<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JANUARY 23, 1998
REGISTRATION NO. 333-32099
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
AMENDMENT NO. 4 TO
FORM S-11
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
_______________
WELLS REAL ESTATE INVESTMENT TRUST, INC.
(Exact name of registrant as specified in governing instruments)
3885 HOLCOMB BRIDGE ROAD
NORCROSS, GEORGIA 30092
(Address of principal executive offices)
BRIAN M. CONLON
WELLS REAL ESTATE INVESTMENT TRUST, INC.
3885 HOLCOMB BRIDGE ROAD
NORCROSS, GEORGIA 30092
(770) 449-7800
(Name and address of agent for service)
COPIES TO:
DANIEL O. KENNEDY, ESQ.
Hunton & Williams
600 Peachtree Street, N.E., Suite 4100
Atlanta, Georgia 30308
(404) 888-4007
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
_______________
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SHARES OF COMMON STOCK
$1,250,000 MINIMUM
Wells Real Estate Investment Trust, Inc. (the "Company") is a newly
organized Maryland corporation which intends to qualify as a real estate
investment trust ("REIT"). The Company has been formed to acquire and operate
commercial properties, including properties which are under development or
construction, are newly constructed or have been constructed and have operating
histories AND SOME OF WHICH MAY HAVE TENANTS SUBJECT TO "TRIPLE NET" LEASES
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(individually, a "property," collectively, "properties"). The Company's
operations will be managed by Wells Capital, Inc., a Georgia corporation (the
"Advisor"), an affiliate of the Company.
The Company hereby offers, PURSUANT TO THIS PROSPECTUS (THE "PROSPECTUS"),
-------------------------------------------------
for sale to the public up to a maximum of 16,500,000 shares and a minimum of
125,000 shares of its common stock, $.01 par value per share (the "Shares").
All of the Shares offered hereby are being offered by the Company. The minimum
purchase is 100 Shares ($1,000) (except in certain states as described herein).
AN INVESTMENT IN SHARES INVOLVES SIGNIFICANT RISKS (SEE RISK FACTORS AT PAGE 8),
INCLUDING THE FOLLOWING:
. The Company's Articles of Incorporation impose restrictions on ownership and
transfers of Shares, and no public market for the Shares currently exists, and
transfers there is no assurance that one will develop.
. The Company may purchase properties from its Affiliates (GENERALLY without
----------
profit to such selling Affiliates), and enter into joint venture agreements
with its Affiliates and with the Prior Wells Public Programs for the
acquisition and development of properties. Accordingly, because such
transactions will not be on an arm's-length basis, the Company will face
inherent conflicts of interest based on such relationships.
. The Advisor and other Affiliates of the Company are involved in partnerships
with investment objectives similar to the Company's, and therefore will face
conflicts of interest in managing the Company's operations and those of such
other activities. Accordingly, such conflicts may affect negatively the
Company's financial performance and Cash Available for Distribution to
Investors (as defined herein).
. If the Company sells only the minimum amount of Shares required to close the
Offering, the Company may be able to acquire only an estimated three or fewer
properties, and thus the Company would have very limited asset diversification
and possibly no geographic diversification.
. CERTAIN real estate investment programs previously sponsored by the Advisor
-------
AND DISTRIBUTIONS TO INVESTORS THEREIN HAVE EXPERIENCED FLUCTUATING FINANCIAL
-----------------------------------------------------------------------------
PERFORMANCE BASED ON varying occupancy levels, amounts of capital improvements
--------------------
and other necessary expenses for each property owned by such other programs.
. The Company does not own any real property, and the Advisor has not identified
any properties in which there is a reasonable probability that the Company
will invest. Accordingly, investors in the Company ("Investors") will not
have the opportunity to evaluate the properties that the Company will acquire
and must rely totally upon the ability of the Advisor with respect to the
acquisition of properties.
. Failure by the Company to qualify as a REIT for federal income tax purposes
will cause it to be taxed as a regular corporation under federal income tax
laws, which would materially reduce the Company's Cash Available for
Distribution to Investors.
. The Company may incur indebtedness of up to 50% of the properties' aggregate
value, though such debt limitation does not apply to individual properties.
Accordingly, the Company and its properties may be moderately leveraged, which
could have adverse consequences to the Company.
. Of the proceeds from the sale of the Shares, approximately 84% will be used to
acquire properties, and the balance will be paid as commissions and fees to
certain Affiliates (as defined herein) of the Company for their services and
as reimbursement for certain organizational and offering expenses, though some
of such amounts will be reallowed or paid directly to participating broker-
dealers.
The Company has registered an offering of 16,500,000 Shares, with 1,500,000
of such Shares available only to SHAREHOLDERS purchasing Shares in this
------------
initial public offering who receive a copy of this Prospectus and who elect to
participate in the Company's Dividend Reinvestment Plan (as defined herein).
Any participation in such plan by a person who becomes a SHAREHOLDER otherwise
-----------
than by participating in this Offering must be made pursuant to a separate
prospectus. See "Summary of Reinvestment Plan."
The Company's Affiliates include Wells Capital, Inc.-- the Advisor, Wells
Investment Securities, Inc.--the Dealer Manager (the "Dealer Manager"), Wells
Management Company, Inc.--the property manager (the "Management Company"), Wells
Operating Partnership, L.P.--the partnership that will own the properties (the
"Operating Partnership"), and Wells Development Corporation--a property
development company (the "Development Company"). The Shares are being placed
for the Company by Dealer Manager on a "best efforts" basis. See "Plan of
Distribution"
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS ANY SUCH
AUTHORITY 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>
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PRICE TO PROCEEDS TO
PUBLIC (1) SELLING COMMISSIONS COMPANY (2)(3)
------------ ------------------- ---------------
<S> <C> <C> <C>
PER SHARE........................... $ 10.00 $ 0.70 $ 9.30
TOTAL MINIMUM....................... $ 1,250,000 $ 87,500 $ 1,162,500
TOTAL MAXIMUM (4)................... $165,000,000 $11,550,000 $153,450,000
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</TABLE>
(See footnotes on following page)
WELLS INVESTMENT SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS __________, 1998.
----
<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 and under other circumstances described
herein; however, in no event will the proceeds to the Company be reduced
thereby. In addition to Selling Commissions in the amount of up to 7% of
the Gross Offering Proceeds, the Company will reimburse the Dealer Manager
and nonaffiliated broker-dealers participating in this Offering for actual
expenses paid for marketing support and due diligence purposes, up to a
maximum of 2.5% of the Gross Offering Proceeds (the "Marketing and Due
Diligence Fee"). The Company also will issue, for every 25 Shares sold, a
warrant to purchase one Share at a price of $12.00 per Share (the
"Soliciting Dealer Warrants"). See "Plan of Distribution."
(2) These figures are before deducting other expenses of the Offering to be
paid by the Company in an estimated amount equal to 3% of Gross Offering
Proceeds -- $4,500,000 if the maximum amount under the Offering is sold and
$37,500 if the minimum amount is sold -- which amount does not include
Selling Commissions or amounts reimbursed for due diligence expenses.
Includes Selling Commissions equal to 7% of THE aggregate Gross Offering
---
Proceeds (which commissions may be reduced under certain circumstances),
-
BUT EXCLUDES THE MARKETING AND DUE DILIGENCE FEE OF UP TO 2.5% OF Gross
------------------------------------------------------------------
Offering Proceeds, both of which are payable to the Dealer Manager, an
Affiliate of the Company. The Dealer Manager, in its sole discretion, may
reallow Selling Commissions of up to 7% of Gross Offering Proceeds to other
broker-dealers participating in this Offering attributable to shares sold
by them, AND MAY REALLOW THE MARKETING AND DUE DILIGENCE FEE (UP TO 2.5%
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OF GROSS OFFERING PROCEEDS) AS REIMBURSEMENTS TO THE DEALER MANAGER AND
-----------------------------------------------------------------------
broker-dealers participating in this Offering based on such factors as the
volume of shares sold by such participating broker-dealers, marketing
support provided by such participating broker-dealers and bona fide
conference fees incurred. See "Estimated Use of Proceeds" and "Plan of
Distribution."
(3) In addition, assuming all 600,000 Soliciting Dealer Warrants are issued to
the Dealer Manager, $480 of additional proceeds will be raised, based on a
purchase price of $.0008 per share. ASSUMING all such warrants are
-----------
exercised at the exercise price of $12.00, AN ADDITIONAL $1,200,000 will
------------------------
be raised. No Selling Commission will be paid in connection with the
issuance of the Soliciting Dealer Warrants or the Shares issuable upon the
exercise thereof.
(4) The maximum number of Shares to be sold hereunder is 16,500,000, which
includes 1,500,000 Shares that may be issued pursuant to the Company's
Dividend Reinvestment Plan (the "Reinvestment Plan"), and 600,000 shares
that may be issued upon exercise of the Soliciting Dealer Warrants. Those
shareholders who elect to participate in the Reinvestment Plan will have
their dividends reinvested in additional Shares. The Soliciting Dealer
Warrants may not be exercised for one year from the date of issuance, and
are subject to restrictions on transfer. See "Description of Capital
Stock-Soliciting Dealer Warrants."
The Offering will commence upon the effective date of this Prospectus and
will continue until and terminate upon the earlier of (i) ____________, 2000
----
(two years after the initial date of this Prospectus), or (ii) the date on which
an aggregate of 15,000,000 Shares (excluding any Shares sold pursuant to the
Reinvestment Plan) (the "Maximum Offering") have been sold. Subscription
proceeds will be placed in an interest-bearing escrow account with NationsBank,
N.A., Atlanta, Georgia (the "Escrow Agent"), until subscriptions for at least
125,000 Shares (the "Minimum Offering") have been received and accepted by the
Company, at which time the proceeds will be released to the Company to be held
in trust for the benefit of investors. If the Minimum Offering is not met by
________ 1999 (one year after the date of this Prospectus), the Offering will
----
be terminated and subscriber's funds (plus interest and without deducting for
escrow expenses) will be promptly refunded.
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 THE COMPANY ARE NOT PERMITTED.
<PAGE>
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TABLE OF CONTENTS
Page
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<S> <C>
SUMMARY OF THE OFFERING.................................................................................... 1
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RISK FACTORS............................................................................................... 9
-
Investment Risks....................................................................................... 9
-
Lack of Liquidity OF SHARES
Total Reliance on the Advisor
Conflicts of Interest Related to the Company's Affiliates
Possible Lack of Diversification Resulting from Subscriptions for Less than the Maximum Number of Shares
Substantial Management Compensation.................................................................. 10
--
No Identified Sources for Funding of Future Capital Needs............................................ 10
--
Joint Ventures May Negatively Affect the Company..................................................... 11
--
Anti-Takeover Effects of Governing Documents and Maryland Law........................................ 11
--
Reinvestment Plan Proceeds May Not be Used to Acquire PROPERTIES..................................... 11
--
Real Estate Risks...................................................................................... 11
--
Fluctuating Financial Performance of Previously Sponsored Programs................................... 11
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Potential Adverse Economic and Regulatory Changes 12
--
"BLIND POOL" Offering................................................................................
============
Potential Increased Costs and Delays Related to PROPERTY Development................................. 12
--
Competition for Investments.......................................................................... 13
--
Potential Adverse Effects of Delays in Investments................................................... 13
--
Risks Relating to Failure of the Company to Liquidate Upon Failure to List...........................
--
Potential Liabilities Related to Environmental Matters............................................... 13
--
Uninsured Losses...................................................................................... 14
--
Tax Risks.................................................................................................. 14
--
Failure to Qualify as a REIT.......................................................................... 14
--
REIT Minimum Distribution Requirements; Possible Incurrence of Additional Debt........................ 14
--
Failure of the Operating Partnership to be Classified as a Partnership for Federal Income Tax
Purposes; Impact on REIT Status..................................................................... 14
--
ERISA Risks............................................................................................ 15
--
INVESTOR SUITABILITY STANDARDS............................................................................. 16
--
ESTIMATED USE OF PROCEEDS.................................................................................. 17
--
MANAGEMENT COMPENSATION.................................................................................... 20
--
CONFLICTS OF INTEREST...................................................................................... 22
--
Interests in Other Companies.......................................................................... 22
--
Other Activities of the Advisor and its Affiliates.................................................... 23
--
Competition 23
--
Affiliated Dealer Manager............................................................................. 24
--
Affiliated Property Manager........................................................................... 24
--
Affiliated Developer.................................................................................. 24
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Lack of Separate Representation....................................................................... 24
--
Joint Ventures with Affiliates of the Advisor.......................................................... 24
--
Receipt of Fees and Other Compensation by Advisor and Affiliates....................................... 24
--
Certain Conflict Resolution Procedures................................................................. 25
--
SUMMARY OF REINVESTMENT PLAN............................................................................... 26
--
General 26
--
Investment of Distributions......................................................................... 26
--
Participant Accounts, Fee, and Allocation of Shares................................................. 26
--
Reports to Participants............................................................................. 27
--
Election to Participate or Terminate Participation.................................................. 27
--
Federal Income Tax Considerations................................................................... 28
--
Amendments and Termination.......................................................................... 28
--
SHARE REPURCHASE PROGRAM................................................................................... 28
--
PRIOR PERFORMANCE SUMMARY.................................................................................. 30
--
Prior Wells Public Programs.......................................................................... 30
--
MANAGEMENT................................................................................................. 34
--
General 34
--
Fiduciary Responsibility of the Board of Directors................................................... 35
--
Directors and Executive Officers..................................................................... 36
--
Committees........................................................................................... 37
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Compensation of Directors and Officers................................................................ 38
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THE ADVISOR AND THE ADVISORY AGREEMENT..................................................................... 38
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The Advisor........................................................................................... 38
--
The Advisory Agreement................................................................................ 39
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WELLS MANAGEMENT........................................................................................... 41
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INVESTMENT OBJECTIVES AND CRITERIA......................................................................... 42
--
General............................................................................................... 42
--
Acquisition and Investment Policies................................................................... 43
--
Development and Construction of PROPERTIES............................................................ 44
--
Terms of Leases and Lessee Creditworthiness........................................................... 45
--
Borrowing Policies.................................................................................... 45
--
Joint Venture Investments............................................................................. 45
--
Other Policies........................................................................................ 46
--
REAL PROPERTY INVESTMENTS.................................................................................. 47
--
DISTRIBUTION POLICY........................................................................................ 48
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 48
--
DESCRIPTION OF CAPITAL STOCK............................................................................... 49
--
Common Stock........................................................................................... 49
--
Preferred Stock....................................................................................... 49
--
Soliciting Dealer Warrants............................................................................. 49
--
Articles of Incorporation and Bylaw Provisions......................................................... 50
--
Limitation of Liability and Indemnification............................................................ 53
--
Business Combinations.................................................................................. 54
--
Control Share Acquisition Statute...................................................................... 54
--
Amendment to the Articles of Incorporation............................................................. 55
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Dissolution of the Company............................................................................. 55
--
Advance Notice of Director Nominations and New Business............................................... 56
--
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(i)
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Page
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<S> <C>
Meeting of SHAREHOLDERS................................................................................ 56
--
Operations............................................................................................. 56
--
Anti-Takeover Effect of Certain Provisions of Maryland Law and of the Articles of Incorporation and
Bylaws Inspection of Books and Records............................................................... 56
--
Restrictions on "Roll-Up" Transactions................................................................. 57
--
FEDERAL INCOME TAX CONSIDERATIONS.......................................................................... 58
--
Taxation of the Company................................................................................ 58
--
Requirements for Qualification......................................................................... 59
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Failure to Qualify..................................................................................... 65
--
Taxation of Taxable U.S. Shareholders.................................................................. 65
--
Taxation of Shareholders on the Disposition of the Shares.............................................. 66
--
Capital Gains and Losses................................................................................ 66
--
Information Reporting Requirements and Backup Withholding............................................... 67
--
Taxation of Tax-Exempt Shareholders..................................................................... 67
--
Taxation of Non-U.S. Shareholders....................................................................... 67
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Other Tax Consequences.................................................................................. 69
--
Tax Aspects of the Operating Partnership................................................................ 69
--
Sale of the Operating Partnership's PROPERTY............................................................ 72
--
ERISA CONSIDERATIONS....................................................................................... 72
--
Employee Benefit Plans, Tax-Qualified Retirement Plans, and IRAs....................................... 72
--
Status of the Company and the Operating Partnership under ERISA........................................ 73
--
PARTNERSHIP AGREEMENT...................................................................................... 75
--
Management............................................................................................. 75
--
Transferability of Interests........................................................................... 75
--
Capital Contribution................................................................................... 75
--
Redemption Rights...................................................................................... 76
--
Operations............................................................................................. 76
--
Distributions and Allocations.......................................................................... 76
--
Term................................................................................................... 77
--
Tax Matters............................................................................................ 77
--
PLAN OF DISTRIBUTION....................................................................................... 77
--
SUPPLEMENTAL SALES MATERIAL................................................................................ 81
--
LEGAL MATTERS.............................................................................................. 82
--
EXPERTS.................................................................................................... 82
--
ADDITIONAL INFORMATION..................................................................................... 82
--
GLOSSARY................................................................................................... 82
--
FINANCIAL STATEMENTS.................................................................................... APPENDIX I
PRIOR PERFORMANCE TABLES................................................................................ EXHIBIT A
FORM OF SUBSCRIPTION AGREEMENT AND SUBSCRIPTION AGREEMENT SIGNATURE PAGE................................ EXHIBIT B
DIVIDEND REINVESTMENT PLAN.............................................................................. EXHIBIT C
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(ii)
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SUMMARY OF THE OFFERING
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context requires otherwise, the term "Company" includes Wells
Operating Partnership, L.P., a Delaware limited partnership (the "Operating
Partnership"). See "Glossary" for the definitions of certain terms used in this
Prospectus. Investors should carefully consider the information set forth under
the heading "Risk Factors."
<S> <C>
THE COMPANY: Wells Real Estate Investment Trust, Inc. was
incorporated in July 1997 as a Maryland
corporation, and intends to qualify as a REIT.
The Company's principal place of business and
registered office is located at the office of
the Advisor: 3885 Holcomb Bridge Road,
Norcross, Georgia 30092, and its telephone
number at that office is 800-448-1010. THE
COMPANY INTENDS TO OPERATE AS AN "UP-REIT"
THROUGH THE USE OF THE OPERATING PARTNERSHIP FOR
ACQUISITIONS OF PROPERTIES.
ADVISOR: Wells Capital, Inc., incorporated in Georgia in
April 1984, is the Advisor and will make all
investment decisions for the Company, subject to
approval by the Board of Directors in certain
circumstances. See "The Advisor and the
Advisory Agreement." The Advisor is an
affiliate of the Company. See "Conflicts of
Interest." For information regarding the
previous experience of the Advisor and its
Affiliates in the management of real estate
limited partnerships, see "Prior Performance
Summary."
SECURITIES OFFERED: A Minimum Offering of 125,000 Shares and a
Maximum Offering of 16,500,000 Shares (the
"Maximum Offering"). The Maximum Offering
includes up to 1,500,000 Shares to be issued
pursuant to the Reinvestment Plan and up to
600,000 shares to be issued pursuant to the
Soliciting Dealer Warrants. The Shares issued in
this Offering and under the Reinvestment Plan
are offered at a price of $10 per share.
RISK FACTORS: An investment in the Shares involves various
risks including the following:
. To ensure that the Company will not fail to
qualify as a REIT, the Articles of Incorporation,
subject to certain exceptions, will limit any person
from owning, directly or indirectly, more than 9.8%
of the outstanding Shares or more than 9.8% of
the number of outstanding shares of any class of
the Company's preferred stock.
. Initially, the Shares will not be listed
(and therefore not traded) on a securities exchange
or any over-the-counter market. However, the Board
of Directors may elect to so list the Shares in the
future (the "Listing") though there can be no
assurances that the Company will ever qualify
for such a Listing. Listing does not assure
liquidity. There can be no assurance that a
market for the Shares will develop. In the event
that Listing does not occur by JANUARY ____,
2008 (ten years after the initial date of this
Prospectus), the Company will be dissolved. See
"Description of Capital Stock -- Articles of
Incorporation and Bylaw Provisions."
.Shareholders must rely on the Advisor and the
Board of Directors, who will have full
responsibility for the day-to-day management of
the Company.
. The number of properties that the
Company will acquire and the diversification of
its investments will be reduced to the extent
that less than the maximum number of Shares are
sold. Lack of diversification of the Company's
</TABLE>
1
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<S> <C>
investments will increase the risks associated
with an investment in the Shares.
. This Offering involves payment of substantial
fees to the Advisor and other Affiliates, some
of which will be payable regardless of the
success or failure of the Company.
. Distributions to investors in certain real
estate programs previously sponsored by the
Advisor and its Affiliates have fluctuated with
real estate business cycles and other external
market conditions, as well as varying occupancy
levels, amounts of capital improvements and
other necessary expenses for each property owned
by such other programs. Accordingly, there are
no assurances that properties acquired by the
Company will be profitable. See "Prior
Performance Summary."
. The Company will be subject to market and
economic risks associated with investments in
real estate, which means that both the amount of
cash the Company will receive from the lessees
of its properties and the future value of its
properties cannot be predicted. Accordingly,
Cash Available for Distribution and the value of
the Company's real estate investments will be
dependent upon fluctuating market and economic
conditions.
. The Company does not own any real property,
and the Advisor has not identified any
properties in which there is a reasonable
probability that the Company will invest.
Accordingly, investors will not have the
opportunity to evaluate the properties that the
Company will acquire and must rely totally upon
the ability of the Advisor and the Board of
Directors with respect to the acquisition of
properties.
. A portion of the proceeds available for
Investment in properties may be invested in the
acquisition and construction of undeveloped
properties, which 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
Company to cost overruns and time delays for
properties under construction. Increased costs
of newly constructed properties may have the
effect of reducing Cash Available for
Distribution, while construction delays may have
the effect of delaying cash flow from the
operation of such properties.
. As a result of the fact that the
Advisor and its Affiliates serve as general
partners of real estate limited partnerships
with investment objectives similar to the
Company's and will continue to engage in other
business activities, the Advisor will have
conflicts of interest in allocating its time
between the Company and such partnerships and
activities. The Advisor also will have
conflicts of interest when evaluating potential
investments for the Company in deciding which
entity will acquire a particular property, and
in leasing properties in the event that the
Company and another program managed by the
Advisor or its Affiliates were to compete for
the same tenants in negotiating leases.
. The Company intends to borrow money in
connection with the construction and development
of properties. Accordingly, the Company will be
subject to risks normally associated with debt
financing, including the risk that the Company
will not be able to meet its debt service
obligations, and, to the extent that it cannot,
the risk that the Company may lose its
investment in any properties encumbered by debt.
. The Company may incur indebtedness of up
to 50% of the properties' aggregate value,
though such debt limitation does not apply to
individual properties. Accordingly,
the Company and its properties may be moderately
leveraged, which could have adverse consequences
to the Company.
. The Company intends to elect to be taxed as
a REIT for federal income
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<S> <C>
tax purposes. In order to qualify to be taxed as
a REIT, the Company must meet numerous
organizational and operating requirements. While
the Company has received an opinion of counsel
that it will qualify to be taxed as a REIT, this
opinion is not binding on the Service or any
court. In the event that the Company fails to
qualify as a REIT, it will be taxed as a
corporation, which could have a material adverse
effect on the Company's Cash Available for
Distribution.
See "Risk Factors" for a discussion of the risk
factors relating to an investment in the Shares.
TERMS OF THE OFFERING: The Offering will commence upon the date of this
Prospectus and will continue until and terminate
upon the earlier of (i) two years after the date
of this Prospectus, or (ii) the date on which an
aggregate of 15,000,000 Shares (excluding Shares
sold pursuant to the Dividend Reinvestment Plan)
have been sold, provided, that if the Minimum
Offering is not sold within one year of the date
of this Prospectus, the Offering will be
terminated and investors' funds, with interest
and not net of escrow expenses, will be returned
promptly. Subscription proceeds will be held in
escrow until investors are admitted as
shareholders, which will occur no less often
than quarterly.
PROPERTIES: The Company will seek to acquire and operate
commercial properties, including without
limitation, office buildings, shopping centers,
business and industrial parks and other
commercial and industrial properties, 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 Company alone or jointly with
another party. The Company is likely to enter
into one or more joint ventures with certain of
its Affiliates and the present and future real
estate limited partnership sponsored by the
Advisor for the acquisition of properties. As
of the date of this Prospectus, the Company has
neither purchased nor contracted to purchase any
properties, nor has the Advisor identified any
properties in which there is a reasonable
probability that the Company will invest. The
Company may incur indebtedness of up to 50% of
its properties' aggregate value. Such
limitation, however, does not apply to
individual properties. The Company intends to
use the straight-line depreciation method for
its properties. See "Real Property
Investments," "Investment Objectives and
Criteria," "Conflicts of Interest," and
"Glossary."
ESTIMATED USE OF PROCEEDS OF It is anticipated that approximately 84% of the
OFFERING: proceeds of this Offering will actually be
invested in 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 Company and the Offering. See
"Estimated Use of Proceeds" for a more detailed
discussion of the Company's estimated use of the
proceeds of the Offering, which includes
proceeds from shares sold pursuant to the
Reinvestment Plan, but excludes proceeds from
shares sold pursuant to the Soliciting Dealer
Warrants. See also "Management Compensation"
regarding the compensation and fees to be paid
to the Advisor and other Affiliates.
INVESTMENT OBJECTIVES: The Company's objectives are: (i) to preserve,
protect and return the Invested Capital (as
defined herein) of the shareholders; (ii) to
maximize Cash Available for Distribution; (iii)
to realize capital appreciation upon the
ultimate sale of Company's properties; and (iv)
to provide shareholders with liquidity of their
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investment within ten years after the
commencement of the Offering through either (a)
the Listing of the Shares, or (b) if Listing
does not occur within ten years following the
commencement of the Offering, the dissolution of
the Company and orderly liquidation of its
assets. Distributions to investors in certain
real estate investment programs previously
sponsored by the Advisor, as shown in the Prior
Performance Tables included as Exhibit A hereto,
have fluctuated with real estate business cycles
and other external market conditions, as well as
varying occupancy levels, amounts of capital
improvements and other necessary expenses for
each property owned by such other programs.
Many of the real properties in which such prior
programs 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. These prior Funds have
not yet sold any real property investments and
thus no evaluation can be made as to whether
these prior programs will achieve their
objectives of returning capital contributions or
realizing capital appreciation upon the sale of
such properties. See "Investment Objectives and
Criteria" and "Prior Performance Summary."
CONFLICTS OF INTEREST: The Advisor and other Affiliates will experience
conflicts of interest in connection with the
management of the Company, including the
following:
. The Advisor and certain of its Affiliates
serve as general partners of real estate limited
partnerships that have objectives similar to the
Company's and expect that they will organize
additional real estate partnerships in the
future. As a result, investors should be aware
that the Advisor will have to allocate its time
between the Company and such partnerships and
activities and may have conflicts of interest in
deciding which entity will acquire a particular
property.
. The Company may acquire properties in the
same geographic areas where other properties
owned or managed by the Advisor or other
Affiliates are located, resulting in potential
conflicts in the leasing or resale of the
Company's properties in the event that the
Company and another program managed by the
Advisor 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 Company's
properties will be managed by the Management
Company, an Affiliate of the Advisor, the
Company will not have the benefit of independent
property management, and investors must rely on
the Advisor and the Management Company, for
management of the Company's properties.
. The Company is likely to enter into one or
more joint ventures for the acquisition and
operation of specific properties with one or
more real estate limited partnerships sponsored
by the Advisor and other Affiliates, resulting
in potential conflicts of interest in
determining which program should enter into a
particular joint venture, in structuring the
terms of the relationship and in managing the
joint venture. In addition, the Company may
purchase properties from the Advisor and other
Affiliates (with no profit to the Advisor or
such selling Affiliate), resulting in conflicts
of the Advisor based on its relationship with
both parties to such transactions. See
"Conflicts of Interest."
. Fees payable to the Advisor and other
Affiliates in connection with Company
transactions involving the purchase, management
and sale of Company 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 Company.
. The conflicts of interest created at the time
of a sale of a property by:
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(a) the loss of management fees by the Management
Company conflicting with the brokerage fee which
may be received by the Advisor, and (b) the
receipt of brokerage fees by the Advisor
conflicting with the advisability of such a
sale.
The Company's Affiliates include Wells
Capital, Inc.--the Advisor, Wells Investment
Securities, Inc.--the Dealer Manager, Wells
Management Company, Inc.--the Management
Company, Wells Operating Partnership, L.P.--the
Operating Partnership, and Wells Development
Corporation--the Development Company. See
"Conflicts of Interest" for a discussion of the
various conflicts of interest relating to an
investment in the Shares.
PRIOR OFFERING SUMMARY: The Advisor and its Affiliates have previously
sponsored eleven publicly offered real estate
limited partnerships on an unspecified property
or "blind pool" basis (the "Prior Wells Public
Programs"). The total amount of funds raised
from the approximately 24,000 investors in the
Prior Wells Public Programs as of August 31,
1997 was approximately $257,000,000, and the
amount of such funds invested in properties as
of August 31, 1997, was approximately
$200,000,000. Distributions to investors in
certain real estate investment programs
previously sponsored by the Advisor have
fluctuated with real estate business cycles and
other external market conditions, as well as
varying occupancy levels, amounts of capital
improvements and other necessary expenses for
each property owned by such other programs. The
"Prior Performance Summary" section of this
Prospectus contains a discussion of the Prior
Wells Public Programs. Certain statistical data
relating to the Prior Wells Public Programs are
contained in the Prior Performance Tables
included as Exhibit A to this Prospectus.
COMPENSATION TO ADVISOR AND The Advisor and other Affiliates will receive
OTHER AFFILIATES: compensation and fees for services relating to
this Offering and in connection with the
investment and management of the Company'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 Company. The most significant
items of compensation are:
Offering Stage: Selling Commissions of 7%
($10,500,000 at the Maximum Offering and $87,500
at the Minimum Offering) payable to the Dealer
Manager; one Soliciting Dealer Warrant for every
25 Shares sold, issuable to the Dealer Manager,
all or a part of which may be reallowed to
unaffiliated participating broker-dealers; a
Marketing and Due Diligence Fee for marketing
support and due diligence reimbursements of up
to 2.5%, comprised of .5% for due diligence
reimbursements and 2% for marketing support
($3,750,000 at the Maximum Offering and $31,250
at the Minimum Offering); and up to 3%
($4,500,000 at the Maximum Offering and $37,500
at the Minimum Offering) of Gross Offering
Proceeds as a reimbursement of costs and
expenses of organizing the Company, including
legal, accounting, printing, marketing and other
offering expenses (the "Organization and
Offering Expense Fee"), a majority of which will
be paid to third parties unaffiliated with the
Advisor.
Acquisition Stage: A fee of up to 3%
($4,500,000) of Gross Offering Proceeds in
connection with the selection, valuation and
acquisition of properties (subject to certain
overall limitations) (the "Acquisition and
Advisory Fees"), which is payable to the Advisor
(an Affiliate of the Company) regardless of the
quality of the properties acquired by the
Company; and reimbursement of costs and expenses
for the acquisition of properties.
Operational Stage: Property management fee (the
"Management Fee") payable to the Management
Company in an amount equal to 4.5% of the gross
rental
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income from each property, approximately 2% to
3% of which is expected to be generated from
direct tenant chargebacks, resulting in a net
amount payable by each property of approximately
1.5% to 2.5%; and in the case of leases to new
tenants, an initial leasing fee equal to the
lesser of (i) the first month's rent under the
applicable lease or (ii) the amounts charged by
unaffiliated persons rendering comparable
services in the same geographic area. A REAL
ESTATE BROKERAGE COMMISSION OF UP TO 3% OF THE
SALE PRICE OF PROPERTIES SOLD BY THE COMPANY
WILL BE PAYABLE TO THE ADVISOR.
Also, a Listing Fee shall be payable to the
Advisor generally equal to 10% of the amount by
which the adjusted market value of the Company
exceeds the adjusted amount of capital invested
in the Company.
Liquidation Stage: After all shareholders have
received a return of their Invested Capital and
an 8% per annum cumulative, noncompounded return
on their Invested Capital from inception until
the date of the property sale (the "Common
Return"), then the Advisor is entitled to
receive (A) A RETURN OF CONTRIBUTED CAPITAL IN
LIQUIDATING DISTRIBUTIONS, AND (B) 10% of
remaining amounts of Nonliquidating Net Sale
Proceeds and Liquidating Distributions available
for distribution.
Payment of certain fees is subject to conditions
and restrictions or to change under certain
specified circumstances. The Advisor and other
Affiliates also may receive reimbursement for
out-of-pocket expenses that they incur on behalf
of the Company, subject to certain expense
limitations, and a subordinated incentive fee if
Listing occurs.
SHARE REDEMPTION: The Company may use proceeds received from sales
of Shares pursuant to the Reinvestment Plan to
redeem Shares at its sole discretion.
Shareholders will have no right to request that
the Company redeem their Shares after Listing.
DIVIDEND REINVESTMENT PLAN: The Company will establish the Reinvestment Plan
pursuant to which shareholders who elect to
participate may have their dividends from the
Company automatically invested in Shares.
Shareholders who participate in the Reinvestment
Plan will be allocated their share of the
Company's taxable income even though such
shareholders will receive no cash distributions
from the Company, which may result in tax
liability for such participants even though they
would receive no cash distributions with which
to pay such tax liability. The Company may
terminate the Reinvestment Plan for any reason
at any time with ten days' prior notice to
participants. See "Dividend Reinvestment Plan"
and "Risk Factors -- Federal Income Tax Risks."
DISTRIBUTION POLICY: As a REIT, the Company will be required to
distribute to its shareholders at least 95% of
its annual net taxable income. Because the
Company has not identified any probable
acquisitions, there can be no assurances as to
when the Company will begin to generate net
taxable income and to make distributions.
TAX STATUS: The Company intends to qualify and will elect to
be taxed as a REIT under sections 856 through
860 of the Code, commencing with the taxable
year ending December 31 of the year in which the
Offering is closed. If the Company qualifies
for taxation as a REIT, the Company generally
will not be subject to federal corporate income
tax on its taxable income that is distributed to
its SHAREHOLDERS. A REIT is subject to a
number of organizational and operational
requirements, including a requirement that it
currently distribute at least 95% of its annual
taxable income. Although the Company does not
intend to request a ruling from the Internal
Revenue Service (the "Service) as to its
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REIT status, the Company has received an opinion
of Hunton & Williams, its legal counsel, that
the Company will qualify as a REIT for its
taxable year ending December 31 of the year in
which the Offering is closed, and the Company's
organization and proposed method of operation
will enable it to continue to qualify as a REIT,
which opinion is based on certain assumptions
and representations about the Company's ongoing
businesses and investment activities and other
matters. No complete assurance can be given that
the Company will be able to comply with such
assumptions and representations in the future.
Furthermore, such opinion is not binding on the
Service or on any court. Even if the Company
qualifies for taxation as a REIT, the Company
may be subject to certain federal state and
local taxes on its income and property. Failure
to qualify as a REIT would render the Company
subject to federal income tax (including any
applicable alternative minimum tax) on its
taxable income at regular corporate rates and
distributions to the Company's SHAREHOLDERS in
any such year would not be deductible. See "Risk
Factors -- Legal Risks --Tax Risks" and "Federal
Income Tax Considerations -- Taxation of the
Company."
OPERATING PARTNERSHIP: The Company intends to own its properties
through the Operating Partnership. Initially,
the Company will be the sole general partner of
the Operating Partnership, and the Advisor will
contribute $200,000 to the Operating Partnership
and will be the sole limited partner thereof.
This "UPREIT" structure will allow the Company
to acquire properties by exchanging units of
limited partnership interest in the Operating
Partnership ("OP Units") for interests in
properties, which generally will allow sellers
of properties to defer gain recognition with
respect to such properties. Holders may redeem
OP Units for cash equal to the value of one
Share or, at the option of the Company, holders
may receive one Share for each tendered OP Unit.
LISTING: Initially, the Company's Shares will not be
listed, but the Board of Directors may elect to
effect the Listing of the Shares at any time
following the completion of the Offering, though
there can be no assurances that the Board of
Directors will make such election or that the
Company will ever qualify for Listing. In the
event that the Listing does not occur on or
before ___________, 2008 (ten years after the
date of the Prospectus), the Company will
automatically terminate and dissolve, unless the
shareholders holding a majority of the Common
Shares vote to extend the duration of the
Company.
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RISK FACTORS
The purchase of Shares involves a number of risks. In addition to the
factors set forth elsewhere in this Prospectus, prospective investors should
consider specifically the following:
INVESTMENT RISKS
LACK OF LIQUIDITY OF SHARES. Shareholders may not be able to sell their
Shares promptly at a desired price; therefore, the Shares should be considered
as a long-term investment only. Currently there is no public market for the
Shares. The Board of Directors, with or without the consent of the
shareholders, may apply for Listing of the Shares if the Board of Directors
(including a majority of Independent Directors) determines Listing to be in the
best interests of the shareholders. There can be no assurance, however, that
the Company will apply for Listing, that any such application will be made
before the passage of a significant period of time, that any application will be
accepted or, even if accepted, that a public trading market will develop. In
any event, the Articles of Incorporation provide that the Company will not apply
for Listing before the completion or termination of the Offering. SEE
------
"DESCRIPTION OF CAPITAL STOCK."
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TOTAL RELIANCE ON THE ADVISOR. All decisions with respect to the
management of the Company will be made by the Advisor, with oversight from the
Board of Directors. The shareholders will have no right or power to take part
in the management of the Company except through the exercise of their voting
rights, which are limited. The Advisor may be removed under certain conditions,
as set forth in the Advisory Agreement, subject to payment and release from all
obligations incurred by the Advisor in connection with its role as advisor.
Further, the Advisor has the ability to assign the Advisory Agreement to an
affiliate, subject to approval by the Company's Independent Directors. In such
case, the shareholders will not be able to vote on such new Advisor, and there
can be no assurances that such new Advisor will perform satisfactorily. See
"Management," "MANAGEMENT COMPENSATION" AND "THE ADVISOR AND THE ADVISORY
-----------------------------------------------------------
AGREEMENT."
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CONFLICTS OF INTEREST RELATED TO THE COMPANY'S AFFILIATES. In connection
with its relationship with the Advisor and other Affiliates, the Company has
several conflicts of interest, including the following: (a) The Advisor and
certain of its Affiliates serve as general partners of real estate limited
partnerships that have objectives similar to the Company's and expect that they
will organize additional real estate partnerships in the future. As a result,
investors should be aware that the Advisor will have to allocate its time
between the Company and such partnerships and activities and may have conflicts
of interest in deciding which entity will acquire a particular property; (b) The
Company may acquire properties in the same geographic areas where other
properties owned or managed by the Advisor or other Affiliates are located,
resulting in potential conflicts in the leasing or resale of the Company's
properties in the event that the Company and another program managed by the
Advisor were to attempt to compete for the same tenants in negotiating leases or
to sell similar properties at the same time; (c) Since it is anticipated that
the Company's properties will be managed by the Management Company, an Affiliate
of the Advisor, the Company will not have the benefit of independent property
management, and investors must rely on the Advisor and the Management Company,
for management of the Company's properties; (d) The Company is likely to enter
into one or more joint ventures for the acquisition and operation of specific
properties with one or more real estate limited partnerships sponsored by the
Advisor and other Affiliates, resulting in potential conflicts of interest in
determining which program should enter into a particular joint venture, in
structuring the terms of the relationship and in managing the joint venture. In
addition, the Company may purchase properties from the Advisor and other
Affiliates (without profit to such selling Affiliates) resulting in conflicts of
the Advisor based on its relationship with both parties to such transactions;
(e) Fees payable to the Advisor and other Affiliates in connection with Company
transactions involving the purchase, management and sale of Company 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 Company;
(f) The conflicts of interest created at the time of a sale of a property by:
(i) the loss of management fees by the Management Company conflicting with the
brokerage fee which may be received by the Advisor, and (ii) the receipt of
brokerage fees by the Advisor conflicting with the advisability of such a sale.
The Company's Affiliates include Wells Capital, Inc.-- the Advisor, Wells
Investment Securities, Inc.--
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the Dealer Manager, Wells Management Company, Inc.--the Management Company,
Wells Operating Partnership, L.P.--the Operating Partnership, and Wells
Development Corporation--the Development Company. Collectively, these several
relationships among the Company and the Affiliates reduce substantially the
presence of independent, arm's length managerial and advisory influence on the
operations of the Company. Consequently, such affiliated relationships and
conflicts of interest have the potential to reduce the Company's financial
performance and return to investors. SEE "CONFLICTS OF INTEREST" AND "THE
--------------------------------------
ADVISOR AND ADVISORY AGREEMENT."
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POSSIBLE LACK OF DIVERSIFICATION RESULTING FROM SUBSCRIPTIONS FOR LESS THAN
THE MAXIMUM NUMBER OF SHARES. To the extent that less than the Maximum
Offering is sold, the diversification of the Company's investments will be
decreased and the extent to which the Company's profitability will be affected
by any one of its investments will increase. Specifically, the various types of
real estate assets in which the Company invests and the geographic diversity of
such assets will be reduced proportionally. Consequently, the effects of the
financial performance of such fewer assets will be concentrated and thus the
risks of poor financial performance will be increased. Further, reduced
geographic diversity of the Company's properties will increase the Company's
reliance on (and therefore risks) related to regional economic conditions.
Accordingly, lack of diversification of the Company's investments will have the
effect of increasing the risks associated with an investment in the Shares. SEE
-----
"ESTIMATED USE OF PROCEEDS" AND "INVESTMENT OBJECTIVES AND CRITERIA."
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SUBSTANTIAL MANAGEMENT COMPENSATION ; PROCEEDS TO BENEFIT AFFILIATED
--------------------------------
PARTIES. The Advisor and the other Affiliates will perform services for the
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Company in connection with the offer and sale of Shares, the selection and
acquisition of the Company's properties, and the management and leasing of the
Company's properties, and will receive substantial compensation from the Company
in consideration for these services. In connection with the Offering, the
Dealer Manager will receive 7% ($10,500,000 at the Maximum Offering) of the
Gross Offering Proceeds as a Selling Commission and a Marketing and Due
Diligence Fee equal to 2.5% ($3,750,000 at the Maximum Offering) for marketing
and due diligence reimbursements, substantially all of which is expected to be
reallowed to participating broker-dealers. In connection with the review and
evaluation of potential acquisitions, the Advisor will receive Acquisition and
Advisory Fees equal to 3% ($4,500,000 at the Maximum Offering) of the Gross
Offering Proceeds. In connection with the management and leasing of properties,
the Management Company will receive a fee equal to 4.5% of the gross rental
income from each property as well as certain leasing fees, though approximately
2% to 3% of such 4.5% fee is expected to be generated from direct chargebacks to
tenants of such properties, resulting in a net fee payable by the properties of
1.5% to 2.5%. 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 Company. Further, the Selling Commission, Marketing
and Due Diligence Fee, Organization and Offering Expense Fee and the initial
Acquisition and Advisory Fees will be paid to Affiliates prior to any
distributions to shareholders. See "Management Compensation" and "Conflicts of
Interest."
NO IDENTIFIED SOURCES FOR FUNDING OF FUTURE CAPITAL NEEDS. As the Company
raises capital from investors, substantially all of the Gross Proceeds of the
Offering will be used for investment in properties and for payment of various
fees and expenses. See "Estimated Use Of Proceeds." In order to qualify as a
REIT, the Company must distribute to its shareholders at least 95% of its annual
taxable income. Therefore, it is not anticipated that the Company will maintain
any meaningful permanent working capital reserves. Accordingly, in the event
that the Company 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 Company for potential capital needs in the
future or, if available, that such funds can be obtained on economically
feasible terms. SEE "ESTIMATED USE OF PROCEEDS" AND "INVESTMENT OBJECTIVES AND
----------------------------------------------------------------
CRITERIA."
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JOINT VENTURES MAY NEGATIVELY AFFECT THE COMPANY. The Company is likely
to enter into one or more joint ventures with Affiliates for the acquisition,
development or improvement of properties. In this regard, the Company may enter
into joint ventures with future programs sponsored by the Advisors or other
Affiliates or with one or more Prior Wells Public Programs. The Company may
purchase and develop properties in joint ventures or in partnerships, co-
tenancies or other co-ownership arrangements with the Advisor or other
Affiliates, the sellers of the properties, affiliates of the sellers, developers
or other persons. Such investments may, under certain
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circumstances, involve risks not otherwise present, including, for example, the
possibility that the Company'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 Company, 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 Company or contrary to the Company's
policies or objectives. Actions by such a co-venturer, co-tenant or partner
might have the result of subjecting the applicable property to liabilities in
excess of those otherwise contemplated and may have the effect of reducing Cash
Available for Distribution. 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 that time. It may also be difficult for the Company to sell its interest
in any such joint venture or partnership or as a co-tenant in such property. In
addition, to the extent that the Company's co-venturer or partner is the Advisor
or one of its Affiliates, certain conflicts of interest will exist. See
"Conflicts of Interest -- Joint Ventures with the Advisor and other Affiliates."
ANTI-TAKEOVER EFFECTS OF GOVERNING DOCUMENTS AND MARYLAND LAW. Certain
provisions of the Company's Articles of Incorporation, including the ownership
limitations, transfer restrictions and ability to issue preferential preferred
stock, may have the effect of preventing, DELAYING or discouraging takeovers of
----------
the Company by third parties. In addition, certain provisions of the Maryland
General Corporation Law ("MGCL"), including the restrictions on certain business
combinations and control share acquisitions, may have a similar effect. See
"Description of Capital Stock."
REINVESTMENT PLAN PROCEEDS MAY NOT BE USED TO ACQUIRE PROPERTIES.
Proceeds from sale of Shares in the Reinvestment Plan may, in the Advisor's
discretion, be used to fund the Share Repurchase Program rather than for the
funding of real estate investment. In such case, the Company's real estate
investments, and therefore the underlying value of the Shares and potential
distributions to shareholders, will not be increased by the amount of net
proceeds so directed into the Share Repurchase Program. SEE "SUMMARY OF
-----------------
REINVESTMENT PLAN."
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REAL ESTATE RISKS
FLUCTUATING FINANCIAL PERFORMANCE OF PREVIOUSLY SPONSORED PROGRAMS.
Distributions to investors in certain real estate investment programs previously
sponsored by the Advisor have fluctuated with real estate business cycles and
other external market conditions, as well as varying occupancy levels, amounts
of capital improvements and other necessary expenses for each property owned by
such other programs. The real properties in which the Prior Wells Public
Programs 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 the Prior Wells Public Programs 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. Specifically, certain of the Prior Wells Public
Programs suffered decreases in net income during the real estate recession of
the late 1980s and early 1990s, which decreases were generally attributable to
the overall downturn in the economy and in the real estate market in particular.
Because of the cyclical nature of the real estate market, such downturns in the
performance of a real estate program could occur at any time in the future when
economic conditions decline. None of the Prior Wells Public Programs has
liquidated or sold any of its real properties to date and, accordingly, no
assurance can be made that such programs will ultimately be successful in
meeting their investment objectives. There are no assurances that properties
acquired by the Company will not also experience fluctuating financial
performance. See "Prior Performance Summary" and the Prior Performance Tables
included as Exhibit A hereto.
POTENTIAL ADVERSE ECONOMIC AND REGULATORY CHANGES. The Company 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
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sale of properties more difficult. For these and other reasons, no assurance of
profitable operation or realization of gains from the sales of the Company's
properties can be given. SEE "INVESTMENT OBJECTIVES AND CRITERIA."
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"BLIND POOL" OFFERING; LACK OF PROPERTIES REQUIRES TOTAL RELIANCE ON
ABILITIES OF ADVISOR. This Offering is commonly referred to as a "blind pool"
offering in that the Advisor has not identified any properties in which there is
a reasonable probability that the Company will invest. Investors must rely upon
the ability of the Advisor and the Board of Directors with respect to the
investment of the proceeds of this Offering and the 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 Shares may be increased. No assurance
can be given that the Company will be successful in obtaining suitable
investments or that, if investments are made, the objectives of the Company will
be achieved. SEE "ESTIMATED USE OF PROCEEDS," "THE ADVISOR AND ADVISORY
------------------------------------------------------------
AGREEMENT" AND "INVESTMENT OBJECTIVES AND CRITERIA."
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INDEBTEDNESS ON PROPERTIES BRINGS RISKS. The Company intends to borrow
money in connection with the construction and development of properties.
Accordingly, the Company will be subject to risks normally associated with debt
financing, including the risk that the Company will not be able to meet its debt
service obligations, and, to the extent that it cannot, the risk that the
Company may lose its investment in any properties encumbered by debt. The
Company may incur indebtedness of up to 50% of the properties' aggregate value,
though such debt limitation does not apply to individual properties. However,
the Company expects that its aggregate indebtedness generally will not exceed
such 50% limit. Accordingly, the Company and its properties may be moderately
leveraged, which could have adverse consequences to the Company, including the
potential for loss of one or more properties if any such secured debt is
defaulted upon and imposition of operating restrictions on the Company by such
lenders. SEE "INVESTMENT OBJECTIVES AND CRITERIA - BORROWING POLICIES."
-----------------------------------------------------------------
POTENTIAL INCREASED COSTS AND DELAYS RELATED TO PROPERTY DEVELOPMENT.
