis);
(f) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an amount equal to the excess of each Limited
Partner's Net Capital Contribution over prior distributions received or deemed
received by such Limited Partner under Sections 8.10, 9.2(b) and 9.4 hereof;
(g) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an amount equal to the excess of a cumulative
(but not compounded) 10% per annum return on his Net Capital Contribution over
prior distributions received or deemed received by such Limited Partner under
Sections 9.1, 9.2(a), 9.2(c), 9.2(d) and 9.4 hereof;
(h) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an aggregate amount equal to the excess of
his Preferential Limited Partner Return, as defined in Section 3.48 hereof, over
prior distributions received or deemed received by each such Limited Partner
under Sections 9.1, 9.2(a), 9.2(c), 9.2(d) and 9.4 hereof;
(i) Then, to the General Partners, until the General Partners have
been allocated amounts equal to the excess of 100% of their Capital
Contributions;
(j) Then, to the General Partners, until the General Partners have
been allocated Gain on Sale under this Section 10.4(j) equal to 20% of the sum
of any Excess Limited Partner Distributions, as defined in Section 9.2(f)
hereof, plus any Gain on Sale allocated to the General Partners pursuant to this
Section 10.4(j); and
(k) Thereafter, 80% to the Limited Partners on a per Unit basis and
20% to the General Partners; provided, however, that in no event will the
General Partners be allocated Gain on Sale pursuant to this Section 10.4 which
would result in the General Partners receiving distributions in excess of the
NASAA Guidelines Resale Proceeds Maximum Amount, as defined in Section 9.2(g)
hereof. It is the intent of the foregoing proviso that the General Partners
receive no more of the net proceeds from the sale or financing of Partnership
Properties than is allowed pursuant to Article IV, Section E.2.b. of the NASAA
Guidelines, and in the event the allocations pursuant to this Article X would
otherwise result in the General Partners receiving any such excess
distributions, such excess allocations of Gain on Sale otherwise allocable to
the General Partners will instead be reallocated in favor of and to the Limited
Partners on a per Unit basis.
Notwithstanding the foregoing, in the event that the Partnership sells
the last remaining Partnership Property at a sale price which is less than the
Purchase Price originally paid for such Partnership Property, then, after the
allocation of Gain on Sale derived from any such sale pursuant to Sections
10.4(a) and 10.4(b) above, and prior to the allocation of Gain on Sale pursuant
to Section 10.4(c) above, Limited Partners holding Class A Status Units shall
first be allocated Gain on Sale derived from any such sale in an amount equal to
the excess of the original Purchase Price of such Partnership Property sold over
the sale price of such Partnership Property, but not in excess of the amount of
the special allocations of deductions for depreciation, amortization and cost
recovery with respect to such Partnership Property previously made to Limited
Partners holding Class B Status Units pursuant to Sections 10.2(a) and 10.2(b)
hereof.
10.5 QUALIFIED INCOME OFFSET. Notwithstanding any provision to the
contrary contained herein, in the event that any Partner receives an adjustment,
allocation or distribution described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6) which causes a deficit balance in such Partner's
Capital Account, such Partner will be allocated items of income or gain
(consisting of a pro rata portion of each item of Partnership income, including
gross income, and
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gain for such year) in an amount and manner sufficient to eliminate such deficit
balance as quickly as possible, all in accordance with Treasury Regulations
Section 1.704-1(b)(2)(ii)(d). (It is the intent of the Partners that the
foregoing provision constitute a "Qualified Income Offset," as defined in
Treasury Regulations Section 1.704-1(b)(2)(ii)(d), and the foregoing provision
shall in all events be interpreted so as to constitute a valid "Qualified Income
Offset.")
10.6 ALLOCATION AMONG LIMITED PARTNERS.
---------------------------------
Except as otherwise provided in this Article X, all allocations made to the
Limited Partners as a group under this Article X shall be apportioned among the
Limited Partners according to each Limited Partner's Participating Percentage.
Except as otherwise provided in this Article X, all allocations made among
Limited Partners holding Class A Status Units shall be apportioned according to
a percentage, the numerator of which shall be the number of Class A Status Units
held by each such Limited Partner, and the denominator of which shall be the
total number of Class A Status Units held by all Limited Partners, and all
allocations made among Limited Partners holding Class B Status Units shall be
apportioned among such Limited Partners according to a percentage, the numerator
of which shall be the number of Class B Status Units held by each such Limited
Partner, and the denominator of which shall be the total number of Class B
Status Units held by all Limited Partners. If, however, Limited Partners are
admitted to the Partnership pursuant to Article VIII on different dates during
any fiscal year, such allocations under this Article X for such fiscal year
(and, if necessary, subsequent years) shall be divided among the Persons who own
Units from time to time during such year in accordance with Section 706 of the
Code, using any conventions permitted by law and selected by the General
Partners, in their sole discretion. In addition, if elections to be treated as
Class A Status Units or Class B Status Units are deemed to be effective during
any fiscal year, allocations under this Article X for such fiscal year (and, if
necessary, subsequent years) shall be divided among the Limited Partners in
accordance with Section 706 of the Code, using any conventions permitted by law
and selected by the General Partners, in their sole discretion.
10.7 ALLOCATION AMONG GENERAL PARTNERS. All
---------------------------------
allocations made under this Article X to the General Partners shall be
apportioned among the General Partners in such percentages as they may from time
to time agree among themselves.
10.8 ITEM PRORATIONS. Any fiscal year of the
---------------
Partnership in which the Partnership realizes any Gain on Sale shall be divided
into multiple accounting periods, the first of which shall begin on the first
day of such fiscal year and shall end on the Sale Date, and the second of which
shall begin on the day following such Sale Date and shall end on the following
Sale Date, if any, and if no further Sale Date occurs, then on the last day of
such fiscal year. Any Net Income realized by the Partnership in any of such
accounting periods shall be allocated to the Partners in the manner provided in
Section 10.3 hereof as if such accounting period were a complete fiscal year of
the Partnership. Any Net Loss, depreciation, amortization or cost recovery
deductions incurred by the Partnership in any of such accounting periods shall
be allocated to the Partners in the manner provided in Sections 10.1 and 10.2
hereof as if such accounting period were a complete fiscal year of the
Partnership. The Net Income, Net Loss, depreciation, amortization and cost
recovery deductions so allocated to the Partners shall be reflected in their
respective Capital Accounts before any Gain on Sale realized by the Partnership
during such accounting period is allocated to the Partners under Section 10.4
hereof.
10.9 ALLOCATIONS IN RESPECT TO TRANSFERRED UNITS. If any Units are
-------------------------------------------
transferred during any fiscal year, all items attributable to such Units for
such year shall be allocated between the transferor and the transferee by taking
into account their varying interests during the year in accordance with Section
706(d) of the Code, utilizing any conventions permitted by law and selected by
the General Partners, in their sole and absolute discretion. Solely for purposes
of making such allocations, the Partnership shall recognize the transfer of such
Units as of the end of the calendar quarter during which it receives written
notice of such transfer, provided that if the Partnership does not receive a
written notice stating the date such Units were transferred and such other
information as may be required by this Agreement or as the General Partners may
reasonably require within 30 days after the end of the year during which the
transfer occurs, then all such items shall be allocated to the Person who,
according to the books and records of the Partnership, on the last day of the
year during which the transfer occurs, was the owner of the Units. The General
Partners and the Partnership shall incur no liability for making allocations in
accordance with the provisions of this Section 10.9, whether or not the General
Partners or the Partnership have knowledge of any transfer of ownership of any
Units.
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10.10 ALLOCATIONS IN RESPECT TO REPURCHASED UNITS. If any Units
-------------------------------------------
are repurchased pursuant to Section 8.11 hereof during any fiscal year, all
items attributable to such Units for such year shall be determined by the
General Partners (a) pro rata with respect to the number of months such Units
were outstanding during such year, (b) on the basis of an interim closing of the
Partnership books, or (c) in accordance with any other method established by the
General Partners in accordance with applicable provisions of the Code and
Treasury Regulations.
10.11 DISPUTES. Except with respect to
--------
matters as to which the General Partners are granted discretion hereunder, the
opinion of the independent public accountants retained by the Partnership from
time to time shall be final and binding with respect to all disputes and
uncertainties as to all computations and determinations required to be made
under Articles IX and X hereof (including but not limited to any computations
and determinations in connection with any distribution or allocation pursuant to
a dissolution and liquidation).
ARTICLE XI
MANAGEMENT OF THE PARTNERSHIP
11.1 MANAGEMENT. The General Partners shall conduct the business of
----------
the Partnership, devoting such time thereto as they, in their sole discretion,
shall determine to be necessary to manage Partnership business and affairs in an
efficient manner. Any action required to be taken by the General Partners
pursuant to this Agreement shall be duly taken only if it is approved, in
writing or otherwise, by all the General Partners, unless the General Partners
agree among themselves to a different arrangement for said approval.
11.2 POWERS OF THE GENERAL PARTNERS. The General Partners shall have
------------------------------
full charge of overall management, conduct and operation of the Partnership, and
shall have the authority to act on behalf of the Partnership in all matters
respecting the Partnership, its business and its property, and, without limiting
in any manner the foregoing, authority:
(a) To do on behalf of the Partnership all things which, in their sole
judgment, are necessary, proper or desirable to carry out the Partnership's
business, including, but not limited to, the right, power and authority: (i) to
execute all agreements and other documents necessary to implement the purposes
of the Partnership, to take such action as may be necessary to consummate the
transactions contemplated hereby and by the Prospectus, and to make all
reasonably necessary arrangements to carry out the Partnership's obligations in
connection therewith; (ii) to employ, oversee and dismiss from employment any
and all employees, agents, independent contractors, real estate managers,
contractors, engineers, architects, developers, designers, brokers, attorneys
and accountants; (iii) to sell, exchange or grant an option for the sale of all
or substantially all (subject to the requirement to obtain a Majority Vote of
the Limited Partners pursuant to Section 16.1 hereof with respect to a sale of
all or substantially all of the real properties acquired by the Partnership) or
any portion of the real and personal property of the Partnership, at such price
or amount, for cash, securities or other property and upon such other terms as
the General Partners, in their sole discretion, deem proper; (iv) to let or
lease all or any portion of the Partnership Properties for any purpose and
without limit as to the term thereof, whether or not such term (including
renewal terms) shall extend beyond the date of the termination of the
Partnership and whether or not the portion so leased is to be occupied by the
lessee or, in turn, subleased in whole or in part to others; (v) to create, by
grant or otherwise, easements and servitudes; (vi) to borrow money and incur
indebtedness; provided, however, the Partnership shall not be permitted to incur
any indebtedness except as authorized in Section 11.3(e) hereof; (vii) to draw,
make, accept, endorse, sign and deliver any notes, drafts or other negotiable
instruments or commercial paper; (viii) to execute such agreements and
instruments as may be necessary, in their discretion, to operate, manage and
promote the Partnership assets and business; (ix) to construct, alter, improve,
repair, raze, replace or rebuild all or any portion of the Partnership
Properties; (x) to submit to arbitration any claim, liability or dispute
involving the Partnership (provided that such claims will be limited to actions
against the Partnership not involving securities claims by the Limited Partners
and provided further that no claim, liability or dispute of a Limited Partner
will be subject to mandatory arbitration); (xi) to compromise any claim or
liability due to the Partnership; (xii) to execute, acknowledge or verify and
file any notification, application, statement and other filing which the General
Partners consider either required or desirable to be filed with any state or
federal securities administrator or
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commission; (xiii) to make any tax elections to be made by the Partnership;
(xiv) to place record title to any of its assets in the name of a nominee, agent
or a trustee; (xv) to do any or all of the foregoing, discretionary or
otherwise, through agents selected by the General Partners, whether compensated
or uncompensated by the Partnership; (xvi) to execute and file of record all
instruments and documents which are deemed by the General Partners to be
necessary to enable the Partnership properly and legally to do business in the
State of Georgia or any other jurisdiction deemed advisable; (xvii) to monitor
the transfer of Partnership interests to determine if such interests are being
traded on "an established securities market or a secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code,
and take (and cause Affiliates to take) all steps reasonably necessary or
appropriate to prevent any such trading of interests, including without
limitation, voiding transfers if the General Partners reasonably believe such
transfers will cause the Partnership to be treated as a "publicly traded
partnership" under the Code or Treasury Regulations thereunder; (xviii) at the
appropriate time, to register the Units with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934; and (xix) to do any
or all of the foregoing for such consideration and upon such other terms or
conditions as the General Partners, in their discretion, determine to be
appropriate; provided, however, in no event shall the General Partners or their
Affiliates receive compensation from the Partnership unless specifically
authorized by Article XII hereof, by Articles IX and X hereof or by the
"Compensation of the General Partners and Affiliates" section of the Prospectus.
(b) Notwithstanding anything contained herein to the contrary, subject
to the provisions contained in Section 16.2 hereof, to amend this Agreement
without the consent or vote of any of the Limited Partners: (i) to reflect the
addition or substitution of Limited Partners or the reduction of Capital
Accounts upon the return of capital to Partners; (ii) to add to the
representations, duties or obligations of the General Partners or their
Affiliates or surrender any right or power granted herein to the General
Partners or their Affiliates for the benefit of the Limited Partners; (iii) to
cure any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to add any other provision with
respect to matters or questions arising under this Agreement which will not be
inconsistent with the provisions of this Agreement; (iv) to delete or add any
provision from or to this Agreement requested to be so deleted or added by the
staff of the Securities and Exchange Commission or by the staff of any state
regulatory agency, the deletion or addition of which provision is deemed by the
staff of any such regulatory agency to be for the general benefit or protection
of the Limited Partners; and (v) to attempt to have the provisions of this
Agreement comply with federal income tax law and regulations thereunder.
(c) To possess and exercise, as may be required, all of the rights and
powers of general partners as more particularly provided by the Act, except to
the extent that any of such rights may be limited or restricted by the express
provisions of this Agreement.
(d) To execute, acknowledge and deliver any and all instruments and
take such other steps as are necessary to effectuate the foregoing. Any such
instruments may be executed on behalf of the Partnership by either of the
General Partners, except that any instrument pursuant to which the Partnership
acquires or disposes of any interest in real property shall require the
signature, personally or by attorney-in-fact, of each of the General Partners.
11.3 LIMITATIONS ON POWERS OF THE GENERAL PARTNERS. The General
---------------------------------------------
Partners shall observe the following policies in connection with Partnership
operations:
(a) Pending initial investment of its funds, or to provide a source
from which to meet contingencies, including, without limitation, the working
capital reserve and Repurchase Reserve, the Partnership may temporarily invest
its funds in short-term, highly liquid investments where there is appropriate
safety of principal, such as government obligations, bank or savings and loan
association certificates of deposit, short-term debt obligations and interest-
bearing accounts; provided that, following one year after the commencement of
the operations of the Partnership, no more than 45% of the value (as defined in
Section 2(a)(41) of the Investment Company Act of 1940, as amended) of the
Partnership's total assets (exclusive of government securities and cash items)
will consist of, and no more than 45% of the Partnership's net income after
taxes (for any four consecutive fiscal quarters combined) will be derived from,
securities other than (i) government securities; (ii) securities issued by
majority owned subsidiaries of the Partnership which are not investment
companies; and (iii) securities issued by companies, which are controlled
primarily by the Partnership, through which the
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Partnership engages in a business other than that of investing, reinvesting,
owning, holding or trading in securities, and which are not investment
companies.
(b) The Partnership shall not acquire unimproved or non-income
producing property, except in amounts and upon terms which can be financed by
the Offering proceeds or from Cash Flow and provided investment in such
properties shall not exceed 15% of net Offering proceeds available for
Investment in Properties. Properties shall not be considered non-income
producing if they are expected to produce income within two years after their
acquisition.
(c) All real property acquisitions must be supported by an appraisal
which shall be prepared by a competent, independent appraiser. The appraisal
shall be maintained in the Partnership's records for at least five years and
shall be available for inspection and duplication by any Limited Partner. The
Purchase Price paid by the Partnership for each property shall not exceed the
appraised value of such property.
(d) The General Partners shall not have the authority to incur
indebtedness which is secured by the Partnership Properties or assets, except as
specifically authorized pursuant to Section 11.3(e) below.
(e) The General Partners shall have the authority to borrow funds (i)
for Partnership operating purposes in the event of unforeseen or unexpected
circumstances in which the Partnership's working capital reserves and other cash
resources available to the Partnership are deemed insufficient for the
maintenance and repair of Partnership Properties or for the protection or
replacement of the Partnership's assets, and (ii) in order to finance
improvement of and improvements to Partnership Properties at such time as the
General Partners may deem such improvements to be necessary or appropriate to
protect capital previously invested in such Partnership Properties, to protect
the value of the Partnership's investment in a particular Partnership Property,
or to make a particular Partnership Property more attractive for sale or lease;
provided, however, that the aggregate amount of Partnership borrowings shall at
no time exceed 25% of the total purchase price of Partnership Properties. The
Partnership may borrow such funds from the General Partners, their Affiliates or
others, provided that if any such borrowing is from the General Partners or
their Affiliates, (i) such borrowing may not constitute a "financing" as that
term is defined under the NASAA Guidelines (i.e., all indebtedness encumbering
Partnership Properties or incurred by the Partnership, "the principal amount of
which is scheduled to be paid over a period of not less than 48 months, and not
more than 50 percent of the principal amount of which is scheduled to be paid
during the first 24 months"); (ii) interest and other financing charges or fees
charged on any such borrowing may not exceed amounts which would be charged by
unrelated lending institutions on comparable financing for the same purpose in
the same locality as the Partnership's principal place of business; and (iii) no
prepayment charge or penalty shall be required with respect to any such
borrowing.
(f) The Partnership shall not reinvest Cash Flow or any proceeds from
the sale of a Partnership Property in new properties except that if the
Partnership requires funds to exercise an option to acquire property under lease
or to purchase from any co-venturer an interest in a property that the
Partnership owns jointly with such Person, the Partnership may either distribute
the net proceeds of any sale of Partnership Property to the Partners or may
reinvest such proceeds for the aforementioned purposes; provided, however, that
in any event, a portion of such proceeds sufficient to cover any increase in
Limited Partners' federal and state income taxes attributable to the sale
(assuming a 35% combined federal and state tax bracket) shall be distributed in
time to pay such increase.
(g) The General Partners shall exercise their fiduciary duty for the
safekeeping and use of all funds and assets of the Partnership, whether or not
in their immediate possession or control, and shall not employ, or permit
another to employ, such funds or assets in any manner except for the exclusive
benefit of the Partnership. In addition, the Partnership shall not permit the
Partners to contract away the fiduciary duty owed to the Partners by the General
Partners under common law.
(h) The Partnership may maintain reasonable reserves for normal
repairs, replacements and contingencies in such amounts as the General Partners
in their sole and absolute discretion determine from time to time to be
adequate, appropriate or advisable in connection with the operations of the
Partnership. In the event expenditures are made from any such reserves, future
operating revenues may be allocated to such reserve to the extent deemed
necessary
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by the General Partners for the maintenance of reasonable reserves. In
addition, one year after the termination of the Offering, the Partnership may at
the sole discretion of the General Partners maintain a Repurchase Reserve of up
to 5% of Cash Flow in any year. Such funds may be used to repurchase Units as
described in Section 8.11 hereof.
(i) The Partnership shall not own or lease property jointly or in
partnership with unrelated entities except in general partnerships or joint
ventures which own and operate one or more particular properties, unless (i)
such unrelated entity has substantially identical investment objectives as those
of the Partnership; (ii) the management of such partnership or joint ownership
is under the control of the Partnership; (iii) the Partnership, as a result of
such joint ownership or partnership ownership of a property, is not charged,
directly or indirectly, more than once for the same services; (iv) the joint
ownership or partnership does not authorize or require the Partnership to do
anything as a partner or joint venturer with respect to the property which the
Partnership or the General Partners could not do directly because of this
Agreement; and (v) the General Partners and their Affiliates are prohibited from
receiving any compensation, fees or expenses which are not permitted to be paid
under this Agreement.
The Partnership may not own or lease property jointly or in a
partnership with an Affiliate of the General Partners unless such property is
owned or leased by a joint venture or general partnership with an affiliated
"program," as defined in the NASAA Guidelines, which is publicly registered, and
unless (i) such Affiliate has substantially identical investment objectives as
those of the Partnership; (ii) the Partnership, as a result of such joint
ownership or partnership ownership of a property, is not charged, directly or
indirectly, more than once for the same services; (iii) compensation payable to
the General Partners by such Affiliate is substantially identical to that
payable to the General Partners by the Partnership; (iv) the Partnership will
have a right of first refusal to buy the property held by such joint venture in
the event that such Affiliate elects to sell its interest in the joint venture;
and (v) the investment by the Partnership and such Affiliate are on
substantially the same terms and conditions, and each such entity's ownership
interest in such joint venture or partnership shall be based upon the respective
proportion of funds invested in such joint venture or partnership by the
Partnership and such Affiliate.
The ownership of the common areas located on property through a
condominium association or other similar form of real property ownership shall
not be considered a joint ownership of property for purposes of this paragraph.
(j) Investments by the Partnership in limited partnership interests of
other partnerships shall be prohibited.
(k) The completion of improvements which are to be constructed or are
under construction on Partnership Property shall be guaranteed at the price
contracted either by an adequate completion bond or by other satisfactory
assurances; provided, however, that such other satisfactory assurances shall
include at least one of the following: (i) a written personal guarantee of one
or more of the general contractor's principals accompanied by the financial
statements of such guarantor indicating a substantial net worth; (ii) a written
fixed price contract with a general contractor that has a substantial net worth;
(iii) a retention of a reasonable portion of the Purchase Price as a potential
offset to such Purchase Price in the event the seller does not perform in
accordance with the purchase and sale agreement; or (iv) a program of
disbursements control which provides for direct payments to subcontractors and
suppliers.
(l) The Partnership shall make no construction loans to builders of
Partnership Properties and shall make no periodic progress or other advance
payments to such builders unless the Partnership has first received an
architect's certification as to the percentage of the project which has been
completed and as to the dollar amount of the construction then completed.
(m) The Partnership shall not acquire property in exchange for Units.
(n) The Partnership shall not obtain nonrecourse financing from a
Limited Partner or any party affiliated with a Limited Partner.
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(o) The Partnership shall not purchase a Partnership Property if (i)
the acquisition price of such Partnership Property is not a fixed amount
determined as of the date of acquisition; or (ii) any amount payable in
connection with such acquisition or the time for making payments thereunder is
dependent, in whole or in part, upon revenues, income or profits derived from
the Partnership Property.
(p) The Partnership shall not take back an "all-inclusive" or
"wraparound" note in connection with the sale or other disposition of a
Partnership Property.
(q) The Partnership's business purposes and objectives, as set forth
in Article IV, shall not be changed unless approved by a Majority Vote of the
Limited Partners.
(r) The Partnership shall not invest in junior trust deeds and other
similar obligations.
(s) The General Partners shall not have the authority on behalf of the
Partnership to:
(i) list, recognize or facilitate the trading of Units (or any
interest therein) on any "established securities market (or the equivalent
thereof)" within the meaning of Section 7704 of the Code, or permit any of their
Affiliates to take such actions, if as a result thereof, the Partnership would
be treated for federal income tax purposes as an association taxable as a
corporation or taxed as a "publicly traded partnership;" or
(ii) create for the Units (or any interest therein) a "secondary
market (or the equivalent thereof)" within the meaning of Section 7704 of the
Code or otherwise permit, recognize or facilitate the trading of any such Units
(or any interest therein) on any such market or permit any of their Affiliates
to take such actions, if as a result thereof, the Partnership would be treated
for federal income tax purposes as an association taxable as a corporation or
taxed as a "publicly traded partnership."
(t) The funds of the Partnership shall not be commingled with the
funds of any other Person, except in the case of making capital contributions to
a joint venture or partnership permitted pursuant to the provisions of Section
11.3(i) above.
(u) The General Partners hereby agree that they shall not initiate a
transaction wherein the Partnership is merged or consolidated with another
partnership or corporation, and the General Partners shall not be authorized to
merge or consolidate the Partnership with any other partnership or corporation
or to convert the Partnership to a real estate investment trust unless first
obtaining a Majority Vote of the Limited Partners to any such transaction. In
addition, the General Partners shall not be authorized to enter into or effect
any Roll-Up unless such Roll-Up complies with the following terms and
conditions:
(i) An appraisal of all assets of the Partnership shall be obtained
from a competent Independent Expert. If the appraisal will be included in a
prospectus used to offer the securities of a Roll-Up Entity, the appraisal shall
be filed with the Securities and Exchange Commission and the states as an
exhibit to the registration statement for the offering. The assets of the
Partnership shall be appraised on a consistent basis. The appraisal shall be
based on an evaluation of all relevant information and shall indicate the
current value of the Partnership's assets as of a date immediately prior to the
announcement of the proposed Roll-Up. The appraisal shall assume an orderly
liquidation of the Partnership's assets over a 12 month period, shall consider
other balance sheet items, and shall be net of the assumed cost of sale. The
terms of the engagement of the Independent Expert shall clearly state that the
engagement is for the benefit of the Partnership and its Limited Partners. A
summary of the independent appraisal, indicating all material assumptions
underlying the appraisal, shall be included in a report to the Limited Partners
in connection with the proposed Roll-Up.
(ii) In connection with the proposed Roll-Up, the person sponsoring
the Roll-Up shall provide each Limited Partner with a document which instructs
the Limited Partner on the proper procedure for voting against or dissenting
from the Roll-Up and shall offer to Dissenting Limited Partners the choice of:
(A) accepting the securities of the Roll-Up Entity offered in the proposed Roll-
Up which have substantially the same terms and conditions as the security
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originally held, provided that the receipt or retention of that security is not
a step in a series of subsequent transactions that directly or indirectly
through acquisition or otherwise involves future contributions or
reorganizations involving the Roll-Up Entity; or (B) one of the following: (I)
remaining as Limited Partners in the Partnership and preserving their interests
therein on the same terms and conditions as existed previously, or (II)
receiving cash in an amount equal to the Limited Partners' pro rata share of the
appraised value of the net assets of the Partnership.
(iii) Securities of the Roll-Up Entity received in the Roll-Up will
be considered to have the same terms and conditions as the security originally
held if: (A) there is no material adverse change to Dissenting Limited Partners'
rights, including but not limited to, rights with respect to voting, the
business plan, or the investment, distribution, management compensation and
liquidation policies of the Roll-Up Entity; and (B) the Dissenting Limited
Partners receive the same preferences, privileges and priorities as they had
pursuant to the security originally held.
(iv) The Partnership may not participate in any proposed Roll-Up in
which any General Partner converts an equity interest in the Partnership for
which consideration was not paid and which was not otherwise provided for in
this Agreement and disclosed to the Limited Partners, into a voting interest in
the Roll-Up Entity, provided, however, an interest originally obtained in order
to comply with the provisions of IRS Revenue Procedure 89-12 may be converted
into a voting interest in the Roll-Up Entity not to exceed a one percent (1%)
interest in the assets and income of such entity.
(v) The Partnership may not participate in any proposed Roll-Up in
which a General Partner does not utilize an independent third party to receive
and tabulate all votes and dissents, and require that the third party make the
tabulation available to the General Partners and any Limited Partner upon
request at any time during and after voting occurs.
(vi) The Partnership may not participate in any proposed Roll-Up which
would result in the Limited Partners having (A) voting rights which do not
generally follow the voting rights of the Limited Partners pursuant to this
Agreement or (B) democracy rights in the Roll-Up Entity which are less than
those provided for under Sections VII.A. and VII.B. of the NASAA Guidelines. If
the Roll-Up Entity is a corporation, the voting rights shall correspond to the
voting rights provided for in the NASAA Guidelines to the greatest extent
possible.
(vii) The Partnership may not participate in any proposed Roll-Up
which includes provisions which would otherwise materially impede or frustrate
the accumulation of shares by any purchaser of the securities of the Roll-Up
Entity (except to the minimum extent necessary to preserve the tax status of the
Roll-Up Entity). The Partnership may not participate in any proposed Roll-Up
which would limit the ability of a Limited Partner to exercise the voting rights
of his securities in the Roll-Up Entity on the basis of the limited partnership
interests or other indicia of ownership held by that Limited Partner.
(viii) The Partnership may not participate in any proposed Roll-Up in
which the Limited Partners' rights of access to the records of the Roll-Up
Entity will be less than those provided for under Section VII.D. of the NASAA
Guidelines.
(ix) The Partnership may not participate in any proposed Roll-Up in
which any of the costs of the transaction would be borne by the Partnership if
the proposed Roll-Up is not approved by a Majority Vote of the Limited Partners.
(x) The Partnership may not participate in any proposed Roll-Up in
which the rights of Limited Partners are not protected as to fees of General
Partners. The rights of Limited Partners shall be presumed not to be protected
as to fees of General Partners if: (A) General Partners are not prevented from
receiving both unearned management fees discounted to a present value, if those
fees were not previously provided for in this Agreement and disclosed to Limited
Partners, and new asset-based fees; (B) property management fees and other
management fees are not appropriate, not reasonable and greater than what would
be paid to third parties for performing similar services; or (C) changes in fees
which are substantial and adverse to Limited Partners are not approved by an
independent committee according to the facts and circumstances of each
transaction. For purposes of this provision, "management fee" means a
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fee paid to the General Partners, their Affiliates, or other persons for
management and administration of the limited partnership Roll-Up Entity.
(xi) The Person proposing a Roll-Up shall pay all solicitation
expenses related to the transaction, including all preparatory work related
thereto, in the event the Roll-Up is not approved. For purposes of this
provision, "solicitation expenses" include direct marketing expenses such as
telephone calls, broker-dealer fact sheets, legal and other fees related to the
solicitation, as well as direct solicitation compensation to brokers and
dealers.
(xii) The Partnership may not participate in any proposed Roll-Up in
which a broker or dealer receives compensation for soliciting votes or tenders
from Limited Partners in connection with the Roll-Up unless that compensation:
(A) is payable and equal in amount regardless of whether the Limited Partner
votes affirmatively or negatively in the proposed Roll-Up; (B) in the aggregate,
does not exceed 2% of the exchange value of the newly created securities; and
(C) is paid regardless of whether the Limited Partners reject the proposed Roll-
Up.
11.4 EXPENSES OF THE PARTNERSHIP.
---------------------------
(a) Subject to Sections 11.4(b) and 11.4(c) below, the Partnership
shall reimburse the General Partners for (i) all Organization and Offering
Expenses incurred by them, and (ii) the actual cost to them of goods and
materials used for or by the Partnership and obtained from entities unaffiliated
with the General Partners.
(b) Except as provided below and in Sections 11.4(a) and 11.4(c), all
of the Partnership's expenses shall be billed directly to and paid by the
Partnership. The General Partners may be reimbursed for the administrative
services necessary to the prudent operation of the Partnership provided that the
reimbursement shall be at the lower of the General Partners' actual cost or the
amount the Partnership would be required to pay to independent parties for
comparable administrative services in the same geographic location. No payment
or reimbursement will be made for services for which the General Partners are
entitled to compensation by way of a separate fee. Excluded from allowable
reimbursements shall be: (i) rent or depreciation, utilities, capital
equipment, other administrative items; and (ii) salaries, fringe benefits,
travel expenses and other administrative items incurred by or allocated to any
controlling Persons of the General Partners or their Affiliates. A controlling
Person, for purposes of this Section 11.4(b), shall be deemed to include, but
not be limited to, any Person, whatever his title, who performs functions for
the General Partners similar to those of: (A) chairman or member of the Board
of Directors; (B) executive management, including the President, Vice President
or Senior Vice President, Corporate Secretary and Treasurer; (C) senior
management, such as the Vice President of an operating division who reports
directly to executive management; or (D) those holding a 5% or more equity
interest in Wells Partners, L.P. or Wells Capital, Inc. or a Person having the
power to direct or cause the direction of the General Partners, whether through
the ownership of voting securities, by contract or otherwise. It is not
intended that every person who carries a title such as vice president, secretary
or treasurer be considered a controlling Person. The General Partners believe
that their employees and those of their Affiliates who will perform services for
the Partnership for which reimbursement is allowed pursuant to this Section
11.4(b) have the experience and educational background, in their respective
fields of expertise, appropriate for the performance of such services.
The annual report to investors shall include a breakdown of the costs
reimbursed to the General Partners pursuant to this subsection. Within the
scope of the annual audit of the General Partners' financial statements, the
independent certified public accountant must verify the allocation of such costs
to the Partnership. The method of verification shall at a minimum provide:
(I) A review of the time records of individual employees, the cost of
whose services were reimbursed; and
(II) A review of the specific nature of the work performed by each
such employee. The methods of verification shall be in accordance with
generally accepted auditing standards and shall, accordingly, include such tests
of the accounting records and such other auditing procedures which the General
Partners'
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independent certified public accountant considers appropriate under the
circumstances. The additional cost of such verification will be itemized by
said accountants on a program-by-program basis and may be reimbursed to the
General Partners by the Partnership in accordance with this subsection only to
the extent that such reimbursement when added to the cost for services rendered
does not exceed the allowable rate for such services as determined above.
(c) The General Partners or their Affiliates shall pay, at no
additional cost to the Partnership (i) overhead expenses of the General Partners
and their Affiliates; (ii) expenses and salaries related to the performance of
those services for which the General Partners and their Affiliates are entitled
to compensation by way of Acquisition and Advisory Fees, Partnership and
property management fees or real estate brokerage commissions related to the
resale of Partnership Properties (provided, however, that the foregoing shall in
no way limit the payment or reimbursement of legal, travel, employee-related
expenses and other out-of-pocket expenses which are directly related to a
particular Partnership Property and not prohibited by Section 11.4(b) above);
and (iii) all other administrative expenses which are unrelated to the business
of the Partnership. The General Partners or their Affiliates shall pay, at no
additional cost to the Partnership, Partnership Organization and Offering
Expenses (other than commissions paid to broker-dealers and other underwriting
compensation) to the extent they exceed 5% of the gross proceeds of the Offering
of Units.
(d) Subject to the provisions of paragraphs (b) and (c) of this
Section 11.4, the Partnership shall pay the following expenses of the
Partnership:
(i) Partnership Organization and Offering Expenses (other than
commissions paid to broker-dealers and other underwriting compensation) which do
not exceed 5% of the gross proceeds of the Offering of Units;
(ii) underwriting compensation, including broker-dealer selling
commissions and the dealer manager fee, payable in an amount not to exceed 10%
of the gross proceeds of the Offering of Units, plus a maximum of .5% of the
gross proceeds of the Offering of Units for reimbursement of bona fide due
diligence expenses to be paid out of Organization and Offering Expenses subject
to the limitation of Section 11.4(d)(i) above.
(iii) All operational expenses of the Partnership, which may include,
but are not limited to: (A) all costs of personnel employed by the Partnership
or directly involved in the business of the Partnership, including Persons who
may also be employees of the General Partners or their Affiliates, including but
not limited to, salaries and other employee-related expenses, travel and other
out-of-pocket expenses of such personnel which are directly related to a
particular Partnership Property; (B) all costs of borrowed money, taxes and
assessments on Partnership Properties and other taxes applicable to the
Partnership; (C) legal, accounting, audit, brokerage and other fees; (D) fees
and expenses paid to independent contractors, brokers and servicers, leasing
agents, consultants, on-site managers, real estate brokers, mortgage brokers,
insurance brokers and other agents; and (E) expenses in connection with the
disposition, replacement, alteration, repair, remodeling, refurbishment, leasing
and operation of Partnership Properties (including the costs and expenses of
foreclosures, legal and accounting fees, insurance premiums, real estate
brokerage and leasing commissions and maintenance connected with such Property);
and
(iv) All accounting, documentation, professional and reporting
expenses of the Partnership, which may include, but are not limited to: (A)
preparation and documentation of Partnership bookkeeping, accounting and audits;
(B) preparation and documentation of budgets, economic surveys, Cash Flow
projections and Repurchase Reserve and working capital requirements; (C)
preparation and documentation of Partnership federal and state tax returns; (D)
printing, engraving and other expenses and documents evidencing ownership of an
interest in the Partnership or in connection with the business of the
Partnership; (E) expenses of insurance as required in connection with the
business of the Partnership, including, without limitation, life and disability
insurance with respect to any individual General Partner; (F) expenses in
connection with distributions made by the Partnership to, and communications,
bookkeeping and clerical work necessary in maintaining relations with, Limited
Partners, including the costs of printing and mailing to such Persons
certificates for the Units and reports of the Partnership, and of preparing
proxy statements and soliciting proxies in connection therewith; (G) expenses in
connection with preparing and mailing reports required to be furnished to
Limited Partners for investing, tax reporting or other purposes, including
reports required to be filed with the Securities and Exchange Commission and
other
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federal or state regulatory agencies, or expenses associated with furnishing
reports to Limited Partners which the General Partners deem to be in the best
interests of the Partnership; (H) expenses of revising, amending, converting,
modifying or terminating the Partnership; (I) costs incurred in connection with
any litigation in which the Partnership is involved as well as any examination,
investigation or other proceedings conducted of the Partnership by any
regulatory agency, including legal and accounting fees incurred in connection
therewith; (J) costs of any computer equipment or services used for or by the
Partnership; (K) costs of any accounting, statistical or bookkeeping equipment
necessary for the maintenance of the books and records of the Partnership; (L)
costs of preparation and dissemination of information and documentation relating
to potential sale, financing or other disposition of Partnership Properties; and
(M) supervision and expenses of professionals employed by the Partnership in
connection with any of the foregoing, including attorneys, accountants and
appraisers.
11.5 LIMITATION ON LIABILITY OF THE GENERAL PARTNERS;
------------------------------------------------
INDEMNIFICATION OF THE GENERAL PARTNERS.
- ---------------------------------------
(a) Neither the General Partners nor any of their Affiliates
(hereinafter, an "Indemnified Party") shall be liable, responsible or
accountable in damages or otherwise to any other Partner, the Partnership, its
receiver or trustee (the Partnership, its receiver or trustee are hereinafter
referred to as "Indemnitors") for, and the Indemnitors agree to indemnify, pay,
protect and hold harmless each Indemnified Party (on the demand of such
Indemnified Party) from and against any and all liabilities, obligations,
losses, damages, actions, judgments, suits, proceedings, reasonable costs,
reasonable expenses and disbursements (including, without limitation, all
reasonable costs and expenses of defense, appeal and settlement of any and all
suits, actions or proceedings instituted against such Indemnified Party or the
Partnership and all reasonable costs of investigation in connection therewith)
(collectively referred to as "Liabilities" for the remainder of this Section)
which may be imposed on, incurred by, or asserted against such Indemnified Party
or the Partnership in any way relating to or arising out of any action or
inaction on the part of the Partnership or on the part of such Indemnified Party
in connection with services to or on behalf of the Partnership (and with respect
to an Indemnified Party which is an Affiliate of the General Partners for an act
which the General Partners would be entitled to indemnification if such act were
performed by them) which such Indemnified Party in good faith determined was in
the best interest of the Partnership. Notwithstanding the foregoing, each
Indemnified Party shall be liable, responsible and accountable, and neither the
Partnership nor any Indemnitor shall be liable to an Indemnified Party, for any
portion of such Liabilities which resulted from such Indemnified Party's (i) own
fraud, negligence, misconduct or knowing violation of law, (ii) breach of
fiduciary duty to the Partnership or any Partner, or (iii) breach of this
Agreement, regardless of whether or not any such act was first determined by the
Indemnified Party, in good faith, to be in the best interest of the Partnership.
If any action, suit or proceeding shall be pending against the Partnership or
any Indemnified Party relating to or arising out of any such action or inaction,
such Indemnified Party shall have the right to employ, at the reasonable expense
of the Partnership (subject to the provisions of Section 11.5(b) below),
separate counsel of such Indemnified Party's choice in such action, suit or
proceeding. The satisfaction of the obligations of the Partnership under this
Section shall be from and limited to the assets of the Partnership and no
Limited Partner shall have any personal liability on account thereof.
(b) Cash advances from Partnership funds to an Indemnified Party for
legal expenses and other costs incurred as a result of any legal action
initiated against an Indemnified Party by a Limited Partner are prohibited.
Cash advances from Partnership funds to an Indemnified Party for reasonable
legal expenses and other costs incurred as a result of any legal action or
proceeding are permissible if (i) such suit, action or proceeding relates to or
arises out of any action or inaction on the part of the Indemnified Party in the
performance of its duties or provision of its services on behalf of the
Partnership; (ii) such suit, action or proceeding is initiated by a third party
who is not a Limited Partner; and (iii) the Indemnified Party undertakes to
repay any funds advanced pursuant to this Section in the cases in which such
Indemnified Party would not be entitled to indemnification under Section 11.5(a)
above. If advances are permissible under this Section, the Indemnified Party
shall have the right to bill the Partnership for, or otherwise request the
Partnership to pay, at any time and from time to time after such Indemnified
Party shall become obligated to make payment therefor, any and all amounts for
which such Indemnified Party believes in good faith that such Indemnified Party
is entitled to indemnification under Section 11.5(a) above. The Partnership
shall pay any and all such bills and honor any and all such requests for payment
within 60 days after such bill or request is received. In the event that a
final determination is made that the Partnership is not so obligated for any
amount paid by it to a particular Indemnified Party, such Indemnified Party will
refund such amount within 60 days of such final determination, and in the event
that a final determination is made that the Partnership is so
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obligated for any amount not paid by the Partnership to a particular Indemnified
Party, the Partnership will pay such amount to such Indemnified Party within 60
days of such final determination.
(c) Notwithstanding anything to the contrary contained in Section
11.5(a) above, neither the General Partners nor any of their Affiliates nor any
Person acting as a broker-dealer with respect to the Units shall be indemnified
from any liability, loss or damage incurred by them arising due to an alleged
violation of federal or state securities laws unless (i) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the particular Indemnified Party, or (ii) such claims have
been dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular Indemnified Party, or (iii) a court of competent
jurisdiction approves a settlement of the claims against the particular
Indemnified Party and finds that indemnification of the settlement and related
costs should be made. Prior to seeking a court approval for indemnification,
the General Partners shall undertake to cause the party seeking indemnification
to apprise the court of the position of the Securities and Exchange Commission,
the California Commissioner of the Department of Corporations, the Massachusetts
Securities Division, the Missouri Securities Division, the Nebraska Bureau of
Securities, the Pennsylvania Securities Commission, the Tennessee Securities
Division, the Texas State Securities Board and the Oklahoma Department of
Securities with respect to indemnification for securities violations.
(d) The Partnership shall not incur the cost of the portion of any
insurance which insures any party against any liability as to which such party
is prohibited from being indemnified as set forth above.
(e) For purposes of this Section 11.5, an Affiliate of the General
Partner shall be indemnified by the Partnership only in circumstances where the
Affiliate has performed an act on behalf of the Partnership or the General
Partners within the scope of the authority of the General Partners and for which
the General Partners would have been entitled to indemnification had such act
been performed by them.
ARTICLE XII
SERVICES TO PARTNERSHIP BY GENERAL PARTNERS
12.1 ACQUISITION AND ADVISORY SERVICES. The General Partners and
---------------------------------
their Affiliates shall perform acquisition and advisory services in connection
with the review and evaluation of potential real property acquisitions for the
Partnership, which services shall include, but shall not be limited to, an
analysis of: (a) the geographic market in which any such property is located,
including market demand analyses; (b) the physical condition of any existing
structures, appurtenances and service systems; (c) the availability of
contractors and engineers; (d) zoning and other governmental restrictions
applicable to the use or development of the property; and (e) income and expense
forecasts. In consideration for such services, including services rendered with
respect to properties which are considered for acquisition by the Partnership
but are not acquired, the General Partners and their Affiliates shall be paid
Acquisition and Advisory Fees in an amount of up to 5% of Capital Contributions,
provided that such amount does not exceed the limitations set forth in Section
12.2 hereof. The Acquisition and Advisory Fee shall be accrued as Units are sold
by the Partnership and shall be payable upon receipt by the Partnership of such
Capital Contributions, whether such fees relate to properties which are acquired
which are income-producing properties or raw land to be developed or to
properties which are not acquired. The General Partners shall refund to the
Partnership any such fees which are received in advance of the services to be
rendered and for which services are not subsequently rendered. In addition to
such fees, the Partnership shall bear any expenses of independent appraisers,
market analysts or other such Persons not affiliated with the General Partners
who may be engaged to evaluate potential real estate acquisitions and
developments by or on behalf of the Partnership.
12.2 LIMITATIONS ON ACQUISITION FEES.
-------------------------------
(a) Acquisition and Advisory Fees paid in connection with the
organization of the Partnership and the purchase and development of Partnership
Properties and with respect to each particular Partnership Property shall be
paid only for services actually rendered, and in no event will the total of all
Acquisition Fees, including the Acquisition and
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Advisory Fees paid to the General Partners or their Affiliates, exceed the
lesser of the compensation customarily charged in arm's-length transactions by
others rendering similar services as an ongoing public activity in the same
geographic location and for comparable property or an amount equal to 18% of
Capital Contributions. The limitation imposed hereby will be complied with at
any given time on an ongoing basis. Within 30 days after completion of the last
acquisition, the General Partners shall forward to the California Commissioner
of the Department of Corporations a schedule, verified under penalties of
perjury, reflecting:
(i) each acquisition made;
(ii) the purchase price paid;
(iii) the aggregate of all Acquisition Fees paid on each
transaction; and
(iv) a computation showing compliance with Rule 260.140.113.3
adopted pursuant to the California Corporate Securities Law of 1968.
(b) The General Partners intend to acquire Partnership Properties on
an all cash basis and shall commit a percentage of Capital Contributions to
Investment in Properties acquired by the Partnership in an amount which is equal
to at least 80% of Capital Contributions. For such purposes, working capital
reserves in an aggregate amount not in excess of 5% of Capital Contributions
shall be deemed to be committed to the purchase, development, construction or
improvement of properties acquired by the Partnership. Anything contained in
this Agreement to the contrary notwithstanding, at a minimum the General
Partners shall commit a percentage of the Capital Contributions to Investment in
Properties which is equal to at least 80% of the Capital Contributions.
12.3 PROPERTY MANAGEMENT SERVICES. The
----------------------------
General Partners shall cause the Partnership to employ a property management
company (which may be an Affiliate of the General Partners) to perform
professional property management services for the Partnership. In the event the
property management company is an Affiliate of the General Partners, the
compensation payable to such Affiliate shall be equal to the lesser of (a) fees
which would be charged by Persons who are not affiliated with the General
Partners rendering comparable services in the same geographic area, or (b) 6% of
the Gross Revenues of the properties managed (with respect to industrial and
commercial properties). The foregoing limitation will include all leasing, re-
leasing and leasing related services. If such leasing, re-leasing and leasing
related services are not provided by the General Partners and their Affiliates,
the maximum property management fees payable to an Affiliate of the General
Partners for such leases shall be 3% of the Gross Revenues. In the case of
industrial and commercial properties which are leased on a long-term net basis
(ten or more years), the maximum property management fee from such leases shall
be 1% of the Gross Revenues, except for a one time initial leasing fee of 3% of
the Gross Revenues on each lease payable over the first five full years of the
original term of the lease. Included within such fees should be bookkeeping
services and fees paid to non-related Persons for property management services.
In addition, in connection with the initial lease-up of newly constructed
properties, the Partnership may also pay a separate competitive fee for the one
time initial rent-up or leasing-up of a newly constructed property, provided
such services are not included in the Purchase Price of the property.