The Company may invest some or all of the net proceeds of this Offering in the
acquisition and development of properties upon which it will develop and
construct improvements at a fixed contract price, provided that the Company may
not invest more than 10% of is total assets in properties which are not expected
to produce income within two years of their acquisition. In this regard, the
Company 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 Company to rescind its purchase or the construction contract or to compel
performance. Performance also may 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 Company makes
periodic progress payments or other advances to such builders prior to
completion of construction. However, the Company 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 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 Company's working capital reserves or loss
of the Company's investment. In addition, the Company 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. SEE "INVESTMENT
-----------------
OBJECTIVES AND CRITERIA - DEVELOPMENT AND CONSTRUCTION OF PROPERTIES."
- ----------------------------------------------------------------------
COMPETITION FOR INVESTMENTS. The Company 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, including the Prior Wells Public Programs, real estate investment
trusts and other entities engaged in real estate investment activities. For
example, one Prior Wells Public Program has approximately $11,000,000 available
for real estate investments, and another will be seeking up to $35,000,000 in
investments, both of which will compete with the Company for real estate
investment opportunities and both of which are
11
<PAGE>
managed by the Advisor. Competition for investments may have the effect of
increasing costs and reducing Cash Available for Distribution. SEE "CONFLICTS OF
-----------------
INTEREST."
- --------
POTENTIAL ADVERSE EFFECTS OF DELAYS IN INVESTMENTS. Delays which may
take place in the selection, acquisition and development of properties could
adversely affect the per Share Cash Available for Distribution as a result of
the lower returns that will be received by the Company if it is required to
invest in short-term investments. 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. SEE "INVESTMENT OBJECTIVES AND CRITERIA."
-------------------------------------------
FAILURE TO LIST AND RESULTING LIQUIDATION MAY ADVERSELY AFFECT RETURNS TO
STOCKHOLDERS. The Company intends, to the extent consistent with its
objective of qualifying as a REIT, to reinvest Net Sales Proceeds from the sale
of its properties in additional properties for at least the first five to ten
years after commencement of the Offering. Unless Listing occurs within ten
years after commencement of the Offering, the Company will undertake, to the
extent consistent with the Company's objective of qualifying as a REIT, the
orderly sale of the Company's assets, the distribution of the Net Sales Proceeds
of such sales to stockholders, and will engage only in activities related to its
orderly liquidation unless the stockholders elect otherwise. If Listing occurs,
the Company will become a perpetual life entity, and Net Sales Proceeds may be
reinvested in other properties for an indefinite period of time. Neither the
Advisor nor the Board of Directors may be able to control the timing of sales
due to market conditions, and there can be no assurance that the Company will be
able to sell its assets so as to return stockholders' aggregate Invested
Capital, or to generate a profit for the stockholders. Invested Capital, in the
aggregate, will be returned to shareholders upon disposition of the Company's
properties only if the properties are sold for more than their original purchase
price, although return of capital, for federal income tax purposes, is not
necessarily limited to stockholder distributions following sales of properties.
See "Federal Income Tax Considerations." In the event that a purchase money
obligation is taken in partial payment of the sales price of a property, the
proceeds of the sale will be realized over a period of years.
POTENTIAL LIABILITIES RELATED TO 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. 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 its properties, the Company 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 Company and, consequently, Cash
Available for Distribution. SEE "REAL PROPERTY INVESTMENTS."
----------------------------------
UNINSURED LOSSES. Material damages at one or more of its Properties
that are not covered, or not adequately covered, by insurance could have a
material adverse effect on the Company. Although the Company believes it is
adequately insured, there can be no assurances that material uninsured losses
will not occur in the future.
TAX RISKS
FAILURE TO QUALIFY AS A REIT. The Company intends to operate so as to
qualify as a REIT for federal income tax purposes. Although the Company has not
requested, and does not expect to request, a ruling from the Service that it
qualifies as a REIT, it has received an opinion of its counsel that, based on
certain assumptions and representations, it so qualifies. Investors should be
aware, however, that opinions of counsel are not binding on the Service or any
court. The REIT qualification opinion only represents the view of counsel to
the Company based on counsel's review and analysis of existing law, which
includes no controlling precedent. Furthermore, both the
12
<PAGE>
validity of the opinion and the qualification of the Company as a REIT will
depend on the Company's continuing ability to meet various requirements
concerning, among other things, the ownership of its outstanding stock, the
nature of its assets, the sources of its income, and the amount of its
distributions to its shareholders. See "Federal Income Tax Considerations --
Taxation of the Company."
If the Company were to fail to qualify as a REIT for any taxable year, the
Company would not be allowed a deduction for distributions to its shareholders
in computing its taxable income and would be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Unless entitled to relief under certain Code
provisions, the Company also would be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost.
As a result, Cash Available for Distribution would be reduced for each of the
years involved. Although the Company intends to operate in a manner intended to
allow it to qualify as a REIT, it is possible that future economic, market,
legal, tax or other considerations may cause the Board of Directors to revoke
the Company's REIT election. See "Federal Income Tax Considerations."
REIT MINIMUM DISTRIBUTION REQUIREMENTS; POSSIBLE INCURRENCE OF ADDITIONAL
DEBT. In order to qualify as a REIT, the Company generally will be required
each year to distribute to its shareholders at least 95% of its net taxable
income (excluding any net capital gain). In addition, the Company will be
subject to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of (i) 85% of its ordinary income for that year, (ii) 95% of its capital gain
net income for that year, and (iii) 100% of its undistributed taxable income
from prior years.
The Company intends to make distributions to its shareholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise tax.
The Company's income will consist primarily of its share of the income of the
Operating Partnership, and the Cash Available for Distribution by the Company to
its shareholders will consist of its share of cash distributions from the
Operating Partnership. Differences in timing between (i) the actual receipt of
income and actual payment of deductible expenses and (ii) the inclusion of such
income and deduction of such expenses in arriving at taxable income of the
Company could require the Company, through the Operating Partnership, to borrow
funds on a short-term basis to meet the 95% distribution requirement and to
avoid the nondeductible excise tax. The requirement to distribute a substantial
portion of the Company's net taxable income could cause the Company to
distribute amounts that otherwise would be spent on future acquisitions,
unanticipated capital expenditures or repayment of debt, which would require the
Company to borrow funds or to sell assets to fund the costs of such items. SEE
----
"FEDERAL INCOME TAX CONSIDERATIONS -- TAXATION OF THE COMPANY."
- ---------------------------------------------------------------
FAILURE OF THE OPERATING PARTNERSHIP TO BE CLASSIFIED AS A PARTNERSHIP FOR
FEDERAL INCOME TAX PURPOSES; IMPACT ON REIT STATUS. Although the Company has
not requested, and does not expect to request, a ruling from the Service that
the Operating Partnership will be classified as a partnership for federal income
tax purposes, the Company has received an opinion of its counsel stating that
the Operating Partnership will be classified as a partnership, and not as a
corporation or association taxable as a corporation for federal income tax
purposes. If the Service were to challenge successfully the tax status of the
Operating Partnership as a partnership for federal income tax purposes, the
Operating Partnership would be taxable as a corporation. In such event, the
Company likely would cease to qualify as a REIT for a variety of reasons.
Furthermore, the imposition of a corporate income tax on the Operating
Partnership would reduce substantially the amount of Cash Available for
Distribution. See "Federal Income Tax Considerations -- Tax Aspects of the
Operating Partnership."
ERISA RISKS. The Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and section 4975 of the Code prohibit certain transactions
that involve (i) certain pension, profit-sharing, employee benefit, or
retirement plans or individual retirement accounts (each, a "Plan") and (ii) the
assets of a Plan. A "party in interest" or "disqualified person" with respect
to a Plan will be subject to (x) an initial 5% excise tax on the amount involved
in any prohibited transaction involving the assets of the Plan and (y) an excise
tax equal to 100% of the amount involved if any prohibited transaction is not
corrected. Consequently, the fiduciary of a Plan contemplating an investment in
the Shares should consider whether the Company, any other person associated
13
<PAGE>
with the issuance of the Shares, or any affiliate of the foregoing is or might
become a "party in interest" or "disqualified person" with respect to the Plan.
In such a case, the acquisition or holding of Shares by or on behalf of the Plan
could be considered to give rise to a prohibited transaction under ERISA and the
Code. See "ERISA Considerations -- Employee Benefit Plans, Tax-Qualified
Retirement Plans, and IRAs" herein.
Regulations of the Department of Labor that define "plan assets" (the
"Plan Asset Regulations") provide that in some situations, when a Plan acquires
an equity interest in an entity, the Plan's assets include both the equity
interest and an undivided interest in each of the underlying assets of the
entity, unless one or more exceptions specified in the Plan Asset Regulations
are satisfied. In such a case, certain transactions that the Company might
enter into in the ordinary course of its business and operations might
constitute "prohibited transactions" under ERISA and the Code. The assets of
the Company should not be deemed to be "plan assets" of any Plan that invests in
the Shares. See "ERISA Considerations -- Status of the Company and the
Operating Partnership under ERISA."
14
<PAGE>
INVESTOR SUITABILITY STANDARDS
An investment in the Company involves significant risk. An investment in
the Shares is 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.
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 B
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 Shares) 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 Shares) has a net worth (excluding home, furnishings and
automobiles) of not less than $150,000.
Under the laws of certain states, transferees will also be required to
comply with applicable standards, except for intra-family transfers and
transfers made by gift, inheritance or family dissolution.
The minimum purchase is 100 Shares ($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 Shares 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 $100. It should be noted, however, that an investment in
the Company 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 Shares set forth above, but in no event less than 10 Shares
($100). THE MINIMUM PURCHASE FOR NEW YORK INVESTORS IS 250 SHARES ($2,500),
---------------------------------------------------------------------
HOWEVER, THE MINIMUM INVESTMENT FOR NEW YORK IRAS IS 100 SHARES ($1,000). After
- -------------------------------------------------------------------------
an investor has purchased the minimum investment, any additional investments
must be made in increments of at least 10 Shares ($100), 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, (ii)
purchases of Shares pursuant to the Reinvestment Plan, which may be in lesser
amounts, and (iii) minimum PURCHASE for Minnesota investors is 250 SHARES
-------- ----------
($2,500), however, the minimum investment for MINNESOTA IRAs and qualified plans
- --------- - ---------
may be 200 SHARES ($2,000).
-------------------
Various states have established suitability standards for individual
investors and subsequent transferees different from those set by the Company.
Those requirements are set forth below.
ARIZONA, IOWA, MASSACHUSETTS, MISSOURI, NORTH CAROLINA AND TENNESSEE -- The
--------
investor has either (i) a net worth (exclusive of home, furnishings, and
personal automobiles) of at least $60,000 and an annual gross income of at least
$60,000, or (ii) a net worth (exclusive of home, furnishings, and personal
automobiles) of at least $225,000.
15
<PAGE>
MAINE -- The investor has either (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $50,000 and an annual gross
income of at least $50,000, or (ii) a net worth (exclusive of home, furnishings,
and personal automobiles) of at least $200,000.
MASSACHUSETTS -- The investor has either (i) a net worth (exclusive of
-------------
home, furnishings, and personal automobiles) of at least $100,000 and an
--------
annual gross income of at least $100,000, or (ii) a net worth (exclusive of
--------
home, furnishings, and personal automobiles) of at least $250,000.
NEW HAMPSHIRE -- The investor has either (i) a net worth (exclusive of
------------
home, furnishings, and personal automobiles) of at least $125,000 and an
--------
annual gross income of at least $50,000, or (ii) a net worth (exclusive of
-------
home, furnishings, and personal automobiles) of at least $250,000.
---------
NEW YORK -- THE INVESTOR HAS EITHER (I) A NET WORTH (EXCLUSIVE OF HOME,
-----------------------------------------------------------------------
FURNISHINGS, AND PERSONAL AUTOMOBILES) OF AT LEAST $35,000 AND AN ANNUAL GROSS
- ------------------------------------------------------------------------------
INCOME OF AT LEAST $35,000, OR (II) A NET WORTH (EXCLUSIVE OF HOME, FURNISHINGS,
- --------------------------------------------------------------------------------
AND PERSONAL AUTOMOBILES) OF AT LEAST $100,000.
- -----------------------------------------------
OHIO -- The investor's investment in the Shares shall not exceed 10% of the
investor's net worth (exclusive of home, furnishings, and personal automobiles.)
PENNSYLVANIA AND OREGON -- The investor has (i) a net worth (exclusive of
home, furnishings, and personal automobiles) of at least ten times the
investor's investment in the Company, and (ii) either (a) a net worth (exclusive
of home, furnishings, and personal automobiles) of at least $45,000 and an
annual gross income of at least $45,000, or (b) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $150,000. Because the
minimum offering of Shares of the Company is less than $16,500,000, Pennsylvania
investors are cautioned to evaluate carefully the Company's ability to fully
accomplish its stated objectives and to inquire as to the current dollar volume
of the Company's subscription proceeds.
NET WORTH IN ALL CASES EXCLUDES HOME, FURNISHINGS AND AUTOMOBILES.
IN ORDER TO ASSURE ADHERENCE TO THE SUITABILITY STANDARDS DESCRIBED
-------------------------------------------------------------------
ABOVE, REQUISITE SUITABILITY STANDARDS MUST BE MET AS SET FORTH IN the
- ------------------------------------------------------------------
Subscription Agreement and Subscription Agreement Signature Page (collectively,
the "Subscription Agreement"), which is attached as Exhibit B to this
Prospectus. The Company and each person selling Shares on behalf of the
===========
Company are required to (i) make reasonable efforts to assure that each person
purchasing Shares in the Company 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 Shares 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 Shares is suitable for
the investor, and (ii) transmit promptly to the Company all fully completed and
duly executed Subscription Agreements.
ESTIMATED USE OF PROCEEDS
The following table sets forth information concerning the estimated use of
the Gross Proceeds of the Offering of Shares made hereby. Many of the figures
set forth below represent the best estimate of the Company since they cannot be
precisely calculated at this time. The percentage of the Gross Proceeds of the
Offering of Shares to be invested in Company properties is estimated to be
approximately 84%.
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING(1)
---------------------- ------------------------
Amount Percent Amount Percent
----------- -------- ------------- --------
<S> <C> <C> <C> <C>
Gross Offering Proceeds (2) $1,250,000 100% $151,200,000 100%
Less Public Offering Expenses:
Selling Commissions (3) 87,500 7% 10,080,000 6.7%
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Organization and Offering Expenses (4) 37,500 3% 4,500,000 3%
Marketing support and due diligence 31,250 2.5% 3,750,000 2.5%
reimbursement fee(5) ---------- ---- ------------ ----
Amount Available for Investment (6) $1,093,750 87.5% $132,870,000 87.8%
========== ==== ============ ====
Acquisition and Development:
Acquisition and Advisory Fees (7) $ 37,500 3% $ 4,500,000 3%
Acquisition Expenses (8) 6,250 0.5% 750,000 0.5%
Initial Working Capital Reserve (9) (9) - (9) -
Amount Invested in Properties (6)(10) $1,050,000 84% $127,620,000 84.4%
========== ==== ============ ====
- -------------------------
</TABLE>
(1)<*> Excludes 1,500,000 Shares that may be sold pursuant to the Reinvestment
Plan, but includes 600,000 Shares which may be issued pursuant to the
Soliciting Dealer Warrants.
(2) The amounts shown for Gross Offering Proceeds do not reflect the
possible discounts in commissions and other fees as described in "Plan
Of Distribution."
(3) Includes Selling Commissions equal to 7% of aggregate Gross Offering
Proceeds (which commissions may be reduced under certain circumstances)
which are payable to the Dealer Manager, an Affiliate. The Company also
will issue to the Dealer Manager one Soliciting Dealer Warrant for
every 25 Shares sold. The Dealer Manager, in its sole discretion, may
reallow Selling Commissions of up to 7% of Gross Offering Proceeds and
Soliciting Dealer Warrants to other broker-dealers participating in
this Offering attributable to the Shares sold by them. In no event
shall the total underwriting compensation, including Selling
Commissions, and expense reimbursements, exceed 7% of Gross Offering
Proceeds, except for an additional Marketing and Due Diligence Fee
equal to 2.5% of Gross Offering Proceeds which may be paid as a
reimbursement of expenses incurred for marketing support (2%) and due
diligence (.5%) purposes. See "Plan of Distribution."
(4) These amounts represent the Advisor's best estimates of the
Organization and Offering Expenses to be incurred in connection with
the Offering. Organization and Offering Expenses consist of estimated
legal, accounting, printing and other accountable offering expenses
(other than Selling Commissions and the Marketing and Due Diligence
Fee). The Advisor and other Affiliates will be responsible for the
payment of Organization and Offering Expenses (other than Selling
Commissions and the marketing support and due diligence reimbursement
fee) to the extent they exceed 3% of Gross Offering Proceeds, without
recourse against or reimbursement by the Company.
(5) All or a portion of the Marketing and Due Diligence Fee may be
reallowed to the non-affiliated Dealers which will assist the Dealer
Manager in the distribution of Shares (the "Soliciting Dealers") for
bona fide due diligence expenses. Up to .5% of the Marketing and Due
Diligence Fee may be paid as a reimbursement of due diligence expenses
and up to 2% of the Marketing and Due Diligence Fee may be paid as a
reimbursement of marketing support expenses in connection with the
Offering.
(6) 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 Company, may be
invested in short-term, highly-liquid investments including government
obligations, bank certificates of deposit, short-term debt obligations
and interest-bearing accounts.
(7) The Company will pay Acquisition and Advisory Fees to the Advisor or
other Affiliates in connection with the acquisition of properties up to
a maximum amount of 3% of Gross Offering Proceeds. Acquisition and
Advisory Fees do not include Acquisition Expenses.
(8) Includes legal fees and expenses, travel and communication expenses,
costs of appraisals, nonrefundable option payments, accounting fees and
expenses, title insurance premiums and other closing costs and
miscellaneous expenses relating to the selection, acquisition and
development of properties that ultimately are not acquired by the
Company. With respect to successful acquisitions, such costs generally
will be
17
<PAGE>
included in the purchase price of the applicable property. It
is anticipated that substantially all of such items will be directly
related to the acquisition of specific properties and will be
capitalized rather than currently deducted by the Company.
(9) Because the vast majority of leases for the properties acquired by the
Company will provide for tenant reimbursement of operating expenses, it
is not anticipated that a permanent reserve for maintenance and repairs
of the Company's properties will be established. However, to the extent
that the Company has insufficient funds for such purposes, the Company
may apply an aggregate amount of up to 1% of Gross Offering Proceeds
for maintenance and repairs of the Company's properties. The Company
also may, but is not required to, establish reserves from Gross
Offering Proceeds, out of cash flow generated by operations properties
or out of Nonliquidating Net Sale Proceeds.
(10) Includes amounts anticipated to be invested in properties net of fees
and expenses. It is estimated that approximately 84% of the proceeds of
this Offering will be used to acquire properties.
18
<PAGE>
MANAGEMENT COMPENSATION
The following table summarizes and discloses all of the compensation and
fees (including reimbursement of expenses) to be paid by the Company to the
Dealer Manager, the Soliciting Dealers, the Advisor and the Management Company
during the various phases of the organization and operation of the Company.
<TABLE>
<CAPTION>
FORM OF COMPENSATION DETERMINATION ESTIMATED
AND ENTITY RECEIVING OF AMOUNT MAXIMUM
- -------------------- --------- DOLLAR AMOUNT
-------------
(1)(2)
------
ORGANIZATIONAL AND OFFERING STAGE
---------------------------------
<S> <C> <C>
Selling Commissions - The Up to 7% of Gross Offering Proceeds before reallowance of $10,500,000 at the
Dealer Manager commissions earned by participating broker-dealers. The Maximum Offering
Dealer Manager intends to reallow 100% of commissions earned by and $87,500 at the
participating broker-dealers. Minimum Offering
Reimbursement of Up to 3% of Gross Offering Proceeds. All Organization and $4,500,000 at the
Organization and Offering Offering Expenses (excluding Selling Commissions) will be Maximum Offering and
Expenses - The Advisor and advanced by the Advisor and its Affiliates and $37,500 at the
its Affiliates reimbursed by the Company. Minimum Offering.
Marketing support and due Up to 2.5% of Gross Offering Proceeds for reimbursement of bona $3,750,000 at the
diligence expense - Dealer fide marketing and due diligence expenses. Maximum Offering and
Manager and Soliciting $31,250 at the Minimum
Dealers Offering.
<CAPTION>
ACQUISITION AND DEVELOPMENT STAGE
---------------------------------
<S> <C> <C>
Acquisition and Advisory For the review and evaluation of potential real property $4,500,000 at the
Fees - The Advisor or its acquisitions, a fee of up to 3% of Gross Offering Proceeds, plus Maximum Offering and
Affiliates reimbursement of costs and expenses for the acquisition of $43,750 at the Minimum
properties. Offering.
Reimbursement of Acquisition Up to .5% of the Gross Offering Proceeds for reimbursement of $750,000 at the Maximum
Expenses - The Advisor expenses related to real property acquisitions, such as legal fees, Offering and $6,250 at
travel and communication expenses, title insurance premiums the Minimum Offering.
expenses.
<CAPTION>
OPERATIONAL STAGE
-----------------
<S> <C> <C>
Property Management and For supervising the management of the Company's properties, a Actual amounts are
Leasing Fees - The fee equal to 4.5% of the gross rental incomes (approximately 2% - 3% dependent upon results
Management Company of which is expected to come from direct tenant a net fee payable by of operations and
each property of 1.5% to 2.5%), and in the case of leases to new therefore cannot be
tenants, an initial leasing fee equal to the lesser of (i) the first determined at the
month's rent under the applicable lease or (ii) the amounts charged by present time.
unaffiliated persons rendering comparable services in the same
geographic area.
Real Estate Commissions - In connection with the sale of any Company property, an amount not Actual amounts are
The Advisor or Its exceeding the lesser of: (A) 50% of the reasonable, customary dependent upon results
Affiliates and Competitive Real Estate Brokerage Commissions customarily of operations and
paid for the sale of a comparable property in light of the size, type therefore cannot be
and location of the property, or (B) 3% of the gross sales price of determined at the
each property (SUBJECT TO LIMITATIONS), subordinated to present time.
distributions to shareholders from Sale Proceeds of an amount
which, together with prior distributions to the shareholders, will
equal (i) 100% of their Invested Capital plus (ii) AN 8% per annum
cumulative (noncompounded) return on their Invested Capital (THEIR
"COMMON RETURN").
Subordinated Incentive fee Upon Listing, a fee equal to 10% of the amount by which (i) the Actual amounts are
market value of the Company plus the total distributions made to dependent upon
shareholders from the Company's
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C>
upon Listing - The Advisor inception until the date of Listing exceeds (ii) the sum of (A) 100% of results of operations
Invested Capital and (B) the total distributions required to pay the and therefore cannot be
Common Return to the inception through the date on which the market determined at the
present time.
<CAPTION>
LIQUIDATION/TERMINATION STAGE
-----------------------------
<S> <C> <C>
Subordinated Participation After all shareholders have received a return of their Invested Actual amounts are
in Nonliquidating Net Sale Capital and their Common Return, then the Advisor is entitled to dependent upon results
Proceeds and Liquidating receive the following amounts: (a) an amount equal to the capital of operations and
Distributions - The Advisor contributed by the Advisor to the Operating Partnership, therefore cannot be
(b) then, 10% ofremaining Residual Proceeds available for determined at the
distribution. present time.
THE COMPANY MAY NOT MAKE REIMBURSEMENTS TO ANY ENTITY FOR
---------------------------------------------------------
OPERATING EXPENSES IN EXCESS OF 2% OF AVERAGE INVESTED ASSETS
-------------------------------------------------------------
OR 25% OF NETINCOME FOR SUCH YEAR.
---------------------------------
</TABLE>
- -------------------------
(1) Assumes that the maximum number of 15,000,000 Shares is sold (excluding any
Shares sold pursuant to the Reinvestment Plan).
(2) THE COMPANY MAY NOT MAKE REIMBURSEMENTS TO ANY ENTITY FOR OPERATING
- --- -------------------------------------------------------------------
EXPENSES IN EXCESS OF 2% OF AVERAGE INVESTED ASSETS OR 25% OF NET INCOME
------------------------------------------------------------------------
FOR SUCH YEAR.
--------------
In addition, the Advisor and its Affiliates will be reimbursed only for the
actual cost of goods, services and materials used for or by the Company as set
forth in Section 10 of the Advisory Agreement. The Advisor may be reimbursed
for the administrative services, including personnel costs, necessary to the
prudent operation of the Company, provided that the reimbursement shall be at
the lower of the Advisor's actual cost or the amount the Company 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 or personnel costs for which the Advisor is entitled to compensation by
way of a separate fee. IF THE SUBORDINATED INCENTIVE FEE IS PAID TO THE
--------------------------------------------------
ADVISOR, NO OTHER PERFORMANCE FEE WILL BE PAID TO THE ADVISOR; IF THE
- ---------------------------------------------------------------------
SUBORDINATED PARTICIPATION FEE IS PAID TO THE ADVISOR, NO NET SALES PROCEEDS
- ----------------------------------------------------------------------------
WILL BE PAID TO THE ADVISOR.
- ----------------------------
Since the Advisor and its Affiliates are entitled to differing levels of
compensation for undertaking different transactions on behalf of the Company,
such as the property management fees for operating the Company's properties and
the subordinated participation in proceeds from the sale of the Company's
properties, the Advisor has the ability to affect the nature of the compensation
it receives by undertaking different transactions. However, the Advisor is
obligated to exercise good faith and integrity in all its dealings with respect
to Company affairs pursuant to its fiduciary duties to the shareholders. See
"The Advisor and the Advisory Agreement." As noted above, there are ceilings on
certain categories of fees or expenses payable to the Advisor and its
Affiliates. Because these fees or expenses are payable only with respect to
certain transactions or services, they may not be recovered by the Advisor or
their Affiliates by reclassifying them under a different category. THE COMPANY
-------------
MAY NOT MAKE REIMBURSEMENTS TO ANY ENTITY FOR OPERATING EXPENSES IN EXCESS OF 2%
- --------------------------------------------------------------------------------
OF AVERAGE INVESTED ASSETS OR 25% OF NET INCOME FOR SUCH YEAR.
- --------------------------------------------------------------
20
<PAGE>
CONFLICTS OF INTEREST
The Company is subject to various conflicts of interest arising out of its
relationship with the Advisor and its Affiliates, including conflicts related to
the arrangements pursuant to which the Advisor and its Affiliates will be
compensated by the Company. See "Management."
The following chart indicates the relationship between Wells Real Estate
Funds, Inc., the parent corporation of the Advisor and the Affiliates of the
Advisor which will be providing services to the Company.
<TABLE>
<CAPTION>
================================================================================
WELLS REAL ESTATE FUNDS, INC.
================================================================================
<S> <C> <C>
100% 100% 100%
====================== ================================ =====================
WELLS CAPITAL, INC. WELLS INVESTMENT SECURITIES, WELLS MANAGEMENT
INC. (DEALER MANAGER) COMPANY, INC.
(PROPERTY MANAGER)
====================== ================================ =====================
Advisory Agreement 100%
====================== ================================ =====================
WELLS REIT WELLS DEVELOPMENT
CORPORATION
====================== ================================ =====================
</TABLE>
INTERESTS IN OTHER COMPANIES
The Advisor and its Affiliates are also general partners of other real
estate limited partnerships, including partnerships which have investment
objectives substantially identical to those of the Company, and it is expected
that they will organize other such partnerships in the future.
As described in the "Prior Performance Summary," the Advisor and its
Affiliates have sponsored the following TWELVE public partnerships with
------
substantially identical investment objectives as those of the Company: (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"), (x) Wells Real Estate Fund IX, L.P. ("Wells Fund IX"), (xi) Wells
Real Estate Fund X, L.P. ("Wells Fund X") AND WELLS REAL ESTATE FUND XI, L.P.
-----------------------------------
("WELLS FUND XI"). 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 been invested in properties. IN
-----
ADDITION, ALL of the proceeds of the OFFERING OF WELLS FUND VIII AVAILABLE FOR
- ------------- -----------------------------------------
INVESTMENT IN REAL PROPERTIES HAVE BEEN EITHER INVESTED OR ARE COMMITTED FOR
- ----------------------------------------------------------------------------
INVESTMENT IN PROPERTIES. AS OF AUGUST 31, 1997, APPROXIMATELY 74% AND 50% OF
- ------------------------------------------------------------------------------
THE PROCEEDS OF THE OFFERINGS OF WELLS FUND IX AND WELLS FUND X, respectively,
- ---------------------------------------------------------------
available for investment in real properties had either been invested in
properties or were committed for investment in properties. WELLS FUND XI
-------------
BEGAN TO OFFER ITS SECURITIES IN JANUARY 1998.
- ----------------------------------------------
The Advisor also may be subject to potential conflicts of interest at such
time as the Company wishes to acquire a property that also would be suitable for
acquisition by an Affiliate of the Advisor. Affiliates of the Advisor serve as
Directors of the Company, and, in this capacity, have a fiduciary obligation to
act in the best
21
<PAGE>
interest of the stockholders of the Company and, as general partners or
directors of the Prior Wells Public Programs, to act in the best interests of
the partners in other programs with investments that may be similar to those of
the Company and will use their best efforts to assure that the Company will be
treated as favorably as any such other program. See "Management-- Fiduciary
Responsibility of the Board of Directors." In addition, the Company has
developed procedures to resolve potential conflicts of interest in the
allocation of properties between the Company and certain of its Affiliates. See
"Certain Conflict Resolution Procedures" below. The Company will supplement this
Prospectus during the Offering period to disclose the acquisition of a material
property at such time as the Advisor believes that a reasonable probability
exists that the Company will acquire a property, including an acquisition from
the Advisor or its Affiliates.
OTHER ACTIVITIES OF THE ADVISOR AND ITS AFFILIATES
The Company will rely on the Advisor for the day-to-day operation of the
Company and the management of its assets. As a result of its interests in other
partnerships and the fact that it has also engaged and will continue to engage
in other business activities, the Advisor and its Affiliates and certain of the
Directors will have conflicts of interest in allocating their time between the
Company and other partnerships and activities in which they are involved.
However, the Advisor believes that it and its Affiliates have sufficient
personnel to discharge fully their responsibilities to all partnerships and
ventures in which they are involved.
The Company MAY (I) purchase or lease any property in which the Advisor
-------
or any of its Affiliates have an interest, (II) temporarily enter into
------
contracts relating to investment in properties to be assigned to the Company
prior to closing or may purchase property in their own name and temporarily hold
title for the Company, and (III) enter into joint ventures with Affiliates of
-----
the Advisor to acquire properties held by such Affiliates, provided that in
ANY CASE SUCH TRANSACTION SHALL BE MADE UPON A FINDING BY A MAJORITY OF
- -----------------------------------------------------------------------
DIRECTORS (INCLUDING A MAJORITY OF INDEPENDENT DIRECTORS) NOT OTHERWISE
- -----------------------------------------------------------------------
INTERESTED IN THE TRANSACTION THAT SUCH TRANSACTION IS COMPETITIVE AND
- ----------------------------------------------------------------------
COMMERCIALLY REASONABLE TO THE COMPANY AND AT A PRICE TO THE COMPANY no greater
- --------------------------------------------------------------------
than the cost of THE ASSET TO THE ADVISOR OR SUCH AFFILIATE (including
------------------------------------------
acquisition and carrying costs), OR, IF THE PRICE TO THE COMPANY IS IN EXCESS
----------------------------------------------
OF SUCH COST, THAT SUBSTANTIAL JUSTIFICATION FOR SUCH EXCESS EXISTS AND SUCH
- ----------------------------------------------------------------------------
EXCESS IS REASONABLE AND ONLY IF THE POSSIBILITY OF SUCH ACQUISITION(S) IS
- --------------------------------------------------------------------------
DISCLOSED, AND THERE IS APPROPRIATE DISCLOSURE OF THE MATERIAL FACTS CONCERNING
- -------------------------------------------------------------------------------
EACH SUCH INVESTMENT. IN NO EVENT SHALL THE COST OF SUCH ASSET TO THE COMPANY
- ------------------------------------------------------------------------------
EXCEED ITS CURRENT APPRAISED VALUE. THE Advisor or such Affiliate may not hold
- ----------------------------------------
title to any such property on behalf of the Company or an Affiliated joint
venture for more than 12 months, AND FURTHER the Advisor or its Affiliates
-----------
shall not sell property to the Company or an Affiliated joint venture if the
cost of the property exceeds the funds reasonably anticipated to be available
for the Company to purchase any such property, and that all profits and losses
during the period any such property is held by the Advisor or the Affiliate will
accrue to the Company or the Affiliated joint venture, as applicable. In no
event may the Company (i) sell or lease real property to the Advisor or any of
its Affiliates (unless a majority of the Independent Directors determine that
the transaction is fair and reasonable to the Company); (ii) loan Company funds
to the Advisor or any of its Affiliates; (iii) obtain appraisals of real
properties from the Advisor or any of their Affiliates; or (iv) enter into
agreements with the Advisor or its Affiliates for the provision of insurance
covering the Company or any property owned by the Company.
COMPETITION
Conflicts of interest will exist to the extent that the Company may acquire
properties in the same geographic areas where other properties owned by the
Advisor and its Affiliates are located. In such a case, a conflict could arise
in the leasing of the Company's properties in the event that the Company and
another program managed by the Advisor or its Affiliates were to compete for the
same tenants in negotiating leases, or a conflict could arise in connection with
the resale of THE Company's properties in the event that the Company and another
---
program managed by the Advisor or its Affiliates were to attempt to sell similar
properties at the same time. Conflicts of interest may also exist at such time
as the Company or Affiliates of the Advisor managing property on behalf of the
Company seek to employ developers, contractors or building managers as well as
under other circumstances. The Advisor 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.
22
<PAGE>
In addition, the Advisor 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 Advisor may establish differing compensation
arrangements for employees at different properties or differing terms for
resales or leasing of the various properties.
AFFILIATED DEALER MANAGER
Because the Dealer Manager is an Affiliate of the Advisor, the Company 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."
AFFILIATED PROPERTY MANAGER
Since it is anticipated that the Company's properties will be managed and
leased by the Management Company, an Affiliate of the Advisor, the Company will
not have the benefit of independent property management. See "Management
Compensation."
AFFILIATED DEVELOPER
It is expected that Wells Development, an Affiliate of the Advisor, will
serve as the developer of certain unimproved properties acquired by the Company,
but will not receive any profit from the development of such properties.
LACK OF SEPARATE REPRESENTATION
Hunton & Williams is counsel to the Company, the Advisor, the Dealer
Manager and their Affiliates in connection with this Offering and may in the
future act as counsel to the Company, the Advisor, 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 Company, the Advisor, the Dealer Manager or their Affiliates, the
Advisor will cause the Company to retain separate counsel for such matters as
and when appropriate.
JOINT VENTURES WITH AFFILIATES OF THE ADVISOR
The Company is likely to enter into one or more joint venture agreements
with Affiliates of the Advisor for the acquisition, development or improvement
of properties. See "Investment Objectives and Criteria -- Joint Venture
Investments." The Advisor and its 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 Advisor may face a conflict in
structuring the terms of the relationship between the interest of the Company
and the interest of the affiliated co-venturer. Since the Advisor and its
Affiliates will control both the Company 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.
RECEIPT OF FEES AND OTHER COMPENSATION BY ADVISOR AND AFFILIATES
Company transactions involving the purchase and sale of the Company's
properties may result in the receipt of commissions, fees and other compensation
by the Advisor and its Affiliates, including Acquisition and Advisory Fees,
property management and leasing fees, real estate brokerage commissions, and
participation in distributions of Nonliquidating Net Sale Proceeds and
Liquidating Distributions. However, the fees and compensation payable to the
Advisor and its Affiliates relating to sale of the Company's properties are
subordinated to the return to the shareholders of their Invested Capital plus
cumulative returns thereon. Subject to the oversight of the Board of Directors,
the Advisor has considerable discretion with respect to all decisions relating
to the terms and timing of all Company transactions. Therefore, the Advisor may
have conflicts of interest concerning certain
23
<PAGE>
actions taken on behalf of the Company, particularly due to the fact that such
fees will generally be payable to the Advisor and its Affiliates regardless of
the quality of the properties acquired or the services provided to the Company.
See "Management Compensation."
CERTAIN CONFLICT RESOLUTION PROCEDURES
In order to reduce or eliminate certain potential conflicts of interest,
the Articles of Incorporation contain a number of restrictions relating to (i)
transactions between the Company and the Advisor or its Affiliates, (ii) certain
future offerings, and (iii) allocation of properties among certain affiliated
entities. These restrictions include, among others, the following:
1. No goods or services will be provided by the Advisor or its Affiliates
to the Company except for transactions in which the Advisor or its Affiliates
provide goods or services to the Company in accordance with the Articles of
Incorporation which provides that a majority of the Directors (including a
majority of the Independent Directors) not otherwise interested in such
transactions must approve such transactions as fair and reasonable to the
Company and on terms and conditions not less favorable to the Company than those
available from unaffiliated third parties and not less favorable than those
available from the Advisor or its Affiliates in transactions with unaffiliated
third parties.
2. The Company will not purchase or lease properties in which the Advisor
or its Affiliates has an interest without the determination, by a majority of
the Directors (including a majority of the Independent Directors) not otherwise
interested in such transaction, that such transaction is competitive and
commercially reasonable to the Company and at a price to the Company no greater
than the cost of the asset to the Advisor or its Affiliate unless there is
substantial justification for any amount that exceeds such cost and such excess
amount is determined to be reasonable. In no event shall the Company acquire
any such asset at an amount in excess of its appraised value. The Company will
not sell or lease properties to the Advisor, DIRECTORS, or ANY Affiliates
------------ ---
unless a majority of the Directors (including a majority of the Independent
Directors) not interested in the transaction determine the transaction is fair
and reasonable to the Company. THE COMPANY WILL NOT PURCHASE OR LEASE
--------------------------------------
PROPERTIES FROM THE ADVISOR, DIRECTORS, OR ANY AFFILIATE WITHOUT THE APPROVAL OF
- --------------------------------------------------------------------------------
A MAJORITY OF THE DIRECTORS (INCLUDING THE INDEPENDENT DIRECTORS).
- ------------------------------------------------------------------
3. The Company will not make any loans to THE ADVISOR, DIRECTORS OR ANY
-----------------------------
Affiliates. The Advisor and its Affiliates will not make loans to the Company,
or to joint ventures in which the Company is a co-venturer, for the purpose of
acquiring properties. Any loans to the Company by the Advisor, DIRECTORS, or
------------
ANY Affiliates for other purposes must be approved by a majority of the
- ---
Directors (including a majority of the Independent Directors) not otherwise
interested in such transaction as fair, competitive, and commercially
reasonable, and no less favorable to the Company than comparable loans between
unaffiliated parties. It is anticipated that the Advisor or its Affiliates
shall be entitled to reimbursement, at cost, for actual expenses incurred by
them on behalf of the Company or joint ventures in which the Company is a co-
venturer, subject to the 2%/25% Guidelines (2% of Average Invested Assets or 25%
of Net Income) described under "The Advisor and the Advisory Agreement -- The
Advisory Agreement."
4. The Board of Directors and the Advisor have agreed that, in the event
than an investment opportunity becomes available which is suitable for both the
Company and a public or private entity with which the Advisor or its Affiliates
are affiliated, for which both entities have sufficient uninvested funds, then
the entity which has had the longest period of time elapse since it was offered
an investment opportunity will first be offered the investment opportunity. An
investment opportunity will not be considered suitable for a program if the
requirements of Item 3 above could not be satisfied if the program were to make
the investment. In determining whether or not an investment opportunity is
suitable for more than one program, the Board of Directors and the Advisor will
examine such factors, among others, as the cash requirements of each program,
the effect of the acquisition both on diversification of each program's
investments by types of commercial office properties and geographic area, and on
diversification of the tenants of its properties (which also may affect the need
for one of the programs to prepare or produce audited financial statements for a
property or a tenant), the anticipated cash
24
<PAGE>
flow of each program, the size of the investment, the amount of funds available
to each program, and the length of time such funds have been available for
investment. If a subsequent development, such as a delay in the closing of a
property or a delay in the construction of a property, causes any such
investment, in the opinion of the Board of Directors and the Advisor, to be more
appropriate for an entity other than the entity which committed to make the
investment, however, the Advisor has the right to agree that the other entity
affiliated with the Advisor or its Affiliates may make the investment. IT SHALL
--------
BE THE DUTY OF THE DIRECTORS (INCLUDING THE INDEPENDENT DIRECTORS) TO INSURE
- ----------------------------------------------------------------------------
THAT THE METHOD FOR THE ALLOCATION OF THE ACQUISITION OF PROPERTIES BY TWO OR
- -----------------------------------------------------------------------------
MORE PROGRAMS OF THE SAME ADVISOR SEEKING TO ACQUIRE SIMILAR TYPES OF ASSETS
- ----------------------------------------------------------------------------
SHALL BE REASONABLE. The Advisor and certain other Affiliates of the Company are
- -------------------
affiliated with Wells Fund X, a PRIOR public program WHICH TERMINATED ITS
----- --------------------
OFFERING IN DECEMBER 1997. In addition, the Advisor and its Affiliates are
- -------------------------
affiliated with Wells Fund XI, a publicly registered partnership that has not
offered any securities to date. As of AUGUST 31, 1997, Wells Fund X had
------
approximately $ 10,979,538 available for investment.
------------
SUMMARY OF REINVESTMENT PLAN
The Company has adopted the Reinvestment Plan pursuant to which
stockholders may elect to have the full amount of their cash distributions from
the Company reinvested in additional Shares of the Company. The following
discussion summarizes the principal terms of the Reinvestment Plan. The
Reinvestment Plan AND THE PROSPECTUS TO BE USED IN CONNECTION WITH CERTAIN
--------------------------------------------------------
SALES OF THE COMPANY'S STOCK ARE attached hereto as Exhibit C.
- --------------------------------
GENERAL
Shareholders who have received a copy of this Prospectus and participate in
this Offering can elect to participate in and purchase Shares through the
Reinvestment Plan at any time and will not need to receive a separate prospectus
relating solely to the Reinvestment Plan. A person who becomes a stockholder
otherwise than by participating in this Offering may purchase Shares through the
Reinvestment Plan only after receipt of a separate prospectus relating solely to
the Reinvestment Plan.
The price per Share purchased pursuant to the Reinvestment Plan shall be
the Offering price, which is $10.00 per Share, until all of the Shares in this
Offering that are reserved for the Reinvestment Plan have been sold thereunder.
After such time, Shares for the Reinvestment Plan may be acquired by the Company
either through purchases on the open market and/or additional registrations
relating to the Reinvestment Plan, in either case at a per Share price equal to
the then-prevailing market price on the securities exchange or over-the-counter
market on which the Shares are listed at the date of purchase. The Company is
unable to predict the effect which such a Listing would have on the price of the
Shares acquired through the Reinvestment Plan.
INVESTMENT OF DISTRIBUTIONS
Distributions will be used to purchase Shares on behalf of the Participants
from the Company. All such distributions shall be invested in Shares within 30
days after such payment date. Any distributions not so invested will be
returned to Participants.
At this time, Participants will not have the option to make voluntary
contributions to the Reinvestment Plan to purchase Shares in excess of the
amount of Shares that can be purchased with their distributions. The Board of
Directors reserves the right, however, to amend the Reinvestment Plan in the
future to permit voluntary contributions to the Reinvestment Plan by
Participants, to the extent consistent with the Company's objective of
qualifying as a REIT.
25
<PAGE>
PARTICIPANT ACCOUNTS, FEE, AND ALLOCATION OF SHARES
For each Participant, the Company will maintain a record which shall
reflect for each fiscal quarter the distributions received by the Company on
behalf of such Participant. Any interest earned on such Distributions will be
paid to the Company to defray certain costs relating to the Reinvestment Plan.
The Company will use the aggregate amount of distributions to all
Participants for each fiscal quarter to purchase Shares for the Participants.
If the aggregate amount of distributions to Participants exceeds the amount
required to purchase all Shares then available for purchase, the Company will
purchase all available Shares and will return all remaining distributions to the
Participants within 30 days after the date such distributions are made. The
purchased Shares will be allocated among the Participants based on the portion
of the aggregate distributions received on behalf of each Participant, as
reflected in the records maintained by the Company. The ownership of the Shares
purchased pursuant to the Reinvestment Plan shall be reflected on the books of
the Company.
Shares acquired pursuant to the Reinvestment Plan will entitle the
Participant to the same rights and to be treated in the same manner as those
purchased by the Participants in the Offering. Accordingly, the Company will
pay the following commissions and fees in connection with Shares sold under the
Reinvestment Plan (until all such Shares are sold): the Selling Commissions of
7% (subject to reduction under the circumstances provided under "The Offering --
Plan of Distribution"), the Marketing and Due Diligence Fee of 2.5%, and the
Acquisition and Advisory Fees of 3% of the purchase price of the Shares sold
pursuant to the Reinvestment Plan.__IN CONNECTION WITH INVESTMENTS BY OHIO
--------------------------------------
INVESTORS, THE COMPANY WILL PAY ONLY ACQUISITION AND ADVISORY FEES OF 3% OF THE
- -------------------------------------------------------------------------------
PURCHASE PRICE OF THE SHARES SOLD PURSUANT TO THE REINVESTMENT PLAN.
- --------------------------------------------------------------------
Thereafter, Acquisition and Advisory Fees will be paid by the Company only in
the event that proceeds of the sale of Shares are used to acquire properties.
As a result, aggregate fees payable to Affiliates of the Company will total
between 9% and 12.5% of the proceeds of reinvested distributions, up to 7% of
-----
which may be reallowed to Soliciting Dealers.
The allocation of Shares among Participants may result in the ownership of
fractional Shares, computed to four decimal places.
REPORTS TO PARTICIPANTS
Within 60 days after the end of each fiscal quarter, the Company will mail
to each Participant a statement of account describing, as to such Participant,
the distributions reinvested during the quarter, the number of Shares purchased
during the quarter, the per Share purchase price for such Shares, the total
administrative charge paid by the Company on behalf of each Participant (see " -
- - Participant Accounts, Fees and Allocation of Shares" above), and the total
number of Shares purchased on behalf of the Participant pursuant to the
Reinvestment Plan. See " -- General" above.
Tax information with respect to income earned on Shares under the
Reinvestment Plan for the calendar year will be sent to each participant by the
Company.
ELECTION TO PARTICIPATE OR TERMINATE PARTICIPATION
Stockholders of the Company who purchase Shares in this Offering may become
Participants in the Reinvestment Plan by making a written election to
participate on their Subscription Agreements at the time they subscribe for
Shares. Any other stockholder who receives a copy of this Prospectus or a
separate prospectus relating solely to the Reinvestment Plan and who has not
previously elected to participate in the Reinvestment Plan may so elect at any
time by COMPLETING THE ENROLLMENT FORM ATTACHED TO SUCH PROSPECTUS OR BY OTHER
----------------------------------------------------------------------
APPROPRIATE written notice to the PLAN ADMINISTRATOR OR COMPANY of such
- ----------- -----------------------------
stockholder's desire to participate in the Reinvestment Plan. Participation in
the Reinvestment Plan will commence with the next distribution made after
receipt of the Participant's notice, provided it is received at least ten days
prior to the record date for such distribution. Subject to the preceding
sentence, the election to participate in the Reinvestment Plan will apply to all
distributions attributable to the fiscal quarter in which the stockholder made
such written election to participate
26
<PAGE>
in the Reinvestment Plan and to all fiscal quarters thereafter, whether made (i)
upon subscription or subsequently for stockholders who participate in this
offering, or (ii) upon receipt of a separate prospectus relating solely to the
Reinvestment Plan for stockholders who do not participate in this offering.
Participants will be able to terminate their participation in the Reinvestment
Plan at any time without penalty by delivering written notice to the PLAN
----
ADMINISTRATOR OR COMPANY NO LESS THAN TEN DAYS PRIOR TO THE NEXT RECORD DATE.
- ----------------------------------------------------------------------------
THE Company may also terminate the Reinvestment Plan for any reason at any time,
- ---
upon 10 days' prior written notice to all Participants.
A Participant who chooses to terminate participation in the Reinvestment
Plan must terminate his or her entire participation in the Reinvestment Plan and
will not be allowed to terminate in part. If the Reinvestment Plan is
terminated, the Company will UPDATE ITS STOCK RECORDS TO ACCOUNT FOR ALL WHOLE
-------------------------------------------------
SHARES PURCHASED BY THE PARTICIPANT(S) IN THE PLAN, AND IF ANY FRACTIONAL SHARES
- --------------------------------------------------------------------------------
EXIST, THE COMPANY MAY EITHER (A) SEND YOU a check in payment for any fractional
- ------------------------------------------
SHARES IN YOUR ACCOUNT BASED IN THE THEN-CURRENT MARKET PRICE FOR THE SHARES,
- -----------------------------------------------------------------------------
OR (B) CREDIT YOUR STOCK OWNERSHIP ACCOUNT WITH ANY SUCH FRACTIONAL SHARES.
- --------------------------------------------------------------------------
There are no fees associated with a Participant's terminating his interest in
the Reinvestment Plan or the Company's termination of the plan. A Participant
in the Reinvestment Plan who terminates his interest in the Reinvestment Plan
will be allowed to participate in the Reinvestment Plan again by notifying the
Company and completing any required forms.
The Board of Directors reserves the right to prohibit Qualified Plans from
participating in the Reinvestment Plan if such participation would cause the
underlying assets of the Company to constitute "plan assets" of Qualified Plans.