12.4 INSURANCE SERVICES PROHIBITED. Neither
-----------------------------
the General Partners nor any of their Affiliates may receive an insurance
brokerage fee or write any insurance policy covering the Partnership or any
Partnership Properties.
12.5 DEVELOPMENT AND CONSTRUCTION SERVICES PROHIBITED. Neither the
------------------------------------------------
General Partners nor any of their Affiliates (except any Persons affiliated with
the General Partners only through their employment by the Partnership) may
receive any development or construction fees or any other fees or other
compensation from the Partnership in connection with the development or
construction of Partnership Properties.
12.6 REAL ESTATE COMMISSIONS ON RESALE OF PROPERTIES. The General
-----------------------------------------------
Partners and their Affiliates may perform real estate brokerage services for the
Partnership in connection with the resale of property by the Partnership;
provided that the compensation therefor to the General Partners or their
Affiliates in connection with the sale of a particular property shall
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not exceed the lesser of (a) 50% of the reasonable, customary and competitive
real estate brokerage commission normally and customarily paid for the sale of a
comparable property in light of the size, type and location of the property, or
(b) 3% of the gross sales price of the property; and provided, further, that
payments of said compensation shall be made only after the Partnership has
distributed to each Limited Partner or his Assignee from Nonliquidating
Distributions or Liquidating Distributions, as the case may be, an aggregate
amount in cash which is equal to 100% of his Capital Contribution (less all
amounts, if any, theretofore distributed as a return of unused capital pursuant
to Section 8.10), and has distributed to each Limited Partner or Assignee from
all sources an additional amount equal to a 6% per annum cumulative (but not
compounded) return on his Net Capital Contribution, calculated from the date of
his admission into the Partnership. The aggregate real estate commission paid
to all parties involved in the sale of a Partnership Property shall not exceed
the lesser of: (a) the reasonable, customary and competitive real estate
brokerage commission normally and customarily paid for the sale of a comparable
property in light of the size, type and location of the property, or (b) 6% of
the gross sales price of such property.
Notwithstanding the foregoing, neither the General Partners nor any of
their Affiliates shall be granted an exclusive right to sell or exclusive
employment to sell any property on behalf of the Partnership.
12.7 REBATES, GIVE-UPS AND RECIPROCAL ARRANGEMENTS.
---------------------------------------------
(a) No rebates or give-ups may be received by any of the General
Partners or their Affiliates nor may the General Partners or their Affiliates
participate in any reciprocal business arrangements which would circumvent the
provisions of this Agreement.
(b) None of the General Partners nor any of their Affiliates shall, or
shall knowingly permit any underwriter, dealer or salesman to, directly or
indirectly, pay or award any finder's fees, commissions or other compensation to
any Person engaged by a potential investor for investment advice as an
inducement to such advisor to recommend the purchase of interests in the
Partnership; provided, however, that this clause shall not prohibit the normal
sales commissions payable to a registered broker-dealer or other properly
licensed Person (including the General Partners and their Affiliates) for
selling Partnership Units.
12.8 OTHER SERVICES. Other than as specifically provided in this
--------------
Agreement or in the Prospectus, neither the General Partners nor their
Affiliates shall be compensated for services rendered to the Partnership. The
General Partners and their Affiliates cannot receive any compensation from the
Partnership except as specifically provided for in this Article XII, in Articles
IX and X hereof or in the "Compensation of the General Partners and Affiliates"
section of the Prospectus.
ARTICLE XIII
TRANSACTIONS BETWEEN GENERAL PARTNERS AND THE PARTNERSHIP
13.1 SALES AND LEASES TO THE PARTNERSHIP. The Partnership shall not
-----------------------------------
purchase or lease investment properties, other than as provided in Section
11.3(i) hereof, in which any of the General Partners or their Affiliates have an
interest or from any entity in which the General Partners or their Affiliates
have an interest. The provisions of this Section 13.1 notwithstanding, the
General Partners or their Affiliates may temporarily enter into contracts
relating to investment properties to be assigned to the Partnership prior to
closing or may purchase property in their own names and temporarily hold title
thereto for the purpose of facilitating the acquisition of such property for the
Partnership, provided that such property is purchased by the Partnership for a
price no greater than the cost of such property to the General Partners or their
Affiliates (including closing and carrying costs), that the General Partners or
their Affiliates may not hold title to any such property for more than 12 months
on behalf of the Partnership, that the General Partners or their Affiliates
shall not sell property to the Partnership if the cost of the property exceeds
the funds reasonably anticipated to be available to the Partnership to purchase
such property, and that all profits and losses during the period any such
property is held by the General Partners
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or their Affiliates will accrue to the Partnership; and provided further, that
there is no other benefit to the General Partners or any Affiliate of the
General Partners apart from compensation otherwise permitted by this Agreement.
13.2 SALES AND LEASES TO THE GENERAL PARTNERS. The Partnership shall
not sell or lease any Partnership Property to the General Partners or their
Affiliates.
13.3 LOANS. No loans may be made by the Partnership to any of the
-----
General Partners or their Affiliates.
13.4 DEALINGS WITH RELATED PROGRAMS. Except as permitted by Sections
------------------------------
11.3(i) and 13.1 hereof, the Partnership shall not acquire property from or sell
property to any Person in whom any of the General Partners or any of their
Affiliates have an interest.
13.5 COMMISSIONS ON REINVESTMENT OR DISTRIBUTION. The Partnership
-------------------------------------------
shall not pay, directly or indirectly, a commission or fee (except as permitted
under Article XII hereof) to a General Partner in connection with the
reinvestment or distribution of the proceeds of the sale, exchange or financing
of Partnership Properties.
ARTICLE XIV
INDEPENDENT ACTIVITIES OF PARTNERS
Any of the Partners may engage in or possess an interest in other
business ventures of every nature and description, independently or with others,
including, but not limited to, the ownership, financing, leasing, management,
syndication, brokerage and development of real property of any kind whatsoever
(including properties which may be similar to those owned by the Partnership),
and neither the Partnership nor any of the Partners shall have any right by
virtue of this Agreement in and to such independent ventures or to the income or
profits derived therefrom, provided that the General Partners shall in no way be
relieved of their fiduciary duty owed to the Partnership. In the event that the
Partnership, the General Partners or any Affiliate or any entity formed or
managed by the General Partners or their Affiliates is in the market for similar
properties, the General Partners will review the investment portfolio of each
partnership and each such affiliated entity and will decide which entity will
acquire a particular property on the basis of such factors as, among others,
anticipated cash flow, the effect of the purchase price on diversification of
the portfolio of each such entity, the estimated income tax effects of the
purchase on each such entity, the amount of funds which each such entity has
available for investment, and the length of time funds of each such entity have
been available for investment.
ARTICLE XV
BOOKS, REPORTS, FISCAL AND TAX MATTERS
15.1 BOOKS. The General Partners shall maintain full and complete
-----
books and records for the Partnership at its principal office, and all Limited
Partners and their designated representatives shall have the right to inspect,
examine and copy at their reasonable cost such books at reasonable times. The
books of account for financial accounting purposes shall be kept in accordance
with generally accepted accounting principles. The books of account for income
tax purposes shall be kept on a cash or an accrual basis, as determined in the
discretion of the General Partners. Limited Partner suitability records shall be
maintained for at least six years. In addition, the General Partners shall
maintain an alphabetical list of the names, addresses and business telephone
numbers of the Limited Partners of the Partnership along with the number of
Units held by each of them (the "Participant List") as a part of the books and
records of the Partnership which shall be available for inspection by any
Limited Partner or his designated representative at the home office of the
Partnership upon the request of the Limited Partner. The Participant List shall
be updated at least quarterly to reflect changes in the information contained
therein. A copy of the Participant List shall be mailed to any Limited Partner
requesting the Participant List within ten (10)
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days of the request. The copy of the Participant List to be mailed to a Limited
Partner shall be printed in alphabetical order, on white paper, and in readily
readable type size (in no event smaller than 10-point type). A reasonable
charge for copy work may be charged by the Partnership. The purposes for which
a Limited Partner may request a copy of the Participant List include, without
limitation, matters relating to the Limited Partners' voting rights under this
Agreement and the exercise of the Limited Partners' rights under federal proxy
laws. If the General Partners of the Partnership neglect or refuse to exhibit,
produce or mail a copy of the Participant List as requested, they shall be
liable to the Limited Partner requesting the list for the costs, including
attorneys' fees, incurred by that Limited Partner for compelling the production
of the Participant List and for actual damages suffered by the Limited Partner
by reason of such refusal or neglect. It shall be a defense that the actual
purpose and reason for a request for inspection of or a request for a copy of
the Participant List is to secure such list of Limited Partners or other
information for the purpose of selling such list or copies thereof or for the
purpose of using the same for a commercial purpose other than in the interest of
the applicant as a Limited Partner relative to the affairs of the Partnership.
The General Partners may require any Limited Partner requesting the Participant
List to represent that the list is not requested for a commercial purpose
unrelated to such Limited Partner's interest in the Partnership. The remedies
provided hereunder to Limited Partners requesting copies of the Participant List
are in addition to, and shall not in any way limit, other remedies available to
Limited Partners under federal law or under the laws of any state.
15.2 REPORTS. The General Partners shall prepare or cause
-------
to be prepared the following reports:
(a) ACQUISITION REPORTS. At least quarterly within 60 days after the
-------------------
end of each quarter during which the Partnership has acquired real property, an
"Acquisition Report" of any real property acquisitions within the prior quarter
shall be sent to all Limited Partners. Such report shall describe the real
properties and all improvements contemplated to be developed thereon and include
a description of the geographic locale and of the market upon which the General
Partners are relying in projecting successful development and operation of the
properties. All facts which reasonably appear to the General Partners to
influence materially the value of the property shall be disclosed, including the
present or proposed use of the property and its suitability or adequacy for such
use and the terms of any material lease affecting the property. The Acquisition
Report shall also include, by way of illustration and not of limitation, a
statement of the date and amount of the appraised value, a statement of the
actual Purchase Price including terms of the purchase and an estimate of all
proposed subsequent expenditures for development or other improvement of the
property, a statement that title insurance and any required performance bonds or
other assurances in accordance with Section 11.3(k) hereof with respect to
builders have been or will be obtained on the property, a statement of the total
amount of cash expended by the Partnership to acquire each Partnership Property,
and a statement regarding the amount of proceeds of the Offering of Units (in
both dollar amount and as a percentage of the net proceeds of the Offering of
Units available for investment) which remain unexpended or uncommitted. In
addition, the Acquisition Report shall identify any real properties, by location
and a description of their general character, which the General Partners
presently intend to be acquired by or leased to the Partnership.
(b) ANNUAL REPORT. Within 120 days after the end of each fiscal year,
-------------
an annual report shall be sent to all the Limited Partners and Assignees which
shall include (i) a balance sheet as of the end of such fiscal year, together
with a profit and loss statement, a statement of cash flows and a statement of
Partners' capital for such year, which financial statements shall be prepared in
accordance with generally accepted accounting principles and shall be
accompanied by an auditor's report containing an opinion of the independent
certified public accountant for the Partnership; (ii) a Cash Flow statement
(which need not be audited); (iii) a report of the activities of the Partnership
for such year; (iv) a report on the distributions from (A) Cash Flow during such
period, (B) Cash Flow from prior periods, (C) proceeds from the disposition of
Partnership Property and investments, (D) reserves from the proceeds of the
Offering of Units, and (E) lease payments on net leases with builders and
sellers; and (v) a report setting forth the compensation paid to the General
Partners and their Affiliates during such year and a statement of the services
performed in consideration therefor. In addition, commencing eight years after
termination of the Offering, such annual report shall include a notification to
the Limited Partners of their right pursuant to Section 20.2 hereof to request
that the General Partners formally proxy the Limited Partners to determine
whether the assets of the Partnership should be liquidated. Such annual report
shall also include such other information as is deemed reasonably necessary by
the General Partners to advise the Limited Partners of the affairs of the
Partnership.
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<PAGE>
(c) QUARTERLY REPORTS. If and for as long as the Partnership is
-----------------
required to file quarterly reports on Form 10-Q with the Securities and Exchange
Commission, financial information substantially similar to the financial
information contained in each such report for a quarter shall be sent to the
Limited Partners within 60 days after the end of such quarter. Whether or not
such reports are required to be filed, each Limited Partner will be furnished
within 60 days after the end of each of the first three quarters of each
Partnership fiscal year an unaudited financial report for that quarter including
a profit and loss statement, a balance sheet and a cash flow statement. Such
reports shall also include such other information as is deemed reasonably
necessary by the General Partners to advise the Limited Partners of the affairs
of the Partnership.
(d) REPORT OF FEES. The Partnership's annual and quarterly reports on
--------------
Form 10-K and 10-Q for any period during which the General Partners or any of
their Affiliates receive fees for services from the Partnership shall set forth
(i) a statement of the services rendered, and (ii) the amount of fees received.
(e) TAX INFORMATION. Within 75 days after the end of each fiscal year
---------------
(in the event that the fiscal year of the Partnership remains on a calendar year
basis, and within 120 days after the end of each fiscal year in the event that
the Partnership's fiscal year is changed to some annual period other than a
calendar year pursuant to Section 15.3 hereof), there shall be sent to all the
Limited Partners and Assignees all information necessary for the preparation of
each Limited Partner's federal income tax return and state income and other tax
returns in regard to jurisdictions where Partnership Properties are located.
(f) ERISA REPORT. The General Partners shall furnish each Limited
------------
Partner an annual statement of estimated Unit value. Such annual statement
shall report the value of each Unit based upon the General Partners' estimate of
the amount a holder thereof would receive if Partnership Properties were sold as
of the close of the Partnership's fiscal year and if the proceeds therefrom
(without reduction for selling expenses), together with any other funds of the
Partnership, were distributed in a liquidation of the Partnership (provided
that, with respect to the first three full fiscal years following termination of
the Offering the value of a Unit shall be deemed to be $10.00). In addition,
the General Partners shall obtain the opinion of an independent third party that
their estimate of Unit value is reasonable and was prepared in accordance with
appropriate methods for valuing real estate. The estimated Unit value shall be
reported to the Limited Partners in the next annual or quarterly report on Form
10-K or 10-Q sent to the Limited Partners following the completion of the
valuation process.
(g) PERFORMANCE REPORTING. The Partnership's annual and quarterly
---------------------
reports on Form 10-K and 10-Q shall set forth the year-to-date amount of cash
flow available for distribution, as such term is generally defined in existing
Guidelines for Partnership Agreement Provisions issued by the International
Association for Financial Planning, and shall contain a detailed reconciliation
of the Partnership's net income for financial reporting purposes to the
Partnership's cash flow available for distribution for the periods covered by
the report. In addition, the notes to the Partnership's financial statements
included in its annual reports on Form 10-K shall contain a detailed
reconciliation of the Partnership's net income for financial reporting purposes
to net income for tax purposes for the periods covered by the report.
(h) EXPENSE REPORTING. The notes to the Partnership's financial
-----------------
statements included in its annual reports on Form 10-K shall contain a category-
by-category breakdown of the general and administrative expenses incurred by the
Partnership for the periods covered by the report. This breakdown shall reflect
each type of general and administrative expense incurred by the Partnership
(e.g. investor relations, independent accountants, salaries, rent, utilities,
insurance, filing fees, legal fees, etc.) and the amount charged to the
Partnership for each category of expense incurred.
(i) OTHER REPORTS. The General Partners shall cause to be prepared
-------------
and timely filed with appropriate federal and state regulatory and
administrative bodies all reports to be filed with such entities under then
currently applicable laws, rules and regulations. Such reports shall be
prepared on the accounting or reporting basis required by such regulatory
bodies. Any Limited Partner shall be provided with a copy of any such report
upon request without expense to him.
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<PAGE>
(j) CESSATION OF REPORTS. In the event the Securities and Exchange
--------------------
Commission promulgates rules that allow a reduction in reporting requirements,
the Partnership may cease preparing and filing certain of the above reports if
the General Partners determine such action to be in the best interests of the
Partnership; provided, however, that the Partnership will continue to file any
reports mandated under state law.
15.3 FISCAL YEAR. The Partnership shall adopt a fiscal year
-----------
beginning on the first day of January and ending on the last day of December of
each year; provided, however, that the General Partners in their sole discretion
may, subject to approval by the IRS, at any time without the approval of the
Limited Partners, change the Partnership's fiscal year to a period to be
determined by the General Partners.
15.4 TAX ELECTIONS.
-------------
(a) No election shall be made by the Partnership or any Partner to be
excluded from the application of the provisions of Subchapter K of the Code or
from any similar provisions of state or local income tax laws.
(b) Upon the transfer of all or part of a Partner's or Assignee's
interest in the Partnership or upon the death of an individual Limited Partner
or Assignee, or upon the distribution of any property to any Partner or
Assignee, the Partnership, at the General Partners' option and in their sole
discretion, may file an election, in accordance with applicable Treasury
Regulations, to cause the basis of Partnership Property to be adjusted for
federal income tax purposes, as provided by Sections 734, 743 and 754 of the
Code; and similar elections under provisions of state and local income tax laws
may, at the General Partners' option, also be made.
15.5 BANK ACCOUNTS. The cash funds of the Partnership shall be
-------------
deposited in commercial bank account(s) at such banks or other institutions
insured by the Federal Deposit Insurance Corporation as the General Partners
shall determine. Disbursements therefrom shall be made by the General Partners
in conformity with this Agreement. The funds of the Partnership shall not be
commingled with the funds of any other Person, except in the case of funds held
by a joint venture or partnership permitted pursuant to the provisions of
Section 11.3(i) above.
15.6 INSURANCE. The Partnership shall at all times maintain
---------
comprehensive insurance, including fire, liability and extended coverage
insurance in amounts determined by the General Partners to be adequate for the
protection of the Partnership. In addition, the Partnership shall carry
appropriate workmen's compensation insurance and such other insurance with
respect to the real property owned by it as shall be customary for similar
property, similarly located, from time to time.
15.7 TAXATION AS PARTNERSHIP. The General Partners, while serving as
-----------------------
such, agree to use their best efforts to cause compliance at all times with the
conditions to the continued effectiveness of any opinion of counsel obtained by
the Partnership to the effect that the Partnership will be classified as a
partnership for federal income tax purposes.
15.8 TAX MATTERS.
-----------
(a) The General Partners may or may not, in their sole and absolute
discretion, make any or all elections which they are entitled to make on behalf
of the Partnership and the Partners for federal, state and local tax purposes,
including, without limitation, any election, if permitted by applicable law: (i)
to extend the statute of limitations for assessment of tax deficiencies against
Partners with respect to adjustments to the Partnership's federal, state or
local tax returns; and (ii) to represent the Partnership and the Partners before
taxing authorities or courts of competent jurisdiction in tax matters affecting
the Partnership and the Partners in their capacity as Partners and to execute
any agreements or other documents relating to or settling such tax matters,
including agreements or other documents that bind the Partners with respect to
such tax matters or otherwise affect the rights of the Partnership or the
Partners.
(b) Wells Partners is designated as the "Tax Matters Partner" in
accordance with Section 6231(a)(7) of the Code and, in connection therewith and
in addition to all other powers given thereunder, shall have all other powers
needed to perform fully hereunder including, without limitation, the power to
retain all attorneys and accountants of its choice
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<PAGE>
and the right to manage administrative tax proceedings conducted at the
partnership level by the IRS with respect to Partnership matters. Any Partner
has the right to participate in such administrative proceedings relating to the
determination of partnership items at the Partnership level. Expenses of such
administrative proceedings undertaken by the Tax Matters Partner will be paid
for out of the assets of the Partnership. Each Limited Partner who elects to
participate in such proceedings will be responsible for any expense incurred by
such Limited Partner in connection with such participation. Further, the cost
to a Limited Partner of any adjustment and the cost of any resulting audit or
adjustment of a Limited Partner's return will be borne solely by the affected
Limited Partner. The designation made in this Section 15.8(b) is expressly
consented to by each Partner as an express condition to becoming a Partner. The
Partnership hereby indemnifies Wells Partners from and against any damage or
loss (including attorneys' fees) arising out of or incurred in connection with
any action taken or omitted to be taken by it in carrying out its
responsibilities as Tax Matters Partner, provided such action taken or omitted
to be taken does not constitute fraud, negligence, breach of fiduciary duty or
misconduct. In the event the Partnership should become required to register
with the IRS as a tax shelter, Wells Partners shall be the "designated
organizer" of the Partnership and the "designated person" for maintaining lists
of investors in the Partnership, and shall take such actions as shall be
required to register the Partnership and to maintain lists of investors in the
Partnership as may be required pursuant to Sections 6111 and 6112 of the Code.
ARTICLE XVI
RIGHTS AND LIABILITIES OF THE LIMITED PARTNERS
16.1 POWERS OF THE LIMITED PARTNERS. The Limited Partners shall take
------------------------------
no part in the management of the business or transact any business for the
Partnership and shall have no power to sign for or bind the Partnership;
provided, however, that the Limited Partners, by a Majority Vote, without the
concurrence of the General Partners, shall have the right to:
(a) Amend this Agreement, but not as to the matters specified in
Section 11.2(b) hereof, which matters the General Partners alone may amend
without vote of the Limited Partners;
(b) Dissolve the Partnership;
(c) Remove a General Partner or any successor General Partner;
(d) Elect a new General Partner or General Partners upon the removal
of a General Partner or any successor General Partner, or upon the occurrence of
an Event of Withdrawal or death of a General Partner or any successor General
Partner;
(e) Approve or disapprove a transaction entailing the sale of all or
substantially all of the real properties acquired by the Partnership, except in
connection with the orderly liquidation and winding up of the business of the
Partnership upon its termination and dissolution; and
(f) Change the business purpose or investment objectives of the
Partnership.
16.2 RESTRICTIONS ON POWER TO AMEND. Notwithstanding Section 16.1
------------------------------
hereof, this Agreement shall in no event be amended to change the limited
liability of the Limited Partners without the vote or consent of all of the
Limited Partners, nor shall this Agreement be amended to diminish the rights or
benefits to which any of the General Partners or Limited Partners are entitled
under the provisions of this Agreement, without the consent of a majority of the
Units held by the Partners who would be adversely affected thereby, and in the
case of the General Partners being singularly affected, then by a majority vote
of the General Partners.
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<PAGE>
16.3 LIMITED LIABILITY. No Limited Partner shall be liable for any
-----------------
debts or obligations of the Partnership in excess of his or its Capital
Contribution.
16.4 MEETINGS OF, OR ACTIONS BY, THE LIMITED PARTNERS.
------------------------------------------------
(a) Meetings of the Limited Partners to vote upon any matters as to
which the Limited Partners are authorized to take action under this Agreement
may be called at any time by any of the General Partners and shall be called by
the General Partners upon the written request of Limited Partners holding 10% or
more of the outstanding Units by delivering written notice within ten days after
receipt of such written request, either in person or by certified mail, to the
Limited Partners entitled to vote at such meeting to the effect that a meeting
will be held at a reasonable time and place convenient to the Limited Partners
and which is not less than 15 days nor more than 60 days after the receipt of
such request; provided, however, that such maximum periods for the giving of
notice and the holding of meetings may be extended for an additional 60 days if
such extension is necessary to obtain qualification or clearance under any
applicable securities laws of the matters to be acted upon at such meeting or
clearance by the appropriate governing agency of the solicitation materials to
be forwarded to the Limited Partners in connection with such meeting. The
General Partners agree to use their best efforts to obtain such qualifications
and clearances. Included with the notice of a meeting shall be a detailed
statement of the action proposed, including a verbatim statement of the wording
on any resolution proposed for adoption by the Limited Partners and of any
proposed amendment to this Agreement. All expenses of the meeting and
notification shall be borne by the Partnership.
(b) A Limited Partner shall be entitled to cast one vote for each Unit
that he owns. Attendance by a Limited Partner at any meeting and voting in
person shall revoke any written proxy submitted with respect to action proposed
to be taken at such meeting. Any matter as to which the Limited Partners are
authorized to take action under this Agreement or under law may be acted upon by
the Limited Partners without a meeting and any such action shall be as valid and
effective as action taken by the Limited Partners at a meeting assembled, if
written consents to such action by the Limited Partners are signed by the
Limited Partners entitled to vote upon such action at a meeting who hold the
number of Units required to authorize such action and are delivered to a General
Partner.
(c) The General Partners shall be responsible for enacting all needed
rules of order for conducting all meetings and shall keep, or cause to be kept,
at the expense of the Partnership, an accurate record of all matters discussed
and action taken at all meetings or by written consent. The records of all said
meetings and written consents shall be maintained at the principal place of
business of the Partnership and shall be available for inspection by any Partner
at reasonable times.
ARTICLE XVII
WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS;
ASSIGNABILITY OF GENERAL PARTNERS'
AND LIMITED PARTNERS' INTERESTS
17.1 WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS; ADMISSION OF
-------------------------------------------------------
SUCCESSOR OR ADDITIONAL GENERAL PARTNERS.
- ----------------------------------------
(a) Except as provided in this Article XVII, until the dissolution of
the Partnership, neither General Partner shall take any voluntary step to
dissolve itself or to withdraw from the Partnership. In addition, Leo F. Wells,
III hereby agrees with the Partnership and its Partners that he will not
transfer, sell or otherwise voluntarily convey a majority or controlling
interest in the outstanding common stock of Wells Capital unless first obtaining
a Majority Vote of the Limited Partners to any such transfer, sale or
conveyance.
(b) With the consent of all the other General Partners and a Majority
Vote of the Limited Partners after being given 90 days written notice, any
General Partner may at any time designate one or more Persons to be additional
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General Partners, with such participation in such General Partner's interest as
such General Partner and such successor or additional General Partners may agree
upon, provided that the interests of the Limited Partners shall not be affected
thereby.
(c) Except in connection with the admission of an additional General
Partner pursuant to paragraph (b) of this Section 17.1, no General Partner shall
have any right to retire or withdraw voluntarily from the Partnership, to
dissolve itself or to sell, transfer or assign the General Partner's interest
without the concurrence of the Limited Partners by a Majority Vote; provided,
however, that any General Partner may, without the consent of any other General
Partner or the Limited Partners to the extent permitted by law and consistent
with Section 17.1(a) hereof (i) substitute in its stead as General Partner any
entity which has, by merger, consolidation or otherwise, acquired substantially
all of such General Partner's assets, stock or other evidence of equity interest
and continued its business, and (ii) cause to be admitted to the Partnership an
additional General Partner or Partners if it deems such admission to be
necessary or desirable to enable the General Partner to use its best efforts to
maintain its net worth at a level sufficient to assure that the Partnership will
be classified as a partnership for federal income tax purposes; provided,
however, that such additional General Partner or Partners shall have no
authority to manage or control the Partnership under this Agreement, there is no
change in the identity of the persons who have authority to manage or control
the Partnership, and the admission of such additional General Partner or
Partners does not materially adversely affect the Limited Partners.
(d) A General Partner may be removed from the Partnership upon the
Majority Vote of the Limited Partners; provided, however, that if such General
Partner is the last remaining General Partner, such removal shall not be
effective until 90 days after the notice of removal has been sent to such
General Partner. In the event of the removal of the last remaining General
Partner, the Limited Partners may by Majority Vote elect a new General Partner
at any time prior to the effective date of the removal of said last remaining
General Partner.
(e) Any voluntary withdrawal by any General Partner from the
Partnership or any sale, transfer or assignment by such General Partner of his
interest in the Partnership shall be effective only upon the admission in
accordance with paragraph (b) of this Section 17.1 of an additional General
Partner.
(f) A General Partner shall cease to be such upon the occurrence of an
Event of Withdrawal of such General Partner; provided, however, the last
remaining General Partner shall not cease to be a General Partner until 120 days
after the occurrence of an Event of Withdrawal.
17.2 LIMITED PARTNERS' INTEREST. Except as specifically provided
----------------------------
in this Article XVII, none of the Limited Partners shall sell, transfer,
encumber or otherwise dispose of, by operation of law or otherwise, all or any
part of his or its interest in the Partnership. No assignment shall be valid or
effective unless in compliance with the conditions contained in this Agreement,
and any unauthorized transfer or assignment shall be void ab initio.
17.3 RESTRICTIONS ON TRANSFERS.
-------------------------
(a) No Unit may be transferred, sold, assigned or exchanged if the
transfer or sale of such Unit, when added to the total of all other transfers or
sales of Units within the period of 12 consecutive months prior to the proposed
date of sale or exchange, would, in the opinion of counsel for the Partnership,
result in the termination of the Partnership under Section 708 of the Code
unless the Partnership and the transferring holder shall have received a ruling
from the IRS that the proposed sale or exchange will not cause such termination.
(b) No transfer or assignment may be made if, as a result of such
transfer, a Limited Partner (other than one transferring all of his Units) will
own fewer than the minimum number of Units required to be purchased under
Section 8.5(b) hereof, unless such transfer is made on behalf of a Retirement
Plan, or such transfer is made by gift, inheritance, intra-family transfer,
family dissolution or to an Affiliate.
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(c) No transfer or assignment of any Unit may be made if counsel for
the Partnership is of the opinion that such transfer or assignment would be in
violation of any state securities or "Blue Sky" laws (including investment
suitability standards) applicable to the Partnership.
(d) All Units originally issued pursuant to qualification under the
California Corporate Securities Law of 1968 shall be subject to, and all
documents of assignment and transfer evidencing such Units shall bear, the
following legend condition:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
(e) No transfer or assignment of any interest in the Partnership shall
be made (i) in the case of Units subject to Section 17.3(d) hereof, unless the
transferor shall have obtained, if necessary, the consent of the California
Commissioner of the Department of Corporations to such transfer, (ii) unless the
transferee shall have paid or, at the election of the General Partners,
obligated himself to pay, all reasonable expenses connected with such transfer,
substitution and admission, including, but not limited to, the cost of preparing
an appropriate amendment to this Agreement to effectuate the transferee's
admission as a substituted Limited Partner pursuant to Section 17.4 hereof, or
(iii) where the assignor and Assignee agree in connection therewith that the
assignor shall exercise any residual powers remaining in him as a Limited
Partner in favor of or in the interest or at the direction of the Assignee.
(f) With the exception of intra-family transfers or transfers made by
gift, inheritance or family dissolution, no transfer or assignment of any
interest in the Partnership shall be made unless the transferee has either (i) a
net worth of at least $45,000 and an annual gross income of at least $45,000 or
(ii) a net worth of at least $150,000 or (iii) satisfied any higher suitability
standards that may apply in the transferee's state of primary residence. For
purposes of the foregoing standards, net worth is computed exclusive of home,
furnishings and automobiles. Each transferee will be required to represent that
he complies with the applicable standards, that he is purchasing in a fiduciary
capacity for a Person meeting such standards, or that he is purchasing with
funds directly or indirectly supplied by a donor who meets such standards. No
transfer may be made to any Person who does not make such representation.
(g) No Limited Partner may transfer or assign any Units or beneficial
ownership interests therein (whether by sale, exchange, repurchase, redemption,
pledge, hypothecation or liquidation), and any such purported transfer shall be
void ab initio and shall not be recognized by the Partnership or be effective
for any purpose unless (i) the General Partners determine, in their sole
discretion, that the Partnership would be able to satisfy any of the secondary
market safe harbors contained in Treasury Regulations Section 1.7704-1 (or any
other applicable safe harbor from publicly traded partnership status which may
be adopted by the IRS) for the Partnership's taxable year in which such transfer
otherwise would be effective, or (ii) the Partnership has received an opinion of
counsel satisfactory to the General Partners or a favorable IRS ruling that any
such transfer will not result in the Partnership's being classified as a
publicly traded partnership for federal income tax purposes. The Limited
Partners agree to provide all information with respect to a proposed transfer
that the General Partners deem necessary or desirable in order to make such
determination, including but not limited to, information as to whether the
transfer occurred on a secondary market (or the substantial equivalent thereof).
(h) Any purported transfer or assignment not satisfying all of the
foregoing conditions shall be void ab initio, and no purported transfer or
assignment shall be of any effect unless all of the foregoing conditions have
been satisfied.
17.4 SUBSTITUTED LIMITED PARTNERS. Except as otherwise provided in this
----------------------------
Agreement, an Assignee of the whole or any portion of a Limited Partner's
interest in the Partnership shall not have the right to become a substituted
Limited Partner in place of his assignor unless (a) the assignment instrument
shall have been in form and substance satisfactory to the General Partners; (b)
the assignor and Assignee named therein shall have executed and acknowledged
such other
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instrument or instruments as the General Partners may deem necessary or
desirable to effectuate such admission, including but not limited to, a power of
attorney with provisions more fully described in this Agreement; (c) the
Assignee agrees in writing that he will not, directly or indirectly, create for
the Partnership, or facilitate the trading of such interest on, a secondary
market (or the substantial equivalent thereof) within the meaning of Section
7704 of the Code; and (d) the Assignee shall have accepted, adopted and approved
in writing all of the terms and provisions of this Agreement, as the same may
have been amended. Assignees of Units will be recognized by the Partnership as
substituted Limited Partners as of the commencement of the first fiscal quarter
of the Partnership following the fiscal quarter which includes the effective
date of the assignment and in which the foregoing conditions are satisfied,
notwithstanding the time consumed in preparing the documents necessary to
effectuate the substitution.
17.5 ASSIGNMENT OF LIMITED PARTNERSHIP INTEREST WITHOUT SUBSTITUTION.
---------------------------------------------------------------
Subject to the transfer restrictions of Section 17.3, a Limited Partner shall
have the right to assign all or part of such Limited Partner's interest in Units
by a written instrument of assignment. The assigning Limited Partner shall
deliver to the General Partners a written instrument of assignment in form and
substance satisfactory to the General Partners, duly executed by the assigning
Limited Partner or his personal representative or authorized agent, including an
executed acceptance by the Assignee of all the terms and provisions of this
Agreement and the representations of the assignor and Assignee that the
assignment was made in accordance with all applicable laws and regulations
(including investment suitability requirements). Said assignment shall be
accompanied by such assurance of genuineness and effectiveness and by such
consents or authorizations of any governmental or other authorities as may be
reasonably required by the General Partners. The Partnership shall recognize
any such assignment not later than the last day of the calendar month following
receipt of notice of the assignment and all required documentation, and an
Assignee shall be entitled to receive distributions and allocations from the
Partnership attributable to the Partnership interest acquired by reason of any
such assignment from and after the first day of the fiscal quarter following the
fiscal quarter in which the assignment of such interest takes place. The
Partnership and the General Partners shall be entitled to treat the assignor of
such Partnership interest as the absolute owner thereof in all respects, and
shall incur no liability for distributions made in good faith to such assignor,
until such time as the written instrument of assignment has been received by the
Partnership and recorded on its books.
17.6 WITHDRAWAL OF LIMITED PARTNER. Except as otherwise specifically
-----------------------------
permitted by this Agreement, no Limited Partner shall be entitled to withdraw or
retire from the Partnership.
17.7 DEATH, LEGAL INCOMPETENCY OR DISSOLUTION OF LIMITED PARTNER. Upon the
-----------------------------------------------------------
death, legal incompetency or dissolution of a Limited Partner, the estate,
personal representative, guardian or other successor in interest of such Limited
Partner shall have all of the rights and be liable for all the obligations of
the Limited Partner in the Partnership to the extent of such Limited Partner's
interest therein, subject to the terms and conditions of this Agreement, and,
with the prior written consent of the General Partners, which may be withheld at
their sole discretion, may be substituted for such Limited Partner.
17.8 ELIMINATION OR MODIFICATION OF RESTRICTIONS. Notwithstanding any of
-------------------------------------------
the foregoing provisions of this Article XVII, the General Partners may amend
this Agreement to eliminate or modify any restriction on substitution or
assignment at such time as the restriction is no longer necessary.
ARTICLE XVIII
LOANS TO PARTNERSHIP
18.1 AUTHORITY TO BORROW. The General Partners shall cause the Partnership
-------------------
to purchase and own all Partnership Properties on an unleveraged basis, and the
Partnership shall not incur any indebtedness except for loans which are
authorized pursuant to Section 11.3(e) hereof.
18.2 LOANS FROM PARTNERS. If any Partner shall make any loan or loans to
-------------------
the Partnership or advance money on its behalf pursuant to Section 11.3(e)
hereof, the amount of any such loan or advance shall not be deemed to be an
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additional Capital Contribution by the lending Partner or entitle such lending
Partner to an increase in his share of the distributions of the Partnership, or
subject such Partner to any greater proportion of the losses which the
Partnership may sustain. The amount of any such loan or advance shall be a debt
due from the Partnership to such lending Partner repayable upon such terms and
conditions and bearing interest at such rates as shall be mutually agreed upon
by the lending Partner and the General Partners; provided, however, that a
General Partner as a lending Partner may not receive interest and other
financing charges or fees in excess of the amount which would be charged by
unrelated banks on comparable loans for the same purpose in the same area. No
prepayment charge or penalty shall be required by a General Partner on a loan to
the Partnership. Notwithstanding the foregoing, (a) no Partner shall be under
any obligation whatsoever to make any such loan or advance to the Partnership,
and (b) neither the General Partners nor any of their Affiliates shall provide
permanent financing to the Partnership.
ARTICLE XIX
POWER OF ATTORNEY, CERTIFICATES AND OTHER DOCUMENTS
19.1 POWER OF ATTORNEY. Each Limited Partner, by becoming a Limited
-----------------
Partner and adopting this Agreement, constitutes and appoints the General
Partners and each of them and any successor to the General Partners as his true
and lawful attorney-in-fact, in his name, place and stead, from time to time:
(a) To execute, acknowledge, swear to, file and/or record all
agreements amending this Agreement that may be appropriate:
(i) To reflect a change of the name or the location of the
principal place of business of the Partnership;
(ii) To reflect the disposal by any Limited Partner of his
interest in the Partnership, or any Units constituting a part thereof, in any
manner permitted by this Agreement, and any return of the Capital Contribution
of a Limited Partner (or any part thereof) provided for by this Agreement;
(iii) To reflect a Person's becoming a Limited Partner of the
Partnership as permitted by this Agreement;
(iv) To reflect a change in any provision of this Agreement or the
exercise by any Person of any right or rights hereunder not requiring the
consent of said Limited Partner;
(v) To reflect the addition or substitution of Limited Partners or
the reduction of Capital Accounts upon the return of capital to Partners;
(vi) To add to the representations, duties or obligations of the
General Partners or their Affiliates or surrender any right or power granted to
the General Partners or their Affiliates herein for the benefit of the Limited
Partners;
(vii) To cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with law or with any other provision
herein, or to make any other provision with respect to matters or questions
arising under this Agreement which will not be inconsistent with law or with the
provisions of this Agreement;
(viii) To delete, add or modify any provision to this Agreement
required to be so deleted, added or modified by the staff of the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc. or by
a State Securities Commissioner or similar such official, which addition,
deletion or modification is deemed by such Commission or official to be for the
benefit or protection of the Limited Partners;
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(ix) To make all filings as may be necessary or proper to provide
that this Agreement shall constitute, for all purposes, an agreement of limited
partnership under the laws of the State of Georgia as they may be amended from
time to time;
(x) Upon notice to all Limited Partners, to amend the provisions
of Article X of this Agreement, or any other related provision of this Agreement
(provided, however, the General Partners shall first have received an opinion of
counsel to the Partnership that such amendment will not materially adversely
diminish the interests of the Limited Partners) to ensure that (A) the
allocations and distributions contained in Article X comply with Treasury
Regulations relating to Section 704 of the Code or any other statute, regulation
or judicial interpretation relating to such allocations, or (B) the periodic
allocations set forth in Article X will be respected under Section 706 of the
Code or any other statute, regulation or judicial interpretation relating to
such periodic allocations, or (C) the provisions of this Agreement will comply
with any applicable federal or state legislation enacted after the date of this
Agreement; to take such steps as the General Partners determine are advisable or
necessary in order to preserve the tax status of the Partnership as an entity
which is not taxable as a corporation for federal income tax purposes including,
without limitation, to compel a dissolution and termination of the Partnership;
to terminate the Offering of Units; to compel a dissolution and termination of
the Partnership or to restructure the Partnership's activities to the extent the
General Partners deem necessary (after consulting with counsel) to comply with
any exemption in the "plan asset" regulations adopted by the Department of Labor
in the event that either (I) the assets of the Partnership would constitute
"plan assets" for purposes of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or (II) the transactions contemplated hereunder
would constitute "prohibited transactions" under ERISA or the Code and an
exemption for such transactions is not obtainable or not sought by the General
Partners from the United States Department of Labor; provided, the General
Partners are empowered to amend such provisions only to the minimum extent
necessary (in accordance with the advice of accountants and counsel) to comply
with any applicable federal or state legislation, rules, regulations or
administrative interpretations thereof after the date of this Agreement, and
that any such amendment(s) made by the General Partners shall be deemed to be
made pursuant to the fiduciary obligations of the General Partners to the
Partnership; and
(xi) To eliminate or modify any restriction on substitution or
assignment contained in Article XVII at such time as the restriction is no
longer necessary.
(b) To execute, acknowledge, swear to, file or record such
certificates, instruments and documents as may be required by, or may be
appropriate under, the laws of any state or other jurisdiction, or as may be
appropriate for the Limited Partners to execute, acknowledge, swear to, file or
record to reflect:
(i) Any changes or amendments of this Agreement, or pertaining to
the Partnership, of any kind referred to in paragraph (a) of this Section 19.1;
or
(ii) Any other changes in, or amendments of, this Agreement, but
only if and when the consent of a Majority Vote or other required percentage of
the Limited Partners has been obtained.
Each of such agreements, certificates, instruments and documents shall be
in such form as the General Partners and legal counsel for the Partnership shall
deem appropriate. Each Limited Partner hereby authorizes the General Partners
to take any further action which the General Partners shall consider necessary
or convenient in connection with any of the foregoing, hereby giving said
attorney-in-fact full power and authority to do and perform each and every act
and thing whatsoever requisite, necessary or convenient to be done in and about
the foregoing as fully as said Limited Partner might or could do if personally
present and hereby ratifies and confirms all that said attorney-in-fact shall
lawfully do or cause to be done by virtue hereof. The power hereby conferred
shall be deemed to be a power coupled with an interest, in recognition of the
fact that each of the Partners under this Agreement will be relying upon the
power of the General Partners to act as contemplated by this Agreement in any
filing and other action by them on behalf of the Partnership, and shall survive
the bankruptcy, death, adjudication of incompetence or insanity, or dissolution
of any Person hereby giving such power and the transfer or assignment of all or
any part of the Units of such Person; provided, however, that in the event of
the transfer by a Limited Partner of all of his Units, the foregoing power of
attorney of a transferor Limited Partner shall survive such transfer only until
such time as the transferee shall have been admitted to the Partnership as a
substituted
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Limited Partner and all required documents and instruments shall have been duly
executed, sworn to, filed and recorded to effect such substitution.
19.2 REQUIRED SIGNATURES. Any writing to amend this Agreement to reflect
-------------------
the addition of a Limited Partner need be signed only by a General Partner, by
the Limited Partner who is disposing of his interest in the Partnership, if any,
and by the Person to be substituted or added as a Limited Partner. The General
Partners, or either of them, may sign for either or both of said Limited
Partners as their attorney-in-fact pursuant to paragraph (a) of Section 19.1
hereof. Any writing to amend this Agreement to reflect the removal or
withdrawal of a General Partner in the event the business of the Partnership is
continued pursuant to the terms of this Agreement need be signed only by a
remaining or a new General Partner.
19.3 ADDITIONAL DOCUMENTS. Each Partner, upon the request of the others,
--------------------
agrees to perform any further acts and execute and deliver any further documents
which may be reasonably necessary to carry out the provisions of this Agreement.
ARTICLE XX
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
20.1 DISSOLUTION. Except as otherwise provided in this Section 20.1, no
-----------
Partner shall have the right to cause dissolution of the Partnership before the
expiration of the term for which it is formed. The Partnership shall be
dissolved and terminated upon the happening of any of the following events:
(a) The expiration of the term of the Partnership as specified in
Article VI hereof;
(b) The decision by Majority Vote of the Limited Partners to dissolve
and terminate the Partnership;
(c) The entry of a decree of judicial dissolution by a court of
competent jurisdiction, provided that the foregoing shall not apply if the
Partnership files a voluntary petition seeking reorganization under the
bankruptcy laws;
(d) The retirement or withdrawal of a General Partner unless (i) the
remaining General Partner, if any, elects to continue the business of the
Partnership within 90 days from the date of such event, or (ii) if there is no
remaining General Partner, the Limited Partners, within 120 days from the date
of such event, elect by Majority Vote to continue the business of the
Partnership and elect a new General Partner pursuant to Section 20.3 below;
(e) The effective date of the removal of a General Partner unless (i)
the remaining General Partner, if any, elects to continue the business of the
Partnership within 90 days from the date of such event, or (ii) if there is no
remaining General Partner, Limited Partners, prior to the effective date of such
removal, elect by Majority Vote to continue the business of the Partnership and
elect a new General Partner pursuant to Section 20.3 below;
(f) The effective date of an Event of Withdrawal of a General Partner
unless (i) the remaining General Partner, if any, elects to continue the
business of the Partnership within 90 days from the date of such Event of
Withdrawal, or (ii) if there is no remaining General Partner, the Limited
Partners, within 120 days from the date of such Event of Withdrawal, elect by
Majority Vote to continue the business of the Partnership and elect a new
General Partner pursuant to Section 20.3 below;
(g) The sale or other disposition of all of the interests in real
estate (including, without limitation, purchase money security interests and
interests in joint ventures or other entities owning interests in real estate)
of the Partnership; or
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(h) The election by the General Partners to terminate the Partnership,
without the consent of any Limited Partner, in the event that either (i) the
Partnership's assets constitute "plan assets," as such term is defined for
purposes of ERISA, or (ii) any of the transactions contemplated by this
Agreement constitute a "prohibited transaction" under ERISA or the Code and no
exemption for such transaction is obtainable from the United States Department
of Labor or the General Partners determine in their discretion not to seek such
an exemption.
In the Event of Withdrawal of a General Partner resulting in only one
General Partner remaining, such remaining General Partner shall be obligated to
elect to continue the business of the Partnership within 90 days from the date
of such Event of Withdrawal.
The Partnership shall not be dissolved or terminated by the admission of
any new Limited Partner or by the withdrawal, expulsion, death, insolvency,
bankruptcy or disability of a Limited Partner.
20.2 PROXY TO LIQUIDATE. At any time commencing eight years after the
------------------
termination of the Offering, upon receipt by the General Partners of written
requests from Limited Partners holding 10% or more of the outstanding Units (the
"Proxy Request") directing that the General Partners formally proxy the Limited
Partners to determine whether the assets of the Partnership should be liquidated
(the "Proxy to Liquidate"), the General Partners shall send a Proxy to Liquidate
to each Limited Partner within 60 days of receipt of the Proxy Request, or as
soon as reasonably practicable thereafter following the receipt of independent
appraisals of Partnership Properties which the Partnership shall obtain as part
of this proxy process, and the filing and review of such Proxy to Liquidate by
the Securities and Exchange Commission. The General Partners shall not be
required to send Proxies to Liquidate to Limited Partners more frequently than
once during every two (2) year period. To insure that Limited Partners are
adequately informed when casting their votes, the Proxy to Liquidate furnished
to each Limited Partner shall include financial information setting forth per
Unit pro forma tax and financial projections which assume that all Partnership
Properties will be sold immediately at prices consistent with their appraised
values, or such other information as the General Partners deem appropriate and
informative, provided in all such cases that the furnishing of such information
to Limited Partners shall not contravene applicable law or applicable rules and
regulations of the Securities and Exchange Commission regarding the solicitation
of proxies. The Proxy to Liquidate shall contain a 45 day voting deadline, and
the actual voting results shall be tabulated by the Partnership's independent
accountants who will receive the votes directly from the Limited Partners. The
General Partners shall disclose the complete voting results for the Proxy to
Liquidate in the Partnership's next annual or quarterly report on Form 10-K or
10-Q sent to the Limited Partners for the period following the date on which
voting was completed. If a Majority Vote of the Limited Partners is cast, in
favor of a liquidation of the Partnership, the assets of the Partnership shall
be fully liquidated within 30 months from the close of the voting deadline
applicable to the Proxy to Liquidate. Under no circumstances, however, shall
the General Partners direct the Partnership to make distributions "in kind" of
any Partnership Properties to the Limited Partners.