See "Federal Income Tax Considerations -- Taxation of Tax-Exempt Shareholders."
FEDERAL INCOME TAX CONSIDERATIONS
Stockholders subject to federal income taxation who elect to participate in
the Reinvestment Plan will incur a tax liability for distributions allocated to
them even though they have elected not to receive their distributions in cash
but rather to have their distributions held pursuant to the Reinvestment Plan.
Specifically, stockholders will be treated as if they have received the
distribution from the Company and then applied such Distribution to purchase
Shares in the Reinvestment Plan. A stockholder designating a distribution for
reinvestment will be taxed on the amount of such distribution as ordinary income
to the extent such distribution is from current or accumulated earnings and
profits, unless the Company has designated all or a portion of the distribution
as a capital gain dividend. In such case, such designated portion of the
distribution will be taxed as long-term capital gain.
AMENDMENTS AND TERMINATION
The Company reserves the right to amend any aspect of the Reinvestment
Plan without the consent of stockholders, provided that notice of the amendment
is sent to Participants at least 30 days prior to the effective date thereof.
The Company also reserves the right to terminate the Reinvestment Plan for any
reason at any time by ten days' prior written notice of termination to all
Participants. THE COMPANY MAY TERMINATE A PARTICIPANT'S PARTICIPATION IN THE
----------------------------------------------------------------
PLAN IMMEDIATELY IF IN THE COMPANY'S JUDGMENT SUCH PARTICIPANT'S PARTICIPATION
- ------------------------------------------------------------------------------
JEOPARDIZES IN ANY WAY THE COMPANY'S STATUS AS A REAL ESTATE INVESTMENT
- ------------------------------------------------------------------------------
TRUST.
- ------
SHARE REPURCHASE PROGRAM
The Share Repurchase Program ("SRP") may, subject to certain restrictions,
provide eligible stockholders with limited, interim liquidity by enabling them
to sell Shares back to the Company at a price during the period of this Offering
equal to $8.40 per Share. After the Offering, the price per Share pursuant to
the SRP will be set from time to time by the Board of Directors in its sole
discretion. In such cases, the Board of Directors will consider the Company's
net asset value, recent comparable offerings and other factors which the Board
of Directors, in its sole discretion, deems relevant. Repurchase prices are
expected to be available on the Company's internet/world wide web site
(www.wellsref.com), and will be given by telephone upon request.
27
<PAGE>
Repurchases under the SRP, when done, will be made quarterly by the Company
in its sole discretion on a first-come, first-served basis, and will be limited
in the following ways: (i) not more than $500,000 worth of the outstanding
Shares will be repurchased in any given year; and (ii) the funds available for
repurchase will be limited to available proceeds received by the Company from
the sale of Shares under the Reinvestment Plan. The determination of available
funds from sales under the Reinvestment Plan and the decision to repurchase
Shares will be at the sole discretion of the Board. In making this
determination, the Board will consider the need to use proceeds from the Share
sales under the Reinvestment Plan for investment in additional properties, or
for maintenance or repair of existing properties. Such property-related uses
will have priority over the need to allocate funds to the SRP. To be eligible
to offer Shares for purchase to the SRP, the stockholder must have beneficially
held the Shares for at least one year.
The Company cannot guarantee that funds will be available for repurchase.
If no funds are available for the SRP at the time when repurchase is requested,
the stockholder could: (i) withdraw his request for repurchase; or (ii) ask that
the Company honor the request at such time, if any, when funds are available.
Such pending requests will be honored on a first-come, first-served basis.
- -
There is no requirement that stockholders sell their Shares to the Company. The
SRP is only intended to provide interim liquidity for stockholders until a
secondary market DEVELOPS for the Shares. No such market presently exists and
--------
no assurance can be given that one will develop. The SRP will exist during the
Offering period and will be terminated following the close of the Offering
period upon the Listing.
Shares purchased by the Company under the SRP will be canceled, and will
have the status of authorized but unissued Shares. Shares acquired by the
Company through the SRP will not be reissued unless they are first registered
with the Commission under the Act and under appropriate state securities laws or
otherwise issued in compliance with such laws.
28
<PAGE>
PRIOR PERFORMANCE SUMMARY
THE INFORMATION PRESENTED IN THIS SECTION REPRESENTS THE HISTORICAL
EXPERIENCE OF REAL ESTATE PROGRAMS MANAGED BY THE ADVISOR AND ITS AFFILIATES.
INVESTORS IN THE COMPANY SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS, IF
ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN SUCH PRIOR REAL ESTATE
PROGRAMS.
The Advisor serves as a general partner of a total of TWELVE real estate
------
limited partnerships, ELEVEN of which have completed offerings and one of
------
which has commenced but not completed its public offering. A twelfth
partnership is in registration with the Commission and thus has not commenced.
These limited partnerships and the year in which their offerings were completed
are as follows:
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. (1996)
11. Wells Real Estate Fund X, L.P. (1997)
------
12. Wells Real Estate Fund XI, L.P. (OFFERING COMMENCED 12-31-97)
-----------------------------
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.
PRIOR WELLS PUBLIC PROGRAMS
The Advisor and its Affiliates sponsored the Prior Wells Public Programs,
all of which were offered on an unspecified property or "blind pool" basis. The
total amount of funds raised from investors in the offerings of the Prior Wells
Public Programs, as of August 31, 1997, was approximately $257,000,000, and the
total number of investors in such partnerships was approximately 24,000.
The investment objectives of the Prior Wells Public Programs are
substantially identical to the investment objectives of the Company. 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, Wells Fund VI AND WELLS FUND VII
- ------------------
available for investment in real properties have been invested in properties.
In addition, all of the proceeds of the offering of Wells Fund VIII available
----
for investment in real properties have either been invested or are committed for
investment in properties. As of AUGUST 31, 1997, approximately 74% and
------ ---
50% of the proceeds of the offerings of Wells Fund IX and Wells Fund X,
- --- ---
respectively, available for investment in real properties had either been
invested in properties or were committed for investment in properties. Wells
Fund XI commenced its offering IN JANUARY 1998 and thus has no funds
---------------
AVAILABLE FOR INVESTMENT AS OF THE DATE OF THIS PROSPECTUS. For the fiscal year
- ----------------------------------------------------------
ended December 31, 1996, approximately TWO-THIRDS of the aggregate gross
----------
rental income of TEN of these eleven publicly offered partnerships was derived
---
from tenants which are U.S. corporations, each of which the Company believes 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.
29
<PAGE>
The Prior Wells Public Programs have acquired a total of 31 properties in
the following U.S. regions: 24 in the Southeast, one in the Northeast, two in
Southcentral, one in Northcentral and two in the West. Each Prior Wells Public
Program has used only proceeds from its respective offering to finance its
acquisitions of properties.
The real properties in which the Prior Wells Public Programs 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. As a result, certain of these public
partnerships have experienced increases in expenses and decreases in 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. See the Prior
Performance Tables included as Exhibit A hereto. Additionally, while overall
occupancy rates have not decreased significantly at the properties owned by the
Prior Wells Public Programs, 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. Specifically, certain of the Prior Wells Public Programs
suffered decreases in net income during the real estate recession of the late
1980s and early 1990s, which decreases were generally attributable to the
overall downturn in the economy and in the real estate market in particular.
Because of the cyclical nature of the real estate market, such decreases in net
income of the public partnerships could occur at any time in the future when
economic conditions decline. None of these prior programs has liquidated or
sold any of its real properties to date and, accordingly, no assurance can be
made that prior programs will ultimately be successful in meeting their
investment objectives. See "Risk Factors."
The aggregate dollar amount of the acquisition and development costs of the
properties purchased by the Prior Wells Public Programs, as of AUGUST 31,
------
1997, was approximately $196,419,519, of which $4,254,000 (or approximately
----------
2.2%) had not yet been expended on the development of certain of the projects
- -----
which are still under construction. Of the aggregate amount, approximately
65.0% was or will be spent on acquiring or developing office buildings, and
approximately 35.0% was or will be spent on acquiring or developing shopping
centers. Of the aggregate amount, approximately 4% was or will be spent on
--
new properties, 38% on existing or used properties and 58% 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 the eleven
Prior Wells Public Programs as of OCTOBER 31, 1997:
-------
<TABLE>
<CAPTION>
Type of Property New Existing Construction
------------------- ----- --------- -------------
<S> <C> <C> <C>
Office Buildings 4% 26% 35%
-- -- --
Shopping Centers -- 11% 24%
-- -- --
</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 Limited Partnership Units ("Class A Units"), and $10,642,000 of the gross
proceeds were attributable to sales of Class B Limited Partnership Units ("Class
B Units" and, collectively with the Class A Units, "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. The prospectus
of Wells Fund I provided that the properties purchased by Wells Fund I would
typically be held for a period of eight to twelve years, but that the general
partners may exercise their discretion as to whether and when to sell the
properties owned by Wells Fund I and the partnership will have no obligation to
sell properties at any particular time. Wells Fund I acquired its properties
between 1985 and 1987, and has not yet liquidated or sold any of its properties.
30
<PAGE>
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 Fund IV owns
interests in the following properties: (i) a shopping center in Stockbridge,
Georgia; (ii) 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 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 OCTOBER 31, 1997,
-------
$15,514,160 of Units of Wells Fund V were treated as Class A Units, and
$1,491,860 of Units were treated as Class B Units. Wells Fund V owns interests
in the following properties: (i) a four story office building in Jacksonville,
Florida; (ii) two two-story office buildings in Stockbridge, Georgia; (iii) a
four story office building in Hartford, Connecticut; (iv) two restaurants in
Stockbridge, Georgia; and (v) a three story office building in Appleton,
Wisconsin. SINCE ITS INCEPTION IN 1992, WELLS FUND V REPORTED A NET LOSS OF
-------------------------------------------------------------------
$18,089 IN 1992, AND NET INCOME OF $354,999, $561,721, $689,639 AND $505,650 IN
- -------------------------------------------------------------------------------
YEARS 1993 THROUGH 1996, RESPECTIVELY. IN SUCH YEARS, WELLS FUND V DISTRIBUTED
- -------------------------------------------------------------------------------
A TOTAL OF $151,336, $643,334, $969,011 AND $1,007,107, RESPECTIVELY, TO
- ------------------------------------------------------------------------
INVESTORS (EXCLUDING RETURNS OF CAPITAL AND DISTRIBUTIONS FROM PRIOR YEAR
- -------------------------------------------------------------------------
OPERATIONS). SEE "EXHIBIT A - PRIOR PERFORMANCE TABLES" ATTACHED TO THIS
- -------------------------------------------------------------------------
PROSPECTUS FOR FURTHER DETAIL ON THE PERFORMANCE OF WELLS FUND V.
- -----------------------------------------------------------------
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 OCTOBER 31, 1997, $21,538,950 of Units of Wells Fund VI
------- -----------
were treated as Class A Units, and $3,461,050 of Units were treated as Class B
----------
Units. Wells Fund VI owns interests in the following properties: (i) a four
story
31
<PAGE>
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
SHOPPING CENTER in Clemmons, North Carolina. SINCE ITS INCEPTION IN 1993,
- --------------- ----------------------------
WELLS FUND VI REPORTED NET INCOME OF $31,428, $700,896, $901,828 AND $589,053 IN
- --------------------------------------------------------------------------------
YEARS 1993 THROUGH 1996, RESPECTIVELY. IN SUCH YEARS, WELLS FUND VI DISTRIBUTED
- -------------------------------------------------------------------------------
A TOTAL OF $0, $245,800, $1,044,940 AND $1,042,175, RESPECTIVELY, TO INVESTORS
- ------------------------------------------------------------------------------
(EXCLUDING RETURNS OF CAPITAL AND DISTRIBUTIONS FROM PRIOR YEAR OPERATIONS). SEE
- --------------------------------------------------------------------------------
"EXHIBIT A - PRIOR PERFORMANCE TABLES" ATTACHED TO THIS PROSPECTUS FOR FURTHER
- ------------------------------------------------------------------------------
DETAIL ON THE PERFORMANCE OF WELLS FUND VI.
- -------------------------------------------
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 OCTOBER 31, 1997, $18,656,280 of Units in
------- -----------
Wells Fund VII were treated as Class A Units, and $5,523,890 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 SHOPPING CENTER
---------------
in Clemmons, North Carolina; and (ix) a retail development in Clayton County,
Georgia. SINCE ITS INCEPTION IN 1994, WELLS FUND VII HAS REPORTED NET INCOME OF
----------------------------------------------------------------------
$203,263, $804,043 AND $452,776 IN YEARS 1994 THROUGH 1996, RESPECTIVELY. IN
- -----------------------------------------------------------------------------
SUCH YEARS, WELLS FUND VII DISTRIBUTED A TOTAL OF $52,195, $856,032 AND
- -----------------------------------------------------------------------
$781,511, RESPECTIVELY, TO INVESTORS (EXCLUDING RETURNS OF CAPITAL AND
- ----------------------------------------------------------------------
DISTRIBUTIONS FROM PRIOR YEAR OPERATIONS). SEE "EXHIBIT A - PRIOR PERFORMANCE
- ------------------------------------------------------------------------------
TABLES" ATTACHED TO THIS PROSPECTUS FOR FURTHER DETAIL ON THE PERFORMANCE OF
- ----------------------------------------------------------------------------
WELLS FUND VII.
- ---------------
Wells Fund VIII terminated its offering on January 4, 1996, and received
gross proceeds of $32,042,689 representing subscriptions from 2,241 limited
partners. $26,135,339 of the gross proceeds were attributable to sales of Class
A Status Units, and $5,907,350 were attributable to sales of 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 OCTOBER 31, 1997, $26,353,280 of Units in Wells Fund VIII
------- -----------
were treated as Class A Status Units, and $5,679,410 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
SHOPPING CENTER in Clemmons, North Carolina; (iv) a retail development in
- ---------------
Clayton County, Georgia; (v) a four story office building IN MADISON,
-----------
WISCONSIN; and (vi) a one-story office building in Farmers Branch, Texas; (VII)
- --------- -------
A TWO STORY OFFICE BUILDING IN ORANGE COUNTY, CALIFORNIA; AND (VIII) A TWO STORY
- --------------------------------------------------------------------------------
OFFICE BUILDING IN BOULDER COUNTY, COLORADO. SINCE ITS INCEPTION IN 1995, WELLS
- --------------------------------------------------------------------------------
FUND VIII HAS REPORTED NET INCOME OF $273,914 AND $936,590 IN YEARS 1995 AND
- ----------------------------------------------------------------------------
1996, RESPECTIVELY. IN SUCH YEARS, WELLS FUND VIII DISTRIBUTED A TOTAL OF $0
- -----------------------------------------------------------------------------
AND $903,252, RESPECTIVELY (EXCLUDING RETURNS OF CAPITAL AND DISTRIBUTIONS FROM
- -------------------------------------------------------------------------------
PRIOR YEAR OPERATIONS). SEE "EXHIBIT A - PRIOR PERFORMANCE TABLES" ATTACHED TO
- -------------------------------------------------------------------------------
THIS PROSPECTUS FOR FURTHER DETAIL ON THE PERFORMANCE OF WELLS FUND VIII.
- ------------------------------------------------------------------------
Wells Fund IX terminated its offering on December 30, 1996, and received
gross proceeds of $35,000,000 representing subscriptions from 2,095 limited
partners. $29,359,270 of the gross proceeds were attributable to sales of Class
A Units and $5,640,730 were attributable to sales of Class B Units. Wells Fund
IX owns interests in (i) a FOUR STORY OFFICE BUILDING in Madison, Wisconsin;
-------------------------- -
(ii) a one story office building in Farmers Branch, Texas; (III) A TWO STORY
-------------------
OFFICE BUILDING IN ORANGE COUNTY, CALIFORNIA; (IV) A TWO STORY OFFICE BUILDING
- ------------------------------------------------------------------------------
IN BOULDER COUNTY, COLORADO; AND (V) an interest in a joint venture (in which
- ------------------------------------
Wells Fund X is a partner), which
32
<PAGE>
owns a tract of land in Knox County, Tennessee in the Knoxville metropolitan
area, upon which a three story office building is being developed (the
"Knoxville Joint Venture"). WELLS FUND IX, WHICH COMMENCED OPERATIONS IN 1996,
-------------------------------------------------
REPORTED NET INCOME OF $298,756 AND DISTRIBUTED A TOTAL OF $149,425 TO INVESTORS
- --------------------------------------------------------------------------------
IN THAT YEAR. SEE "EXHIBIT A - PRIOR PERFORMANCE TABLES" ATTACHED TO THIS
- -------------------------------------------------------------------------
PROSPECTUS FOR FURTHER DETAIL ON THE PERFORMANCE OF WELLS FUND IX.
- ------------------------------------------------------------------
Wells Fund X commenced a public offering of up to $35,000,000 of limited
partnership units ON DECEMBER 31, 1996, AND TERMINATED ITS OFFERING ON DECEMBER
-------------------------------------------------------------
30, 1997. AS OF NOVEMBER 30, 1997, Wells Fund X had RECEIVED GROSS PROCEEDS
- ---------------------------- -----------------------
OF $23,058,019 REPRESENTING SUBSCRIPTIONS FROM 1,632 LIMITED PARTNERS.
- -----------------------------------------------------------------------
$18,589,699 OF THE GROSS PROCEEDS WERE ATTRIBUTABLE TO SALES OF CLASS A STATUS
- ------------------------------------------------------------------------------
UNITS, AND $4,468,320 WERE ATTRIBUTABLE TO SALES OF CLASS B STATUS UNITS. Wells
- ------------------------------------------------------------------------
Fund X owns an interest in the Knoxville Joint Venture.
THE INFORMATION SET FORTH ABOVE SHOULD NOT BE CONSIDERED INDICATIVE OF
RESULTS TO BE EXPECTED FROM THE COMPANY.
The foregoing properties in which the Prior Wells Public Programs have
invested have all been acquired and developed on an all cash basis.
The Advisor is the general partner of Wells Partners L.P., which is a
general partner of the Operating Partnership, which is a general partner of
Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII, Wells Fund VIII,
Wells Fund IX, Wells Fund X and Wells Fund XI. The Advisor is a general partner
of Wells Fund I, Wells Fund II, Wells Fund II-OW and Wells Fund III. Leo F.
Wells, III, the President and a Director of the Company, is a general partner in
each of the Prior Wells Public Programs and the sole shareholder and Director of
Wells Real Estate Funds, Inc., the parent corporation of the Advisor.
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 Advisor. In addition, upon request, prospective investors may
obtain from the Advisor without charge copies of offering materials and any
reports prepared in connection with any of the Prior Wells Public Programs,
including a copy of the most recent Annual Report on Form 10-K filed with the
Commission. For a reasonable fee, the Company will also furnish upon request
copies of the exhibits to any such Form 10-K. Any such request should be
directed to the Advisor. 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 the Prior Wells Public
Programs. The Company will furnish, without charge, copies of such table upon
request.
MANAGEMENT
GENERAL
The Company will operate under the direction of the Board of Directors, the
members of which are accountable to the Company as fiduciaries. As required by
applicable regulations, a majority of the Independent Directors and a majority
of the Directors have reviewed and ratified the Articles of Incorporation and
have adopted the Bylaws.
The Company currently has five Directors; it may have no fewer than three
Directors and no more than fifteen. Directors will be elected annually, and
each Director will hold office until the next annual meeting of stockholders or
until his successor has been duly elected and qualified. There is no limit on
the number of times that a Director may be elected to office. Although the
number of Directors may be increased or decreased as discussed above, a decrease
shall not have the effect of shortening the term of any incumbent Director.
Any Director may resign at any time and may be removed with or without
cause by the stockholders upon the affirmative vote of at least a majority of
all the Shares outstanding and entitled to vote at a meeting called for
33
<PAGE>
this purpose. The notice of such meeting shall indicate that the purpose, or one
of the purposes, of such meeting is to determine if a Director shall be removed.
FIDUCIARY RESPONSIBILITY OF THE BOARD OF DIRECTORS
The Board of Directors will be responsible for the management and control
of the affairs of the Company; however, the Board of Directors will retain the
Advisor to manage the Company's day-to-day affairs and the acquisition and
disposition of investments, subject to the supervision of the Board of
Directors.
The Directors are not required to devote all of their time to the Company
and are only required to devote such of their time to the affairs of the Company
as their duties require. The Board of Directors will meet quarterly in person
or by telephone, or more frequently if necessary. It is not expected that the
Directors will be required to devote a substantial portion of their time to
discharge their duties as directors. Consequently, in the exercise of their
fiduciary responsibilities, the Directors will rely heavily on the Advisor. In
this regard, the Advisor, in addition to the Directors, will have a fiduciary
duty to the Company.
The Directors will monitor the administrative procedures, investment
operations, and performance of the Company and the Advisor to assure that such
policies are in the best interest of the stockholders and are fulfilled. Until
modified by the Directors, the Company will follow the policies on investments
set forth in this Prospectus. See "Investment Objectives and Policies."
The Independent Directors are responsible for reviewing the fees and
expenses of the Company at least annually or with sufficient frequency to
determine that the total fees and expenses of the Company are reasonable in
light of the Company's investment performance, Net Assets, Net Income, and the
fees and expenses of other comparable unaffiliated real estate investment
trusts. This determination shall be reflected in the minutes of the meetings of
the Board of Directors. For purposes of this determination, Net Assets are the
Company's total assets (other than intangibles), calculated at cost before
deducting depreciation or other non-cash reserves, less total liabilities, and
computed at least quarterly on a basis consistently applied. Such determination
will be reflected in the minutes of the meetings of the Board of Directors. In
addition, a majority of the Independent Directors and a majority of Directors
not otherwise interested in the transaction must approve each transaction with
the Advisor or its Affiliates. The Board of Directors also will be responsible
for reviewing and evaluating the performance of the Advisor before entering into
or renewing an advisory agreement. The Independent Directors shall determine
from time to time and at least annually that compensation to be paid to the
Advisor is reasonable in relation to the nature and quality of services to be
performed and shall supervise the performance of the Advisor and the
compensation paid to it by the Company to determine that the provisions of the
Advisory Agreement are being carried out. Specifically, the Independent
Directors will consider factors such as the CAPITAL, NET ASSETS AND NET INCOME
----------------------------------
OF THE COMPANY, amount of the fee paid to the Advisor in relation to the size,
- ---------------
composition and performance of the Company's investments, the success of the
Advisor in generating appropriate investment opportunities, rates charged to
other comparable REITs and other investors by advisors performing similar
services, additional revenues realized by the Advisor and its Affiliates through
their relationship with the Company, whether paid by the Company or by others
with whom the Company does business, the quality and extent of service and
advice furnished by the Advisor, the performance of the investment portfolio of
the Company and the quality of the portfolio of the Company relative to the
investments generated by the Advisor for its own account. Such review and
evaluation will be reflected in the minutes of the meetings of the Board of
Directors. The Board of Directors shall determine that any successor Advisor
possesses sufficient qualifications to (i) perform the advisory function for the
Company and (ii) justify the compensation provided for in its contract with the
Company.
The liability of the officers and Directors while serving in such capacity
is limited in accordance with the Articles of Incorporation, BYLAWS and
--------
applicable law. See "Description of Capital Stock -- Limitation of Liability
and Indemnification."
34
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company are listed below:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Leo F. Wells, III 52 President and Director
Brian M. Conlon 39 Executive Vice President, TREASURER,
SECRETARY and Director
JOHN L. BELL 57 INDEPENDENT Director
============================= -- --------------------------------------
RICHARD W. CARPENTER 60 Independent Director
============================= --
WALTER W. SESSOMS 63 Independent Director
============================= --
</TABLE>
LEO F. WELLS, III is the President and a Director of the Company and the
President and sole Director of the Advisor. He is also the sole shareholder and
Director of Wells Real Estate FUNDS, Inc., the parent corporation of the
------
Advisor. 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; the Dealer Manager, 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 26
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
March 31, 1997, these 23 real estate limited partnerships represented
investments totaling $255,433,723 from 23,741 investors. See "Prior Performance
Summary."
BRIAN M. CONLON is the Executive Vice President and a Director of the
Company. He also serves in the same capacity for the Advisor. Mr. Conlon
joined the Advisor in 1985 as a Regional Vice President, and 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.
JOHN L. BELL. FROM FEBRUARY 1971 TO FEBRUARY 1996 MR. BELL WAS THE OWNER
-------------------------------------------------------------------------
AND CHAIRMAN OF BELL-MANN, INC., THE LARGEST COMMERCIAL FLOORING CONTRACTOR IN
- ------------------------------------------------------------------------------
THE SOUTHEAST ("BELL-MANN"). MR. BELL ALSO SERVED ON THE BOARD OF DIRECTORS OF
- -------------------------------------------------------------------------------
REALTY SOUTH INVESTORS, A REIT ON THE AMERICAN STOCK EXCHANGE AND WAS THE
- -------------------------------------------------------------------------
FOUNDER AND SERVED AS A DIRECTOR OF BOTH THE CHATTAHOOCHEE BANK AND THE BUCKHEAD
- --------------------------------------------------------------------------------
BANK. IN 1997 MR. BELL INITIATED AND IMPLEMENTED SHAW INDUSTRIES' DEALER
- -------------------------------------------------------------------------
ACQUISITION PLAN WHICH INCLUDED THE ACQUISITION OF BELL-
- --------------------------------------------------------
35
<PAGE>
MANN.
- -------
MR. BELL CURRENTLY SERVES ON THE ADVISORY BOARDS OF WINDSOR CAPITAL,
--------------------------------------------------------------------
MOUNTAIN TOP BOYS HOME AND THE EAGLE RANCH BOYS HOME. MR. BELL IS ALSO
- -----------------------------------------------------------------------
EXTENSIVELY INVOLVED IN BUYING AND SELLING REAL ESTATE INDIVIDUALLY AND IN
- --------------------------------------------------------------------------
PARTNERSHIP WITH OTHERS. MR. BELL GRADUATED FROM FLORIDA STATE UNIVERSITY
- --------------------------------------------------------------------------
MAJORING IN ACCOUNTING AND MARKETING.
- -------------------------------------
RICHARD W. CARPENTER SERVED AS GENERAL VICE PRESIDENT, REAL ESTATE FINANCE,
---------------------------------------------------------------------------
OF THE CITIZENS AND SOUTHERN NATIONAL BANK FROM 1975 TO 1979, DURING WHICH TIME
- -------------------------------------------------------------------------------
HIS DUTIES INCLUDED THE SUPERVISION AND ESTABLISHMENT OF THE CO-MINGLED UNITED
- ------------------------------------------------------------------------------
KINGDOM PENSION FUND, U.K.-AMERICAN PROPERTIES, INC. ESTABLISHED FOR THE PURPOSE
- --------------------------------------------------------------------------------
OF INVESTMENT PRIMARILY IN UNITED STATES COMMERCIAL REAL ESTATE.
- ----------------------------------------------------------------
MR. CARPENTER IS PRESENTLY PRESIDENT AND DIRECTOR OF REALMARK HOLDINGS
----------------------------------------------------------------------
CORP., A RESIDENTIAL AND COMMERCIAL DEVELOPER, AND HAS SERVED IN THAT POSITION
- ------------------------------------------------------------------------------
SINCE OCTOBER 1983. HE IS ALSO PRESIDENT AND DIRECTOR OF LEISURE TECHNOLOGY,
- -----------------------------------------------------------------------------
INC., A RETIREMENT COMMUNITY DEVELOPER, A POSITION WHICH HE HAS HELD SINCE MARCH
- --------------------------------------------------------------------------------
1993, MANAGING PARTNER OF CARPENTER PROPERTIES, L.P., A REAL ESTATE LIMITED
- ---------------------------------------------------------------------------
PARTNERSHIP AND PRESIDENT AND DIRECTOR OF THE OIL REFINING COMPANIES WYATT
- --------------------------------------------------------------------------
ENERGY, INC. AND COMMONWEALTH OIL REFINING COMPANY, INC., POSITIONS WHICH HE HAS
- --------------------------------------------------------------------------------
HELD SINCE 1995 AND 1984 RESPECTIVELY.
- --------------------------------------
MR. CARPENTER IS A DIRECTOR OF BOTH TARA CORP., A STEEL MANUFACTURING
---------------------------------------------------------------------
COMPANY, AND ENVIRONMENTAL COMPLIANCE CORP., AN ENVIRONMENTAL FIRM. MR.
- ------------------------------------------------------------------------
CARPENTER ALSO SERVES AS VICE CHAIRMAN AND DIRECTOR OF BOTH FIRST LIBERTY
- -------------------------------------------------------------------------
FINANCIAL CORP. AND LIBERTY SAVINGS BANK, F.S.B. HE HAS BEEN A MEMBER OF THE
- -----------------------------------------------------------------------------
NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS AND SERVED AS PRESIDENT
- -----------------------------------------------------------------------------
AND CHAIRMAN OF THE BOARD OF SOUTHMARK PROPERTIES, AN ATLANTA BASED REAL ESTATE
- -------------------------------------------------------------------------------
INVESTMENT TRUST INVESTING IN COMMERCIAL PROPERTIES, UNTIL 1981. MR. CARPENTER
- -------------------------------------------------------------------------------
IS A PAST CHAIRMAN OF THE AMERICAN BANKERS ASSOCIATION HOUSING AND REAL ESTATE
- ------------------------------------------------------------------------------
FINANCE DIVISION EXECUTIVE COMMITTEE. MR. CARPENTER HOLDS A BACHELOR OF SCIENCE
- --------------------------------------------------------------------------------
DEGREE FROM FLORIDA STATE UNIVERSITY, WHERE HE WAS NAMED THE OUTSTANDING ALUMNI
- -------------------------------------------------------------------------------
OF THE SCHOOL OF BUSINESS IN 1973.
- ----------------------------------
WALTER W. SESSOMS WAS EMPLOYED BY BELLSOUTH TELECOMMUNICATIONS, INC.
--------------------------------------------------------------------
("BELLSOUTH") FROM 1971 UNTIL HIS RETIREMENT IN JUNE 1997. WHILE AT BELLSOUTH
- ------------------------------------------------------------------------------
MR. SESSOMS SERVED IN A NUMBER OF KEY POSITIONS INCLUDING VICE PRESIDENT-
- ------------------------------------------------------------------------
RESIDENCE FOR THE STATE OF GEORGIA FROM JUNE 1979 TO JULY 1981, VICE PRESIDENT-
- ------------------------------------------------------------------------------
TRANSITIONAL PLANNING OFFICER FROM JULY 1981 TO FEBRUARY 1982, VICE PRESIDENT-
- -----------------------------------------------------------------------------
GEORGIA FROM FEBRUARY 1982 UNTIL JUNE 1989, SENIOR VICE PRESIDENT-REGULATORY AND
- --------------------------------------------------------------------------------
EXTERNAL AFFAIRS FROM JUNE 1989 UNTIL NOVEMBER 1991 AND GROUP PRESIDENT-SERVICES
- --------------------------------------------------------------------------------
FROM DECEMBER 1991 UNTIL HIS RETIREMENT ON JUNE 30, 1997.
- ---------------------------------------------------------
MR. SESSOMS CURRENTLY SERVES AS A DIRECTOR OF THE GEORGIA CHAMBER OF
--------------------------------------------------------------------
COMMERCE FOR WHICH HE IS A PAST CHAIRMAN OF THE BOARD, THE ATLANTA CIVIC
- ------------------------------------------------------------------------
ENTERPRISES AND THE SALVATION ARMY'S BOARD OF VISITORS OF THE SOUTHEAST REGION.
- --------------------------------------------------------------------------------
MR. SESSOMS IS ALSO A PAST EXECUTIVE ADVISORY COUNCIL MEMBER FOR THE UNIVERSITY
- -------------------------------------------------------------------------------
OF GEORGIA COLLEGE OF BUSINESS ADMINISTRATION AND PAST MEMBER OF THE EXECUTIVE
- ------------------------------------------------------------------------------
COMMITTEE OF THE ATLANTA CHAMBER OF COMMERCE. MR. SESSOMS IS A GRADUATE OF
- ---------------------------------------------------------------------------
WOFFORD COLLEGE WHERE HE EARNED A DEGREE IN ECONOMICS AND BUSINESS
- ------------------------------------------------------------------
ADMINISTRATION AND IS CURRENTLY A PRACTITIONER/LECTURER AT THE UNIVERSITY OF
- ----------------------------------------------------------------------------
GEORGIA.
- --------
COMMITTEES
The Audit Committee will consist of a majority of Independent Directors.
If the Listing occurs, the Audit Committee will consist entirely of Independent
Directors. The Audit Committee will make recommendations concerning the
engagement of independent public accountants, review with the independent public
accountants the plans and results of the audit engagement, approve professional
services provided by the independent public accountants, review the independence
of the independent public accountants, consider the range of audit and non-audit
fees and review the adequacy of the Company's internal accounting controls.
36
<PAGE>
In the event that the Listing occurs, the Board of Directors will establish
a Compensation Committee, which will oversee the compensation of the Company's
executive officers and which will consist of three Independent Directors.
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated by
the Board of Directors. At least a majority of the members of each committee of
the Board of Directors will be Independent Directors.
COMPENSATION OF DIRECTORS AND OFFICERS
The Board of Directors shall determine the amount of compensation to be
received by each non-employee director for serving on the Board of Directors.
Such compensation, including fees for attending meetings, will not exceed $7,500
annually. The Company will not pay any compensation to officers and directors
of the Company who also serve as officers and directors of the Advisor.
THE ADVISOR AND THE ADVISORY AGREEMENT
THE ADVISOR
The Advisor is a Georgia corporation organized in 1984. The Company has
entered into the Advisory Agreement effective as of the date hereof. The
Advisor has a fiduciary responsibility to the Company and its stockholders.
The directors and officers of the Advisor are as follows:
<TABLE>
<S> <C>
Leo F. Wells, III President and sole Director
Brian M. Conlon Executive Vice President
Louis A. Trahant Vice President of Sales and Operations
Kim R. Comer National Vice President of Marketing
Edna B. King Vice President of Investor Services
Linda L. Carson Vice President of Accounting
</TABLE>
The backgrounds of Messrs. Wells and Conlon are described above under
"Management--Directors and Executive Officers."
LOUIS A. TRAHANT (age 51) is Vice President of Sales and Operations for the
Advisor. He is responsible for the internal sales support provided to regional
vice presidents and to registered representatives of broker-dealers
participating in other public offerings by the Wells Prior Public Program. 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 the Advisor in 1993 as Vice
President for Marketing of the Southern Region and assumed his current position
in 1995. Prior to joining the Advisor, 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 the American Management Association, and holds a
Series 22 license.
KIM R. COMER (age 43) rejoined the Advisor as National Vice President of
Marketing in April 1997, after working for the Company in similar capacities
from January 1992 through September 1995. He is
37
<PAGE>
responsible for all investor, financial advisor, and broker-dealer
communications and broker-dealer relations. In prior positions with the Advisor,
Mr. Comer served as Vice President of Marketing for the southeast and northeast
regions at the Advisor's' home office. He has ten years of experience in the
securities industry and is a licensed registered representative and financial
principal with the NASD. Additionally, he brings strong financial experience to
his marketing position with the Advisor, including experience as controller and
Chief Financial Officer of two regional broker-dealers. In 1976, Mr. Comer
graduated with honors from Georgia State University with a BBA degree in
accounting.
EDNA B. KING (age 60) is the Vice President of Investor Services for the
Advisor. She is responsible for processing new investments, sales reporting,
and investor communications. Prior to joining the Advisor in 1985, Ms. King
served as the Southeast Service Coordinator for Beckman Instruments and as
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.
LINDA L. CARSON (age 54) is Vice President of Accounting for the Advisor.
She is responsible for fund, property, and corporate accounting, SEC reporting
and coordination of the audit with its independent auditors. Ms. Carson joined
The Advisor in 1989 as Staff Accountant, became Controller in 1991, and assumed
her current position in 1996. Prior to joining the Advisor, Ms. Carson was an
accountant with an electrical distributor. She is a graduate of City College of
New York and has completed additional accounting courses at Kennesaw State. She
is a member of the National Society of Accountants.
The Advisor employs personnel, in addition to the directors and executive
officers listed above, who have extensive experience in selecting and managing
commercial properties similar to the properties SOUGHT TO BE ACQUIRED BY THE
----------------------------
COMPANY.
- -------
The Advisor currently owns 20,000 OP Units, for which it contributed
$200,000 to the capital of the Operating Partnership. The Advisor may not sell
these OP Units while the Advisory Agreement is in effect, although the Advisor
may transfer such OP Units to Affiliates. Neither the Advisor, a Director, nor
any Affiliate may vote or consent on matters submitted to the stockholders
regarding removal of the Advisor, or any transaction between the Company and the
Advisor, Directors, or an Affiliate. In determining the requisite percentage in
interest of Shares necessary to approve a matter on which the Advisor,
Directors, and any Affiliate may not vote or consent, any Shares owned by any of
them will not be included.
THE ADVISORY AGREEMENT
Under the terms of the Advisory Agreement, the Advisor (ACTING IN THE
--------------
CAPACITY OF SPONSOR) has responsibility for the day-to-day operations of the
- --------------------
Company, administers the Company's bookkeeping and accounting functions, serves
as the Company's consultant in connection with policy decisions to be made by
the Board of Directors, manages the Company's properties and renders other
services as the Board of Directors deems appropriate. The Advisor is subject to
the supervision of the Company's Board of Directors and has only such functions
as are delegated to it.
The Company will reimburse the Advisor for all of the costs it incurs in
connection with the services it provides to the Company, including, but not
limited to: (i) Organizational and Offering Expenses, which are defined to
include expenses attributable to preparing the documents relating to this
Offering, the formation and organization of the Company, qualification of the
Shares for sale in the states, escrow arrangements, filing fees and expenses
attributable to the sale of the Shares, (ii) Selling Commissions, advertising
expenses, expense reimbursements, and legal and accounting fees, (iii) the
actual cost of goods and materials used by the Company and obtained from
entities not affiliated with the Advisor, including brokerage fees paid in
connection with the purchase and sale of securities, (iv) administrative
services (including personnel costs; provided, however that no reimbursement
shall be made for costs of personnel to the extent that such personnel perform
services in transactions for which the Advisor receives a separate fee), and (v)
Acquisition Expenses, which are defined to
38
<PAGE>
include expenses related to the selection and acquisition of properties, at the
lesser of actual cost or 90% of the competitive rate charged by unaffiliated
persons providing similar goods and services in the same geographic location.
The Company shall not reimburse the Advisor at the end of any fiscal
quarter for operating expenses that, in the four consecutive fiscal quarters
then ended (the "Expense Year") exceed (the "Excess Amount") the greater of 2%
of Average Invested Assets or 25% of Net Income (the "2%/25% Guidelines") for
such year. IF THE ADVISOR RECEIVES AN INCENTIVE FEE, NET INCOME, FOR PURPOSES
------------------------------------------------------------------
OF CALCULATING OPERATING EXPENSES, SHALL EXCLUDE ANY GAIN FROM THE SALE OF THE
- ------------------------------------------------------------------------------
COMPANY'S ASSETS. Any Excess Amount paid to the Advisor during a fiscal quarter
- -----------------
shall be repaid to the Company WITHIN SIXTY (60) days after the end of THE
----------------- ---
FISCAL YEAR.
- -----------
The Company will not reimburse the Advisor or its Affiliates for services
for which the Advisor or its Affiliates are entitled to compensation in the form
of a separate fee.
Pursuant to the Advisory Agreement, the Advisor is entitled to receive
certain fees and reimbursements, as listed in "Management Compensation." The
Subordinated Incentive Fee, which is payable to the Advisor under certain
circumstances if Listing occurs, may be paid, at the option of the Company, in
cash, in Shares, by delivery of a promissory note payable to the Advisor, or by
any combination thereof. In the event the Subordinated Incentive Fee is paid to
the Advisor following Listing, NO OTHER PERFORMANCE FEE WILL BE PAID TO THE
---------------------------------------------
ADVISOR; AND IN THE EVENT THE SUBORDINATED PARTICIPATION FEE IS PAID TO THE
- ---------------------------------------------------------------------------
ADVISOR, no Net Sales Proceeds will be paid to the Advisor. The Acquisition
- --------
Fees payable to the Advisor in connection with the selection or acquisition of
any property shall be reduced to the extent that, and if necessary to limit, the
total compensation paid to all persons involved in the acquisition of such
property to the amount customarily charged in arm's-length transactions by other
persons or entities rendering similar services as an ongoing public activity in
the same geographical location and for comparable types of properties, and to
the extent that other acquisition fees, finder's fees, real estate commissions,
or other similar fees or commissions are paid by any person in connection with
the transaction.
If the Advisor or an Affiliate performs services that are outside of the
scope of the Advisory Agreement, compensation will be at such rates and in such
amounts as are agreed to by the Advisor and the Independent Directors of the
Company.
Further, if Listing occurs, the Company automatically will become a
perpetual life entity. At such time, the Company and the Advisor will negotiate
in good faith a fee structure appropriate for an entity with a perpetual life,
subject to approval by a majority of the Independent Directors. In negotiating
a new fee structure, the Independent Directors shall consider all of the factors
they deem relevant. These are expected to include, but will not necessarily be
limited to: (i) the amount of the advisory fee in relation to the asset value,
composition, and profitability of the Company's portfolio; (ii) the success of
the Advisor in generating opportunities that meet the investment objectives of
the Company; (iii) the rates charged to other REITs and to investors other than
REITs by advisors that perform the same or similar services; (iv) additional
revenues realized by the Advisor and its Affiliates through their relationship
with the Company, including loan administration, underwriting or broker
commissions, servicing, engineering, inspection and other fees, whether paid by
the Company or by others with whom the Company does business; (v) the quality
and extent of service and advice furnished by the Advisor; (vi) the performance
of the investment portfolio of the Company, including income, conservation or
appreciation of capital, and number and frequency of problem investments; and
(vii) the quality of the portfolio of the Company in relationship to the
investments generated by the Advisor for its own account. The Board of
Directors, including a majority of the Independent Directors, may not approve a
new fee structure that, in its judgment, is more favorable to the Advisor than
the current fee structure.
THE COMPANY ALSO SHALL PAY THE ADVISOR A DEFERRED, SUBORDINATED REAL ESTATE
---------------------------------------------------------------------------
DISPOSITION FEE UPON SALE OF ONE OR MORE PROPERTIES, IN AN AMOUNT EQUAL TO THE
- ------------------------------------------------------------------------------
LESSER OF (I) ONE-HALF (1/2) OF A COMPETITIVE REAL ESTATE BROKERAGE COMMISSION,
- -------------------------------------------------------------------------------
OR (II) THREE PERCENT (3%) OF THE SALES PRICE OF SUCH PROPERTY OR PROPERTIES.
- ------------------------------------------------------------------------------
IN ADDITION, THE AMOUNT PAID WHEN ADDED TO THE SUMS PAID TO UNAFFILIATED PARTIES
- --------------------------------------------------------------------------------
IN SUCH A CAPACITY SHALL NOT EXCEED THE LESSER OF THE COMPETITIVE REAL ESTATE
- -----------------------------------------------------------------------------
BROKERAGE COMMISSION OR AN AMOUNT EQUAL TO 6% OF THE
- ----------------------------------------------------
39
<PAGE>
SALES PRICE OF SUCH PROPERTY OR PROPERTIES. PAYMENT OF SUCH FEE SHALL BE MADE
- -----------------------------------------------------------------------------
ONLY IF THE ADVISOR PROVIDES A SUBSTANTIAL AMOUNT OF SERVICES IN CONNECTION WITH
- --------------------------------------------------------------------------------
THE SALE OF A PROPERTY OR PROPERTIES AND SHALL BE SUBORDINATED TO RECEIPT BY THE
- --------------------------------------------------------------------------------
STOCKHOLDERS OF DISTRIBUTIONS EQUAL TO THE SUM OF (I) THEIR AGGREGATE COMMON
- ----------------------------------------------------------------------------
RETURN AND (II) THEIR AGGREGATE INVESTED CAPITAL. IF, AT THE TIME OF A SALE OF
- ------------------------------------------------------------------------------
ONE OR MORE PROPERTIES, PAYMENT OF SUCH DISPOSITION FEE IS DEFERRED BECAUSE THE
- -------------------------------------------------------------------------------
SUBORDINATION CONDITIONS HAVE NOT BEEN SATISFIED, THEN THE DISPOSITION FEE SHALL
- --------------------------------------------------------------------------------
BE PAID AT SUCH LATER TIME AS THE SUBORDINATION CONDITIONS ARE SATISFIED. UPON
- ------------------------------------------------------------------------------
LISTING, IF THE ADVISOR HAS ACCRUED BUT NOT BEEN PAID SUCH REAL ESTATE
- ----------------------------------------------------------------------
DISPOSITION FEE, THEN FOR PURPOSES OF DETERMINING WHETHER THE SUBORDINATION
- ---------------------------------------------------------------------------
CONDITIONS HAVE BEEN SATISFIED, STOCKHOLDERS WILL BE DEEMED TO HAVE RECEIVED A
- ------------------------------------------------------------------------------
DISTRIBUTION IN THE AMOUNT EQUAL TO THE PRODUCT OF THE TOTAL NUMBER OF SHARES
- -----------------------------------------------------------------------------
OUTSTANDING AND THE AVERAGE CLOSING PRICE OF THE SHARES OVER A PERIOD, BEGINNING
- --------------------------------------------------------------------------------
180 DAYS AFTER LISTING, OF 30 DAYS DURING WHICH THE SHARES ARE TRADED.
- ----------------------------------------------------------------------
The Advisory Agreement, which was entered into by the Company with the
unanimous approval of the Board of Directors, including the Independent
Directors, expires one year after the date hereof, on _______, 1998, subject to
successive one-year renewals upon mutual consent of the parties. In the event
that a new Advisor is retained, the previous Advisor has agreed to cooperate
with the Company and the Directors in effecting an orderly transition of the
advisory functions. The Board of Directors (including a majority of the
Independent Directors) shall approve a successor Advisor only upon a
determination that such successor Advisor possesses sufficient qualifications to
perform the advisory functions for the Company and that the compensation to be
received by the new Advisor pursuant to the new Advisory Agreement is justified.
The Advisory Agreement may be terminated without cause or penalty by either
party, or by the mutual consent of the parties (by a majority of the Independent
Directors of the Company or a majority of the directors of the Advisor, as the
case may be), upon 60 days' prior written notice. The Advisor shall be entitled
to receive all accrued but unpaid compensation and expense reimbursements in
cash within 30 days of the effective date of termination of the Advisory
Agreement. All other amounts payable to the Advisor in the event of a
termination shall be evidenced by a promissory note and shall be payable from
time to time.
The Advisor has the right to assign the Advisory Agreement to an Affiliate
subject to approval by the Independent Directors of the Company. The Company
has the right to assign the Advisory Agreement to any successor to all of its
assets, rights, and obligations.
The Advisor will not be liable to the Company or its stockholders or
others, except by reason of acts constituting bad faith, fraud, misconduct, or
negligence, and will not be responsible for any action of the Board of Directors
in following or declining to follow any advice or recommendation given by it.
The Company has agreed to indemnify the Advisor with respect to acts or
omissions of the Advisor undertaken in good faith, in accordance with the
foregoing standards and pursuant to the authority set forth in the Advisory
Agreement. Any indemnification made to the Advisor may be made only out of the
net assets of the Company and not from stockholders.
WELLS MANAGEMENT
It is expected that substantially all of the Company's properties will be
managed by the Management Company. The officers of the Management Company are as
follows:
<TABLE>
<S> <C>
Leo F. Wells, III President
Brian M. Conlon Executive Vice President
Michael C. Berndt Vice President and Chief Financial Officer
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
M. Scott Meadows Vice President - Property Management
Michael L. Watson Vice President - Construction
Robert H. Stroud Vice President - Leasing
</TABLE>
The backgrounds of Messrs. Wells and Conlon are described above under
"Management -- Directors and Executive Officers."
MICHAEL C. BERNDT (50), Vice President and Chief Financial Officer of the
Management Company, joined in 1996. He is responsible for asset management of
the Prior Wells Public Program portfolios. Mr. Berndt is an attorney and a
Certified Public Accountant. From 1990 to 1995, Mr. Berndt was with the
Investigations Unit of the Resolution Trust Corporation. From 1985 to 1989, Mr.
Berndt was an independent real estate syndicator. From 1982 to 1985, he was
President of Phoenix Financial Corporation, an NASD broker-dealer. Previously,
he served as an accountant, attorney and securities analyst for various firms.
Mr. Berndt holds a B.S. in Accounting from Samford University, a J.D. from
Cumberland Law School and an L.L.M. in Taxation from New York University School
of Law.
M. SCOTT MEADOWS (33) is Vice President of Property Management for the
Management Company. He is responsible for overseeing a 1.8 million square foot
portfolio of office and retail properties. Prior to joining the Management
Company, Mr. Meadows served as Senior Property Manager for The Griffin Company,
a full-service commercial real estate firm in Atlanta, where he was responsible
for managing a half million square foot office and retail portfolio. He also
served several years as Property Management for Sea Pines Plantation Company,
managing real estate around Harbour Town. Mr. Meadows received a Bachelor of
Business Administration degree from the University of Georgia. He is a Georgia
real estate broker and holds the Real Property Administrator (RPA) designation
of the Building Owners and Managers Institute International.
MICHAEL WATSON (age 52) is Vice President of Construction for the
Management Company. Mr. Watson is responsible for overseeing construction and
tenant improvement projects for the Prior Wells Public Programs, including
design, engineering, and progress-monitoring functions. With more than 25 years
of experience in the construction industry, Mr. Watson has supervised projects
ranging from high rises to neighborhood shopping centers. Prior to joining the
Management Company in 1995, he was senior project management with Abrams
Construction in Atlanta. Mr. Watson received a Bachelor's degree in civil
engineering from the University of Miami and keeps up with current practices by
periodically enrolling in supplemental college courses.
ROBERT H. STROUD (age 56), Vice President of Leasing and Associate Broker
for Wells & Associates, Inc., joined the Management Company in 1987. Mr. Stroud
is responsible for leasing Atlanta office and retail properties on behalf of the
Prior Wells Public Programs. With more than 20 years in commercial and
investment real estate, Mr. Stroud is experienced in many facets of the real
estate industry, including site selection, tenant and landlord representation,
investment sales, and assemblage and property management. Prior to joining the
Management Company, Mr. Stroud was investment properties consultant with Royal
LePage Commercial Real Estate Services. He received a Bachelor's degree in
management from Georgia State University and earned the MCRE Commercial Real
Estate designation from the University of Toronto.
INVESTMENT OBJECTIVES AND CRITERIA
GENERAL
The Company is a corporation that intends to elect to be taxed as a REIT
for federal income tax purposes. The Company was organized to invest in
commercial real properties, including properties which are under development or
construction, are newly constructed or have been constructed and have operating
histories. The
41
<PAGE>
Company's objectives are: (i) to maximize Cash Available for Distribution; (ii)
to preserve, protect and return the Invested Capital of the shareholders; (iii)
to realize capital appreciation upon the ultimate sale of the Company's
properties; and (iv) to provide shareholders with liquidity of their investment,
within 10 years after commencement of the Offering, through either (a) the
listing of the Shares, or (b) if Listing does not occur within ten years
following the commencement of the Offering, the dissolution of the Company and
the orderly liquidation of its assets. No assurance can be given that these
objectives will be attained.
Decisions relating to the purchase or sale of the Company's properties will
be made by the Advisor, subject to the oversight of the Board of Directors. See
"The Advisor and the Advisory Agreement" for a description of the background and
experience of the Advisor.
ACQUISITION AND INVESTMENT POLICIES
The Company will seek to invest substantially all of the net Offering
proceeds available for Investment in properties in the acquisition of commercial
real 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 Advisor 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 Advisor' standards of creditworthiness. Based on the Advisor's
prior experience with the Prior Wells Public Programs, the Company anticipates
that a majority of the tenants of the Company's properties will be 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 Company 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, restaurants or business or industrial parks.
Notwithstanding the foregoing, under the REIT qualification rules, the Company
may not be actively engaged in the business of operating hotels, motels or
similar properties.
While the Company 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 Advisor anticipates
that the majority of properties acquired by the Company will satisfy both
attributes of providing potential for capital appreciation and providing
distributions of current cash flow to investors. To the extent feasible, the
Advisor will strive to invest in a diversified portfolio of properties that will
satisfy the Company's investment objectives of maximizing Cash Available for
Distribution, preserving investors' capital and realizing capital appreciation
upon the ultimate sale of the Company's properties.
It is anticipated that approximately 84% of the Gross Proceeds of the
Offering will be used to acquire properties and the balance will be used to pay
various fees and expenses. See "Estimated Use of Proceeds."
THE COMPANY MAY NOT INVEST MORE THAN 10% OF ITS TOTAL ASSETS in
------------------------------------------------------------
Unimproved Real Property. A property which is expected to produce income
within two years of its acquisition will not be considered a non-income
producing property.
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 Advisor or other
persons. See "Joint Venture Investments" below. In addition, the Company may
purchase properties and lease them back to the sellers of such properties.
While the Advisor will use its best efforts to structure any such sale-leaseback
transaction such that the lease will be characterized as a "true lease" and so
that the Company will be treated as the owner of the property for federal income
tax purposes, no assurance can be given that the Service 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
42
<PAGE>
for depreciation and cost recovery relating to such property would be disallowed
or significantly reduced. See "Federal Income Tax Considerations."
The Company is not limited as to the geographic area where it may conduct
its operations, but the Advisor intends to cause the Company to invest primarily
in properties located in the United States.
There are no specific limitations on the number or size of properties to be
acquired by the Company 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 Company is acquiring its properties and
the amount of the net proceeds of this Offering.
In making investment decisions for the Company, the Advisor 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 Advisor will have
substantial discretion with respect to the selection of specific Company
investments.
The Company 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 Advisor and the Board of Directors 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 shareholders at the office of the Company and will be retained
for at least five years.
The Company'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 Advisor),
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 Company 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 Advisor is generally satisfied with the environmental
status of the property.
The Company 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 Company 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 Company 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 Company 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 Company 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."
43
<PAGE>
DEVELOPMENT AND CONSTRUCTION OF PROPERTIES
The Company may invest substantially all of the net proceeds available for
Investment in properties on which improvements are to be constructed or
completed although the Company may not invest in excess of 10% of total assets
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 AND completion of properties under construction, the Advisor
---
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, or, in certain circumstances, the Advisor may require an
adequate completion bond or performance bond.
The Company 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 Company intends to use such additional controls on its
disbursements to builders and developers as it deems necessary or prudent.
The Company may directly employ one or more project managers to plan,
supervise and implement the development of any Unimproved Real Properties which
it may acquire. Such persons would be compensated directly by the Company and,
other than through such employment, will not be affiliated with the Advisor.
<*>TERMS OF LEASES AND LESSEE CREDITWORTHINESS
The terms and conditions of any lease entered into by the Company 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 Company for all real estate taxes, sales and use taxes, special assessments,
utilities, insurance and building repairs as well as lease payments.
The Advisor has developed specific standards for determining the
creditworthiness of potential lessees of Company Properties. While authorized
to enter into leases with any type of lessee, the Advisor anticipates that a
majority of the tenants of the Company 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 Company may incur indebtedness in connection with the development or
acquisition of properties, which indebtedness may be secured by one or more of
the Company's properties. The Company also may borrow funds (a) for Company
operating purposes in the event of unexpected circumstances in which the
Company's working capital reserves and other cash resources available to the
Company become insufficient for the maintenance and repair of its properties or
for the protection or replacement of the Company's assets, and (b) in order to
finance improvement of and improvements to its properties, when the Advisor
deems such improvements to be necessary or appropriate to protect the capital
previously invested in the properties, to protect the value of the Company's
investment in a particular property, or to make a particular property more
attractive for sale or lease. The aggregate borrowing of the Company, secured
and unsecured, shall be reasonable in relation to Net Assets of the Company and
shall be reviewed by the Board of Directors at least quarterly. Such
indebtedness may be in the form of secured and unsecured bank borrowings, and
publicly and privately placed debt offerings. Borrowings may be incurred
through either the Operating Partnership or the Company. The Board of Directors
anticipates that the aggregate amount of any borrowing will not exceed 50% of
THE AGGREGATE VALUE OF THE COMPANY'S AGGREGATE PROPERTIES, provided, however,
- --------------------------------------------------------- --------
that such level may be exceeded on an individual property basis.
44
<PAGE>
JOINT VENTURE INVESTMENTS
The Company 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 Company may invest some
or all of the proceeds of the Offering in such joint ventures. In this
connection, the Company may enter into joint ventures with future programs
sponsored by the Advisor or its Affiliates or Prior Wells Public Programs. The
Advisor also has 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 Company's investment policies. See "Risk Factors" and
"Conflicts of Interest." In determining whether to invest in a particular joint
venture, the Advisor 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 Company. THE COMPANY SHALL NOT
-----------------------
INVEST IN JOINT VENTURES WITH THE ADVISOR, ANY DIRECTORS OR ANY AFFILIATE
- -------------------------------------------------------------------------
THEREOF, UNLESS A MAJORITY OF THE DIRECTORS (INCLUDING A MAJORITY OF THE
- ------------------------------------------------------------------------
INDEPENDENT DIRECTORS) NOT OTHERWISE INTERESTED IN SUCH TRANSACTIONS, APPROVE
- -----------------------------------------------------------------------------
THE TRANSACTION AS BEING FAIR AND REASONABLE TO THE COMPANY AND ON SUBSTANTIALLY
- --------------------------------------------------------------------------------
THE SAME TERMS AND CONDITIONS AS THOSE RECEIVED BY OTHER JOINT VENTURERS. See "
- -------------------------------------------------------------------------
- -- Acquisition and Investment Policies," " -- Development and Construction of
Properties," " -- Terms of Leases and Lessee Creditworthiness," and " --
Borrowing Policies."
At such time as the Advisor believes that a reasonable probability exists
that the Company will enter into a joint venture with a Prior Wells Public
Program for the acquisition or development of a specific material property, this
Prospectus will be supplemented to disclose the terms of such proposed
investment transaction. Based upon the Advisor's 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 Company 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 Company 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 Company; (ii) the Company, 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
Company to do anything as a partner, joint venturer or co-tenant with respect to
the property which the Company or the Advisor could not do directly because of
the COMPANY'S ARTICLES OF INCORPORATION; and (iv) the Advisor and its
-----------------------------------
Affiliates are prohibited from receiving any compensation, fees or expenses
which are not permitted to be paid under the Advisory 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 Company may
not have sufficient capital to finance any such buy-out. See "Risk
Factors."
The Company 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 Company; (ii) the Company, 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 Company by such Affiliate is substantially identical to that
payable to the Advisor by the Company; (iv) the Company 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 Company 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 Company and such Affiliate. In the event that the co-
venturer were to elect to sell property held in any such joint venture, however,
the Company 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
45
<PAGE>
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 Advisor."
OTHER POLICIES
The Company will not invest as a limited partner in limited partnerships,
-
EXCEPT SUCH INVESTMENTS ACQUIRED THROUGH THE OPERATING PARTNERSHIP. The Company
- ------------------------------------------------------------------
may in the future issue senior securities. The Company may, pursuant to the
Reinvestment Plan, repurchase or otherwise reacquire its common stock.
Except in connection with sales of properties by the Company where purchase
money obligations may be taken by the Company as partial payment, the Company
will not make loans to any person, nor will the Company underwrite securities of
other issuers, in exchange for property, or invest in securities of other
issuers for the purpose of exercising control. Notwithstanding the foregoing,
the Company may invest in joint ventures or partnerships as described above and
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.
The Company will not: (i) make OR INVEST in real estate MORTGAGE LOANS
--------- --------------
(except in connection with the sale or other disposition of a property); (ii)
make loans to the Advisor or other Affiliates, or to any director, officer or
principal of the Company or any of its Affiliates; (iii) INVEST IN COMMODITIES
---------------------
OR COMMODITY FUTURE CONTRACTS (DOES NOT APPLY TO FUTURE CONTRACTS, WHEN USED
- ----------------------------------------------------------------------------
SOLELY FOR HEDGING PURPOSES IN CONNECTION WITH THE COMPANY'S ORDINARY BUSINESS
- ------------------------------------------------------------------------------
OF INVESTING IN REAL ESTATE ASSETS AND MORTGAGES); (IV) ISSUE REDEEMABLE EQUITY
- -------------------------------------------------------------------------------
SECURITIES; (V) ISSUE DEBT SECURITIES UNLESS THE HISTORICAL DEBT SERVICE
- ------------------------------------------------------------------------
COVERAGE (IN THE MOST RECENTLY COMPLETED FISCAL YEAR), AS ADJUSTED FOR KNOWN
- ----------------------------------------------------------------------------
CHANGES, IS SUFFICIENT TO PROPERLY SERVICE THAT HIGHER LEVEL OF DEBT; (VI) ISSUE
- --------------------------------------------------------------------------------
OPTIONS OR WARRANTS TO PURCHASE ITS SHARES TO THE ADVISOR, DIRECTORS, OR ANY
- ----------------------------------------------------------------------------
AFFILIATE THEREOF EXCEPT ON THE SAME TERMS AS SUCH OPTIONS OR WARRANTS MAY BE
- -----------------------------------------------------------------------------
SOLD TO THE GENERAL PUBLIC, ANY SUCH OPTIONS OR WARRANTS ISSUED TO THE ADVISOR,
- -------------------------------------------------------------------------------
DIRECTORS, OR ANY AFFILIATE SHALL NOT EXCEED AN AMOUNT EQUAL TO 10% OF THE
- --------------------------------------------------------------------------
OUTSTANDING SHARES OF THE COMPANY ON THE DATE OF GRANT; (VII) ISSUE ITS SHARES
- ------------------------------------------------------------------------------
ON A DEFERRED PAYMENT BASIS OR OTHER SIMILAR ARRANGEMENT; (VIII) invest in or
- ----------------------------------------------------------------
underwrite the securities of other issuers, including any publicly offered or
traded limited partnership interests, except for investments in joint ventures
as described herein, and except for permitted temporary investments pending
utilization of Company funds, provided that following one year after the
commencement of operations of the Company no more than 45% of the value of the
Company's total assets (exclusive of Government securities and cash items) will
consist of, and no more than 45% of the Company's net income after taxes (for
the last four fiscal quarters combined) will be derived from, securities other
than (A) Government securities, or (B) 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 (x) a corporation which is a majority owned
subsidiary of the Company and which is not an investment company as defined by
the Investment Company Act of 1940, as amended, or (y) a corporation which is
controlled primarily by the Company, through which corporation the Company
engages in the business of acquisition and operation of real estate and which is
not an investment company.
REAL PROPERTY INVESTMENTS
As of the date of this Prospectus, the Company has not acquired nor
contracted to acquire any specific real properties. The Advisor is 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 Company and prior programs. At
such time during the negotiations for a specific property as the Advisor
believes that a reasonable probability exists that the Company will acquire such
property, this Prospectus will be supplemented to disclose the negotiations and
pending acquisition. Based upon the Advisor's 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
46
<PAGE>
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 COMPANY 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 Company's investment policies. Funds
available for Investment in 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 shareholders.
The Company intends to obtain adequate insurance coverage for all
properties in which it invests.
DISTRIBUTION POLICY
REIT STATUS
In order to qualify as a REIT for federal income tax purposes, among other
things, the Company must make distributions each taxable year (not including any
return of capital for federal income tax purposes) equal to at least 95% of its
real estate investment trust taxable income, although the Board of Directors, in
its discretion, may increase that percentage as it deems appropriate. See
"Federal Income Tax Considerations -- Requirements for Qualification." The
declaration of distributions is within the discretion of the Board of Directors
and depends upon the Company's Cash Available for Distribution, current and
projected cash requirements, tax considerations and other factors.
The Company intends to make regular quarterly distributions to holders of
the Shares. Distributions will be made to those stockholders who are
stockholders as of the record date selected by the Directors. Distributions
will be declared monthly and paid on a quarterly basis during the Offering
period and declared and paid quarterly thereafter. Generally, income
distributed to stockholders will not be taxable to the Company under federal
income tax laws if the Company distributes at least 95% of its annual taxable
income. If Cash Available for Distribution is insufficient to pay such
distributions, the Company may obtain the necessary funds by borrowing, issuing
new securities, or selling assets. These methods of obtaining funds could
affect future distributions by increasing operating costs. To the extent that
distributions to stockholders exceed the Company's current and accumulated
earnings and profits, such amounts will constitute a return of capital for
federal income tax purposes, although such distributions will not reduce
stockholders' aggregate Invested Capital.
Distributions will be made at the discretion of the Directors, depending
primarily on Cash Available for Distribution and the general financial condition
of the Company, subject to the obligation of the Directors to cause the Company
to qualify and remain qualified as A REIT for federal income tax purposes. The
-
Company intends to increase distributions in accordance with increases in Cash
Available for Distribution.
47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of the date of this Prospectus, the Company had not yet commenced active
operations. Subscription proceeds may be released to the Company as accepted
and applied to investment in properties and the payment or reimbursement of
Selling Commissions and other Organization and Offering Expenses. See
"Estimated Use of Proceeds." The Company will experience a relative increase in
liquidity as additional subscriptions for Shares are received, and a relative
decrease in liquidity as net Offering proceeds are expended in connection with
the acquisition, development and operation of properties.
As of the initial date of this Prospectus, the Company has not entered into
any arrangements creating a reasonable probability that any specific property
will be acquired by the Company. The number of Company properties to be
acquired by the Company will depend upon the number of Shares sold and the
resulting amount of the net proceeds available for investment in properties
available to the Company. See "Risk Factors."
The Company is 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 the Company's properties.
Until required for the acquisition, development or operation of properties,
net Offering proceeds will be kept in short-term, liquid investments. Because
the vast majority of leases for the properties acquired by the Company will
provide for tenant reimbursement of operating expenses, it is not anticipated
that a permanent reserve for maintenance and repairs of Company properties will
be established. However, to the extent that the Company has insufficient funds
for such purposes, the Advisor may contribute to the Company an aggregate amount
of up to 1% of Gross Offering Proceeds for maintenance and repairs of the
Company's properties. The Advisor also may, but is not required to, establish
reserves from Gross Offering Proceeds, out of cash flow generated by operating
properties or out of Nonliquidating Net Sale Proceeds.
DESCRIPTION OF CAPITAL STOCK
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
------------------------------------------------------------------------
INCORPORATION AND BYLAWS AND MARYLAND LAW IS SUBJECT TO AND QUALIFIED IN ITS
- ----------------------------------------------------------------------------
ENTIRETY BY REFERENCE TO SUCH DOCUMENTS, COPIES OF WHICH ARE EXHIBITS TO THE
- ----------------------------------------------------------------------------
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
- ----------------------------------------------------------
Under its Articles of Incorporation, the Company has authority to issue a
total of 90,000,000 shares of capital stock, of which 40,000,000 shares are
---------- ----------
designated as common stock, $.01 par value per share (the "Common Stock"),
5,000,000 shares of which are designated are preferred stock, $.01 par value per
share (the "Preferred Stock"), AND 45,000,000 SHARES ARE DESIGNATED AS SHARES-
------------------------------------------------
IN-TRUST (AS DESCRIBED IN "-- ARTICLES OF INCORPORATION AND BYLAW
- -----------------------------------------------------------------
PROVISIONS."
- -------------
COMMON STOCK
The holders of Shares are entitled to one vote per share on all matters
voted on by shareholders, including elections of directors. Except as otherwise
required by law or provided in any resolution adopted by the Board of Directors
with respect to any series of Preferred Stock, the holders of such shares
exclusively possess all voting power. The Articles of Incorporation do not
provide for cumulative voting in the election of directors. Subject to any
preferential rights of any outstanding series of Preferred Stock, the holders of
Shares are entitled to such dividends as may be declared from time to time by
the Board of Directors from funds available therefor, and upon liquidation are
entitled to receive pro rata all assets of the Company available for
distribution to such holders. All Shares issued in the Offering will be fully
paid and nonassessable and the holders thereof will not have preemptive rights.
48
<PAGE>
PREFERRED STOCK
The Articles of Incorporation authorize the Board of Directors to designate
and issue from time to time one or more classes or series of Preferred STOCK
-----
without stockholder approval. The Board of Directors may determine the relative
rights, preferences and privileges of each class or series of Preferred Stock so
issued, which may be more beneficial than those of the Common Stock. However,
the voting rights for each share of Preferred Stock shall not exceed voting
rights of the Common Stock. The issuance of Preferred Stock could have the
effect of delaying or preventing a change in control of the Company. The Board
of Directors has no present plans to issue any Preferred Stock, but may
nevertheless do so in the future.
SOLICITING DEALER WARRANTS
The Company has agreed to issue and sell, and the Dealer Manager has agreed
to purchase for the price of $.0008 per warrant, warrants (the "Soliciting
Dealer Warrants") to purchase one Share per Soliciting Dealer Warrant equal to
2.5% of the total number of Shares sold by the Dealer Manager (and/or the
Soliciting Dealers) up to a maximum of 600,000 Soliciting Dealer Warrants. The
Soliciting Dealer Warrants will be issued on a quarterly basis commencing 60
days after the date on which the Shares are first sold pursuant to this
Offering. The Dealer Manager may retain or reallow all Soliciting Dealer
Warrants to the Soliciting Dealers (EXCEPT SOLICITING DEALERS IN MINNESOTA),
----------------------------------------
unless such issuance of the Soliciting Dealer Warrants is prohibited by either
federal or state securities laws. The Shares issuable upon exercise of the
Soliciting Dealer Warrants are being registered as part of this Offering.
Each Soliciting Dealer will receive from the Dealer Manager one Soliciting
Dealer Warrant for each 25 Shares sold by such Soliciting Dealer during this
Offering. All Shares sold by the Company other than through the Reinvestment
Plan will be included in the computation of the number of Shares sold to
determine the number of Soliciting Dealer Warrants to be issued. The holder of
a Soliciting Dealer Warrant will be entitled to purchase one Share from the
Company at a price of $12 (120% of the public offering price per Share) during
the time period beginning from the date the Soliciting Dealer Warrants are
issued and ending five years after the effective date of this Offering (the
"Exercise Period"). A Soliciting Dealer Warrant may not be exercised unless the
Shares to be issued upon the exercise of the Soliciting Dealer Warrant have been
registered or are exempt from registration in the state of residence of the
holder of the Soliciting Dealer Warrant or if a prospectus required under the
laws of such state cannot be delivered to the buyer on behalf of the Company.
Notwithstanding the foregoing, no Soliciting Dealer Warrants will be exercisable
until one year from the effective date of the Offering. In addition, holders of
Soliciting Dealer Warrants may not exercise the Soliciting Dealer Warrants to
the extent such exercise would jeopardize the Company's status as a REIT under
the Code.
The terms of the Soliciting Dealer Warrants, including the exercise price
and the number and type of securities issuable upon exercise of a Soliciting
Dealer Warrant and the number of such warrants may be adjusted in the event of
stock dividends, STOCK SPLITS, OR A MERGER, CONSOLIDATION, RECLASSIFICATION,
-----------------------------------------------------------
REORGANIZATION, RECAPITALIZATION, OR SALE OF ASSETS. Soliciting Dealer Warrants
- ----------------------------------------------------
are not transferable or assignable except by the Dealer Manager, the Soliciting
Dealers, their successors in interest, or to individuals who are officers of
such a person. Exercise of these Soliciting Dealer Warrants will be under the
terms and conditions detailed in this Prospectus and in the Warrant Purchase
Agreement, which is an exhibit to the Registration Statement.
Holders of Soliciting Dealer Warrants do not have the rights of
stockholders, may not vote on Company matters and are not entitled to receive
distributions until such time as such warrants are exercised.
ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
Restrictions on Ownership and Transfer
For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of capital
stock. Specifically, not more than 50% in value of the Company's
49
<PAGE>
outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year, and the Company must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year. See "Federal
Income Tax Considerations -- Requirements for Qualification." In addition, the
Company must meet certain requirements regarding the nature of its gross income
in order to qualify as a REIT. One such requirement is that at least 75% of the
Company's gross income for each year must consist of "rents from real property"
and income from certain other real property investments. No rent that the
Company receives from a tenant in which it owns 10% or more of the ownership
interests will qualify as "rents from real property." See "Federal Income Tax
Considerations -- Requirements for Qualification -- Income Tests."
Because the Board of Directors believes it is essential for the Company to
continue to qualify as a REIT, the Articles of Incorporation, subject to certain
exceptions described below, provide that no person may own, or be deemed to own
by virtue of the attribution provisions of the Code, more than 9.8% (the
"Ownership Limitation") of the number of outstanding SHARES OF COMMON STOCK or
----------------------
more than 9.8% of the number of outstanding shares of any class of PREFERRED
---------
STOCK.
- -----
Any transfer of Shares that would (i) result in any person owning, directly
or indirectly, Shares in excess of the Ownership Limitation, (ii) result in
Shares being owned by fewer than 100 persons (determined without reference to
any rules of attribution), (iii) result in the Company being "closely held"
within the meaning of section 856(h) of the Code, or (iv) cause the Company to
own, actually or constructively, 10% or more of the ownership interests in a
tenant of the Company's or the Operating Partnership's real property, within the
meaning of section 856(d)(2)(B) of the Code, will be null and void, and the
intended transferee will acquire no rights in such Shares.
Subject to certain exceptions described below, any purported transfer of
Shares that would (i) result in any person owning, directly or indirectly,
Shares in excess of the Ownership Limitation, (ii) result in the Shares being
owned by fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in the Company being "closely held" within the
meaning of section 856(h) of the Code, or (iv) cause the Company to own,
actually or constructively, 10% or more of the ownership interests in a tenant
of the Company's or the Operating Partnership's real property, within the
meaning of section 856(d)(2)(B) of the Code, will be designated as "Shares-in-
Trust" and will be transferred automatically to a trust (a "Trust"), effective
on the day before the purported transfer of such Shares. The record holder of
the Shares that are designated as Shares-in-Trust (the "Prohibited Owner") will
be required to submit such number of Shares to the Company for registration in
the name of the trustee of the Trust (the "Trustee"). The Trustee will be
designated by the Company, but will not be affiliated with the Company. The
beneficiary of a Trust (the "Beneficiary") will be one or more charitable
organizations named by the Company.
Shares-in-Trust will remain issued and outstanding Shares and will be
entitled to the same rights and privileges as all other shares of the same class
or series. The Trustee will receive all dividends and distributions on the
Shares-in-Trust and will hold such dividends or distributions in trust for the
benefit of the Beneficiary. The Trustee will vote all Shares-in-Trust. The
Trustee will designate a permitted transferee of the Shares-in-Trust, provided
that the permitted transferee (i) purchases such Shares-in-Trust for valuable
consideration and (ii) acquires such Shares-in-Trust without such acquisition
resulting in another transfer to another Trust.
The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Trustee the amount of any dividends or distributions received by
the Prohibited Owner (i) that are attributable to any Shares-in-Trust and (ii)
the record date of which was on or after the date that such shares became
Shares-in-Trust. WITHIN 20 DAYS OF RECEIVING NOTICE FROM THE COMPANY THAT
--------------------------------------------------------
SHARES OF THE COMPANY'S COMMON STOCK HAVE BEEN TRANSFERRED TO THE TRUST, THE
- ----------------------------------------------------------------------------
COMPANY SHALL, AT ITS SOLE OPTION, EITHER (I) REPURCHASE SUCH SHARES-IN-TRUST
- -----------------------------------------------------------------------------
FROM THE PROHIBITED OWNER, OR (II) CAUSE THE TRUSTEE TO SELL THE SHARES-IN-TRUST
- --------------------------------------------------------------------------------
ON BEHALF OF THE PROHIBITED OWNER TO A THIRD PARTY (THE "OPTION"). The
- ------------------------------------------------------------------
Prohibited Owner SHALL receive from the Trustee the lesser of (i) the price
-----
per share IN THE TRANSACTION THAT CREATED SUCH Shares-in-Trust (or, in the
------------------------------------
case of a gift or devise, the Market Price (as defined below) per share on the
date of such transfer) or (ii) the MARKET PRICE PER SHARE ON THE DATE THAT THE
-------------------------------------------
COMPANY, OR ITS DESIGNEE, ACCEPTS SUCH OFFER. Any amounts received by the
- --------------------------------------------
Trustee in excess of the amounts
50
<PAGE>
to be paid to the Prohibited Owner will be distributed to the Beneficiary. SUCH
----
PURCHASE PRICE AMOUNT SHALL BE SENT TO THE PROHIBITED OWNER WITHIN FIVE BUSINESS
- --------------------------------------------------------------------------------
DAYS FROM THE CLOSE OF SUCH SALE TRANSACTION.
- --------------------------------------------
IN CONNECTION WITH THE OPTION DESCRIBED ABOVE, THE Shares-in-Trust will
--------------------------------------------------
be deemed to have been offered for sale to the Company, or its designee. The
Company will have the right to accept such offer for a period of 20 days after
--
the later of (i) the date of the purported transfer which resulted in such
Shares-in-Trust or (ii) the date the Company determines in good faith that a
transfer resulting in such Shares-in-Trust occurred.
"Market Price" on any date shall mean the average of the Closing Price for
the five consecutive Trading Days ending on such date. The "Closing Price" on
any date shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the Shares are not listed or admitted to trading on
the NYSE, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Shares are listed or admitted to trading or, if the Shares are not
listed or admitted to trading on any national securities exchange, the last
quoted price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotations system that may then be
in use or, if the Shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Shares selected by the Board of Directors, or, if no such
market maker exists, as determined in good faith by the Board of Directors.
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Shares are listed or admitted to trading is open for the
transaction of business or, if the Shares are not listed or admitted to trading
on any national securities exchange, shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
Any person who (A) acquires Shares in violation of the foregoing
---
restrictions or who owned Shares that were transferred to a Trust IS
--
required to give immediately written notice to the Company of such event,
-
AND (B) TRANSFERS OR RECEIVES (OR ATTEMPTS TO TRANSFER OR RECEIVE) SHARES
- -------------------------------------------------------------------------
SUBJECT TO SUCH LIMITATIONS IS REQUIRED TO GIVE THE COMPANY AT LEAST 15 DAYS
- ----------------------------------------------------------------------------
WRITTEN NOTICE PRIOR TO SUCH TRANSACTION, AND IN BOTH CASES SUCH PERSONS SHALL
- ------------------------------------------------------------------------------
provide to the Company such other information as the Company may request in
order to determine the effect, if any, of such transfer on the Company's status
as a REIT.
All persons who own, directly or indirectly, more than 5% (or such lower
percentages as required pursuant to regulations under the Code) of the
outstanding Shares must, within 30 days after January 1 of each year, provide to
the Company a written statement or affidavit stating (i) the name and address of
such direct or indirect owner, (ii) the number of Shares owned directly or
indirectly, and (iii) a description of how such shares are held. In addition,
each direct or indirect shareholder shall provide to the Company such additional
information as the Company may request in order to determine the effect, if any,
of such ownership on the Company's status as a REIT and to ensure compliance
with the Ownership Limitation.
The Ownership Limitation generally will not apply to the acquisition of
Shares by an underwriter that participates in a public offering of such shares.
In addition, the Board of Directors, upon receipt of a ruling from the Service
or an opinion of counsel and upon such other conditions as the Board of
Directors may direct, may exempt a person from the Ownership Limitation under
certain circumstances. The foregoing restrictions will continue to apply until
(i) the Board of Directors determines that it is no longer in the best interests
of the Company to attempt to qualify, or to continue to qualify, as a REIT and
(ii) there is an affirmative vote of a majority of the number of Shares entitled
to vote on such matter at a regular or special meeting of the shareholders of
the Company.
All certificates representing Shares will bear a legend referring to the
restrictions described above.
51
<PAGE>
The Ownership Limitation could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of the Shares
might receive a premium from their Shares over the then prevailing market price
or which such holders might believe to be otherwise in their best interest.
Number of Directors; Removal; Filling Vacancies
The Articles of Incorporation and Bylaws provide that the number of
directors will consist of not less than [3] nor more than 15 persons, subject to
increase or decrease by the affirmative vote of 80% of the members of the entire
Board of Directors. At all times a majority of the directors shall be
Independent Directors, except that upon the death, removal or resignation of an
Independent Director, such requirement shall not be applicable for 90 days.
--
Upon completion of the Offering, there will be five directors, three of whom
shall be Independent Directors. The shareholders shall be entitled to vote on
the election or removal of directors, with each share entitled to one vote. The
ARTICLES OF INCORPORATION provide that, subject to any rights of holders of
- -------------------------
any class of preferred stock, and unless the Board of Directors otherwise
determines, any vacancies will be filled by the affirmative vote of a majority
of the remaining directors, though less than a quorum, provided that Independent
Directors shall nominate and approve directors to fill vacancies created by
Independent Directors. Accordingly, the Board of Directors could temporarily
prevent any shareholder from enlarging the Board of Directors and filling the
new directorships with such shareholder's own nominees. Any directors so
elected shall hold office until the next annual meeting of shareholders.
A director may be removed with or without cause by the vote of the holders
of A MAJORITY of the outstanding shares of capital stock entitled to vote for
----------
the election of directors at a special meeting of the shareholders called for
the purpose of removing such director.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The MGCL permits a Maryland corporation to include in its Articles of
Incorporation a provision limiting the liability of its directors and officers
to the corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action.
SUBJECT TO THE CONDITIONS SET FORTH BELOW, THE Articles of Incorporation
----------------------------------------------
PROVIDES THAT THE COMPANY SHALL INDEMNIFY AND HOLD HARMLESS A DIRECTOR,
- -----------------------------------------------------------------------
ADVISOR OR AFFILIATE AGAINST ANY OR ALL LOSSES OR LIABILITIES REASONABLY
- ------------------------------------------------------------------------
INCURRED BY SUCH DIRECTOR, ADVISOR OR AFFILIATE IN CONNECTION WITH OR BY REASON
- -------------------------------------------------------------------------------
OF ANY ACT OR OMISSION PERFORMED OR OMITTED TO BE PERFORMED ON BEHALF OF THE
- ----------------------------------------------------------------------------
COMPANY IN SUCH CAPACITY.
- -------------------------
UNDER THE COMPANY'S Articles of Incorporation, THE COMPANY SHALL NOT
------------------- -----------------------
INDEMNIFY ITS DIRECTORS, ADVISOR OR ANY AFFILIATE FOR ANY LIABILITY OR LOSS
- ---------------------------------------------------------------------------
SUFFERED BY THE DIRECTORS, ADVISORS OR AFFILIATES, NOR SHALL IT PROVIDE THAT THE
- --------------------------------------------------------------------------------
DIRECTORS, ADVISORS OR AFFILIATES BE HELD HARMLESS FOR ANY LOSS OR LIABILITY
- ----------------------------------------------------------------------------
SUFFERED BY THE COMPANY, UNLESS ALL OF THE FOLLOWING CONDITIONS ARE MET: (I) THE
- --------------------------------------------------------------------------------
DIRECTORS, ADVISOR OR AFFILIATES HAVE DETERMINED, IN GOOD FAITH, THAT THE COURSE
- --------------------------------------------------------------------------------
OF CONDUCT WHICH CAUSED THE LOSS OR LIABILITY WAS IN THE BEST INTERESTS OF THE
- ------------------------------------------------------------------------------
COMPANY; (II) THE DIRECTORS, ADVISOR OR AFFILIATES WERE ACTING ON BEHALF OF OR
- ------------------------------------------------------------------------------
PERFORMING SERVICES OF THE COMPANY; (III) SUCH LIABILITY OR LOSS WAS NOT THE
- ----------------------------------------------------------------------------
RESULT OF (A) NEGLIGENCE OR MISCONDUCT BY THE DIRECTORS, EXCLUDING THE
- ----------------------------------------------------------------------
INDEPENDENT DIRECTORS, ADVISORS OR AFFILIATES; OR (B) GROSS NEGLIGENCE OR
- -------------------------------------------------------------------------
WILLFUL MISCONDUCT BY THE INDEPENDENT DIRECTORS; (IV) SUCH INDEMNIFICATION OR
- -----------------------------------------------------------------------------
AGREEMENT TO HOLD HARMLESS IS RECOVERABLE ONLY OUT OF THE COMPANY'S NET ASSETS
- ------------------------------------------------------------------------------
AND NOT FROM SHAREHOLDERS. NOTWITHSTANDING THE FOREGOING, THE DIRECTORS,
- -------------------------------------------------------------------------
ADVISORS OR AFFILIATES AND ANY PERSONS ACTING AS A BROKER-DEALER SHALL NOT BE
- -----------------------------------------------------------------------------
INDEMNIFIED BY THE COMPANY FOR ANY LOSSES, LIABILITY OR EXPENSES ARISING FROM OR
- --------------------------------------------------------------------------------
OUT OF AN ALLEGED VIOLATION OF FEDERAL OR STATE SECURITIES LAWS BY SUCH PARTY
- -----------------------------------------------------------------------------
UNLESS ONE OR MORE OF THE FOLLOWING CONDITIONS ARE MET: (I) THERE HAS BEEN A
- ----------------------------------------------------------------------------
SUCCESSFUL ADJUDICATION ON THE MERITS OF EACH COUNT INVOLVING ALLEGED SECURITIES
- --------------------------------------------------------------------------------
LAW VIOLATIONS AS TO THE PARTICULAR INDEMNITEE; (II) SUCH CLAIMS HAVE BEEN
- --------------------------------------------------------------------------
DISMISSED WITH PREJUDICE ON THE MERITS BY A COURT OF COMPETENT JURISDICTION AS
- ------------------------------------------------------------------------------
TO THE PARTICULAR INDEMNITEE; (III) A COURT OF COMPETENT JURISDICTION APPROVES A
- --------------------------------------------------------------------------------
SETTLEMENT OF THE CLAIMS AGAINST A PARTICULAR INDEMNITEE AND FINDS THAT
- -----------------------------------------------------------------------
INDEMNIFICATION OF THE SETTLEMENT AND
- -------------------------------------
52
<PAGE>
THE RELATED COSTS SHOULD BE MADE, AND THE COURT CONSIDERING THE REQUEST FOR
- ---------------------------------------------------------------------------
INDEMNIFICATION HAS BEEN ADVISED OF THE POSITION OF THE SEC AND OF THE PUBLISHED
- --------------------------------------------------------------------------------
POSITION OF ANY STATE SECURITIES REGULATORY AUTHORITY IN WHICH SECURITIES OF THE
- --------------------------------------------------------------------------------
COMPANY WERE OFFERED OR SOLD AS TO INDEMNIFICATION FOR VIOLATIONS OF SECURITIES
- -------------------------------------------------------------------------------
LAWS.
- -----
The Articles of Incorporation PROVIDES THAT THE ADVANCEMENT OF COMPANY
----------------------------------------
FUNDS TO THE DIRECTORS, ADVISORS OR AFFILIATES FOR LEGAL EXPENSES AND OTHER
- ---------------------------------------------------------------------------
COSTS INCURRED AS A RESULT OF ANY LEGAL ACTION FOR WHICH INDEMNIFICATION IS
- ---------------------------------------------------------------------------
BEING SOUGHT IS PERMISSIBLE ONLY IF ALL OF THE FOLLOWING CONDITIONS ARE
- -----------------------------------------------------------------------
SATISFIED: (I) THE LEGAL ACTION RELATES TO ACTS OR OMISSIONS WITH RESPECT TO THE
- --------------------------------------------------------------------------------
PERFORMANCE OF DUTIES OR SERVICES ON BEHALF OF THE COMPANY; (II) THE LEGAL
- --------------------------------------------------------------------------
ACTION IS INITIATED BY A THIRD PARTY WHO IS NOT A SHAREHOLDER OR THE LEGAL
- --------------------------------------------------------------------------
ACTION IS INITIATED BY A SHAREHOLDER ACTING IN HIS OR HER CAPACITY AS SUCH AND A
- --------------------------------------------------------------------------------
COURT OF COMPETENT JURISDICTION SPECIFICALLY APPROVES SUCH ADVANCEMENT; (III)
- -----------------------------------------------------------------------------
THE DIRECTORS, ADVISOR OR AFFILIATES UNDERTAKE TO REPAY THE ADVANCED FUNDS TO
- -----------------------------------------------------------------------------
THE COMPANY TOGETHER WITH THE APPLICABLE LEGAL RATE OF INTEREST THEREON, IN
- ---------------------------------------------------------------------------
CASES IN WHICH SUCH DIRECTORS, ADVISOR OR AFFILIATES ARE FOUND NOT TO BE
- ------------------------------------------------------------------------
ENTITLED TO INDEMNIFICATION.
- ----------------------------
The MGCL requires a Maryland corporation (unless its Articles of
Incorporation provide otherwise, which the Company's Articles of Incorporation
DO not) to indemnify a director or officer who has been successful, on the
- --
merits or otherwise, in the defense of any proceeding to which he is made a
party by reason of his service in that capacity. The MGCL permits a Maryland
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, UNDER THE MGCL a Maryland corporation may not indemnify for
--------------
an adverse judgment in a suit by or in the right of the corporation OR FOR A
--------
JUDGMENT OF LIABILITY ON THE BASIS THAT PERSONAL BENEFIT WAS IMPROPERLY
- -----------------------------------------------------------------------
RECEIVED, UNLESS IN EITHER CASE A COURT ORDERS INDEMNIFICATION AND THEN ONLY FOR
- --------------------------------------------------------------------------------
EXPENSES. In addition, the MGCL PERMITS A CORPORATION TO ADVANCE REASONABLE
- -------- -------------------------------------------
EXPENSES TO A DIRECTOR OR OFFICER UPON THE CORPORATION'S RECEIPT OF (a) a
- -------------------------------------------------------------------
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (b) a written UNDERTAKING by or on his behalf to
-----------
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met. Indemnification under the
provisions of the MGCL is not deemed exclusive of any other rights, by
indemnification or otherwise, to which an officer or director may be entitled
under the Company's Articles of Incorporation or Bylaws, or under resolutions of
stockholders or directors, contract or otherwise. It is the position of the
Commission that indemnification of directors an officers for liabilities arising
under the Securities Act is against public policy and is unenforceable pursuant
to Section 14 of the Securities Act.
The Company INTENDS TO purchased and MAINTAIN insurance on behalf of
---------- --------
all of its directors and executive officers against liability asserted against
or incurred by them in their official capacities with the Company, whether or
not the Company is required or has the power to indemnify them against the same
liability.
CAUSES OF ACTION RESULTING FROM VIOLATIONS OF FEDERAL OR STATE SECURITIES
-------------------------------------------------------------------------
LAW SHALL BE GOVERNED BY SUCH LAW.
- ----------------------------------
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of such corporation's shares or an affiliate of such corporation who, at any
time WITHIN the two-year period prior to the date in question, was the
------
beneficial owner of 10% or more of the voting power of the then-outstanding
voting shares of such corporation (an "Interested Stockholder") or an affiliate
thereof, are prohibited for five years after the most recent date on which
-
53
<PAGE>
the Interested Stockholder became an Interested Stockholder. Thereafter, any
such business combination must be recommended by the board of directors of such
corporation and approved by the affirmative vote of at least (a) 80% of the
votes entitled to be cast by holders of outstanding shares of VOTING STOCK
------------
OF THE corporation and (b) two-thirds of the votes entitled to be cast by
- ------
holders of voting shares of such corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the corporation's
COMMON stockholders receive a minimum price (as defined in the MGCL) for their
- ------
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. These provisions
of the MGCL do not apply, however, to business combinations that are approved or
exempted by the board of directors of the corporation prior to the time that the
Interested Stockholder becomes an Interested Stockholder.
CONTROL SHARE ACQUISITION STATUTE
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquiror, by officers or by directors who are
employees of the corporation. "Control Shares" are voting shares which, if
aggregated with all other such shares previously acquired by the acquiror, or in
respect of which the acquiror is able to exercise or direct the exercise of
voting power (except solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power: (i) one-fifth or more but less than one-
third, (ii) one-third or more but less than a majority, or (iii) a majority or
more of all voting power. Control Shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share
acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange, if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the Articles of
Incorporation or bylaws of the corporation.
The ARTICLES OF INCORPORATION AND Bylaws of the Company contain a provision
-----------------------------
exempting from the control share acquisition statute any and all acquisitions by
any person of the Company's CAPITAL stock. There can be no assurance that
-------
such provision will not be amended or eliminated at any time in the future.
AMENDMENT TO THE ARTICLES OF INCORPORATION
The Articles of Incorporation of the Company may be amended by the
affirmative vote BY HOLDERS OF A MAJORITY OF THE SHARES THEN OUTSTANDING AND
-----------------------------------------------------------
ENTITLED TO VOTE THEREON, WITHOUT THE CONCURRENCE OF THE BOARD OF DIRECTORS,
- ----------------------------------------------------------------------------
provided, however, (i) NO AMENDMENT MAY BE MADE WHICH WOULD CHANGE ANY RIGHTS
------------------------------------------------------
WITH RESPECT TO ANY OUTSTANDING CLASS OF SECURITIES BY REDUCING THE AMOUNT
- --------------------------------------------------------------------------
PAYABLE THEREON UPON LIQUIDATION OR BY
- ---------------------------------------
54
<PAGE>
DIMINISHING OR ELIMINATING ANY VOTING RIGHTS PERTAINING THERETO; (II) THE
- -------------------------------------------------------------------------
PROVISIONS PERTAINING TO AMENDING THE ARTICLES OF INCORPORATION AND
- -------------------------------------------------------------------
REORGANIZATIONS SHALL NOT BE AMENDED, (III) no term or provision of the Articles
- -------------------------------------------
of Incorporation may be added, amended or repealed in any respect that would, in
the determination of the Board of Directors, cause the Company not to qualify as
a REIT under the Code, (IV) certain provisions of the Articles of
----
Incorporation, including provisions relating to the removal of directors,
Independent Directors, preemptive rights of holders of stock and the
indemnification and limitation of liability of officers and directors may not be
amended or repealed and (V) provisions imposing cumulative voting in the
---
election of directors may not be added to the Articles of Incorporation, unless,
in each such case, such action is approved by the affirmative vote of the
holders of not less than A MAJORITY of all the votes entitled to be cast
----------
THEREON. THE BOARD OF DIRECTORS MAY AMEND THE ARTICLES OF INCORPORATION (WITHOUT
- --------------------------------------------------------------------------------
THE CONCURRENCE BY THE STOCKHOLDERS) ONLY TO ENABLE THE COMPANY TO QUALIFY AS A
- -------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST UNDER THE CODE.
- --------------------------------------------
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than a majority of all of the votes entitled to be cast
on the matter. Under the Articles of Incorporation, the Company will
automatically terminate and dissolve on __________, 2007 (ten years after the
initial date of this Prospectus), unless the Listing occurs, in which event the
Company will automatically become a perpetual life entity.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only (i) pursuant to the Company's notice of the meeting, (ii) by OR AT THE
---------
DIRECTION OF the Board of Directors or (iii) by a stockholder who is entitled to
- ------------
vote at the meeting and has complied with the advance notice procedures set
forth in the Bylaws and (b) with respect to special meetings of stockholders,
only the business specified in the Company's notice of meeting may be brought
before the meeting of stockholders and nominations of persons for election to
the Board of Directors may be made only (i) pursuant to the Company's notice of
the meeting, (ii) by OR AT THE DIRECTION OF the Board of Directors or (iii)
----------------------
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by a stockholder who is entitled to vote at the meeting
and has complied with the advance notice provisions set forth in the
Bylaws.
MEETING OF STOCKHOLDERS
The Company's Bylaws provide that annual meetings of stockholders shall be
held on a date and at the time set by the Board of Directors. THE BOARD OF
---------------
DIRECTORS (INCLUDING THE INDEPENDENT DIRECTORS) WILL TAKE REASONABLE STEPS TO
- -----------------------------------------------------------------------------
ENSURE THAT THE ANNUAL STOCKHOLDERS MEETING SHALL BE SET WITHIN A REASONABLE
- ----------------------------------------------------------------------------
PERIOD (NOT LESS THAN 30 DAYS) FOLLOWING DELIVERY OF THE ANNUAL REPORT. Special
- ----------------------------------------------------------------------
meetings of the stockholders may be called by (i) the President of the Company,
(ii) the Chief Executive Officer or (iii) the Board of Directors. As permitted
by the MGCL, the Bylaws of the Company provide that special meetings must be
called by the Secretary of the Company upon the written request of the holders
of shares entitled to cast not less than a majority of all votes entitled to be
cast at the meeting.
OPERATIONS
The Articles of Incorporation require the Board of Directors generally to
use ITS BEST efforts to cause the Company to qualify as a REIT. ALTHOUGH THE
-------- ------------
COMPANY HAS OPTED TO NOT BE GOVERNED BY MARYLAND'S business combination AND
- -------------------------------------------------- ---
control share acquisition STATUTES, IF THE COMPANY'S Articles of Incorporation
--------------------------
AND BYLAWS ARE AMENDED TO INCLUDE THEM, SUCH provisions of the MGCL could
- -------------------------------------------- ----
delay, defer or prevent a transaction or a change in control of the Company that
might involve a premium price for holders of Shares or otherwise be in their
best interests.
55
<PAGE>
INSPECTION OF BOOKS AND RECORDS
The Advisor will keep, or cause to be kept, on behalf of the Company, full
and true books of account on an accrual basis of accounting, in accordance with
generally accepted accounting principles. All of such books of account,
together with all other records of the Company, including a copy of the Articles
of Incorporation and any amendments thereto, will at all times be maintained at
the principal office of the Company, and will be open to inspection,
examination, and, for a reasonable charge, duplication upon reasonable notice
and during normal business hours by a stockholder or his agent.
As a part of its books and records, the Company will maintain at its
principal office an alphabetical list of names of stockholders, along with their
addresses and telephone numbers and the number of Shares held by each
stockholder. Such list shall be updated at least quarterly and shall be
available for inspection at the Company's home office by a stockholder or his or
her designated agent upon such stockholder's request. Such list also shall be
mailed to any stockholder requesting the list within 10 days of a request. The
Company may require the stockholder requesting the stockholder list to represent
that THE LIST IS NOT REQUESTED FOR A COMMERCIAL PURPOSE UNRELATED TO THE
-------------------------------------------------------------------
STOCKHOLDER'S INTEREST IN THE COMPANY AND THAT he or she will not make any
- ----------------------------------------------
commercial distribution of such list or the information disclosed through such
inspection. The Company may impose a reasonable charge for expenses incurred in
reproducing such list. The list may not be sold or used for commercial
purposes.