20.3 LIMITED PARTNERS' RIGHT TO CONTINUE THE BUSINESS OF THE PARTNERSHIP.
-------------------------------------------------------------------
Upon the occurrence of an event specified in paragraphs (d), (e) or (f) of
Section 20.1 above, occurring with respect to the last remaining General
Partner, Limited Partners shall have a right prior to the effective date of the
occurrence of any such event to elect to continue the business of the
Partnership pursuant to the provisions of this Section 20.3. The effective date
of the events specified in paragraphs (d), (e) and (f) of Section 20.1 above
with respect to the last remaining General Partner shall be 120 days after the
date of any such event. In the case of the occurrence of an event specified in
paragraphs (d), (e) or (f) of Section 20.1 above, Limited Partners by Majority
Vote may, within 120 days from the date of such event, elect to continue the
business of the Partnership and elect one or more new General Partners. The new
General Partner or General Partners so elected shall execute, deliver,
acknowledge and record an amendment to the Certificate and such other documents
and instruments as may be necessary or appropriate to effect such change.
20.4 PAYMENT TO WITHDRAWN OR REMOVED GENERAL PARTNER. Upon the retirement,
-----------------------------------------------
removal or Event of Withdrawal of a General Partner, the Partnership shall be
required to pay such General Partner any amounts then accrued and owing to such
General Partner under this Agreement. The method of payment to any such General
Partner must be fair and must protect the solvency and liquidity of the
Partnership. In addition, the Partnership shall have the right, but not the
obligation, to terminate any such General Partner's interest in Partnership
income, losses, distributions and capital upon
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payment to him of an amount equal to the value of his interest in Partnership
income, losses, distributions and capital on the date of such retirement,
removal or Event of Withdrawal. Such interest shall be computed taking into
account the General Partner's economic interest in the Partnership under
Articles IX and X hereof, and shall be based upon the market value of the assets
of the Partnership determined as if such assets were sold on the date of such
retirement, removal or Event of Withdrawal. In the event such General Partner
(or his representative) and the Partnership cannot mutually agree upon such
value within 90 days following such removal or withdrawal, such value shall be
determined by arbitration before a panel of three appraisers, one of whom shall
be selected by such General Partner (or his representative) and one by the
Partnership, and the third of whom shall be selected by the two appraisers so
selected by the parties. Such arbitration shall take place in Atlanta, Georgia
and shall be in accordance with the rules and regulations of the American
Arbitration Association then in force and effect. The expense of arbitration
shall be borne equally by such General Partner and the Partnership. Payment to
such General Partner of the value of his interest in Partnership income, losses,
distributions and capital shall be made by the delivery of a promissory note (i)
if the termination was voluntary, being unsecured, bearing no interest and
having principal payable, if at all, from distributions which the General
Partner would have otherwise received under this Agreement had the General
Partner not terminated; or (ii) if the termination was involuntary, coming due
in not less than five years and bearing interest at the rate of 9% per annum,
with principal and interest, payable annually in equal installments. In
addition, within 120 days after the determination of the fair market value of
the former General Partner's interest, the Partnership may, upon the vote of a
majority of the Limited Partners, sell such interest to one or more Persons who
may be Affiliates of the remaining General Partner or General Partners, and
admit such Person or Persons to the Partnership as substitute General Partner or
Partners; provided, however, that the purchase price to be paid to the
Partnership for the Partnership interest of the former General Partner shall not
be less than its fair market value as determined by the appraisal described
above. Such substitute General Partner or Partners may pay said purchase price
in installments in the manner set forth above. In the event that such General
Partner's interest is not terminated by the Partnership pursuant to the
provisions set forth above, such interest shall automatically convert to a
special limited partnership interest having the same interest in the
Partnership's income, losses, distributions and capital as was attributable to
such interest as a General Partner. In either event, any such General Partner
who has retired, has been removed or with respect to which an Event of
Withdrawal has occurred shall have no further right to participate in the
management of the Partnership.
20.5 TERMINATION OF EXECUTORY CONTRACTS. Upon the removal or occurrence of
----------------------------------
an Event of Withdrawal of a General Partner, all executory contracts between the
Partnership and such General Partner or any Affiliate thereof (unless such
Affiliate is also an Affiliate of a remaining or new General Partner or General
Partners) may be terminated and canceled by the Partnership without prior notice
or penalty. Such General Partner or any Affiliate thereof (unless such
Affiliate is also an Affiliate of a remaining or new General Partner or General
Partners) may also terminate and cancel any such executory contract effective
upon 60 days prior written notice of such termination and cancellation to the
remaining or new General Partner or General Partners, if any, or to the
Partnership.
ARTICLE XXI
DISTRIBUTION ON TERMINATION OF PARTNERSHIP
21.1 LIQUIDATION DISTRIBUTION. Upon a dissolution and final termination of
------------------------
the Partnership, the General Partners (or in the event of a General Partner's
removal or termination and, if there is no remaining General Partner, any other
Person selected by the Limited Partners) shall take account of the Partnership
assets and liabilities, and the assets shall be liquidated as promptly as is
consistent with obtaining the fair market value thereof, and the proceeds
therefrom, to the extent sufficient therefor, shall be applied and distributed
in accordance with Section 9.4 hereof.
21.2 TIME OF LIQUIDATION. A reasonable time shall be allowed for the
-------------------
orderly liquidation of the assets of the Partnership and the discharge of
liabilities to creditors so as to enable the General Partners to minimize the
losses upon a liquidation.
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21.3 LIQUIDATION STATEMENT. Each of the Partners shall be furnished with a
---------------------
statement prepared or caused to be prepared by the General Partners, which shall
set forth the assets and liabilities of the Partnership as of the date of
complete liquidation. Upon compliance with the foregoing distribution plan, the
Limited Partners shall cease to be such, and the General Partners, as the sole
remaining Partners of the Partnership, shall execute, acknowledge and cause to
be filed a Certificate of Cancellation of the Partnership.
21.4 NO LIABILITY FOR RETURN OF CAPITAL. The General Partners shall not be
----------------------------------
personally liable for the return of all or any part of the Capital Contributions
of the Limited Partners. Any such return shall be made solely from Partnership
assets.
21.5 NO RIGHT OF PARTITION. The Partners and Assignees shall have no right
---------------------
to receive Partnership Property in kind, nor shall such Partners or Assignees
have the right to partition the Partnership Property, whether or not upon the
dissolution and termination of the Partnership.
21.6 PRIORITY; RETURN OF CAPITAL. Except as provided in this Agreement, no
---------------------------
Limited Partner shall have priority over any other Limited Partner either as to
the return of Capital Contributions or as to allocations of income and losses or
payments of distributions. Other than upon the dissolution and termination of
the Partnership as provided by this Agreement, there has been no time agreed
upon when the Capital Contribution of each Limited Partner is to be returned.
21.7 ESCHEAT OF DISTRIBUTIONS. If, upon termination and dissolution of the
------------------------
Partnership, there remains outstanding on the books of the Partnership (after a
reasonable period of time determined in the sole discretion of the General
Partners) a material amount of distribution checks which have not been
negotiated for payment by the Limited Partners, the General Partners may, if
deemed to be in the best interest of the Partnership, cause such amounts to be
redistributed pro rata to Limited Partners of record on such final distribution
date who have previously cashed all of their distribution checks; provided,
however, that neither the General Partners nor the Partnership shall be liable
for any subsequent claims for payment of such redistributed distributions. The
General Partners are not required to make such a redistribution, in which case
such amounts may eventually escheat to the appropriate state. Notwithstanding
the foregoing, the proceeds of distribution checks payable to Ohio residents
which have not been negotiated for payment within one year of the distribution
date shall be submitted to the Ohio Division of Unclaimed Funds in accordance
with the Ohio Unclaimed Funds statute, Chapter 169 of the Ohio Revised Code.
ARTICLE XXII
GENERAL PROVISIONS
22.1 NOTICES. Except as otherwise provided herein, any notice, payment,
-------
distribution or other communication which shall be required to be given to any
Limited Partner in connection with the business of the Partnership shall be duly
given if in writing and delivered personally to the Limited Partner to whom it
is authorized to be given at the time of such delivery, or if sent by mail or
telegraph, to the last address furnished by such Limited Partner for such
purpose as of the time of such mailing; and if to a General Partner or the
Partnership, shall be given when actually received at the principal office of
the Partnership, or at such other address as such General Partner may hereafter
specify in a notice duly given as provided herein.
22.2 SURVIVAL OF RIGHTS. This Agreement shall be binding upon and inure to
------------------
benefit of the Partners and their respective heirs, legatees, legal
representatives, successors and assigns.
22.3 AMENDMENT. Except as specifically provided herein, following the
---------
admission of Additional Limited Partners to the Partnership, this Agreement may
be amended, modified and changed only after obtaining a Majority Vote of the
Limited Partners. When voting on whether to approve or reject proposed changes
to this Agreement, Limited Partners shall be permitted to vote separately on
each significant proposed change.
B-46
<PAGE>
22.4 HEADINGS. The captions of the articles and sections of this
--------
Agreement are for convenience only and shall not be deemed part of the text of
this Agreement.
22.5 AGREEMENT IN COUNTERPARTS. This Agreement, or any amendment hereto,
-------------------------
may be executed in counterparts each of which shall be deemed an original
Agreement, and all of which shall constitute one agreement, by each of the
Partners hereto on the dates respectively indicated in the acknowledgements of
said Partners, notwithstanding that all of the Partners are not signatories to
the original or the same counterpart, to be effective as of the day and year
first above written.
22.6 GOVERNING LAW. This Agreement shall be governed and construed
-------------
according to the laws of the State of Georgia governing partnerships.
22.7 TIME. Time is of the essence in this Agreement.
----
22.8 PRONOUNS. All pronouns and any variations thereof shall be deemed to
--------
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the Person or Persons may require.
22.9 SEPARABILITY OF PROVISIONS. Each provision of this Agreement shall be
--------------------------
considered separable and if for any reason any provision or provisions hereof
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation, or affect those portions, of this
Agreement which are valid.
22.10 NO MANDATORY ARBITRATION OF DISPUTES. Except as may be permitted or
------------------------------------
required pursuant to Section 20.4 hereof, nothing in this Agreement or the
Subscription Agreement to be executed by each Limited Partner shall be deemed to
require the mandatory arbitration of disputes between a Limited Partner and the
Partnership or any Sponsor. Nothing contained in this Section 22.10 is intended
to apply to preexisting contracts between broker-dealers and Limited Partners.
B-47
<PAGE>
IN WITNESS WHEREOF, the undersigned hereby execute this Amended and
Restated Agreement of Limited Partnership under seal as of the date and year
first above written.
INITIAL LIMITED PARTNER:
(SEAL)
----------------------------------------
Brian M. Conlon
GENERAL PARTNERS:
WELLS PARTNERS, L.P.
A Georgia Limited Partnership
By: WELLS CAPITAL, INC.
A Georgia Corporation
Attest: (As General Partner)
By: By:
--------------------------------- ------------------------------
Name: Leo F. Wells, III
-------------------------- President
Title:
-------------------------
(SEAL)
----------------------------------------
LEO F. WELLS, III
B-48
<PAGE>
EXHIBIT C
FORM OF SUBSCRIPTION AGREEMENT AND
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
<PAGE>
EXHIBIT "C"
SUBSCRIPTION AGREEMENT
To: WELLS REAL ESTATE FUND X/XI, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Ladies and Gentlemen:
The undersigned, by signing and delivering a copy of the attached
Subscription Agreement Signature Page, hereby tenders this subscription and
applies for the purchase of the number of units of limited partnership interest
("Units") in Wells Real Estate Fund X/XI, L.P., a Georgia limited partnership
(the "Partnership"), set forth on such Subscription Agreement Signature Page.
Payment for the Units is hereby made by check payable to "The Bank of New York,
as Agent."
Payments for Units will be held in escrow until the Partnership has
received and accepted subscriptions for 125,000 Units ($1,250,000), except with
respect to residents of the States of New York and Pennsylvania, whose payments
for Units will be held in escrow until the Partnership has received and accepted
subscriptions for 250,000 Units ($2,500,000) from all investors.
I hereby acknowledge receipt of the Prospectus of the Partnership dated
____________ __, 1996 (the "Prospectus"), which includes the Agreement of
Limited Partnership of the Partnership (the "Partnership Agreement") in the form
attached as Exhibit B to the Prospectus.
I agree that if this subscription is accepted, it will be held, together
with the accompanying payment, on the terms described in the Prospectus and
that, if admitted to the Partnership, I shall be bound by the terms and
conditions of the Partnership Agreement, including the power of attorney granted
to the General Partners in Section 19.1 thereof. Subscriptions may be rejected
in whole or in part by the General Partners in their sole and absolute
discretion.
Prospective investors are hereby advised of the following:
(a) The assignability and transferability of the Units is restricted and
will be governed by the Partnership Agreement and all applicable laws as
described in the Prospectus.
(b) Prospective investors should not invest in Units unless they have an
adequate means of providing for their current needs and personal contingencies
and have no need for liquidity in this investment.
(c) There will be no public market for the Units, and accordingly, it may
not be possible to readily liquidate an investment in the Partnership.
I hereby constitute and appoint Wells Partners, L.P. and Leo F. Wells, III,
and each of them acting singly, with full power of substitution, my true and
lawful attorney-in-fact in my name, place and stead and for my use and benefit
(a) to sign, execute, deliver, certify, acknowledge, file and record a
Partnership Agreement in substantially the form attached as Exhibit B to the
Prospectus; and (b) to sign, execute, certify, acknowledge, swear to, file,
record and publish any other certificates, instruments and documents which may
be required of the Partnership under the laws of the State of Georgia or the
laws of any state or any governmental agency, or which such attorney-in-fact
deems necessary or advisable to file, record, publish, or deliver. The
foregoing grant of authority (a) is a special power of attorney coupled with an
interest, (b) is irrevocable and shall survive my death or disability, and (c)
may be exercised by such attorney-in-fact by listing my name along with the
names of all other persons for whom such attorney-in-fact is acting and
executing the Partnership Agreement and such other certificates, instruments and
documents with the single signature of a duly-authorized officer or agent of
such attorney-in-fact for all of the persons whose names are so listed.
C-1
<PAGE>
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
CONDITIONS RESTRICTING TRANSFER OF
LIMITED PARTNERSHIP UNITS
260.141.11 RESTRICTIONS ON TRANSFER.
------------------------
(a) The issuer of any security upon which a restriction on transfer
has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 of the
Rules (the "Rules") adopted under the California Corporate Securities Law (the
"Code") shall cause a copy of this section to be delivered to each issuee or
transferee of such security at the time the certificate evidencing the security
is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of the Rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section 25102
of the Code or Section 260.105.14 of the Rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities is not
in violation of any securities laws of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113
or 25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code provided that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled or actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property
Law or to the administrator of the unclaimed property law of another state;
C-2
<PAGE>
(15) by the State Controller pursuant to the Unclaimed Property
Law or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to such
a restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
[Last amended effective January 21, 1988.]
C-3
<PAGE>
STANDARD REGISTRATION REQUIREMENTS
The following requirements have been established for the various forms of
registration. Accordingly, complete Subscription Agreements and such supporting
material as may be necessary must be provided.
TYPE OF OWNERSHIP AND SIGNATURE(S) REQUIRED
1. INDIVIDUAL: One signature required.
2. JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: All parties must sign.
3. TENANTS IN COMMON: All parties must sign.
4. COMMUNITY PROPERTY: Only one investor signature required.
5. PENSION OR PROFIT SHARING PLANS: The trustee signs the Signature Page.
6. TRUST: The trustee signs the Signature Page. Provide the name of the trust,
the name of the trustee and the name of the beneficiary.
7. PARTNERSHIP: Identify whether the entity is a general or limited
partnership. The general partners must be identified and their signatures
obtained on the Signature Page. In the case of an investment by a general
partnership, all partners must sign (unless a "managing partner" has been
designated for the partnership, in which case he may sign on behalf of the
partnership if a certified copy of the document granting him authority to
invest on behalf of the partnership is submitted).
8. CORPORATION: The Subscription Agreement must be accompanied by (1) a
certified copy of the resolution of the Board of Directors designating the
officer(s) of the corporation authorized to sign on behalf of the corporation
and (2) a certified copy of the Board's resolution authorizing the
investment.
9. IRA AND IRA ROLLOVERS: Requires signature of authorized signer (e.g., an
officer) of the bank, trust company, or other fiduciary. The address of the
trustee must be provided in order for the trustee to receive checks and other
pertinent information regarding the investment.
10. KEOGH (HR 10): Same rules as those applicable to IRAs.
11. UNIFORM GIFT TO MINORS ACT (UGMA) or UNIFORM TRANSFERS TO MINORS ACT (UTMA):
The required signature is that of the custodian, not of the parent (unless
the parent has been designated as the custodian). Only one child is
permitted in each investment under UGMA or UTMA. In addition, designate the
state under which the gift is being made.
C-4
<PAGE>
INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO WELLS REAL ESTATE FUND X/XI, L.P. SUBSCRIPTION AGREEMENT
<TABLE>
<CAPTION>
________________________________________________________________________________________________________
<C> <S>
INVESTOR PLEASE FOLLOW THESE INSTRUCTIONS CAREFULLY. FAILURE TO DO SO MAY RESULT IN THE
INSTRUCTIONS REJECTION OF YOUR SUBSCRIPTION. ALL INFORMATION ON THE SUBSCRIPTION
AGREEMENT SIGNATURE PAGE SHOULD BE COMPLETED AS FOLLOWS:
________________________________________________________________________________________________________
1. INVESTMENT A minimum investment of $1,000 (100 Units) is required, except for certain states
which require a higher minimum investment. A CHECK FOR THE FULL
PURCHASE PRICE OF THE UNITS SUBSCRIBED FOR SHOULD BE
MADE PAYABLE TO THE ORDER OF "THE BANK OF NEW YORK, AS
AGENT." Investors who have satisfied the minimum purchase requirements in
Wells Real Estate Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-
OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells
Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate
Fund VII, L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate Fund IX,
L.P., or, in the case of Wells Real Estate Fund XI, L.P., Wells Real Estate Fund
X, L.P. may invest as little as $25 (2.5 Units) except for residents of Maine,
Minnesota or Washington. Units may be purchased only by persons meeting the
standards set forth under the Section of the Prospectus entitled "WHO SHOULD
INVEST - SUITABILITY STANDARDS". Please indicate the state in which the
sale was made.
________________________________________________________________________________________________________
2. CLASS STATUS OF Please check the appropriate box to identify the status of Units (Class A or
UNITS Class B) desired. These classes of Units entitle holders to different rights under
the Partnership Agreement. For a more complete description of the differences
between the two classes of Units, see "DESCRIPTION OF THE UNITS" in the
Prospectus. If electing Class A Status for some Units and Class B Status for the
remaining Units being purchased, please complete a separate Subscription
Agreement Signature Page for each class of Units.
________________________________________________________________________________________________________
3. TYPE OF OWNERSHIP Please check the appropriate box to indicate the type of entity or type of
individuals subscribing.
________________________________________________________________________________________________________
4. REGISTRATION NAME Please enter the exact name in which the Units are to be held. For joint tenants
AND ADDRESS with right of survivorship or tenants in common, include the names of both
investors. In the case of partnerships or corporations, include the name of an
individual to whom correspondence will be addressed. Trusts should include the
name of the trustee. All investors must complete the space provided for taxpayer
identification number or social security number. By signing in Section 6, the
investor is certifying that this number is correct. Enter the mailing address and
telephone numbers of the registered owner of this investment. In the case of a
Qualified Plan or trust, this will be the address of the trustee. Indicate the
birthdate and occupation of the registered owner unless the registered owner is a
partnership, corporation or trust.
________________________________________________________________________________________________________
5. INVESTOR NAME AND Complete this Section only if the investor's name and address is different from the
ADDRESS registration name and address provided in Section 4. If the Units are registered in
the name of a trust, enter the name, address, telephone number, social security
number, birthdate and occupation of the beneficial owner of the trust.
________________________________________________________________________________________________________
6. SUBSCRIBER Please separately initial each representation made by the investor where indicated.
SIGNATURES Except in the case of fiduciary accounts, the investor may not grant any person a
power of attorney to make such representations on his or her behalf. Each
investor must sign and date this Section. If title is to be held jointly, all parties
must sign. If the registered owner is a partnership, corporation or trust, a general
partner, officer or trustee of the entity must sign. PLEASE NOTE THAT
THESE SIGNATURES DO NOT HAVE TO BE NOTARIZED.
________________________________________________________________________________________________________
</TABLE>
C-5
<PAGE>
<TABLE>
<C> <S>
7. ADDITIONAL Please check if you plan to make one or more additional investments in the
INVESTMENTS Partnership. All additional investments must be in increments of at least $25 and,
unless otherwise indicated on a new Subscription Agreement Signature Page, you
will be deemed to have elected the same status of Units (Class A or Class B) you
check in Section 2. Additional investments by residents of Maine must be for the
minimum amounts stated under "WHO SHOULD INVEST - SUITABILITY
STANDARDS" in the Prospectus, and residents of Maine must execute a new
Subscription Agreement Signature Page to make additional investments in the
Partnership. If additional investments in the Partnership are made, the investor
agrees to notify the General Partners and the Broker-Dealer named on the
Subscription Agreement Signature Page in writing if at any time he fails to meet
the applicable suitability standards or he is unable to make any other
representations or warranties set forth in the Prospectus or the Subscription
Agreement. The investor acknowledges that the Broker-Dealer named in the
Subscription Agreement Signature Page may receive a commission not to exceed
8% of any such additional investments in the Partnership.
________________________________________________________________________________________________________
8. DISTRIBUTIONS a. DISTRIBUTION REINVESTMENT PLAN: By electing the
Distribution Reinvestment Plan, the investor elects to reinvest all
distributions of Net Cash From Operations in the Partnership and to have
the option in the future to invest Net Cash From Operations in limited
partnerships sponsored by the General Partners or their Affiliates which
have substantially identical investment objectives as the Partnership.
Unless the General Partners are otherwise notified in writing, Units
purchased pursuant to the Distribution Reinvestment Plan will initially be
treated as Class A Status Units. The investor agrees to notify the
General Partners and the Broker-Dealer named on the Subscription
Agreement Signature Page in writing if at any time he fails to meet the
applicable suitability standards or he is unable to make any other
representations and warranties as set forth in the Prospectus or
Subscription Agreement or in the prospectus and subscription agreement
of any future limited partnerships sponsored by the General Partners or
their Affiliates. The investor acknowledges that the Broker-Dealer named
in the Subscription Agreement Signature Page may receive a commission
not to exceed 8% of any reinvested distributions.
b. DISTRIBUTION ADDRESS: If cash distributions are to be sent to an
address other than that provided in Section 5 (i.e., a bank, brokerage
firm or savings and loan, etc.), please provide the name, account number
and address.
________________________________________________________________________________________________________
9. BROKER-DEALER This Section is to be completed by the Registered Representative. Please insert
the Broker-Dealer number, the Registered Representative number and the Account
number on the first page of the Subscription Agreement Signature Page and
complete all BROKER-DEALER information contained in Section 9 including
suitability certification. SIGNATURE PAGE MUST BE SIGNED BY AN
AUTHORIZED REPRESENTATIVE.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Subscription Agreement Signature Page, which has been delivered with
this Prospectus, together with a check for the full purchase price, should be
delivered or mailed to your Broker-Dealer. Only original, completed copies of
Subscription Agreements can be accepted. Photocopied or otherwise duplicated
Subscription Agreements cannot be accepted by the Partnership.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-800-448-1010
C-6
<PAGE>
SEE PRECEDING PAGE
FOR INSTRUCTIONS
WELLS REAL ESTATE FUND ___, L.P.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
1. -------INVESTMENT-----------------------------------------------------------
MAKE INVESTMENT CHECK PAYABLE TO:
- ---------- ------------------ THE BANK OF NEW YORK,
# of Units Total $ Invested AS AGENT
(# Units x $10 = $ Invested) [ ] Initial Investment (Minimum $1,000)
[ ] Additional Investment (Minimum $25)
Minimum purchase $1,000 or 100 Units State in which sale was made
2. ------CLASS STATUS OF UNITS-------------------------------------------------
Check appropriate box.
If electing both Class A Status and Class B Status, please complete a separate
Signature page for each type of investment.
[ ] CLASS A [ ] CLASS B
(Entitled to first priority on distributions of cash flow from operations)
(Allocated certain tax deductions but no distributions of cash flow from
operations)
3. ------TYPE OF OWNERSHIP-----------------------------------------------------
<TABLE>
<S> <C>
[ ] IRA (06) [ ] Individual (01)
[ ] Keogh (10) [ ] Joint Tenants With Right of Survivorship (02)
[ ] Qualified Pension Plan (11) [ ] Community Property (03)
[ ] Qualified Profit Sharing Plan (12) [ ] Tenants in Common (04)
[ ] Other Trust______________________ [ ] Custodian: A Custodian for
For the Benefit of_______________ the Uniform Gift to Minors Act or the Uniform Transfers to Minors Act
[ ] Partnership (15) of the State of ________________(08)
[ ] Other
4. ------REGISTRATION NAME AND ADDRESS-------------------------------------------
Please print name(s) in which Units are to be registered. Include trust name if applicable.
[ ] Mr [ ] Mrs [ ] Ms [ ] MD [ ] PhD [ ] DDS [ ] Other_________________
________________________________________________ Taxpayer Identification Number Social Security Number
________________________________________________ [ ][ ]-[ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ]-[ ][ ]-[ ][ ][ ][ ]
________________________________________________
Street Address ____________________________________________________________________________________________________
or P.O. Box ____________________________________________________________________________________________________
City __________________________________________ State_________________________________ Zip Code __________________
Home ( ) Business ( )
Telephone No.________________________________________ Telephone No._______________________________________________
Birthdate____________________________________________ Occupation __________________________________________________
5. ------INVESTOR NAME AND ADDRESS--------------------------------------------------------------------------------
(COMPLETE ONLY IF DIFFERENT FROM REGISTRATION NAME AND ADDRESS)
[ ] Mr [ ] Mrs [ ] Ms [ ] MD [ ] PhD [ ] DDS [ ] Other_________________
________________________________________________ Social Security Number
________________________________________________ [ ][ ][ ]-[ ][ ]-[ ][ ][ ][ ]
________________________________________________
Street Address ____________________________________________________________________________________________________
or P.O. Box ____________________________________________________________________________________________________
City __________________________________________ State_________________________________ Zip Code __________________
Home ( ) Business ( )
Telephone No.________________________________________ Telephone No._______________________________________________
Birthdate____________________________________________ Occupation __________________________________________________
___________________________________________________________________________________________________________________
(REVERSE SIDE MUST BE COMPLETED)
</TABLE>
C-7
<PAGE>
<TABLE>
<S> <C>
6. ------SUBSCRIBER SIGNATURES------------------------------------------------------------------
Please separately initial each of the representations below. Except in the
case of fiduciary accounts, you may not grant any person a power of attorney
to make such representations on your behalf. In order to induce the General
Partners to accept this subscription, I hereby represent and warrant to you as
follows:
(REVERSE SIDE MUST BE COMPLETED)
(a) I have received the Prospectus and the Partnership Agreement. ________ ________
Initials Initials
(b) I accept and agree to be bound by the terms and conditions of
the Partnership Agreement. ________ ________
Initials Initials
(c) I have (i) a net worth (exclusive of home, home furnishings
and automobiles) of $150,000 or more; or (ii) a net worth
(as described above) of at least $45,000 and had during the
last tax year or estimate that I will have during the current
tax year a minimum of $45,000 annual gross income, or that I
meet the higher suitability requirements imposed by my state of
primary residence as set forth in the Prospectus under
"WHO SHOULD INVEST - SUITABILITY STANDARDS." ________ ________
Initials Initials
(d) If I am a California resident or if the Person to
whom I subsequently propose to assign or transfer any
Units is a California resident, I may not consummate a
sale or transfer of my Units, or any interest therein,
or receive any consideration therefor, without the
prior consent of the Commissioner of the Department of
Corporations of the State of California, except as
permitted in the Commissioner's Rules, and I
understand that my Units, or any document evidencing
my Units, will bear a legend reflecting the substance of
the foregoing understanding. ________ ________
Initials Initials
(e) ARKANSAS AND TEXAS RESIDENTS ONLY: I am purchasing
the Units for my own account and
acknowledge that the investment is not liquid. ________ ________
Initials Initials
I declare that the information supplied above is true and correct and may be
relied upon by the General Partners in connection with my investment as a
Limited Partner in the Partnership. Under penalties of perjury, by signing
this Signature Page, I hereby certify that (a) I have provided herein my
correct Taxpayer Identification Number, and (b) I am not subject to back-up
withholding as a result of a failure to report all interest or dividends, or
the Internal Revenue Service has notified me that I am no longer subject to
back-up withholding.
_______________________________________ _______________________________________ ____________________
Signature of Investor or Trustee Signature of Joint Owner, if applicable Date
(MUST BE SIGNED BY TRUSTEE(S) IF IRA, KEOGH OR QUALIFIED PLAN.)
7. ------ADDITIONAL INVESTMENTS-----------------------------------------------------
Please check if you plan to make additional investments in the Partnership: [ ]
[If additional investments are made, please include social security number or
other taxpayer identification number on your check.]
[All additional investments must be made in increments of at least $25.]
8. ------DISTRIBUTIONS--------------------------------------------------------------
8a. Check the following box to participate in the Distribution Reinvestment Plan: [ ]
8b. Complete the following section only to direct distributions to a party
other than registered owner:
Name ______________________________________________________________
Account Number ______________________________________________________________
Street Address or P.O. Box ______________________________________________________________
City _________________________ State__________ Zip Code____________
9. ------BROKER-DEALER----------------------------------------------------------------
(TO BE COMPLETED BY REGISTERED REPRESENTATIVE)
The Broker-Dealer or authorized representative must sign below to complete
order. Broker-Dealer warrants that it is a duly licensed Broker-Dealer and
may lawfully offer Units in the state designated as the investor's address or
the state in which the sale was made, if different. The Broker-Dealer or
authorized representative warrants that he has reasonable grounds to believe
this investment is suitable for the subscriber as defined in Section 3(b) of
Appendix F and that he has informed subscriber of all aspects of liquidity and
marketability of this investment as required by Section 4 of Appendix F
(Attachment No. 1 to Dealer Agreement).
Broker-Dealer Name ________________________________ Telephone No.________________________
Broker-Dealer Street ______________________________________________________________________
Address or P.O. Box ______________________________________________________________________
City _________________________________ State____________Zip Code___________
Registered
Representative Name __________________________________Telephone No._______________________
Reg. Rep. Street
Address or P.O. Box ______________________________________________________________________
City _________________________________ State____________Zip Code___________
___________________________________________ _________________________________________
Broker-Dealer Signature, if required Registered Representative Signature
Please mail completed Subscription Agreement (with all signatures) and check(s) made payable to
The Bank of New York, as Agent to:
WELLS INVESTMENT SECURITIES, INC.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
800-448-1010 or 770-449-7800
FOR GENERAL PARTNER USE ONLY:
ACCEPTANCE BY GENERAL PARTNERS Amount___________________________ Date___________________
Received and Subscription Accepted: Check No.________________________ Certificate No.________
By:______________________________ Wells Real Estate Fund ___, L.P.
_____________________ ___________________________ _________________________
Broker-Dealer # Registered Representative # Account #
- ---------------------------------------------------------------------------------------------
</TABLE>
C-8
<PAGE>
================================================================================
ALPHABETICAL INDEX
Page
----
Additional Information.................................................. 97
Compensation of the General Partners and Affiliates..................... 31
Conflicts of Interest................................................... 33
Custodial Agency Agreement.............................................. 51
Description of the Units................................................ 23
Distributions and Allocations........................................... 84
Estimated Use of Proceeds............................................... 28
Experts................................................................. 96
Federal Income Tax Consequences......................................... 58
Fiduciary Duty of the General Partners.................................. 35
Glossary................................................................ 97
Independent Auditors.................................................... 96
Investment by Tax-Exempt Entities and ERISA
Considerations..................................................... 54
Investment Objectives and Criteria...................................... 45
Legal Opinions.......................................................... 96
Management.............................................................. 41
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 53
Plan of Distribution.................................................... 91
Prior Performance Summary............................................... 36
Real Property Investments............................................... 53
Reports to Investors.................................................... 89
Risk Factors............................................................ 8
Summary of the Offering................................................. 1
Summary of Partnership Agreement........................................ 76
Supplemental Sales Material............................................. 96
Who Should Invest - Suitability Standards............................... 19
===========================================================================
============================================================================
UNTIL ____________ __, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS SOLICITING DEALERS.
-------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS UNLESS
PRECEDED OR ACCOMPANIED BY THIS PROSPECTUS, NOR HAS ANY PERSON BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE PARTNERSHIP OR THE GENERAL
PARTNERS SINCE THE DATE HEREOF. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE
THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE
AMENDED OR SUPPLEMENTED ACCORDINGLY.
-------------------------
WELLS REAL ESTATE FUND X, L.P.
AND
WELLS REAL ESTATE FUND XI, L.P.
MINIMUM OFFERING OF $1,250,000
PER PARTNERSHIP
--------------------------
PROSPECTUS
--------------------------
WELLS INVESTMENT
SECURITIES, INC.
____________ __, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 30 Other Expenses of Issuance and Distribution
-------------------------------------------
Following is an itemized statement of the expenses of the offering and
distribution of the securities to be registered, other than
underwriting commissions:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
SEC Registration Fee $ 24,138
NASD Filing Fee 7,500
Printing Expenses 350,000
Legal Fees and Expenses 300,000
Accounting Fees and Expenses 25,000
Blue Sky Fees and Expenses 130,000
Miscellaneous 1,613,362
----------
Total $2,450,000
==========
</TABLE>
Item 31 Sales to Special Parties
------------------------
Not Applicable
Item 32 Recent Sales of Unregistered Securities
---------------------------------------
Not Applicable
Item 33 Indemnification of the General Partners
---------------------------------------
The Partnership shall indemnify and hold harmless each General Partner
from any loss, liability or damage incurred or suffered by any such
General Partner by reason of any act performed or omitted to be
performed by such General Partner in connection with the business of
the Partnership, including attorneys' fees incurred by such General
Partner in connection with the defense of any claim or action based on
any such act or omission, which attorneys' fees may be paid as
incurred, except to the extent indemnification is prohibited by law;
provided however, that any such indemnification shall only be from the
assets of the Partnership and not from the Limited Partners. Any
indemnification required herein to be made by the Partnership shall be
made promptly following the fixing of the loss, liability or damage
incurred or suffered by a final judgment of any court, settlement,
contract or otherwise. A General Partner (a) shall be entitled to the
foregoing indemnification, and (b) shall not be liable to the
Partnership for any loss, liability or damage suffered or incurred by
the Partnership, directly or indirectly, in connection with the
activities of such General Partner; provided that no General Partner
whose action or omission to act caused the loss, liability or damage
incurred or suffered may receive indemnification or avoid liability
unless such General Partner determined in good faith that such course
of conduct was in the best interest of the Partnership, and such
course of conduct did not constitute (i) fraud, negligence, misconduct
or knowing violation of law, (ii) a breach of fiduciary duty to the
Partnership or any Partner, or (iii) a breach of the Partnership
Agreement. The Partnership shall not pay for any insurance covering
liability of a General Partner for actions or omissions for which
indemnification is not permitted under the Partnership Agreement.
Nothing contained in the Partnership Agreement shall constitute a
waiver by any Limited Partner of any right which he may have against
any party under federal or state securities laws.
II-1
<PAGE>
Indemnification of the General Partners will not be allowed for any
liability, loss or damage incurred by them arising under federal and
state securities laws unless (i) there has been a successful
adjudication of the merits of each count involving alleged securities
law violations as to the General Partner seeking indemnification, or
(ii) such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the General Partner seeking
indemnification, or (iii) a court of competent jurisdiction approves a
settlement of the claims against a General Partner seeking
indemnification and finds that indemnification of the settlement and
related costs should be made. Prior to seeking a court approval for
indemnification, the General Partner shall apprise the court of the
position of the Securities and Exchange Commission, the California
Commissioner of the Development of Corporations, the Massachusetts
Securities Division, the Missouri Securities Division, the Nebraska
Bureau of Securities, the Oklahoma Department of Securities, the
Pennsylvania Securities Commission, the Tennessee Securities Division
and the Texas State Securities Board regarding indemnification for
violations of securities laws.
Item 34 Treatment of Proceeds from Stock Being Registered
-------------------------------------------------
Not Applicable
Item 35 Financial Statements and Exhibits.
---------------------------------
(a)/*/ Financial Statements:
--------------------
The following financial statements of Wells Real Estate Fund X,
L.P. are included in the Prospectus:
Audited Balance Sheet
(1) Independent Auditors' Report,
(2) Balance Sheet as of July 31, 1996, and
(3) Notes to Balance Sheet.
The following financial statements of Wells Real Estate Fund XI,
L.P. are included in the Prospectus:
Audited Balance Sheet
(1) Independent Auditors' Report,
(2) Balance Sheet as of July 31, 1996, and
(3) Notes to Balance Sheet.
The following financial statements of Wells Partners, L.P. are
included in the Prospectus:
Audited Financial Statements
(1) Independent Auditors' Reports,
(2) Balance Sheets as of December 31, 1995 and 1994,
(3) Statements of Operations for the years ended December
31, 1995 and 1994,
(4) Statements of Partners' Capital for the years ended
December 31, 1995 and 1994,
(5) Statements of Cash Flows for the years ended December
31, 1995 and 1994, and
(6) Notes to Financial Statements.
- ---------------
/*/ Financial statements to be filed by Amendment.
II-2
<PAGE>
Unaudited Financial Statements
(1) Statements of Operations for the seven months ended
July 31, 1996 and 1995,
(2) Statements of Cash Flows for the seven months ended
July 31, 1996 and 1995, and
(3) Notes to Financial Statements.
The following financial statements of Wells Capital, Inc. are
included in the Prospectus:
Audited Financial Statements
(1) Independent Auditors' Reports,
(2) Balance Sheets as of December 31, 1995 and 1994,
(3) Statements of Earnings for the years ended December 31,
1995 and 1994,
(4) Statements of Stockholder's Equity for the years ended
December 31, 1995 and 1994,
(5) Statements of Cash Flows for the years ended December
31, 1995 and 1994, and
(6) Notes to Financial Statements.
Unaudited Financial Statements
(1) Statements of Earnings for the seven months ended July
31, 1996 and 1995,
(2) Statements of Stockholders' Equity for the seven months
ended July 31, 1996 and 1995,
(3) Statements of Cash Flows for the seven months ended
July 31, 1996 and 1995, and
(4) Notes to Financial Statements.
(b) Exhibits (See Exhibit Index):
----------------------------
Exhibit No. Description
- ----------- -----------
1 Form of Dealer Manager Distribution Agreement between Registrant and
Wells Investment Securities, Inc.
3(a) Form of Amended and Restated Agreement of Limited Partnership of Wells
Real Estate Fund X/XI, L.P. (included as Exhibit B to Prospectus)
3(b) Certificate of Limited Partnership of Wells Real Estate Fund X, L.P.
dated June 20, 1996
3(c) Certificate of Limited Partnership of Wells Real Estate Fund XI, L.P.
dated June 20, 1996
4 Form of Subscription Agreement and Subscription Agreement Signature
Page (included as Exhibit C to Prospectus)
5(a) Opinion of Holland & Knight regarding the legality of the securities
of Wells Real Estate Fund X, L.P. to be offered
5(b) Opinion of Holland & Knight regarding the legality of the securities
of Wells Real Estate Fund XI, L.P. to be offered
8 Opinion of Holland & Knight regarding tax matters
10(a) Escrow Agreement between Registrant and NationsBank of Georgia, N.A.
II-3
<PAGE>
10(b) New York Escrow Agreement between Registrant and The Bank of New York
10(c) Pennsylvania Escrow Agreement between Registrant and The Bank of New
York
10(d) Form of Leasing and Tenant Coordinating Agreement between Registrant
and Wells Management Company, Inc.
10(e) Form of Management Agreement between Registrant and Wells Management
Company, Inc.
10(f) Custodial Agency Agreement between Registrant and The Bank of New York
23(a) Consent of Holland & Knight (included in Exhibits 5(a), 5(b) and 8)
23(b)/*/ Consent of KPMG Peat Marwick LLP - Wells Partners, L.P.
23(c)/*/ Consent of KPMG Peat Marwick LLP - Wells Capital, Inc.
23(d)/*/ Consent of Arthur Andersen LLP - Wells Real Estate Fund X, L.P.
23(e)/*/ Consent of Arthur Andersen LLP - Wells Real Estate Fund XI, L.P.
23(f)/*/ Consent of Arthur Andersen LLP - Wells Partners, L.P.
23(g)/*/ Consent of Arthur Andersen LLP - Wells Capital, Inc.
Item 36 Undertakings
------------
(a) The Registrant undertakes to file, during any period in which
offers or sales are being made, a post-effective amendment to this
Registration Statement (i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933 (the "Act"); (ii) to
reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement, including (but not limited
to) any addition or deletion of a managing underwriter.
(b) The Registrant undertakes (i) that, for the purpose of
determining any liability under the Act, each such post-effective
amendment may be deemed to be a new Registration Statement relating to
the securities offered therein and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof, (ii) that all post-effective amendments will comply with the
applicable forms, rules and regulations of the Commission in effect at
the time such post-effective amendments are filed, and (iii) to remove
from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of
the offering.
(c) The Registrant undertakes to send to each Limited Partner, at
least on an annual basis, a detailed statement of any transactions
with the General Partners or their affiliates, and of fees,
commissions, compensation and other benefits paid, or accrued to the
General Partners or their affiliates, for the fiscal year completed,
showing the amount paid or accrued to each recipient and the services
performed.
- ------------
/*/ To be filed by Amendment.
II-4
<PAGE>
(d) To file a sticker supplement pursuant to Rule 424(c) under
the Act during the distribution period describing each property not
identified in the prospectus at such time as there arises a reasonable
probability that such property will be acquired and to consolidate all
such stickers into a post-effective amendment filed at least once
every three months with the information contained in such amendment
provided simultaneously to the existing Limited Partners; each sticker
supplement should disclose all compensation and fees received by the
General Partners and their Affiliates in connection with any such
acquisition; the post-effective amendment shall include audited
financial statements meeting the requirements of Rule 3-14 of
Regulation S-X only for properties acquired during the distribution
period.
(e) To file, after the end of the distribution period, a current
report on Form 8-K containing the financial statements and any
additional information required by Rule 3-14 of Regulation S-X, to
reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the
use of 10% or more (on a cumulative basis) of the net proceeds of the
offering and to provide the information contained in such report to
the Limited Partners at least once each quarter after the distribution
period of the offering has ended.
(f) The Registrant undertakes to file the financial statements as
required by Form 10-K for the first full fiscal year of operations and
to provide each Limited Partner the financial statements required by
Form 10-K for such year.
(g) The Registrant undertakes to distribute to each Limited
Partner, within sixty (60) days after the close of each quarterly
period, a copy of each report on Form 10-Q which is required to be
filed with the Commission or a quarterly report containing at least as
much information as the report on Form 10-Q.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(i) The Registrant undertakes that the prospectus will be
supplemented at the close of the offering of Wells Real Estate Fund X,
L.P. to state the number of participants purchasing Units, the amount
of Units sold, the cumulative amount of Units sold under this
Registration Statement and the amount of interests to be offered in
Wells Real Estate Fund XI, L.P.
(j) Wells Real Estate Fund XI, L.P. undertakes that if at the
commencement of the offering of the Units of Wells Real Estate Fund
XI, L.P. (which will not take place until the completion of the
offering of Wells Real Estate Fund X, L.P. and the filing of the
supplement contemplated by the preceding undertaking), Wells Real
Estate Fund XI, L.P. will not commence until after a post-effect
amendment to the Registration Statement has been filed and declared
effective. Any such post-effective amendment shall contain such
information as would be required in an original registration statement
with respect to the property being acquired (including audited
financial statements of the property to be acquired meeting the
requirements of Rule 3-14 of Regulation S-X).
II-5
<PAGE>
Item 37 Table VI - Acquisitions of Properties by Programs
-------------------------------------------------
The information contained on the following pages relates to
acquisitions of properties within the past three (3) years by four (4)
prior partnerships with which the General Partners and their
Affiliates have been affiliated and which have substantially similar
investment objectives to the Partnership. This table provides the
potential investor with information regarding the general nature and
location of the properties and the manner in which the properties were
acquired. None of the information in Table VI has been audited.
II-6
<PAGE>
TABLE VI
--------
Wells Real Estate Funds IV and V
--------------------------------
<TABLE>
<S> <C>
Name of property Medical Center Project
Location of property 7444 Hannover Parkway
Stockbridge, Clayton County, Georgia
Type of property Two two-story office buildings
Size of parcel 2.655 acres
Gross leasable space 35,700 sq. feet
Date of commencement of Fund IV - May 13, 1991
operations/2/ Fund V - April 27, 1992
Date of purchase September 14, 1992
Mortgage financing at
date of purchase N/A
Cash down payment $ 467,941
Contract purchase price
plus Acquisition Fee $ 467,941
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/3/ $3,797,029
Total Acquisition Cost $4,264,970
</TABLE>
- ---------------
/2/ The date minimum offering proceeds were obtained and funds became available
to be used for partnership purposes.
/3/ Includes improvements made after acquisitions through June 30, 1996.
II-7
<PAGE>
TABLE VI (continued)
--------------------
Wells Real Estate Funds V and VI
--------------------------------
<TABLE>
<S> <C>
Name of property Stockbridge Village II
Location of property Hannover Parkway South
Stockbridge, Clayton County, Georgia
Type of property Two retail/restaurant buildings
Size of parcel 2.426 acres
Gross leasable space 15,950 sq. feet
Date of commencement of Fund V - April 27, 1992
operations/1/ Fund VI - May 17, 1993
Date of purchase November 12, 1993
Mortgage financing at
date of purchase N/A
Cash down payment $1,022,634
Contract purchase price
plus Acquisition Fee $1,024,651
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $1,847,861
Total Acquisition Cost $2,872,512
</TABLE>
- ---------------
/1/ The date minimum offering proceeds were obtained and funds became available
to be used for partnership purposes.
/2/ Includes improvements made after acquisitions through June 30, 1996.