RESTRICTIONS ON "ROLL-UP" TRANSACTIONS
In connection with a proposed "Roll-Up Transaction," which, in general
terms, is any transaction involving the acquisition, merger, conversion, or
consolidation, directly or indirectly, of the Company and the issuance of
securities of an entity that would be created or would survive after the
successful completion of the Roll-Up Transaction (a "Roll-Up Entity"), an
appraisal of all of the Company's properties shall be obtained from an
independent appraiser. In order to qualify as an independent appraiser for this
purpose(s), the person or entity shall have no material current or prior
business or personal relationship with the Advisor or Directors and shall be
engaged to a substantial extent in the business of rendering opinions regarding
the value of assets of the type held by the Company. The Company's properties
shall be appraised on a consistent basis, and the appraisal shall be based on
the evaluation of all relevant information and shall indicate the value of the
Company's properties as of a date immediately prior to the announcement of the
proposed Roll-Up Transaction. The appraisal shall assume an orderly liquidation
of properties over a 12-month period. The terms of the engagement of such
Independent Expert shall clearly state that the engagement is for the benefit of
the Company and the stockholders. A summary of the independent appraisal,
indicating all material assumptions underlying the appraisal, shall be included
in a report to stockholders in connection with a proposed Roll-Up Transaction.
In connection with a proposed Roll-Up Transaction, the person sponsoring the
Roll-Up Transaction shall offer to stockholders who vote against the proposal
the choice of:
(i) accepting the securities of the Roll-Up Entity offered in the proposed
Roll-Up Transaction; or
(ii) one of the following:
a. remaining stockholders of the Company and preserving their
interests therein on the same terms and conditions as existed
previously; or
(B) receiving cash in an amount equal to the stockholder's pro
rata share of the appraised value of the net assets of the Company.
The Company is prohibited from participating in any proposed Roll-Up
Transaction:
(i)<*> which would result in the stockholders having democracy rights in
the Roll-Up Entity that are less than those provided in the Company's Articles
of Incorporation and described elsewhere in this Prospectus,
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including rights with respect to the election and removal of Directors, annual
reports, annual and special meetings, amendment of the Articles of
Incorporation, and dissolution of the Company;
(ii) which includes provisions that would operate as a material impediment
to, or frustration of, 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), or which would limit the ability
of an investor to exercise the voting rights of its securities of the Roll-Up
Entity on the basis of the number of shares held by that investor;
(iii) in which investor's rights to access of records of the Roll-Up
Entity will be less than those provided in the Company's Articles of
Incorporation and described in "Inspection of Books and Records," above; or
(iv) in which any of the costs of the Roll-Up Transaction would be
borne by the Company if the Roll-Up Transaction is not approved by the
stockholders.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material federal income tax considerations
that may be relevant to a prospective holder of Shares in the Company. Hunton &
Williams has acted as counsel to the Company and has reviewed this summary and
is of the opinion that it fairly summarizes the federal income tax
considerations that will be material to a holder of Shares. The discussion
contained herein does not address all aspects of taxation that may be relevant
to particular shareholders in light of their personal investment or tax
circumstances, or to certain types of shareholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations, and persons who are not citizens or residents of the
United States) subject to special treatment under the federal income tax laws.
The statements in this discussion and the opinion of Hunton & Williams are
based on current provisions of the Code, existing, temporary, and currently
proposed Treasury Regulations promulgated under the Code, the legislative
history of the Code, existing administrative rulings and practices of the
Service, and judicial decisions. No assurance can be given that future
legislative, judicial, or administrative actions or decisions, which may be
retroactive in effect, will not affect the accuracy of any statements in this
Prospectus with respect to the transactions entered into or contemplated prior
to the effective date of such changes.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP, AND
SALE OF SHARES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT, INCLUDING
THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
The Company currently has in effect an election to be taxed as a pass-
through entity under Subchapter S of the Code, but intends to revoke its S
election on the day prior to the date on which the Offering commences. The
Company plans to make an election to be taxed as a REIT under sections 856
through 860 of the Code, effective for its short taxable year beginning on the
day prior to the date on which the Offering commences and ending on December 31,
1997. The Company believes that, commencing with such taxable year, it will be
organized and will operate in such a manner as to qualify for taxation as a REIT
under the Code, and the Company intends to continue to operate in such a manner,
but no assurance can be given that the Company will operate in a manner so as to
qualify or remain qualified as a REIT.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.
Hunton & Williams has acted as counsel to the Company in connection with
the Offering and the Company's election to be taxed as a REIT. In the opinion
of Hunton & Williams, assuming that the elections and other procedural steps
described in this discussion of "Federal Income Tax Considerations" are
completed by the Company in a timely fashion, the Company's organization and
proposed method of operation will enable it to qualify to be taxed as a REIT
under the Code commencing with the Company's short taxable year beginning the
day prior to the date on which the Offering commences and ending December 31,
1997, and for its future taxable years. Investors should be aware, however,
that opinions of counsel are not binding upon the Service or any court. It must
be emphasized that Hunton & Williams' opinion is based on various assumptions
and is conditioned upon certain representations made by the Company as to
factual matters, including representations regarding the nature of the Company's
properties and the future conduct of its business. Such factual assumptions and
representations
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are described below in this discussion of "Federal Income Tax Considerations"
and are set out in the federal income tax opinion that has been delivered by
Hunton & Williams. Moreover, such qualification and taxation as a REIT depends
upon the Company's ability to meet on a continuing basis, through actual annual
operating results, distribution levels, and share ownership, the various
qualification tests imposed under the Code discussed below. Hunton & Williams
will not review the Company's compliance with those tests on a continuing basis.
Accordingly, no assurance can be given that the actual results of the Company's
operations for any particular taxable year will satisfy such requirements. For a
discussion of the tax consequences of failure to qualify as a REIT, see "Failure
to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is distributed
currently to its shareholders. That treatment substantially eliminates the
"double taxation" (i.e., taxation at both the corporate and shareholder levels)
that generally results from investment in a corporation. However, the Company
will be subject to federal income tax in the following circumstances. First,
the Company will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax" on its undistributed items of tax preference, if any. Third, if the
Company has (i) net income from the sale or other disposition of "foreclosure
property" that is held primarily for sale to customers in the ordinary course of
business or (ii) other nonqualifying income from foreclosure property, it will
be subject to tax at the highest corporate rate on such income. Fourth, if the
Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property (other than foreclosure
property) held primarily for sale to customers in the ordinary course of
business), such income will be subject to a 100% tax. Fifth, if the Company
should fail to satisfy the 75% gross income test or the 95% gross income test
(as discussed below), and nonetheless has maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which the
Company fails the 75% or 95% gross income test. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
the Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, the Company may
elect to retain and pay income tax on the net long-term capital gain it receives
in a taxable year. Finally, if the Company acquires any asset from a C
corporation (i.e., a corporation generally subject to full corporate-level tax)
in a transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other asset) in the
hands of the C corporation and the Company recognizes gain on the disposition of
such asset during the 10-year period beginning on the date on which such asset
was acquired by the Company, then to the extent of such asset's "built-in-gain"
(i.e., the excess of the fair market value of such asset at the time of
acquisition by the Company over the adjusted basis in such asset at such time),
such gain will be subject to tax at the highest regular corporate rate
applicable (as provided in Treasury Regulations that have not yet been
promulgated). The results described above with respect to the recognition of
"built-in-gain" assume that the Company will make an election pursuant to IRS
Notice 88-19 if it were to make any such acquisition.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust, or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding shares of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of each taxable year (the "5/50 Rule");
(vii) that makes an election to be a REIT (or has made such election for a
previous taxable year) and satisfies all relevant filing and other
administrative requirements established by the Service that must be met in order
to elect and maintain REIT status; (viii) that uses a calendar year for federal
income tax purposes and complies with the recordkeeping requirements of the Code
and Treasury Regulations promulgated thereunder; and (ix) that meets certain
other tests, described below, regarding the nature of its income and assets.
The Code provides that conditions (i) to (iv),
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inclusive, must be met during the entire taxable year and that condition (v)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (v) and
(vi) will not apply until after the first taxable year for which an election is
made by the Company to be taxed as a REIT. For purposes of determining stock
ownership under the 5/50 Rule, a supplemental unemployment compensation benefits
plan, a private foundation, or a portion of a trust permanently set aside or
used exclusively for charitable purposes generally is considered an individual.
A trust that is a qualified trust under Code section 401(a), however, generally
is not considered an individual and beneficiaries of such trust are treated as
holding shares of a REIT in proportion to their actuarial interests in such
trust for purposes of the 5/50 Rule.
The Company anticipates issuing sufficient Shares with sufficient diversity
of ownership pursuant to the Offering to allow it to satisfy requirements (v)
and (vi) after its 1997 taxable year. In addition, the Company's Articles of
Incorporation provide for restrictions regarding transfer of Shares that are
intended to assist the Company in continuing to satisfy the share ownership
requirements described in clauses (v) and (vi) above. Such transfer
restrictions are described in "Description of Capital Stock -- Articles of
Incorporation and Bylaw Provisions -- Restrictions on Ownership and Transfer."
The Company currently does not have any corporate subsidiaries, but may
have corporate subsidiaries in the future. Code section 856(i) provides that a
corporation that is a "qualified REIT subsidiary" will not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a "qualified REIT subsidiary" will be treated as
assets, liabilities, and items of income, deduction, and credit of the REIT. A
"qualified REIT subsidiary" is a corporation, all of the capital stock of which
is owned by the REIT. Thus, in applying the requirements described herein, any
qualified REIT subsidiaries of the Company will be ignored and all assets,
liabilities, and items of income, deduction, and credit of such subsidiaries
will be treated as assets, liabilities, and items of income, deduction, and
credit of the Company.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of section 856 of the Code, including satisfying the
gross income and asset tests described below. Thus, the Company's proportionate
share of the assets, liabilities and items of income of the Operating
Partnership will be treated as assets, liabilities and items of income of the
Company for purposes of applying the requirements described herein
Income Tests
In order for the Company to qualify and to maintain its qualification as a
REIT, two requirements relating to the Company's gross income must be satisfied
annually. First, at least 75% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must consist of
defined types of income derived directly or indirectly from investments relating
to real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or temporary investment
income. Second, at least 95% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
such real property or temporary investments, and from dividends, other types of
interest, and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing. The specific application of these tests to
the Company is discussed below.
The rent received by the Company from its tenants ("Rent") will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First, the amount of
rent must not be based, in whole or in part, on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Second, the Code provides
that rents received from a tenant will not qualify as "rents from real property"
in satisfying the gross income tests if the Company, or a direct or indirect
owner of 10% or more of the Company, directly or constructively owns 10% or more
of such tenant (a "Related Party Tenant"). Third, if rent attributable to
personal property, leased in connection with a lease
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of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for the Rent to qualify as
"rents from real property," the Company generally must not operate or manage its
properties or furnish or render services to the tenants of such properties,
other than through an "independent contractor" who is adequately compensated and
from whom the Company derives no revenue. The "independent contractor"
requirement, however, does not apply to the extent the services provided by the
Company are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered "rendered to the
occupant." In addition, The Company may render a de minimus amount of
noncustomary services to its tenants, or manage or operate property, as long as
the amount received with respect to the services or management does not exceed
1% of The Company's income from the property.
The Company has represented that it will not charge Rent for any portion of
any property that is based, in whole or in part, on the income or profits of any
person to the extent that the receipt of such Rent would jeopardize the
Company's status as a REIT. In addition, the Company has represented that, to
the extent that it receives Rent from a Related Party Tenant, such Rent will not
cause the Company to fail to satisfy either the 75% or 95% gross income test.
The Company also has represented that it will not allow the Rent attributable to
personal property leased in connection with any lease of real property to exceed
15% of the total Rent received under the lease, if the receipt of such Rent
would cause the Company to fail to satisfy either the 75% or 95% gross income
test.
The Company may provide certain services to its tenants. The Company
believes and has represented that all such services will be considered "usually
or customarily rendered" in connection with the rental of space for occupancy
only and will not otherwise be considered "rendered to the occupant," so that
the provision of such services will not jeopardize the qualification of the Rent
as "rents from real property." In the case of any services that are not "usual
and customary" under the foregoing rules, the Company intends to employ
qualifying independent contractors to provide such services to the extent that
the provision of such services would cause the Company to fail to satisfy either
the 75% or 95% gross income test.
If any portion of the Rent does not qualify as "rents from real property"
because the Rent attributable to personal property leased in connection with any
lease of real property exceeds 15% of the total Rent received under the lease
for a taxable year, the portion of the Rent that is attributable to personal
property will not be qualifying income for purposes of either the 75% or 95%
gross income test. Thus, if the Rent attributable to personal property, plus
any other income received by the Company during a taxable year that is not
qualifying income for purposes of the 95% gross income test, exceeds 5% of the
Company's gross income during such year, the Company likely would lose its REIT
status. If, however, any portion of the Rent received under a lease does not
qualify as "rents from real property" because either (i) the Rent is considered
based on the income or profits of any person or (ii) the tenant is a Related
Party Tenant, none of the Rent received by the Company under such lease would
qualify as "rents from real property." In that case, if the Rent received by
the Company under such lease, plus any other income received by the Company
during the taxable year that is not qualifying income for purposes of the 95%
gross income test, exceeds 5% of the Company's gross income for such year, the
Company likely would lose its REIT status. Finally, if any portion of the Rent
does not qualify as "rents from real property" because the Company furnishes
noncustomary services with respect to a property other than through a qualifying
independent contractor, and the amount received with respect to the services
exceeds 1% of The Company's income from the property, none of the Rent received
by the Company with respect to the related property would qualify as "rents from
real property." In that case, if the Rent received by the Company with respect
to the related property, plus any other income received by the Company during
the taxable year that is not qualifying income for purposes of the 95% gross
income test, exceeds 5% of the Company's gross income for such year, the Company
would lose its REIT status.
Based on the foregoing, Hunton & Williams is of the opinion that the Rent
will qualify as "rents from real property" for purposes of the 75% and 95% gross
income tests, and that the Company's proposed method of operation will enable it
to satisfy the 75% and 95% gross income tests. As described above, the opinion
of Hunton & Williams is based upon an analysis of all the facts and
circumstances and upon rulings and judicial decisions involving situations that
are considered to be analogous, as well as representations by the Company and
assumptions that are described above and set out in the federal income tax
opinion of Hunton & Williams that has
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been delivered to the Company. Opinions of counsel are not binding upon the
Service or any court. Accordingly, there can be no complete assurance that the
Service will not assert successfully a contrary position and, therefore, prevent
the Company from qualifying as a REIT.
In addition to the Rent, the Company's tenants will be required to pay
additional charges, such as late fees (the "Additional Charges"). To the extent
that the Additional Charges represent either (i) reimbursements of amounts that
a tenant is obligated to pay to third parties or (ii) penalties for nonpayment
or late payment of such amounts, the Additional Charges should qualify as "rents
from real property." To the extent that Additional Charges represent interest
that is accrued on the late payment of the Rent or Additional Charges, such
Additional Charges should be treated as interest that qualifies for the 95%
gross income test, but not the 75% gross income test.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Furthermore, to the extent that interest from a loan that is based on
the residual cash proceeds from sale of the property securing the loan
constitutes a "shared appreciation provision" (as defined in the Code), income
attributable to such participation feature will be treated as gain from the sale
of the secured property.
The net income derived from any prohibited transaction is subject to a 100%
tax. The term "prohibited transaction" generally includes a sale or other
disposition (whether by the Company or the Operating Partnership) of property
(other than foreclosure property) that is held primarily for sale to customers
in the ordinary course of a trade or business. The Company believes no asset
owned by the Company or the Operating Partnership will be held for sale to
customers and that a sale of any such asset will not be in the ordinary course
of business of the Company or the Operating Partnership. Whether property is
held "primarily for sale to customers in the ordinary course of a trade or
business" depends, however, on the facts and circumstances in effect from time
to time, including those related to a particular property. Nevertheless, the
Company will attempt to comply with the terms of safe-harbor provisions in the
Code prescribing when asset sales will not be characterized as prohibited
transactions. Complete assurance cannot be given, however, that the Company can
comply with the safe-harbor provisions of the Code or avoid owning property that
may be characterized as property held "primarily for sale to customers in the
ordinary course of a trade or business."
The Company will be subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualified
income under the 75% gross income test), less expenses directly connected with
the production of such income. However, gross income from such foreclosure
property will be qualifying income under the 75% and 95% gross income tests.
"Foreclosure property" is defined as any real property (including interests in
real property) and any personal property incident to such real property (i) that
is acquired by a REIT as the result of such REIT having bid in such property at
foreclosure, or having otherwise reduced such property to ownership or
possession by agreement or process of law, after there was a default (or default
was imminent) on a lease of such property or on an indebtedness that such
property secured and (ii) for which such REIT makes a proper election to treat
such property as foreclosure property. However, a REIT will not be considered
to have foreclosed on a property where such REIT takes control of the property
as a mortgagee-in-possession and cannot receive any profit or sustain any loss
except as a creditor of the mortgagor. Under the Code, property generally
ceases to be foreclosure property with respect to a REIT on the date that is two
years after the date such REIT acquired such property (or longer if an extension
is granted by the Secretary of the Treasury). The foregoing grace period is
terminated and foreclosure property ceases to be foreclosure property on the
first day (i) on which a lease is entered into with respect to such property
that, by its terms, will give rise to income that does not qualify under the 75%
gross income test or any amount is received or accrued, directly or indirectly,
pursuant to a lease entered into on or after such day that will give rise to
income that does not qualify under the 75% gross income test, (ii) on which any
construction takes place on such property (other than completion of a building,
or any other improvement, where more than 10% of the construction of such
building or other improvement was completed before default became imminent) or
(iii) which is more than 90 days after the day on which such
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property was acquired by the REIT and the property is used in a trade or
business that is conducted by the REIT (other than through an independent
contractor from whom the REIT itself does not derive or receive any income).
It is possible that, from time to time, the Company will enter into hedging
transactions with respect to one or more of its assets or liabilities. Any such
hedging transactions could take a variety of forms, including interest rate swap
contracts, interest rate cap or floor contracts, futures or forward contracts,
and options. To the extent that the Company enters into an interest rate swap
or cap contract to hedge any variable rate indebtedness incurred to acquire or
carry real estate assets, any periodic income or gain from the disposition of
such contract should be qualifying income for purposes of the 95% gross income
test, but not the 75% gross income test. To the extent that the Company hedges
with other types of financial instruments or in other situations, it may not be
entirely clear how the income from those transactions will be treated for
purposes of the various income tests that apply to REITs under the Code. The
Company intends to structure any hedging transactions in a manner that does not
jeopardize its status as a REIT.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it nevertheless may qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. Those relief
provisions generally will be available if the Company's failure to meet such
tests is due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of those relief provisions. As
discussed above in "Federal Income Tax Considerations -- Taxation of the
Company," even if those relief provisions apply, a 100% tax would be imposed on
the net income attributable to the greater of the amount by which the Company
fails the 75% or 95% gross income test.
Asset Tests
The Company, at the close of each quarter of each taxable year, also must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by cash or cash
items (including certain receivables), government securities, "real estate
assets," or, in cases where the Company raises new capital through stock or
long-term (at least five-year) debt offerings, temporary investments in stock or
debt instruments during the one-year period following the Company's receipt of
such capital. The term "real estate assets" includes interests in real
property, interests in mortgages on real property to the extent the principal
balance of a mortgage does not exceed the value of the associated real property,
and shares of other REITs. For purposes of the 75% asset test, the term
"interest in real property" includes an interest in land and improvements
thereon, such as buildings or other inherently permanent structures (including
items that are structural components of such buildings or structures), a
leasehold of real property, and an option to acquire real property (or a
leasehold of real property). Second, of the investments not included in the 75%
asset class, the value of any one issuer's securities owned by the Company may
not exceed 5% of the value of the Company's total assets and the Company may not
own more than 10% of any one issuer's outstanding voting securities (except for
its interests in the Operating Partnership and any qualified REIT subsidiary).
The Company has represented that (i) at least 75% of the value of its total
assets will be represented by real estate assets, cash and cash items (including
receivables), and government securities and (ii) it will not own (A) securities
of any one issuer the value of which exceeds 5% of the value of the Company's
total assets or (B) more than 10% of any one issuer's outstanding voting
securities (except for its interests in the Operating Partnership and any
qualified REIT subsidiary). In addition, the Company has represented that it
will not acquire or dispose, or cause the Operating Partnership to acquire or
dispose, of assets in the future in a way that would cause it to violate either
asset test. Based on the foregoing, Hunton & Williams is of the opinion that
the Company will satisfy both asset tests for REIT status.
If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied the asset tests at the close of the preceding calendar quarter
and (ii) the discrepancy between the value of the Company's assets and the asset
test requirements arose from changes in the market values of its assets and was
not wholly or partly caused by an acquisition of one or more
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nonqualifying assets. If the condition described in clause (ii) of the preceding
sentence were not satisfied, the Company still could avoid disqualification by
eliminating any discrepancy within 30 days after the close of the calendar
quarter in which it arose.
Distribution Requirements
The Company, in order to avoid corporate income taxation of the earnings it
distributes, is required to distribute with respect to each taxable year
dividends (other than capital gain dividends) to its shareholders in an
aggregate amount at least equal to (i) the sum of (A) 95% of its "REIT taxable
income" (computed without regard to the dividends paid deduction and its net
capital gain) and (B) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company timely files its
federal income tax return for such year and if paid on or before the first
regular dividend payment date after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at regular ordinary and capital gains corporate tax
rates. Furthermore, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% nondeductible excise tax on the excess of such required distribution over
the amounts actually distributed. The Company may elect to retain and pay
income on the net long-term capital gain it receives in a taxable year. Any
such retained capital gain will be treated as if it had been distributed to the
Company's shareholders for purposes of the 4% excise tax. The Company intends
to make timely distributions sufficient to satisfy the annual distribution
requirements.
It is possible that, from time to time, the Company may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of that income and deduction of such
expenses in arriving at its REIT taxable income. Further, it is possible that,
from time to time, the Company may be allocated a share of net capital gain
attributable to the sale of depreciated property that exceeds its allocable
share of cash attributable to that sale. Therefore, the Company may have less
cash than is necessary to meet its annual 95% distribution requirement or to
avoid corporate income tax or the excise tax imposed on certain undistributed
income. In such a situation, the Company may find it necessary to arrange for
short-term (or possibly long-term) borrowings or to raise funds through the
issuance of additional Shares.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirements for a year by paying "deficiency
dividends" to its shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Although the
Company may be able to avoid being taxed on amounts distributed as deficiency
dividends, it will be required to pay to the Service interest based upon the
amount of any deduction taken for deficiency dividends.
Recordkeeping Requirements
Pursuant to applicable Treasury Regulations, in order to be able to elect
to be taxed as a REIT, the Company must maintain certain records. In addition,
in order to avoid a penalty, the Company must request, on an annual basis,
certain information from its shareholders designed to disclose the actual
ownership of its outstanding shares. The Company intends to comply with such
requirements.
Partnership Anti-Abuse Rule
The U.S. Department of the Treasury has issued a final regulation (the
"Anti-Abuse Rule") under the partnership provisions of the Code (the
"Partnership Provisions") that authorizes the Service, in certain abusive
transactions involving partnerships, to disregard the form of the transaction
and recast it for federal tax purposes as the Service deems appropriate. The
Anti-Abuse Rule applies where a partnership is formed or utilized in connection
with a transaction (or series of related transactions) with a principal purpose
of substantially reducing the present value of the partners' aggregate federal
tax liability in a manner inconsistent with the intent of the
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Partnership Provisions. The Anti-Abuse Rule states that the Partnership
Provisions are intended to permit taxpayers to conduct joint business (including
investment) activities though a flexible arrangement that accurately reflects
the partners' economic agreement and clearly reflects the partners' income
without incurring any entity-level tax. The purposes for structuring a
transaction involving a partnership are determined based on all of the facts and
circumstances, including a comparison of the purported business purpose for a
transaction and the claimed tax benefits resulting from the transaction. A
reduction in the present value of the partners' aggregate federal tax liability
through the use of a partnership does not, by itself, establish inconsistency
with the intent of the Partnership Provisions.
The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partnership interest.
The limited partners of the partnership contribute real property assets to the
partnership, subject to liabilities that exceed their respective aggregate bases
in such property. In addition, some of the limited partners have the right,
beginning two years after the formation of the partnership, to require the
redemption of their limited partnership interests in exchange for cash or REIT
stock (at the REIT's option) equal to the fair market value of their respective
interests in the partnership at the time of the redemption. The example
concludes that the use of the partnership is not inconsistent with the intent of
the Partnership Provisions and, thus, cannot be recast by the Service. However,
the redemption rights associated with the OP Units will not conform in all
respects to the redemption rights contained in the foregoing example. Moreover,
the Anti-Abuse Rule is extraordinarily broad in scope and is applied based on an
analysis of all of the facts and circumstances. As a result, there can be no
assurance that the Service will not attempt to apply the Anti-Abuse Rule to the
Company. If the conditions of the Anti-Abuse Rule are met, the Service is
authorized to take appropriate enforcement action, including disregarding the
Operating Partnership for federal tax purposes or treating one or more of the
partners as nonpartners. Any such action potentially could jeopardize the
Company's status as a REIT.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to the Company's shareholders in any year
in which the Company fails to qualify will not be deductible by the Company nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income and, subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which the Company ceased to qualify as a REIT. It is
not possible to state whether in all circumstances the Company would be entitled
to such statutory relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such U.S. shareholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. As
used herein, the term "U.S. shareholder" means a holder of Shares that for U.S.
federal income tax purposes is (i) a citizen or resident of the U.S., (ii) a
corporation, partnership, or other entity created or organized in or under the
laws of the U.S. or of any political subdivision thereof, or (iii) an estate
whose income from sources without the United States is includible in gross
income for U.S. federal income tax purposes regardless of its connection with
the conduct of a trade or business within the United States, or (iv) any trust
with respect to which (A) a U.S. court is able to exercise primary supervision
over the administration of such trust and (B) one or more U.S. fiduciaries have
the authority to control all substantial decisions of the trust.
Distributions that are designated as capital gain dividends will be taxed
as long-term capital gains (to the extent they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period
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for which the shareholder has held his Shares. However, corporate shareholders
may be required to treat up to 20% of certain capital gain dividends as ordinary
income. The Company may elect to retain and pay income tax on the net long-term
capital gain if received in a taxable year. In that case, the Company's
shareholders would include in income as long-term capital gain their
proportionate Share of the Company's retained long-term capital gain. In
addition, the shareholders would be deemed to have paid their proportionate
Share of the tax paid by the Company, which amount would be credited or refunded
to the shareholders. Each shareholder's basis in his Shares would be increased
by the amount of the undistributed long-term capital gain included in the
shareholder's income, less the shareholder's Share of the tax paid by the
Company.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's Shares, but rather will reduce the adjusted
basis of such Shares. To the extent that such distributions in excess of current
and accumulated earnings and profits exceed the adjusted basis of a
shareholder's Shares, such distributions will be included in income as long-term
capital gain (or short-term capital gain if the Shares have been held for one
year or less), assuming the Shares are capital assets in the hands of the
shareholder. In addition, any distribution declared by the Company in October,
November, or December of any year and payable to a shareholder of record on a
specified date in any such month shall be treated as both paid by the Company
and received by the shareholder on December 31 of such year, provided that the
distribution is actually paid by the Company during January of the following
calendar year.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would be
carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of the Shares will not be treated as passive activity
income and, therefore, shareholders generally will not be able to apply any
"passive activity losses" (such as losses from certain types of limited
partnerships in which a shareholder is a limited partner) against such income.
In addition, taxable distributions from the Company generally will be treated as
investment income for purposes of the investment interest limitations. Capital
gains from the disposition of Shares (or distributions treated as such),
however, will be treated as investment income only if the shareholder so elects,
in which case such capital gains will be taxed at ordinary income rates. The
Company will notify shareholders after the close of the Company's taxable year
as to the portions of the distributions attributable to that year that
constitute ordinary income, return of capital, and capital gain.
TAXATION OF SHAREHOLDERS ON THE DISPOSITION OF THE SHARES
In general, any gain or loss realized upon a taxable disposition of Shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if such Shares have been held for more than one year and
otherwise as short-term capital gain or loss. However, any loss upon a sale or
exchange of Shares by a shareholder who has held such shares for six months or
less (after applying certain holding period rules), will be treated as a long-
term capital loss to the extent of distributions from the Company required to be
treated by such shareholder as long-term capital gain. All or a portion of any
loss realized upon a taxable disposition of Shares may be disallowed if other
Shares are purchased within 30 days before or after the disposition.
CAPITAL GAINS AND LOSSES
A capital asset generally must be held for more than one year in order for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is 39.6%.
The maximum tax rate on net capital gains applicable to individuals is 28% for
sales and exchanges of assets held for more than one year, but not more than 18
months, and 20% for sales and exchanges of assets held for more than 18 months.
Thus, the tax rate differential between capital gain and ordinary income for
individuals may be significant. In addition, the characterization of income as
capital or ordinary may affect the deductibility of capital losses. Capital
losses not offset by capital gains may be deducted against an individual's
ordinary income only up to a maximum annual amount of $3,000. Unused capital
losses may be carried forward. All net capital gain of a corporate taxpayer is
subject to tax at ordinary corporate rates. A corporate taxpayer can deduct
capital losses only to the extent of capital gains, with unused losses being
carried back three years and forward five years.
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INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Company will report to its U.S. shareholders and to the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules. A shareholder who does not provide the Company with
his correct taxpayer identification number also may be subject to penalties
imposed by the Service. Any amount paid as backup withholding will be
creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions to
any shareholders who fail to certify their nonforeign status to the Company.
The Service issued proposed regulations in April 1996 regarding the backup
withholding rules as applied to Non-U.S. shareholders. Those proposed
regulations would alter the current system of backup withholding compliance and
are proposed to be effective for distributions made after December 31, 1997.
See "-- Taxation of Non-U.S. shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the Service has issued a published
ruling that dividend distributions from a REIT to an exempt employee pension
trust do not constitute UBTI, provided that the shares of the REIT are not
otherwise used in an unrelated trade or business of the exempt employee pension
trust. Based on that ruling, amounts distributed by the Company to Exempt
Organizations generally should not constitute UBTI. However, if an Exempt
Organization finances its acquisition of Shares with debt, a portion of its
income from the Company will constitute UBTI pursuant to the "debt-financed
property" rules. Furthermore, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under paragraphs (7), (9),
(17), and (20), respectively, of Code section 501(c) are subject to different
UBTI rules, which generally will require them to characterize distributions from
the Company as UBTI. In addition, in certain circumstances, a pension trust
that owns more than 10% of the Company's shares is required to treat a
percentage of the dividends from the Company as UBTI (the "UBTI Percentage").
The UBTI Percentage is the gross income derived by the Company from an unrelated
trade or business (determined as if the Company were a pension trust) divided by
the gross income of the Company for the year in which the dividends are paid.
The UBTI rule applies to a pension trust holding more than 10% of the Company's
stock only if (i) the UBTI Percentage is at least 5%, (ii) the Company qualifies
as a REIT by reason of the modification of the 5/50 Rule that allows the
beneficiaries of the pension trust to be treated as holding shares of the
Company in proportion to their actuarial interests in the pension trust, and
(iii) either (A) one pension trust owns more than 25% of the value of the
Company's shares or (B) a group of pension trusts individually holding more than
10% of the value of the Company's shares collectively owns more than 50% of the
value of the Company's shares. Because the Ownership Limitation prohibits any
shareholder from owning more than 9.8% of the number of outstanding Shares or
more than 9.8% of the number of outstanding Shares of any class of preferred
stock, no pension trust should hold more than 10% of the value of the Company's
Shares.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Non-U.S. shareholders") are complex and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE SHARES, INCLUDING ANY REPORTING REQUIREMENTS.
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Distributions to Non-U.S. shareholders that are not attributable to gain
from sales or exchanges by the Company of U.S. real property interests and are
not designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions ordinarily
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in the Shares is treated as effectively
connected with the Non-U.S. Shareholder's conduct of a U.S. trade or business,
the Non-U.S. Shareholder generally will be subject to federal income tax at
graduated rates, in the same manner as U.S. shareholders are taxed with respect
to such distributions (and also may be subject to the 30% branch profits tax in
the case of a Non-U.S. Shareholder that is a non-U.S. corporation). The Company
expects to withhold U.S. income tax at the rate of 30% on the gross amount of
any such distributions made to a Non-U.S. Shareholder unless (i) a lower treaty
rate applies and any required form evidencing eligibility for that reduced rate
is filed with the Company or (ii) the Non-U.S. Shareholder files an IRS Form
4224 with the Company claiming that the distribution is effectively connected
income. The Service issued proposed regulations in April 1996 that would modify
the manner in which the Company complies with the withholding requirements.
Distributions in excess of current and accumulated earnings and profits of the
Company will not be taxable to a shareholder to the extent that such
distributions do not exceed the adjusted basis of the shareholder's Shares, but
rather will reduce the adjusted basis of such shares. To the extent that
distributions in excess of current and accumulated earnings and profits exceed
the adjusted basis of a Non-U.S. Shareholder's Shares, such distributions will
give rise to tax liability if the Non-U.S. Shareholder would otherwise be
subject to tax on any gain from the sale or disposition of his Shares, as
described below. Because it generally cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the entire amount of any
distribution normally will be subject to withholding at the same rate as a
dividend. However, amounts so withheld are refundable to the extent it is
determined subsequently that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
In August 1996, the U.S. Congress passed the Small Business Job Protection
Act of 1996, which requires the Company to withhold 10% of any distribution in
excess of its current and accumulated earnings and profits. Consequently,
although the Company intends to withhold at a rate of 30% on the entire amount
of any distribution, to the extent that the Company does not do so, any portion
of a distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, distributions attributable to gain from sales of U.S. real property
interests are taxed to a Non-U.S. Shareholder as if such gain were effectively
connected with a U.S. business. Non-U.S. shareholders thus would be taxed at
the normal capital gain rates applicable to U.S. shareholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Distributions subject to FIRPTA also
may be subject to the 30% branch profits tax in the hands of a non-U.S.
corporate shareholder not entitled to treaty relief or exemption. The Company is
required to withhold 35% of any distribution that is designated by the Company
as a capital gains dividend. The amount withheld is creditable against the Non-
U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by non-U.S. persons. However, no assurance can be given that the
Company will be a "domestically controlled REIT." Furthermore, gain not subject
to FIRPTA will be taxable to a Non-U.S. Shareholder if (i) investment in Shares
is effectively connected with the Non-U.S. Shareholder's U.S. trade or business,
in which case the Non-U.S. Shareholder will be subject to the same treatment as
U.S. shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is
a nonresident alien individual who was present in the U.S. for 183 days or more
during the taxable year and certain other conditions apply, in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains. If the gain on the sale of Shares were to be subject to taxation
under FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as
U.S. shareholders with respect to
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such gain (subject to applicable alternative minimum tax, a special alternative
minimum tax in the case of nonresident alien individuals, and the possible
application of the 30% branch profits tax in the case of non-U.S. corporations).
OTHER TAX CONSEQUENCES
The Company, the Operating Partnership, or the Company's shareholders may
be subject to state or local taxation in various state or local jurisdictions,
including those in which it or they own property, transact business, or reside.
The state and local tax treatment of the Company and its shareholders may not
conform to the federal income tax consequences discussed above. CONSEQUENTLY,
PROSPECTIVE SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
EFFECT OF STATE AND LOCAL TAX LAWS ON AN INVESTMENT IN THE COMPANY.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable to the Company's direct or indirect investment in the
Operating Partnership. The discussion does not cover state or local tax laws or
any federal tax laws other than income tax laws.
Classification as a Partnership
The Company will be entitled to include in its income its distributive
share of the Operating Partnership's income and to deduct its distributive share
of the Operating Partnership's losses only if the Operating Partnership is
classified for federal income tax purposes as a partnership rather than as a
corporation or an association taxable as a corporation. An entity will be
classified as a partnership rather than as a corporation or an association
taxable as a corporation for federal income tax purposes if the entity (i) is
treated as a partnership under Treasury regulations, effective January 1, 1997,
relating to entity classification (the "Check-the-Box Regulations") and (ii) is
not a "publicly traded" partnership. In general, under the Check-the-Box
Regulations, an unincorporated entity with at least two members may elect to be
classified either as an association taxable as a corporation or as a
partnership. If such an entity fails to make an election, it generally will be
treated as a partnership for federal income tax purposes. The Operating
Partnership intends to be classified as a partnership for federal income tax
purposes and will not elect to be treated as an association taxable as a
corporation under the Check-the-Box Regulations.
A publicly traded partnership is a partnership whose interests are traded
on an established securities market or are readily tradable on a secondary
market (or the substantial equivalent thereof). A publicly traded partnership
will be treated as a corporation for federal income tax purposes unless at least
90% of such partnership's gross income for a taxable year consists of
"qualifying income" under Section 7704(d) of the Code, which generally includes
any income that is qualifying income for purposes of the 95% gross income test
applicable to REITs (the "90% Passive-Type Income Exception"). See "--
Requirements for Qualification -- Income Tests." The U.S. Treasury Department
has issued regulations effective for taxable years beginning after December 31,
1995 (the "PTP Regulations") that provide limited safe harbors from the
definition of a publicly traded partnership. Pursuant to one of those safe
harbors (the "Private Placement Exclusion"), interests in a partnership will not
be treated as readily tradable on a secondary market or the substantial
equivalent thereof if (i) all interests in the partnership were issued in a
transaction (or transactions) that was not required to be registered under the
Securities Act of 1933, as amended, and (ii) the partnership does not have more
than 100 partners at any time during the partnership's taxable year. In
determining the number of partners in a partnership, a person owning an interest
in a flow-through entity (i.e., a partnership, grantor trust, or S corporation)
- -
that owns an interest in the partnership is treated as a partner in such
partnership only if (a) substantially all of the value of the owner's interest
in the flow-through entity is attributable to the flow-through entity's interest
(direct or indirect) in the partnership and (b) a principal purpose of the use
of the flow-through entity is to permit the partnership to satisfy the 100-
partner limitation. The Operating Partnership qualifies for the Private
Placement Exclusion. If the Operating Partnership is considered a publicly
traded partnership under the PTP Regulations because it is deemed
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to have more than 100 partners, the Operating Partnership should not be treated
as a corporation because it should be eligible for the 90% Passive-Type Income
Exception.
The Company has not requested, and does not intend to request, a ruling
from the Service that the Operating Partnership will be classified as a
partnership for federal income tax purposes. Instead, Hunton & Williams is of
the opinion that, based on certain factual assumptions and representations, the
Operating Partnership will be treated for federal income tax purposes as a
partnership and not as a corporation or an association taxable as a corporation,
or as a publicly traded partnership. Unlike a tax ruling, an opinion of counsel
is not binding upon the Service, and no assurance can be given that the Service
will not challenge the status of the Operating Partnership as a partnership for
federal income tax purposes. If such challenge were sustained by a court, the
Operating Partnership would be treated as a corporation for federal income tax
purposes, as described below. In addition, the opinion of Hunton & Williams is
based on existing law, which is to a great extent the result of administrative
and judicial interpretation. No assurance can be given that administrative or
judicial changes would not modify the conclusions expressed in the opinion.
If for any reason the Operating Partnership were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, the Company would
not be able to qualify as a REIT. See "Federal Income Tax Considerations --
Requirements for Qualification -- Income Tests" and "-- Requirements for
Qualification -- Asset Tests." In addition, any change in the Operating
Partnership's status for tax purposes might be treated as a taxable event, in
which case the Company might incur a tax liability without any related cash
distribution. See "Federal Income Tax Considerations -- Requirements for
Qualification -- Distribution Requirements." Further, items of income and
deduction of the Operating Partnership would not pass through to its partners,
and its partners would be treated as shareholders for tax purposes.
Consequently, the Operating Partnership would be required to pay income tax at
corporate tax rates on its net income, and distributions to its partners would
constitute dividends that would not be deductible in computing the Operating
Partnership's taxable income.
Income Taxation of the Operating Partnerships and its Partners
Partners, Not a Partnership, Subject to Tax. A partnership is not a
taxable entity for federal income tax purposes. Rather, the Company will be
required to take into account its allocable share of the Operating Partnership's
income, gains, losses, deductions, and credits for any taxable year of the
Operating Partnership ending within or with the taxable year of the Company,
without regard to whether the Company has received or will receive any
distribution from the Operating Partnership.
Partnership Allocations. Although a partnership agreement generally will
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes under section 704(b) of the Code if they do
not comply with the provisions of section 704(b) of the Code and the Treasury
Regulations promulgated thereunder. If an allocation is not recognized for
federal income tax purposes, the item subject to the allocation will be
reallocated in accordance with the partners' interests in the partnership, which
will be determined by taking into account all of the facts and circumstances
relating to the economic arrangement of the partners with respect to such item.
The Operating Partnership's allocations of taxable income and loss are intended
to comply with the requirements of section 704(b) of the Code and the Treasury
Regulations promulgated thereunder.
Tax Allocations With Respect to Contributed Properties. Pursuant to
section 704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal income
tax purposes in a manner such that the contributor is charged with, or benefits
from, the unrealized gain or unrealized loss associated with the property at the
time of the contribution. The amount of such unrealized gain or unrealized loss
is generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution. The Treasury Department has issued
regulations requiring partnerships to use a "reasonable method" for allocating
items affected by section 704(c) of the Code and outlining several reasonable
allocation methods. The Operating Partnership plans to elect to use the
traditional method for allocating Code section 704(c) items with respect to any
properties it acquires in exchange for OP Units.
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Under the Operating Partnership Agreement, depreciation or amortization
deductions of the Operating Partnership generally will be allocated among the
partners in accordance with their respective interests in the Operating
Partnership, except to the extent that the Operating Partnership is required
under Code section 704(c) to use a method for allocating tax depreciation
deductions attributable to its properties that results in the Company receiving
a disproportionately large share of such deductions. Depending on the
allocation method elected under Code section 704(c), it is possible that the
Company (i) may be allocated lower amounts of depreciation deductions for tax
purposes with respect to contributed properties than would be allocated to the
Company if such properties were to have a tax basis equal to their fair market
value at the time of contribution and (ii) may be allocated taxable gain in the
event of a sale of such contributed properties in excess of the economic profit
allocated to the Company as a result of such sale. These allocations may cause
the Company to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements, although the Company does not anticipate that this event will
occur. The foregoing principles also will affect the calculation of the
Company's earnings and profits for purposes of determining which portion of the
Company's distributions is taxable as a dividend. The allocations described in
this paragraph may result in a higher portion of the Company's distributions
being taxed as a dividend than would have occurred had the Company purchased
such properties for cash.
Basis in Operating Partnership Interest. The Company's adjusted tax basis
in its partnership interest in the Operating Partnership generally is equal to
(i) the amount of cash and the basis of any other property contributed to the
Operating Partnership by the Company, (ii) increased by (A) its allocable share
of the Operating Partnership's income and (B) its allocable share of
indebtedness of the Operating Partnership, and (iii) reduced, but not below
zero, by (A) the Company's allocable share of the Operating Partnership's loss
and (B) the amount of cash distributed to the Company, including constructive
cash distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of the Company's
partnership interest in the Operating Partnership below zero, the recognition of
such loss will be deferred until such time as the recognition of such loss would
not reduce the Company's adjusted tax basis below zero. To the extent that the
Operating Partnership's distributions, or any decrease in the Company's share of
the indebtedness of the Operating Partnership (such decrease being considered a
constructive cash distribution to the partners), would reduce the Company's
adjusted tax basis below zero, such distributions (including such constructive
distributions) will constitute taxable income to the Company. Such
distributions and constructive distributions normally will be characterized as
capital gain, and, if the Company's partnership interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year), the distributions and constructive distributions
will constitute long-term capital gain.
Depreciation Deductions Available to the Operating Partnership. Assuming
that the Minimum Offering is reached, immediately upon accepting a subscription,
the Company will make a cash contribution to the Operating Partnership in
exchange for a general partnership interest in the Operating Partnership. The
Operating Partnership will use a portion of such contributions to acquire
interests in properties. To the extent that the Operating Partnership acquires
properties for cash, the Operating Partnership's initial basis in such
properties for federal income tax purposes generally will be equal to the
purchase price paid by the Operating Partnership. The Operating Partnership
plans to depreciate such depreciable property for federal income tax purposes
under the alternative depreciation system of depreciation ("ADS"). Under ADS,
the Operating Partnership generally will depreciate such buildings and
improvements over a 40-year recovery period using a straight line method and a
mid-month convention and will depreciate furnishings and equipment over a 12-
year recovery period. To the extent that the Operating Partnership acquires
properties in exchange for OP Units, the Operating Partnership's initial basis
in each such property for federal income tax purposes should be the same as the
transferor's basis in that property on the date of acquisition by the Operating
Partnership. Although the law is not entirely clear, the Operating Partnership
generally intends to depreciate such depreciable property for federal income tax
purposes over the same remaining useful lives and under the same methods used by
the transferors.
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SALE OF THE OPERATING PARTNERSHIP'S PROPERTY
Generally, any gain realized by the Operating Partnership on the sale of
property held for more than one year will be long-term capital gain, except for
any portion of such gain that is treated as depreciation or cost recovery
recapture. Any gain recognized by the Operating Partnership upon the
disposition of a property acquired by the Operating Partnership for cash will be
allocated among the partners in accordance with their respective percentage
interests in the Operating Partnership. The Bylaws of the Company provide that
any decision to sell any real estate asset in which a director, or officer of
the Company, or any Affiliate of the foregoing, has a direct or indirect
interest, will be made by a majority of the Directors including a majority of
the Independent Directors. See "Policies with Respect to Certain Activities --
Conflict of Interest Policies -- Articles of Incorporation and Bylaw
Provisions."
The Company's share of any gain realized by the Operating Partnership on
the sale of any property held by the Operating Partnership as inventory or other
property held primarily for sale to customers in the ordinary course of the
Operating Partnership's trade or business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Such prohibited
transaction income also may have an adverse effect upon the Company's ability to
satisfy the income tests for REIT status. See "Federal Income Tax
Considerations -- Requirements For Qualification -- Income Tests" above. The
Company, however, does not presently intend to acquire or hold or allow the
Operating Partnership to acquire or hold any property that represents inventory
or other property held primarily for sale to customers in the ordinary course of
the Company's or the Operating Partnership's trade or business.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
prohibited transaction provisions of section 4975 of the Code that may be
relevant to a prospective purchaser of Shares (including, with respect to the
discussion contained in "ERISA Considerations -- Status of the Company and the
Operating Partnership under ERISA," to a prospective purchaser that is not an
employee benefit plan, another tax-qualified retirement plan, or an individual
retirement account or an individual retirement annuity ("IRA")). The discussion
does not purport to deal with all aspects of ERISA or section 4975 of the Code
or, to the extent not preempted, state law that may be relevant to particular
shareholders (including plans subject to Title I of ERISA, other retirement
employee benefit plans and IRAs subject to the prohibited transaction provisions
of section 4975 of the Code, and governmental plans or church plans that are
exempt from ERISA and section 4975 of the Code but that may be subject to state
law requirements) in light of their particular circumstances.
The discussion is based on current provisions of ERISA and the Code,
existing and currently proposed regulations under ERISA and the Code, the
legislative history of ERISA and the Code, existing administrative rulings of
the Department of Labor ("DOL") and reported judicial decisions. No assurance
can be given that legislative, judicial, or administrative changes will not
affect the accuracy of any statements herein with respect to transactions
entered into or contemplated prior to the effective date of such changes.
A FIDUCIARY MAKING THE DECISION TO INVEST IN THE SHARES ON BEHALF OF A
PROSPECTIVE PURCHASER THAT IS AN EMPLOYEE BENEFIT PLAN, A TAX-QUALIFIED
RETIREMENT PLAN, OR AN IRA SHOULD CONSULT ITS OWN LEGAL ADVISOR REGARDING THE
SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE CODE, AND STATE
LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF THE SHARES BY SUCH PLAN
OR IRA.
EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS, AND IRAS
Each fiduciary of a pension, profit-sharing, or other employee benefit plan
(an "ERISA Plan") subject to Title I of ERISA should consider carefully whether
an investment in the Shares is consistent with his fiduciary responsibilities
under ERISA. In particular, the fiduciary requirements of Part 4 of Title I of
ERISA require an
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ERISA Plan's investments to be (i) prudent and in the best interests of the
ERISA Plan, its participants, and its beneficiaries, (ii) diversified in order
to minimize the risk of large losses, unless it is clearly prudent not to do so,
and (iii) authorized under the terms of the ERISA Plan's governing documents
(provided the documents are consistent with ERISA). In determining whether an
investment in the Shares is prudent for purposes of ERISA, the appropriate
fiduciary of an ERISA Plan should consider all of the facts and circumstances,
including whether the investment is reasonably designed, as a part of the ERISA
Plan's portfolio for which the fiduciary has investment responsibility, to meet
the objectives of the ERISA Plan, taking into consideration the risk of loss and
opportunity for gain (or other return) from the investment, the diversification,
cash flow, and funding requirements of the ERISA Plan, and the liquidity and
current return of the ERISA Plan's portfolio. A fiduciary also should take into
account the nature of the Company's business, the management of the Company, the
Company's lack of operating history, the fact that investment properties have
not been identified yet, the possibility of the recognition of UBTI, and other
matters described under "Risk Factors."
The fiduciary of an IRA or of a qualified retirement plan not subject to
Title I of ERISA because it is a governmental or church plan or because it does
not cover common law employees (a "Non-ERISA Plan") should consider that such an
IRA or Non-ERISA Plan may only make investments that are authorized by the
appropriate governing documents and under applicable state law.