II-8
<PAGE>
TABLE VI (continued)
--------------------
Wells Real Estate Funds V and VI
--------------------------------
<TABLE>
<S> <C>
Name of property Hartford Building
Location of property Southington Executive Park
Southington, Connecticut
Type of property Four-story office building
Size of parcel 5.56 acres
Gross leasable space 71,000 sq. feet
Date of commencement of Fund V - April 27, 1992
operations/1/ Fund VI - May 17, 1993
Date of purchase December 29, 1993
Mortgage financing at
date of purchase N/A
Cash down payment $6,900,000
Contract purchase price
plus Acquisition Fee $6,941,504
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $ 388,979
Total Acquisition Cost $7,330,483
</TABLE>
- ---------------
/1/ The date minimum offering proceeds were obtained and funds became available
to be used for partnership purposes.
/2/ Includes improvements made after acquisitions through June 30, 1996.
II-9
<PAGE>
TABLE VI (continued)
--------------------
Wells Real Estate Funds VI and VII
----------------------------------
<TABLE>
<S> <C>
Name of property Stockbridge Village III
Location of property Georgia State Route 138 and Mt. Zion Road
Stockbridge, Clayton County, Georgia
Type of property Two retail/restaurant buildings
Size of parcel 3.27 acres
Gross leasable space 18,200 sq. feet
Date of commencement of Fund VI - May 17, 1993
operations/1/ Fund VII - April 26, 1994
Date of purchase April 7, 1994
Mortgage financing at
date of purchase N/A
Cash down payment $ 983,300
Contract purchase price
plus Acquisition Fee $1,059,833
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $1,896,043
Total Acquisition Cost $2,955,876
</TABLE>
- ---------------
/1/ The date minimum offering proceeds were obtained and funds became available
to be used for partnership purposes.
/2/ Includes improvements made after acquisitions through June 30, 1996.
II-10
<PAGE>
TABLE VI (continued)
--------------------
Wells Real Estate Funds V, VI and VII
-------------------------------------
<TABLE>
<S> <C>
Name of property Marathon Building
Location of property 2323 East Capitol Drive
Appleton, Outagamie County, Wisconsin
Type of property Three-story office building
Size of parcel 6.2 acres
Gross leasable space 74,860 sq. feet
Date of commencement of Fund V - April 27, 1992
operations/1/ Fund VI - May 17, 1993
Fund VII - April 26, 1994
Date of purchase September 16, 1994
Mortgage financing at
date of purchase N/A
Cash down payment $100,000
Contract purchase price
plus Acquisition Fee $8,280,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $403,074
Total Acquisition Cost $8,683,074
</TABLE>
- ---------------
/1/ The date minimum offering proceeds were obtained and funds became available
to be used for partnership purposes.
/2/ Includes improvements made after acquisitions through June 30, 1996.
II-11
<PAGE>
<TABLE>
<CAPTION>
TABLE VI (continued)
--------------------
Wells Real Estate Funds VII and VIII
------------------------------------
<S> <C>
Name of property Hannover Project
Location of property 7355 Hannover Parkway, North
Stockbridge, Clayton County, Georgia
Type of property Retail center
Size of parcel 1.01 acres
Gross leasable space 15,000 sq. feet
Date of commencement of Fund VII - April 26, 1994
operations/1/ Fund VIII - February 24, 1995
Date of purchase November 30, 1994
Mortgage financing at
date of purchase N/A
Cash down payment $500,000
Contract purchase price
plus Acquisition Fee $512,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $926,000
Total Acquisition Cost $1,438,000
</TABLE>
- ---------------
/1/ The date minimum offering proceeds were obtained and funds became available
to be used for partnership purposes.
/2/ Includes improvements made after acquisitions through June 30, 1996.
II-12
<PAGE>
TABLE VI (continued)
--------------------
Wells Real Estate Funds VII and VIII
------------------------------------
<TABLE>
<S> <C>
Name of property CH2M Hill Building
Location of property 3011 S.W. Williston Road
Gainesville, Alachua County, Florida
Type of property Two-story office building
Size of parcel 5 acres
Gross leasable space 62,000 sq. feet
Date of commencement of Fund VII - April 26, 1994
operations/1/ Fund VIII - February 24, 1995
Date of purchase January 20, 1995
Mortgage financing at
date of purchase N/A
Cash down payment $ 222,627
Contract purchase price
plus Acquisition Fee $4,668,308
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $ 196,657
Total Acquisition Cost $5,087,592
</TABLE>
- ---------------
/1/ The date minimum offering proceeds were obtained and funds became available
to be used for partnership purposes.
/2/ Includes improvements made after acquisitions through June 30, 1996.
II-13
<PAGE>
TABLE VI (continued)
--------------------
Wells Real Estate Funds VI, VII and VIII
----------------------------------------
<TABLE>
<S> <C>
Name of property BellSouth Building
Location of property 10375 Centurion Parkway North
Jacksonville, Florida
Type of property Four-story office building
Size of parcel 5.55 acres
Gross leasable space 97,075 sq. feet
Date of commencement of Fund VI - May 17, 1993
operations/1/ Fund VII - April 26, 1994
Fund VIII - February 24, 1995
Date of purchase April 25, 1995
Mortgage financing at
date of purchase N/A
Cash down payment $15,000
Contract purchase price
plus Acquisition Fee $1,245,049
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $7,413,166
Total Acquisition Cost $8,658,215
</TABLE>
- ---------------
/1/ The date minimum offering proceeds were obtained and funds became available
to be used for partnership purposes.
/2/ Includes improvements made after acquisitions through June 30, 1996.
II-14
<PAGE>
TABLE VI (continued)
--------------------
Wells Real Estate Funds VI, VII and VIII
----------------------------------------
<TABLE>
<S> <C>
Name of property Tanglewood Commons Shopping Center
Location of property 45 Highway 158 & State Road 1101 (Harper Road)
Clemmons, Forsyth County, North Carolina
Type of property Retail shopping center
Size of parcel 14.683 acres
Gross leasable space 81,000 sq. feet
Date of commencement of Fund VI - May 17, 1993
operations/1/ Fund VII - April 26, 1994
Fund VIII - February 24, 1995
Date of purchase May 31, 1995
Mortgage financing at
date of purchase N/A
Cash down payment $50,000
Contract purchase price
plus Acquisition Fee $2,954,724
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $1,059,523
Total Acquisition Cost $4,014,247
</TABLE>
- ---------------
/1/ The date minimum offering proceeds were obtained and funds became available
to be used for partnership purposes.
/2/ Includes improvements made after acquisitions through June 30, 1996.
II-15
<PAGE>
<TABLE>
<CAPTION>
TABLE VI (continued)
--------------------
Wells Real Estate Funds VI and VII
----------------------------------
<S> <C>
Name of property Stockbridge Village I Expansion
Location of property 3576 Highway 138
Stockbridge, Clayton County, Georgia
Type of property Multi-tenant shopping center
Size of parcel 3.38 acres
Gross leasable space 29,200 sq. feet
Date of commencement of Fund VI - May 17, 1993
operations/1/ Fund VII - April 26, 1994
Date of purchase June 7, 1995
Mortgage financing at
date of purchase N/A
Cash down payment $675,200
Contract purchase price
plus Acquisition Fee $718,489
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $1,663,683
Total Acquisition Cost $2,382,172
</TABLE>
- ---------------
/1/ The date minimum offering proceeds were obtained and funds became available
to be used for partnership purposes.
/2/ Includes improvements made after acquisitions through June 30, 1996.
II-16
<PAGE>
TABLE VI (continued)
--------------------
Wells Real Estate Funds VIII and IX
-----------------------------------
Name of property Cellular One Building
Location of property The American Center, Interstate 90/94 and U.S.
Highway 151 Madison, Dade County, Wisconsin
Type of property Four-story office building
Size of parcel 7.09 acres
Gross leasable space 96,750 sq. feet
Date of commencement of Fund VIII - February 24, 1995
operations/1/ Fund IX - February 12, 1996
Date of purchase June 19, 1996
Mortgage financing at
date of purchase N/A
Cash down payment $ 25,000
Contract purchase price
plus Acquisition Fee $949,887
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $ 41,867
Total Acquisition Cost $1,016,754
- ---------------
/1/ The date minimum offering proceeds were obtained and funds became available
to be used for partnership purposes.
/2/ Includes improvements made after acquisitions through June 30, 1996.
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, and State of Georgia, on the 9th day of
July, 1996.
WELLS REAL ESTATE FUND X, L.P.
(Registrant)
By: Wells Partners, L.P.
General Partner
By: Wells Capital, Inc.
General Partner
By: /s/ Leo F. Wells, III
--------------------------------------
Leo F. Wells, III
President
By: /s/ Leo F. Wells, III
-------------------------------------------
Leo F. Wells, III
General Partner
WELLS REAL ESTATE FUND XI, L.P.
(Registrant)
By: Wells Partners, L.P.
General Partner
By: Wells Capital, Inc.
General Partner
By: /s/ Leo F. Wells, III
---------------------------------
Leo F. Wells, III
President
By: /s/ Leo F. Wells, III
-------------------------------------------
Leo F. Wells, III
General Partner
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacity
and on the date indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Leo F. Wells, III President (Chief Executive Officer), July 9, 1996
- ------------------------ Treasurer and Sole Director of Wells
Leo F. Wells, III Capital, Inc., the sole general
partner of Wells Partners, L.P.
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequential Sequential
Exhibit No. Page No.
- --------------- ----------
<S> <C> <C>
1 Form of Dealer Manager Distribution Agreement between
Registrant and Wells Investment Securities, Inc.
3(a) Form of Amended and Restated Agreement of Limited N/A
Partnership of Wells Real Estate Fund X/XI, L.P. (included as
Exhibit B to Prospectus)
3(b) Certificate of Limited Partnership of Wells Real Estate Fund X,
L.P. dated June 20, 1996
3(c) Certificate of Limited Partnership of Wells Real Estate Fund
XI,
L.P. dated June 20, 1996
4 Form of Subscription Agreement and Subscription Agreement N/A
Signature Page (included as Exhibit C to Prospectus)
5(a) Opinion of Holland & Knight regarding the legality of the
securities of Wells Real Estate Fund X, L.P. to be offered
5(b) Opinion of Holland & Knight regarding the legality of
securities
of Wells Real Estate Fund XI, L.P. to be offered
8 Opinion of Holland & Knight regarding tax matters
10(a) Escrow Agreement between Registrant and NationsBank of
Georgia, N.A.
10(b) New York Escrow Agreement between Registrant and The Bank
of New York
10(c) Pennsylvania Escrow Agreement between Registrant and The
Bank of New York
10(d) Form of Leasing and Tenant Coordinating Agreement between
Registrant and Wells Management Company, Inc.
10(e) Form of Management Agreement between Registrant and Wells
Management Company, Inc.
10(f) Custodial Agency Agreement between Registrant and The Bank
of New York
23(a) Consent of Holland & Knight (included in Exhibits 5(a), 5(b) N/A
and
8)
23(b)/*/ Consent of KPMG Peat Marwick LLP - Wells Partners, L.P. N/A
23(c)/*/ Consent of KPMG Peat Marwick LLP - Wells Capital, Inc. N/A
23(d)/*/ Consent of Arthur Andersen LLP - Wells Real Estate Fund X, N/A
L.P.
23(e)/*/ Consent of Arthur Andersen LLP - Wells Real Estate Fund XI, N/A
L.P.
23(f)/*/ Consent of Arthur Andersen LLP - Wells Partners, L.P. N/A
23(g)/*/ Consent of Arthur Andersen LLP - Wells Capital, Inc. N/A
</TABLE>
/*/ To be filed by Amendment.
<PAGE>
EXHIBIT 1
WELLS REAL ESTATE FUND X/XI, L.P.
Up To
$70,000,000
Units of Limited Partnership Interest
(7,000,000 Units)
Dealer Manager Distribution Agreement
July 9, 1996
Wells Investment Securities, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Ladies and Gentlemen:
Wells Partners, L.P. ("Partners") and Leo F. Wells, III ("Wells"), as the
general partners (the "General Partners") of Wells Real Estate Fund X, L.P., a
Georgia limited partnership, and Wells Real Estate Fund XI, L.P., a Georgia
limited partnership (each of which partnerships is referred to herein as the
"Partnership"), propose that each Partnership issue and sell up to $35,000,000
aggregate principal amount of units of limited partnership interest ("Units") in
the Partnership. Such Units are to be sold for cash for $10.00 each; the
minimum purchase by any one person shall be 100 Units (except as otherwise
indicated in the Prospectus or in any letter or memorandum from the Partnership
to you (the "Dealer Manager")). Terms not defined herein shall have the same
meaning as in the Prospectus. In connection therewith, the Partnership and the
General Partners hereby agree with the Dealer Manager as follows:
1. Representations and Warranties of the Partnership
-------------------------------------------------
The Partnership represents and warrants to the Dealer Manager and each
dealer with whom the Dealer Manager has entered into or will enter into a
Selected Dealer Agreement in the form attached to this Agreement as Exhibit "A"
(said dealers being hereinafter called the "Dealers") that:
1.1 A registration statement with respect to the Partnership has been
prepared by the Partnership in accordance with applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the applicable
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "SEC") promulgated thereunder, covering the Units.
Said registration statement, which includes a preliminary prospectus, was filed
with the SEC on or about July 10, 1996. Copies of such registration statement
and each amendment thereto have been or will be delivered to the Dealer Manager.
(The registration statement and prospectus contained therein, as finally amended
and revised at the effective date of the registration statement, are
respectively hereinafter referred to as the "Registration Statement" and the
"Prospectus," except that if the Prospectus first filed by the Partnership
pursuant to Rule 424(b) under the Securities Act shall differ from the
Prospectus, the term "Prospectus" shall also include the Prospectus filed
pursuant to Rule 424(b).)
1.2 The Partnership has been duly and validly organized and formed as a
limited partnership under the Revised Uniform Limited Partnership Act of the
State of Georgia with the power and authority to conduct its business as
described in the Prospectus.
1.3 The Registration Statement and Prospectus comply with the
Securities Act and the Rules and Regulations and do not contain any untrue
statements of material facts or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading provided,
<PAGE>
however, that the foregoing provisions of this Section 1.3 will not extend to
such statements contained in or omitted from the Registration Statement or
Prospectus as are primarily within the knowledge of the Dealer Manager or any of
the Dealers and are based upon information furnished by the Dealer Manager in
writing to the Partnership specifically for inclusion therein.
1.4 The Partnership intends to use the funds received from the sale of
the Units as set forth in the Prospectus.
1.5 No consent, approval, authorization or other order of any
governmental authority is required in connection with the execution or delivery
by the Partnership of this Agreement or the issuance and sale by the Partnership
of the Units, except such as may be required under the Securities Act or
applicable state securities laws.
1.6 There are no actions, suits or proceedings pending or to the
knowledge of the Partnership, threatened against the Partnership or its General
Partners, at law or in equity or before or by any federal or state commission,
regulatory body or administrative agency or other governmental body, domestic or
foreign, which will have a material adverse effect on the business or property
of the Partnership.
1.7 The execution and delivery of this Agreement, the consummation of
the transactions herein contemplated and compliance with the terms of this
Agreement by the Partnership will not conflict with or constitute a default
under any charter, by-law, indenture, mortgage, deed of trust, lease, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Partnership, except to the extent that the enforceability of the indemnity
and/or contribution provisions contained in Section 4 of this Agreement may be
limited under applicable securities laws.
1.8 The Partnership has full legal right, power and authority to enter
into this Agreement and to perform the transactions contemplated hereby, except
to the extent that the enforceability of the indemnity and/or contribution
provisions contained in Section 4 of this Agreement may be limited under
applicable securities laws.
1.9 At the time of the issuance of the Units, the Units will have been
duly authorized and validly issued, and upon payment therefor, will be fully
paid and nonassessable and will conform to the description thereof contained in
the Prospectus, subject to the requirement that the limited partners do not
participate in the management or control of the business of the Partnership.
1.10 The respective financial statements contained in the Registration
Statement and the Prospectus fairly present the financial condition of the
Partnership and Partners and the results of their respective operations as of
the dates and for the periods therein specified; and such financial statements
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved; and the accountants who
have certified certain of such financial statements are independent public
accountants as required by the Securities Act and the Rules and Regulations.
2. Covenants of the Partnership
----------------------------
The Partnership covenants and agrees with the Dealer Manager that:
2.1 It will, at no expense to the Dealer Manager, furnish the Dealer
Manager with such number of printed copies of the Registration Statement,
including all amendments and exhibits thereto, as the
2
<PAGE>
Dealer Manager may reasonably request. It will similarly furnish to the Dealer
Manager and others designated by the Dealer Manager as many copies as the Dealer
Manager may reasonably request in connection with the offering of the Units of:
(a) the Prospectus in preliminary and final form and every form of supplemental
or amended prospectus; (b) this Agreement; and (c) any other printed sales
literature or other materials (provided that the use of said sales literature
and other materials has been first approved for use by the Partnership and all
appropriate regulatory agencies).
2.2 It will furnish such proper information and execute and file such
documents as may be necessary for the Partnership to qualify the Units for offer
and sale under the securities laws of such jurisdictions as the Dealer Manager
may reasonably designate and will file and make in each year such statements and
reports as may be required. The Partnership will furnish to the Dealer Manager
a copy of such papers filed by the Partnership in connection with any such
qualification.
2.3 It will: (a) use its best efforts to cause the Registration
Statement to become effective; (b) furnish copies of any proposed amendment or
supplement of the Registration Statement or Prospectus to the Dealer Manager;
(c) file every amendment or supplement to the Registration Statement or the
Prospectus that may be required by the SEC; and (d) if at any time the SEC shall
issue any stop order suspending the effectiveness of the Registration Statement,
it will use its best efforts to obtain the lifting of such order at the earliest
possible time.
2.4 If at any time when a Prospectus is required to be delivered under
the Securities Act any event occurs as a result of which, in the opinion of
either the Partnership or the Dealer Manager, the Prospectus or any other
prospectus then in effect would include an untrue statement of a material fact
or, in view of the circumstances under which they were made, omit to state any
material fact necessary to make the statements therein not misleading, the
Partnership will promptly notify the Dealer Manager thereof (unless the
information shall have been received from the Dealer Manager) and will effect
the preparation of an amended or supplemental prospectus which will correct such
statement or omission. The Partnership will then promptly prepare such amended
or supplemental prospectus or prospectuses as may be necessary to comply with
the requirements of Section 10 of the Securities Act.
3. Obligations and Compensation of Dealer Manager
----------------------------------------------
3.1 The Partnership hereby appoints the Dealer Manager as its agent and
principal distributor for the purpose of selling for cash up to a maximum of
3,500,000 Units through Dealers, all of whom shall be members of the National
Association of Securities Dealers, Inc. ("NASD"). The Dealer Manager may also
sell Units for cash directly to its own clients and customers at the public
offering price and subject to the terms and conditions stated in the Prospectus.
The Dealer Manager hereby accepts such agency and distributorship and agrees to
use its best efforts to sell the Units on said terms and conditions. The Dealer
Manager represents to the Partnership that it is a member of the NASD and that
it and its employees and representatives have all required licenses and
registrations to act under this Agreement.
The Dealer Manager agrees to be bound by the terms of the Escrow
Agreement executed as of June 28, 1996 by The Bank of New York, Atlanta,
Georgia, as escrow agent, the Dealer Manager and the Partnership, a copy of
which is enclosed.
3.2 Promptly after the effective date of the Registration Statement,
the Dealer Manager and the Dealers shall commence the offering of the Units for
cash to the public in jurisdictions in which the Units are registered or
qualified for sale or in which such offering is otherwise permitted. The Dealer
Manager
3
<PAGE>
and the Dealers will suspend or terminate offering of the Units upon request of
the Partnership at any time and will resume offering the Units upon subsequent
request of the Partnership.
3.3 Except as provided in the "Plan of Distribution" Section of the
Prospectus, as compensation for the services rendered by the Dealer Manager, the
Partnership agrees that it will pay to the Dealer Manager selling commissions in
the amount of 8% of the gross proceeds of the Units sold plus a dealer manager
fee in the amount of 2% of the gross proceeds of the Units sold.
Notwithstanding the foregoing, no commissions, payments or amount whatsoever
will be paid to the Dealer Manager under this Section 3.3 unless or until
125,000 Units have been sold by the Dealer Manager and its Dealers (the "Minimum
Offering"), or in connection with commissions payable with respect to sales made
to residents of the States of New York and Pennsylvania, until 250,000 Units
(from all sources), have been sold. Until the Minimum Offering is obtained,
investments will be held in escrow and, if the Minimum Offering is not obtained,
will be returned to the investors in accordance with the Prospectus. The
Partnership will not be liable or responsible to any Dealer for direct payment
of commissions to such Dealer, it being the sole and exclusive responsibility of
the Dealer Manager for payment of commissions to Dealers. Notwithstanding the
above, at the discretion of the General Partners the Partnership may act as
agent of the Dealer Manager by making direct payment of commissions to such
Dealers without incurring any liability therefor.
3.4 The Dealer Manager represents and warrants to the Partnership, its
partners and each person and firm that signs the Registration Statement that the
information under the caption "Plan of Distribution" in the Prospectus and all
other information furnished to the Partnership by the Dealer Manager in writing
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto does not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
3.5 The Dealer Manager represents and warrants to the Partnership that
it will not represent or imply that the escrow holder, as identified in the
Prospectus, has investigated the desirability or advisability of investment in
the Partnership, or has approved, endorsed or passed upon the merits of the
Units or the Partnership, nor will they use the name of said escrow holder in
any manner whatsoever in connection with the offer or sale of the Units other
than by acknowledgment that it has agreed to serve as escrow holder.
4. Indemnification
---------------
4.1 The General Partners will indemnify and hold harmless the Dealers
and the Dealer Manager, their officers and directors and each person, if any,
who controls such Dealer or Dealer Manager within the meaning of Section 15 of
the Securities Act from and against any losses, claims, damages or liabilities,
joint or several, to which such Dealers or Dealer Manager, their officers and
directors, or such controlling person may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (a) any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Registration Statement (including the Prospectus as a part thereof) or any post-
effective amendment thereto or in the Prospectus or any amendment or supplement
to the Prospectus or (ii) in any blue sky application or other document executed
by the Partnership or on its behalf specifically for the purpose of qualifying
any or all of the Units for sale under the securities laws of any jurisdiction
or based upon written information furnished by the Partnership under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or (b) the omission or alleged
omission to state in the Registration Statement (including the Prospectus as a
part thereof) or any post-effective amendment thereof or in any Blue Sky
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (c) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus, if
used prior to the effective date of the
4
<PAGE>
Registration Statement, or in the Prospectus or any amendment or supplement to
the Prospectus or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and will reimburse each Dealer or Dealer Manager, its officers and
directors and each such controlling person for any legal or other expenses
reasonably incurred by such Dealer or Dealer Manager, its officers and
directors, or such controlling person in connection with investigating or
defending such loss, claim, damage, liability or action; provided that the
Partnership will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of, or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Partnership or Dealer Manager by or on behalf of any Dealer or Dealer Manager
specifically for use with reference to such Dealer or Dealer Manager in the
preparation of the Registration Statement or any such post-effective amendment
thereof, any such Blue Sky Application or any such preliminary prospectus or the
Prospectus or any such amendment thereof or supplement thereto; and further
provided that the Partnership will not be liable in any such case if it is
determined that such Dealer or Dealer Manager was at fault in connection with
the loss, claim, damage, liability or action.
4.2 The Dealer Manager will indemnify and hold harmless the
Partnership, the General Partners, the partners of Partners, each person or firm
which has signed the Registration Statement and each person, if any, who
controls the Partnership within the meaning of Section 15 of the Securities Act,
from and against any losses, claims, damages or liabilities to which any of the
aforesaid parties may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (a) any untrue statement of a material
fact contained (i) in the Registration Statement (including the Prospectus as a
part thereof) or any post-effective amendment thereof or (ii) any Blue Sky
Application, or (b) the omission to state in the Registration Statement
(including the Prospectus as a part thereof) or any post-effective amendment
thereof or in any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (c) any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, if used prior to the effective date of the Registration
Statement, or in the Prospectus, or in any amendment or supplement to the
Prospectus or the omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein in the light
of the circumstances under which they were made not misleading in each case to
the extent, but only to the extent, that such untrue statement or omission was
made in reliance upon and in conformity with written information furnished to
the Partnership by or on behalf of the Dealer Manager specifically for use with
reference to the Dealer Manager in the preparation of the Registration Statement
or any such post-effective amendments thereof or any such Blue Sky Application
or any such preliminary prospectus or the Prospectus or any such amendment
thereof or supplement thereto, or (d) any unauthorized use of sales materials or
use of unauthorized verbal representations concerning the Units by the Dealer
Manager and will reimburse the aforesaid parties, in connection with
investigation or defending such loss, claim, damage, liability or action. This
indemnity agreement will be in addition to any liability which the Dealer
Manager may otherwise have.
4.3 Each Dealer severally will indemnify and hold harmless the
Partnership, Dealer Manager, the General Partners and each of their partners and
such partners' directors (including any persons named in any of the Registration
Statements with his consent, as about to become a director), each of their
officers who has signed any of the Registration Statements and each person, if
any, who controls the Partnership, the Dealer Manager and the General Partners
within the meaning of Section 15 of the Securities Act from and against any
losses, claims, damages or liabilities to which the Partnership, the Dealer
Manager, the General Partners, any such director or officer, or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (a) any untrue statement or alleged untrue
statement of a material fact contained
5
<PAGE>
(i) in the Registration Statement (including the Prospectus as a part thereof)
or any post-effective amendment thereof or (ii) in any Blue Sky Application, or
(b) the omission or alleged omission to state in the Registration Statement
(including the Prospectus as a part thereof) or any post-effective amendment
thereof or in any Blue Sky Application a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (c) any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, if used prior to the effective date of the Registration
Statement, or in the Prospectus, or in any amendment or supplement to the
Prospectus or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Partnership or the Dealer Manager by or on behalf of such Dealer specifically
for use with reference to such Dealer in the preparation of the Registration
Statement or any such post-effective amendments thereof or any such Blue Sky
Application or any such preliminary prospectus or the Prospectus or any such
amendment thereof or supplement thereto, or (d) any unauthorized use of sales
materials or use of unauthorized verbal representations concerning the Units by
such Dealer and will reimburse the Partnership, the Dealer Manager, the General
Partners, any such directors or officers, or controlling person, in connection
with investigating or defending any such loss, claim, damage, liability or
action. This indemnity agreement will be in addition to any liability which
such Dealer may otherwise have.
4.4 Promptly after receipt by an indemnified party under this Section 4
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 4, notify in writing the indemnifying party of the commencement thereof
and the omission so to notify the indemnifying party will relieve it from any
liability under this Section 4 as to the particular item for which
indemnification is then being sought, but not from any other liability which it
may have to any indemnified party. In case any such action is brought against
any indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled, to the extent it may wish,
jointly with any other indemnifying party similarly notified, to participate in
the defense thereof, with separate counsel. Such participation shall not relieve
such indemnifying party of the obligation to reimburse the indemnified party for
reasonable legal and other expenses (subject to Section 4.5) incurred by such
indemnified party in defending itself, except for such expenses incurred after
the indemnifying party has deposited funds sufficient to effect the settlement,
with prejudice, of the claim in respect of which indemnity is sought. Any such
indemnifying party shall not be liable to any such indemnified party on account
of any settlement of any claim or action effected without the consent of such
indemnifying party.
4.5 The indemnifying party shall pay all legal fees and expenses of the
indemnified party in the defense of such claims or actions; provided, however,
that the indemnifying party shall not be obliged to pay legal expenses and fees
to more than one law firm in connection with the defense of similar claims
arising out of the same alleged acts or omissions giving rise to such claims
notwithstanding that such actions or claims are alleged or brought by one or
more parties against more than one indemnified party. If such claims or actions
are alleged or brought against more than one indemnified party, then the
indemnifying party shall only be obliged to reimburse the expenses and fees of
the one law firm that has been selected by a majority of the indemnified parties
against which such action is finally brought; and in the event a majority of
such indemnified parties is unable to agree on which law firm for which expenses
or fees will be reimbursable by the indemnifying party, then payment shall be
made to the first law firm of record representing an indemnified party against
the action or claim. Such law firm shall be paid only to the extent of services
performed by such law firm and no reimbursement shall be payable to such law
firm on account of legal services performed by another law firm.
6
<PAGE>
4.6 The indemnity agreements contained in this Section 4 shall remain
operative and in full force and effect regardless of (a) any investigation made
by or on behalf of any Dealer, or any person controlling any Dealer or by or on
behalf of the Partnership, the Dealer Manager or the General Partners or any
officer or director thereof, or by or on behalf of the Partnership, the Dealer
Manager or the General Partners, (b) delivery of any Units and payment therefor,
and (c) any termination of this Agreement. A successor of any Dealer or of any
of the parties to this Agreement, as the case may be, shall be entitled to the
benefits of the indemnity agreements contained in this Section 4.
5. Survival of Provisions
----------------------
The respective agreements, representations and warranties of the
Partnership and the Dealer Manager set forth in this Agreement shall remain
operative and in full force and effect regardless of (a) any termination of this
Agreement, (b) any investigation made by or on behalf of the Dealer Manager or
any Dealer or any person controlling the Dealer Manager or any Dealer or by or
on behalf of the Partnership, its partners or any person controlling the
Partnership, and (c) the acceptance of any payment for the Units.
6. Applicable Law
--------------
This Agreement was executed and delivered in, and its validity,
interpretation and construction shall be governed by the laws of, the State of
Georgia.
7. Counterparts
------------
This Agreement may be executed in any number of counterparts. Each
counterpart, when executed and delivered, shall be an original contract, but all
counterparts, when taken together, shall constitute one and the same Agreement.
8. Successors and Amendment
------------------------
8.1 This Agreement shall inure to the benefit of and be binding upon
the Dealer Manager, the General Partners, the Partnership and their respective
successors. Nothing in this Agreement is intended or shall be construed to give
to any other person any right, remedy or claim, except as otherwise specifically
provided herein. This Agreement shall inure to the benefit of the Dealers to the
extent set forth in Sections 1 and 4 hereof.
8.2 This Agreement may be amended by the written agreement of the
Dealer Manager and the Partnership, and, as to Sections 3.3 and 10, the General
Partners.
9. Term
----
Any party to this Agreement shall have the right to terminate this
Agreement on 60 days' written notice.
10. Confirmation
------------
The General Partners hereby agree and assume the duty to confirm on behalf
of themselves and on behalf of dealers or brokers who sell the Units all orders
for purchase of Units accepted by the General Partners. Such confirmations will
comply with the rules of the SEC and the NASD, and will comply with
7
<PAGE>
applicable laws of such other jurisdictions to the extent the General Partners
are advised of such laws in writing by the Dealer Manager.
11. Suitability of Investors
------------------------
The Dealer Manager will offer Units, and in its agreements with Dealers
will require that the Dealers offer Units, only to persons who meet the
financial qualifications set forth in the Prospectus or in any suitability
letter or memorandum sent to it by the Partnership and will only make offers to
persons in the states in which it is advised in writing that the Units are
qualified for sale or that such qualification is not required. In offering
Units, the Dealer Manager will, and in its agreements with Dealers the Dealer
Manager will require that the Dealer comply with the provisions of Appendix "F"
of the Rules of Fair Practice set forth in the NASD Manual, attached hereto as
Attachment No. 1, as well as all other applicable rules and regulations relating
to suitability of investors, including without limitation, the provisions of
Article III.C. of the Statement of Policy Regarding Real Estate Programs of the
North American Securities Administrators Association, Inc.
12. Submission of Orders
--------------------
12.1 Those persons who purchase Units will be instructed by the Dealer
Manager or the Dealer to make their checks payable to an escrow agent for the
Partnership, whenever appropriate, or to the Partnership after the Minimum
Offering has been achieved. The Dealer Manager and any Dealer receiving a check
not conforming to the foregoing instructions shall return such check directly to
such subscriber not later than the end of the next business day following its
receipt. Checks received by the Dealer Manager or Dealer which conform to the
foregoing instructions shall be transmitted for deposit pursuant to one of the
methods described in this Section 12. Transmittal of received investor funds
will be made in accordance with the following procedures.
12.2 Where, pursuant to a Dealer's internal supervisory procedures,
internal supervisory review is conducted at the same location at which
subscription documents and checks are received from subscribers, checks will be
transmitted in care of the Dealer Manager by the end of the next business day
following receipt by the Dealer for deposit to an escrow agent, where
appropriate, or to the Partnership after the Minimum Offering has been achieved.
12.3 Where, pursuant to a Dealer's internal supervisory procedures, final
internal supervisory review is conducted at a different location, checks will be
transmitted by the end of the next business day following receipt by the Dealer
to the office of the Dealer conducting such final internal supervisory review
(the "Final Review Office"). The Final Review Office will in turn by the end of
the next business day following receipt by the Final Review Office, transmit
such checks in care of the Dealer Manager for deposit to an escrow agent, where
appropriate, or to the Partnership after the Minimum Offering has been achieved.
12.4 Where the Dealer Manager is involved in the distribution process,
checks will be transmitted by the Dealer Manager for deposit to the escrow
agent, where applicable, or to the Partnership after the Minimum Offering has
been achieved, as soon as practicable, but in any event by the end of the second
business day following receipt by the Dealer Manager. Checks of rejected
subscribers will be promptly returned to such subscribers.
8
<PAGE>
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us
as of the date first above written.
Very truly yours,
WELLS REAL ESTATE FUND X, L.P.
and
WELLS REAL ESTATE FUND XI, L.P.
By:
------------------------------
Leo F. Wells, III
General Partner
By: WELLS PARTNERS, L.P.
A Georgia Limited Partnership
General Partner
By: WELLS CAPITAL, INC.
A Georgia Corporation
General Partner
By:
--------------------------------
Leo F. Wells, III
President
Attest:
-------------------------
Name:
--------------------
Title:
-------------------
Accepted and agreed as of the
date first above written.
WELLS INVESTMENT SECURITIES, INC.
By:
-------------------------------
Leo F. Wells, III
President
Attest:
---------------------------
Name:
------------------------
Title:
-----------------------
9
<PAGE>
EXHIBIT "A"
WELLS REAL ESTATE FUND X/XI, L.P.
Up To
$70,000,000
7,000,000 Units of Limited Partnership Interest
at $10.00 each
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
Wells Investment Securities, Inc., as the dealer manager ("Dealer
Manager") for Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P.
(each of which partnerships is referred to herein as the "Partnership"), Georgia
limited partnerships of which Wells Partners, L.P. and Leo F. Wells, III serve
as the general partners (the "General Partners"), invite you (the "Dealer") to
participate in the distribution of units of limited partnership interest in the
Partnership ("Units") subject to the following terms:
I. Dealer Manager Distribution Agreement
The Dealer Manager has entered into an agreement with the Partnership
and the General Partners called the Dealer Manager Distribution Agreement dated
____________ __, 1996, in the form attached hereto as Exhibit "A." By your
acceptance of this Agreement, you will become one of the Dealers referred to in
such Agreement between the Partnership, the General Partners and the Dealer
Manager and will be entitled and subject to the indemnification provisions
contained in such Agreement, including the provisions of such Agreement (Section
4) wherein the Dealers severally agree to indemnify and hold harmless the
Partnership and Dealer Manager and each officer and director thereof, and each
person, if any, who controls the Partnership and Dealer Manager within the
meaning of the Securities Act of 1933. Except as otherwise specifically stated
herein, all terms used in this Agreement have the meanings provided in the
Dealer Manager Distribution Agreement. The Units are offered solely through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. ("NASD").
Dealer hereby agrees to use its best efforts to sell the Units for
cash on the terms and conditions stated in the Prospectus. Nothing in this
Agreement shall be deemed or construed to make Dealer an employee, agent,
representative or partner of the Dealer Manager or of the Partnership, and
Dealer is not authorized to act for the Dealer Manager or the Partnership or to
make any representations on their behalf except as set forth in the Prospectus
and such other printed information furnished to Dealer by the Dealer Manager or
the Partnership to supplement the Prospectus ("supplemental information").
II. Submission of Orders
Those persons who purchase Units will be instructed by the Dealer to
make their checks payable to "The Bank of New York, as Agent," for the
Partnership, where appropriate, or to the Partnership after the Minimum Offering
has been achieved. Dealer hereby agrees to be bound by the terms of the Escrow
Agreement executed as of June 28, 1996 by The Bank of New York, Atlanta,
Georgia, as escrow agent, the Dealer Manager and the Partnership, a copy of
which is enclosed. Any Dealer receiving a check not conforming to the foregoing
instructions shall return such check directly to such subscriber not later than
the end of the next business day following its receipt. Checks received by the
Dealer which conform to the
<PAGE>
foregoing instructions shall be transmitted for deposit pursuant to one of the
methods in this Article II. Transmittal of received investor funds will be made
in accordance with the following procedures.
Where, pursuant to the Dealer's internal supervisory procedures,
internal supervisory review is conducted at the same location at which
subscription documents and checks are received from subscribers, checks will be
transmitted in care of the Dealer Manager by the end of the next business day
following receipt by the Dealer for deposit to an escrow agent, where
appropriate, or to the Partnership after the Minimum Offering has been achieved.
Where, pursuant to the Dealer's internal supervisory procedures, final
and internal supervisory review is conducted at a different location, checks
will be transmitted by the end of the next business day following receipt by the
Dealer to the office of the Dealer conducting such final internal supervisory
review (the "Final Review Office"). The Final Review Office will in turn by the
end of the next business day following receipt by the Final Review Office,
transmit such checks for deposit to an escrow agent, where appropriate, or to
the Partnership after the Minimum Offering has been achieved.
III. Pricing
Units shall be offered to the public at the offering price of $10.00
per Unit payable in cash. Except as otherwise indicated in the Prospectus or in
any letter or memorandum sent to the Dealer by the Partnership or Dealer
Manager, a minimum initial purchase of 100 Units is required. Additional
investments may be made in cash in minimal increments of at least 2.5 Units.
The Units are nonassessable, and limited partners will not be required to
contribute further sums to the capital of the Partnership. Dealer hereby agrees
to place any order for the full purchase price.
IV. Dealers' Commissions
Except as provided in the "Plan of Distribution" Section of the
Prospectus, the Dealer's selling commission applicable to the total public
offering price of Units sold by Dealer which it is authorized to sell hereunder
is 8% of the gross proceeds of Units sold by it and accepted and confirmed by
the General Partners, which commission will be paid by the Dealer Manager. For
these purposes, a "sale of Units" shall occur if and only if a transaction has
closed with a securities purchaser pursuant to all applicable offering and
subscription documents and the Partnership has thereafter distributed the
commission to the Dealer Manager in connection with such transaction. The
Dealer hereby waives any and all rights to receive payment of commissions due
until such time as the Dealer Manager is in receipt of the commission from the
Partnership. The Dealer affirms that the Dealer Manager's liability for
commissions payable is limited solely to the proceeds of commissions receivable
associated therewith. In addition, as specified in the Prospectus, the Dealer
Manager may reallow out of its dealer manager fee a marketing fee of up to 1% of
the gross proceeds of Units sold by Dealers participating in the offering of
Units, based on such factors as the number of Units sold by such participating
Dealer, the assistance of such participating Dealer in marketing the offering of
Units, and bona fide conference fees incurred.
The parties hereby agree that the foregoing commission is not in
excess of the usual and customary distributors' or sellers' commission received
in the sale of securities similar to the Units, that Dealer's interest in the
offering is limited to such commission from the Dealer Manager and Dealer's
indemnity referred to in Section 4 of the Dealer Manager Distribution Agreement,
that the Partnership is not liable or responsible for the direct payment of such
commission to the Dealer, and that the Dealer is not in privity of contract with
the Partnership even though it is entitled to certain benefits deriving
therefrom.
2
<PAGE>
V. Payment
Payments of selling commissions will be made by the Dealer Manager (or
by the Partnership as provided in the Dealer Manager Distribution Agreement) to
Dealer within 30 days of the receipt by the Dealer Manager of the gross
commission payments from the Partnership.
VI. Right to Reject Orders or Cancel Sales
All orders, whether initial or additional, are subject to acceptance
by and shall only become effective upon confirmation by the General Partners;
the Partnership and the General Partners reserve the right to reject any order.
Orders not accompanied by a Subscription Agreement and Signature Page and the
required check in payment for the Units may be rejected. Issuance and delivery
of the Units will be made only after actual receipt of payment therefor. If any
check is not paid upon presentment, or if the Partnership is not in actual
receipt of clearinghouse funds or cash, certified or cashier's check or the
equivalent in payment for the Units within 15 days of sale, the Partnership
reserves the right to cancel the sale without notice. In the event an order is
rejected, canceled or rescinded for any reason, the Dealer agrees to return to
the Dealer Manager any commission theretofore paid with respect to such order.
VII. Prospectus and Supplemental Information
Dealer is not authorized or permitted to give and will not give, any
information or make any representation concerning the Units except as set forth
in the Prospectus and supplemental information. The Dealer Manager will supply
Dealer with reasonable quantities of the Prospectus, any supplements thereto and
any amended Prospectus, as well as any supplemental information, for delivery to
investors, and Dealer will deliver a copy of the Prospectus and all supplements
thereto and any amended Prospectus to each investor to whom an offer is made
prior to or simultaneously with the first solicitation of an offer to sell the
Units to an investor. The Dealer agrees that it will not send or give any
supplements thereto and any amended Prospectus to that investor unless it has
previously sent or given a Prospectus and all supplements thereto and any
amended Prospectus to that investor or has simultaneously sent or given a
Prospectus and all supplements thereto and any amended Prospectus with such
supplemental information. Dealer agrees that it will not show or give to any
investor or reproduce any material or writing which is supplied to it by the
Dealer Manager and marked "dealer only" or otherwise bearing a legend denoting
that it is not to be used with respect to members of the public. Dealer agrees
that it will not use in connection with the offer or sale of Units any material
or writing which relates to another partnership supplied to it by the
Partnership or the Dealer Manager bearing a legend which states that such
material may not be used in connection with the offer or sale of any securities
other than the partnership to which it relates. Dealer further agrees that it
will not use in connection with the offer or sale of Units any materials or
writings which have not been previously approved by the Dealer Manager. Each
Dealer agrees, if the Dealer Manager so requests, to furnish a copy of any
revised preliminary Prospectus to each person to whom it has furnished a copy of
any previous preliminary Prospectus, and further agrees that it will itself mail
or otherwise deliver all preliminary and final Prospectuses required for
compliance with the provisions of Rule 15c2-8 under the Securities Exchange Act
of 1934. Regardless of the termination of this Agreement, Dealer will deliver a
Prospectus in transactions in the Units for a period of 90 days from the
effective date of the Registration Statement or such longer period as may be
required by the Securities Exchange Act of 1934. On becoming a Dealer, and in
offering and selling Units, Dealer agrees to comply with all the applicable
requirements under the Securities Act of 1933, and the Securities Exchange Act
of 1934, including, without limitation, the provisions of Rule 10b-6 and Rule
10b-7 and Rule 15c2-4 of the Securities and Exchange Commission.
Notwithstanding the termination of this Agreement or the payment of any amount
to Dealer, Dealer agrees to pay Dealer's proportionate share of any claim,
demand or liability asserted against Dealer and the other Dealers on the basis
that Dealers or any of them constitute an association, unincorporated business
or
3
<PAGE>
other separate entity, including in each case Dealer's proportionate share of
any expenses incurred in defending against any such claim, demand or liability.
VIII. License and Association Membership
Dealer's acceptance of this Agreement constitutes a representation to
the Partnership and Dealer Manager that Dealer is a properly registered or
licensed broker-dealer, duly authorized to sell Units under Federal and state
securities laws and regulations and in all states where it offers or sells
Units, and that it is a member in good standing of the NASD. This Agreement
shall automatically terminate if the Dealer ceases to be a member in good
standing of such association, or in the case of a foreign dealer, so to conform.
Dealer agrees to notify the Dealer Manager immediately if Dealer ceases to be a
member in good standing, or in the case of a foreign dealer, so to conform. The
Dealer Manager also hereby agrees to abide by the Rules of Fair Practice of the
NASD.
IX. Limitation of Offer
Dealer will offer Units only to persons who meet the financial
qualifications set forth in the Prospectus or in any suitability letter or
memorandum sent to it by the Partnership or Dealer Manager and will only make
offers to persons in the states in which it is advised in writing that the Units
are qualified for sale or that such qualification is not required. In offering
Units, Dealer will comply with the provisions of Appendix F of the Rules of Fair
Practice set forth in the NASD Manual, attached hereto as Attachment No. 1, as
well as all other applicable rules and regulations relating to suitability of
investors, including without limitation, the provisions of Article III.C. of the
Statement of Policy Regarding Real Estate Programs of the North American
Securities Administrators Association, Inc. Dealer will also undertake to
comply with Sections 8, 24, 25 and 36 of Article III of the Rules of Fair
Practice set forth in the NASD Manual.
X. Termination
Dealer will suspend or terminate its offer and sale of Units upon the
request of the Partnership or the Dealer Manager at any time and will resume its
offer and sale of units hereunder upon subsequent request of the Partnership or
the Dealer Manager. Any party may terminate this Agreement by written notice.
Such termination shall be effective 48 hours after the mailing of such notice.
This Agreement is the entire agreement of the parties and supersedes all prior
agreements, if any, between the parties hereto.
This Agreement may be amended at any time by the Dealer Manager by
written notice to the Dealer, and any such amendment shall be deemed accepted by
Dealer upon placing an order for sale of Units after he has received such
notice.
XI. Notice
All notices will be in writing and will be duly given to the Dealer
Manager when mailed to 3885 Holcomb Bridge Road, Norcross, Georgia 30092, and to
Dealer when mailed to the address specified by Dealer herein.
XII. Attorney's Fees and Applicable Law
In any action to enforce the provisions of this Agreement or to secure
damages for its breach, the prevailing party shall recover its costs and
reasonable attorney's fees. This Agreement shall be construed under
4
<PAGE>
the laws of the State of Georgia and shall take effect when signed by Dealer and
countersigned by the Dealer Manager.
THE DEALER MANAGER:
WELLS INVESTMENT SECURITIES, INC.
Attest:
By: By:
--------------------------- ------------------------------
Name: Leo F. Wells, III
---------------------- President
Title:
---------------------
5
<PAGE>
We have read the foregoing Agreement and we hereby accept and agree to
the terms and conditions therein set forth. We hereby represent that the list
below of jurisdictions in which we are registered or licensed as a broker or
dealer and are fully authorized to sell securities is true and correct, and we
agree to advise you of any change in such list during the term of this
Agreement.
1. Identity of Dealer:
Name:
---------------------------------------------------------------------------
Type of
entity:
-------------------------------------------------------------------------
(to be completed by Dealer)
(corporation, partnership or proprietorship)
Organized in the State of:
------------------------------------------------------
(to be completed by Dealer) (State)
Licensed as broker-dealer in the following
states:
-------------------------------------------------------------------------
(to be completed by Dealer)
Tax I.D.#
-----------------------------------------------------------------------
2. Person to receive notice pursuant to Section XI.
Name:
---------------------------------------------------------------------------
Company:
------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
City, State and Zip Code:
-------------------------------------------------------
Telephone No.:( )
----- ---------------------
AGREED TO AND ACCEPTED BY THE DEALER:
- -------------------------------------------
(Dealer's Firm Name)
By:
----------------------------------------
Signature
Title:
-------------------------------------
6
<PAGE>
ATTACHMENT NO. 1
APPENDIX "F"
------------
Sec. 3
Suitability
(a) A member or person associated with a member shall not underwrite or
participate in a public offering of a direct participation program unless
standards of suitability have been established by the program for participants
therein and such standards are fully disclosed in the prospectus and are
consistent with the provisions of subsection (b) of this section.
(b) In recommending to a participant the purchase, sale or exchange of an
interest in a direct participation program, a member or person associated with a
member shall:
(1) have reasonable grounds to believe, on the basis of information
obtained from the participant concerning his investment objectives, other
investments, financial situation and needs, and any other information known by
the member or associated person, that:
(i) the participant is or will be in a financial position appropriate
to enable him to realize to a significant extent the benefits described in the
prospectus, including the tax benefits where they are a significant aspect of
the program;
(ii) the participant has a fair market net worth sufficient to sustain
the risks inherent in the program, including loss of investment and lack of
liquidity; and
(iii) the program is otherwise suitable for the participant; and
(2) maintain in the files of the member documents disclosing the basis
upon which the determination of suitability was reached as to each participant.
(c) Subsections 3(a) and 3(b) shall not apply to:
(1) a secondary public offering of or a secondary market transaction
in a unit, depositary receipt, or other interest in a direct participation
program for which quotations are displayed on the NASDAQ System or which is
listed on a registered national securities exchange, or
(2) an initial public offering of a unit, depositary receipt or other
interest in a direct participation program for which an application for
inclusion on the NASDAQ System or listing on a registered national securities
exchange has been approved by NASDAQ or such exchange and the applicant makes a
good faith representation that it believes such inclusion on NASDAQ or listing
on an exchange will occur within a reasonable period of time following the
formation of the program.
(d) Notwithstanding the provisions of subsections (a) and (b) hereof, no
member shall execute any transaction in a direct participation program in a
discretionary account without prior written approval of the transaction by the
customer.
<PAGE>
Sec. 4
Disclosure
(a) Prior to participating in a public offering of a direct participation
program, a member or person associated with a member shall have reasonable
grounds to believe, based on information made available to him by the sponsor
through a prospectus or other materials, that all material facts are adequately
and accurately disclosed and provide a basis for evaluating the program.
(b) In determining the adequacy of disclosed facts pursuant to subsection
(a) hereof, a member or person associated with a member shall obtain information
on material facts relating at a minimum to the following, if relevant in view of
the nature of the program:
(1) items of compensation;
(2) physical properties;
(3) tax aspects;
(4) financial stability and experience of the sponsor;
(5) the program's conflicts and risk factors; and
(6) appraisals and other pertinent reports.
(c) For purposes of subsections (a) or (b) hereof, a member or person
associated with a member may rely upon the results of an inquiry conducted by
another member or members, provided that:
(1) the member or person associated with a member has reasonable
grounds to believe that such inquiry was conducted with due care;
(2) the results of the inquiry were provided to the member or person
associated with a member with the consent of the member or members conducting or
directing the inquiry; and
(3) no member that participated in the inquiry is a sponsor of the
program or an affiliate of such sponsor.
(d) Prior to executing a purchase transaction in a direct participation
program, a member or person associated with a member shall inform the
prospective participant of all pertinent facts relating to the liquidity and
marketability of the program during the term of the investment; provided,
however, that this subsection shall not apply to an initial or secondary public
offering of or a secondary market transaction in a unit, depositary receipt or
other interest in a direct participation program which complies with subsection
3(c).
2
<PAGE>
EXHIBIT 3(B)
CERTIFICATE OF LIMITED PARTNERSHIP
OF
WELLS REAL ESTATE FUND X, L.P.
THIS CERTIFICATE OF LIMITED PARTNERSHIP of Wells Real Estate Fund X, L.P.
dated June 20, 1996, is made and executed by and between Wells Partners, L.P.
and Leo F. Wells, III, as General Partners, for the purpose of forming a limited
partnership pursuant to the provisions of the Georgia Revised Uniform Limited
Partnership Act, O.C.G.A. (S) 14-9-100, et seq.
-- ---
1. Name. The name of the Partnership is WELLS REAL ESTATE FUND X, L.P.
----
2. Registered Office and Agent. The name of the Registered Agent for
---------------------------
service of process in the State of Georgia is Wells Capital, Inc., a Georgia
corporation, and the address of the Registered Agent and the Registered Office
in the State of Georgia is 3885 Holcomb Bridge Road, Norcross, Gwinnett County,
Georgia 30092.
3. General Partners. The names and business addresses of the General
----------------
Partners are as follows:
Wells Partners, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Leo F. Wells, III
3885 Holcomb Bridge Road
Norcross, Georgia 30092
4. Latest Date of Dissolution. The latest date upon which the Partnership
--------------------------
is to dissolve is December 31, 2026.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Limited Partnership as of the date first above written.
GENERAL PARTNERS:
----------------
WELLS PARTNERS, L.P.
A Georgia Limited Partnership
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
By: /s/ Leo F. Wells, III
----------------------------
Leo F. Wells, III, President
[Corporate Seal]
/s/ Leo F. Wells, III
--------------------------------
LEO F. WELLS, III
<PAGE>
EXHIBIT 3(C)
CERTIFICATE OF LIMITED PARTNERSHIP
OF
WELLS REAL ESTATE FUND XI, L.P.
THIS CERTIFICATE OF LIMITED PARTNERSHIP of Wells Real Estate Fund XI, L.P.
dated June 20, 1996, is made and executed by and between Wells Partners, L.P.
and Leo F. Wells, III, as General Partners, for the purpose of forming a limited
partnership pursuant to the provisions of the Georgia Revised Uniform Limited
Partnership Act, O.C.G.A. (S) 14-9-100, et seq.
-- ---
1. Name. The name of the Partnership is WELLS REAL ESTATE FUND XI, L.P.
----
2. Registered Office and Agent. The name of the Registered Agent for
---------------------------
service of process in the State of Georgia is Wells Capital, Inc., a Georgia
corporation, and the address of the Registered Agent and the Registered Office
in the State of Georgia is 3885 Holcomb Bridge Road, Norcross, Gwinnett County,
Georgia 30092.
3. General Partners. The names and business addresses of the General
----------------
Partners are as follows:
Wells Partners, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Leo F. Wells, III
3885 Holcomb Bridge Road
Norcross, Georgia 30092
4. Latest Date of Dissolution. The latest date upon which the Partnership
--------------------------
is to dissolve is December 31, 2026.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Limited Partnership as of the date first above written.
GENERAL PARTNERS:
----------------
WELLS PARTNERS, L.P.
A Georgia Limited Partnership
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
By: /s/ Leo F. Wells, III
----------------------------
Leo F. Wells, III, President
[Corporate Seal]
/s/ Leo F. Wells, III
--------------------------------
LEO F. WELLS, III
<PAGE>
EXHIBIT 5(A)
July 9, 1996
Wells Real Estate Fund X, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Ladies and Gentlemen:
We are acting as your counsel in the registration of 3,500,000 Units of
limited partnership interest (the "Units") of Wells Real Estate Fund X, L.P.
(the "Partnership"), a Georgia limited partnership having Wells Partners, L.P.,
a Georgia limited partnership, and Leo F. Wells, III as the General Partners
(the "General Partners"). Such Units are to be sold for cash for $10.00 each.
The Units are being registered with the Securities and Exchange Commission under
a Registration Statement on Form S-11 to be filed with the Securities and
Exchange Commission on or about July 10, 1996 (as amended, the "Registration
Statement"). We are familiar with the documents and materials relating to the
Partnership relevant to this opinion.
In rendering our opinion, we have reviewed the Certificate of Limited
Partnership of the Partnership dated June 20, 1996, as executed by the General
Partners and filed with the Secretary of State of Georgia, and have assumed that
the Amended and Restated Agreement of Limited Partnership of the Partnership
will be executed substantially in the form included as Exhibit "B" to the
Prospectus to be filed with the Securities and Exchange Commission as a part of
the Registration Statement (the "Partnership Agreement") and that the
Partnership will be operated in accordance with the provisions of the
Partnership Agreement. We have also assumed that each of the Limited Partners
will execute the Subscription Agreement and Subscription Agreement Signature
Page included as Exhibit "C" to the Prospectus.
Assuming the foregoing, based on our review of the relevant documents and
materials, it is our opinion that:
(a) The Partnership is duly organized and validly existing and in good
standing under the laws of the State of Georgia; and
(b) Upon payment by subscribers for Units of their required capital
contributions, the Units will be validly authorized and legally
issued, and will be fully paid and non-assessable.
We hereby consent to the reference to our Firm under the caption "Legal
Opinions" in the Prospectus that forms a part of the Registration Statement and
to the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Holland & Knight
------------------------
HOLLAND & KNIGHT
<PAGE>
EXHIBIT 5(B)
July 9, 1996
Wells Real Estate Fund XI, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Ladies and Gentlemen:
We are acting as your counsel in the registration of 3,500,000 Units of
limited partnership interest (the "Units") of Wells Real Estate Fund XI, L.P.
(the "Partnership"), a Georgia limited partnership having Wells Partners, L.P.,
a Georgia limited partnership, and Leo F. Wells, III as the General Partners
(the "General Partners"). Such Units are to be sold for cash for $10.00 each.
The Units are being registered with the Securities and Exchange Commission under
a Registration Statement on Form S-11 to be filed with the Securities and
Exchange Commission on or about July 10, 1996 (as amended, the "Registration
Statement"). We are familiar with the documents and materials relating to the
Partnership relevant to this opinion.
In rendering our opinion, we have reviewed the Certificate of Limited
Partnership of the Partnership dated June 20, 1996, as executed by the General
Partners and filed with the Secretary of State of Georgia, and have assumed that
the Amended and Restated Agreement of Limited Partnership of the Partnership
will be executed substantially in the form included as Exhibit "B" to the
Prospectus to be filed with the Securities and Exchange Commission as a part of
the Registration Statement (the "Partnership Agreement") and that the
Partnership will be operated in accordance with the provisions of the
Partnership Agreement. We have also assumed that each of the Limited Partners
will execute the Subscription Agreement and Subscription Agreement Signature
Page included as Exhibit "C" to the Prospectus.
Assuming the foregoing, based on our review of the relevant documents and
materials, it is our opinion that:
(a) The Partnership is duly organized and validly existing and in good
standing under the laws of the State of Georgia; and
(b) Upon payment by subscribers for Units of their required capital
contributions, the Units will be validly authorized and legally
issued, and will be fully paid and non-assessable.
We hereby consent to the reference to our Firm under the caption "Legal
Opinions" in the Prospectus that forms a part of the Registration Statement and
to the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Holland & Knight
----------------------
HOLLAND & KNIGHT
<PAGE>
EXHIBIT 8
July 9, 1996
General Partners
Wells Real Estate Fund X, L.P. and
Wells Real Estate Fund XI, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Re: Wells Real Estate Fund X, L.P. and
Wells Real Estate Fund XI, L.P.
Ladies and Gentlemen:
You have requested our opinion concerning certain federal income tax
aspects of the offering and sale of Units of limited partnership interest in
Wells Real Estate Fund X, L.P., a Georgia limited partnership, and Wells Real
Estate Fund XI, L.P., a Georgia limited partnership (hereinafter singly referred
to as the "Partnership" and collectively referred to as the "Partnerships"),
both of which have Wells Partners, L.P., a Georgia limited partnership, and Leo
F. Wells, III, as general partners (the "General Partners"), all as described in
the Registration Statement on Form S-11 to be filed with the Securities and
Exchange Commission on or about July 10, 1996, as amended (as amended, the
"Registration Statement"), and the Prospectus included therein (as amended, the
"Prospectus"). Capitalized terms used herein shall have the meaning ascribed to
them in the "Glossary" section of the Prospectus or as set forth in Article III
of the Amended and Restated Agreement of Limited Partnership of the Partnership
included in the Prospectus.
In order to render our opinion, we have reviewed and relied upon (a)
executed copies of the Certificates of Limited Partnership of the Partnerships
dated June 20, 1996; (b) the Prospectus; and (c) representations of the General
Partners as provided herein and as disclosed in the Prospectus, including, inter
-----
alia, that: (i) all statements and information in the Prospectus are accurate
- ----
and complete; (ii) the Partnerships will be operated in a business-like manner
and substantially in accordance with the Partnership Agreements and Prospectus;
and (iii) the General Partners have an aggregate net worth on a fair market
value basis currently in excess of $2,668,000. We have assumed the accuracy of
the representations contained in the Prospectus, that the Amended and Restated
Agreement of Limited Partnership of each of the Partnerships (collectively, the
"Partnership Agreement") will be executed substantially in the form included as
Exhibit "B" to the Prospectus and that the Partnerships will be operated in
accordance with the provisions of the Partnership Agreement. We have also
relied upon, and based our interpretation on, pertinent provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
(including Temporary and Proposed Regulations) promulgated thereunder
("Regulations"), existing judicial decisions, and current administrative rulings
and procedures issued by the Internal Revenue Service ("IRS"), all of which are
subject to change, with or without retroactive application, by legislation,
administrative action and judicial decision. Any changes in the facts assumed
hereunder or in the Code or Regulations made subsequent to the date of this
opinion could materially affect the statements made herein and have adverse
effects on the income tax consequences of investing in the Partnership.
This opinion is strictly subject to all of the terms, conditions and
limitations set forth herein, and all references to this opinion contained in
the Prospectus are expressly qualified by reference to the entirety of this
opinion. Further, this opinion is directed primarily to individual taxpayers
who are citizens of the United States. No opinion is given with respect to
federal income tax aspects of the offering which depend upon a Limited Partner's
particular circumstances, and no opinion is given with respect to the federal
income tax consequences to
<PAGE>
any new Limited Partner substituted for a Limited Partner. The opinions
expressed herein also do not extend to a continuation of operations following
the resignation or removal of the General Partners.
In giving this opinion, we have considered and attempted to follow the
guidelines of Formal Opinion 346 (revised) of the American Bar Association
Standing Committee on Ethics and Professional Responsibility issued January 29,
1982, which requires that an attorney should, if possible, state his opinion as
to the probable outcome on the merits of each material tax issue, i.e., each
----
issue that would have a significant effect in sheltering income from sources
other than the Partnership from federal income taxes by providing deductions in
excess of the income of the Partnership. In this regard, it should be noted
that the General Partners do not intend for an investment in the Partnership to
be a tax shelter; however, it is possible that holders of the Class B Status
Units may be allocated deductions in a given year in excess of income allocated
to them from the Partnership. Accordingly, our opinion attempts to address each
material tax issue that involves a reasonable possibility of challenge by the
IRS; however, it should be noted that this opinion is not a representation or a
guarantee that the tax results opined to herein or described in the Prospectus
will be achieved. This opinion has no binding effect or official status of any
kind, and no assurance can be given that the conclusions reached in this opinion
would be sustained by a court if contested by the IRS. For purposes of our
opinion, any statement that it is "more likely than not" that any tax position
will be sustained means that in our judgment at least a 51% chance of prevailing
exists if the IRS were to challenge the allowability of such tax position and
that challenge were to be litigated and judicially decided.
SUMMARY OF OPINIONS.
-------------------
In reliance on the representations and assumptions described herein and in
the Prospectus, and subject to the qualifications set forth herein and in the
Prospectus, we are of the opinion that the following material tax issues are
more likely than not to have a favorable outcome on the merits for federal
income tax purposes if challenged by the IRS, litigated and judicially decided:
(1) The Partnership will be classified as a partnership for federal income
tax purposes and not as an association taxable as a corporation;
(2) The Partnership will not be classified as a "publicly traded
partnership" under Section 7704 of the Code since the Partnership Agreement
limits transfers of Units, except for transfers of Units which satisfy
applicable safe harbors from "publicly traded partnership" status adopted by the
IRS;
(3) A Limited Partner's interest in the Partnership will be treated as a
passive activity;
(4) Partnership items of income, gain, loss, deduction and credit will be
allocated among the General Partners and the Limited Partners substantially in
accordance with the allocation provisions of the Partnership Agreement;
(5) The Partnership will be treated for income tax purposes as the owner of
Partnership Properties, title to which is held in the name of The Bank of New
York (the "Agent") under the terms of the Custodial Agency Agreement;
(6) The activities contemplated by the Partnership will be considered
activities entered into for profit by the Partnership; and
<PAGE>
(7) The Partnership is not currently required to register as a tax shelter
with the IRS under Section 6111 of the Code prior to the offer and sale of the
Units based upon the General Partners' representation that the "tax shelter
ratio" with respect to an investment in the Partnership, as defined in the Code
and Regulations, will not exceed 2 to 1 for any investor as of the close of any
year in the Partnership's first five calendar years.
In addition, we are of the opinion that, in the aggregate, substantially
more than half of the material federal income tax benefits contemplated by the
Prospectus, in terms of their financial impact on a typical investor, will more
likely than not be realized by an investor in the Partnership.
We are unable to form opinions as to the probable outcome of certain
material tax aspects of the transactions described in the Prospectus if
challenged by the IRS, litigated and judicially decided, including (i) the
deductibility of and timing of deductions for certain payments made by the
Partnership, including but not limited to fees paid to the General Partners and
their Affiliates, (ii) the issue of whether the Partnership will be considered
to hold any or all of its properties primarily for sale to customers in the
ordinary course of business, and (iii) whether the Partnership will be
classified as a "tax shelter" under Section 6662(d) of the Code for purposes of
determining certain potential exemptions from the application of the accuracy-
related penalty provisions.
As noted above, the IRS may also attempt to disallow or limit some of the
tax benefits derived from an investment in the Partnership by applying certain
provisions of the Code at the individual or partner level rather than at the
partnership level. No opinion is given herein as to the tax consequences to
Limited Partners with regard to any material tax issue which impacts at the
individual or partner level and is dependent upon an individual Limited
Partner's tax circumstances, including but not limited to, issues relating to
the alternative minimum tax, investment interest limitations or the application
of Section 183 of the Code at the partner level.
As of the date of this opinion, no properties have been acquired by the
Partnership, nor has the Partnership entered into any contracts to acquire any
properties. Therefore, it is impossible at this time for us to opine on the
application of federal income tax laws to the specific facts which will exist
when properties are acquired by the Partnership.
DISCUSSION.
----------
1. Partnership Classification (Generally).
--------------------------------------
The availability of the income tax attributes of the Partnership's
activities to the Partners depends upon the classification of the Partnership as
a partnership for federal income tax purposes and not as an association taxable
as a corporation. In the event that the Partnership, for any reason, were to be
treated for federal income tax purposes as an association taxable as a
corporation, the Partners of the Partnership would be treated as shareholders
with the following results, among others: (a) the Partnership would become a
taxable entity subject to the federal income tax imposed on corporations; (b)
items of income, gain, loss, deduction and credit would be accounted for by the
Partnership on its federal income tax return and would not flow through to the
Partners; and (c) distributions of cash would generally be treated as dividends
taxable to the Partners at ordinary income rates, to the extent of current or
accumulated earnings and profits of the Partnership, and would not be deductible
by the Partnership in computing its income tax.
Under current Regulations, an organization that qualifies as a limited
partnership under state law (such as the Partnership) will be classified as a
partnership unless it has more corporate characteristics than noncorporate
<PAGE>
characteristics. For this purpose, four major characteristics are identified.
Treas. Reg. (S) 301.7701-2 (1960). Of the four major characteristics described
in the Regulations, the Partnership will have the corporate characteristic of
centralized management; however, it should not be deemed to have the corporate
characteristics of: continuity of life (because the retirement, withdrawal or
removal of both General Partners or the last remaining General Partner will
cause a dissolution of the Partnership unless a majority in interest of the
Limited Partners elect to continue the business of the Partnership) id. (S)
--
301.7701-2(b)(1), as amended by T.D. 8475, 1993-1 C.B. 236; limited liability
(because the General Partners have "substantial assets" in addition to their
interests in the Partnership and will be exposed to general liability to
creditors of the Partnership) id. (S) 301.7701-2(d)(2); and free transferability
--
of interests (because the Partnership Agreement contains substantial
restrictions on the transferability of the Units, which are intended to avoid
termination or reclassification of the Partnership, to effect compliance with
federal and state securities laws and to facilitate administration of
Partnership affairs) id. (S) 301.7701-2(e)(1). Accordingly, the Partnership
--
should be deemed to have more noncorporate than corporate characteristics.
Notwithstanding the foregoing, however, the IRS may take the position,
under published guidelines providing for the issuance of rulings on partnership
status to limited partnerships, that the Partnership should not be characterized
as a partnership because it is not able to meet all of the tests set forth in
such guidelines. See Rev. Proc. 92-88, 1992-2 C.B. 496; Rev. Proc. 92-35, 1992-
---
1 C.B. 790, as amplified by Rev. Proc. 94-46, 1994-2 C.B. 688; Rev. Proc. 89-12,
1989-1 C.B. 798, as amplified by Rev. Proc. 94-46, 1994-2 C.B. 688, as modified
by Rev. Proc. 92-87, 1992-2 C.B. 496, and Rev. Proc. 95-10, 1995-1 C.B. 501, and
as supplemented by Rev. Proc. 92-33, 1992-1 C.B. 782. It should be noted,
however, that the guidelines contained in these Revenue Procedures are
promulgated only for the purpose of determining whether a ruling regarding
partnership status will be issued and such guidelines are not intended as
substantive rules or audit criteria for a determination of partnership status.
Rev. Proc. 89-12, supra at (S) 1.03.
-----
Accordingly, although the General Partners do not intend to request a
ruling from the IRS as to the classification of the Partnership as a partnership
for income tax purposes, based upon the current Regulations, IRS rulings and
judicial decisions under Section 7701(a) of the Code, and based upon certain
representations of the General Partners and other assumptions as set forth
herein and in the Prospectus, we are of the opinion that the Partnership will
more likely than not be classified as a partnership for federal income tax
purposes and not as an association taxable as a corporation.
In rendering this opinion, we have relied specifically upon the fact that
the Partnership is duly organized as a limited partnership under the laws of the
State of Georgia. This opinion is also premised expressly on the representation
by the General Partners that the Partnership will be organized and operated
strictly in accordance with the provisions of the Partnership Agreement. It
should be noted in this regard that the General Partners are obligated under the
terms of the Partnership Agreement to use their best efforts to take such
actions as are necessary to preserve the Partnership's status as a partnership
for tax purposes in light of any amendment to the Code, the Regulations
promulgated thereunder or existing interpretations thereof. Recently, the IRS
issued proposed regulations regarding entity classification which, if adopted,
would supersede the current Regulations upon which our opinion as to
characterization of the Partnership for federal income tax purposes is, in large
part, based. If adopted in their current form, the proposed regulations would,
in effect, permit an "eligible entity" to elect its status for federal income
tax purposes. Under the proposal, the Partnership would be an eligible entity
unless it were to be taxed as a corporation pursuant to the application of the
publicly traded partnership rules discussed hereinbelow. Accordingly, if such
proposed regulations were to be adopted substantially in the form issued, the
Partnership would be eligible to elect partnership status for federal income tax
purposes; however, if such proposals were amended so that the Partnership was
not eligible to so elect or otherwise might not qualify as a partnership for
federal income tax purposes, and if any such amendments were made applicable to
previously formed
<PAGE>
partnerships, it is possible that the Partnership would not be able to elect to
be treated as a partnership for federal income tax purposes under any such
amended Regulations.
2. Partnership Classification (Status as a Publicly Traded Partnership).
--------------------------------------------------------------------
Section 7704 of the Code provides that even though an entity may be treated
as a partnership under Section 7701(a) of the Code, entities which are deemed to
be "publicly traded partnerships" will nonetheless be treated as corporations,
rather than as partnerships, for federal income tax purposes. Under Section
7704(b), a publicly traded partnership is defined as any partnership whose
interests are traded on an established securities market (or are readily
tradeable on a secondary market or the substantial equivalent thereof).
In June 1988, the IRS provided certain safe harbors from the definition of
a publicly traded partnership in advance of the issuance of Regulations under
Section 7704. IRS Notice 88-75, 1988-2 C.B. 386. On November 29, 1995, the IRS
issued final Regulations under Section 7704 (the "Section 7704 Regulations")
effective for taxable years of a partnership beginning after 1995, which
Regulations would, therefore, apply to the operations of the Partnership.
Treas. Reg. (S) 1.7704-1 (1995). The Section 7704 Regulations contain
definitions of what constitutes an established securities market and a secondary
market or the substantial equivalent thereof and what transfers may be
disregarded in determining whether such definitions are satisfied with respect
to the activities of a partnership. The Section 7704 Regulations further
provide certain safe harbors (the "secondary market safe harbors") which, after
taking into consideration all transfers other than those deemed disregarded, may
be satisfied in order to avoid classification of such transfers as being made on
a secondary market or the substantial equivalent thereof. The Section 7704
Regulations also make it clear, however, that the fact that a partnership does
not qualify for a secondary market safe harbor shall be disregarded if, under
all facts and circumstances, it is determined that interests in the partnership
are not readily tradeable on a secondary market or the substantial equivalent
thereof. Id. (S) 1.7704-1(c)(3).
--
One of the secondary market safe harbors provides that interests in a
partnership will not be considered tradeable on a secondary market or the
substantial equivalent thereof if the sum of the partnership interests
transferred during any taxable year, other than certain disregarded transfers,
does not exceed 2% of the total interests in the partnership's capital or
profits. Disregarded transfers include, among other things, transfers by gift,
transfers at death, transfers between family members, distributions from a
qualified retirement plan, block transfers, which are defined as transfers by a
partner and any persons related to such partner during any 30 calendar day
period of partnership units representing more than 2% of the total interests in
a partnership's capital or profits, and transfers not recognized by the
partnership.
The General Partners have represented that Units in the Partnership, when
issued, will not be traded on an established securities market or a secondary
market or the substantial equivalent thereof. Further, the General Partners
have represented that they do not intend to cause the Units to be traded on an
established securities market or a secondary market in the future. Further, the
Partnership Agreement limits Unit transfers of all types to transfers of Units
which satisfy an applicable secondary market safe harbor contained in the
Section 7704 Regulations (or which shall satisfy any other applicable safe
harbor from "publicly traded partnership" status adopted by the IRS). The
General Partners have represented that the Partnership will be operated strictly
in accordance with the Partnership Agreement and that they will void any
transfers or assignments of Units if they believe that such transfers or
assignments will cause the Partnership to be treated as a publicly traded
partnership under the Section 7704 Regulations or any Regulations adopted by the
IRS in the future. Accordingly, based upon the foregoing, and assuming the
Partnership will be operated strictly in accordance with the terms of the
Partnership Agreement, we
<PAGE>
are of the opinion that it is more likely than not that the Partnership will not
be classified as a publicly traded partnership under Section 7704 of the Code.
If, notwithstanding the foregoing, the Partnership were deemed to be a
publicly traded partnership, Section 7704(c) of the Code provides an exception
to treatment as a corporation if 90% or more of the gross income of the
Partnership for each taxable year consists of "qualifying income." Qualifying
income includes interest, real property rents and gain from the sale or other
disposition of real property. According to the legislative history of Section
7704, qualifying income does not include real property rents which are
contingent on the profits of the lessees or income from the rental or lease of
personal property. H.R. Rep. No. 495, 100th Cong., 1st Sess. 947, reprinted in
------------
[1987] U.S. Code Cong. & Ad. News 2313-1693. The General Partners have
represented that they intend to operate the Partnership such that at all times
more than 90% of the gross income of the Partnership will be derived from
interest, real property rents (excluding rents which are contingent on the
profits of the lessees and rents from rental of personal property) and gains
from the sale of real property in an attempt to qualify for the 90% qualifying
income exception. Hence, even if the Partnership were deemed to be a publicly
traded partnership, assuming the Partnership is operated in accordance with its
stated investment objectives, it is more likely than not that the qualifying
income exception will be satisfied by the Partnership and that the Partnership
will not be treated as a corporation for federal income tax purposes. It should
also be noted, however, that even if the Partnership satisfies the qualifying
income exception, being deemed to be a publicly traded partnership would
nonetheless result in certain material adverse tax consequences to Limited
Partners, including the treatment of income of the Partnership as portfolio
income rather than passive income, as discussed hereinbelow.
The remaining summary of federal income tax consequences in this opinion
assumes that the Partnership will be classified as a partnership for federal
income tax purposes. Accordingly, if as anticipated the Partnership is treated
as a partnership for federal income tax purposes, the Partnership will not be
treated as a separate taxable entity subject to federal income tax, but instead
each Partner will be required to report on his federal income tax return for
each year his distributive share of the Partnership's items of income, gain,
loss, deduction or credit for that year, without regard to whether any actual
cash distributions have been made to him.
3. Limitations on Deduction of Partnership Losses.
----------------------------------------------
As noted, partnership deductions and losses are generally reflected in each
partner's distributive share of such deductions and losses; however, the
deductibility of a partner's share of such deductions and losses is subject to
various limitations, including limitations relating to the basis of a limited
partner's partnership interest, the deductibility of passive losses and the "at
risk" provisions of the Code.
(a) Basis Limitations.
-----------------
A Limited Partner may not deduct his share of Partnership losses and
deductions in excess of the adjusted basis of his Partnership interest
determined as of the end of the taxable year. I.R.C. (S) 704(d). Losses which
exceed a Partner's basis will not be allowed but may be carried over
indefinitely and claimed as a deduction in a subsequent year to the extent that
such Partner's adjusted basis in his Units has increased above zero. Id. A
--
Limited Partner's adjusted basis in his Units will include his cash investment
in the Partnership along with his pro rata share of any Partnership liabilities
as to which no Partner is personally liable (such as any nonrecourse mortgage
financing which, although not currently contemplated, could, with the approval
of the Limited Partners, be incurred by the Partnership in the future). I.R.C.
(S)(S) 722 and 752(a). A Limited Partner's basis in his Units will be increased
by his distributive share of the Partnership's taxable income and decreased (but
not below zero)
<PAGE>
by his distributive share of the Partnership's losses and by the amount of any
cash distributions which are made to him. I.R.C. (S) 705. (A decrease in a
Limited Partner's share of nonrecourse Partnership liabilities included
previously in the basis of his Units is treated for tax purposes as though it
were a cash distribution to that Partner. I.R.C. (S) 752(b)). A cash
distribution to a Limited Partner will constitute a return of capital to the
extent of the basis of his Units and, in the event that a Limited Partner has no
remaining basis in his Units, will generally be taxable to him as gain from the
sale of his Units.
(b) Passive Loss Limitations.
------------------------
The Code substantially restricts the ability of many taxpayers
(including individuals, estates, trusts, certain closely-held corporations and
certain personal service corporations) to deduct losses derived from so-called
"passive activities." I.R.C. (S) 469(a). Passive activities generally include
any activity involving the conduct of a trade or business in which the taxpayer
does not materially participate (including the activity of a limited partnership
in which the taxpayer is a limited partner) and certain rental activities
(including the rental of real estate). I.R.C. (S) 469(c). Based on the above-
cited authority, we are of the opinion that it is more likely than not a Limited
Partner's interest in the Partnership will be treated as a passive activity.
Accordingly, income and loss of the Partnership, other than interest or other
similar income earned on temporary investments and working capital reserves
(which would constitute portfolio income), will constitute passive activity
income and passive activity loss, as the case may be, to Limited Partners.
Generally, losses from passive activities are deductible only to the extent
of a taxpayer's income or gains from passive activities and will not be allowed
as an offset against other income, including salary or other compensation for
personal services, active business income and "portfolio income," which includes
nonbusiness income derived from dividends, interest, royalties, annuities and
gains from the sale of property held for investment. I.R.C. (S) 469(e)(1).
Passive activity losses that are not allowed in any taxable year are suspended
and carried forward indefinitely and allowed in subsequent years as an offset
against passive activity income in future years. I.R.C. (S) 469(f). Upon a
taxable disposition of a taxpayer's entire interest in a passive activity to an
unrelated party, suspended losses with respect to that activity will then be
allowed as a deduction against: (i) first, any remaining income or gain from
that activity including gain recognized on such disposition; (ii) then, net
income or gain for the taxable year from other passive activities; and (iii)
finally, any other non-passive income or gain. I.R.C. (S) 469(g). Under the
Regulations, suspended losses derived from a specific Partnership Property would
generally not be available to offset non-passive income or gain following the
sale of such property (other than in liquidation of the Partnership) because
similar real estate undertakings under common control and ownership of a pass-
through entity such as the Partnership are generally aggregated into a single
"activity" for purposes of these rules; hence, the sale of a single Partnership
property not in liquidation of the Partnership would not be treated as a
disposition of the entire interest in the passive activity. See Temp. Treas.
---
Reg. (S) 1.469-4T(k)(2)(ii).
In the case of partnerships which are deemed to be publicly traded
partnerships, the Code provides that the passive activity loss rules are applied
separately with respect to items attributable to a publicly traded partnership.
I.R.C. (S) 469(k). Accordingly, if the Partnership were deemed to be a publicly
traded partnership, Partnership losses, if any, would be available only to
offset future non-portfolio income of the Partnership. H.R. Rep. No. 495, 100th
Cong., 1st Sess. 951, reprinted in [1987] U.S. Code Cong. & Ad. News 2313-1697.
------------
In addition, if the Partnership were deemed to be a publicly traded partnership
which is not treated as a corporation because of the qualifying income
exception, Partnership income would be treated as portfolio income rather than
passive income. Id.
--
<PAGE>
(c) At Risk Limitations.
-------------------
The deductibility of partnership losses is limited further by the "at
risk" limitations in the Code. I.R.C. (S) 465(a). Limited partners who are
individuals, estates, trusts and certain closely-held corporations are not
allowed to deduct partnership losses in excess of the amounts which such limited
partners are considered to have "at risk" at the close of the partnership's
year. Id. A limited partner's amount "at risk" will include the amount of his
--
cash capital contribution to the partnership plus his pro rata share of
"qualified nonrecourse financing" of the partnership, if any. I.R.C. (S)
465(b). Qualified nonrecourse financing is defined to mean nonrecourse
financing provided by a person unrelated to the taxpayer which is actively and
regularly engaged in the business of lending money (other than a person from
whom the property was purchased). I.R.C. (S) 465(b)(6). Unless and until the
Partnership incurs any such financing, only the cash Capital Contribution of a
Limited Partner will be taken into account when determining such Partner's
amount "at risk." A limited partner's amount "at risk" is reduced by his
allocable share of partnership losses and by partnership distributions and
increased by his allocable share of partnership income. Any deductions
disallowed to a limited partner under this limitation may be carried forward
indefinitely and utilized in subsequent years to the extent that the limited
partner's amount "at risk" is increased in those years.
4. Allocation of Profit and Loss.
-----------------------------
Generally, partnership items of income, gain, loss, deduction and credit
are allocated among partners as set forth in the relevant partnership agreement
pursuant to Section 704(a) of the Code. Section 704(b) provides, however, that
if an allocation to a partner under the partnership agreement of income, gain,
loss, deduction or credit (or items thereof) does not have substantial economic
effect, such allocation will instead be made in accordance with the partner's
interest in the partnership (determined by taking into account all facts and
circumstances).
The Partnership has not received an advance ruling with respect to whether
its allocations of profits and losses will be recognized for federal income tax
purposes, and the IRS may attempt to challenge the allocations of profits and
losses made by the Partnership, which challenge, if successful, could adversely
affect the Limited Partners by changing their respective shares of taxable
income or loss.
The Regulations under Section 704(b) (the "Section 704(b) Regulations")
provide that in order to have economic effect: (i) partners' capital accounts
must be determined and maintained in accordance with the Section 704(b)
Regulations; (ii) upon the liquidation of the partnership, liquidating
distributions must be made in accordance with the positive capital account
balances of the partners after taking into account all capital account
adjustments for the partnership's taxable year during which such liquidation
occurs; and (iii) if a partner has a deficit balance in his capital account
following the liquidation of his interest in the partnership after taking into
account all capital account adjustments for the partnership taxable year during
which such liquidation occurs, he must be unconditionally obligated to restore
the amount of such deficit balance to the partnership. Treas. Reg. (S) 1.704-
1(b)(2)(ii)(b) (1991).
The Section 704(b) Regulations contain an alternate test for economic
effect, however, which sets forth circumstances under which allocations will be
deemed to have economic effect without the requirement to restore capital
account deficits upon liquidation. Such alternative test provides that an
allocation will be considered to have economic effect if the partnership
agreement contains provisions satisfying (i) and (ii) above, the partnership
agreement contains a "qualified income offset" provision and the allocation in
question does not cause or increase a deficit balance in a partner's capital
account as of the end of the partnership's taxable year to which such allocation
relates. Treas. Reg. (S) 1.704-1(b)(2)(ii)(d) (1991). In determining whether
an allocation causes or
<PAGE>
increases the deficit balance in a partner's capital account, such partner's
capital account must be reduced for distributions that are reasonably expected
to be made to such partner to the extent they exceed offsetting increases to
such partner's capital account that are reasonably expected to occur during or
prior to the partnership taxable years in which distributions reasonably are
expected to be made. Id. A partnership agreement contains a qualified income
--
offset if it provides that a partner who unexpectedly receives an adjustment,
allocation or distribution which causes a deficit capital account balance will
be allocated items of income and gain (consisting of a pro rata portion of each
item of partnership income, including gross income, and gain for such year) in
an amount and manner sufficient to eliminate the deficit balance as quickly as
possible. Id.
--
The Partnership Agreement provides for the determination and maintenance of
capital accounts pursuant to the Section 704(b) Regulations and provides that
liquidation proceeds are to be distributed in accordance with capital accounts;
however, the Partnership Agreement does not contain any provision requiring
Partners having deficit capital accounts to restore the amount of such capital
account deficits upon liquidation. The Partnership Agreement does, however,
contain a qualified income offset provision. The qualified income offset
provision in the Partnership Agreement provides that in the event that any
Partner receives an adjustment, allocation or distribution described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which causes a deficit
balance in such Partner's capital account, such Partner will be allocated items
of income or gain (consisting of a pro rata portion of each item of Partnership
income, including gross income, and gain from such year) in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible.
Accordingly, no Partner will be allocated items of loss or deduction which would
cause his capital account to be reduced below zero in any year. In addition,
the General Partners have represented that Partnership distributions are not
anticipated to reduce any Limited Partner's capital account below zero and that
distributions of Net Cash From Operations should not have a material effect on a
Limited Partner's capital account since such distributions are anticipated to be
matched by allocations of Net Income to such Partner.
Even if the allocations of profits and losses of a partnership are deemed
to have economic effect under the Section 704(b) Regulations, however, an
allocation will not be upheld unless the economic effect of such allocation is
"substantial." The Section 704(b) Regulations generally provide that the
economic effect of an allocation is "substantial" if there is a reasonable
possibility that the allocation will affect substantially the dollar amounts to
be received by partners from a partnership, independent of tax consequences.
Treas. Reg. (S) 1.704-1(b)(2)(iii) (1988). The economic effect of an allocation
is presumed not to be substantial if there is a strong likelihood that the net
adjustments to the partner's capital account for any taxable year will not
differ substantially from the net adjustments which would have been made for
such year in the absence of such allocation and the total tax liability of the
partners for such year is less than it would have been in the absence of such
allocations. Id. The economic effect will also be presumed not to be
--
substantial where: (i) the partnership agreement provides for the possibility
that the allocation will be largely offset by one or more other allocations;
(ii) the net adjustments to the partners' capital accounts for the taxable years
to which the allocations relate will not differ substantially from the net
adjustments which would have been recorded in such partners' respective capital
accounts for such years if the original allocations and the offsetting
allocations were not contained in the partnership agreement; and (iii) the total
tax liability of the partners for such year is less than it would have been in
the absence of such allocations. With respect to the foregoing provision, the
Section 704(b) Regulations state that original allocations and offsetting
allocations will not be insubstantial if, at the time the allocations become
part of the partnership agreement, there is a strong likelihood that the
offsetting allocations will not, in large part, be made within five years after
the original allocations are made. Id. The Section 704(b) Regulations further
--
state that for purposes of testing substantiality, the adjusted tax basis of
partnership property will be presumed to be the fair market value of such
property, and adjustments to the adjusted tax basis of partnership property
(such as depreciation or cost recovery deductions) will be presumed to be
matched by corresponding changes in the property's fair market value. Id.
--
<PAGE>
It should be noted that the Partnership Agreement contains a provision
specially allocating items of depreciation, amortization and cost recovery
expenses to Limited Partners holding Class B Status Units up to the amount which
would reduce their capital accounts to zero. The Partnership Agreement also
provides that upon the sale or other disposition of a Partnership Property, Gain
on Sale is allocated first pursuant to the qualified income offset provisions
described above, then to Partners having negative capital accounts, if any,
until all negative capital accounts have been restored to zero, and then to
Limited Partners holding Class B Status Units in an amount equal to the items of
depreciation, amortization and cost recovery expense which were previously
specially allocated to them with respect to the specific Partnership Property,
the sale or disposition of which resulted in the Gain on Sale being allocated,
but not in excess of the amount of Gain on Sale recognized by the Partnership
pursuant to the sale or other disposition of said Partnership Property. Because
of the presumption contained in the Section 704(b) Regulations that adjustments
to the adjusted basis of a partnership's property will be presumed to be matched
by corresponding changes in such property's fair market value, the foregoing
allocation of Gain on Sale should not be considered to create a strong
likelihood that the economic effect of the prior allocation of depreciation,
amortization and cost recovery expenses would be offset within the meaning of
the Section 704(b) Regulations. Moreover, the prohibition against transitory
allocations in the Section 704(b) Regulations will not render original
allocations invalid if, at the time the allocations become part of the
partnership agreement, there is a strong likelihood that the offsetting
allocations will not, in large part, be made within five years after the
original allocations are made. Treas. Reg. (S) 1.704-1(b)(2)(iii) (1988). In
this regard, the General Partners have represented that it is contemplated that
the Partnership will hold each property which it acquires for development for a
minimum period of ten years and that it will hold existing income-producing
properties for a period of ten to 12 years.
As noted in the preceding paragraph, the Partnership Agreement contains a
provision specially allocating items of depreciation, amortization and cost
recovery expenses to Limited Partners holding Class B Status Units up to the
amount which would reduce their capital accounts to zero. In order to ensure
that such Limited Partners will bear the risk of actual economic loss in the
event that a Partnership Property is sold at a loss, the Partnership Agreement
further provides for a special allocation of Sale Proceeds in favor of Limited
Partners holding Class A Status Units in an amount equal to the excess of the
original purchase price of such Partnership Property over the sale price of such
Partnership Property but not in excess of the amount of the special allocation
to Limited Partners holding Class B Status Units of items of depreciation,
amortization and cost recovery expense with respect to the specific Partnership
Property sold. Further, since the allocation of depreciation, amortization and
cost recovery expense to Limited Partners holding Class B Status Units will
cause decreases to their capital accounts and since the Partnership Agreement
provides that liquidation proceeds will be distributed among the Partners in
accordance with their capital accounts, Limited Partners holding Class B Status
Units should be deemed to bear the economic risk of loss with respect to such
deductions.
If the allocations of profits and losses in a partnership agreement are
deemed not to have substantial economic effect, then as stated above, the
allocations will be made in accordance with partners' interests in the
partnership as determined by taking into account all facts and circumstances.
Treas. Reg. (S) 1.704-1(b)(3)(i) (1991). In this regard, the Section 704(b)
Regulations provide that a partner's interest in a partnership will be
determined by taking into account all facts and circumstances relating to the
economic arrangement of the partners, including: (i) the partners' relative
contributions to the partnership; (ii) the interests of the partners in economic
profits and losses (if different from that in taxable income or loss); (iii) the
interests of the partners in cash flow and other nonliquidating distributions;
and (iv) the rights of the partners to distributions of capital upon
liquidation. Id. (S) 1.704-1(b)(3)(ii).
--
Since the Partnership Agreement: (i) provides for the determination and
maintenance of capital accounts in accordance with the Section 704(b)
Regulations; (ii) provides that liquidation proceeds will be distributed to the
<PAGE>
Partners in accordance with capital accounts; (iii) contains a qualified income
offset provision; and (iv) shifts the economic risk of loss to the Limited
Partners holding Class B Status Units, assuming the allocations of depreciation,
cost recovery and amortization expense to such Limited Partners were matched by
corresponding reductions in the fair market value of the Partnership's Property,
and assuming the accuracy of the representations of the General Partners that
the Partnership will be operated strictly in accordance with the terms of the
Partnership Agreement, we are of the opinion that it is more likely than not
that Partnership items of income, gain, loss, deduction and credit will be
allocated among the General Partners and the Limited Partners substantially in
accordance with the allocation provisions of the Partnership Agreement.
5. Federal Income Tax Consequences Relating to the Custodial Agency
----------------------------------------------------------------
Agreement and other Potential Uses of Nominee Corporations.
- ----------------------------------------------------------
Title to properties acquired on behalf of the Partnership will be held in
the name of The Bank of New York (the "Agent"), as agent for the Partnership.
In addition, the Partnership may be required to utilize other nominee
corporations or land trusts to hold title to property by reason of the laws of
local, state or other jurisdictions.
Historically, judicial decisions have in certain circumstances treated
nominee corporations used for the purpose of holding legal title to property for
the benefit of a partnership as the owner of the property for tax purposes,
resulting in the loss of depreciation, interest and other deductions claimed by
the equitable owner of the property. See, e.g., George v. C.I.R., 803 F.2d 144
--- ---- ----------------
(5th Cir. 1986); Frink v. C.I.R., 798 F.2d 106 (4th Cir. 1986). More recent
---------------
judicial decisions have held, however, that in instances where an agent,
pursuant to a written agency agreement, holds title to real property as agent
for limited purposes, holds itself out as an agent and not as a principal in all
dealings with third parties, has no obligation to maintain the property, and is
indemnified and held harmless by the principal from and against liabilities
which it might sustain as agent, the principal rather than the agent will be
treated as the owner of the real property for tax purposes. E.g., C.I.R. v.
---- ---------
Bollinger, 485 U.S. 340 (1988).
- ---------
Under the terms of the Custodial Agency Agreement, the Agent will hold
title to properties as agent for the Partnership and is required to hold itself
out as agent for the Partnership (and not as principal) in all dealings with
third parties. Further, the Agent has no obligation to maintain Partnership
Properties, and the Partnership and the General Partners have agreed to
indemnify and hold the Agent harmless from and against liabilities which it
might sustain as agent under the Custodial Agency Agreement. Based upon our
review of the judicial decisions in this area and the Custodial Agency Agreement
between the Partnership and the Agent, it is our opinion that it is more likely
than not the Partnership will be treated for income tax purposes as the owner of
Partnership Properties, title to which is held in the name of the Agent under
the terms of the Custodial Agency Agreement.
6. Activities Not Engaged in for Profit.
------------------------------------
Section 183 of the Code provides for the disallowance of deductions
attributable to activities "not engaged in for profit." The term "not engaged
in for profit" is defined as any activity other than an activity that
constitutes a trade or business or an activity that is engaged in for the
production or collection of income. I.R.C. (S) 183(c). In general, an activity
will be considered as entered into for profit where there is a reasonable
expectation of profit in the future; however, the determination of whether an
activity is engaged in for profit is based upon the facts and circumstances of
each case. Treas. Reg. (S) 1.183-2(a) (1972).
Based upon the investment objectives of the Partnership and the
representations of the General Partners that the Partnership will be operated in
a business-like manner in all material respects and strictly in accordance with
<PAGE>
the Partnership Agreement and this Prospectus, based upon our analysis of the
relevant factors to be considered set forth in the Regulations, and assuming the
determination as to whether the activities of the Partnership are activities
entered into for profit under Section 183 is made at the partnership level (see
---
Vorsheck v. C.I.R., 933 F.2d 757 (9th Cir. 1991); Brannen v. C.I.R., 722 F.2d
- ------------------ -----------------
695 (11th Cir. 1984)), we are of the opinion that it is more likely than not
that the activities contemplated by the Partnership will be considered
activities entered into for profit by the Partnership.