Fiduciaries of ERISA Plans and persons making the investment decision for
an IRA or other Non-ERISA Plan should consider the application of the prohibited
transaction provisions of ERISA and the Code in making their investment
decision. A "party in interest" or "disqualified person" with respect to an
ERISA Plan or with respect to a Non-ERISA Plan or IRA subject to Code section
4975 is subject to (i) an initial 15% excise tax on the amount involved in any
prohibited transaction involving the assets of the plan or IRA and (ii) an
excise tax equal to 100% of the amount involved if any prohibited transaction is
not corrected. If the disqualified person who engages in the transaction is the
individual on behalf of whom an IRA is maintained (or his beneficiary), the IRA
will lose its tax-exempt status and its assets will be deemed to have been
distributed to such individual in a taxable distribution (and no excise tax will
be imposed) on account of the prohibited transaction. In addition, a fiduciary
who permits an ERISA Plan to engage in a transaction that the fiduciary knows or
should know is a prohibited transaction may be liable to the ERISA Plan for any
loss the ERISA Plan incurs as a result of the transaction or for any profits
earned by the fiduciary in the transaction.
STATUS OF THE COMPANY AND THE OPERATING PARTNERSHIP UNDER ERISA
The following section discusses certain principles that apply in
determining whether the fiduciary requirements of ERISA and the prohibited
transaction provisions of ERISA and the Code apply to an entity because one or
more investors in the equity interests in the entity is an ERISA Plan or is a
Non-ERISA Plan or IRA subject to section 4975 of the Code. An ERISA Plan
fiduciary also should consider the relevance of those principles to ERISA's
prohibition on improper delegation of control over or responsibility for "plan
assets" and ERISA's imposition of co-fiduciary liability on a fiduciary who
participates in, permits (by action or inaction) the occurrence of, or fails to
remedy a known breach by another fiduciary.
If the assets of the Company are deemed to be "plan assets" under ERISA,
(i) the prudence standards and other provisions of Part 4 of Title I of ERISA
would be applicable to any transactions involving the Company's assets, (ii)
persons who exercise any authority over the Company's assets, or who provide
investment advice to the Company, would (for purposes of the fiduciary
responsibility provisions of ERISA) be fiduciaries of each ERISA Plan that
acquires Shares, and transactions involving the Company's assets undertaken at
their direction or pursuant to their advice might violate their fiduciary
responsibilities under ERISA, especially with regard to conflicts of interest,
(iii) a fiduciary exercising his investment discretion over the assets of an
ERISA Plan to cause it to acquire or hold the Shares could be liable under Part
4 of Title I of ERISA for transactions entered into by the Company that do not
conform to ERISA standards of prudence and fiduciary responsibility, and (iv)
certain transactions that the Company might enter into in the ordinary course of
its business and operations might constitute "prohibited transactions" under
ERISA and the Code.
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Regulations of the DOL defining "plan assets" (the "Plan Asset
Regulations") generally provide that when an ERISA Plan or Non-ERISA Plan or IRA
acquires a security that is an equity interest in an entity and the security is
neither a "publicly-offered security" nor a security issued by an investment
company registered under the Investment Company Act of 1940, the ERISA or Non-
ERISA Plan's or IRA's assets include both the equity interest and an undivided
interest in each of the underlying assets of the issuer of such equity interest,
unless one or more exceptions specified in the Plan Asset Regulations are
satisfied.
The Plan Asset Regulations define a publicly-offered security as a security
that is (i) "widely-held," (ii) "freely transferable," and (iii) either (A) part
of a class of securities registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or (B) sold
pursuant to an effective registration statement under the Securities Act
(provided the securities are registered under the Exchange Act within 120 days
after the end of the fiscal year of the issuer during which the offering
occurred, or such longer period as may be allowed by the Commission). The
Shares are being sold pursuant to an effective registration statement under the
Securities Act and will be registered under the Exchange Act. The Plan Asset
Regulations provide that a security is "widely held" only if it is part of a
class of securities that is owned by 100 or more investors independent of the
issuer and of one another. A security will not fail to be widely held because
the number of independent investors falls below 100 subsequent to the initial
public offering as a result of events beyond the issuer's control. The Company
anticipates that upon completion of the Offering, the Shares will be "widely
held."
The Plan Asset Regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The Plan Asset Regulations further provide
that where a security is part of an offering in which the minimum investment is
$10,000 or less (as is the case with this Offering), certain restrictions
ordinarily will not, alone or in combination, affect a finding that such
securities are freely transferable. The restrictions on transfer enumerated in
the Plan Asset Regulations as not affecting that finding include: (i) any
restriction on or prohibition against any transfer or assignment that would
result in the termination or reclassification of an entity for federal or state
tax purposes, or that otherwise would violate any federal or state law or court
order, (ii) any requirement that advance notice of a transfer or assignment be
given to the issuer, (iii) any administrative procedure that establishes an
effective date, or an event (such as completion of an offering), prior to which
a transfer or assignment will not be effective, and (iv) any limitation or
restriction on transfer or assignment that is not imposed by the issuer or a
person acting on behalf of the issuer. The Company believes that the
restrictions imposed under the Articles of Incorporation on the transfer of the
Shares will not result in the failure of the Shares to be "freely transferable."
The Company also is not aware of any other facts or circumstances limiting the
transferability of the Shares that are not enumerated in the Plan Asset
Regulations as those not affecting free transferability, and the Company does
not intend to impose in the future (or to permit any person to impose on its
behalf) any limitations or restrictions on transfer that would not be among the
enumerated permissible limitations or restrictions. The Plan Asset Regulations
only establish a presumption in favor of a finding of free transferability, and
no assurance can be given that the DOL or the Treasury Department will not reach
a contrary conclusion.
Assuming that the Shares will be "widely held" and that no other facts and
circumstances other than those referred to in the preceding paragraph exist that
restrict transferability of the Shares, the Shares should be publicly offered
securities and the assets of the Company should not be deemed to be "plan
assets" of any ERISA Plan, IRA, or Non-ERISA Plan that invests in the Shares.
The Plan Asset Regulations also will apply in determining whether the
assets of the Operating Partnership will be deemed to be "plan assets." The
partnership interests in the Operating Partnership will not be publicly-offered
securities. Nevertheless, if the Shares constitute publicly-offered securities,
the indirect investment in the Operating Partnership by ERISA Plans, IRAs, or
Non-ERISA Plans subject to section 4975 of the Code through their ownership of
Shares will not cause the assets of the Operating Partnership to be treated as
"plan assets" of such shareholders.
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PARTNERSHIP AGREEMENT
The following summary of the Partnership Agreement, and the descriptions of
certain provisions thereof set forth elsewhere in this Prospectus, is qualified
in its entirety by reference to the Partnership Agreement, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
MANAGEMENT
The Operating Partnership has been organized as a Delaware limited
partnership pursuant to the terms of the Partnership Agreement. Pursuant to the
Partnership Agreement, the Company, as the sole general partner of the Operating
Partnership (in such capacity, the "General Partner"), will have full, exclusive
and complete responsibility and discretion in the management and control of the
Operating Partnership, and the limited partners of the Operating Partnership
(the "Limited Partners"), in their capacity as such, will have no authority to
transact business for, or participate in the management activities or decisions
of, the Operating Partnership. However, any amendment to the Partnership
Agreement that would (i) affect the Redemption Rights (as defined below), (ii)
adversely affect the Limited Partners' rights to receive cash distributions,
(iii) alter the Operating Partnership's allocations of income and loss or (iv)
impose on the Limited Partners any obligations to make additional contributions
to the capital of the Operating Partnership, would require the consent of
Limited Partners holding more than two-thirds of the OP Units.
TRANSFERABILITY OF INTERESTS IN THE OPERATING PARTNERSHIP
----------------------------
The Company may not voluntarily withdraw from the Operating Partnership or
transfer or assign its interest in the Operating Partnership unless the
transaction in which such withdrawal or transfer occurs results in the Limited
Partners' receiving property in an amount equal to the amount they would have
received had they exercised their Redemption Rights immediately prior to such
transaction, or unless the successor to the General Partner contributes
substantially all of its assets to the Operating Partnership in return for an
interest in the Operating Partnership. A person may not be admitted as a
substitute or successor General Partner unless a majority-in-interest of the
Limited Partners (other than the Advisor) consent in writing to the admission of
such substitute or successor General Partner, which consent may be withheld in
the sole discretion of such Limited Partners. With certain limited exceptions,
the Limited Partners may not transfer their interests in the Operating
Partnership, in whole or in part, without the written consent of the Company,
which consent may be withheld in the sole discretion of the Company.
CAPITAL CONTRIBUTION
As the Company accepts subscriptions, it will contribute to the Operating
Partnership substantially all of the net proceeds thereof, in consideration of
which the Company will receive a general partnership interest in the Operating
Partnership. The Advisor has contributed $200,000 to the Operating Partnership
and is the sole initial Limited Partner. Although the Operating Partnership
will receive substantially all of the net proceeds of the Offering, the Company
will be deemed to have made capital contributions to the Operating Partnership
in the amount of the gross proceeds of the Offering and the Operating
Partnership will be deemed simultaneously to have paid the selling commissions
and other Organization and Offering Expenses. The Partnership Agreement
provides that if the Operating Partnership requires additional funds at any time
or from time to time in excess of funds available to the Operating Partnership
from borrowing or capital contributions, the Company may borrow such funds from
a financial institution or other lender and lend such funds to the Operating
Partnership on the same terms and conditions as are applicable to the Company's
borrowing of such funds. Moreover, the Company is authorized to cause the
Operating Partnership to issue partnership interests for less than fair market
value if the Company has concluded in good faith that such issuance is in the
best interests of the Company and the Operating Partnership.
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REDEMPTION RIGHTS
Pursuant to the Partnership Agreement, the Limited Partners, other than the
Advisor, will receive rights (the "Redemption Rights"), which will enable them
to cause the Operating Partnership to redeem each OP Unit for cash equal to the
value of one Share (or, at the Company's election, the Company may purchase each
OP Unit offered for redemption for one Share). The Redemption Rights may not be
exercised, however, if and to the extent that the delivery of Shares upon
exercise of such rights (regardless of whether the Company would exercise its
rights to deliver Shares) would (i) result in any person owning, directly or
indirectly, Shares in excess of the Ownership Limitation, (ii) result in shares
of capital stock of the Company being owned by fewer than 100 persons
(determined without reference to any rules of attribution), (iii) result in the
Company being "closely held" within the meaning of section 856(h) of the Code,
(iv) cause the Company to own, actually or constructively, 10% or more of the
ownership interests in a tenant of the Company's or the Operating Partnership's
real property, within the meaning of section 856(d)(2)(B) of the Code, or (v)
cause the acquisition of Shares by such redeeming Limited Partner to be
"integrated" with any other distribution of Shares for purposes of complying
with the Securities Act. The Redemption Rights may be exercised, at any time
after one year following the date of issuance of the related OP Units, provided
that not more than two redemptions may occur during each calendar year and each
Limited Partner may not exercise the Redemption Right for less than 1,000 OP
Units or, if such Limited Partner holds less than 1,000 OP Units, all of the OP
Units held by such Limited Partner. The number of Shares issuable upon exercise
of the Redemption Rights will be adjusted upon the occurrence of share splits,
mergers, consolidations or similar pro rata share transactions, which otherwise
would have the effect of diluting the ownership interests of the Limited
Partners or the shareholders of the Company. As of the date hereof, the Company
has not issued any OP Units other than to the Advisor and has no current
intentions to issue OP Units.
OPERATIONS
The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT, to avoid any federal income or excise tax
liability imposed under the Code and to ensure that the Operating Partnership
will not be classified as a "publicly traded partnership" for purposes of
section 7704 of the Code.
In addition to the administrative and operating costs and expenses incurred
by the Operating Partnership, the Operating Partnership will pay all
administrative costs and expenses of the Company (the "Company Expenses") and
the Company Expenses will be treated as expenses of the Operating Partnership.
The Company Expenses generally will include (i) all expenses relating to the
formation and continuity of existence of the Company, (ii) all expenses relating
to the public offering and registration of securities by the Company, (iii) all
expenses associated with the preparation and filing of any periodic reports by
the Company under federal, state or local laws or regulations, (iv) all expenses
associated with compliance by the Company with laws, rules and regulations
promulgated by any regulatory body and (v) all other operating or administrative
costs of the Company incurred in the ordinary course of its business on behalf
of the Operating Partnership. The Company Expenses, however, will not include
any administrative and operating costs and expenses incurred by the Company that
are attributable to properties or partnership interests that are owned by the
Company directly. The Company currently does not anticipate owning any
properties directly.
DISTRIBUTIONS AND ALLOCATIONS
The Partnership Agreement will provide that the Operating Partnership will
distribute cash from operations (including net sale or refinancing proceeds, but
excluding net proceeds from the sale of the Operating Partnership's property in
connection with the liquidation of the Operating Partnership) on a quarterly
(or, at the election of the Company, more frequent) basis, in amounts determined
by the Company in its sole discretion, to the partners in accordance with their
respective percentage interests in the Operating Partnership. Upon liquidation
of the Operating Partnership, after payment of, or adequate provision for, debts
and obligations of the Operating Partnership, including any partner loans, any
remaining assets of the Operating Partnership will be distributed to all
partners with positive capital accounts in accordance with their respective
positive capital account balances. If the Company has a negative balance in its
capital account following a liquidation of the Operating Partnership, it
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will be obligated to contribute cash to the Operating Partnership equal to the
negative balance in its capital account.
Profit and loss of the Operating Partnership for each fiscal year of the
Operating Partnership generally will be allocated among the partners in
accordance with their respective interests in the Operating Partnership.
Taxable income and loss will be allocated in the same manner, subject to
compliance with the provisions of Code sections 704(b) and 704(c) and Treasury
Regulations promulgated thereunder.
TERM
The Operating Partnership will continue until December 31, 2050, or until
sooner dissolved upon the sale or other disposition of all or substantially all
the assets of the Operating Partnership, the redemption of all limited
partnership interests in the Operating Partnership (other than those held by the
Advisor), or by the election by the Company.
TAX MATTERS
Pursuant to the Partnership Agreement, the Company will be the tax matters
partner of the Operating Partnership and, as such, will have authority to handle
tax audits and to make tax elections under the Code on behalf of the Operating
Partnership.
PLAN OF DISTRIBUTION
OF THE TOTAL 16,5000,000 SHARES REGISTERED IN THE OFFERING, 1,500,000 ARE
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RESERVED FOR ISSUANCE PURSUANT TO THE REINVESTMENT PLAN AND 600,000 ARE RESERVED
- --------------------------------------------------------------------------------
FOR ISSUANCE UPON EXERCISE OF THE SOLICITING DEALER WARRANTS. CONSEQUENTLY, A
- ------------------------------------------------------------------------------
MAXIMUM OF 14,400,000 Shares are being offered to the public through the Dealer
- ---------------------
Manager, a registered broker-dealer affiliated with the Advisor, AND CERTAIN
-------------
UNAFFILIATED BROKER-DEALERS. See "Conflicts of Interest" and "Management
- ---------------------------
Compensation." The Shares are being offered at a price of $10.00 per share on a
"best efforts" basis (which means generally that the Dealer Manager will be
required to use only its best efforts to sell the Shares and has no firm
commitment or obligation to purchase any of the Shares). The Company and the
Dealer Manager have determined the Offering price of the Shares based on their
analysis of other similar OFFERINGS and what they believe the investing market
---------
is willing to pay for the Shares.
Except as provided below, the Dealer Manager will receive commissions of 7%
of the Gross Offering Proceeds. In addition, the Company may reimburse the
expenses incurred by THE DEALER MANAGER AND nonaffiliated dealers for actual
----------------------
marketing support and due diligence purposes in the maximum amount of 2.5% of
the Gross Offering Proceeds. The Company will not pay referral or similar fees
to any accountants, attorneys or other persons in connection with the
distribution of the Shares. Shareholders who elect to participate in the
Reinvestment Plan will be charged Selling Commissions on Shares purchased
pursuant to the Reinvestment Plan on the same basis as shareholders purchasing
Shares other than pursuant to the Reinvestment Plan. Soliciting Dealers will
also receive one Soliciting Dealer Warrant for each 25 Shares sold by such
Soliciting Dealer during the Offering, subject to federal and state securities
laws. The holder of a Soliciting Dealer Warrant will be entitled to purchase
one Share from the Company at a price of $12 during the period commencing ON
--
THE FIRST ANNIVERSARY OF THE EFFECTIVE DATE OF THIS OFFERING and ending five
- ------------------------------------------------------------
years after the effective date of this Offering. Subject to certain
limitations, the Soliciting Dealer Warrants may not be transferred, assigned,
pledged or hypothecated for a period of one year following the effective date of
this Offering. The Shares issuable upon exercise of the Soliciting Dealer
--------
Warrants are being registered as part of this Offering. For the life of the
Soliciting Dealer Warrants, the holders are given, at nominal cost, the
opportunity to profit from a rise in the market price for the Common Stock
without assuming the risk of ownership, with a resulting dilution in the
interest of other security holders. Moreover, the holders of the Soliciting
Dealer Warrants might be expected to exercise them at a time when the Company
would, in all likelihood, be able to obtain needed capital by a new
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offering of its securities on terms more favorable than those provided by the
Soliciting Dealer Warrants. See "Description of Capital Stock -- Soliciting
Dealer Warrants."
The Dealer Manager may authorize certain other broker-dealers who are
members of the NASD to sell Shares. In the event of the sale of Shares by such
other broker-dealers, the Dealer Manager may reallow its commissions in the
amount of up to 7% of the Gross Offering Proceeds to such participating broker-
dealers.
In no event shall the total underwriting compensation, including Selling
Commissions and expense reimbursements, exceed 7% of Gross Offering Proceeds,
except for the additional Marketing and Due Diligence Fee (2.5% of Gross
Offering Proceeds), which may be paid by the Company in connection with
marketing support and due diligence activities, which is COMPRISED of .5% for
---------
due diligence activities and 2% for marketing support activities.
The Company has agreed to indemnify the participating broker-dealers,
including the Dealer Manager, against certain liabilities arising under the
Securities Act of 1933, as amended. CAUSES OF ACTION RESULTING FROM VIOLATIONS
--------------------------------------------
OF FEDERAL OR STATE SECURITIES LAWS SHALL BE GOVERNED BY SUCH LAW.
- ------------------------------------------------------------------
The broker-dealers are not obligated to obtain any subscriptions, and there
is no assurance that any Shares will be sold.
The Advisor AND ITS AFFILIATES may at THEIR option purchase Shares
------------------ -----
offered hereby at the public offering price, in which case it would expect to
hold such Shares as shareholders for investment and not for distribution.
Shares purchased by the Advisor or its Affiliates shall not be entitled to vote
on any matter presented to the shareholders for a vote. No selling commissions
will be payable by the Company in connection with any Shares purchased by the
Advisor.
Payment for Shares should be made by check payable to "NATIONSBANK, N.A.,
-------------------
AS ESCROW AGENT" Subscriptions will be effective only upon acceptance by the
- ----------------
Company, and the Company reserves the right to reject any subscription in whole
or in part. In no event may a subscription for Shares be accepted until at
least five business days after the date the subscriber receives this Prospectus.
Each subscriber will receive a confirmation of his purchase. Except for
purchase pursuant to the Reinvestment Plan, all accepted subscriptions will be
for whole Shares and for not less than 100 Shares ($1,000). See "Investor
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 Shares
discussed above, provided that such investors purchase a minimum of 2.5 Shares
($25). After investors have satisfied the minimum purchase requirement, minimum
additional purchases must be in increments of at least 2.5 Shares ($25), except
for purchases pursuant to the Reinvestment Plan.
Subscription proceeds will be placed in interest-bearing ACCOUNTS with
--------
the Escrow Agent by noon of the business day after the proceeds are received by
the Company until such subscriptions aggregating at least $1,250,000 (exclusive
of any subscriptions for Shares by the Advisor or its Affiliates) have been
received and accepted by the Advisor (the "Minimum Offering"). Any Shares
purchased by the Advisor or its Affiliates will not be counted in calculating
the Minimum Offering. Subscription proceeds held in the escrow ACCOUNTS 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 Advisor. Subscribers may
not withdraw funds from the escrow account.
Investors who desire to establish an IRA for purposes of investing in
Shares may do so by having Wells Advisors, Inc., a qualified non-bank IRA
custodian affiliated with the Advisor, 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 Shares on
behalf of the beneficiary of the IRA and making distributions or reinvestments
in Shares solely at the discretion of the beneficiary of the IRA. Wells
Advisors, Inc. will not have
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the authority to vote any of the Shares held in an IRA except strictly in
accordance with the written instructions of the beneficiary of the IRA. See
"Management."
If the Minimum Offering has not been received and accepted by ________
1999 (one year after the date of this Prospectus), the Escrow Agent will
- ----
promptly so notify the Company 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 whose subscription is rejected. No
later than ten business days after rejection of a subscription, the Escrow Agent
will refund and return all monies to rejected subscribers and any interest
earned thereon without deducting escrow expenses. In the event that a
subscriber fails to remit an executed IRS Form W-9 to the Escrow Agent prior to
the date the Escrow Agent returns the subscriber's funds, the Escrow Agent will
be required to withhold from such funds 31% of the earnings attributable to such
subscriber in accordance with IRS Regulations. During any 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 as shareholders of the Company and the
payments transferred from escrow to the Company at any time after the Company
has received and accepted the Minimum Offering, except that subscribers residing
in New York and Pennsylvania may not be admitted to the Company until
subscriptions have been received and accepted for 250,000 Shares ($2,500,000)
from all sources. The funds representing subscriptions for Shares 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 proceeds of this Offering will be received and held in trust for the
benefit of purchasers of Shares 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 Company, and if rejected,
all funds shall be returned to subscribers within 10 business days. Investors
whose subscriptions are accepted will be admitted as shareholders of the Company
periodically (but not less often than quarterly). Escrowed proceeds will be
released to the Company on the date that the applicable Shareholder is admitted
to the Company. A Shareholder will not receive a Share certificate or other
evidence of his interest in the Company unless the Listing occurs, and then only
if requested by the Shareholder.
The Advisor may sell Shares 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 93% of the
Share'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 Company from such sales will be identical to the Company's net
proceeds from other sales of Shares.
In connection with sales of 25,000 or more Shares ($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>
SELLING COMMISSIONS
-------------------
NET PROCEEDS
DOLLAR VOLUME PURCHASE PRICE TO COMPANY
OF SHARES PURCHASED PERCENT PER SHARE PER SHARE PER SHARE
- ------------------- ------- --------- --------- ---------
<S> <C> <C> <C> <C>
Under $250,000 7.0% $ 0.70 $ 10.00 $9.30
$250,000-$649,999 6.0% $0.5936 $9.8936 $9.30
</TABLE>
79
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
$650,000-$999,999 3.0% $0.2876 $9.5876 $9.30
$1,000,000-$1,999,999 1.0% $0.0939 $9.3939 $9.30
Over $2,000,000 0.5% $0.0467 $9.3467 $9.30
</TABLE>
For example, if an investor purchases 100,000 Shares in the Company, he
could pay as little as $939,390 rather than $1,000,000 for the Shares, in which
event the commission on the sale of such Shares would be $9,390 ($0.0939 per
Share), and the Company would receive net proceeds of $930,000 ($9.30 per
Share). The net proceeds to the Company will not be affected by volume
discounts.
Because all investors will be deemed to have contributed the same amount
per Share to the Company for purposes of distributions of Cash Available for
Distribution, an investor qualifying for a volume discount will receive a higher
return on his investment in the Company 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 Shares 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 Advisor 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 Shares 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 Company, the Company may, in its 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 Shares 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 Shares. 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
Shares, a potential purchaser who proposes to purchase at least 500,000 Shares
in the Company may agree with the Advisor and the Dealer Manager to have the
Acquisition and Advisory Fees payable to the Advisor with respect to the sale of
such Shares reduced to 0.5%, and to have the Selling Commissions payable with
respect to the sale of such Shares reduced to 0.5%, in which event the aggregate
fees payable with respect to the sale of such Shares would be reduced by $0.90
per Share, and the purchaser of such Shares would be required to pay a total of
$9.10 per Share purchased, rather than $10.00 per Share. The net proceeds to
the Company would not be affected by such fee reductions. Of the $9.10 paid per
Share, it is anticipated that approximately $8.40 per Share (or approximately
92%) will be used to acquire properties and pay required acquisition expenses
relating to the acquisition of 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 Shares 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 Company from the sale of the Shares to different
purchasers of the
80
<PAGE>
same offering, (ii) all purchasers of the Shares must be informed of the
availability of quantity discounts, (iii) the same volume discounts must be
allowed to all purchasers of Shares which are part of the offering, (iv) the
minimum amount of Shares as to which volume discounts are allowed cannot be less
than $10,000, (v) the variance in the price of the Shares 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, volume discounts for California residents will
be available in accordance with the foregoing table of uniform discount levels
based on dollar volume of Shares 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 Shares purchased.
Investors who, in connection with their purchase of Shares, 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 Shares and the Dealer Manager to reduce
the amount of selling commissions payable with respect to such sale to zero.
The net proceeds to the Company 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 Company.
In addition, subscribers for Shares may agree with their participating
broker-dealers and the Dealer Manager to have selling commissions due with
respect to the purchase of their Shares paid over a seven year period pursuant
to a deferred commission arrangement (the "Deferred Commission Option").
Shareholders electing the Deferred Commission Option will be required to pay a
total of $9.40 per Share purchased upon subscription, rather than $10.00 per
Share, with respect to which $0.10 per Share will be payable as commissions due
upon subscription. For each of the six years following termination of the
Offering, $0.10 per Share will be paid by the Company as deferred commissions
with respect to Shares sold pursuant to the Deferred Commission Option, which
amounts will be deducted from and paid out of distributions of Cash Available
for Distribution otherwise payable to shareholders holding such Shares. The net
proceeds to the Company will not be affected by the election of the Deferred
Commission Option. Under this arrangement, a Shareholder electing the Deferred
Commission Option will pay a 1% commission upon subscription, rather than an 7%
commission, and an amount equal to a 1% commission per year thereafter for the
next six years will be deducted from and paid by the Company out of Cash
Available for Distribution otherwise distributable to such Shareholder.
Taxable participants electing the Deferred Commission Option will incur tax
liability for Company income allocated to them with respect to their Shares even
though distributions of Cash Available for Distribution otherwise distributable
to such shareholders will instead be paid to third parties to satisfy the
deferred commission obligations with respect to such Shares for a period of six
years after the termination of the Offering. 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 7% of Gross Offering Proceeds, except for the additional .5% of Gross
Offering Proceeds which may be paid by the Company in connection with due
diligence activities and 2% of Gross Offering Proceeds which may be paid by the
Company in connection with marketing support activities.
SUPPLEMENTAL SALES MATERIAL
In addition to this Prospectus, the Company may utilize certain sales
material in connection with the Offering of the Shares, although only when
accompanied by or preceded by the delivery of this Prospectus. In
81
<PAGE>
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 Advisor and its 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 Offering of Shares in the Company 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 Shares.
LEGAL MATTERS
The legality of the Shares being offered hereby has been passed upon for
the Company by Hunton & Williams, 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, and Counsel has opined as to
certain income tax matters relating to an investment in the Company. Counsel
has represented the Advisor, as well as Affiliates of the Advisor, in other
matters and may continue to do so in the future. See "Conflicts of Interest."
EXPERTS
The balance sheet of the Company as of DECEMBER 31, 1997, included in
-----------
this Prospectus AND ELSEWHERE IN THE REGISTRATION STATEMENT, has been audited by
--------------------------------------------
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and is included herein in reliance upon the
authority of SAID firm as EXPERTS in giving SAID report.
---- ------- ----
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended, with respect to the Shares 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 Commission, reference to which is hereby made. Copies of the Registration
Statement and exhibits related thereto, as well as periodic reports and
information filed by the Company, may be obtained upon payment of the fees
prescribed by the Commission, or may be examined at the offices of the
Commission without charge, at (i) the public reference facilities in Washington,
D.C. at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, (ii) the Northeast Regional Office in New York at 7 World Trade Center,
Suite 1300, New York, New York 10048, and (iii) the Midwest Regional Office in
Chicago, Illinois at 500 West Madison Street, Suite 1400, Chicago, Illinois
66661-2511. The Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission (the address of such site is
http://www.sec.gov).
GLOSSARY
The following are definitions of certain terms used in this Prospectus and
not otherwise defined herein:
"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
82
<PAGE>
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 Company, including Acquisition and Advisory Fees payable to
the Advisor 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 Company property.
"AFFILIATE" means (i) any person directly or indirectly controlling,
controlled by or under common control with a person, (ii) any person owning or
controlling 10% or more of the outstanding voting securities of a person, (iii)
any officer, director or partner of a person, and (iv) if such other person is
an officer, director or partner, any company for which such person acts in any
such capacity.
"AVERAGE INVESTED ASSETS" means, for any period, the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in equity interests and in loans secured by real estate, before
reserves for depreciation or bad DEBTS OR other similar non-cash reserves,
--------
computed by taking the average of such values at the end of each month during
such period.
"CASH AVAILABLE FOR DISTRIBUTION" means Funds from Operations adjusted for
certain non-cash items, less reserves for capital expenditures.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON RETURN" MEANS AN 8% PER ANNUM CUMULATIVE, NONCOMPOUNDED RETURN ON
-------------------------------------------------------------------------
INVESTOR'S INVESTED CAPITAL.
- ----------------------------
"COMPANY" means Wells Real Estate Investment Trust, Inc., a Maryland
corporation.
"COMPETITIVE REAL ESTATE BROKERAGE COMMISSION" means the real estate or
brokerage commission paid for the purchase or sale of a property which is
reasonable, customary and competitive in light of the size, type and location of
such property.
"CONSTRUCTION FEE" means a fee or other remuneration for acting as general
contractor and/or construction manager to construct improvements, supervise and
coordinate projects or to provide major repairs or rehabilitation on properties.
"DEFERRED COMMISSION OPTION" means an agreement among a subscriber for
Shares, such subscriber's participating broker-dealer and the Dealer Manager to
have sales commissions due with respect to the purchase of the subscriber's
Shares paid over A seven year period, in the manner described in the "Plan of
-
Distribution" section of the Prospectus.
"DEVELOPMENT FEE" means a fee for the packaging of a property of the
Company, including negotiating and approving plans, and undertaking to assist in
obtaining zoning and necessary variances and necessary financing for the
specific property, either initially or at a later date.
"FRONT-END FEES" means fees and expenses paid by any party for any
services rendered during the Company'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.
83
<PAGE>
"FUNDS FROM OPERATIONS" means income (loss) before minority interest
(computed in accordance with generally accepted accounting principles),
excluding gains (losses) from debt restructuring and sales of property, plus
real estate related depreciation an amortization (excluding amortization of
financing costs), and after adjustments for consolidated partnerships and joint
ventures.
"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 Company 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 Shares.
"INDEPENDENT EXPERT" means a person with no material current or prior
business or personal relationship with the Advisor or Board of Directors of the
Company who is engaged to a substantial extent in the business of rendering
opinions regarding the value of assets of the type held by the Company.
"INDEPENDENT DIRECTOR" shall mean a member of the Board of Directors of the
Company who is not associated and has not been associated within the last two
years, directly or indirectly, with the Advisor.
"INVESTED CAPITAL" means the original issue price of the Shares reduced by
prior distributions from the sale or financing of Company fixed assets.
"INVESTMENT IN PROPERTIES" means the amount of Gross Offering Proceeds
actually paid or allocated to the purchase, development, construction or
improvement of properties acquired by the Company, 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.
"IRA" means an Individual Retirement Account established pursuant to
Section 408 of the Code.
"LIQUIDATING DISTRIBUTIONS" means the net cash proceeds received by the
Company from (a) the sale, exchange, condemnation, eminent domain taking,
casualty or other disposition of substantially all of the assets of the Company
or the last remaining assets of the Company or (b) a liquidation of the
Company's assets in connection with a dissolution of the Company, after (i)
payment of all expenses of such sale, exchange, condemnation, eminent domain
taking, casualty, other disposition or liquidation, including real estate
commissions AND FEES, if applicable, (ii) the payment of any outstanding
--------
indebtedness and other liabilities of the Company, (iii) any amounts used to
restore any such assets of the Company, and (iv) any amounts set aside as
reserves which the Company may deem necessary or desirable.
"NASAA GUIDELINES" means the Statement of Policy Regarding Real Estate
Investment Trusts of the North American Securities Administrators Association,
Inc. as revised and adopted on September 29, 1993.
"NET ASSETS" MEANS THE TOTAL ASSETS (OTHER THAN INTANGIBLES) AT COST BEFORE
---------------------------------------------------------------------------
DEDUCTING DEPRECIATION OR OTHER NON-CASH RESERVES LESS TOTAL LIABILITIES,
- -------------------------------------------------------------------------
CALCULATED AT LEAST QUARTERLY ON A BASIS CONSISTENTLY APPLIED.
- --------------------------------------------------------------
"NET INCOME" or "NET LOSS" means the net income or loss realized or
recognized by the Company 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 SALE PROCEEDS" means, collectively, Nonliquidating Net Sale Proceeds
and Liquidating Distributions.
"NONLIQUIDATING NET SALE PROCEEDS" means the net cash proceeds received by
the Company from a sale, exchange, condemnation, eminent domain taking, casualty
or other disposition of assets of the Company, which does not constitute
substantially all of the remaining assets of the Company, after (i) the payment
of all expenses of
84
<PAGE>
such sale, exchange, condemnation, eminent domain taking, casualty, sale or
other disposition, including real estate commissions AND FEES, if applicable,
--------
(ii) the payment of any outstanding indebtedness and other Company liabilities
relating to such assets, (iii) any amounts used to restore any such assets of
the Company, and (iv) any amounts set aside as reserves which the Company may
deem necessary or desirable.
"OFFERING" means the offering and sale of the Shares pursuant to the terms
and conditions of this Prospectus.
"OPERATING PARTNERSHIP" means Wells Operating Partnership, L.P., a Delaware
limited partnership.
"OP UNITS" means units of limited partnership interest in the Operating
Partnership.
"ORGANIZATION AND OFFERING EXPENSES" means those expenses incurred in
connection with organizing the Company, preparing the Company for registration
and subsequently offering and distributing the Shares to the public, including
without limitation, legal and accounting fees, sales commissions paid to broker-
dealers in connection with the distribution of the Shares and all advertising
expenses.
"OWNERSHIP LIMITATION" means the ownership of more than 9.8% of any class
of the Company's outstanding capital stock.
"PARTNERS" means, collectively, the Company and any person who contributes
property to the Company in exchange for OP Units.
"PARTNERSHIP AGREEMENT" means the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership.
"PRIOR WELLS PUBLIC PROGRAMS" means the prior public real estate limited
partnership programs sponsored by the Advisor or its Affiliates having
substantially identical investment objectives as the Company, 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., Wells Real Estate Fund X, L.P. AND WELLS REAL ESTATE FUND XI, L.P.
------------------------------------
"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 on Form S-11
filed by the Company with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, in order to register the Shares for sale to
the public.
"REINVESTMENT PLAN" means the Company's Dividend Reinvestment Plan.
"RESIDUAL PROCEEDS" means any Sale Proceeds available for distribution to
the shareholders after the shareholders have first received distributions of
Sale Proceeds in an amount equal to 100% of their Invested Capital plus their
Common Return (reduced by all prior distributions of Cash Available for
Distribution) and after the Advisor has received distributions of Sale Proceeds
in an amount equal to 100% of its capital contribution to the Operating
Partnership.
"RETIREMENT PLANS" means Individual Retirement Accounts ("IRAs")
established under Section 408 of the Code and Qualified Plans.
"SERVICE" means the U.S. Internal Revenue Service.
85
<PAGE>
"SHARES-IN-TRUST" MEANS THE EXCESS SHARES EXCHANGED FOR SHARES TRANSFERRED
--------------------------------------------------------------------------
OR PROPOSED TO BE TRANSFERRED IN EXCESS OF THE OWNERSHIP LIMITATION OR WHICH
- ----------------------------------------------------------------------------
WOULD OTHERWISE JEOPARDIZE THE COMPANY'S STATUS AS A REIT UNDER THE CODE.
- -------------------------------------------------------------------------
"SPONSOR" MEANS ANY PERSON DIRECTLY OR INDIRECTLY INSTRUMENTAL IN
-----------------------------------------------------------------
ORGANIZING, WHOLLY OR IN PART, A REIT OR ANY PERSON WHO WILL CONTROL, MANAGE OR
- -------------------------------------------------------------------------------
PARTICIPATE IN THE MANAGEMENT OF A REIT, AND ANY AFFILIATE OF SUCH PERSON
- -------------------------------------------------------------------------
"UNIMPROVED REAL PROPERTY" means the properties of the Company which: (a)
represent an equity interest in real property which was not acquired for the
purpose of producing rental or other operating income, (b) has no development or
construction in process on such land, and (c) no development or construction on
such land is planned in good faith to commence on such land within one year.
"WELLS CAPITAL" means Wells Capital, Inc., a Georgia corporation which
serves as the Company's Advisor.
86
<PAGE>
APPENDIX I
WELLS REAL ESTATE INVESTMENT TRUST, INC.
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997
------------ -----------
TOGETHER WITH
AUDITORS' REPORT
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of
Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying CONSOLIDATED balance sheet of WELLS REAL ESTATE
------------
INVESTMENT TRUST, INC. as of DECEMBER 31, 1997. This CONSOLIDATED balance
----------- ------------
sheet is the responsibility of the Company's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards required that we plan and perform the audit to obtain reasonable
assurance about whether the CONSOLIDATED balance sheet is free of material
------------
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the CONSOLIDATED balance sheet. An audit also
------------
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the CONSOLIDATED balance sheet referred to above presents
------------
fairly, in all material respects, the financial position of Wells Real Estate
Investment Trust, Inc. as of DECEMBER 31, 1997 in conformity with generally
-----------
accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
JANUARY 13, 1998
- ----------------
F-2
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
CONSOLIDATED BALANCE SHEET
------------
DECEMBER 31, 1997
------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CASH $201,000
========
DEFERRED OFFERING COSTS $289,073
- ----------------------- --------
TOTAL ASSETS $490,073
------------ --------
LIABILITIES AND SHAREHOLDER'S EQUITY
- ---------------
LIABILITIES:
- -----------
DUE TO AFFILIATE $289,073
---------------- --------
MINORITY INTEREST OF UNIT HOLDER IN 200,000
OPERATING PARTNERSHIP --------
- ----------------------
SHAREHOLDER'S EQUITY:
Common shares, $.01 par value;
5,000 shares authorized, 100 1
shares issued and outstanding ========
ADDITIONAL PAID-IN CAPITAL 999
-------------------------- --------
TOTAL SHAREHOLDER'S EQUITY 1,000
-------------------------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $490,073
------------------------------------------ --------
</TABLE>
The accompanying notes are an integral part of this CONSOLIDATED balance sheet.
F-3
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
--------------
DECEMBER 31, 1997
------------
(1)<*> ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wells Real Estate Investment Trust, Inc. (the "Company"), is a newly formed
Maryland corporation that intends to qualify as a real estate investment
trust ("REIT"). The Company intends to offer for sale a maximum of
15,000,000 (exclusive of 1,500,000 shares available pursuant to the
Company's dividend reinvestment plan) SHARES OF COMMON STOCK, $.01 PAR
--------------------------------
VALUE PER SHARE, at a price of $10 per share. As of December 31, 1997, the
---------------
Company had sold 100 shares to Wells Capital, Inc. (the "Advisor"), at the
initial public offering price of $10 per share. The Company will seek to
acquire and operate commercial properties, including, but not limited to,
office buildings, shopping centers, business and industrial parks, and
other commercial and industrial properties, 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 Company alone or jointly with
another party. The Company is likely to enter into one or more joint
ventures with affiliated entities for the acquisition of properties. In
connection WITH THIS, the Company may enter into joint ventures for the
---------
acquisition of properties with prior or future real estate limited
partnership programs sponsored by the Advisor or its affiliates.
SUBSTANTIALLY ALL OF THE COMPANY'S BUSINESS WILL BE CONDUCTED THROUGH
-------------------------------------------------------------------------
WELLS OPERATING PARTNERSHIP, L.P. (THE "OPERATING PARTNERSHIP"), A DELAWARE
---------------------------------------------------------------------------
LIMITED PARTNERSHIP. AT DECEMBER 31, 1997, THE OPERATING PARTNERSHIP HAD
-------------------------------------------------------------------------
ISSUED 20,000 LIMITED PARTNER UNITS TO THE ADVISOR IN EXCHANGE FOR
------------------------------------------------------------------
$200,000. THE COMPANY IS THE SOLE GENERAL PARTNER IN THE OPERATING
-------------------------------------------------------------------
PARTNERSHIP AND POSSESS FULL LEGAL CONTROL AND AUTHORITY OVER THE
-----------------------------------------------------------------
OPERATIONS OF THE OPERATING PARTNERSHIP; CONSEQUENTLY, THE ACCOMPANYING
-----------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET OF THE COMPANY INCLUDES THE AMOUNTS OF THE
---------------------------------------------------------------------
COMPANY AND THE OPERATING PARTNERSHIP.
-------------------------------------
AS OF DECEMBER 31, 1997, THE COMPANY HAS NEITHER PURCHASED NOR
------------------------------------------------------------------------
CONTRACTED TO PURCHASE ANY PROPERTIES, NOR HAS THE ADVISOR IDENTIFIED ANY
-------------------------------------------------------------------------
PROPERTIES IN WHICH THERE IS A REASONABLE PROBABILITY THAT THE COMPANY WILL
---------------------------------------------------------------------------
INVEST.
-------
F-4
<PAGE>
USE OF ESTIMATES
----------------
THE PREPARATION OF THE CONSOLIDATED BALANCE SHEET IN CONFORMITY WITH
--------------------------------------------------------------------
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES REQUIRES MANAGEMENT TO MAKE
--------------------------------------------------------------------
ESTIMATES AND ASSUMPTIONS THAT AFFECT THE REPORTED AMOUNTS OF ASSETS AND
------------------------------------------------------------------------
LIABILITIES AND DISCLOSURE OF CONTINGENT ASSETS AND LIABILITIES AT THE DATE
---------------------------------------------------------------------------
OF THE CONSOLIDATED BALANCE SHEET. ACTUAL RESULTS COULD DIFFER FROM THOSE
--------------------------------------------------------------------------
ESTIMATES.
----------
(2) INCOME TAXES
The Company expects to qualify as a REIT under the Internal Revenue Code of
1986, as amended. As a REIT, the Company generally will not be subject to
federal income tax on net income that it distributes to its shareholders.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements.
F-5
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (the "Tables") provide information
relating to real estate investment programs sponsored by the Advisor and its
Affiliates ("Prior Programs") which have investment objectives similar to the
Company.
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 COMPANY 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 Wells Prior Public Programs that
have investment objectives similar to those of the Company. The Company'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 Wells Prior Public Programs have used a substantial
amount of capital and not acquisition indebtedness to acquire their properties.
The Advisor is 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 Advisor's performance of its
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 Company has filed with the Securities and Exchange
Commission. As described above, no Wells Prior Public 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, including copies of
the Form 10-K Annual Report for any or all of the Prior Programs for any
available year.
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, 1993. 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, the time period over
which the proceeds have been invested in the properties, as well as the
percentage of offerings sold and the expenses related to the offerings.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real
Estate Fund Estate Fund Estate Fund Estate Fund
VI, L.P. VII, L.P. VIII, L.P. IX, L.P.
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Dollar Amount Offered $25,000,000/(3)/ $25,000,000/(4)/ $35,000,000/(5)/ $35,000,000/(6)/
Dollar Amount Raised $25,000,000/(3)/ $24,180,174/(4)/ $32,042,689/(5)/ $35,000,000/(6)/
================ ================ ================ ================
Percentage Amount Raised 100.0%/(3)/ 96.7%/(4)/ 91.6%/(5)/ 100.0%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 10.0 % 10.0%
Organizational Expenses 5.0% 5.0% 5.0 % 5.0%
Reserves/(1)/ 1.0% 1.0% 0.0 % 0.0%
---------------- ---------------- ---------------- ----------------
Percent Available for Investment 84.0% 84.0% 85.0 % 85.0%
Acquisition and Development Costs
Prepaid Items and Fees related to 0.3% 0.0% 0.0 % 0.0%
Purchase of Property
Cash Down Payment 40.4% 16.3% 6.3 % 7.0%
Acquisition Fees/(2)/ 3.7% 3.5% 4.0 % 4.0%
Development and Construction Costs 39.6% 64.2% 50.3 % 30.0%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0 % 0.0%
---------------- ---------------- ---------------- ----------------
Total Acquisition and Development Cost 84.0% 84.0% 60.6%/(7)/ 41.0%/(8)/
---------------- ---------------- ---------------- ----------------
Percent Leveraged 0.0% 0.0% 0.0 % 0.0%
================ ================ ================ ================
Date Offering Began 04/05/93 04/24/94 01/06/95 1/5/96
Length of Offering 12 mo. 12 mo. 12 mo. 12 mo.
Months to Invest 90% of Amount 15 mo. 12 mo. /(7)/ /(8)/
Available for Investment (Measured
from Beginning of Offering)
Number of Investors 1,791 1,865 2,086 2,098
</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 VI, L.P. closed its offering on April 4, 1994 and the
total dollar amount raised was $25,000,000.
(4) 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.
(5) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund VIII, L.P. closed its offering on January 4, 1996 and
the total dollar amount raised was $32,042,689.
(6) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund IX, L.P. closed its offering on December 30, 1996 and
the total dollar amount raised was $35,000,000.
(7) As of December 31, 1996, 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, 1996 was 44% of the total dollar amount
raised. The amount invested and/or committed to be invested in properties
(including Acquisition Fees paid but not yet associated with a specific
property) at December 31, 1996 was 60.6% of the total dollar amount raised.
(8) As of December 31, 1996, Wells Real Estate Fund IX, 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, 1996 was 17% of the total dollar amount
raised. The amount invested and/or committed to be invested in properties
(including Acquisition Fees paid but not yet associated with a specific
property) at December 31, 1996 was 41.0% 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, 1993. These partnerships have
not sold or refinanced any of their properties to date. All figures are as of
December 31, 1996.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real Other
Estate Fund Estate Fund Estate Fund Estate Fund Public
VI, L.P. VII, L.P. VIII, L.P. IX, L.P. Programs/(1)/
<S> <C> <C> <C> <C> <C>
Date Offering Commenced 04/05/93 04/06/94 01/06/95 01/05/96 --
Dollar Amount Raised to $25,000,000 $24,180,174 $32,042,689 $35,000,000 $125,018,232
Sponsor from Proceeds of
Offering:
Underwriting Fees/(2)/ $ 119,936 $ 178,122 $ 174,295 $ 309,556 $ 451,803
Acquisition Fees
Real Estate -- -- -- -- --
Commissions/(5)/
Acquisition and $ 932,216 $ 846,306 $ 1,281,708 $ 1,400,000 $ 7,099,169
Advisory Fees/(3)/
Dollar Amount of Cash $ 2,780,262 $ 1,943,504 $ 1,228,747 $ 161,427 $ 21,533,226
Generated from Operations
Before Deducting Payments
to Sponsor/(4)/
Amount Paid to Sponsor from
Operations: Property $ 78,975 $ 58,433 $ 26,780 $ 486 $ 791,998
Management Fee/(1)/
Partnership Management Fee -- -- -- -- --
Reimbursements/(6)/ $ 92,825 $ 90,160 $ 48,429 $ 8,332 $ 1,138,583
Leasing Commissions/(1)/ $ 41,428 $ 39,494 $ 25,209 $ 1,459 $ 817,520
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
II, Wells Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells
Real Estate Fund IV, L.P. and Wells Real Estate Fund V, 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,
1996, the amount of such fees due the General Partners totaled $1,897,184
and are not included in Table II.
(2) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offerings of Wells Real
Estate Funds VI, VII, VIII and IX, which were not reallowed to participating
broker-dealers.
(3) 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.
(4) Includes $125,314 in net cash used by operating activities, $2,692,348 in
distributions paid to limited partners and $213,228 in payments to sponsors
for Wells Real Estate Fund VI, L.P.; $32,869 in net cash used by operating
activities, $1,732,250 in distributions paid to limited partners and
$188,087 in payments to sponsor for Wells Real Estate Fund VII, L.P.;
$2,443 in net cash used by operating activities, $1,130,772 in
distributions paid to limited partners and $100,418 in payments to sponsor
for Wells Real Estate Fund VIII, L.P.; $1,725 in net cash provided by
operating activities, $149,425 in distributions paid to limited partners
and $10,277 in payments to sponsor for Wells Real Estate Fund IX, L.P.; and
$855,331 in net cash provided by operating activities, $19,618,669 in
distributions paid to limited partners and $2,763,306 in payments to
sponsor for other public programs.
(5) The sponsor does not receive any real estate commission for the acquisition
of any property.
(6) Certain salaries and other employee-related expenses, travel and other out-
of-pocket expenses of personnel (other than controlling persons of the
General Partner or their Affiliates) may be reimbursed to the extent such
expenses are directly related to a specific Partnership Property.