Since the test of whether an activity is deemed to be engaged in for profit
is based upon facts and circumstances that exist from time to time, however, the
principles of Section 183 may be applied in the future to disallow deductions
otherwise allocable to Limited Partners from Partnership operations, and we are
unable to give an opinion on the applicability of Section 183 to the Partnership
if our underlying assumptions are changed. Further, we give no opinion as to
the application of Section 183 at the partner level.
7. Tax Shelter Registration.
------------------------
Under Section 6111 of the Code, any entity deemed to be a "tax shelter" as
defined in Section 6111(c) is required to register with the IRS. For these
purposes, a "tax shelter" is defined as any investment with respect to which (i)
a person can reasonably infer from the representations made that the "tax
shelter ratio" for any investor may be greater than 2 to 1 as of the close of
any of the first five years ending after the date in which the investment is
offered for sale; and (ii) is either registered under federal or state
securities laws, sold pursuant to an exemption from such registration which
requires the filing of a notice with a federal or state securities agency or is
a substantial investment. Temp. Treas. Reg. (S) 301.6111-1T, Q&A 4. The "tax
shelter ratio" is determined by dividing the investor's share of the aggregate
deductions derived from the investment, determined without regard to income or
any limitations on the deductibility of passive losses, by the amount of an
investor's contributions. Id. Q&A 5, 13 and 14.
--
The aggregate amount of the deductions potentially allowable to any of the
Partners, including the General Partners, in the offering of Units in the
Partnership is not expected, and has not been represented in the Prospectus or
any other writing connected with the offering approved by the General Partners,
to exceed an amount equal to twice any such Partner's investment in the
Partnership in any of the Partnership's first five calendar years. In addition,
the General Partners have represented that, in the absence of events which are
unlikely to occur, the aggregate amount of deductions derived from any Partner's
investment in the Partnership, determined without regard to income, will not
exceed twice the amount of any such Partner's investment in the Partnership as
of the close of any year in the Partnership's first five calendar years.
Further, even if the Partnership were deemed to constitute a tax shelter under
Section 6111, the Regulations provide that the registration requirements are
suspended with respect to a tax shelter that qualifies as a "projected income
investment." Temp. Treas. Reg. (S) 301.6111-1T, Q&A 57. The Regulations define
a "projected income investment" as a tax shelter that is not expected to reduce
the cumulative tax liability of any investor for any year during the first five
years ending after the date in which the investment is offered for sale. Id. A
--
tax shelter is not expected to reduce the cumulative tax liability of an
investor for any year during the five year period only if (a) a written
financial projection or other written representation that is provided the
investor prior to sale of interests in the investment states (or leads a
reasonable investor to believe) that the investment will not reduce the
investor's tax liability with respect to any year in the five year period, and
(b) no written or oral projections or representations, other than those related
to circumstances that are highly unlikely to occur, state (or lead a reasonable
investor to believe) that the investment may reduce the cumulative tax liability
of any investor with respect to such years. Id.
--
<PAGE>
Based upon the authority of the Regulations and the representations of the
General Partners that, in the absence of events which are unlikely to occur, the
"tax shelter ratio" with respect to an investment in the Partnership will not
exceed 2 to 1 for any investor as of the close of any year in the Partnership's
first five calendar years, we are of the opinion that it is more likely than not
the Partnership is not currently required to register as a tax shelter with the
IRS under Section 6111 of the Code prior to the offer and sale of the Units.
8. Other Material Tax Issues.
-------------------------
A. Depreciation and Cost Recovery. Section 167(a) of the Code provides
------------------------------
that the real property improvements acquired or constructed by the Partnership
and the personal property acquired by the Partnership shall generally be
entitled to a reasonable allowance for exhaustion, wear and tear or
obsolescence. The amount of the allowable deduction is generally determined
under Section 168 of the Code.
In this regard, Section 168(g)(1)(B) and (g)(2) of the Code provides that
to the extent real property constitutes "tax-exempt use property," the cost
recovery period will be 40 years, and in the case of personal property which
constitutes "tax-exempt use property," the recovery period will be 12 years and
the straight-line method must be utilized for determining deductions in each
case. "Tax-exempt use property" generally includes that percentage of
depreciable property owned by a partnership which equals the percentage of the
partnership interests owned by tax-exempt entities unless all allocations of
partnership items to the tax-exempt entity are "qualified allocations." I.R.C.
(S) 168(h)(6). The allocations under the Partnership Agreement will not
constitute "qualified allocations," and the General Partners have represented
that all of the Partnership's real and personal property will be treated as
"tax-exempt use property" to be depreciated for tax purposes using the straight-
line method over 40 year and 12 year recovery periods, respectively.
It should also be noted that if the Partnership were determined to be
holding one or more properties primarily for sale to customers in the ordinary
course of business, the Partnership might not be entitled to depreciation
allowances with respect to such properties, or such depreciation allowances
could be substantially curtailed. See I.R.C. (S) 167(a).
---
B. Income Tax Treatment of Certain Payments Made by the Partnership. The
----------------------------------------------------------------
income tax consequences to the Partnership as a result of certain payments made
by the Partnership will be as follows:
(i) No deduction will be allowed for the cost of organizing the
Partnership, but at the election of the Partnership certain qualified
organizational costs may be amortized ratably over a period of not less than 60
months. I.R.C. (S) 709(b). Organizational expenses are generally defined as
expenses which are incident to the creation of a partnership, are chargeable to
a capital account and are of a character which, if expended incident to the
creation of a partnership having an ascertainable life, would be amortized over
such life.
In addition, certain start-up expenditures may, at the election of the
taxpayer, be amortized ratably over a period of not less than 60 months. I.R.C.
(S) 195. Under Section 195, start-up expenditures which may qualify for this
treatment include amounts which are paid or incurred in connection with
investigating the creation or acquisition of the business, the actual creation
of an active trade or business, and any activity engaged in for profit and the
production of income before the active trade or business begins, in anticipation
of such activity becoming an active trade or business, and which would otherwise
be deductible in the year in which paid or incurred.
<PAGE>
The cost of syndicating the Partnership, including costs and expenditures
incurred in connection with promoting and marketing the Units such as sales
commissions, professional fees and printing costs, are neither deductible nor
amortizable. I.R.C. (S) 709(a).
(ii) The Partnership intends to claim deductions for property
management fees and leasing fees paid to Affiliates of the General Partners.
Such fees will be deductible by the Partnership only to the extent that such
expenses are ordinary and necessary and reasonable in amount. I.R.C. (S)
162(a). Because the issue is dependent upon factual determinations which will
not be known until the actual services are performed and such fees are paid by
the Partnership, we are unable to render an opinion as to whether such fees will
constitute ordinary and necessary business expenses deductible under Section 162
of the Code.
(iii) Any ongoing expenses of the Partnership paid to the General
Partners, such as management fees, will be deductible by the Partnership only to
the extent that such expenses are ordinary and necessary and reasonable in
amount and either are received by the General Partners otherwise than in their
capacities as Partners under Section 707(a) of the Code or if they constitute
guaranteed payments to the General Partners under Section 707(c) of the Code.
Because these issues are dependent upon factual determinations which will not be
known until actual services are performed and such fees are paid by the
Partnership, we are unable to render an opinion as to whether such fees will be
deductible by the Partnership.
In summary, since the appropriate classification of fees and expenses paid
by the Partnership into their proper categories and a determination of whether
certain fees and expenses are ordinary and necessary and reasonable in amount
depend upon facts relating to and existing at the time the services are to be
rendered to the Partnership, we are unable to render an opinion as to the
probable outcome if the IRS were to challenge the deductibility (or the timing
of deduction or amortization) of those fees and expenses.
C. Investment by Qualified Plans and Other Tax-Exempt Entities. The IRS
-----------------------------------------------------------
may take the position that income derived from the ownership of Units should be
subject to federal income tax as "unrelated business taxable income" ("UBTI"),
which is defined generally as income derived from any unrelated trade or
business carried on by a tax-exempt entity or by a partnership of which it is a
member. I.R.C. (S) 512(a).
While the types of income and gain which should be realized by the
Partnership should not generally constitute UBTI within the meaning of Section
512(a) of the Code, all or a portion of such income would constitute UBTI if the
Partnership were to own property which is subject to "acquisition indebtedness."
I.R.C. (S) 512(b)(4). Acquisition indebtedness is defined as the unpaid amount
of: (i) indebtedness incurred in acquiring or improving property; (ii)
indebtedness incurred before the acquisition or improvement of property if such
indebtedness would not have been incurred but for such acquisition or
improvement; and (iii) indebtedness incurred after the acquisition or
improvement of property if such indebtedness would not have been incurred but
for such acquisition or improvement and the incurrence of such indebtedness was
reasonably foreseeable at the time of such acquisition or improvement. I.R.C.
(S) 514(c)(1). The Partnership's acquisitions of property will be made on an
all cash basis; however, the Partnership Agreement does authorize the
Partnership, inter alia, to borrow funds in order to finance improvement of and
----- ----
improvements to properties when the General Partners deem such improvements to
be necessary to protect the capital previously invested in the properties, to
protect the value of the Partnership's investment in a property or to make a
particular property more attractive for sale or lease. The General Partners
have represented that they will not exercise this authority on behalf of the
Partnership unless they have first received an opinion of counsel that the
proposed indebtedness more likely than not will not cause the income of the
Partnership to be characterized as UBTI.
<PAGE>
If all or any portion of the Partnership's income were to be characterized
as UBTI by reason of the "acquisition indebtedness" rules, the "dealer" status
rules (discussed at paragraph F below) or otherwise, a tax-exempt entity holding
Units would be required to report a portion of its pro rata share of the
Partnership's taxable income as UBTI. I.R.C. (S) 514(a)(1). Moreover, a
"charitable remainder trust" qualifying for exemption from income taxation under
Section 664 of the Code would lose such exemption with respect to all of its
income for a tax year in which UBTI is derived from its ownership of Units and
would be required to file an income tax return on Form 1041. A tax-exempt
entity (other than a charitable remainder trust) is required to file an Exempt
Organization Business Income Tax Return when its gross UBTI from all sources
exceeds $1,000 in any year and it is generally taxable on UBTI in excess of
$1,000 in each year.
D. Characterization of Leases. The Partnership has the authority to
--------------------------
purchase properties and lease them back to the sellers of such properties
pursuant to "sale-leaseback" transactions. The tax benefits described in the
Prospectus associated with ownership of a property, such as depreciation or cost
recovery deductions, will depend on having the lease in any such leaseback
transaction treated as a "true lease" under which the Partnership is treated as
the owner of the property for federal income tax purposes, rather than having
such transaction treated as a conditional sale of the property or a financing
transaction entered into with the seller. See Rev. Rul. 72-408, 1972-2 C.B. 86.
---
In this regard, judicial decisions and administrative pronouncements of the
IRS make it clear that the characterization of a transaction as either a true
lease, conditional sale or financing is determined on the basis of weighing many
factors, although courts have reached different conclusions even in instances
where the characteristics of two transactions are substantially similar. The
factors considered by courts derive primarily from the analyses in the case of
Frank Lyon Company v. United States, 435 U.S. 561 (1978) and Revenue Ruling 55-
- -----------------------------------
540, 1955-2 C.B. 39. Typically, the matters considered by courts and the IRS
are: (i) the extent to which the transaction is entered into by the lessor with
a bona fide profit motive and the extent to which the lessor will forfeit
economic benefits if it forfeits the property; (ii) the extent to which rentals
are equivalent to fair market rental value of the property and the extent to
which the lessor will derive cash flow during the term of the lease; (iii) the
extent to which the lessor's investment is "at risk" at the inception of the
lease and at all times during the lease term; (iv) the extent to which the
original cost of the property does not exceed its fair market value at the time
of purchase; (v) the lessor's original cost for the property compared to the
anticipated fair market value at the end of the lease term; (vi) whether the
lessee has the right to purchase the property at the end of the lease term at
less than fair market value; (vii) whether the lessee furnishes funds to, or
makes any guaranties on behalf of the lessor; (viii) the extent to which the
lease is entered into on a "net" basis; (ix) the extent to which the lessee or
the lessor controls the price and terms of settlement in the event of casualty
to, or condemnation of, the leased property; (x) whether the lessee may assign
its leasehold without the lessor's consent; (xi) whether the lessor may assign
its interest without the lessee's consent; (xii) whether the lessee has any
unilateral authority to cancel the lease; and (xiii) whether the lessor or the
lessee will be the beneficiary of any appreciation in value of the leased
property.
The General Partners have represented that they will use their best efforts
to structure any sale-leaseback transactions such that the lease will be
characterized as a true lease; however, if any such transaction were
characterized as a financing for federal income tax purposes, depreciation and
cost recovery deductions would not be available to the Partnership, and any
income derived from the leaseback by the Partnership would be treated as
"interest" which is "portfolio income," rather than passive activity income.
See I.R.C. (S) 469.
- ---
E. Sales of Partnership Property. The General Partners anticipate that
-----------------------------
most and perhaps all of the assets to be acquired and held by the Partnership
will constitute "Section 1231 property," defined as real property and
depreciable assets used in a trade or business and held for more than one year.
I.R.C. (S) 1231(a). To the extent
<PAGE>
that Partnership assets constitute Section 1231 property, a Limited Partner's
share of the gains or losses resulting from the sale of the Partnership's assets
would be combined with any other Section 1231 gains or losses realized by the
Limited Partner in that year from sources other than the Partnership, and the
net Section 1231 gain or loss would be treated as long-term capital gain
(subject to depreciation or cost recovery allowance recapture, if any) or
ordinary loss, as the case may be. Net Section 1231 gains must be treated as
ordinary income, however, to the extent of the aggregate amount of net Section
1231 losses claimed for the five most recent taxable years (to the extent such
losses have not previously been "recaptured" pursuant to this rule). I.R.C. (S)
1231(c).
Gain will be recognized by the Partnership to the extent that the amount
realized from any sale of Partnership Property exceeds the adjusted basis of
such property. I.R.C. (S) 1001(a). The adjusted basis of Partnership Property
will in general be its original cost less depreciation and cost recovery
allowances allowed to the Partnership with respect to such property. I.R.C. (S)
1011. Loss will be recognized to the extent that the adjusted basis of such
property exceeds the amount realized. The amount realized from a sale or other
disposition of property includes the sum of cash and property received plus the
amount of any liabilities assumed by the purchaser or to which the property
remains subject. I.R.C. (S) 1001(b).
Any excess of gains over losses realized by the Partnership on sales of
capital assets (generally all property other than property held primarily for
sale in the ordinary course of a trade or business or Section 1231 property)
held for more than one year will be long-term capital gain. I.R.C. (S) 1201.
Any excess of losses over gains by the Partnership on the sales of any such
capital assets held for more than one year will be net long-term capital loss.
F. Property Held Primarily for Sale. The Partnership has been organized
--------------------------------
for the purpose of acquiring and developing real estate for investment and
rental purposes; however, if the Partnership were at any time deemed for tax
purposes to be a "dealer," i.e., a seller of real estate held primarily for
----
sale to customers in the ordinary course of a trade or business, any gain
recognized upon a sale of such real property would be taxable as ordinary
income, rather than as capital gain, and would constitute UBTI to Limited
Partners which are Exempt Organizations. I.R.C. (S)(S) 1221(1) and
512(b)(5)(B).
Whether property is held primarily for sale to customers in the ordinary
course of a trade or business must be determined from all the facts and
circumstances surrounding the particular property and sale in question. In this
regard, the General Partners have represented that the Partnership intends to
acquire real estate and construct improvements thereon for investment and rental
only and to engage in the business of owning and operating such improvements.
Further, the Partnership will make sales thereof only as, in the opinion of the
General Partners, are consistent with the Partnership's investment objectives.
The IRS may take the position, however, that the gain realized on the sale of a
Partnership Property should be characterized as ordinary income (and UBTI).
Because the resolution of this issue is dependent upon facts which will not be
known until the time a property is sold or held for sale, and due to the lack of
judicial authority in this area, we are unable to render an opinion as to
whether the Partnership will be considered to hold any or all of its properties
primarily for sale to customers in the ordinary course of a trade or business.
G. Sales of Limited Partnership Units. The gain or loss realized on any
----------------------------------
sale of Units by a Limited Partner (who is not a "dealer" with respect to such
Units) who has held the Units for more than one year will be long-term capital
gain or loss, except for that portion of any gain attributable to such Limited
Partner's share of the Partnership's "unrealized receivables" and "substantially
appreciated inventory," which portion would be taxed as ordinary income. I.R.C.
(S) 741. Potential cost recovery allowance recapture on personal property
associated with Partnership Property will be treated as "unrealized receivables"
for this purpose. I.R.C. (S) 751(c). The Partnership generally must report to
the IRS the sale or exchange of any partnership interest where any portion of
the
<PAGE>
consideration received in exchange for such interest is attributable to
"unrealized receivables" of the Partnership. I.R.C. (S) 6050K.
Gain or loss on any such sale will be measured by the difference between
the gross sale price and the Limited Partner's adjusted tax basis in his Units.
I.R.C. (S) 1001(a). In computing the gross proceeds received from the sale or
other disposition of his Units, a Partner must include among other things his
share of the Partnership's nonrecourse indebtedness, if any. Treas. Reg. (S)
1.752-3 (1991).
H. Dissolution and Liquidation of the Partnership. The dissolution and
----------------------------------------------
liquidation of the Partnership will involve the distribution to the Partners of
the cash remaining after the sale of its assets, if any, and after payment of
all the Partnership's debts and liabilities. If a Partner receives cash in
excess of the basis of his Units, such excess will be taxable as a gain. I.R.C.
(S) 731(a)(1). If a Partner were to receive only cash upon dissolution and
liquidation, he would recognize a loss to the extent, if any, that the adjusted
basis of his Units exceeded the amount of cash received. I.R.C. (S) 731(a)(2).
There are a number of exceptions to such general rules, however, including but
not limited to, the effect of a special basis election under Section 732(d) of
the Code for a Partner who may have acquired his Partnership interest within the
two years prior to the dissolution, and the effects of distributing one kind of
property to some Partners and a different kind of property to others under
Section 751(b) of the Code.
I. Foreign Investors. Non-resident aliens, foreign corporations, foreign
-----------------
partnerships, foreign trusts and foreign estates (collectively referred to as
"foreign investors") who are partners in a partnership engaged in a trade or
business in the United States will be considered to be engaged in such trade or
business, even if such foreign investors are only limited partners. A foreign
investor engaged in a U.S. trade or business who has income that is "effectively
connected" with that trade or business will be subject to regular U.S. income
taxes. I.R.C. (S) 871(b).
After the Partnership has acquired income-producing equity investments, the
anticipated activities of the Partnership will likely constitute a U. S. trade
or business and a "permanent establishment" within the meaning of the Code and
tax treaties entered into with foreign jurisdictions ("Tax Treaties") and the
income from such investments (i.e., rents) will likely be deemed to be
----
effectively connected with that trade or business. Therefore, a foreign
investor who becomes a Limited Partner in the Partnership will be required to
file a U.S. income tax return on which he must report his distributive share of
the Partnership's items of income, gain, loss, deduction and credit, and pay
U.S. income taxes at regular U.S. income tax rates on his share of any Net
Income. In addition, Section 1446 of the Code provides for withholding taxes in
an amount equal to 31% (34% in the case of foreign corporate investors) of the
effectively connected taxable income allocated to such foreign investors. See
---
generally Rev. Proc. 89-31, 1989-1 C.B. 895, as modified by Rev. Proc. 92-66,
- ---------
1992-2 C.B. 428.
Since a foreign investor who becomes a Limited Partner in the Partnership
will likely be considered to be engaged in a U.S. trade or business and to have
a permanent establishment in the United States, certain types of U.S. related
income from other business transactions of the foreign investor could also be
attributed to that trade or business or permanent establishment under the Code
or a Tax Treaty (e.g., rents from other U.S. real estate owned by such
----
investor). Furthermore, a foreign investor may be subject to tax on his
distributive share of the Partnership's income and gain in his country of
nationality, residence or elsewhere. The method of taxation in such
jurisdictions, if any, may vary considerably from the U.S. tax system with
respect to characterization of the Partnership and its income.
<PAGE>
It should also be noted that a foreign investor's allocable share of escrow
earnings and interest income from funds placed in temporary investments pending
acquisition of income-producing equity investments will likely not be considered
to be U.S. source income effectively connected with a U.S. trade or business,
and the foreign investor will not be deemed to be otherwise engaging in a U.S.
trade or business with respect to those investments. Accordingly, the
Partnership will generally be obligated to withhold U.S. tax in the amount of
30% of such investor's allocable share of the income derived from these
investments. I.R.C. (S) 1441(a).
A foreign investor will also be subject to U.S. income tax on gain realized
from the sale of a United States real property interest and also, for this
purpose, the sale of a Unit. I.R.C. (S) 897. Further, under Section 1445 of
the Code, a partnership is required to withhold tax equal to 34% of the foreign
investor's allocable share of the gain realized from the sale of partnership
real property (regardless of whether an actual distribution is made to such
investor). I.R.C. (S) 1445(e)(1). The amount required to be withheld by a
purchaser of Units is generally equal to 10% of the purchase price paid for the
Units. I.R.C. (S) 1445(e)(5); Temp. Treas. Reg. (S) 1.1445-11T.
It is impossible for us to predict the impact of the above-described
general principles on specific foreign investors, or how the provisions of any
Tax Treaty between the United States and the foreign investor's country of
nationality or residence may affect these results. Accordingly, we give no
opinion as to the income tax consequences to a foreign investor investing as a
Limited Partner in the Partnership.
J. State and Local Taxes. The Partnership will conduct its activities
---------------------
and own properties in different taxing jurisdictions. Accordingly, it is likely
that an investment in the Partnership will impose upon a Limited Partner the
obligation to file annual tax returns in a number of different states or
localities, as well as the obligation to pay taxes to a number of different
states or localities. In addition, many states require partnerships to withhold
and pay state income taxes owed by non-resident partners relating to income-
producing properties located in such states.
The Prospectus makes no attempt to summarize the state and local tax
consequences to a Limited Partner in those states in which the Partnership may
own properties or carry on activities, and it is impractical for us to opine on
all state laws or to predict the states in which the Partnership may own
properties. However, the issues which a Limited Partner should consider
include: (i) whether the state in which he resides will impose a tax upon his
share of the taxable income of the Partnership; (ii) whether an income tax or
other return must be filed in those states where the Partnership will acquire
properties; and (iii) whether he will be subject to state income tax withholding
in states where the Partnership will acquire properties.
K. General Considerations.
----------------------
(i) Partnership Items. The income tax treatment of all Partnership
-----------------
items will be determined at the partnership level. I.R.C. (S) 6221. In this
regard, the General Partners will take primary responsibility for contesting
federal income tax adjustments proposed by the IRS, to extend the statute of
limitations as to all Partners and, in certain circumstances, to bind the
Limited Partners to such adjustments. For partnerships such as the Partnership,
where the total number of partners is more than 100, the IRS is not required to
furnish notice of the commencement of any administrative proceeding or the final
disposition of any such proceeding to any partner having less than a 1% interest
in the profits of the partnership. I.R.C. (S) 6223(b).
(ii) Accuracy-Related Penalties. Under Section 6662 of the Code, a
--------------------------
penalty equal to 20% of any underpayment of tax due to (i) negligence or
disregard of rules or regulations, (ii) any substantial valuation misstatement,
or (iii) any "substantial understatement of income tax" can be imposed on a
taxpayer. In general,
<PAGE>
a "substantial understatement of income tax" will exist if the actual income tax
liability of the taxpayer exceeds the income tax liability shown on his return
by the greater of 10% of the actual income tax liability or $5,000 ($10,000 in
the case of a corporation other than a Subchapter S corporation or a personal
holding company). I.R.C. (S) 6662(d)(1). Unless the understatement is
attributable to a "tax shelter," the amount of an understatement is reduced by
any portion of such understatement which is attributable to (a) the income tax
treatment of any item shown on the return if there is "substantial authority"
for the taxpayer's treatment of such item on his return or (b) any item with
respect to which the taxpayer adequately discloses on his return the relevant
facts affecting the item's income tax treatment. I.R.C. (S) 6662(d)(2). In the
case of a "tax shelter," which is defined in Section 6662(d)(2)(C)(ii) of the
Code as a partnership or other entity, plan or arrangement that has as its
principal purpose the avoidance or evasion of federal income tax, this reduction
in the understatement only will apply in cases where, in addition to having
"substantial authority" for treatment of the item in question, the taxpayer
reasonably believed that the income tax treatment of that item was more likely
than not the proper treatment. I.R.C. (S) 6662(d)(2)(C)(i).
Although the Partnership is not intended to be a so-called "tax shelter,"
it is possible that it may be considered a tax shelter for purposes of Section
6662 of the Code and that certain Partnership tax items could be considered tax
shelter items within the meaning of Section 6662. Based on the investment
objectives of the Partnership, the General Partners believe there are
substantial grounds for a determination that the Partnership does not constitute
a tax shelter; however, because the issue is dependent upon facts relating to
future Partnership operations, the acquisition and disposition of Partnership
Properties and other factual determinations which are not known at this time, we
are unable to render an opinion as to whether an investment in the Partnership
will be considered a tax shelter for purposes of determining certain potential
exemptions from the application of Section 6662 of the Code.
(iii) Tax Shelter Investor Lists. Section 6112 of the Code requires
--------------------------
that a list identifying each person who has invested in a potentially abusive
tax shelter be maintained by the tax shelter organizer. The list must include
the name, address and taxpayer identification number of each investor, as well
as certain other information. The organizer is also required to make the list
available for inspection upon request by the IRS. The term "potentially abusive
tax shelter" is defined for this purpose as (i) any tax shelter with respect to
which registration is required, as described above, and (ii) any other entity,
plan or arrangement that is treated by applicable Regulations as a tax shelter
for purposes of the list requirements. The Regulations under Section 6112
clarify that an entity which is a tax shelter under Section 6111, but which is
not required to register as such because it qualifies as a "projected income
investment," continues to be subject to the list requirements of Section 6112.
Although the General Partners do not believe that the Partnership constitutes a
potentially abusive tax shelter, the General Partners do intend to maintain a
list of the Limited Partners as required by Section 6112 of the Code.
9. Aggregate Opinion.
-----------------
Subject to the assumptions and limitations set forth herein, it is our
opinion that it is more likely than not that, in the aggregate, substantially
more than half of the material tax benefits contemplated by the Prospectus, in
terms of their financial impact on a typical investor, will be realized by an
investor in the Partnership. We advise you further that the section of the
Prospectus entitled "Federal Income Tax Consequences" accurately reflects our
opinion with respect to those matters therein as to which an opinion is
specifically attributed to us.
<PAGE>
Consent is hereby given to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this Firm under the captions
"Legal Opinions" and "Federal Income Tax Consequences" in the Prospectus
concerning this opinion.
Very truly yours,
/s/ Holland & Knight
--------------------
HOLLAND & KNIGHT
<PAGE>
EXHIBIT 10A
June 28, 1996
The Bank of New York
100 Ashford Center North
Suite 520
Atlanta, Georgia 30338
Attn: Peggy T. McWhorter
Re:Wells Real Estate Fund X, L.P. Escrow Agreement
Ladies and Gentlemen:
Leo F. Wells, III and Wells Partners, L.P. are the general partners (the
"General Partners") of Wells Real Estate Fund X, L.P. (the "Partnership"), the
issuer for an offering of units of limited partnership interest (the "Units").
Wells Investment Securities, Inc., a Georgia corporation (the "Dealer Manager"),
will act as Dealer Manager for the offering of the Units. The Partnership will
sell a minimum of 125,000 Units at a price of $10.00 per Unit, for a total
minimum capital raised of $1,250,000 (the "Required Capital"). The Partnership
hereby appoints you as Escrow Agent for purposes of holding the proceeds from
the sale of the Units, and the Partnership shall deposit with you such proceeds
to be held by you as Escrow Agent on the terms and conditions hereinafter set
forth:
1. Persons subscribing to purchase the Units will be instructed by the
Dealer Manager or any soliciting dealers to remit the purchase price in the form
of checks, drafts or money orders (hereinafter called "instruments of payment")
payable to the order of, or funds wired in favor of, The Bank of New York, as
Escrow Agent for Wells Real Estate Fund X, L.P. (the "Escrow Account"). The
Dealer Manager will deposit such instruments of payment with you into the
deposit account entitled The Bank of New York, as Escrow Holder for Wells Real
Estate Fund X, L.P. (the "Escrow Holding Account") promptly after receipt of
those instruments of payment by the Dealer Manager. Within one business day
after receipt by you of written notification from the Dealer Manager setting
forth, as to each subscriber, the name, address, number of Units purchased and
purchase price remitted (the "Batch Sheet"), you will transfer the total amount
of subscription proceeds shown on such Batch Sheet from the Escrow Holding
Account to the Escrow Account.
2. The aforesaid instruments of payment are to be promptly processed for
collection by you following deposit by the Dealer Manager into the Escrow
Holding Account. The proceeds thereof are to be transferred into the Escrow
Account as provided in paragraph 1 hereof and held in the Escrow Account until
such funds are either returned to the subscribers in accordance with paragraph 3
hereof or otherwise disbursed in accordance with paragraph 6 hereof. In the
event any of the instruments of payment are returned to you for nonpayment prior
to receipt by you of the Required Capital, you shall promptly notify the Dealer
Manager in writing of such nonpayment, and you are authorized to debit the
Escrow Account in the amount of such return payment as well as any interest
earned on the investment represented by such payment.
3. In the event that at the close of business on ____________ __, 1997
(the "Expiration Date") you are not in receipt of Batch Sheets evidencing
subscriptions accepted on or before such date, and instruments of payment dated
not later than that date (or actual wired funds), for the purchase of Units
providing for total purchase proceeds that equal the Required Capital (exclusive
of any funds received from subscriptions for Units from entities which we have
notified you are affiliated with the General Partners or their Affiliates), you
shall promptly notify the Partnership that such instruments of payment and Batch
Sheets have not been received by you. Thereafter, you agree to use your best
efforts to obtain an executed IRS Form W-9 from each subscriber within thirty
(30) days after you provide such notice. Upon receipt of said Form W-9 from
each subscriber, you shall promptly return by your check the funds deposited in
the Escrow Account, or shall return the instruments of payment delivered to you
if such
<PAGE>
instruments have not been processed for collection prior to such time, directly
to each subscriber at the address indicated on the Batch Sheet. In the event an
executed Form W-9 is not received by you from each subscriber within such
period, you shall thereupon remit an amount to the subscribers in accordance
with the provisions hereof, withholding thirty one percent (31%) of the earnings
attributable to those subscribers not furnishing executed forms in accordance
with IRS Regulations. Included in the remittance shall be a proportionate share
of the income earned in the account allocable to each subscriber's investment in
accordance with the terms and conditions specified in paragraph 7 hereof (less
the thirty one percent (31%) withholding, where applicable). However, you shall
not be required to remit any payments until funds represented by such payments
have been collected by you.
In the event that the Partnership rejects any subscription for which
you have already collected funds, you shall promptly issue a refund check to the
rejected subscriber. If the General Partners reject any subscription for which
you have not yet collected funds but have submitted the subscriber's check for
collection, you shall promptly issue a check in the amount of the subscriber's
check to the rejected subscriber after you have cleared such funds. If you have
not yet submitted a rejected subscriber's check for collection, you shall
promptly remit the subscriber's check directly to the subscriber.
4. Following receipt by you of cash and instruments of payment (or wired
funds) of the Required Capital prior to the time provided in paragraph 3
hereinabove, you shall notify the Partnership in writing within one business day
when such funds have been collected through normal banking channels and
deposited in the Escrow Account.
5. Prior to the disbursement of funds deposited in the Escrow Account in
accordance with the provisions of paragraph 3 or 6 hereof, you shall invest all
of the funds deposited in the Escrow Account in "Short-term Investments" (as
defined below) and you are further authorized and you agree to reinvest all
earnings and interest derived therefrom in any of the Short-term Investments
specified below. In the event that instruments of payment are returned to you
for nonpayment, you are authorized to debit the Escrow Account in accordance
with paragraph 2 hereof.
"Short-term Investments" include obligations of, or obligations
guaranteed by, the United States government or bank money-market accounts or
certificates of deposit of national or state banks that have deposits insured by
the Federal Deposit Insurance Corporation (including certificates of deposit of
any bank acting as a depository or custodian for any such funds, including,
without limitation, such certificates or instruments of The Bank of New York),
which mature on or before the Expiration Date, unless such instrument cannot be
readily sold or otherwise disposed of for cash by the Expiration Date without
any dissipation of the offering proceeds invested.
The following securities are not permissible investments:
(a) money-market mutual funds;
(b) corporate equity or debt securities;
(c) repurchase agreements;
(d) bankers' acceptances;
(e) commercial paper; and
(f) municipal securities.
6. All disbursements from the Escrow Account, except for disbursements
under the provisions of paragraph 3 hereof, shall be made by you only pursuant
to the provisions of this paragraph 6. Except for disbursements authorized upon
court order, you shall hold all funds in the Escrow Account until (i) the date
checks for Required Capital have cleared normal banking channels after receipt
by you of the Required Capital, and (ii) receipt of letter instructions from the
Partnership directing disbursements of such funds to the Partnership. In
disbursing such funds, you are authorized to rely solely upon such letter
instructions which you receive from the Partnership whether or not such
instructions are correct, true or authentic; provided that, if in your opinion
such
2
<PAGE>
letter instructions from the Partnership are unclear, you are authorized to rely
upon the legal counsel to the Partnership in distributing such funds to the
effect that distribution of the funds is authorized by the letter instructions
of the Partnership and that distribution of the funds in that manner is
authorized by and in compliance with such letter. However, you shall not be
required to disburse any funds attributable to instruments of payment which have
not been collected by you, provided that you shall use your best efforts to
promptly collect such funds after your receipt of disbursement instructions from
the Partnership in accordance with this paragraph, and shall disburse such funds
in compliance with the disbursement instructions from the Partnership.
7. In the event the offering of Units terminates prior to receipt of the
Required Capital, income earned on subscription proceeds deposited in the Escrow
Account ("Gross Escrow Income") minus the total escrow expenses ("Net Escrow
Income") shall be remitted to subscribers in compliance with paragraph 3. Each
subscriber's pro rata portion of Net Escrow Income shall be determined as
follows: The total amount of Net Escrow Income shall be multiplied by a
fraction, the numerator of which is determined by multiplying the number of
Units purchased by said subscriber times the number of days said subscriber's
proceeds are invested prior to termination of the offering, and the denominator
of which is the total of the numerators for all such subscribers.
Notwithstanding the foregoing, (i) escrow expenses may be deducted from the
Escrow Account only to the extent of Gross Escrow Income, and the General
Partners shall reimburse the Escrow Agent for any escrow expenses in excess of
such amount, and (ii) Maine, Missouri, Ohio and Pennsylvania residents will be
paid their pro rata portion of income earned on subscription proceeds deposited
in the Escrow Account without any deductions for escrow expenses. You shall
promptly notify the Partnership of the amount of Net Escrow Income which
subscribers who are Maine, Missouri, Ohio or Pennsylvania residents would have
received if escrow expenses were not deducted from Gross Escrow Income, and the
General Partner shall reimburse you for such pro rata escrow expenses
attributable to subscribers who are Maine, Missouri, Ohio or Pennsylvania
residents. You shall promptly remit all such Net Escrow Income in accordance
with paragraph 3.
8. As compensation for serving as Escrow Agent hereunder, you shall
receive a fee, as set forth in Schedule A attached hereto.
9. In performing any of your duties hereunder, you shall not incur any
liability to anyone for any damages, losses or expenses, except for willful
default, breach of trust, or gross negligence, and accordingly you shall not
incur any such liability with respect to any action taken or omitted (1) in good
faith upon advice of your counsel given with respect to any questions relating
to your duties and responsibilities under this Agreement, or (2) in reliance
upon any instrument, including any written instrument or instruction provided
for in this Agreement, not only as to its due execution and validity and
effectiveness of its provisions but also as to the truth and accuracy of
information contained therein, which you shall in good faith believe to be
genuine, to have been signed or presented by a proper person or persons and to
conform to the provisions of this Agreement.
10. The Partnership hereby agrees to indemnify and hold you harmless
against any and all losses, claims, damages, liabilities and expenses, including
the reasonable cost of attorneys' fees and disbursements, that may be imposed on
you or incurred by you in connection with your acceptance of appointment as the
Escrow Agent hereunder, or the performance of your duties hereunder, including
any litigation arising from this Agreement or involving the subject matter
hereof, except where such losses, claims, damages, liabilities and expenses
result from willful default, breach of trust or gross negligence.
11. In the event of a dispute between the parties hereto sufficient in
your discretion to justify doing so, you shall be entitled to tender into the
registry or custody of any court of competent jurisdiction all money or property
in your hands under this Agreement, together with such legal pleadings as you
deem appropriate, and thereupon be discharged from all further duties and
liabilities under this Agreement. In the event of any uncertainty as to your
duties hereunder, you may refuse to act under the provisions of this Agreement
pending order of a court of competent jurisdiction and you shall have no
liability to the Partnership or to any other person as a result of such action.
Any such legal action may be brought in such court as you shall determine to
have jurisdiction thereof. The filing of any such legal proceedings shall not
deprive you of your compensation earned prior to such filing.
3
<PAGE>
12. All written notices and letters required hereunder to you shall only
be effective if delivered personally or by certified mail, return receipt
requested to The Bank of New York, 100 Ashford Center North, Suite 520, Atlanta,
Georgia 30338, Attn: Peggy T. McWhorter. All written notices and letters
required hereunder to the Partnership or the Dealer Manager shall only be
effective if delivered personally or by certified mail, return receipt requested
to Leo F. Wells, III, 3885 Holcomb Bridge Road, Norcross, Georgia 30092.
13. This Agreement shall be governed by the laws of the State of Georgia
as to both interpretation and performance.
14. The provisions of this Agreement shall be binding upon the legal
representatives, heirs, successors and assigns of the parties hereto.
15. The Partnership hereby acknowledges that you are serving as Escrow
Agent only for the limited purposes herein set forth, and hereby agrees that it
will not represent or imply that you, by serving as Escrow Agent hereunder or
otherwise, have investigated the desirabilities or advisability of investment in
the Partnership, or have approved, endorsed or passed upon the merits of the
Units or the Partnership. The Partnership further agrees to instruct the Dealer
Manager, and each of its representatives, and any other representative who may
offer Units to persons from time to time, that they shall not represent or imply
that you have investigated the desirability or advisability of investment in the
Partnership, or have approved, endorsed or passed upon the merits of the Units
or the Partnership, nor shall they use your name in any manner whatsoever in
connection with the offer or sale of the Units other than by acknowledgment that
you have agreed to serve as Escrow Agent for the limited purposes herein set
forth.
16. This Agreement and any amendment hereto may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed to be an
original.
17. In the event that you receive instruments of payment (or wired funds)
after the Required Capital has been received and the proceeds of the Escrow
Account have been distributed to the Partnership, you are hereby authorized to
deposit such instruments of payment to any deposit account as directed by the
Partnership. The application of said funds into a deposit account directed by
the Partnership shall be a full acquittance to you and you shall not be
responsible for the application of said funds.
18. The Escrow Agent shall be bound only by the terms of this Escrow
Agreement and shall not be bound or incur any liability with respect to any
other agreements or understanding between any other parties, whether or not the
Escrow Agent has knowledge of any such agreements or understandings.
19. Indemnification provisions set forth herein shall survive the
termination of this Agreement.
20. Upon acceptance and distribution of the Required Capital, this Escrow
Agreement shall terminate and the Escrow Agent shall have no further
responsibility or liability with regard to the terms of this Agreement.
21. The Escrow Agent has no responsibility for accepting, rejecting or
approving subscriptions.
22. This Agreement shall not be modified, revoked, released or terminated
unless reduced to writing and signed by all parties hereto, subject to the
following paragraph.
Should, at any time, any attempt be made to modify this Agreement in a
manner that would increase the duties and responsibilities of the Escrow Agent
or to modify this Agreement in any manner which the Escrow Agent shall deem
undesirable, or at any other time, the Escrow Agent may resign by notifying the
Partnership in writing, by certified mail, and until (i) the acceptance by a
successor escrow agent as shall be appointed by the Partnership; or (ii) thirty
(30) days following the date upon which notice was mailed, whichever occurs
sooner, the Escrow
4
<PAGE>
Agent's only remaining obligation shall be to perform its duties hereunder in
accordance with the terms of the Agreement.
23. The Escrow Agent may resign at any time from its obligations under
this Escrow Agreement by providing written notice to the Partnership. Such
resignation shall be effective on the date specified in such notice which shall
be not less than thirty (30) days after such written notice has been given. The
Escrow Agent shall have no responsibility for the appointment of a successor
escrow agent. Unless otherwise provided in this Agreement, final termination of
this Escrow Agreement shall occur on the date that all funds held in the Escrow
Account are distributed either (a) to the Partnership pursuant to paragraph 6
hereof, or (b) to subscribers pursuant to paragraphs 3 and 7 hereof.
24. The Escrow Agent may be removed for cause by the Partnership by
written notice to the Escrow Agent effective on the date specified in such
notice. The removal of the Escrow Agent shall not deprive the Escrow Agent of
its compensation earned prior to such removal.
Agreed to as of the 28th day of June, 1996.
WELLS REAL ESTATE FUND X, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
Attest: (General Partner)
By: /s/ Brian M. Conlon By: /s/ Leo F. Wells
--------------------------- ------------------------------
Name: Brian M. Colon Leo F. Wells, III
--------------------- President
Title: Asst. Secretary
---------------------
By: /s/ Leo F. Wells, III
------------------------------
Leo F. Wells, III
General Partner
WELLS INVESTMENT SECURITIES, INC.
A Georgia Corporation
Attest:
By: /s/ Brian M. Conlon By: /s/ Leo F. Wells
--------------------------- ------------------------------
Leo F. Wells, III
President
Name: Brian M. Conlon
------------------------
Title: Secretary
------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
5
<PAGE>
The terms and conditions contained above
are hereby accepted and agreed to by:
THE BANK OF NEW YORK
Attest: Escrow Agent
By: /s/ Elizabeth Talley By: /s/ Peggy McWhorter
------------------------------ ---------------------------------
Name: Elizabeth Talley Name: Peggy McWhorter
------------------------ ------------------------
Title: As Agent Title: As Agent
------------------------ ------------------------
6
<PAGE>
SCHEDULE A TO
ESCROW AGREEMENT FOR
WELLS REAL ESTATE FUND X, L.P.
Schedule of Fees - Escrow Agency
The Bank of New York
<TABLE>
<CAPTION>
<S> <C>
Administration Fee - Payable Annually.......... $1,500.00
For return of funds due to
rejected subscription........................ $ 5.00
per rejected
subscription
For costs incurred in connection
with returned checks......................... $ 20.00
per returned check
</TABLE>
Charges for refunding subscription proceeds if Required Capital is not met will
be negotiated between the parties.
Charges for filing reports or information as may be required by Internal Revenue
Service regulations or for the performance of any services not contemplated at
the time of opening account, or not of a routine administrative nature, or not
specifically covered in this schedule, will be determined by appraisal.
Actual Out-of-Pocket expenses such as counsel fees, cost of special checks,
postage, insurance, telephone, telegraph, etc. will be billed at cost.
7
<PAGE>
EXHIBIT 10B
June 28, 1996
The Bank of New York
100 Ashford Center North
Suite 520
Atlanta, Georgia 30338
Attn: Peggy T. McWhorter
Re: Wells Real Estate Fund X, L.P. New York Escrow Agreement
Ladies and Gentlemen:
Leo F. Wells, III and Wells Partners, L.P. are the general partners (the
"General Partners") of Wells Real Estate Fund X, L.P. (the "Partnership"), the
issuer for an offering of units of limited partnership interest (the "Units").
Wells Investment Securities, Inc., a Georgia corporation (the "Dealer Manager"),
will act as Dealer Manager for the offering of the Units. The Partnership will
sell a minimum of 125,000 Units at a price of $10.00 per Unit, for a total
minimum capital raised of $1,250,000 (the "Required Capital"). Pursuant to an
escrow agreement (the "Master Escrow Agreement") of even date herewith, you
agreed to serve as Escrow Agent with respect to the Required Capital.
Additionally, however, the Partnership has undertaken not to release any funds
raised from investors who are residents of the State of New York ("New York
Investors") until the aggregate of the instruments of payment received from all
other investors ("Other Investors"), either by you pursuant to the Master Escrow
Agreement or directly from Other Investors after the Required Capital is raised,
equals $2,500,000. Therefore, the Partnership enters into this New York Escrow
Agreement, which is a separate agreement from and in no way amends the Master
Escrow Agreement, for the purpose of setting forth the terms and conditions of
the escrow for New York Investors. The Partnership hereby appoints you as
Escrow Agent for purposes of holding the proceeds from the sale of the Units to
New York Investors, and the Partnership shall deposit with you such proceeds to
be held by you as Escrow Agent in an account separate and apart from the
Required Capital on the terms and conditions hereinafter set forth:
1. Persons subscribing to purchase the Units will be instructed by the
Dealer Manager or soliciting dealer to remit the purchase price in the form of
checks, drafts or money orders (hereinafter called "instruments of payment")
payable to the order of, or funds wired in favor of, The Bank of New York, as
Escrow Agent for Wells Real Estate Fund X, L.P. (the "Escrow Account"). The
Dealer Manager will deposit such instruments of payment specifically designated
by the Dealer Manager as instruments of payment from New York Investors with you
in the deposit account entitled The Bank of New York, as Escrow Holder for Wells
Real Estate Fund X, L.P. (the "Escrow Holding Account") promptly after receipt
of those instruments of payment by the Dealer Manager. Within one business day
after receipt by you of written notification from the Dealer Manager setting
forth, as to each subscriber, the name, address, number of Units purchased and
purchase price remitted (the "Batch Sheet"), you will transfer the total amount
of subscription proceeds shown on the Batch Sheet from the Escrow Holding
Account to the Escrow Account.
2. The aforesaid instruments of payment are to be promptly processed for
collection by you following deposit by the Dealer Manager into the Escrow
Holding Account. The proceeds thereof are to be transferred into the Escrow
Account as provided in paragraph 1 hereof and held in the Escrow Account until
such funds are either returned to the subscribers in accordance with paragraph 3
hereof or otherwise disbursed in accordance with paragraph 6 hereof. In the
event any of the instruments of payment are returned to you for nonpayment prior
to receipt by you of the Required Capital, you shall promptly notify the Dealer
Manager in writing of such nonpayment, and you are authorized to debit the
Escrow Account in the amount of such return payment as well as any interest
earned on the investment represented by such payment.
<PAGE>
3. In the event that at the close of business on ____________ __, 1997
(the "Expiration Date") you are not in receipt of Batch Sheets evidencing
subscriptions accepted on or before such date, and instruments of payment dated
not later than that date (or actual wired funds), for the purchase of Units
providing for total purchase proceeds equal to at least $2,500,000, received by
the Partnership from the Other Investors (excluding New York Investors) based on
written notification by the General Partners (collectively referred to as the
"Required Purchase Proceeds"), you shall promptly notify the Partnership that
such instruments of payment and Batch Sheets have not been received by you.
Thereafter, you agree to use your best efforts to obtain an executed IRS Form W-
9 from each subscriber within thirty (30) days after you provide such notice.
Upon receipt of said Form W-9 from each subscriber you shall promptly return by
your check the funds deposited in the Escrow Account, or shall return the
instruments of payment delivered to you if such instruments have not been
processed for collection prior to such time, directly to each subscriber at the
address indicated on the Batch Sheet. In the event an executed Form W-9 is not
received by you from each subscriber within such period, you shall thereupon
remit an amount to the subscribers in accordance with the provisions hereof,
withholding thirty one percent (31%) of the earnings attributable to those
subscribers not furnishing executed forms in accordance with IRS Regulations.
Included in the remittance shall be a proportionate share of the income earned
in the account allocable to each subscriber's investment in accordance with the
terms and conditions specified in paragraph 7 hereof (less the thirty one
percent (31%) withholding, where applicable). However, you shall not be
required to remit any payments until funds represented by such payments have
been collected by you.
In the event that the Partnership rejects any subscription for which
you have already collected funds, you shall promptly issue a refund check to the
rejected subscriber. If the General Partners reject any subscription for which
you have not yet collected funds but have submitted the subscriber's check for
collection, you shall promptly issue a check in the amount of the subscriber's
check to the rejected subscriber after you have cleared such funds. If you have
not yet submitted a rejected subscriber's check for collection, you shall
promptly remit the subscriber's check directly to the subscriber.
Notwithstanding the above, in the event that on the Expiration Date as
defined in Section 3 of the Master Escrow Agreement, the Required Capital has
not been received by the Partnership from Other Investors, you shall promptly
return to the New York Investors by your check the funds deposited in the Escrow
Account and take other appropriate action as described in the previous
paragraph.
4. Following receipt by you of cash and instruments of payment (or wired
funds) of the Required Capital prior to the time provided in paragraph 3
hereinabove, you shall notify the Partnership in writing within one business day
when such funds have been collected through normal banking channels and
deposited in the Escrow Account.
5. Prior to the disbursement of funds deposited in the Escrow Account in
accordance with the provisions of paragraph 3 or 6 hereof, you shall invest all
of the funds deposited in the Escrow Account in "Short-term Investments" (as
defined below) and you are further authorized and you agree to reinvest all
earnings and interest derived therefrom in any of the Short-term Investments
specified below. In the event that instruments of payment are returned to you
for nonpayment, you are authorized to debit the Escrow Account in accordance
with paragraph 2 hereof.
"Short-term Investments" includes obligations of, or obligations
guaranteed by, the United States government or bank money-market accounts or
certificates of deposit of national or state banks that have deposits insured by
the Federal Deposit Insurance Corporation (including certificates of deposit of
any bank acting as a depository or custodian for any such funds, including,
without limitation, such certificates or instruments of The Bank of New York),
which mature on or before the Expiration Date, unless such instrument cannot be
readily sold or otherwise disposed of for cash by the Expiration Date without
any dissipation of the offering proceeds invested.
2
<PAGE>
The following securities are not permissible investments:
(a) money-market mutual funds;
(b) corporate equity or debt securities;
(c) repurchase agreements;
(d) bankers' acceptances;
(e) commercial paper; and
(f) municipal securities.
6. All disbursements from the Escrow Account, except for disbursements
under the provisions of paragraph 3 hereof, shall be made by you only pursuant
to the provisions of this paragraph 6. Except for disbursements authorized upon
court order, you shall hold all funds in the Escrow Account until (i) the date
checks for the Required Purchase Proceeds have cleared normal banking channels
after receipt by you of the Required Purchase Proceeds, and (ii) receipt of
letter instructions from the Partnership directing disbursements of such funds
to the Partnership. In disbursing such funds, you are authorized to rely solely
upon such letter instructions which you receive from the Partnership whether or
not such instructions are correct, true or authentic; provided that, if in your
opinion such letter instructions from the Partnership are unclear, you are
authorized to rely upon the legal counsel to the Partnership in distributing
such funds to the effect that distribution of the funds is authorized by the
letter instructions of the Partnership and that distribution of the funds in
that manner is authorized by and in compliance with such letter. However, you
shall not be required to disburse any funds attributable to instruments of
payment which have not been collected by you, provided that you shall use your
best efforts to promptly collect such funds after your receipt of disbursement
instructions from the Partnership in accordance with this paragraph, and shall
disburse such funds in compliance with the disbursement instructions from the
Partnership.
7. In the event the offering of Units terminates prior to receipt of the
Required Purchase Proceeds, income earned on subscription proceeds deposited in
the Escrow Account ("Gross Escrow Income") minus the total escrow expenses ("Net
Escrow Income") shall be remitted to subscribers in compliance with paragraph 3.
Each subscriber's pro rata portion of Net Escrow Income shall be determined as
follows: The total amount of Net Escrow Income shall be multiplied by a
fraction, the numerator of which is determined by multiplying the number of
Units purchased by said subscriber times the number of days said subscriber's
proceeds are invested prior to termination of the offering, and the denominator
of which is the total of the numerators for all such subscribers. You shall
promptly remit all such Net Escrow Income in accordance with paragraph 3.
8. As compensation for serving as Escrow Agent hereunder and under the
Master Escrow Agreement, you shall receive a fee, as set forth in Schedule A to
the Master Escrow Agreement.
9. In performing any of your duties hereunder, you shall not incur any
liability to anyone for any damages, losses or expenses, except for willful
default, breach of trust, or gross negligence, and accordingly you shall not
incur any such liability with respect to any action taken or omitted (1) in good
faith upon advice of your counsel given with respect to any questions relating
to your duties and responsibilities under this Agreement, or (2) in reliance
upon any instrument, including any written instrument or instruction provided
for in this Agreement, not only as to its due execution and validity and
effectiveness of its provisions but also as to the truth and accuracy of
information contained therein, which you shall in good faith believe to be
genuine, to have been signed or presented by a proper person or persons and to
conform with the provisions of this Agreement.
10. The Partnership hereby agrees to indemnify and hold you harmless
against any and all losses, claims, damages, liabilities and expenses, including
the reasonable cost of attorneys' fees and disbursements, that may be imposed on
you or incurred by you in connection with your acceptance of appointment as the
Escrow Agent hereunder, or the performance of your duties hereunder, including
any litigation arising from this Agreement or involving the subject matter
hereof, except where such losses, claims, damages, liabilities and expenses
result from willful default, breach of trust or gross negligence.
3
<PAGE>
11. In the event of a dispute between the parties hereto sufficient in
your discretion to justify doing so, you shall be entitled to tender into the
registry or custody of any court of competent jurisdiction all money or property
in your hands under this Agreement, together with such legal pleadings as you
deem appropriate, and thereupon be discharged from all further duties and
liabilities under this Agreement. In the event of any uncertainty as to your
duties hereunder, you may refuse to act under the provisions of this Agreement
pending order of a court of competent jurisdiction and you shall have no
liability to the Partnership or to any other person as a result of such action.
Any such legal action may be brought in such court as you shall determine to
have jurisdiction thereof. The filing of any such legal proceedings shall not
deprive you of your compensation earned prior to such filing.
12. All written notices and letters required hereunder to you shall only
be effective if delivered personally or by certified mail, return receipt
requested to The Bank of New York, 100 Ashford Center North, Suite 520, Atlanta,
Georgia 30338, Attn: Peggy T. McWhorter. All written notices and letters
required hereunder to the Partnership shall only be effective if delivered
personally or by certified mail, return receipt requested, to Leo F. Wells, III,
3885 Holcomb Bridge Road, Norcross, Georgia 30092.
13. This Agreement shall be governed by the laws of the State of Georgia
as to both interpretation and performance.
14. The provisions of this Agreement shall be binding upon the legal
representatives, heirs, successors and assigns of the parties hereto.
15. The Partnership hereby acknowledges that you are serving as Escrow
Agent only for the limited purposes herein set forth, and hereby agrees that it
will not represent or imply that you by serving as Escrow Agent hereunder or
otherwise, have investigated the desirabilities or advisability of investment in
the Partnership, or have approved, endorsed or passed upon the merits of the
Units or the Partnership. The Partnership further agrees to instruct the Dealer
Manager, and each of its representatives, and any other representative who may
offer Units to persons from time to time, that they shall not represent or imply
that you have investigated the desirability or advisability of investment in the
Partnership, or have approved, endorsed or passed upon the merits of the Units
or the Partnership, nor shall they use your name in any manner whatsoever in
connection with the offer or sale of the Units other than by acknowledgment that
you have agreed to serve as Escrow Agent for the limited purposes herein set
forth.
16. This Agreement and any amendment hereto may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed to be an
original.
17. In the event that you receive instruments of payment (or wired funds)
after the Required Purchase Proceeds have been received and the proceeds of the
Escrow Account have been distributed to the Partnership, you are hereby
authorized to deposit such instruments of payment to any deposit account as
directed by the Partnership. The application of said funds into a deposit
account directed by the Partnership shall be a full acquittance to you and you
shall not be responsible for the application of said funds.
18. The Escrow Agent shall be bound only by the terms of this Escrow
Agreement and shall not be bound or incur any liability with respect to any
other agreements or understanding between any other parties, whether or not the
Escrow Agent has knowledge of any such agreements or understandings.
19. Indemnification provisions set forth herein shall survive the
termination of this Agreement.
20. Upon acceptance and distribution of the Required Capital, this Escrow
Agreement shall terminate and the Escrow Agent shall have no further
responsibility or liability with regard to the terms of this Agreement.
21. The Escrow Agent has no responsibility for accepting, rejecting or
approving subscriptions.
4
<PAGE>
22. This Agreement shall not be modified, revoked, released or terminated
unless reduced to writing and signed by all parties hereto, subject to the
following paragraph.
Should, at any time, any attempt be made to modify this Agreement in a
manner that would increase the duties and responsibilities of the Escrow Agent
or to modify this Agreement in any manner which the Escrow Agent shall deem
undesirable, or at any other time, the Escrow Agent may resign by notifying the
Partnership in writing, by certified mail, and until (i) the acceptance by a
successor escrow agent as shall be appointed by the Partnership; or (ii) thirty
(30) days following the date upon which notice was mailed, whichever occurs
sooner, the Escrow Agent's only remaining obligation shall be to perform its
duties hereunder in accordance with the terms of the Agreement.
23. The Escrow Agent may resign at any time from its obligations under
this Escrow Agreement by providing written notice to the Partnership. Such
resignation shall be effective on the date specified in such notice which shall
be not less than thirty (30) days after such written notice has been given. The
Escrow Agent shall have no responsibility for the appointment of a successor
escrow agent. Unless otherwise provided in this Agreement, final termination of
this Escrow Agreement shall occur on the date that all funds held in the Escrow
Account are distributed either (a) to the Partnership pursuant to paragraph 6
hereof, or (b) to subscribers pursuant to paragraphs 3 and 7 hereof.
24. The Escrow Agent may be removed for cause by the Partnership by
written notice to the Escrow Agent effective on the date specified in such
notice. The removal of the Escrow Agent shall not deprive the Escrow Agent of
its compensation earned prior to such removal.
Agreed to as of the 28th day of June, 1996.
WELLS REAL ESTATE FUND X, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
Attest: (General Partner)
By: /s/ Brian M. Conlon By: /s/ Leo F. Wells, III
----------------------------- ---------------------------------
Leo F. Wells, III
Name: Brian M. Conlon President
--------------------
Title: Asst. Secretary
--------------------
By: /s/ Leo F. Wells, III
----------------------------------
Leo F. Wells, III
General Partner
[SIGNATURES CONTINUED ON NEXT PAGE]
5
<PAGE>
WELLS INVESTMENT SECURITIES, INC.
A Georgia Corporation
Attest:
By: /s/ Brian M. Conlon By: /s/ Leo F. Wells, III
----------------------------- ---------------------------------
Leo F. Wells, III
Name: Brian M. Conlon President
--------------------
Title: Secretary
--------------------
The terms and conditions contained above
are hereby accepted and agreed to by:
THE BANK OF NEW YORK
Attest: Escrow Agent
By: /s/ Elizabeth Talley By: /s/ Peggy T. McWhorter
----------------------------- --------------------------------
Name: Elizabeth Talley Name: Peggy McWhorter
---------------------- -------------------------
Title: As Agent Title: As Agent
----------------------- -------------------------
6
<PAGE>
SCHEDULE A TO
ESCROW AGREEMENT FOR
WELLS REAL ESTATE FUND X, L.P.
Schedule of Fees - Escrow Agency
NationsBank of Georgia, N.A.
<TABLE>
<CAPTION>
<S> <C>
Administration Fee - Payable Annually.......... $1,500.00
For return of funds due to
rejected subscription........................ $ 5.00
per rejected
subscription
For costs incurred in connection
with returned checks......................... $ 20.00
per returned check
</TABLE>
Charges for refunding subscription proceeds if Required Capital is not met will
be negotiated between the parties.
Charges for filing reports or information as may be required by Internal Revenue
Service regulations or for the performance of any services not contemplated at
the time of opening account, or not of a routine administrative nature, or not
specifically covered in this schedule, will be determined by appraisal.
Actual Out-of-Pocket expenses such as counsel fees, cost of special checks,
postage, insurance, telephone, telegraph, etc. will be billed at cost.
<PAGE>
EXHIBIT 10C
June 28, 1996
The Bank of New York
100 Ashford Center North
Suite 520
Atlanta, Georgia 30338
Attn: Peggy T. McWhorter
Re:Wells Real Estate Fund X, L.P. Pennsylvania Escrow Agreement
Ladies and Gentlemen:
Leo F. Wells, III and Wells Partners, L.P. are the general partners (the
"General Partners") of Wells Real Estate Fund X, L.P. (the "Partnership"), the
issuer for an offering of units of limited partnership interest (the "Units").
Wells Investment Securities, Inc., a Georgia corporation (the "Dealer Manager"),
will act as Dealer Manager for the offering of the Units. The Partnership will
sell a minimum of 125,000 Units at a price of $10.00 per Unit, for a total
minimum capital raised of $1,250,000 (the "Required Capital"). Pursuant to an
escrow agreement (the "Master Escrow Agreement") of even date herewith, you
agreed to serve as Escrow Agent with respect to the Required Capital.
Additionally, however, the Partnership has undertaken not to release any funds
raised from investors who are residents of the State of Pennsylvania
("Pennsylvania Investors") until the aggregate of the instruments of payment
received from Pennsylvania Investors plus the aggregate received from all other
investors ("Other Investors"), either by you pursuant to the Master Escrow
Agreement or directly from Other Investors after the Required Capital is raised,
equals $2,500,000. Therefore, the Partnership enters into this Pennsylvania
Escrow Agreement, which is a separate agreement from and in no way amends the
Master Escrow Agreement, for the purpose of setting forth the terms and
conditions of the escrow for Pennsylvania Investors. The Partnership hereby
appoints you as Escrow Agent for purposes of holding the proceeds from the sale
of the Units to Pennsylvania Investors, and the Partnership shall deposit with
you such proceeds to be held by you as Escrow Agent in an account separate and
apart from the Required Capital on the terms and conditions hereinafter set
forth:
1. Persons subscribing to purchase the Units will be instructed by the
Dealer Manager or soliciting dealer to remit the purchase price in the form of
checks, drafts or money orders (hereinafter called "instruments of payment")
payable to the order of, or funds wired in favor of, The Bank of New York, as
Escrow Agent for Wells Real Estate Fund X, L.P. (the "Escrow Account"). The
Dealer Manager will deposit such instruments of payment specifically designated
by the Dealer Manager as instruments of payment from Pennsylvania Investors with
you in the deposit account entitled The Bank of New York, as Escrow Holder for
Wells Real Estate Fund X, L.P. (the "Escrow Holding Account") promptly after
receipt of those instruments of payment by the Dealer Manager. Within one
business day after receipt by you of written notification from the Dealer
Manager setting forth, as to each subscriber, the name, address, number of Units
purchased and purchase price remitted (the "Batch Sheet"), you will transfer the
total amount of subscription proceeds shown on the Batch Sheet from the Escrow
Holding Account to the Escrow Account.
2. The aforesaid instruments of payment are to be promptly processed for
collection by you following deposit by the Dealer Manager into the Escrow
Holding Account. The proceeds thereof are to be transferred into the Escrow
Account as provided in paragraph 1 hereof and held in the Escrow Account until
such funds are either returned to the subscribers in accordance with paragraphs
3 or 6 hereof or otherwise disbursed in accordance with paragraph 7 hereof. In
the event any of the instruments of payment are returned to you for nonpayment
prior to receipt by you of the Required Capital, you shall promptly notify the
Dealer Manager in writing of such
<PAGE>
nonpayment, and you are authorized to debit the Escrow Account in the amount of
such return payment as well as any interest earned on the investment represented
by such payment.
3. In the event that at the close of business on ____________ __, 1997
(the "Expiration Date") you are not in receipt of Batch Sheets evidencing
subscriptions accepted on or before such date, and instruments of payment dated
not later than that date (or actual wired funds), for the purchase of Units
providing for total purchase proceeds that equal at least $2,500,000, when
combined with the purchase proceeds received by the Partnership from the Other
Investors based on written notification by the General Partners (collectively
referred to as the "Required Purchase Proceeds"), you shall promptly notify the
Partnership that such instruments of payment and Batch Sheets have not been
received by you. Thereafter, you agree to use your best efforts to obtain an
executed IRS Form W-9 from each subscriber within thirty (30) days after you
provide such notice. Upon receipt of said Form W-9 from each subscriber you
shall promptly return by your check the funds deposited in the Escrow Account,
or shall return the instruments of payment delivered to you if such instruments
have not been processed for collection prior to such time, directly to each
subscriber at the address indicated on the Batch Sheet. In the event an
executed Form W-9 is not received by you from each subscriber within such
period, you shall thereupon remit an amount to the subscribers in accordance
with the provisions hereof, withholding thirty one percent (31%) of the earnings
attributable to those subscribers not furnishing executed forms in accordance
with IRS Regulations. Included in the remittance shall be a proportionate share
of the income earned in the account allocable to each subscriber's investment in
accordance with the terms and conditions specified in paragraph 8 hereof (less
the thirty one percent (31%) withholding, where applicable). However, you shall
not be required to remit any payments until funds represented by such payments
have been collected by you.
In the event that the Partnership rejects any subscription for which
you have already collected funds, you shall promptly issue a refund check to the
rejected subscriber. If the General Partners reject any subscription for which
you have not yet collected funds but have submitted the subscriber's check for
collection, you shall promptly issue a check in the amount of the subscriber's
check to the rejected subscriber after you have cleared such funds. If you have
not yet submitted a rejected subscriber's check for collection, you shall
promptly remit the subscriber's check directly to the subscriber.
Notwithstanding the above, in the event that on the Expiration Date as
defined in Section 3 of the Master Escrow Agreement, the Required Capital has
not been received by the Partnership from Other Investors, you shall promptly
return to the Pennsylvania Investors by your check the funds deposited in the
Escrow Account and take other appropriate action as described in the previous
paragraph.
4. Following receipt by you of cash and instruments of payment (or wired
funds) of the Required Capital prior to the time provided in paragraph 3
hereinabove, you shall notify the Partnership in writing within one business day
when such funds have been collected through normal banking channels and
deposited in the Escrow Account.
5. Prior to the disbursement of funds deposited in the Escrow Account in
accordance with the provisions of paragraph 3, 6 or 7 hereof, you shall invest
all of the funds deposited in the Escrow Account in "Short-term Investments" (as
defined below) and you are further authorized and you agree to reinvest all
earnings and interest derived therefrom in any of the Short-term Investments
specified below. In the event that instruments of payment are returned to you
for nonpayment, you are authorized to debit the Escrow Account in accordance
with paragraph 2 hereof.
"Short-term Investments" includes obligations of, or obligations
guaranteed by, the United States government or bank money-market accounts or
certificates of deposit of national or state banks that have deposits insured by
the Federal Deposit Insurance Corporation (including certificates of deposit of
any bank acting as a depository or custodian for any such funds, including,
without limitation, such certificates or instruments of The Bank of New York),
which mature on or before the Expiration Date, unless such instrument cannot be
readily sold
2
<PAGE>
or otherwise disposed of for cash by the Expiration Date without any dissipation
of the offering proceeds invested.
The following securities are not permissible investments:
(a) money-market funds;
(b) corporate equity or debt securities;
(c) repurchase agreements;
(d) banker's acceptances;
(e) commercial paper; and
(f) municipal securities.
6. In the event that any Pennsylvania Investor's subscription is held by
the Escrow Agent for more than one hundred twenty (120) days prior to being
released to such Investor as provided in paragraph 3 hereof or to the
Partnership as provided in paragraph 7 hereof, then such Investor's subscription
shall be returned to such Investor by the Escrow Agent in accordance with the
terms and conditions contained in paragraph 3 hereof, provided that the Escrow
Agent has not received written notice from such Investor (or written
confirmation of such notice from the Partnership) within such 120-day period
that such Investor desires to continue as a subscriber to the Partnership. The
Partnership and not the Escrow Agent shall be responsible for monitoring the
120-day period.
7. All disbursements from the Escrow Account, except for disbursements
under the provisions of paragraph 3 and 6 hereof, shall be made by you only
pursuant to the provisions of this paragraph 7. Except for disbursements
authorized upon court order, you shall hold all funds in the Escrow Account
until (i) the date checks for the Required Purchase Proceeds have cleared normal
banking channels after receipt by you of the Required Purchase Proceeds, and
(ii) receipt of letter instructions from the Partnership directing disbursements
of such funds to the Partnership. In disbursing such funds, you are authorized
to rely solely upon such letter instructions which you receive from the
Partnership whether or not such instructions are correct, true or authentic;
provided that, if in your opinion such letter instructions from the Partnership
are unclear, you are authorized to rely upon the legal counsel to the
Partnership in distributing such funds to the effect that distribution of the
funds is authorized by the letter instructions of the Partnership and that
distribution of the funds in that manner is authorized by and in compliance with
such letter. However, you shall not be required to disburse any funds
attributable to instruments of payment which have not been collected by you,
provided that you shall use your best efforts to promptly collect such funds
after your receipt of disbursement instructions from the Partnership in
accordance with this paragraph, and shall disburse such funds in compliance with
the disbursement instructions from the Partnership.
8. In the event the offering of Units terminates prior to receipt of the
Required Purchase Proceeds, income earned on subscription proceeds deposited in
the Escrow Account ("Gross Escrow Income") minus the total escrow expenses ("Net
Escrow Income") shall be remitted to subscribers in compliance with paragraph 3.
Each subscriber's pro rata portion of Net Escrow Income shall be determined as
follows: The total amount of Net Escrow Income shall be multiplied by a
fraction, the numerator of which is determined by multiplying the number of
Units purchased by said subscriber times the number of days said subscriber's
proceeds are invested prior to termination of the offering, and the denominator
of which is the total of the numerators for all such subscribers.
Notwithstanding the foregoing, (i) escrow expenses may be deducted from the
Escrow Account only to the extent of Gross Escrow Income, and the General
Partners shall reimburse the Escrow Agent for any escrow expenses in excess of
such amount, and (ii) Pennsylvania residents will be paid their pro rata portion
of income earned on subscription proceeds deposited in the Escrow Account
without any deductions for escrow expenses. You shall promptly notify the
Partnership of the amount of Net Escrow Income which subscribers who are
Pennsylvania residents would have received if escrow expenses were not deducted
from Gross Escrow Income, and the General Partner shall reimburse you for such
pro rata escrow expenses attributable to subscribers who are Pennsylvania
residents. You shall promptly remit all such Net Escrow Income in accordance
with paragraph 3.
3
<PAGE>
9. As compensation for serving as Escrow Agent hereunder and under the
Master Escrow Agreement, you shall receive a fee, as set forth in Schedule A to
the Master Escrow Agreement.
10. In performing any of your duties hereunder, you shall not incur any
liability to anyone for any damages, losses or expenses, except for willful
default, breach of trust, or gross negligence, and accordingly you shall not
incur any such liability with respect to any action taken or omitted (1) in good
faith upon advice of your counsel given with respect to any questions relating
to your duties and responsibilities under this Agreement, or (2) in reliance
upon any instrument, including any written instrument or instruction provided
for in this Agreement, not only as to its due execution and validity and
effectiveness of its provisions but also as to the truth and accuracy of
information contained therein, which you shall in good faith believe to be
genuine, to have been signed or presented by a proper person or persons and to
conform with the provisions of this Agreement.
11. The Partnership hereby agrees to indemnify and hold you harmless
against any and all losses, claims, damages, liabilities and expenses, including
the reasonable cost of attorneys' fees and disbursements, that may be imposed on
you or incurred by you in connection with your acceptance of appointment as the
Escrow Agent hereunder, or the performance of your duties hereunder, including
any litigation arising from this Agreement or involving the subject matter
hereof, except where such losses, claims, damages, liabilities and expenses
result from willful default, breach of trust or gross negligence.
12. In the event of a dispute between the parties hereto sufficient in
your discretion to justify doing so, you shall be entitled to tender into the
registry or custody of any court of competent jurisdiction all money or property
in your hands under this Agreement, together with such legal pleadings as you
deem appropriate, and thereupon be discharged from all further duties and
liabilities under this Agreement. In the event of any uncertainty as to your
duties hereunder, you may refuse to act under the provisions of this Agreement
pending order of a court of competent jurisdiction and you shall have no
liability to the Partnership or to any other person as a result of such action.
Any such legal action may be brought in such court as you shall determine to
have jurisdiction thereof. The filing of any such legal proceedings shall not
deprive you of your compensation earned prior to such filing.
13. All written notices and letters required hereunder to you shall only
be effective if delivered personally or by certified mail, return receipt
requested to The Bank of New York, Suite 520, 100 Ashford Center North, Atlanta,
Georgia 30338, Attn: Peggy T. McWhorter. All written notices and letters
required hereunder to the Partnership shall only be effective if delivered
personally or by certified mail, return receipt requested, to Leo F. Wells, III,
3885 Holcomb Bridge Road, Norcross, Georgia 30092.
14. This Agreement shall be governed by the laws of the State of Georgia
as to both interpretation and performance.
15. The provisions of this Agreement shall be binding upon the legal
representatives, heirs, successors and assigns of the parties hereto.
16. The Partnership hereby acknowledges that you are serving as the Escrow
Agent only for the limited purposes herein set forth, and hereby agrees that it
will not represent or imply that you, by serving as Escrow Agent hereunder or
otherwise, have investigated the desirabilities or advisability of investment in
the Partnership, or have approved, endorsed or passed upon the merits of the
Units or the Partnership. The Partnership further agrees to instruct the Dealer
Manager and each of its representatives, and any other representative who may
offer Units to persons from time to time, that they shall not represent or imply
that you have investigated the desirability or advisability of investment in the
Partnership, or have approved, endorsed or passed upon the merits of the Units
or the Partnership, nor shall they use your name in any manner whatsoever in
connection with the offer or sale of the Units other than by acknowledgment that
you have agreed to serve as Escrow Agent for the limited purposes herein set
forth.
4
<PAGE>
17. This Agreement and any amendment hereto may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed to be an
original.
18. In the event that you receive instruments of payment (or wired funds)
after the Required Purchase Proceeds have been received and the proceeds of the
Escrow Account have been distributed to the Partnership, you are hereby
authorized to deposit such instruments of payment to any deposit account as
directed by the Partnership. The application of said funds into a deposit
account directed by the Partnership shall be a full acquittance to you and you
shall not be responsible for the application of said funds.
19. The Escrow Agent shall be bound only by the terms of this Escrow
Agreement and shall not be bound or incur any liability with respect to any
other agreements or understanding between any other parties, whether or not the
Escrow Agent has knowledge of any such agreements or understandings.
20. Indemnification provisions set forth herein shall survive the
termination of this Agreement.
21. Upon acceptance and distribution of the Required Capital, this Escrow
Agreement shall terminate and the Escrow Agent shall have no further
responsibility or liability with regard to the terms of this Agreement.
22. The Escrow Agent has no responsibility for accepting, rejecting or
approving subscriptions.
23. This Agreement shall not be modified, revoked, released or terminated
unless reduced to writing and signed by all parties hereto, subject to the
following paragraph.
Should, at any time, any attempt be made to modify this Agreement in a
manner that would increase the duties and responsibilities of the Escrow Agent
or to modify this Agreement in any manner which the Escrow Agent shall deem
undesirable, or at any other time, the Escrow Agent may resign by notifying the
Partnership in writing, by certified mail, and until (i) the acceptance by a
successor escrow agent as shall be appointed by the Partnership; or (ii) thirty
(30) days following the date upon which notice was mailed, whichever occurs
sooner, the Escrow Agent's only remaining obligation shall be to perform its
duties hereunder in accordance with the terms of the Agreement.
24. The Escrow Agent may resign at any time from its obligations under
this Escrow Agreement by providing written notice to the Partnership. Such
resignation shall be effective on the date specified in such notice which shall
be not less than thirty (30) days after such written notice has been given. The
Escrow Agent shall have no responsibility for the appointment of a successor
escrow agent. Unless otherwise provided in this Agreement, final termination of
this Escrow Agreement shall occur on the date that all funds held in the Escrow
Account are distributed either (a) to the Partnership pursuant to paragraph 7
hereof, or (b) to subscribers pursuant to paragraphs 3, 6 and 8 hereof.
25. The Escrow Agent may be removed for cause by the Partnership by
written notice to the Escrow Agent effective on the date specified in such
notice. The removal of the Escrow Agent shall not deprive the Escrow Agent of
its compensation earned prior to such removal.
5
<PAGE>
Agreed to as of the 28th day of June, 1996.
WELLS REAL ESTATE FUND X, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
Attest: (General Partner)
By: /s/ Brian M. Conlon By: /s/ Leo F. Wells
--------------------------- -----------------------------
Name: Brian M. Conlon Leo F. Wells, III
---------------------- President
Title: Asst. Secretary
---------------------
By: /s/ Leo F. Wells, III
------------------------------
Leo F. Wells, III
General Partner
WELLS INVESTMENT SECURITIES, INC.
A Georgia Corporation
Attest:
By: /s/ Brian M. Conlon By: /s/ Leo F. Wells
--------------------------- ------------------------------
Name: Brian M. Conlon Leo F. Wells, III
---------------------- President
Title: Secretary
---------------------
The terms and conditions contained above
are hereby accepted and agreed to by:
THE BANK OF NEW YORK
Attest: Escrow Agent
By: /s/ Elizabeth Talley By:/s/ Peggy T. McWhorter
------------------------------ ---------------------------------
Name: Elizabeth Talley Name: Peggy McWhorter
------------------------ ------------------------
Title: As Agent Title: As Agent
------------------------ ------------------------
6
<PAGE>
SCHEDULE A TO
ESCROW AGREEMENT FOR
WELLS REAL ESTATE FUND X, L.P.
Schedule of Fees - Escrow Agency
The Bank of New York
<TABLE>
<CAPTION>
<S> <C>
Administration Fee - Payable Annually.......... $1,500.00
For return of funds due to
rejected subscription........................ $ 5.00
per rejected
subscription
For costs incurred in connection
with returned checks......................... $ 20.00
per returned check
</TABLE>
Charges for refunding subscription proceeds if Required Capital is not met will
be negotiated between the parties.
Charges for filing reports or information as may be required by Internal Revenue
Service regulations or for the performance of any services not contemplated at
the time of opening account, or not of a routine administrative nature, or not
specifically covered in this schedule, will be determined by appraisal.
Actual Out-of-Pocket expenses such as counsel fees, cost of special checks,
postage, insurance, telephone, telegraph, etc. will be billed at cost.
<PAGE>
EXHIBIT 10(D)
LEASING AND TENANT COORDINATING AGREEMENT
-----------------------------------------
THIS AGREEMENT, made as of the _____ day of __________, 199__, between
WELLS REAL ESTATE FUND __, L.P., a Georgia limited partnership (the "Owner"),
and WELLS MANAGEMENT COMPANY, INC., a Georgia corporation (the "Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Owner intends to raise money from the sale of limited
partnership interests for the acquisition or construction of income-producing
improvements on several tracts as yet unspecified but to be acquired by Owner
(the "Partnership Properties"); and
WHEREAS, the Owner intends to employ the Agent to manage any leasable
improvements that may be constructed on the Partnership Properties; and
WHEREAS, the Owner and Agent are entering into this Agreement to establish
the terms and conditions for such services.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein contained, the Owner and Agent agree as follows:
1. Leasing Agent. The Owner hereby engages the Agent for the term hereof
-------------
as the exclusive leasing and tenant coordinating agent for the improvements to
be developed on the Partnership Properties.
2. Effective Date and Term. This Agreement shall become effective upon
-----------------------
the date hereof. The initial term of this Agreement shall be for a period of 12
months beginning on the date the Owner notifies the Agent in writing that one or
more Partnership Properties are available for lease. The term shall be
automatically extended for an additional one year period at the end of each year
unless the Owner or Agent give sixty (60) days written notice of their intention
not to renew this Agreement. Both the Owner and the Agent may terminate this
Agreement at an earlier date upon sixty (60) days written notice to the other
party. The Agent may engage in preleasing activities as of the date hereof.
3. Leasing Functions. The Agent, by the execution hereof, accepts the
-----------------
Owner's engagement of the Agent as the exclusive leasing and tenant coordination
agent of the Partnership Properties for the term hereof, and agrees to use its
best efforts to perform the following specific functions:
(a) to seek diligently tenants and obtain signed leases for the
Partnership Properties under the terms prescribed by the Owner;
(b) to coordinate the planning of each tenant's space with the
architect and obtain such tenant's approval of the plan;
(c) to coordinate the construction of each tenant's space with the
contractor or the Owner and prepare an accounting of tenant overage costs (if
any) for such tenant;
(d) to coordinate each tenant's moving into its completed offices; and
(e) not later than 30 days before the anniversary of this Agreement and
extensions thereof, the Agent shall prepare and submit to the Owner for its
approval a marketing and leasing plan for the Partnership Properties for the
calendar year immediately following such submission. The leasing plan shall be
in the form approved by the Owner prior to the date thereof. As often as
reasonably necessary during the period covered by any such plan, the Agent may
submit to the Owner for its approval an updated plan incorporating such changes
as shall be necessary to reflect leasing experience during such period. If the
Owner does not disapprove any such plan
<PAGE>
within 30 days after receipt thereof by the Owner, such plan shall be deemed
approved. If the Owner shall disapprove any such plan, it shall so notify the
Agent within said 30 day period and explain the reasons therefor.
4. Reimbursement. The Agent shall be reimbursed by the Owner for all
-------------
expenses of the Partnership Properties that the Agent incurs in connection with
the performance of its duties and obligations pursuant to this Agreement,
provided that such expenses are expressly authorized by the Owner. Such
reimbursements may include salaries and other employee-related expenses, travel
and other out-of-pocket expenses directly related to a specific Partnership
Property to the extent permitted by the Statement of Policy Regarding Real
Estate Programs adopted on October 9 and 12, 1988, effective January 1, 1989, by
the North American Securities Administrators Association, Inc., as amended (the
"NASAA Guidelines").
5. Compensation of the Agent.
-------------------------
5.1 Agent. For performing the functions outlined in Section 3 the
-----
Agent shall be compensated as follows:
(a) The Agent shall be paid three percent (3%) of the Gross Revenues
paid monthly from rents collected;
(b) In addition to the compensation paid to the Agent under Section
5.1(a) above, the Agent shall be entitled to receive a separate competitive fee
for the one-time initial rent-up or lease-up of a newly constructed property,
provided said fee is not included in the purchase price of the property paid by
the Owner. For this purpose, a total rehabilitation shall be included in the
phrase "newly constructed." The fee paid the Agent under this section is
intended to comply with Article IV, Section G.3 of the NASAA Guidelines, and in
all instances shall be interpreted in a manner which will comply with said
provision;
(c) The Agent's compensation under Section 5.1(a), but not Section
5.1(b) hereof, shall apply to all renewals, extensions or expansions of leases
which the Agent has originally negotiated; and
(d) For planning and coordinating the construction of any tenant finish
along with the Owner or any architect, contractor or other authorized person,
the payment for which shall be the responsibility of the tenant, the Agent shall
be entitled to receive from any such tenant an amount equal to 5% of the amount
as remitted by the tenant to the Owner or to a representative of the Owner in
payment for such construction.
As used herein, the term "Gross Revenues" shall mean all amounts actually
collected as rents or other charges for the use and occupancy of Partnership
Properties, but shall exclude interest and other investment income of the Owner
and proceeds received by the Owner from a sale, exchange, condemnation, eminent
domain taking, casualty or other disposition of assets of the Owner.
5.2 Co-Brokerage. The Owner agrees that the Agent shall not be
------------
required to share or co-broker the compensation outlined in Sections 5.1(a) and
(b) with another agent. The parties further agree that the amount paid to other
real estate agents for their brokerage services shall reduce, on a dollar by
dollar basis, the amount paid to the Agent under Section 5.1(b) hereof. Any
commissions due other real estate agents for procuring a tenant shall be paid by
the Owner.
5.3 Sale of Partnership Properties. If the Partnership Properties are
------------------------------
sold, the Owner agrees to furnish the Agent with an agreement signed by the
purchaser assuming the Owner's obligations to pay compensation earned under
Section 5.1 of this Agreement.
2
<PAGE>
6. Agent's Limited Liability.
-------------------------
6.1 Agent's Liability. The Agent's liability is limited in the
-----------------
following ways:
(a) The Agent shall not be responsible for acts or omissions of any
contractor, any sub-contractor or any of their agents or employees or any other
persons performing any of the work on the Partnership Properties which did not
result from the negligence or misconduct of Agent.
(b) The Agent shall not be responsible for errors or omissions of the
architect, his or its engineers, employees or agents or any other independent
engineer, surveyor or other professionals providing services in connection with
the construction of the Partnership Properties which did not result from the
negligence or misconduct of Agent.
6.2 Indemnification of Owner. In the performance of its duties
------------------------
hereunder, the Agent shall diligently endeavor to protect the property rights
and interests of the Owner as vested in the Partnership Properties. The Agent
hereby agrees to indemnify the Owner and hold the Owner harmless from and
against any claims, actions, damages, expenses (including, without limitation,
attorneys' and accountants' fees and court costs) and liabilities relating to
the negligence or misconduct of the Agent.
7. Notices. Any notice which may be or is required to be given hereunder
-------
shall be deemed given when received by personal delivery or by registered or
certified United States mail, postage prepaid, return receipt requested,
addressed to the Owner and/or the Agent at the addresses set forth after their
respective name below, or at such different addresses as either party shall have
theretofore advised the other party in writing in accordance with this Section
7.
Owner: Wells Real Estate Fund __, L.P.
c/o Wells Partners, L.P.
General Partner
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Agent: Wells Management Company, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
8. Limitation. Except as otherwise specifically provided in this
----------
Agreement, the Agent shall have no right to incur any liability on behalf of the
Owner or to bind the Owner by any contract or obligation.
9. Activities of Agent. The obligations of the Agent pursuant to the
-------------------
terms and provisions of this Agreement shall not be construed to preclude the
Agent from engaging in other activities or business ventures, whether or not
such other activities or ventures are in competition with the Partnership
Properties or the business of the Owner.
10. Independent Contractor. The Agent and the Owner shall not be
----------------------
construed as joint venturers or partners of each other pursuant to this
Agreement, and neither shall have the power to bind or obligate the other except
as set forth herein. In all respects the status of the Agent to the Owner under
this Agreement is that of an independent contractor.
11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Georgia.
3
<PAGE>
12. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.
13. Entire Agreement. This Agreement contains the entire understanding
----------------
and all agreements between the parties hereto respecting the leasing and
coordinating of tenant improvements on the Partnership Properties. There are no
representations, agreements, arrangements or understandings, oral or written,
among the parties hereto relating to the leasing and tenant coordinating of the
improvements on the Partnership Properties which are not fully expressed herein.
14. Section Headings. The section headings in this Agreement are inserted
----------------
only as a matter of convenience and for reference and in no way define, limit or
describe the scope or intent of this Agreement or in any way affect this
Agreement.
15. Disputes. If there shall be a dispute among the Agent and the Owner
--------
relating to this Agreement resulting in litigation, the prevailing party in such
litigation shall be entitled to recover from the other party to such litigation
such amount as the court shall fix as reasonable attorneys' fees.
16. Binding Agreement. This Agreement shall be binding upon the parties
-----------------
hereto and their successors and assigns. This Agreement shall not be changed
orally, but may be changed only by a written agreement signed by the Owner and
the Agent. No waiver or any breach of any covenant, condition or agreement
contained herein shall be construed to be a subsequent waiver of that covenant,
condition or agreement or of any subsequent breach thereof or of this Agreement.
17. Assignment. Agent may delegate partially or in full its duties and
----------
rights under this Agreement but only with the vote of a majority in interest of
the Limited Partners of the Owner. Except as provided in the immediately
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective successors and assigns.
[SIGNATURES APPEAR ON NEXT PAGE]
4
<PAGE>
EXHIBIT 10(E)
MANAGEMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into as of the _____ day of __________,
199__, between WELLS REAL ESTATE FUND __, L.P., a Georgia limited partnership
("Owner"), and WELLS MANAGEMENT COMPANY, INC., a Georgia corporation with
offices in Norcross, Georgia ("Manager").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Owner intends to raise money from the sale of limited partnership
interests for the acquisition or construction of income-producing improvements
on several tracts as yet unspecified but to be acquired by Owner (the
"Partnership Properties"); and
WHEREAS, Owner intends to employ Manager to manage any leasable
improvements that may be constructed on the Partnership Properties; and
WHEREAS, Owner and Manager are entering into this Agreement to establish
the terms and conditions for such services.
NOW, THEREFORE, in consideration of the mutual covenants herein, the
parties agree as follows:
ARTICLE I.
DEFINITIONS
Except as otherwise specified or as the context may otherwise require, the
following terms have the respective meanings set forth below for all purposes of
this Agreement, and the definitions of such terms are equally applicable both to
the singular and plural forms thereof:
1.1 "Gross Revenues" means all amounts actually collected as rents or
other charges for the use and occupancy of Partnership Properties, but shall
exclude interest and other investment income of Owner and proceeds received by
Owner from a sale, exchange, condemnation, eminent domain taking, casualty or
other disposition of assets of Owner.
1.2 "Improvements" means all buildings, structures and equipment from time
to time located on Partnership Properties and all parking and common areas
located on Partnership Properties.
1.3 "Lease" means, unless the context otherwise requires, any lease or
sublease made by Owner as landlord or by its predecessor.
1.4 "Management Fee" means the fee payable to Manager for its services
hereunder.
1.5 "Partnership Properties" means all tracts as yet unspecified but to be
acquired by Owner containing income-producing improvements or on which Owner
will construct income-producing improvements.
ARTICLE II.
APPOINTMENT OF MANAGER; SERVICES TO BE PERFORMED
2.1 Appointment of Manager. Owner hereby engages and retains Manager as
----------------------
the sole and exclusive agent and manager of the Partnership Properties and
Manager hereby accepts such appointment on the terms and conditions hereinafter
set forth, it being understood that this Agreement shall cause Manager to be, at
law, Owner's agent upon the terms contained herein.
<PAGE>
2.2 General Duties. Manager shall devote its best efforts to performing
--------------
its duties hereunder to manage, operate and maintain the Partnership Properties
in a diligent, careful and vigilant manner. The services of Manager are to be
of scope and quality not less than those generally performed by professional
property managers of other similar properties in the area. Manager shall make
available to Owner the full benefit of the judgment, experience and advice of
the members of Manager's organization and staff with respect to the policies to
be pursued by Owner relating to the operation of the Partnership Properties.
2.3 Specific Duties. Manager's duties include the following:
---------------
(a) Lease Obligations. Manager shall perform all duties of the
-----------------
landlord under all leases insofar as such duties relate to operation,
maintenance, and day-to-day management. Manager shall also provide or cause to
be provided, at Owner's expense, all services normally provided to tenants of
like premises, including where applicable and without limitation, gas,
electricity or other utilities required to be furnished to tenants under leases,
normal repairs and maintenance, and cleaning and janitorial service. Manager
shall arrange for and supervise the performance of all installations and
improvements in space leased to any tenant which are either expressly required
under the terms of the lease of such space or which are customarily provided to
tenants.
(b) Maintenance. Manager shall cause the Partnership Properties to be
-----------
maintained in the same manner as similar properties in the area. Manager's
duties and supervision in this respect shall include, without limitation,
cleaning of the interior and the exterior of the Improvements and the public
common areas on the Partnership Properties and the making and supervision of
repair, alterations and decoration of the Improvements, subject to and in strict
compliance with this Agreement and the Leases. Non-budgeted expenses for any
individual item of work which are not reimbursed by a tenant shall not exceed
the sum of $1,000 unless specifically authorized in advance by Owner, provided
that emergency repairs which are immediately necessary for the preservation or
safety of the Partnership Properties, or for the safety of occupant or other
persons, or required to avoid the suspension of any necessary service of the
Partnership Properties may be made by Manager without prior approval of Owner if
under the circumstances Owner cannot be conveniently notified before the
required emergency repairs must be done.
(c) Notice of Violations. Manager shall forward to Owner promptly
--------------------
upon receipt all notices of violation or other notices from any governmental
authority, and board of fire underwriters or any insurance company, and shall
make such recommendations regarding compliance with such notice as shall be
appropriate.
(d) Personnel. In the event Owner notifies Manager of the necessity
---------
of Manager employing additional personnel to manage the Partnership Properties,
Manager shall cause to be hired personnel to maintain and operate the
Partnership Properties. The persons so hired shall be the employees or
independent contractors of Manager and not of Owner. Manager shall use due care
in the selection and supervision of such employees or independent contractors
and shall not pay such employees or independent contractors out of operating
revenues from the Partnership Properties. Manager shall be responsible for the
preparation of and shall timely file all payroll tax reports and timely make
payments of all withholding and other payroll taxes with respect to each
employee.
(e) Utilities and Supplies. Manager shall, on behalf of Owner,
----------------------
entered into or renew contracts for electricity, gas, steam, landscaping, fuel,
oil, maintenance and other services as are customarily furnished or rendered in
connection with the operation of similar rental property in the area, or as it,
in its reasonable judgment, shall deem prudent, provided that Manager shall
submit to Owner for its approval such contracts for items of expense which are
not reimbursable by tenants. Unless Owner notifies Manager of its disapproval of
any such contract within 10 days after receipt thereof, Owner shall be deemed to
have approved such contract. Manager shall also purchase all supplies which
Manager shall deem necessary to maintain and operate the Partnership Properties,
provided that no such purchase which is not in the ordinary course of business
or which is of a nature not reimbursed by tenants shall be made by Manager
without the prior consent of Owner. The non-budgeted purchase of supplies
calling for an aggregate purchase price in excess of $1,000, which amount is not
reimbursed by tenants, shall not be made without the prior consent of Owner.
2
<PAGE>
(f) Expenses. Manager shall analyze all bills received for services, work
--------
and supplies in connection with maintaining and operating the Partnership
Properties, pay all such bills, and, if requested by Owner, pay, when due,
utility and water charges, sewer rent and assessments, and any other amount
payable in respect to the Partnership Properties. All bills shall be paid by
Manager within the time required to obtain discounts, if any. Owner may from
time to time request that Manager forward certain bills to Owner promptly after
receipt, and Manager shall comply with any such request. It is understood that
the payment of real property taxes and assessment and insurance premiums will be
paid out of the Account (as hereinafter defined) by Manager at the direction of
Owner. All expenses shall be billed at net cost (i.e., less all rebates,
---
commissions, discounts and allowances, however designed).