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, 1991. 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 V, L.P.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 590,839 764,624 $ 656,958 $ 458,213 $ 58,640
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 78,939 68,735 88,987 96,964 71,521
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250 5,208
---------- ---------- ----------- ----------- -----------
Net Income (Loss) GAAP Basis/(4)/ $ 505,650 $ 689,639 $ 561,721 $ 354,999 $ (18,089)
========== ========== =========== =========== ===========
Taxable Income (Loss): Operations $ 666,780 $ 676,367 $ 528,025 $ 280,000 $ (18,089)
========== ========== =========== =========== ===========
Cash Generated (Used By):Operations (65,728) (46,235) (10,395) 112,594 (33,006)
Joint Ventures 1,072,835 1,020,905 653,729 54,154 --
---------- ---------- ----------- ----------- -----------
$1,007,107 $ 974,670 $ 643,334 $ 166,748 $ (33,006)
Less Cash Distributions to 1,007,107 $ 969,011 643,334 151,336 --
Investors:Operating Cash Flow
Return of Capital -- -- 44,257 -- --
Undistributed Cash Flow from Prior 3,672 -- 5,412 -- --
Year Operations ---------- ---------- -----------
Cash Generated (Deficiency) after Cash $ (3,672) $ 5,659 $ (59,669) $ 15,412 $ (33,006)
Distributions
Special Items (not including sales and
financing):Source of Funds:
General Partner Contributions -- -- -- -- --
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 -- -- -- -- 100
Investment
Property Acquisitions and Deferred (225) (233,501) 2,366,507 7,755,116 4,181,338
Project Costs ---------- ---------- ----------- ----------- -----------
Cash Generated (Deficiency) after Cash $ (3,897) $ (227,842) $(2,426,206) $(2,914,517) $ 5,824,145
Distributions and Special Items ========== ========== =========== =========== ===========
Net Income and Distributions Data per
$1,000 Invested:Net Income on GAAP
Basis:Ordinary Income (Loss)
- Operations Class A Units 71 73 58 29 0
- Operations Class B Units (378) (272) (180) (54) (65)
Capital Gain (Loss)Tax and 0 0 0 0 0
Distributions Data per $1,000
Invested:Federal Income Tax
Results:Ordinary Income (Loss)
- Operations Class A Units 69 69 55 36 --
- Operations Class B Units (260) (246) (181) (58) (21)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:Source
(on GAAP Basis)
- - Investment Income Class A Units 65 63 46 10 --
- - Return of Capital Class A Units -- -- -- -- --
- - Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis) --
- - Operations Class A Units 65 63 43 10 --
- - Return of Capital Class A Units -- -- 3 -- --
- - Operations Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining 100%
Invested in Program
Properties at the end of the Last Year
Reported in the Table
</TABLE>
- -------------------------
(See notes on following page)
A-5
<PAGE>
(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; $745,173 in equity in earnings of joint ventures and $19,451
from investment of reserve funds in 1995; and $577,128 in equity in earnings
of joint ventures and $13,711 from investment of reserve funds in 1996. At
December 31, 1996, the leasing status of all developed property was 92%.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenue is
depreciation and amortization of $100,796 for 1993, $324,578 for 1994,
$440,333 for 1995 and $591,390 for 1996.
(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;
$1,124,203 to Class A Limited Partners and $(434,564) to Class B Limited
Partners and $0 for 1995; and $1,095,296 to Class A Limited Partners and
$(589,646) to Class B Limited Partners for 1996.
A-6
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VI, L.P.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ -------------- ------------- ------------- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 675,782 $ 1,002,567 $ 819,535 $ 82,723 N/A
Profit on Sale of Properties -- -- -- --
Less: Operating Expenses/(2)/ 80,479 94,489 112,389 46,608
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 4,687
---------- ------------ ----------- -----------
Net Income (Loss) GAAP Basis/(4)/ $ 589,053 $ 901,828 $ 700,896 $ 31,428
========== ============ =========== ===========
Taxable Income (Loss): Operations $ 809,389 $ 916,531 $ 667,682 $ 31,428
========== ============ =========== ===========
Cash Generated (Used By):Operations (2,716) (278,728) (276,376) (2,478)
Joint Ventures 1,044,891 766,212 203,543 --
---------- ------------ ----------- -----------
$1,042,175 $ 1,044,940 $ 479,919 $ (2,478)
Less Cash Distributions to
Investors:Operating Cash Flow 1,042,175 $ 1,044,940 245,800 --
Return of Capital 125,314 -- -- --
Undistributed Cash Flow from Prior 18,027 216,092 -- --
Year Operations ---------- ------------ ----------- -----------
Cash Generated (Deficiency) after Cash $ (143,341) $ (216,092) $ 234,119 $ (2,478)
Distributions
Special Items (not including sales and
financing):Source of Funds:
General Partner Contributions -- -- -- --
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 -- -- -- 100
Investment
Property Acquisitions and Deferred 234,924 10,721,376 5,912,454 3,856,239
Project Costs ---------- ------------ ----------- -----------
Cash Generated (Deficiency) after Cash $ (378,265) $(10,937,468) $(4,708,217) $(7,195,998)
Distributions and Special Items ========== ============ =========== ===========
Net Income and Distributions Data per
$1,000 Invested:Net Income on GAAP
Basis:Ordinary Income (Loss)
- Operations Class A Units 59 57 43 9
- Operations Class B Units (160) (60) (12) (5)
Capital Gain (Loss)Tax and -- -- -- 0
Distributions Data per $1,000
Invested:Federal Income Tax
Results:Ordinary Income (Loss)
- Operations Class A Units 56 56 41 1
- Operations Class B Units (99) (51) (22) --
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:Source
(on GAAP Basis)
- - Investment Income Class A Units 56 57 14 --
- - Return of Capital Class A Units -- 4 -- --
- - Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- - Operations Class A Units 50 61 14 --
- - Return of Capital Class A Units 6 -- -- --
- - Operations Class B Units --
Amount (in Percentage Terms) Remaining 100%
Invested in Program
Properties at the end of the Last Year
Reported in the Table
</TABLE>
- ---------------------------
(See notes on following page)
A-7
<PAGE>
(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, $681,033 in
equity in earnings of joint ventures and $321,534 from investment of reserve
funds in 1995 and $607,214 in equity in earnings of joint ventures and
$68,568 from investment of reserve funds in 1996. At December 31, 1996, the
leasing status was 93%.
(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
and $648,478 for 1996.
(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; $1,172,944
to Class A Limited Partners, $(269,288) to Class B Limited Partners and
$(1,828) to the General Partners for 1995; and $1,234,717 to Class A
Limited Partners, $(645,664) to Class B Limited Partners and $0 to the
General Partners for 1996.
A-8
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- -------------- -------------- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 543,291 925,246 $ 286,371 N/A N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 84,265 114,953 78,420
Depreciation and Amortization/(3)/ 6,250 6,250 4,688
--------- ------------ ------------
Net Income (Loss) GAAP Basis/(4)/ $ 452,776 $ 804,043 $ 203,263
========= ============ ============
Taxable Income (Loss): Operations $ 657,443 $ 812,402 $ 195,067
========= ============ ============
Cash Generated (Used By):Operations 20,883 431,728 47,595
Joint Ventures 760,628 424,304 14,243
--------- ------------ ------------
$ 781,511 $ 856,032 $ 61,838
Less Cash Distributions to 781,511 $ 856,032 52,195
Investors:Operating Cash Flow
Return of Capital 10,805 22,064 --
Undistributed Cash Flow from Prior -- 9,643 --
Year Operations --------- ------------ ------------
Cash Generated (Deficiency) after Cash $ (10,805) $ (31,707) $ (9,643)
Distributions
Special Items (not including sales and
financing):Source of Funds:
General Partner Contributions -- --
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 -- 100 --
Investment
Property Acquisitions and Deferred 736,960 14,971,002 4,477,765
Project Costs --------- ------------ ------------
Cash Generated (Deficiency) after Cash $(747,765) $(14,441,804) $(15,555,270)
Distributions and Special Items ========= ============ ============
Net Income and Distributions Data per
$1,000 Invested:Net Income on GAAP
Basis:Ordinary Income (Loss)
- Operations Class A Units 62 57 29
- Operations Class B Units (98) (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 55 28
- Operations Class B Units (58) (16) (17)
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:Source
(on GAAP Basis)
- - Investment Income Class A Units 43 52 7
- - Return of Capital Class A Units -- -- --
- - Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- - Operations Class A Units 42 51 7
- - Return of Capital Class A Units 1 1 --
- - Operations Class B Units -- -- --
Source (on a Priority Distribution
Basis)/(5)/- Investment income Class A 29 30 4
Units
- - Return of Capital Class A Units 14 22 3
- - Return of Capital Class B Units -- -- --
Amount (in Percentage Terms) Remaining 100%
Invested in Program
Properties at the end of the Last Year
Reported in the Table
</TABLE>
- --------------------------------------------------------------------------------
(See notes on following page)
A-9
<PAGE>
(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 and
$457,144 in equity in earnings of joint ventures and $86,147 from
investment of reserve funds in 1996. At December 31, 1996, the leasing
status was 90% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,468 for 1994, $140,533 for 1995 and $605,247 for 1996.
(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; $950,826 to Class A Limited Partners, $(146,503) to Class
B Limited Partners and $(280) to the General Partners for 1995; and
$1,062,605 to Class A Limited Partners, $(609,829) to Class B Limited
Partners and $0 to the General Partners for 1996.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per Unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1996, the aggregate amount of
such priority distributions payable to Class B Limited Partners
TOTALED $659,487.
-------
A-10
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------- -------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,057,694 $ 402,428 N/A N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 114,854 122,264
Depreciation and Amortization/(3)/ 6,250 6,250
----------- ------------
Net Income (Loss) GAAP Basis/(4)/ $ 936,590 $ 273,914
=========== ============
Taxable Income (Loss): Operations $ 1,001,974 $ 404,348
=========== ============
Cash Generated (Used By):Operations 623,268 204,790
Joint Ventures 279,984 20,287
----------- ------------
$ 903,252 $ 225,077
Less Cash Distributions to 903,252 --
Investors:Operating Cash Flow
Return of Capital 2,443 --
Undistributed Cash Flow from Prior $ 222,077 $
Year Operations ----------- --
Cash Generated (Deficiency) after Cash $ (227,520) $ 225,077
Distributions
Special Items (not including sales and
financing):Source of Funds:
General Partner Contributions -- --
Limited Partner Contributions 1,898,147 30,144,542
----------- ------------
$ 1,670,627 $ 30,369,619
Use of Funds:
Sales Commissions and Offering Expenses 464,760 4,310,028
Return of Original Limited Partner's -- --
Investment
Property Acquisitions and Deferred 7,931,566 6,618,273
Project Costs ----------- ------------
Cash Generated (Deficiency) after Cash $(6,725,699) $(19,441,318)
Distributions and Special Items =========== ============
Net Income and Distributions Data per
$1,000 Invested:Net Income on GAAP
Basis:Ordinary Income (Loss)
- Operations Class A Units 46 28
- Operations Class B Units (47) (3)
Capital Gain (Loss)Tax and
Distributions Data per $1,000
Invested:Federal Income Tax
Results:Ordinary Income (Loss)
- Operations Class A Units 46 17
- Operations Class B Units (33) (3)
Capital Gain (Loss) -- --
Cash Distributions to Investors:Source
(on GAAP Basis)
- - Investment Income Class A Units 43 --
- - Return of Capital Class A Units -- --
- - Return of Capital Class B Units -- --
Source (on Cash Basis)
- - Operations Class A Units 32 --
- - Return of Capital Class A Units 11 --
- - Operations Class B Units -- --
Source (on a Priority Distribution
Basis)/(5)/
- Investment Income Class A Units 33 --
- Return of Capital Class A Units 10 --
- Return of Capital Class B Units -- --
Amount (in Percentage Terms) Remaining 100%
Invested in Program
Properties at the end of the Last Year
Reported in the Table
</TABLE>
- ------------------------------------------------------------------------------
(See notes on following page)
A-11
<PAGE>
(1) Includes $28,377 in equity in earnings of joint ventures and $374,051 from
investment of reserve funds in 1995 and $241,819 in equity in earnings of
joint ventures and $815,875 from investment of reserve funds in 1996. At
December 31, 1996, the leasing status was 93% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $14,058 for 1995 and $265,259 for 1996.
(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; and $1,207,540 to Class A Limited Partners, $(270,653)
to Class B Limited Partners and $(297) to the General Partners for 1996.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per Unit to Class A Limited Partners is shown as a return
of capital to the extent of such priority distributions payable to Class B
Limited Partners. As of December 31, 1996, the aggregate amount of such
priority distributions payable to Class B Limited Partners TOTALED
-------
$250,776.
A-12
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 406,891 N/A N/A N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 101,885
Depreciation and Amortization/(3)/ 6,250
-----------
Net Income (Loss) GAAP Basis/(4)/ $ 298,756
===========
Taxable Income (Loss): Operations $ 304,552
===========
Cash Generated (Used By):Operations
151,150
Joint Ventures --
-----------
$ 151,150
Less Cash Distributions to
Investors:Operating Cash Flow 149,425
-----------
Cash Generated (Deficiency) after Cash $ 1,725
Distributions
Special Items (not including sales and
financing):Source of Funds:
General Partner Contributions --
Limited Partner Contributions 35,000,000
-----------
$35,001,725
Use of Funds:
Sales Commissions and Offering Expenses 4,900,321
Return of Original Limited Partner's --
Investment
Property Acquisitions and Deferred 6,544,019
Project Costs -----------
Cash Generated (Deficiency) after Cash $23,557,385
Distributions and Special Items ===========
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 (11)
Capital Gain (Loss)Tax and --
Distributions Data per $1,000
Invested:Federal Income Tax
Results:Ordinary Income (Loss)
- Operations Class A Units 26
- Operations Class B Units (48)
Capital Gain (Loss) --
Cash Distributions to Investors:Source
(on GAAP Basis)
- - Investment Income Class A Units 13
- - Return of Capital Class A Units --
- - Return of Capital Class B Units --
Source (on Cash Basis)
- - Operations Class A Units 13
- - Return of Capital Class A Units --
- - Operations Class B Units --
Source (on a Priority Distribution
Basis)/(5)/
- Investment Income Class A Units 10
- Return of Capital Class A Units 3
- Return of Capital Class B Units --
Amount (in Percentage Terms) Remaining 100%
Invested in Program
Properties at the end of the Last Year
Reported in the Table
</TABLE>
- -------------------------------------------------------------------------------
(1) Includes $23,077 in equity in earnings of joint ventures and $383,884 from
investment of reserve funds in 1996. At December 31, 1996, the leasing
status was 100% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,286 for 1996.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $330,270 to Class A Limited
Partners, $(31,220) to Class B Limited Partners and $(294) to the General
Partners for 1996.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per Unit to Class A Limited Partners is shown as a return
of capital to the extent of such priority distributions payable to Class B
Limited Partners. As of December 31, 1996, the aggregate amount of such
priority distributions payable to Class B Limited Partners TOTALED
-------
$36,355.
A-13
<PAGE>
EXHIBIT B
SUBSCRIPTION AGREEMENT
To: Wells Real Estate Investment Trust, Inc.
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 shares of common stock of ("Shares")
in Wells Real Estate Investment Trust, Inc., a Maryland corporation (the
"Company"), set forth on such Subscription Agreement Signature Page. Payment
for the Shares is hereby made by check payable to "NationsBank, N.A., as
ESCROW Agent."
- ------
Payments for Shares will be held in escrow until the Company has received
and accepted subscriptions for 125,000 Shares ($1,250,000), except with respect
to residents of the States of New York and Pennsylvania, whose payments for
Shares will be held in escrow until the Company has received and accepted
subscriptions for 250,000 Shares ($2,500,000) from all investors.
I hereby acknowledge receipt of the Prospectus for the Company dated
__________, 1998 (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.
Subscriptions may be rejected in whole or in part by the Company in its sole and
absolute discretion.
Prospective investors are hereby advised of the following:
(a) The assignability and transferability of the Shares is restricted and
will be governed by the Company's Articles of Incorporation and Bylaws and all
applicable laws as described in the Prospectus.
(b) Prospective investors should not invest in Shares 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 Shares, and accordingly, it may
not be possible to readily liquidate an investment in the Company.
B-1
<PAGE>
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
CONDITIONS RESTRICTING TRANSFER OF SHARES
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 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;
B-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.]
SPECIAL NOTICE FOR MASSACHUSETTS AND MINNESOTA RESIDENTS ONLY
-------------
In no event may a subscription for Shares be accepted until at least five
business days after the date the subscriber received the Prospectus. Residents
of the State of Massachusetts who first received the Prospectus only at the time
of subscription may receive a refund of the subscription amount upon request to
the Company within five days of the date of subscription.
SPECIAL NOTICE FOR NEBRASKA RESIDENTS ONLY
------------------------------------------
NO PERSON OR ENTITY SELLING SHARES ON BEHALF OF THE COMPANY MAY COMPLETE A
--------------------------------------------------------------------------
SALE OF THE SHARE UNTIL AT LEAST FIVE BUSINESS DAYS AFTER THE DATE THE
- ----------------------------------------------------------------------
PROSPECTIVE INVESTOR RECEIVES A PROSPECTUS.
- -------------------------------------------
B-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
(3) INDIVIDUAL: One signature required.
(4) JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: All parties must sign.
(5) TENANTS IN COMMON: All parties must sign.
(6) COMMUNITY PROPERTY: Only one investor signature required.
(7) PENSION OR PROFIT SHARING PLANS: The trustee signs the Signature Page.
(8) TRUST: The trustee signs the Signature Page. Provide the name of the
trust, the name of the trustee and the name of the beneficiary.
(9) COMPANY: 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).
(10) CORPORATION: The Subscription Agreement must be accompanied by (1) a
certified copy of the resolution of the Board of Directors designation 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.
(11) 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.
(12) KEOGH (HR 10): Same rules as those applicable to IRAs.
(13) 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.
B-4
<PAGE>
INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO WELLS REAL ESTATE INVESTMENT TRUST, INC. SUBSCRIPTION AGREEMENT
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INSTRUCTIONS Please follow these instructions carefully.
Failure to do so may result in the 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 Shares) is
required, except for certain states which
require a higher minimum investment. A CHECK
FOR THE FULL PURCHASE PRICE OF THE SHARES
SUBSCRIBED FOR SHOULD BE MADE PAYABLE TO THE
ORDER OF "NATIONSBANK, N.A., AS ESCROW AGENT"
----------------------------------
Shares may be purchased only by persons meeting
the standards set forth under the Section of the
Prospectus entitled "INVESTOR SUITABILITY
--------
STANDARDS." Please indicate the state in which
the sale was made.
2. TYPE OF OWNERSHIP Please check the appropriate box to indicate the
type of entity or type of individuals
subscribing.
3. REGISTRATION NAME Please enter the exact name in which the Shares
ANDADDRESS are to be held. For joint tenants 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 birthday and occupation
of the registered owner unless the registered
owner is a partnership, corporation or trust.
4. INVESTOR NAMEAND Complete this Section only if the investor's
ADDRESS name and address is different from the
registration name and address provided in
Section 4. If the Shares 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.
5. SUBSCRIBER SIGNATURE Please separately initial each representation
made by the investor where indicated. 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.
6. ADDITIONAL INVESTMENTS Please check if you plan to make one or more
additional investments in the Company. All
additional investments must be increments of at
least $25. Additional investments by residents
of Maine must be for the minimum amounts stated
under "INVESTOR SUITABILITY STANDARDS" in the
--------
Prospectus, and residents of Maine must execute
a new Subscription Agreement Signature Page to
make additional investments in the Company. If
additional investments in the Company are made,
the investor agrees to notify the Company 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 7%
--
of any such additional investments in the
Company.
7. DISTRIBUTIONS a. DISTRIBUTION REINVESTMENT PLAN: By electing
the Distribution Reinvestment Plan, the investor
elects to reinvest all distributions of Cash
Available for Distribution in the Company. The
investor agrees to notify the Company 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
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
any other representations and warranties as set
forth in the Prospectus or 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 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.
8. BROKER-DEALER This Section is to be completed by the
Registered Representative. Please 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 Company.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-800-448-1010
B-6
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
----------------------------------------
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
-------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
1. INVESTMENT
- --------------------------------------------------------------------------------
- ---------
Make Investment Check Payable to:
____________________________________-------------------------------------------
# of Shares Total $ Invested NationsBank, N.A. as Escrow Agent
(#Shares x $10.00 = $ Invested) -------------------------------------------
___________________________________
2.__________________TYPE OF
OWNERSHIP__________________________________________________________________
[_] 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________________under
For the Benefit of_____________________ the Uniform Gift to Minors Act
of the State of ________ (08)
[_] Partnership (15) _________________ [_]
Other_________________________
3.__________________REGISTRATION NAME AND
ADDRESS_________________________________
Please print name(s) in which Shares are to be registered. Include trust
------------------------------------------------------------------------
name, if applicable.
-------------------
[_]Mr. [_]Mrs. [_]Ms. [_]MD [_]Ph.D [_]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___________________________
4.__________________INVESTOR NAME AND
ADDRESS_________________________________
Please print name(s) in which Shares are to be registered. Include trust
------------------------------------------------------------------------
name, if applicable.
-------------------
(Complete only if different form registration name and address.)
---------------------------------------------------------------
[_] Mr. [_] Mrs. [_] Ms. [_] MD [_]Ph.D [_]DDS [_]Other______________Taxpayer
_____________________________________
Name __________________________________________________________________________
Social Security Number
[_][_][_]-[_][_]-[_][_][_][_]
_______________________________________________________________________________
Street Address
_______________________________________________________________________________
or P.O. Box
_______________________________________________________________________________
City State Zip Code
_______________________________________________________________________________
Home ( ) Business ( )
</TABLE>
B-7
<PAGE>
Telephone No. Telephone No.
_____________________________________________
Birthdate_______________ Occupation ________________
5.__________________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 indicate the Company to accept
- --------------------------------------------------------------------------------
this subscription, I hereby represent and warrant to you as follows:
- -------------------------------------------------------------------
(a) I have received the Prospectus
---------------------------------------------------
Initials Initials
------------ -----------------
(b) 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 resident as set forth in the Prospectus under "INVESTOR-
--------------------------------------------------------------------------
SUITABILITY STANDARDS".
---------------------
Initials Initials
------------ --------------
(c) If I am a California resident or if the Person to whom I subsequently
------------------------------------------------------------------------
propose to assign or transfer any Shares is a California resident, I may
------------------------------------------------------------------------
not consummate a sale or transfer to my Shares, or any interest therein,
------------------------------------------------------------------------
or receive any consideration therefor, without the prior written 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 Shares, or any document evidencing my Shares, will bear
------------------------------------------------------------------------
a legend reflecting the substance of the foregoing understanding.
-----------------------------------------------------------------
Initials Initials
------------ --------------
(d) ARKANSAS AND TEXAS RESIDENTS ONLY: I am purchasing the Shares 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 the Company in connection with my investment in the Company. Under
- --------------------------------------------------------------------------------
penalties, 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).
- --------------------------------------------------------------------------------
6.__________________ADDITIONAL
INVESTMENTS____________________________________________________________
Please check if you plan to make additional investments in the Company: [_]
- -----------------------------------------------------------------------------
(If additional investments are made, please include social security number or
- -----------------------------------------------------------------------------
other taxpayer identification number on your check).
- --------------------------------------------------
B-8
<PAGE>
(All additional investments must be made in increments of at least $10.)
<TABLE>
<CAPTION>
7.__________________DISTRIBUTIONS_______________________________________________
_________________________
<S> <C> <C> <C>
7(a). Check the following box to participate in the Distribution Reinvestment
Plan. [_]
7(b). Complete 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
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
8. _________________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 Shares 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 believed
-------------------------------------------------------------------------------
this investment is suitable for the subscriber as defined in Section 3(b) of
-------------------------------------------------------------------------------
Appendix F (Attachment No. 1 to Dealer Manager Agreement) 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
-------------------------------------------------------------------------------
Manager Agreement).
-----------------
<S> <C> <C> <C>
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 applicable
- ------------------------------------------------------
Registered Representative Signature
- ------------------------------------------------------
</TABLE>
Please mail completed Subscription Agreement (with all signatures) and check(s)
- --------------------------------------------------------------------------------
made payable to NationsBank, N.A., as Escrow Agent
--------------------------------------------------
Wells Investment Securities, Inc.
--------------------------------
800-448-1010 or 770-449-7800
----------------------------
<TABLE>
<CAPTION>
Overnight address: Mailing address:
- -------------------------------------------------------------------------------
<S> <C>
3885 Holcomb Bridge Road P.O. Box 926040
Norcross, Georgia 30092-9209 Norcross, Georgia 30092-9209
</TABLE>
B-9
<PAGE>
EXHIBIT C
DIVIDEND REINVESTMENT PLAN
Wells Real Estate Investment Trust, Inc., a Maryland corporation (the
"Company"), pursuant to its Articles of Incorporation, as amended and restated
to date (the "Articles"), has adopted a Dividend Reinvestment PLAN (the
----
"DRP"), the terms and conditions of which are set forth below. Capitalized
terms shall have the same meaning as set forth in the Articles unless otherwise
defined herein.
1. As agent for stockholders ("Stockholders") of the Company who purchase
shares of the Company's common stock (the "Shares") pursuant to the Company's
public offering which will commence immediately upon declaration of
effectiveness of its Registration Statement filed with the SEC July 25, 1997,
which offering is expected to be completed within one year from the date of such
effectiveness (the "Offering") and who elect to participate in the DRP (the
"Participants), the Company will apply all dividends and other distributions
declared and paid in respect of the Shares held by each Participant (the
"Distributions"), including Distributions paid with respect to any full or
fractional Shares acquired under the DRP, to the purchase of the Shares for such
Participants directly, if permitted under state securities laws and, if not,
through the Dealer-Manager for Participating Dealers registered in the
Participant's state of residence. Neither the Company nor its Affiliates will
receive a fee for selling Shares under the DRP.
2. Procedure for Participation. Any Stockholder who purchased Shares
---------------------------
pursuant to the Company's Offering may elect to become a Participant by
completing and executing the Subscription Agreement, ENROLLMENT FORM or other
-----------------
appropriate authorization form as may be available from the Company, the Dealer-
Manager or Soliciting Dealer. Participation in the DRP will begin with the next
Distribution payable after receipt of a Participant's subscription or
authorization. Shares will be purchased under the DRP on the record date for
the Distribution used to purchase the Shares. Distributions for Shares acquired
under the DRP are currently paid monthly and are calculated with a daily record
and Distribution declaration date. Each Participant agrees that if, at any time
prior to listing of the Shares on a national stock exchange or inclusion of the
Shares for quotation on the National Association of Securities Dealers, Inc.
Automated Quotation System ("Nasdaq"), he or she fails to meet the suitability
requirements for making an investment in the Company or cannot make the other
representations or warranties set forth in the Subscription Agreement, he will
promptly so notify the Company in writing.
3. Purchase of Shares. Participants will acquire Shares from the Company
------------------
at a fixed price of $10 per Share until ALL 1,500,000 INITIAL DRP SHARES (AS
--- ------------------------------------
DEFINED) ARE ISSUED. Participants in the DRP may also purchase fractional
- -------------------
Shares so that 100% of the Distributions will be used to acquire Shares.
However, a Participant will not be able to acquire Shares under the DRP to the
extent such purchase would cause it to exceed the Ownership Limit.
Shares to be distributed by the Company in connection with the DRP may (but
are not required to) be supplied from: (a) 1,500,000 Shares which were
registered for the DRP in the Offering (THE "INITIAL DRP SHARES"), (b) shares of
--------------------------
the Company's stock purchased by the Company for the DRP in a secondary market
(if available) or on a stock exchange or Nasdaq (if listed) (collectively, the
"Secondary Market"), or (c) shares registered by the Company with the SEC for
use in the DRP (a "Secondary Registration").
Shares purchased on the Secondary Market as set forth in (b) above will be
purchased at the then-prevailing market price, which price will be utilized for
purposes of purchases of Shares in the DRP. Shares acquired by the Company on
the Secondary Market or registered in a Secondary Registration for use in the
DRP may be at prices lower or higher than the $10 per Share price which will
---
be paid for the INITIAL DRP SHARES.
------------------
If the Company acquires shares in the Secondary Market for use in the DRP,
the Company shall use reasonable efforts to acquire Shares for use in the DRP at
the lowest price then reasonably available. However, the Company does not in
any respect guarantee or warrant that the Shares so acquired and purchased by
the Participant in the DRP will be at the lowest possible price. Further,
irrespective of the Company's ability to acquire Shares in the Secondary Market
or to complete a Secondary Registration for shares to be used in the DRP, the
Company is in no way obligated to do either, in its sole discretion.
It is understood that reinvestment of Distributions does not relieve a
Participant of any income tax liability which may be payable on the
Distributions.
4. Share Certificates. THE OWNERSHIP OF THE Shares purchased through
------------------ ---------------------
the DRP will be in book-entry form
<PAGE>
ONLY UNTIL THE COMPANY BEGINS TO ISSUE CERTIFICATES FOR ALL ITS OUTSTANDING
- ---------------------------------------------------------------------------
COMMON STOCK.
- -------------
5. Reports. Within 90 days after the end of the Company's fiscal year,
-------
the Company will provide each Participant with an individualized report on his
or her investment, including the purchase date(s), purchase price and number of
Shares owned, as well as the dates of distribution and amounts of Distributions
received during the prior fiscal year. The individualized statement to
Stockholders will include receipts and purchases relating to each Participant's
participation in the DRP including the tax consequences relative thereto.
6. Termination by Participant. A Participant may terminate participation
--------------------------
in the DRP at any time, without penalty, by delivering to the Company a written
notice. Prior to listing of the Shares on a stock exchange or Nasdaq, any
transfer of Shares by a Participant to a non-Participant will terminate
participation in the DRP with respect to the transferred Shares. If a
Participant terminates DRP participation, the Company will provide the
terminating Participant with a certificate evidencing the whole shares in his or
her account and a check for the cash value of any fractional share in such
account. Upon termination of DRP participation, Distributions will be
distributed to the Stockholder in cash.
7. Amendment or Termination of DRP by the Company. The Directors of the
----------------------------------------------
Company may by majority vote (including a majority of the Independent Directors)
amend or terminate the DRP for any reason upon 30 days' written notice to the
Participants.
8. Liability of the Company. The Company shall not be liable for any act
------------------------
done in good faith, or for any good faith omission to act, including, without
limitation, any claims or liability: (a) arising out of failure to terminate a
Participant's account upon such Participant's death prior to receipt of notice
in writing of such death; and (b) with respect to the time and the prices at
which Shares are purchased or sold for a Participant's account. To the extent
that indemnification may apply to liabilities arising under the Securities Act
of 1933, as amended or the securities act of a state, the Company has been
advised that, in the opinion of the Securities and Exchange Commission and
certain state securities commissioners, such indemnification is contrary to
public policy and, therefore, unenforceable.
9. Governing Law. This DRP shall be governed by the laws of the State
--------------
of Maryland.
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
----------------------------------------
P R O S P E C T U S
----------------------------
FOR
---
DIVIDEND REINVESTMENT PLAN
--------------------------
PURSUANT TO ITS REVISED DIVIDEND REINVESTMENT PLAN (THE "PLAN"), WELLS REAL
ESTATE INVESTMENT TRUST, INC., A DELAWARE CORPORATION (THE "COMPANY"), HEREBY
OFFERS TO HOLDERS OF ITS COMMON STOCK, $.01 PAR VALUE PER SHARE (THE "COMMON
STOCK") THE OPPORTUNITY TO PURCHASE, THROUGH REINVESTMENT OF DIVIDENDS OR BY
ADDITIONAL CASH PAYMENTS, ADDITIONAL SHARES OF COMMON STOCK, ON THE TERMS,
SUBJECT TO THE CONDITIONS AND AT THE PRICES HEREIN STATED.
THE PLAN WAS IMPLEMENTED INITIALLY IN CONNECTION WITH THE COMPANY'S
REGISTERED PUBLIC OFFERING OF 16,500,000 SHARES OF ITS COMMON STOCK (THE
"INITIAL OFFERING"), OF WHICH AMOUNT 1,500,000 SHARES WERE REGISTERED AND
RESERVED FOR DISTRIBUTION PURSUANT TO THE PLAN.
DIVIDENDS REINVESTED PURSUANT TO THE PLAN WILL BE APPLIED TO THE PURCHASE
OF SHARES OF COMMON STOCK AT A PRICE OF $10.00 PER SHARE UNTIL ALL 1,500,000
SHARES RESERVED INITIALLY FOR THE PLAN (THE "INITIAL PLAN SHARES") HAVE BEEN
PURCHASED. THEREAFTER, THE COMPANY MAY IN ITS SOLE DISCRETION ACQUIRE
ADDITIONAL SHARES FOR PURCHASE UNDER THE PLAN MAY EITHER THROUGH PURCHASES ON
THE OPEN MARKET, THROUGH THE COMPANY'S SHARE REPURCHASE PROGRAM AND/OR
ADDITIONAL REGISTRATIONS OF COMMON STOCK FOR USE IN THE PLAN. IN ANY CASE, THE
PER SHARE PURCHASE PRICE UNDER THE PLAN FOR SUCH ADDITIONALLY ACQUIRED SHARES
WILL EQUAL THE THEN-PREVAILING MARKET PRICE OF THE STOCK AS DETERMINED BY THE
COMPANY'S BOARD OF DIRECTORS, WHICH IF THE COMPANY'S STOCK IS LISTED SHALL EQUAL
THE PRICE ON THE APPLICABLE STOCK EXCHANGE, NASDAQ OR OVER-THE-COUNTER MARKET.
THIS PROSPECTUS RELATES TO 1,500,000 SHARES OF COMMON STOCK THAT HAVE BEEN
REGISTERED FOR SALE UNDER THE PLAN. PLEASE RETAIN THIS PROSPECTUS FOR FUTURE
REFERENCE.
THE EXECUTIVE OFFICES OF THE COMPANY ARE LOCATED AT 3885 HOLCOMB BRIDGE
RD., NORCROSS, GEORGIA 30092, AND ITS TELEPHONE NUMBER IS (770) 449-7800.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAVE SUCH
REGULATORS 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.
THE DATE OF THIS PROSPECTUS IS ________________________, 1998.
<PAGE>
AUTHORIZATION
- -------------
NO PERSON has been authorized to give any information or to make
---------
representations not contained in this Prospectus REGARDING THE COMPANY OR THE
----------------------------
OFFERING MADE HEREBY and, if given or made, such information or representations
- --------------------
must not be relied upon as having been authorized by the Company. This
Prospectus does not constitute an offer TO SELL or a solicitation of an offer
--------
to buy ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES, NOR DOES
----------------------------------------------------------------------
IT CONSTITUTE AN OFFER TO OR SOLICITATION OF any person in any jurisdiction IN
- -------------------------------------------- --
WHICH such offer or solicitation would be unlawful. Neither delivery of
- -----
this Prospectus nor any sale made hereunder shall create an implication that
information contained herein is correct as of any time subsequent to the date
hereof.
AVAILABLE INFORMATION
- ---------------------
THE COMPANY IS SUBJECT TO THE INFORMATIONAL REQUIREMENTS OF THE SECURITIES
--------------------------------------------------------------------------
EXCHANGE ACT OF 1934 (THE "1934 ACT") AND FILES REPORTS, PROXY STATEMENTS AND
- -----------------------------------------------------------------------------
OTHER INFORMATION WITH THE SECURITIES AND EXCHANGE COMMISSION (THE
- ------------------------------------------------------------------
"COMMISSION"). REPORTS, PROXY STATEMENTS, AND OTHER INFORMATION CONCERNING THE
- -------------------------------------------------------------------------------
COMPANY CAN BE INSPECTED AND COPIED AT THE PUBLIC REFERENCE FACILITIES
- ----------------------------------------------------------------------
MAINTAINED BY THE COMMISSION AT ROOM 1024, 450 FIFTH STREET, N.W., WASHINGTON,
- ------------------------------------------------------------------------------
D.C. 20549, AND AT ITS REGIONAL OFFICES IN NEW YORK (SUITE 1300, 7 WORLD TRADE
- ------------------------------------------------------------------------------
CENTER, NEW YORK, NEW YORK 10048) AND CHICAGO (SUITE 1400, 500 WEST MADISON
- ---------------------------------------------------------------------------
STREET, CHICAGO, ILLINOIS 60661). COPIES OF SUCH MATERIAL CAN BE OBTAINED BY
- -----------------------------------------------------------------------------
MAIL FROM THE PUBLIC REFERENCE SECTION OF THE COMMISSION AT 450 FIFTH STREET,
- -----------------------------------------------------------------------------
N.W., WASHINGTON, D.C. 20549, AT PRESCRIBED RATES.
- --------------------------------------------------
INCORPORATION OF DOCUMENTS BY REFERENCE
- ---------------------------------------
THE FOLLOWING DOCUMENTS (OR APPLICABLE PORTIONS THEREOF), FILED WITH THE
------------------------------------------------------------------------
COMMISSION PURSUANT TO THE 1934 ACT OR THE SECURITIES ACT OF 1933, AS AMENDED
- -----------------------------------------------------------------------------
(THE "1933 ACT"), ARE INCORPORATED BY REFERENCE IN THIS PROSPECTUS:
- -------------------------------------------------------------------
1. THE DESCRIPTION OF THE COMMON STOCK CONTAINED IN THE COMPANY'S REGISTRATION
- -- ---------------------------------------------------------------------------
STATEMENT ON FORM S-11, AS AMENDED.
- -----------------------------------
2. [ THE COMPANY'S ANNUAL REPORT ON FORM L0-K FOR THE YEAR ENDED DECEMBER 31,
- -- --------------------------------------------------------------------------
1998.]
- ------
3. [ THE COMPANY'S QUARTERLY REPORTS ON FORM L0-Q FOR THE QUARTER[S] ENDED
- -- -----------------------------------------------------------------------
MARCH 31, [JUNE 30] [AND SEPTEMBER 30], 1998. ]
- -----------------------------------------------
ALL DOCUMENTS FILED PURSUANT TO SECTIONS L3(A), L3(C), L4 OR L5(D) OF THE
-------------------------------------------------------------------------
L934 ACT AFTER THE DATE OF THIS PROSPECTUS AND BEFORE TERMINATION OF THIS
- -------------------------------------------------------------------------
OFFERING ARE INCORPORATED BY REFERENCE INTO THIS PROSPECTUS FROM THE DATE OF
- ----------------------------------------------------------------------------
FILING OF THOSE DOCUMENTS. ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED
- ------------------------------------------------------------------------------
OR DEEMED TO BE INCORPORATED BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED
- -------------------------------------------------------------------------------
OR SUPERSEDED FOR PURPOSES OF THIS PROSPECTUS TO THE EXTENT THAT A STATEMENT
- ----------------------------------------------------------------------------
CONTAINED HEREIN OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT WHICH IS DEEMED TO
- -------------------------------------------------------------------------------
BE INCORPORATED BY REFERENCE HEREIN MODIFIES OR SUPERSEDES SUCH STATEMENT. ANY
- -------------------------------------------------------------------------------
SUCH STATEMENT SO MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO
- --------------------------------------------------------------------------
MODIFIED OR SUPERSEDED, TO CONSTITUTE A PART OF THE PROSPECTUS. ANYONE
- -----------------------------------------------------------------------
RECEIVING A COPY OF THIS PROSPECTUS MAY OBTAIN, WITHOUT CHARGE, A COPY OF ANY OF
- --------------------------------------------------------------------------------
THE DOCUMENTS INCORPORATED BY REFERENCE, EXCEPT FOR THE EXHIBITS, IF ANY, TO
- ----------------------------------------------------------------------------
THOSE DOCUMENTS. TELEPHONE OR MAIL YOUR REQUEST TO:
- ----------------------------------------------------
WELLS REAL ESTATE INVESTMENT TRUST, INC.
----------------------------------------
3885 HOLCOMB BRIDGE RD.
-----------------------
NORCROSS, GEORGIA 30092
------------------------
ATTENTION: SECRETARY
---------------------
(770) 449-7800
--------------
<PAGE>
THE COMPANY
- -----------
THE COMPANY, FOUNDED IN 1997, IS A MARYLAND CORPORATION THAT OWNS AND
---------------------------------------------------------------------
OPERATES INCOME PRODUCING REAL ESTATE, PRIMARILY COMMERCIAL OFFICE BUILDINGS.
- ------------------------------------------------------------------------------
THE COMPANY IS STRUCTURED AND OPERATED IN A MANNER INTENDED TO ENABLE IT TO
- ---------------------------------------------------------------------------
QUALIFY AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF
- ----------------------------------------------------------------------------
1986, AS AMENDED (THE "CODE").
- ------------------------------
THE PLAN
- --------
THE PLAN PROVIDES YOU WITH A SIMPLE AND CONVENIENT WAY TO INVEST YOUR CASH
--------------------------------------------------------------------------
DIVIDENDS IN ADDITIONAL SHARES OF COMMON STOCK. AS A PARTICIPANT IN THE PLAN,
- ------------------------------------------------------------------------------
YOU MAY PURCHASE SHARES AT A PRICE OF $10.00 PER SHARE UNTIL ALL 1,500,000
- --------------------------------------------------------------------------
INITIAL PLAN SHARES HAVE BEEN PURCHASED. THEREAFTER, ADDITIONAL SHARES FOR
- ---------------------------------------------------------------------------
PURCHASE WITHIN THE PLAN MAY (BUT DO NOT HAVE TO), BE ACQUIRED BY THE COMPANY IN
- --------------------------------------------------------------------------------
ITS SOLE DISCRETION EITHER THROUGH PURCHASES ON THE OPEN MARKET, PURCHASES
- --------------------------------------------------------------------------
PURSUANT TO THE COMPANY'S SHARE REPURCHASE PROGRAM AND/OR ADDITIONAL
- --------------------------------------------------------------------
REGISTRATIONS OF COMMON STOCK RELATING TO THE PLAN. IN ANY CASE OTHER THAN
- ---------------------------------------------------------------------------
PURCHASE OF THE INITIAL PLAN SHARES, THE PER SHARE PURCHASE PRICE UNDER THE PLAN
- --------------------------------------------------------------------------------
WILL EQUAL THE THEN-PREVAILING MARKET PRICE OF THE STOCK, WHICH IF THE COMPANY'S
- --------------------------------------------------------------------------------
STOCK IS LISTED SHALL EQUAL THE PRICE ON THE APPLICABLE STOCK EXCHANGE, NASDAQ
- ------------------------------------------------------------------------------
OR OVER-THE-COUNTER MARKET.
- ---------------------------
YOU RECEIVE FREE CUSTODIAL SERVICE FOR THE SHARES YOU HOLD THROUGH THE PLAN.
- ----------------------------------------------------------------------------
SHARES FOR THE PLAN WILL BE PURCHASED DIRECTLY FROM THE COMPANY. SUCH
----------------------------------------------------------------------
SHARES WILL BE AUTHORIZED AND MAY BE EITHER PREVIOUSLY ISSUED OR UNISSUED
- -------------------------------------------------------------------------
SHARES. PROCEEDS FROM THE SALE OF THE PLAN SHARES PROVIDE THE COMPANY WITH
- ---------------------------------------------------------------------------
FUNDS FOR GENERAL CORPORATE PURPOSES.
- -------------------------------------
ELIGIBILITY
- -----------
HOLDERS OF RECORD OF COMMON ARE ELIGIBLE TO PARTICIPATE IN THE PLAN WITH
------------------------------------------------------------------------
RESPECT TO ANY WHOLE NUMBER OF THEIR SHARES. IF YOUR SHARES ARE HELD OF RECORD
- -------------------------------------------------------------------------------
BY A BROKER OR NOMINEE AND YOU WANT TO PARTICIPATE IN THE PLAN, YOU MUST MAKE
- -----------------------------------------------------------------------------
APPROPRIATE ARRANGEMENTS WITH YOUR BROKER OR NOMINEE.
- -----------------------------------------------------
THE COMPANY MAY REFUSE PARTICIPATION IN THE PLAN TO SHAREHOLDERS RESIDING
-------------------------------------------------------------------------
IN STATES WHERE SHARES OFFERED PURSUANT TO THE PLAN ARE NEITHER REGISTERED UNDER
- --------------------------------------------------------------------------------
APPLICABLE SECURITIES LAWS NOR EXEMPT FROM REGISTRATION.
- --------------------------------------------------------
ADMINISTRATION
- --------------
AS OF THE DATE OF THIS PROSPECTUS, THE PLAN IS ADMINISTERED BY THE COMPANY
--------------------------------------------------------------------------
OR AN AFFILIATE OF THE COMPANY (THE "PLAN ADMINISTRATOR"), BUT A DIFFERENT
- --------------------------------------------------------------------------
ENTITY MAY ACT AS PLAN ADMINISTRATOR IN THE FUTURE. THE PLAN ADMINISTRATOR WILL
- --------------------------------------------------------------------------------
KEEP ALL RECORDS OF YOUR PLAN ACCOUNT AND SENDS STATEMENTS OF YOUR ACCOUNT TO
- -----------------------------------------------------------------------------
YOU. SHARES OF COMMON STOCK PURCHASED UNDER THE PLAN ARE REGISTERED IN THE NAME
- --------------------------------------------------------------------------------
OF EACH PARTICIPATING SHAREHOLDER.
- ----------------------------------
ENROLLMENT
- ----------
YOU MAY JOIN THE PLAN BY SIGNING THE ENROLLMENT FORM ENCLOSED WITH THIS
-----------------------------------------------------------------------
PROSPECTUS AND RETURNING IT TO THE COMPANY.
- -------------------------------------------
YOUR PARTICIPATION IN THE PLAN WILL BEGIN WITH THE FIRST DIVIDEND PAYMENT
-------------------------------------------------------------------------
AFTER YOUR SIGNED CARD IS RECEIVED, PROVIDED YOUR CARD IS RECEIVED ON OR BEFORE
- -------------------------------------------------------------------------------
TEN DAYS PRIOR TO THE RECORD DATE ESTABLISHED FOR THAT DIVIDEND. RECORD DATES
- ------------------------------------------------------------------------------
FOR DIVIDENDS ARE ORDINARILY ON OR ABOUT THE 15TH DAY OF MARCH, JUNE, SEPTEMBER
- -------------------------------------------------------------------------------
AND DECEMBER, BUT MAY BE CHANGED FROM TIME TO TIME IN THE DISCRETION OF THE
- ---------------------------------------------------------------------------
COMPANY'S MANAGEMENT. IF YOUR ENROLLMENT FORM IS RECEIVED AFTER THE RECORD DATE
- --------------------------------------------------------------------------------
FOR ANY DIVIDEND AND BEFORE PAYMENT OF THAT DIVIDEND, THAT DIVIDEND WILL BE PAID
- --------------------------------------------------------------------------------
TO YOU IN CASH AND REINVESTMENT OF YOUR DIVIDENDS WILL NOT BEGIN UNTIL THE NEXT
- -------------------------------------------------------------------------------
DIVIDEND PAYMENT DATE.
- ----------------------
COSTS
- -----
PARTICIPANTS IN THE PLAN PAY NO SERVICE CHARGES OR OTHER FEES FOR PURCHASES
---------------------------------------------------------------------------
MADE UNDER THE PLAN. ALL COSTS OF ADMINISTRATION OF THE PLAN ARE PAID BY THE
- -----------------------------------------------------------------------------
COMPANY. HOWEVER, ANY INTEREST EARNED ON DIVIDENDS ON SHARES WITHIN THE PLAN
- -----------------------------------------------------------------------------
WILL BE PAID TO THE COMPANY TO DEFRAY CERTAIN COSTS RELATING TO THE PLAN. IF
- -----------------------------------------------------------------------------
YOU TERMINATE PARTICIPATION IN THE PLAN OR ASK THAT YOUR PLAN SHARES BE SOLD,
- -----------------------------------------------------------------------------
YOU WILL PAY CERTAIN CHARGES AS EXPLAINED IN "TERMINATION OF PARTICIPATION"
- ---------------------------------------------------------------------------
BELOW. EXCEPT AS DESCRIBED BELOW, THE COMPANY WILL PAY THE FOLLOWING
- ---------------------------------------------------------------------
COMMISSIONS AND FEES TO CERTAIN AFFILIATES OF THE COMPANY IN CONNECTION WITH
- ----------------------------------------------------------------------------
SHARES OF COMMON STOCK SOLD TO PARTICIPANTS UNDER THE PLAN (EXPRESSED AS A
- --------------------------------------------------------------------------
PERCENTAGE OF THE PURCHASE PRICE PROCEEDS): (A) A SELLING
- ----------------------------------------------------------
<PAGE>
COMMISSION OF 7% (THE "SELLING COMMISSION"), ALL OF WHICH MAY BE REALLOWED TO
THE BROKERS AND DEALERS OF SUCH SHARES; (B) A MARKETING AND DUE DILIGENCE FEE
(THE "DUE DILIGENCE FEE") OF 2.5%; AND (C) AN ACQUISITION AND ADVISORY FEE
("ACQUISITION AND ADVISORY FEE") OF 3%, WHICH AFTER SALE OF THE INITIAL PLAN
SHARES WILL BE PAID ONLY IN THE EVENT THAT PROCEEDS OF THE SALE OF SUCH SHARES
ARE USED TO ACQUIRE PROPERTIES. IN OHIO, ONLY THE ACQUISITION AND ADVISORY FEE
MAY BE PAID IN CONNECTION WITH SALES OF STOCK UNDER THE PLAN.
PURCHASES AND PRICE OF SHARES
- -----------------------------
COMMON STOCK DIVIDENDS WILL BE INVESTED WITHIN 30 DAYS AFTER THE DATE ON
------------------------------------------------------------------------
WHICH COMMON STOCK DIVIDENDS ARE PAID EACH QUARTER (THE "INVESTMENT DATE").