(g) Monies Collected. Manager shall collect all rent and other monies from
----------------
tenants and any sums otherwise due Owner with respect to the Partnership
Properties in the ordinary course of business. In collecting such monies,
Manager shall inform tenants of the Partnership Properties that all remittances
are to be in the form of a check or money order. Owner authorizes Manager to
request, demand, collect and receipt for all such rent and other monies and to
institute legal proceedings in the name of Owner for the collection thereof and
for the dispossession of any tenant in default under its lease. Manager shall
not, however, compromise with any tenant or waive Owner's rights under any lease
without Owner's consent.
(h) Banking Accommodations. Manager shall establish and maintain a
----------------------
separate checking account (the "Account"). All monies deposited from time to
time in the Account shall be deemed to be trust funds and shall be and remain
the property of Owner and shall be withdrawn and disbursed by Manager for the
account of Owner only as expressly permitted by this Agreement for the purposes
of performing the obligations of Manager hereunder. No monies collected by
Manager on Owner's behalf shall be commingled with funds of Manager. The
Account shall be maintained, and monies shall be deposited therein and withdrawn
therefrom, in accordance with the following:
(i) All sums received from rents and other income from the
Partnership Properties shall be promptly deposited by Manager in the
Account. Manager shall have the right to designate two or more
persons who shall be authorized to draw against the Account, but only
for purposes authorized by this Agreement.
(ii) All sums due to Manager hereunder, whether for compensation,
reimbursement for expenditures, or otherwise, as herein provided,
shall be a charge against the operating revenues of the Partnership
Properties and shall be paid and/or withdrawn by Manager from the
Account prior to the making of any other disbursements therefrom.
(iii) By the 20th day of each month, Manager shall forward to
Owner net operating proceeds from the preceding month, retaining at
all times, however, a reserve of $3,000.
(i) Tenant Complaints. Manager shall maintain business-like relations
-----------------
with the tenants of the Partnership Properties.
(j) Partnership Agreement. Manager has received a copy of Owner's
---------------------
Agreement of Limited Partnership (the "Partnership Agreement") and is familiar
with the terms thereof. Manager shall use reasonable care to avoid any act or
omission which, in the performance of its duties hereunder, shall in any way
conflict with the terms of the Partnership Agreement.
(k) Signs. Manager shall place and remove, or cause to be placed and
-----
removed, such signs upon the Partnership Properties as Manager deems
appropriate, subject, however, to the terms and conditions of the Leases and to
any applicable ordinances and regulations.
3
<PAGE>
(l) Other Services. Manager shall recommend from time to time to
--------------
Owner such procedures with respect to Partnership Properties as Manager may deem
advisable for the most efficient and economic management services which normally
are performed in connection with the operation of first-class office and
commercial buildings or other buildings, as applicable, and perform all services
normally provided to similar premises, without additional charges to Owner.
2.4 Approval of Leases, Contracts, Etc. Manager shall not approve the
----------------------------------
execution of or otherwise enter into or bind Owner with respect to leases or any
contract or agreement without the prior consent of Owner; provided that without
such consent, except to the extent required under Section 2.3(e), Manager may
enter into any contracts or agreements (excluding Leases of space in the
Partnership Properties) on behalf of Owner in the ordinary course of the
management, operation and maintenance of the Partnership Properties for the
obtaining of utility, maintenance or other services to tenant; and further
provided that without such consent, Manager may enter into any contracts or
agreements on behalf of Owner, in the case of casualty, breakdown in machinery
or other similar emergency, if in the opinion of Manager emergency action or
immediate approval for the commencement of repairs is necessary to prevent
additional damage or greater total expenditure or to protect the Partnership
Properties from damage or prevent default on the part of Owner under any of the
Leases, in which event such action taken shall be taken concurrently with prompt
notice to Owner.
2.5 Accounting, Records and Reports.
-------------------------------
(a) Records. Manager shall maintain all office records and books of
-------
account and shall record therein, and keep copies of, each invoice received for
services, work and supplies ordered in connection with the maintenance and
operation of the Partnership Properties. Such records shall be maintained on a
double entry basis. Owner and persons designated by Owner shall at all
reasonable times have access to and the right to audit and make independent
examinations of such records, books and accounts and all vouchers, files and all
other material pertaining to the Partnership Properties and this Agreement, all
of which Manager agrees to keep safe, available and separate from any records
not pertaining to Partnership Properties, at a place recommended by Manager and
approved by Owner.
(b) Monthly Reports. On or before the 15th day of each month
---------------
following the month for which such report or statement is prepared and during
the term of this Agreement, Manager shall prepare and submit to Owner the
following reports and statements:
(i) Rental collection record in a form to be agreed upon by
Manager and Owner;
(ii) Monthly operating statement in a form to be agreed upon by
Manager and Owner;
(iii) Copy of cash disbursements ledger entries for such month;
(iv) Copy of cash receipts ledger entries for such month;
(v) The original copies of all contracts entered into by
Manager on behalf of Owner during such month; and
(vi) Copy of ledger entries for such month relating to security
deposits maintained by Manager.
(c) Budgets and Leasing Plans. Not later than 30 days before the
-------------------------
anniversary of this Agreement and any extensions thereof, Manager shall prepare
and submit to Owner for its approval an operating budget and a marketing and
leasing plan on the Partnership Properties for the calendar year immediately
following such submission. The budget and leasing plan shall be in the form of
the budget and plan approved by Owner prior
4
<PAGE>
to the date thereof. As often as reasonably necessary during the period
covered by any such budget, Manager may submit to Owner for its approval an
updated budget or plan incorporating such changes as shall be necessary to
reflect cost over-runs and the like during such period. If Owner does not
disapprove any such budget within 30 days after receipt thereof by Owner, such
budget shall be deemed approved. If Owner shall disapprove any such budget or
plan, it shall so notify Manager within said 30-day period and explain the
reasons therefor.
(d) Returns Required by Law. Manager shall execute and file when due
-----------------------
all forms, reports, and returns required by law relating to the employment of
its personnel.
(e) Notices. Promptly after receipt, Manager shall deliver to Owner
-------
all notices from any tenant, or any governmental authority, that are not of a
routine nature. Manager shall also report expeditiously to Owner notice of any
extensive damage to any part of the Partnership Properties.
ARTICLE III.
EXPENSES
3.1 Owner's Expenses. Except as otherwise specifically provided, all
----------------
costs and expenses incurred hereunder by Manager shall be for the account of and
on behalf of Owner. Such costs and expenses may include salaries and other
employee-related expenses, and all legal, travel and other out-of-pocket
expenses which are directly related to the management of specific Partnership
Property, to the extent permitted by the Statement of Policy Regarding Real
Estate Programs adopted by the North American Securities Administrators
Association, Inc. on October 9 and 12, 1988, effective January 1, 1989, as
amended. All costs and expenses for which Owner is responsible under this
Agreement, shall be paid by Manager out of the Account. In the event said
account does not contain sufficient funds to pay all said expenses, Owner shall
fund all sums necessary to meet such additional costs and expenses.
3.2 Manager's Expenses. Manager shall, out of its own funds, pay all of
------------------
its general overhead and administrative expenses.
ARTICLE IV.
MANAGER'S COMPENSATION
4.1 Management Fee. Commencing on the date hereof, Owner shall pay
--------------
Manager, as compensation for its services hereunder, an amount equal to three
percent (3%) of the Gross Revenues paid monthly from the rental income received
from Partnership Properties, over the term of this Agreement ("Management Fee").
4.2 Audit Adjustment. If any audit of the records, books or accounts
----------------
relating to the Partnership Properties discloses an overpayment or underpayment
of Management Fees, Owner or Manager shall promptly pay to the other party the
amount of such overpayment or underpayment, as the case may be. If such audit
discloses an overpayment of Management Fees for any fiscal year of more than the
correct Management Fees for such fiscal year, Manager shall bear the cost of
such audit.
ARTICLE V.
INSURANCE AND INDEMNIFICATION
5.1 Insurance to be Carried.
-----------------------
(a) The Partnership Properties shall be insured by Owner against such
hazards as Owner shall deem appropriate, but in any event insurance sufficient
to comply with the Leases and the Partnership Agreement
5
<PAGE>
shall be maintained. All liability policies shall provide sufficient insurance
satisfactory to both Owner and Manager and shall contain waivers of subrogation
for the benefit of Manager.
(b) Manager shall obtain and keep in full force and effect, in
accordance with the laws of the state in which each Partnership Property is
located, employer's liability insurance applicable to and covering all employees
of Manager at the Partnership Properties and all persons engaged in the
performance of any work required hereunder, and Manager shall furnish Owner
certificates of insurers naming Owner as a co-insured and evidencing that such
insurance is in effect. If any work under this Agreement is subcontracted as
permitted herein, Manager shall include in each subcontract a provision that the
subcontractor shall also furnish Owner with such a certificate.
5.2 Cooperation with Insurers. Manager shall cooperate with and provide
-------------------------
reasonable access to the Partnership Properties to representatives of insurance
companies and insurance brokers or agents with respect to insurance which is in
effect or for which application has been made. Manager shall use its best
efforts to comply with all requirements of insurers.
5.3 Accidents and Claims. Manager shall promptly investigate and shall
--------------------
report in detail to Owner all accidents, claims for damage relating to the
ownership, operation or maintenance of the Partnership Properties, and any
damage or destruction to the Partnership Properties and the estimated costs of
repair thereof, and shall prepare for approval by Owner all reports required by
an insurance company in connection with any such accident, claim, damage, or
destruction. Such reports shall be given to Owner promptly and any report not
so given within 10 days after the occurrence of any such accident, claim, damage
or destruction shall be noted in the monthly report delivered to Owner pursuant
to Section 2.5(b). Manager is authorized to settle any claim against an
insurance company not exceeding $500 arising out of any policy and, in
connection with such claim, to execute proofs of loss and adjustments of loss
and to collect and receipt for loss proceeds. If a claim against an insurance
company exceeds $500, Manager shall take no action specified in the immediately
preceding sentence with respect thereto without the approval of Owner.
5.4 Indemnification. Manager shall hold Owner harmless from and indemnify
---------------
and defend Owner against any and all claims or liability for any injury or
damage to any person or property whatsoever for which Manager is responsible
occurring in, on, or about the Partnership Properties, including, without
limitation, the Improvements when such injury or damage shall be caused by the
negligence of Manager, its agents, servants, or employees, except to the extent
that Owner recovers insurance proceeds with respect to such matter. Owner will
indemnify and hold Manager harmless against all liability for injury to persons
and damage to property caused by Owner's negligence and which did not result
from the negligence or misconduct of Manager, except to the extent Manager
recovers insurance proceeds with respect to such matter.
ARTICLE VI.
TERM, TERMINATION
6.1 Term. This Agreement shall commence on the date first above written
----
and shall continue until terminated in accordance with the earliest to occur of
the following:
(a) One year from the date of the commencement of the term hereof.
However, this Agreement will be automatically extended for an additional one
year period at the end of each year unless Owner or Manager gives sixty (60)
days written notice of its intention to terminate the Agreement;
(b) Sixty (60) days after prior written notice of intention to
terminate the Agreement given by Owner or Manager;
(c) Upon any change in control of Manager, unless Owner consents to
such change; or
6
<PAGE>
(d) Immediately upon the occurrence of any of the following:
(i) A decree or order is rendered by a court having jurisdiction
(A) adjudging Manager as bankrupt or insolvent, or (B) approving as
properly filed a petition seeking reorganization, readjustment,
arrangement, composition or similar relief for Manager under the
federal bankruptcy laws or any similar applicable law or practice, or
(C) appointing a receiver or liquidator or trustee or assignee in
bankruptcy or insolvency of Manager or a substantial part of the
property of Manager, or for the winding up or liquidation of its
affairs, or
(ii) Manager (A) institutes proceedings to be adjudicated a
voluntary bankrupt or an insolvent, (B) consents to the filing of a
bankruptcy proceeding against it, (C) files a petition or answer or
consent seeking reorganization, readjustment, arrangement, composition
or relief under any similar applicable law or practice, (D) consents
to the filing of any such petition, or to the appointment of a
receiver or liquidator or trustee or assignee in bankruptcy or
insolvency for it or for a substantial part of its property, (E) makes
an assignment for the benefit of creditors, (F) is unable to or admits
in writing its inability to pay its debts generally as they become due
unless such inability shall be the fault of Owner, or (G) takes
corporate or other action in furtherance of any of the aforesaid
purposes.
Upon termination, the obligations of the parties hereto shall cease,
provided that Manager shall comply with the provisions hereof applicable in the
event of termination and shall be entitled to receive all compensation which may
be due Manager hereunder up to the date of such termination, and provided,
further, that if this Agreement terminates pursuant to clause (d) above, Owner
shall have other remedies as may be available at law or in equity.
6.2 Manager's Obligations after Termination. Upon the termination of this
---------------------------------------
Agreement, Manager shall have the following duties:
(a) Manager shall deliver to Owner, or its designee, all books and
records with respect to the Partnership Properties.
(b) Manager shall transfer and assign to Owner, or its designee, all
service contracts and personal property relating to or used in the operation and
maintenance of the Partnership Properties, except personal property paid for and
owned by Manager. Manager shall also, for a period of sixty (60) days
immediately following the date of such termination, make itself available to
consult with and advise Owner, or its designee, regarding the operation and
maintenance of the Partnership Properties.
(c) Manager shall render to Owner an accounting of all funds of Owner
in its possession and shall deliver to Owner a statement of Management Fees
claimed to be due Manager and shall cause funds of Owner held by Manager
relating to the Partnership Properties to be paid to Owner or its designee.
ARTICLE VII.
MISCELLANEOUS
7.1 Notices. All notices, approvals, consents and other communications
-------
hereunder shall be in writing, and, except when receipt is required to start the
running of a period of time, shall be deemed given when delivered in person or
on the fifth day after its mailing by either party by registered or certified
United States mail, postage prepaid and return receipt requested, to the other
party, at the addresses set forth after their respective name below or at such
different addresses as either party shall have theretofore advised the other
party in writing in accordance with this Section 7.1.
7
<PAGE>
Owner: WELLS REAL ESTATE FUND __, L.P.
c/o Wells Partners, L.P.
General Partner
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Manager: WELLS MANAGEMENT COMPANY, INC.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
7.2 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Georgia.
7.3 Assignment. Manager may delegate partially or in full its duties and
----------
rights under this Agreement but only with the prior written consent of Owner.
Except as provided in the immediately preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties and their
respective successors and assigns.
7.4 No Waiver. The failure of Owner to seek redress for violation or to
---------
insist upon the strict performance of any covenant or condition of this
Agreement, shall not constitute a waiver thereof for the future.
7.5 Amendments. This Agreement may not be amended without the vote of a
----------
majority in interest of the Limited Partners of Owner and only by an instrument
in writing signed by the party against whom enforcement of the amendment is
sought.
7.6 Headings. The headings of the various subdivisions of this Agreement
--------
are for reference only and shall not define or limit any of the terms or
provisions hereof.
7.7 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
7.8 Entire Agreement. This Agreement contains the entire understanding
----------------
and all agreements between Owner and Manager respecting the management of the
Partnership Properties. There are no representations, agreements, arrangements
or understandings, oral or written, between Owner and Manager relating to the
management of the Partnership Properties that are not fully expressed herein.
7.9 Disputes. If there shall be a dispute between Owner and Manager
--------
relating to this Agreement resulting in litigation, the prevailing party in such
litigation shall be entitled to recover from the other party to such litigation
such amount as the court shall fix as reasonable attorneys' fees.
7.10 Activities of Manager. The obligations of Manager pursuant to the
---------------------
terms and provisions of this Agreement shall not be construed to preclude
Manager from engaging in other activities or business ventures, whether or not
such other activities or ventures are in competition with the Partnership
Properties or the business of Owner.
7.11 Independent Contractor. Manager and Owner shall not be construed as
----------------------
joint venturers or partners of each other pursuant to this Agreement, and
neither shall have the power to bind or obligate the other except as set forth
herein. In all respects, the status of Manager to Owner under this Agreement is
that of an independent contractor.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
OWNER MANAGER
- ----- -------
WELLS REAL ESTATE FUND __, L.P. WELLS MANAGEMENT COMPANY, INC.
A Georgia Limited Partnership A Georgia Corporation
By: WELLS PARTNERS, L.P., By:
A Georgia Limited Partnership ----------------------------------
General Partner Leo F. Wells, III
President
By: WELLS CAPITAL, INC., Attest:
A Georgia Corporation
General Partner By:
----------------------------------
Name:
--------------------------
Title:
--------------------------
By:
----------------------
Leo F. Wells, III
President
Attest:
By:
----------------------
Name:
----------------
Title:
----------------
By:
------------------------------
Leo F. Wells, III
General Partner
9
<PAGE>
EXHIBIT 10(F)
CUSTODIAL AGENCY AGREEMENT
--------------------------
GEORGIA, FULTON COUNTY
THIS AGREEMENT made and entered into as of the 28th day of June,
1996, by and between WELLS REAL ESTATE FUND X, L.P., a Georgia limited
partnership (hereinafter called "Principal"), party of the first part, and THE
BANK OF NEW YORK, a national banking association with an office and place of
business in Atlanta, Fulton County, Georgia (hereinafter called "Agent"), party
of the second part.
W I T N E S S E T H :
WHEREAS, Principal was formed for the purpose of acquiring, developing,
constructing, owning, operating, improving, leasing and otherwise managing for
investment purposes, either alone or in association with others, a diversified
portfolio of income-producing commercial or industrial properties; and
WHEREAS, in order to obtain funds to acquire such properties, Principal
will be conducting an offering of its limited partnership units; and
WHEREAS, Principal desires to place all funds obtained from investors
representing proceeds from the sale of its limited partnership units, all
properties to be acquired by Principal and the net proceeds from the resale of
all such properties in the custody of Agent to hold as agent for Principal; and
WHEREAS, Agent is willing to provide such services and undertake the duties
and responsibilities hereinafter set forth.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good and
valuable consideration, the delivery and receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Cash obtained from investors representing proceeds from the sale of
limited partnership units will be held and maintained as follows:
(a) All checks obtained from investors representing proceeds from the
sale of limited partnership units in Principal will be deposited
by or on behalf of Principal into an account entitled "The Bank
of New York, as Agent for Wells Real Estate Fund X, L.P." (the
"Custodial Account").
(b) Twenty percent (20%) of such proceeds (representing selling
commissions, organizational and offering expenses, acquisition
and advisory fees and certain acquisition expenses) shall
immediately be redeposited into a separate account in the name of
Principal (the "Partnership Account").
(c) The remaining eighty percent (80%) of such proceeds held in the
Custodial Account will be invested at the direction of Principal
in short-term, highly liquid investments such as government
obligations, bank or savings and loan association certificates of
deposit, short-term debt obligations and interest-bearing
accounts
<PAGE>
(cash amounts in the Custodial Account and the principal amount
of such investments shall collectively be referred to herein as
"Liquid Proceeds Available for Investment").
(d) All interest and other income earned on the Liquid Proceeds
Available for Investment (the "Income Earned on Liquid
Proceeds"), less, if applicable, the 1% per annum fee on Income
----
Earned on Liquid Proceeds described on Schedule A hereto, will be
transferred to and deposited in the Partnership Account on a
monthly basis.
2. Liquid Proceeds Available for Investment held by Agent for Principal
for the purpose of acquiring properties on behalf of Principal shall
be disbursed as follows:
(a) At such time as a specific property to be acquired by Principal
is identified, Principal shall designate such property to Agent
by written instructions identifying the property to be acquired,
setting forth the seller and the purchase price and containing
specific instructions that Agent is authorized to disburse funds
to such seller for the acquisition of such property, as
contemplated by paragraph 2(b) below. In the event that such
property to be acquired by Principal will be owned in co-
ownership with a person or entity which has not entered into a
Custodial Agency Agreement with Agent, as provided in paragraphs
2(e) and 2(g) below, such written instructions to Agent shall
also specify whether such property is to be held in a joint
venture, in a partnership, as an undivided interest or as a co-
tenant and shall set forth Principal's percentage ownership
interest in such property, in which event Agent shall only be
obligated to disburse funds under this paragraph 2 in amounts
equalling Principal's percentage ownership interest therein.
(b) Upon obtaining written instructions from Principal, Agent shall
be authorized and required to disburse Liquid Proceeds Available
for Investment for the acquisition of such property; provided,
however, that Agent shall be prohibited from disbursing Liquid
Proceeds Available for Investment unless and until it has (i)
obtained written instructions from Principal and (ii) obtained a
copy of an appraisal from an independent appraiser for each
property to be purchased on behalf of Principal, with the
purchase price of each such property not to exceed its appraised
value.
(c) Upon obtaining written instructions from Principal to such
effect, Agent shall also be authorized and required to disburse
Liquid Proceeds Available for Investment to pay any and all deed
taxes, transfer taxes, recording costs, title insurance premiums,
fees of Principal's attorneys, appraisers, surveyors or other
agents and other closing costs relating to the acquisition of
properties, or to reimburse or pay Agent for costs and expenses
required to be reimbursed or paid pursuant to paragraph 8(b)
below. Anything herein to the contrary notwithstanding, Agent
shall not be required to advance its own funds to pay any of such
costs and expenses.
2
<PAGE>
(d) In connection with the acquisition of properties on behalf of
Principal, Agent shall be required to execute and deliver such
contracts, agreements (including in the case of properties
acquired as a co-tenant, co-tenancy agreements), leases,
assignments, assumptions, certificates, closing statements and
other real estate acquisition documents as may be reasonably
necessary or appropriate in connection with such property
acquisitions. At least five (5) business days prior to the
closing of any acquisition of properties hereunder, Principal
shall deliver to Agent proof of insurance, copies of
environmental reports and title commitments and drafts of all
closing documents which Agent shall be required to execute and
deliver hereunder. At closing, Principal shall obtain title
insurance insuring Agent's interest in the property acquired.
Anything herein to the contrary notwithstanding, Agent shall not
be required to execute any documents hereunder unless such
documents are satisfactory in form and content to Agent and its
counsel.
(e) Title to properties acquired on behalf of Principal shall be held
in the name of "The Bank of New York, as Agent for Wells Real
Estate Fund X, L.P." It is the intent of the parties hereto (i)
that while legal title may be held in the name of Agent, Agent
will be holding legal title as agent for Principal only, and
equitable title and all beneficial ownership of the properties
acquired and held hereunder shall remain in Principal, and (ii)
that Principal, not Agent, shall be responsible for any and all
liabilities and obligations, including specifically any
environmental liabilities, relating to properties acquired and
held hereunder. Agent shall be authorized to hold title to real
properties on behalf of Principal in any legally recognized form,
including without limitation, in fee simple, undivided interests,
as a co-tenant, or as a lessee. Agent shall be authorized to
hold title to an undivided interest in property or as a co-tenant
without regard to whether or not the other party or parties
holding title to undivided interests or as a co-tenant in such
property has entered into a Custodial Agency Agreement with
Agent.
(f) Upon obtaining written instructions from Principal, Agent shall
be authorized and required to disburse Liquid Proceeds Available
for Investment for the acquisition of properties to be acquired
on behalf of any joint venture between Principal and any
affiliated limited partnership or other person or entity, which
shall have also executed a Custodial Agency Agreement with Agent.
Title to properties acquired on behalf of any such joint venture
or partnership or title to Principal's joint venture or
partnership interest shall be held in the name of "The Bank of
New York, as Agent for [insert name of joint venture or Principal
-----------------------------------------
(as appropriate)]." Notwithstanding the foregoing, all fees
----------------
payable to Agent hereunder shall continue to be the ultimate
responsibility of Principal and any such affiliated limited
partnership or other person or entity pursuant to the terms of
its Custodial Agency Agreement with Agent.
(g) Upon obtaining written instructions from Principal, Agent shall
be authorized and required to disburse Liquid Proceeds Available
for Investment for the acquisition of properties to be acquired
by a joint venture or partnership between Principal and a person
or entity which has not entered into a Custodial Agency Agreement
3
<PAGE>
with Agent, under the following conditions: (i) Title to the real
estate shall be in the name of the joint venture or partnership,
and title to the joint venture or partnership interest of
Principal shall be held in the name of "The Bank of New York, as
Agent for Wells Real Estate Fund X, L.P.;" and (ii) Principal
hereby represents, warrants, covenants and agrees with Agent that
it will not enter into any such joint venture or partnership
unless the joint venture or partnership agreement governing any
such joint venture or partnership contains the following
provisions: (a) the sale of any Acquired Property owned by any
such joint venture or partnership shall require Principal's
consent, (b) the net proceeds from the sale of any Acquired
Property owned by any such joint venture or partnership shall be
allocated to the joint venturers or the partners, as the case may
be, in accordance with their respective capital contributions to
the joint venture or the partnership, and (c) Principal's pro
rata share of any such net proceeds from any such sale of an
Acquired Property owned by any such joint venture or partnership
shall be delivered to Agent to be disbursed pursuant to the terms
and conditions of this Agreement.
(h) In connection with the acquisition of a property which is to be
constructed, developed or completed, upon obtaining written
instructions from Principal, Agent shall be authorized and
required to disburse Liquid Proceeds Available for Investment for
the acquisition, construction, development and completion of such
property, including without limitation, disbursements to
contractors, developers and suppliers, payments for bonds,
progress payments or other cash advances to developers and
builders, so long as the aggregate amount disbursed with respect
to such property to be constructed, developed or completed does
not exceed the appraised value of such property as indicated by
an "as built" appraisal provided to Agent pursuant to paragraph
2(b) above or any revision or amendment to any such appraisal.
Such written instructions from Principal shall be made by
delivery to Agent of a written requisition in the form attached
as Exhibit "A" hereto. Agent shall be entitled to rely upon any
such requisition from Principal, and Agent shall have no
liability for disbursements made in accordance with any such
requisition received from Principal.
(i) Liquid Proceeds Available for Investment, which are not disbursed
by Agent for the purchase of properties, shall continue to be
held by Agent in the Custodial Account, or upon receiving written
instructions from Principal to such effect, will be disbursed to
the partners of Principal by Agent upon receipt of and pursuant
to a list from Principal setting forth the names, amounts to be
disbursed and addresses of the partners of Principal pursuant to
the procedures described in paragraph 4(e) below. Agent shall
incur no liability for disbursements made in accordance with the
provisions of this paragraph 2(i).
3. Properties acquired and held by Agent for Principal or acquired and
held by any joint venture or partnership in which Agent holds title to
Principal's joint venture or partnership interest during the term of
this Agreement (Principal's interest in any and all properties
acquired pursuant to the terms of this Agreement, whether acquired in
fee simple, an undivided interest therein, as a co-tenant, as a
lessee, in a joint venture, in a
4
<PAGE>
partnership or otherwise, shall collectively be referred to herein as
the "Acquired Properties") shall be managed and operated as follows:
(a) The Acquired Properties shall be managed by Wells Management
Company or by such other management company as may be designated
by Principal.
(b) During the holding period of the Acquired Properties, all
management duties and obligations will be the responsibility of
Principal, and it is agreed that Agent shall have no management
duties or responsibilities with regard to the Acquired
Properties. It is hereby acknowledged and agreed that Agent
shall not be obligated or required to inspect any of the Acquired
Properties or to monitor performance of the manager with respect
to any of the Acquired Properties. During the holding period of
the Acquired Properties, it shall be the responsibility of
Principal, rather than Agent, to execute and enter into leases
and all other agreements with tenants at the Acquired Properties,
and it is agreed that Principal shall be authorized to execute
and enter into leases, lease modifications, amendments to leases,
lease renewals and extensions and any and all other contracts and
agreements with tenants or others relating to the leasing,
management and operations of the Acquired Properties and that
Principal shall have the authority to grant leasehold interests
in the Acquired Properties to tenants, without any action being
required by Agent.
(c) During the holding period of the Acquired Properties, all rents,
revenues and other income relating to the Acquired Properties
shall be payable directly to Principal, and Principal shall be
responsible for paying all operating expenses, maintenance,
repairs, taxes, insurance and liabilities relating to the
Acquired Properties and for making all cash flow distributions to
its partners.
(d) During the holding period of the Acquired Properties and upon
receiving written instructions from Principal, Agent shall be
required to execute, deliver and file any property tax returns or
other instruments or documents which may be reasonably necessary
or appropriate in connection with the management and operation of
the Acquired Properties which are satisfactory to Agent in form
and content.
(e) Principal shall provide Agent with evidence of insurance and
evidence of payment of property taxes with respect to each of the
Acquired Properties on an annual basis. Agent shall be named as
an additional insured on all policies relating to Acquired
Properties. The type, amount and insurer of such policies must
be satisfactory to Agent.
4. Acquired Properties shall be resold as follows:
(a) At such time as Principal determines to sell one of the Acquired
Properties, Principal shall provide written instructions to Agent
identifying the property and setting forth the purchaser and the
sales price.
5
<PAGE>
(b) Upon obtaining written instructions from the Principal that one
of the Acquired Properties will be sold, Agent shall be
authorized and required to attend the closing of such sale (if
required), to execute and deliver such deeds, assignments,
affidavits, certificates, contracts, agreements, closing
statements and other real estate transfer documents as may be
reasonably necessary or appropriate in connection with any such
sale, which are satisfactory to Agent in form and content, and to
provide such authorizations, consents (which authorizations and
consents are satisfactory in form and content to Agent) and legal
opinions as the purchaser of any property to be sold or title
insurance company may reasonably require; provided, however, that
Agent shall be prohibited from causing any of the Acquired
Properties to be sold until it has (i) obtained written
instructions from Principal, and (ii) obtained a copy of an
appraisal from an independent appraiser for each property to be
sold, with the sales price of each such property to be sold to be
not less than ninety percent (90%) of its appraised value.
Anything herein to the contrary notwithstanding, Agent shall not
be required to disburse or advance any of its own funds
hereunder.
(c) In connection with any sale of one of the Acquired Properties,
all transfer taxes, deed taxes, intangible taxes, stamp taxes,
recording fees, title insurance premiums, attorneys' fees of
Principal, costs required to be paid or reimbursed to Agent
pursuant to paragraph 8(a) below and other closing costs
(collectively, the "Closing Costs") will normally be paid or
reimbursed at closing out of the net proceeds from any such sale;
however, pursuant to the written instructions of Principal, Agent
shall be authorized to pay any Closing Costs not paid out of the
net proceeds from any such sale of one of the Acquired Properties
out of funds in the Custodial Account, and any excess of such
Closing Costs not paid out of the net proceeds from such sale or
from the Custodial Account shall be paid by Principal. Anything
herein to the contrary notwithstanding, in no event shall Agent
be obligated or required to disburse or advance its own funds
hereunder.
(d) Upon the closing of any sale of an Acquired Property, Principal's
allocable share of the net proceeds from any sale of an Acquired
Property (the "Net Sale Proceeds") shall be delivered to Agent
and immediately deposited into the Custodial Account.
(e) Net Sale Proceeds will be disbursed to the partners of Principal
directly by Agent upon receipt of and pursuant to a list from
Principal setting forth the names, amounts to be disbursed and
addresses of the partners of Principal, accompanied by an agreed
upon procedures letter from the accounting firm currently being
engaged by Principal, which shall include agreed upon procedures
substantially similar to the following: (i) confirmation of
their original investment amounts with all individual investors
holding investments of $100,000 or greater in Principal and a
sample of the remaining investors as of the transaction date;
(ii) recalculation of each investor's proportionate ownership
percentage in Principal based upon each investor's original
investment; and (iii) recalculation of the amount of Net Sale
Proceeds to be disbursed to each investor based upon such
investor's proportionate ownership percentage in Principal.
Agent shall be
6
<PAGE>
entitled to rely on such list from Principal and agreed upon
procedures letter and shall incur no liability for disbursements
made in accordance with the provisions of this paragraph 4(e).
Principal shall furnish to Agent all information which Agent
shall reasonably request in order to enable Agent to prepare the
information which Agent is required to report, if any, on an
Internal Revenue Service Form 1099. Agent shall have no
responsibility for tax reporting except to the extent
specifically required under the Internal Revenue Code. Agent
shall be entitled to reasonable fees and expenses in performing
its obligations under this paragraph 4(e) which shall be in
addition to its ordinary fees and expenses hereunder, and
Principal hereby agrees to pay such additional fees and expenses,
if any.
5. Duties of Agent:
(a) Agent shall in all instances hold itself out as agent and not as
principal in all dealings with third parties.
(b) Agent hereby agrees that all funds, assets and properties held by
Agent on behalf of Principal pursuant to this Agreement,
including without limitation, funds in the Custodial Account,
Liquid Proceeds Available for Investment, the Acquired Properties
and Net Sale Proceeds, are assets of Principal and shall not be
subject to the rights of any creditors of Agent.
(c) It is understood and agreed that, by entering into this Agreement
with Agent, neither Principal nor its general partners are in any
way contracting away their fiduciary duties to their partners
under Principal's partnership agreement or under common law.
Agent shall not be bound to make any investigation into the facts
or matters stated in any certificate, statement, instrument,
opinion, report, notice, request, direction or other paper or
document, but Agent, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may
deem appropriate. Agent shall not be held to take notice of the
terms of the limited partnership agreement of Principal or any
other agreement, document, instrument or writing to which
Principal is bound, and Agent shall have no responsibility for
providing tax returns, tax information or other reports to the
limited partners of Principal.
(d) With respect to all funds, assets and properties held by Agent on
behalf of Principal pursuant to this Agreement, Agent shall use
and apply such assets, funds or properties only for the exclusive
benefit of Principal. Agent shall hold and safekeep funds
received as proceeds from the sale of limited partnership units
in Principal, together with such other funds as may come into its
hands by reason of additions made thereto by Principal, in its
custody and control.
(e) With respect to funds received as proceeds from the sale of
limited partnership units, Agent shall collect the interest,
dividends, issues and income therefrom, as the same become due
and payable, and transfer or deposit same into the Partnership
Account as set forth in paragraph 1(d) above.
7
<PAGE>
(f) With respect to Liquid Proceeds Available for Investment, as
defined in paragraph 1(c) above, Agent shall hold and safekeep
such funds, together with such other funds as may come into its
hands by reason of additions made thereto by Principal, in its
custody and control, and Agent's sole duty with respect thereto
shall be to disburse said funds pursuant to paragraph 2 above.
(g) With respect to Net Sale Proceeds, as defined in paragraph 4(d)
above, Agent shall hold and safekeep such funds, together with
such other funds as may come into its hands by reason of
additions made thereto by Principal, in its custody and control,
and Agent's sole duty with respect thereto shall be to disburse
said funds pursuant to paragraph 4 above.
(h) Agent shall have no duty with respect to any stock rights or
warrants, proxies, ballots, annual statements or other papers or
documents received by reason of its holding of securities, if
any, subject to this Agreement except that Agent shall promptly
notify Principal of the receipt of any such stock rights,
warrants, proxies, statements or other papers or documents and
shall thereafter take such action as Principal may direct.
(i) Agent shall be authorized to register any stock, bond,
partnership interest or other security in the name of nominee, or
to deposit any such security with a registered securities
depository or in the book entry system of the Federal Reserve
System with or without disclosure of any custodian relationship,
but accurate records shall be maintained showing that such
security is a custodial asset.
(j) With respect to the management and operation of the Acquired
Properties, Agent shall have no obligation whatsoever with
respect to maintaining the Acquired Properties, and it is agreed
that Agent shall have no management duties or responsibilities
whatsoever with regard to the management or operation of the
Acquired Properties. Agent's sole duty with regard to the
management and operation of the Acquired Properties shall be to
hold title as agent for Principal and to convey, assign or
encumber the Acquired Properties and disburse proceeds therefrom
only as directed by Principal pursuant to paragraph 4 above.
(k) No provision of this Agreement shall require Agent to expend or
risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder.
6. Indemnification:
(a) In performing its duties, Agent will serve Principal's interest
with loyalty. Agent, however, shall not be required to render
any legal services or to institute or defend any legal
proceedings in connection with this Agreement or any of the
properties held by Agent. Agent undertakes to perform such
duties and only such duties as are specifically set forth in this
Agreement, and no implied covenants or obligations shall be read
into this Agreement against Agent.
8
<PAGE>
(b) In performing any of its duties hereunder, Agent shall not incur
any liability to anyone for damages or losses, and Agent shall
not be liable for any damages with respect to any matter in
connection herewith, except for gross negligence or willful
misconduct by Agent. Agent shall have no liability in connection
with any act taken or omitted in good faith at the request or
instruction of Principal. Agent shall have no liability for or
in connection with any financial losses due to the investment of
any funds in any accounts approved by Principal pursuant hereto.
(c) Principal agrees to protect, indemnify and save Agent and its
officers, agents, directors and employees (each, an "Indemnified
Party" and collectively, the "Indemnified Parties") harmless from
and against all liability, losses, damages, costs, expenses
(including reasonable attorneys' fees and expenses), taxes,
causes of action, suits, claims, demands and judgments of any
nature or form, by or on behalf of any person, firm or
corporation, arising in any manner out of or in connection with:
(i) any of the Acquired Properties or any part thereof or
any work done on any of the Acquired Properties or
the operation of any of the Acquired Properties, or
(ii) any breach or default on the part of Principal in the
performance of any of its obligations hereunder, or
(iii) any act of negligence of any person or entity in
connection with their use, occupancy or operation of
any of the Acquired Properties, or
(iv) any violation of law, ordinance or regulation
affecting any of the Acquired Properties or the
ownership, occupancy or use thereof, or
(v) any condition of any part of the improvements on any
of the Acquired Properties or the adjoining sidewalks
and passageways, or
(vi) any accident, injury or damage whatsoever caused to
any person, firm or corporation in or about any of
the Acquired Properties, or
(vii) any untrue statement or misleading statement or
alleged untrue statement or alleged misleading
statement of a material fact contained in any
disclosure materials prepared in connection with any
transaction contemplated in this Agreement, or any
omission or alleged omission from such disclosure
materials of any material fact necessary to be stated
therein in order to make the statements made therein,
in light of the circumstances under which they were
made, not misleading, or
(viii) performance by Agent of its duties hereunder or the
failure by Agent to perform its duties hereunder.
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Anything herein to the contrary notwithstanding, the indemnity
provided herein shall not cover losses resulting from the gross
negligence or willful misconduct of Agent. If any of the
Indemnified Parties is made a party defendant to any litigation
concerning any of the Acquired Properties or the occupancy
thereof or concerning this Agreement, in any way, Principal
hereby agrees to protect, indemnify, defend and hold the
Indemnified Parties harmless from and against any and all
liability by reason of such litigation, including reasonable
attorneys' fees and expenses incurred by each of the Indemnified
Parties, whether or not such litigation is prosecuted to
judgment. If any Indemnified Party commences an action against
Principal to enforce any of the terms of this Agreement or any
document executed and delivered in connection herewith, as a
result of the breach by Principal of any of such terms, Principal
agrees to pay to such Indemnified Party reasonable attorneys'
fees and expenses in connection with such action, and the right
to such attorneys' fees and expenses shall be enforceable whether
or not such action is prosecuted to judgment; provided, however,
the right to such attorneys' fees and expenses shall not apply to
any action that is voluntarily dismissed with prejudice by the
Indemnified Party or that is decided adversely to such
Indemnified Party. If Principal breaches any terms of this
Agreement or any of the documents executed in connection herewith
and an Indemnified Party should employ an attorney or attorneys
to protect its rights in connection with any such breach (to
which employment Principal hereby consents), Principal agrees to
pay the attorneys' fees and expenses of the Indemnified Party so
incurred, whether or not any action is actually commenced against
Principal by reason of such breach.
The indemnity provided herein shall extend, without limitation,
to any and all expenses whatsoever reasonably incurred by the
Indemnified Party in connection with investigating, preparing for
or defending against, or providing evidence, producing documents
or taking any other reasonable action in respect of any suit,
claim, demand or judgment, whether or not resulting in any
liability, and shall include any loss to the extent of the
aggregate amount paid in settlement of any litigation, commenced
or threatened, of any claim whatsoever as set forth herein if
such settlement is effected with the written consent of
Principal. The indemnity provided herein shall survive any
termination of this Agreement and shall continue in full force
and effect following any such termination.
(d) Whenever in the administration of its duties under this
Agreement, Agent shall deem it desirable that a matter be proved
or established prior to taking, suffering or admitting any action
hereunder, Agent (unless other evidence herein be prescribed)
may, in the absence of bad faith on its part, rely upon a
certificate from Principal. In connection with any instructions
or directions from Principal, Agent shall be entitled to rely
upon instructions or directions from any general partner of
Principal. Except as specifically set forth herein, any
direction by Principal to Agent pursuant to the terms of this
Agreement may be oral or written, but all oral instructions shall
be confirmed in writing immediately. Cables, bank wire messages,
telegrams, facsimile transmissions and other such communication
forms shall be deemed to be in writing. Agent is hereby relieved
10
<PAGE>
from all liability for acting upon any such direction received by
Agent and believed by Agent to be from a general partner of
Principal and to be genuine.
(e) Agent may rely and shall be protected in acting or refraining
from acting upon any certificate, statement, instrument, opinion,
report, notice, request or direction believed by it to be genuine
and to have been signed and presented by the proper party or
parties. Agent may consult with counsel with respect to any
action taken or to be taken hereunder, and an opinion of counsel
or the written advice from such counsel shall be full and
complete authorization and protection with respect to any action
taken, suffered or admitted by it hereunder in good faith and in
reliance thereon. Principal shall be required to pay reasonable
fees and expenses of counsel retained by Agent hereunder.
(f) Principal hereby indemnifies and holds Agent and its officers,
directors, employees and agents (each, an "Indemnified Party" and
collectively, the "Indemnified Parties") harmless from and
against any and all damages, penalties, fines, claims, liens,
suits, liabilities, costs (including clean-up costs), judgments
and expenses (including reasonable fees and expenses of
attorneys, consultants or experts) of every kind and nature
suffered by or asserted against Agent and relating to any of the
Acquired Properties and any Environmental Laws or the violation
or alleged violation of any Environmental Laws. For purposes of
this Agreement, "Environmental Laws" shall mean the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 42
U.S.C., Section 9601 et seq., as amended, the Hazardous Materials
Transportation Act 49 U.S.C., Section 1801 et seq., as amended,
the Resource Conservation and Recovery Act, 42 U.S.C., Section
6901 et seq., as amended, the Toxic Substance Control Act of 1976
14 U.S.C., Section 2601 et seq., as amended, the Clean Water Act,
33 U.S.C., Section 466 et seq., as amended, the Clean Air Act, 42
U.S.C., Section 7401 et seq., as amended, and any other federal,
state or local law, statute, ordinance or regulation similar to
those set forth in this definition. The indemnity provided
herein shall survive any termination of this Agreement and shall
continue in full force and effect following any such termination.
7. As compensation for its services hereunder, Agent shall receive the
fees set forth in Schedule A hereto.
8. Costs and Expenses of Agent:
(a) Agent shall be entitled to retain counsel to review documentation
involved in connection with the acquisition or sale of Acquired
Properties and to advise Agent in connection with the performance
of its duties hereunder, with reasonable attorneys' fees of Agent
to be payable or reimbursed by Principal pursuant to the
provisions of paragraph 8(b) below.
(b) All reasonable out-of-pocket expenses of Agent and its attorneys,
such as the cost of checks, postage, insurance, telephone,
telegraph, etc., and reasonable attorneys' fees of Agent (subject
to the approval of Principal, which approval shall not be
unreasonably withheld) shall be paid by Principal, or if not paid
11
<PAGE>
directly by Principal, shall be reimbursed out of Liquid Proceeds
Available for Investment, in the case of property acquisitions,
or out of the net proceeds from any sale of an Acquired Property,
in the case of sales of Acquired Properties. In no event shall
Agent be obligated or required to disburse or advance its own
funds hereunder.
(c) In the event of a disagreement between the parties to this
Agreement or in the event that Agent shall receive notice of
conflicting claims to any monies, properties, securities or other
amounts held by Agent hereunder, Agent shall have the right, in
addition to all other rights described herein, at the option of
Agent, to tender into the registry or custody of any court having
jurisdiction, all such monies, properties, securities and other
amounts and to take such other legal action as Agent may deem
necessary or appropriate.
9. Term:
(a) The term of this Agreement between Principal and Agent shall be
until the sale or other disposition of the last of the Acquired
Properties and the disbursement by Agent of the Net Sale Proceeds
obtained therefrom.
(b) Subject to the provisions of paragraph 9(c) below, either party
shall have the right to terminate this Agreement upon providing
at least ninety (90) days prior written notice to the other
party.
(c) Notwithstanding the foregoing, no termination of this Agreement
by Agent shall be effective unless and until a successor agent
acceptable to Principal is obtained. In the event this Agreement
is terminated by Agent, Agent agrees to continue to act as agent
for Principal hereunder until a suitable successor is obtained.
Upon the obtaining of a suitable successor, Agent will then
transfer to such successor all Acquired Properties, Liquid
Proceeds Available for Investment and other funds, assets and
properties held as agent for Principal hereunder. In the event a
successor agent has not been appointed within ninety (90) days
following written notice to Principal of Agent's intention to
resign, the resigning Agent shall be entitled to petition a court
of competent jurisdiction for the appointment of a successor
agent hereunder.
10. All constructions and interpretations of this Agreement and the
rights, duties and liabilities of the parties hereunder shall be
determined in accordance with the laws of Georgia.
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<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and affixed
their seals the day and year first above written.
PRINCIPAL:
---------
WELLS REAL ESTATE FUND X, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
Attest: (General Partner)
By:/s/ Brian M. Conlon By:/s/ Leo F. Wells
------------------------- --------------------------
Name: Brian M. Conlon Leo F. Wells, III
---------------------- President
Title: Asst. Secretary
---------------------
By:/s/ Leo F. Wells
-------------------------------------
Leo F. Wells, III
General Partner
AGENT:
-----
Attest: THE BANK OF NEW YORK
By:/s/ Elizabeth Talley By:/s/ Peggy T. McWhorter
------------------------- -----------------------------
Name: Elizabeth Talley Name: Peggy McWhorter
---------------------- ------------------------
Title: As Agent Title: As Agent
--------------------- -----------------------
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SCHEDULE A
TO
CUSTODIAL AGENCY AGREEMENT
SCHEDULE OF FEES
WELLS REAL ESTATE FUND X, L.P.
$500.00 Acceptance Fee
Five Basis Points of Market Value Annual Administration
($500 per $1,000,000 held)
$800.00 Minimum Annual
Administration
Fees payable annually in advance upon funding of account.
An investment fee of $35.00 per purchase/sale transaction. If no-load money
market funds are utilized, the charge for buying into or redeeming from the
funds is waived. An automated cash management fee of .25% on assets held in the
fund is charged for automatic same day's movement of uninvested cash into the
funds and automatic withdrawal from the funds to cover disbursement. This fee is
posted to the account as a debit to income earned.
Charges for filing reports or information as may be required by Internal Revenue
Service regulations, or for the performance of any services not contemplated at
the time of opening account, or not of a routine administrative nature, or not
specifically covered in this schedule, will be determined by appraisal.
Actual out-of-pocket expenses such as counsel fees, cost of special checks,
postage, insurance, telephone, telegraph, etc. will be billed at cost.
Fee structure subject to review in three years.