- --------------------------------------------------------------------------
PAYMENT DATES FOR COMMON STOCK DIVIDENDS ARE ORDINARILY ON OR ABOUT THE LAST
- ----------------------------------------------------------------------------
CALENDAR DAY OF MARCH, JUNE, SEPTEMBER AND DECEMBER, BUT MAY BE CHANGED FROM
- ----------------------------------------------------------------------------
TIME TO TIME IN THE DISCRETION OF THE COMPANY.
- ---------------------------------------------
YOU BECOME AN OWNER OF SHARES PURCHASED UNDER THE PLAN AS OF THE INVESTMENT
- ---------------------------------------------------------------------------
DATE. NO SHARES WILL BE PURCHASED UNDER THE PLAN AT LESS THAN THEIR PAR VALUE
- ------------------------------------------------------------------------------
($.01 PER SHARE). DIVIDENDS PAID ON SHARES HELD IN THE PLAN (LESS ANY REQUIRED
- -------------------------------------------------------------------------------
WITHHOLDING TAX) WILL BE CREDITED TO YOUR PLAN ACCOUNT. DIVIDENDS ARE PAID ON
- ------------------------------------------------------------------------------
BOTH FULL AND FRACTIONAL SHARES HELD IN YOUR ACCOUNT AND ARE AUTOMATICALLY
- --------------------------------------------------------------------------
REINVESTED.
- -----------
REINVESTED DISTRIBUTIONS. YOU MAY ELECT DIVIDEND REINVESTMENT WITH RESPECT
---------------------------------------------------------------------------
TO ANY WHOLE NUMBER OF SHARES REGISTERED IN YOUR NAME ON THE RECORDS OF THE
- ---------------------------------------------------------------------------
COMPANY. SPECIFY ON THE ENROLLMENT FORM THE NUMBER OF SHARES FOR WHICH YOU WANT
- --------------------------------------------------------------------------------
DIVIDENDS REINVESTED. DIVIDENDS ON ALL SHARES PURCHASED PURSUANT TO THE PLAN
- -----------------------------------------------------------------------------
WILL BE AUTOMATICALLY REINVESTED. THE NUMBER OF SHARES PURCHASED FOR YOU AS A
- ------------------------------------------------------------------------------
PARTICIPANT IN THE PLAN DEPENDS ON THE AMOUNT OF YOUR DIVIDENDS ON THESE SHARES
- -------------------------------------------------------------------------------
(LESS ANY REQUIRED WITHHOLDING TAX) AND THE PURCHASE PRICE OF THE COMMON STOCK.
- --------------------------------------------------------------------------------
YOUR ACCOUNT WILL BE CREDITED WITH THE NUMBER OF SHARES, INCLUDING FRACTIONS
- ----------------------------------------------------------------------------
COMPUTED TO FOUR DECIMAL PLACES, EQUAL TO THE TOTAL AMOUNT INVESTED DIVIDED BY
- ------------------------------------------------------------------------------
THE PURCHASE PRICE PER SHARE.
- -----------------------------
SHARES OF COMMON STOCK FOR PARTICIPANTS WILL BE PURCHASED FROM THE COMPANY
--------------------------------------------------------------------------
AT A PRICE PER SHARE OF $10 FOR ALL OF THE INITIAL PLAN SHARES, AND THEREAFTER
- ------------------------------------------------------------------------------
(IF AVAILABLE) AT PRICES EQUAL TO THE THEN-PREVAILING MARKET PRICE OF THE STOCK
- -------------------------------------------------------------------------------
AS DETERMINED BY THE COMPANY'S BOARD OF DIRECTORS, WHICH IF THE COMPANY'S STOCK
- -------------------------------------------------------------------------------
IS LISTED SHALL EQUAL THE CLOSING PRICE ON THE APPLICABLE STOCK EXCHANGE, NASDAQ
- --------------------------------------------------------------------------------
OR OVER-THE-COUNTER MARKET ON THE TRADING DAY IMMEDIATELY PRIOR TO THE
- ----------------------------------------------------------------------
INVESTMENT DATE.
- ----------------
OPTIONAL CASH PURCHASES. UNTIL DETERMINED OTHERWISE BY THE COMPANY, PLAN
-------------------------------------------------------------------------
PARTICIPANTS MAY NOT MAKE ADDITIONAL CASH PAYMENTS FOR THE PURCHASE OF COMMON
- -----------------------------------------------------------------------------
STOCK UNDER THE PLAN.
- ---------------------
DIVIDENDS ON SHARES HELD IN PLAN
- --------------------------------
DIVIDENDS PAID ON SHARES HELD IN THE PLAN (LESS ANY REQUIRED WITHHOLDING
------------------------------------------------------------------------
TAX) WILL BE CREDITED TO YOUR PLAN ACCOUNT. DIVIDENDS ARE PAID ON BOTH FULL AND
- --------------------------------------------------------------------------------
FRACTIONAL SHARES HELD IN YOUR ACCOUNT AND ARE AUTOMATICALLY REINVESTED.
- ------------------------------------------------------------------------
ACCOUNT STATEMENTS
- ------------------
YOU WILL RECEIVE A STATEMENT OF YOUR ACCOUNT WITHIN 60 DAYS AFTER EACH
----------------------------------------------------------------------
INVESTMENT DATE. THE STATEMENTS WILL CONTAIN A REPORT OF ALL TRANSACTIONS SINCE
- --------------------------------------------------------------------------------
THE LAST STATEMENT, INCLUDING INFORMATION WITH RESPECT TO THE NUMBER OF SHARES
- ------------------------------------------------------------------------------
ALLOCATED TO YOUR ACCOUNT, THE AMOUNT OF DIVIDENDS RECEIVED WHICH ARE ALLOCABLE
- -------------------------------------------------------------------------------
TO YOU, THE AMOUNT OF COMMON STOCK PURCHASED THEREWITH AND THE PRICE PAID.
- ---------------------------------------------------------------------------
THESE STATEMENTS ARE YOUR CONTINUING RECORD OF THE COST OF YOUR PURCHASE AND
- ----------------------------------------------------------------------------
SHOULD BE RETAINED FOR INCOME TAX PURPOSES.
- -------------------------------------------
CERTIFICATES FOR SHARES
- -----------------------
AS OF THE DATE OF THIS PROSPECTUS, THE COMPANY IS NOT ISSUING CERTIFICATES
--------------------------------------------------------------------------
FOR SHARES PURCHASED UNDER THE PLAN, AND YOUR OWNERSHIP OF SUCH SHARES WILL BE
- ------------------------------------------------------------------------------
EVIDENCED ON THE BOOKS OF THE COMPANY IN YOUR ACCOUNT. THE NUMBER OF SHARES
- ----------------------------------------------------------------------------
PURCHASED WILL BE SHOWN ON YOUR STATEMENT OF ACCOUNT. THIS FEATURE PERMITS
- ---------------------------------------------------------------------------
OWNERSHIP OF FRACTIONAL SHARES, PROTECTS AGAINST LOSS, THEFT OR DESTRUCTION OF
- ------------------------------------------------------------------------------
STOCK CERTIFICATES, AND REDUCES THE COSTS OF THE PLAN.
- ------------------------------------------------------
AFTER THE DATE THE COMPANY BEGINS ISSUING CERTIFICATES FOR THE OUTSTANDING
--------------------------------------------------------------------------
SHARES OF ITS COMMON STOCK, CERTIFICATES FOR ANY NUMBER OF WHOLE SHARES CREDITED
- --------------------------------------------------------------------------------
TO YOUR ACCOUNT WILL BE ISSUED IN YOUR NAME UPON YOUR WRITTEN REQUEST TO THE
- ----------------------------------------------------------------------------
PLAN ADMINISTRATOR. CERTIFICATES FOR FRACTIONAL SHARES WILL NOT BE ISSUED.
- ----------------------------------------------------------------------------
SHOULD YOU WANT YOUR CERTIFICATES ISSUED IN A DIFFERENT NAME, YOU MUST NOTIFY
- -----------------------------------------------------------------------------
THE PLAN ADMINISTRATOR IN WRITING AND COMPLY WITH APPLICABLE TRANSFER
- ---------------------------------------------------------------------
REQUIREMENTS. IF YOU WISH TO SELL ANY WHOLE SHARES CREDITED TO YOUR ACCOUNT
- ----------------------------------------------------------------------------
UNDER THE PLAN, YOU WILL HAVE THE OPTION OF EITHER (I) RECEIVING A CERTIFICATE
- ------------------------------------------------------------------------------
FOR SUCH WHOLE NUMBER OF SHARES, OR (II) REQUESTING THAT SUCH SHARES HELD IN
- ----------------------------------------------------------------------------
YOUR ACCOUNT BE SOLD, IN WHICH CASE THE SHARES WILL BE SOLD ON THE OPEN MARKET
- ------------------------------------------------------------------------------
AS SOON AS
- ----------
<PAGE>
PRACTICABLE. BROKERAGE COMMISSIONS ON SUCH SALES WILL NOT BE PAID BY THE
- -------------------------------------------------------------------------
COMPANY, AND WILL BE DEDUCTED FROM THE SALES PROCEEDS. SEE "TERMINATION OF
- ---------------------------------------------------------------------------
PARTICIPATION." IF YOU WISH TO PLEDGE SHARES CREDITED TO YOUR ACCOUNT, YOU MUST
- --------------------------------------------------------------------------------
FIRST HAVE THE CERTIFICATE FOR THOSE SHARES ISSUED IN YOUR NAME.
- ----------------------------------------------------------------
TERMINATION OF PARTICIPATION
- ----------------------------
YOU MAY DISCONTINUE REINVESTMENT OF DIVIDENDS UNDER THE PLAN WITH RESPECT
-------------------------------------------------------------------------
TO ALL, BUT NOT LESS THAN ALL, OF YOUR SHARES (INCLUDING SHARES HELD FOR YOUR
- -----------------------------------------------------------------------------
ACCOUNT IN THE PLAN) AT ANY TIME BY NOTIFYING THE PLAN ADMINISTRATOR IN WRITING
- -------------------------------------------------------------------------------
NO LESS THAN TEN DAYS PRIOR TO THE NEXT RECORD DATE. A NOTICE OF TERMINATION
- -----------------------------------------------------------------------------
RECEIVED BY THE PLAN ADMINISTRATOR AFTER SUCH CUTOFF DATE WILL NOT BE EFFECTIVE
- -------------------------------------------------------------------------------
UNTIL THE NEXT FOLLOWING INVESTMENT DATE. PARTICIPANTS WHO TERMINATE THEIR
- ---------------------------------------------------------------------------
PARTICIPATION IN THE PLAN MAY THEREAFTER REJOIN THE PLAN BY NOTIFYING THE
- -------------------------------------------------------------------------
COMPANY AND COMPLETING ALL NECESSARY FORMS AND OTHERWISE AS REQUIRED BY THE
- ---------------------------------------------------------------------------
COMPANY.
- --------
IF YOU NOTIFY THE PLAN ADMINISTRATOR OF YOUR TERMINATION OF PARTICIPATION
-------------------------------------------------------------------------
IN THE PLAN OR IF YOUR PARTICIPATION IN THE PLAN IS TERMINATED BY THE COMPANY,
- ------------------------------------------------------------------------------
THE COMPANY'S STOCK OWNERSHIP RECORDS WILL BE UPDATED TO INCLUDE THE NUMBER OF
- ------------------------------------------------------------------------------
WHOLE SHARES IN YOUR PLAN ACCOUNT. FOR ANY FRACTIONAL SHARES OF STOCK IN YOUR
- ------------------------------------------------------------------------------
PLAN ACCOUNT, THE PLAN ADMINISTRATOR MAY EITHER (I) SEND YOU A CHECK IN PAYMENT
- -------------------------------------------------------------------------------
FOR ANY FRACTIONAL SHARES IN YOUR ACCOUNT, OR (II) CREDIT YOUR STOCK OWNERSHIP
- ------------------------------------------------------------------------------
ACCOUNT WITH ANY SUCH FRACTIONAL SHARES.
- ----------------------------------------
A PARTICIPANT WHO CHANGES HIS OR HER ADDRESS MUST PROMPTLY NOTIFY THE PLAN
--------------------------------------------------------------------------
ADMINISTRATOR. IF A PARTICIPANT MOVES HIS RESIDENCE TO A STATE WHERE SHARES
- ----------------------------------------------------------------------------
OFFERED PURSUANT TO THE PLAN ARE NEITHER REGISTERED NOR EXEMPT FROM REGISTRATION
- --------------------------------------------------------------------------------
UNDER APPLICABLE SECURITIES LAWS, THE COMPANY MAY DEEM THE PARTICIPANT TO HAVE
- ------------------------------------------------------------------------------
TERMINATED PARTICIPATION IN THE PLAN.
- -------------------------------------
AMENDMENT AND TERMINATION OF PLAN
- ---------------------------------
THE COMPANY MAY, IN ITS SOLE DISCRETION, AMEND ANY ASPECT OF THE PLAN
---------------------------------------------------------------------
WITHOUT THE CONSENT OF PARTICIPANTS OR OTHER STOCKHOLDERS, PROVIDED THAT NOTICE
- -------------------------------------------------------------------------------
OF ANY MATERIAL AMENDMENT IS SENT TO PARTICIPANTS AT LEAST 30 DAYS PRIOR TO THE
- -------------------------------------------------------------------------------
EFFECTIVE DATE THEREOF. THE COMPANY MAY ALSO, IN ITS SOLE DISCRETION, TERMINATE
- --------------------------------------------------------------------------------
THE PLAN FOR ANY REASON AT ANY TIME WITH TEN DAYS PRIOR WRITTEN NOTICE OF SUCH
- ------------------------------------------------------------------------------
TERMINATION TO ALL PARTICIPANTS. YOU WILL BE NOTIFIED IF THE PLAN IS TERMINATED
- --------------------------------------------------------------------------------
OR MATERIALLY AMENDED. THE COMPANY MAY ALSO TERMINATE ANY PARTICIPANT'S
- ------------------------------------------------------------------------
PARTICIPATION IN THE PLAN AT ANY TIME BY NOTICE TO SUCH PARTICIPANT IF CONTINUED
- --------------------------------------------------------------------------------
PARTICIPATION WILL, IN THE OPINION OF THE BOARD OF DIRECTORS, JEOPARDIZE THE
- ----------------------------------------------------------------------------
STATUS OF THE COMPANY AS A REAL ESTATE INVESTMENT TRUST UNDER THE CODE.
- -----------------------------------------------------------------------
VOTING OF SHARES HELD UNDER THE PLAN
- ------------------------------------
YOU WILL BE ABLE TO VOTE ALL SHARES OF COMMON STOCK (INCLUDING FRACTIONAL
-------------------------------------------------------------------------
SHARES) CREDITED TO YOUR ACCOUNT UNDER THE PLAN AT THE SAME TIME THAT YOU VOTE
- ------------------------------------------------------------------------------
THE SHARES REGISTERED IN YOUR NAME ON THE RECORDS OF THE COMPANY.
- -----------------------------------------------------------------
STOCK DIVIDENDS, STOCK SPLITS AND RIGHTS OFFERINGS
- --------------------------------------------------
YOUR PLAN ACCOUNT WILL BE AMENDED TO REFLECT THE EFFECT OF ANY STOCK
--------------------------------------------------------------------
DIVIDENDS, SPLITS, REVERSE SPLITS OR OTHER COMBINATIONS OR RECAPITALIZATIONS BY
- -------------------------------------------------------------------------------
THE COMPANY ON SHARES HELD IN THE PLAN FOR YOU. IF THE COMPANY ISSUES TO ITS
- -----------------------------------------------------------------------------
SHAREHOLDERS RIGHTS TO SUBSCRIBE TO ADDITIONAL SHARES, SUCH RIGHTS WILL BE
- --------------------------------------------------------------------------
ISSUED TO YOU BASED ON YOUR TOTAL SHARE HOLDINGS, INCLUDING SHARES HELD IN YOUR
- -------------------------------------------------------------------------------
PLAN ACCOUNT.
- -------------
RESPONSIBILITY OF THE PLAN ADMINISTRATOR AND THE COMPANY UNDER THE PLAN
- -----------------------------------------------------------------------
THE PLAN ADMINISTRATOR WILL NOT BE LIABLE FOR ANY CLAIM BASED ON AN ACT
-----------------------------------------------------------------------
DONE IN GOOD FAITH OR A GOOD FAITH OMISSION TO ACT. THIS INCLUDES, WITHOUT
- ---------------------------------------------------------------------------
LIMITATION, ANY CLAIM OF LIABILITY ARISING OUT OF FAILURE TO TERMINATE A
- ------------------------------------------------------------------------
PARTICIPANT'S ACCOUNT UPON A PARTICIPANT'S DEATH, THE PRICES AT WHICH SHARES ARE
- --------------------------------------------------------------------------------
PURCHASED, THE TIMES WHEN PURCHASES ARE MADE, OR FLUCTUATIONS IN THE MARKET
- ---------------------------------------------------------------------------
PRICE OF COMMON STOCK.
- ----------------------
ALL NOTICES FROM THE PLAN ADMINISTRATOR TO A PARTICIPANT WILL BE MAILED TO
--------------------------------------------------------------------------
THE PARTICIPANT AT HIS LAST ADDRESS OF RECORD WITH THE PLAN ADMINISTRATOR, WHICH
- --------------------------------------------------------------------------------
WILL SATISFY THE PLAN ADMINISTRATOR'S DUTY TO GIVE NOTICE. PARTICIPANTS MUST
- -----------------------------------------------------------------------------
PROMPTLY NOTIFY THE PLAN ADMINISTRATOR OF ANY CHANGE IN ADDRESS.
- ----------------------------------------------------------------
YOU SHOULD RECOGNIZE THAT NEITHER THE COMPANY NOR THE PLAN ADMINISTRATOR
------------------------------------------------------------------------
CAN PROVIDE ANY ASSURANCE OF A PROFIT OR PROTECTION AGAINST LOSS ON ANY SHARES
- ------------------------------------------------------------------------------
PURCHASED UNDER THE PLAN.
- -------------------------
INTERPRETATION AND REGULATION OF THE PLAN
- -----------------------------------------
<PAGE>
THE COMPANY RESERVES THE RIGHT, WITHOUT NOTICE TO PARTICIPANTS, TO
------------------------------------------------------------------
INTERPRET AND REGULATE THE PLAN AS IT DEEMS NECESSARY OR DESIRABLE IN CONNECTION
- --------------------------------------------------------------------------------
WITH ITS OPERATION. ANY SUCH INTERPRETATION AND REGULATION SHALL BE CONCLUSIVE.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE PLAN
- ------------------------------------------------------------
THE FOLLOWING DISCUSSION SUMMARIZES THE PRINCIPAL FEDERAL INCOME TAX
--------------------------------------------------------------------
CONSEQUENCES, UNDER CURRENT LAW, OF PARTICIPATION IN THE PLAN. IT DOES NOT
- ---------------------------------------------------------------------------
ADDRESS ALL POTENTIALLY RELEVANT FEDERAL INCOME TAX MATTERS, INCLUDING
- ----------------------------------------------------------------------
CONSEQUENCES PECULIAR TO PERSONS SUBJECT TO SPECIAL PROVISIONS OF FEDERAL INCOME
- --------------------------------------------------------------------------------
TAX LAW (SUCH AS TAX-EXEMPT ORGANIZATIONS, INSURANCE COMPANIES, FINANCIAL
- -------------------------------------------------------------------------
INSTITUTIONS, BROKER-DEALERS AND FOREIGN PERSONS). THE DISCUSSION IS BASED ON
- ------------------------------------------------------------------------------
VARIOUS RULINGS OF THE INTERNAL REVENUE SERVICE REGARDING SEVERAL TYPES OF
- --------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLANS. NO RULING, HOWEVER, HAS BEEN ISSUED OR REQUESTED
- ------------------------------------------------------------------------------
REGARDING THE PLAN. THE FOLLOWING DISCUSSION IS FOR YOUR GENERAL INFORMATION
- -----------------------------------------------------------------------------
ONLY, AND YOU MUST CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX
- -------------------------------------------------------------------------------
CONSEQUENCES (INCLUDING THE EFFECTS OF ANY CHANGES IN LAW) THAT MAY RESULT FROM
- -------------------------------------------------------------------------------
YOUR PARTICIPATION IN THE PLAN AND THE DISPOSITION OF ANY SHARES PURCHASED
- --------------------------------------------------------------------------
PURSUANT TO THE PLAN.
- ---------------------
REINVESTED DIVIDENDS. STOCKHOLDERS SUBJECT TO FEDERAL INCOME TAXATION WHO
---------------------------------------------------------------------------
ELECT TO PARTICIPATE IN THE PLAN WILL INCUR A TAX LIABILITY FOR DISTRIBUTIONS
- -----------------------------------------------------------------------------
ALLOCATED TO THEM EVEN THOUGH THEY HAVE ELECTED NOT TO RECEIVE THEIR DIVIDENDS
- ------------------------------------------------------------------------------
IN CASH BUT RATHER TO HAVE THEIR DIVIDENDS HELD PURSUANT TO THE PLAN.
- ----------------------------------------------------------------------
SPECIFICALLY, PARTICIPANTS WILL BE TREATED AS IF THEY RECEIVED THE DISTRIBUTION
- -------------------------------------------------------------------------------
FROM THE COMPANY AND THEN APPLIED SUCH DISTRIBUTION TO PURCHASE THE SHARES IN
- -----------------------------------------------------------------------------
THE PLAN. A STOCKHOLDER DESIGNATING A DISTRIBUTION FOR REINVESTMENT WILL BE
- ----------------------------------------------------------------------------
TAXED ON THE AMOUNT OF SUCH DISTRIBUTION AS ORDINARY INCOME TO THE EXTENT SUCH
- ------------------------------------------------------------------------------
DISTRIBUTION IS FROM CURRENT OR ACCUMULATED EARNINGS AND PROFITS, UNLESS THE
- ----------------------------------------------------------------------------
COMPANY HAS DESIGNATED ALL OR A PORTION OF THE DISTRIBUTION AS CAPITAL GAIN
- ---------------------------------------------------------------------------
DIVIDEND. IN SUCH CASE, SUCH DESIGNATED PORTION OF THE DISTRIBUTION WILL BE
- ----------------------------------------------------------------------------
TAXED AS A CAPITAL GAIN. THE AMOUNT TREATED AS A DISTRIBUTION TO YOU WILL
- --------------------------------------------------------------------------
CONSTITUTE A DIVIDEND FOR FEDERAL INCOME TAX PURPOSES TO THE SAME EXTENT AS A
- -----------------------------------------------------------------------------
CASH DISTRIBUTION.
- ------------------
RECEIPT OF SHARE CERTIFICATES AND CASH. YOU WILL NOT REALIZE ANY INCOME IF
---------------------------------------------------------------------------
YOU RECEIVE CERTIFICATES FOR WHOLE SHARES CREDITED TO YOUR ACCOUNT UNDER THE
- ----------------------------------------------------------------------------
PLAN. ANY CASH RECEIVED FOR A FRACTIONAL SHARE HELD IN YOUR ACCOUNT WILL BE
- ----------------------------------------------------------------------------
TREATED AS AN AMOUNT REALIZED ON THE SALE OF THE FRACTIONAL SHARE. YOU
- -----------------------------------------------------------------------
THEREFORE WILL RECOGNIZE GAIN OR LOSS EQUAL TO ANY DIFFERENCE BETWEEN THE AMOUNT
- --------------------------------------------------------------------------------
OF CASH RECEIVED FOR A FRACTIONAL SHARE AND YOUR TAX BASIS IN THE FRACTIONAL
- ----------------------------------------------------------------------------
SHARE.
- ------
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
- --------------------------------------------------------
DIRECTORS AND OFFICERS OF THE COMPANY SHALL BE INDEMNIFIED AGAINST
------------------------------------------------------------------
LIABILITIES, FINES, PENALTIES, AND CLAIMS IMPOSED UPON OR ASSERTED AGAINST THEM
- -------------------------------------------------------------------------------
FOR ACTIONS IN THEIR CAPACITIES AS DIRECTORS AND/OR OFFICERS OF THE CORPORATION
- -------------------------------------------------------------------------------
TO THE FULLEST EXTENT PERMITTED UNDER THE DELAWARE GENERAL CORPORATION LAW
- --------------------------------------------------------------------------
("DGCL"). THIS INDEMNIFICATION COVERS ALL COSTS AND EXPENSES REASONABLY
- ------------------------------------------------------------------------
INCURRED BY A DIRECTOR OR OFFICER. IN ADDITION, THE DGCL AND THE COMPANY'S
- ---------------------------------------------------------------------------
AMENDED AND RESTATED ARTICLES OF INCORPORATION MAY, UNDER CERTAIN CIRCUMSTANCES,
- --------------------------------------------------------------------------------
ELIMINATE THE LIABILITY OF DIRECTORS AND OFFICERS IN A SHAREHOLDER OR DERIVATIVE
- --------------------------------------------------------------------------------
PROCEEDING.
- -----------
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE L933 ACT MAY
-------------------------------------------------------------------------
BE PERMITTED TO DIRECTORS, OFFICERS, OR CONTROLLING PERSONS OF THE COMPANY
- --------------------------------------------------------------------------
PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT IN THE
- -------------------------------------------------------------------------------
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
- -------------------------------------------------------------------------
AGAINST PUBLIC POLICY AS EXPRESSED IN THE L933 ACT AND IS THEREFORE
- -------------------------------------------------------------------
UNENFORCEABLE. IN THE EVENT THAT A CLAIM FOR INDEMNIFICATION AGAINST SUCH
- --------------------------------------------------------------------------
LIABILITIES IS ASSERTED BY SUCH DIRECTOR OR OFFICER, THE COMPANY 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 L933 ACT AND
- -------------------------------------------------------------------------------
WILL BE GOVERNED BY THE FINAL ADJUDICATION OF SUCH ISSUE.
- ---------------------------------------------------------
EXPERTS
- -------
THE FINANCIAL STATEMENTS OF THE COMPANY INCORPORATED BY REFERENCE FROM
----------------------------------------------------------------------
ITS REGISTRATION STATEMENT ON FORM S-11 HAVE BEEN AUDITED BY ARTHUR ANDERSEN
- ----------------------------------------------------------------------------
LLP, INDEPENDENT AUDITORS, AS SET FORTH IN THEIR REPORT THEREON INCLUDED THEREIN
- --------------------------------------------------------------------------------
AND INCORPORATED HEREIN BY REFERENCE. SUCH FINANCIAL STATEMENTS ARE
- --------------------------------------------------------------------
INCORPORATED HEREIN BY REFERENCE IN RELIANCE UPON SUCH REPORT GIVEN UPON THE
- ----------------------------------------------------------------------------
AUTHORITY OF SUCH FIRM AS EXPERTS IN ACCOUNTING AND AUDITING.
- -------------------------------------------------------------
PLAN ADMINISTRATOR; INQUIRIES REGARDING THE PLAN
- ------------------------------------------------
CHANGES IN NAME OR ADDRESS, NOTICES OF TERMINATION, REQUESTS TO PARTICIPATE
---------------------------------------------------------------------------
IN THE PLAN, QUESTIONS ABOUT THE PLAN AND YOUR PARTICIPATION THEREIN, AND ALL
- -----------------------------------------------------------------------------
OTHER MATTERS REGARDING THE PLAN SHOULD BE DIRECTED TO:
- -------------------------------------------------------
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
----------------------------------------
DIVIDEND REINVESTMENT PLAN
--------------------------
3885 HOLCOMB BRIDGE RD.
-----------------------
NORCROSS, GA 30092
-------------------
<PAGE>
E N R O L L M E N T F O R M
----------------------------
WELLS REAL ESTATE INVESTMENT TRUST, INC.
----------------------------------------
DIVIDEND REINVESTMENT PLAN
--------------------------
TO JOIN THE PLAN:
- -----------------
(1) COMPLETE THIS CARD. BE SURE TO INCLUDE YOUR SOCIAL SECURITY OR TAX
------------------------------------------------------------------------
IDENTIFICATION NUMBER AND SIGNATURE.
------------------------------------
(2) STAPLE OR TAPE THE CARD CLOSED SO THAT YOUR SIGNATURE IS ENCLOSED.
-----------------------------------------------------------------------
I HEREBY APPOINT WELLS REAL ESTATE INVESTMENT TRUST, INC. (THE "COMPANY")
-------------------------------------------------------------------------
(OR ANY SUCCESSOR), ACTING AS PLAN ADMINISTRATOR, AS MY AGENT TO RECEIVE CASH
- -----------------------------------------------------------------------------
DIVIDENDS THAT MAY HEREAFTER BECOME PAYABLE TO ME ON SHARES OF COMMON STOCK OF
- ------------------------------------------------------------------------------
THE COMPANY REGISTERED IN MY NAME AS SET FORTH BELOW, AND AUTHORIZE THE COMPANY
- -------------------------------------------------------------------------------
TO APPLY SUCH DIVIDENDS TO THE PURCHASE OF FULL SHARES AND FRACTIONAL INTERESTS
- -------------------------------------------------------------------------------
IN SHARES OF THE COMPANY'S COMMON STOCK.
- ----------------------------------------
I UNDERSTAND THAT THE PURCHASES WILL BE MADE UNDER THE TERMS AND CONDITIONS
---------------------------------------------------------------------------
OF THE DIVIDEND REINVESTMENT PLAN AS DESCRIBED IN THE PROSPECTUS AND THAT I MAY
- -------------------------------------------------------------------------------
REVOKE THIS AUTHORIZATION AT ANY TIME BY NOTIFYING THE PLAN ADMINISTRATOR, IN
- -----------------------------------------------------------------------------
WRITING, OF MY DESIRE TO TERMINATE MY PARTICIPATION.
- ----------------------------------------------------
PLEASE INDICATE YOUR PARTICIPATION BELOW. RETURN THIS CARD ONLY
----------------------------------------------------------------
IF YOU WISH TO PARTICIPATE IN THE PLAN
- --------------------------------------
YES, I WOULD LIKE TO PARTICIPATE IN THE DIVIDEND REINVESTMENT
- -------------------------------------------------------------------------------
PLAN FOR ALL MY SHARES OF COMMON STOCK.
- ---------------------------------------
PLEASE PRINT FULL LEGAL NAME(S):
--------------------------------
_________________________________________________________________________
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER:
---------------------------------------------
_________________________________________________________________________
DATE: __________________________________
IF YOUR SHARES ARE HELD OF RECORD BY A BROKER OR NOMINEE, YOU MUST MAKE
- -----------------------------------------------------------------------
APPROPRIATE ARRANGEMENTS WITH THE BROKER OR NOMINEE TO PARTICIPATE IN THE
- -------------------------------------------------------------------------
PLAN.
- ----
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
- --------------------------------------------------------------------------
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
- --------------------------------------------------------------------------------
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
- --------------------------------------------------------------------------------
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DEALER MANAGER. THIS PROSPECTUS
- -----------------------------------------------------------------------------
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
- ---------------------------------------------------------------------------
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON
- --------------------------------------------------------------------------------
IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.
- ---------------------------------------------------------------------------
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
- --------------------------------------------------------------------------------
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
- ------------------------------------------------------------------------------
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. IN THE EVENT OF
- -------------------------------------------------------------------------
MATERIAL CHANGES, THIS PROSPECTUS WILL BE AMENDED TO REFLECT SUCH CHANGES.
- --------------------------------------------------------------------------
SUMMARY TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
Summary of the Offering.........................................................
Risk Factors....................................................................
Investor Suitability Standards..................................................
Estimated Use of Proceeds.......................................................
Management Compensation.........................................................
Conflicts of Interest...........................................................
Summary of Reinvestment Plan....................................................
Prior Performance Summary.......................................................
Management......................................................................
The Advisor and the Advisory Agreement..........................................
Investment Objectives and Criteria..............................................
Real Property Investments.......................................................
Distribution Policy.............................................................
Management's Discussion and Analysis of.........................................
Financial Condition and Results of Operations...................................
Description of Capital Stock....................................................
Federal Income Tax Considerations...............................................
ERISA Considerations............................................................
Partnership Agreement...........................................................
Plan of Distribution............................................................
Supplemental Sales Material.....................................................
Legal Matters...................................................................
Experts.........................................................................
Additional Information..........................................................
Glossary........................................................................
Financial Statements............................................................
</TABLE>
Until ________, 1998 (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 Sealers.
15,000,000 Shares of Common Stock
WELLS REAL ESTATE
INVESTMENT TRUST, INC.
___________________
PROSPECTUS
___________________
WELLS INVESTMENT SECURITIES, INC.
, 1998
----
<*>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
TABLE VI
--------
Acquisition of Properties by Programs.
-------------------------------------
The information contained on the following pages relates to acquisition of
properties within the past three (3) years by five (5) prior public 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-1
<PAGE>
TABLE VI
--------
<TABLE>
<CAPTION>
Wells Real Estate Funds V, VI and VII
-------------------------------------
<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 square feet
Date of commencement of
operations 1 Fund VI - May 17, 1993
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 $1,902,739
Total Acquisition Cost $2,962,572
</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 August 31, 1997.
II-2
<PAGE>
TABLE VI
--------
<TABLE>
<CAPTION>
Wells Real Estate Funds VI and VII
----------------------------------
<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
operations 1 Fund V - April 27, 1992
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 August 31, 1997.
II-3
<PAGE>
TABLE VI
--------
<TABLE>
<CAPTION>
Wells Real Estate Funds VII and VIII
------------------------------------
<S> <C>
Name of property Hannover Retail
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 12,000 sq. feet
Date of commencement of
operations 1 Fund VII - April 26, 1994
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 $1,003,500
Total Acquisition Cost $1,515,500
</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 August 31, 1997.
II-4
<PAGE>
TABLE VI (CONTINUED)
--------------------
<TABLE>
<CAPTION>
Wells Real Estate Funds VII and VIII
------------------------------------
<S> <C>
Name of property CH2M Hill Building
Location of property 3011 S.W. Wiliston 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
operations 1 Fund VII - April 26, 1994
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 August 31, 1997.
II-5
<PAGE>
TABLE VI
--------
<TABLE>
<CAPTION>
Wells Real Estate Funds VI, VII and VIII
----------------------------------------
<S> <C>
Name of property BellSouth Building
Location of property 10375 Centurion Pkwy North
Jacksonville, Duval County, Florida
Type of property Four-story office building
Size of parcel 5.55 acres
Gross leasable space 92,964 square feet
Date of commencement of
operations 1 Fund VI - May 17, 1993
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 $7,352,234
Total Acquisition Cost $8,597,283
</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 August 31, 1997.
II-6
<PAGE>
TABLE VI
--------
<TABLE>
<CAPTION>
Wells Real Estate Funds VI, VII and VIII
----------------------------------------
<S> <C>
Name of property Tanglewood Commons
Location of property Harper Road & Highway 158
Clemmons, Forsyth County, North Carolina
Type of property Retail shopping center
Size of parcel 14.68 acres
Gross leasable space 67,320 square feet
Date of commencement of
operations 1 Fund VI - May 17, 1993
Fund VII - April 26, 1994
Fund VIII - February 24, 2995
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 $3,020,041
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized 2 $3,072,244
Total Acquisition Cost $6,092,285
</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 August 31, 1997.
II-7
<PAGE>
TABLE VI
--------
<TABLE>
<CAPTION>
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 square feet
Date of commencement of
operations 1 Fund VI - May 17, 1993
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 $2,238,650
Total Acquisition Cost $2,957,139
</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 August 31, 1997.
II-8
<PAGE>
TABLE VI
--------
<TABLE>
<CAPTION>
Wells Real Estate Funds VIII and IX
-----------------------------------
<S> <C>
Name of property Cellular One Building
Location of property 5117 West Terrace Drive
Madison, Dade County, Wisconsin
Type of property Four-story office building
Size of parcel 7.09 acres
Gross leasable space 101727 square feet
Date of commencement of
operations 1 Fund VIII - February 24, 1995
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 $859,255
Other cash expenditures
expensed
N/A
Other cash expenditures
capitalized 2 $9,159,736
Total Acquisition Cost $10,018,991
</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 August 31, 1997.
II-9
<PAGE>
TABLE VI
--------
<TABLE>
<CAPTION>
Wells Real Estate Funds VIII and XI
-----------------------------------
<S> <C>
Name of property TCI Building
Location of property 1565 Chenault Street
Farmer's Branch, Dallas County, Texas
Type of property One-story office building
Size of parcel 4.864 acres
Gross leasable space 40,000 square feet
Date of commencement of
operations 1 Fund VIII - February 24, 1995
Fund IX - February 12, 1996
Date of purchase October 10, 1996
Mortgage financing at
date of purchase N/A
Cash down payment $4,473,060
Contract purchase price
plus Acquisition Fee $4,473,060
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized 2 $193,806
Total Acquisition Cost $4,666,866
</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 August 31, 1997.
II-10
<PAGE>
TABLE VI
--------
<TABLE>
<CAPTION>
Wells Real Estate Funds VIII and IX
-----------------------------------
<S> <C>
Name of property Matsushita Building
Location of property 15233 Bake Parkway
Irvine, Orange County, California
Type of property Two-story office building
Size of parcel 4.4 acres
Gross leasable space 65,006
Date of commencement of
operations 1 Fund VIII - February 24, 1995
Fund IX - February 12, 1996
Date of purchase January 10, 1997
Mortgage financing at
date of purchase N/A
Cash down payment $100,000
Contract purchase price
plus Acquisition Fee $7,211,145
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized 2 $401,588
Total Acquisition Cost $7,612,733
</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 August 31, 1997.
II-11
<PAGE>
TABLE VI
--------
<TABLE>
<CAPTION>
Wells Real Estate Funds VIII and IX
-----------------------------------
<S> <C>
Name of property Cirrus Logic Building
Location of property 305 Interlochen Parkway
Broomfield, Boulder County, Colorado
Type of property Two-story office building
Size of parcel 4.26 acres
Gross leasable space 49,460 square feet
Date of commencement of
operations 1 Fund VIII - February 24, 1995
Fund IX - February 12, 1996
Date of purchase February 20, 1997
Mortgage financing at
date of purchase N/A
Cash down payment $50,000
Contract purchase price
plus Acquisition Fee $7,064,550
Other cash expenditures
expensed
N/A
Other cash expenditures
capitalized 2 $402,096
Total Acquisition Cost $7,466,646
</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 August 31, 1997.
II-12
<PAGE>
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the Shares.
<TABLE>
<S> <C>
Securities and Exchange Commission, registration fee............ $ 50,000
NASD filing fee................................................. 17,000
Printing and mailing............................................ 150,000
Accountant's fees and expenses.................................. 30,000
Blue Sky fees and expenses...................................... 100,000
Counsel fees and expenses....................................... 160,000
Miscellaneous................................................... 4,440,000
Total......................................................... 4,947,000
</TABLE>
ITEM 32. SALES TO SPECIAL PARTIES
See Item 32.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
Wells Capital, Inc. has agreed to purchase 20,000 units of limited
partnership interest ("Units") in Wells Operating Partnership, L.P. for a
purchase price of $10 per Unit for an aggregate purchase price of $200,000. The
Units will be purchased for investment and for the purpose of organizing the
Company. The Company is issuing these Units in reliance on an exemption from
registration under Section 4(2) of the Securities Act.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL permits a Maryland corporation to include in its Articles of
Incorporation a provision limiting the liability of its directors and officers
to the CORPORATION and its STOCKHOLDERS for money damages except for
----------- ------------
liability resulting from (a) actual receipt of an improper benefit or profit in
money, property or services or (b) active and deliberate dishonesty established
by a final judgment as being material to the cause of action.
SUBJECT TO THE CONDITIONS SET FORTH BELOW, THE Articles of Incorporation
----------------------------------------------
PROVIDES THAT THE COMPANY SHALL INDEMNIFY AND HOLD HARMLESS A DIRECTOR,
- -----------------------------------------------------------------------
ADVISOR OR AFFILIATE AGAINST ANY OR ALL LOSSES OR LIABILITIES REASONABLY
- ------------------------------------------------------------------------
INCURRED BY SUCH DIRECTOR, ADVISOR OR AFFILIATE IN CONNECTION WITH OR BY REASON
- -------------------------------------------------------------------------------
OF ANY ACT OR OMISSION PERFORMED OR OMITTED TO BE PERFORMED ON BEHALF OF THE
- ----------------------------------------------------------------------------
COMPANY IN SUCH CAPACITY.
- -------------------------
UNDER THE COMPANY'S Articles of Incorporation, THE COMPANY SHALL NOT
------------------- -----------------------
INDEMNIFY ITS DIRECTORS, ADVISOR OR ANY AFFILIATE FOR ANY LIABILITY OR LOSS
- ---------------------------------------------------------------------------
SUFFERED BY THE DIRECTORS, ADVISORS OR AFFILIATES, NOR SHALL IT PROVIDE THAT THE
- --------------------------------------------------------------------------------
DIRECTORS, ADVISORS OR AFFILIATES BE HELD HARMLESS FOR ANY LOSS OR LIABILITY
- ----------------------------------------------------------------------------
SUFFERED BY THE COMPANY, UNLESS ALL OF THE FOLLOWING CONDITIONS ARE MET: (I) THE
- --------------------------------------------------------------------------------
DIRECTORS, ADVISOR OR AFFILIATES HAVE DETERMINED, IN GOOD FAITH, THAT THE COURSE
- --------------------------------------------------------------------------------
OF CONDUCT WHICH CAUSED THE LOSS OR LIABILITY WAS IN THE BEST INTERESTS OF THE
- ------------------------------------------------------------------------------
COMPANY; (II) THE DIRECTORS, ADVISOR OR AFFILIATES WERE ACTING ON BEHALF OF OR
- ------------------------------------------------------------------------------
PERFORMING SERVICES OF THE COMPANY; (III) SUCH LIABILITY OR LOSS WAS NOT THE
- ----------------------------------------------------------------------------
RESULT OF (A) NEGLIGENCE OR MISCONDUCT BY THE DIRECTORS, EXCLUDING THE
- ----------------------------------------------------------------------
INDEPENDENT DIRECTORS, ADVISORS OR AFFILIATES; OR (B) GROSS NEGLIGENCE OR
- -------------------------------------------------------------------------
WILLFUL MISCONDUCT BY THE INDEPENDENT DIRECTORS; (IV) SUCH INDEMNIFICATION OR
- -----------------------------------------------------------------------------
AGREEMENT TO HOLD HARMLESS IS RECOVERABLE ONLY OUT OF THE COMPANY'S NET ASSETS
- ------------------------------------------------------------------------------
AND NOT FROM SHAREHOLDERS. NOTWITHSTANDING THE FOREGOING, THE DIRECTORS,
- -------------------------------------------------------------------------
ADVISORS OR AFFILIATES AND ANY PERSONS ACTING AS A BROKER-DEALER SHALL NOT BE
- -----------------------------------------------------------------------------
INDEMNIFIED BY THE COMPANY FOR ANY LOSSES, LIABILITY OR EXPENSES ARISING FROM OR
- --------------------------------------------------------------------------------
OUT OF AN ALLEGED VIOLATION OF FEDERAL OR STATE SECURITIES LAWS BY SUCH PARTY
- -----------------------------------------------------------------------------
UNLESS ONE OR MORE OF THE FOLLOWING CONDITIONS ARE MET: (I) THERE HAS BEEN A
- ----------------------------------------------------------------------------
SUCCESSFUL ADJUDICATION ON THE MERITS OF EACH COUNT INVOLVING ALLEGED SECURITIES
- --------------------------------------------------------------------------------
LAW VIOLATIONS AS TO THE PARTICULAR INDEMNITEE; (II) SUCH CLAIMS HAVE BEEN
- --------------------------------------------------------------------------
DISMISSED WITH PREJUDICE ON THE MERITS BY A COURT OF COMPETENT JURISDICTION AS
- ------------------------------------------------------------------------------
TO THE PARTICULAR INDEMNITEE; (III) A COURT OF COMPETENT JURISDICTION APPROVES A
- --------------------------------------------------------------------------------
SETTLEMENT OF THE CLAIMS AGAINST A PARTICULAR INDEMNITEE AND FINDS THAT
- -----------------------------------------------------------------------
INDEMNIFICATION OF THE SETTLEMENT AND THE RELATED COSTS SHOULD BE MADE, AND THE
- -------------------------------------------------------------------------------
COURT CONSIDERING THE REQUEST FOR INDEMNIFICATION HAS BEEN ADVISED OF THE
- -------------------------------------------------------------------------
POSITION OF THE SEC AND OF THE PUBLISHED POSITION OF ANY STATE
- --------------------------------------------------------------
II-13
<PAGE>
SECURITIES REGULATORY AUTHORITY IN WHICH SECURITIES OF THE COMPANY WERE OFFERED
- -------------------------------------------------------------------------------
OR SOLD AS TO INDEMNIFICATION FOR VIOLATIONS OF SECURITIES LAWS.
- ----------------------------------------------------------------
The Articles of Incorporation PROVIDES THAT THE ADVANCEMENT OF COMPANY
----------------------------------------
FUNDS TO THE DIRECTORS, ADVISORS OR AFFILIATES FOR LEGAL EXPENSES AND OTHER
- ---------------------------------------------------------------------------
COSTS INCURRED AS A RESULT OF ANY LEGAL ACTION FOR WHICH INDEMNIFICATION IS
- ---------------------------------------------------------------------------
BEING SOUGHT IS PERMISSIBLE ONLY IF ALL OF THE FOLLOWING CONDITIONS ARE
- -----------------------------------------------------------------------
SATISFIED: (I) THE LEGAL ACTION RELATES TO ACTS OR OMISSIONS WITH RESPECT TO THE
- --------------------------------------------------------------------------------
PERFORMANCE OF DUTIES OR SERVICES ON BEHALF OF THE COMPANY; (II) THE LEGAL
- --------------------------------------------------------------------------
ACTION IS INITIATED BY A THIRD PARTY WHO IS NOT A SHAREHOLDER OR THE LEGAL
- --------------------------------------------------------------------------
ACTION IS INITIATED BY A SHAREHOLDER ACTING IN HIS OR HER CAPACITY AS SUCH AND A
- --------------------------------------------------------------------------------
COURT OF COMPETENT JURISDICTION SPECIFICALLY APPROVES SUCH ADVANCEMENT; (III)
- -----------------------------------------------------------------------------
THE DIRECTORS, ADVISOR OR AFFILIATES UNDERTAKE TO REPAY THE ADVANCED FUNDS TO
- -----------------------------------------------------------------------------
THE COMPANY TOGETHER WITH THE APPLICABLE LEGAL RATE OF INTEREST THEREON, IN
- ---------------------------------------------------------------------------
CASES IN WHICH SUCH DIRECTORS, ADVISOR OR AFFILIATES ARE FOUND NOT TO BE
- ------------------------------------------------------------------------
ENTITLED TO INDEMNIFICATION.
- ----------------------------
THE MGCL REQUIRES A MARYLAND CORPORATION (UNLESS ITS ARTICLES OF
----------------------------------------------------------------
INCORPORATION PROVIDE OTHERWISE, WHICH THE COMPANY'S ARTICLES OF INCORPORATION
- ------------------------------------------------------------------------------
DO NOT) TO INDEMNIFY A DIRECTOR or officer who has been successful, on the
- -------------------------------
merits or otherwise, in the defense of any proceeding to which he is made a
party by reason of his service in that capacity. The MGCL permits a Maryland
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, UNDER THE MGCL a Maryland corporation may not indemnify for
---------------
an adverse judgment in a suit by or in the right of the corporation OR FOR A
--------
JUDGMENT OF LIABILITY ON THE BASIS THAT PERSONAL BENEFIT WAS IMPROPERLY
- -----------------------------------------------------------------------
RECEIVED, UNLESS IN EITHER CASE A COURT ORDERS INDEMNIFICATION AND THEN ONLY FOR
- --------------------------------------------------------------------------------
EXPENSES. IN ADDITION, THE MGCL PERMITS A CORPORATION TO ADVANCE REASONABLE
- ----------------------------------------------------------------------------
EXPENSES TO A DIRECTOR OR OFFICER UPON THE CORPORATION'S RECEIPT OF (a) a
- -------------------------------------------------------------------
written affirmation by the DIRECTOR or officer of his good faith belief that
--------
he has met the standard of conduct necessary for indemnification by the Company
as authorized by the Bylaws and (b) a written UNDERTAKING by or on his behalf
-----------
to repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met. INDEMNIFICATION UNDER THE
-------------------------
PROVISIONS OF THE MGCL IS NOT DEEMED EXCLUSIVE OF ANY OTHER RIGHTS, BY
- ----------------------------------------------------------------------
INDEMNIFICATION OR OTHERWISE, TO WHICH AN OFFICER OR DIRECTOR MAY BE ENTITLED
- -----------------------------------------------------------------------------
UNDER THE COMPANY'S ARTICLES OF INCORPORATION OR BYLAWS, OR UNDER RESOLUTIONS OF
- --------------------------------------------------------------------------------
STOCKHOLDERS OR DIRECTORS, CONTRACT OR OTHERWISE. IT IS THE POSITION OF THE
- ----------------------------------------------------------------------------
COMMISSION THAT INDEMNIFICATION OF DIRECTORS AN OFFICERS FOR LIABILITIES ARISING
- --------------------------------------------------------------------------------
UNDER THE SECURITIES ACT IS AGAINST PUBLIC POLICY AND IS UNENFORCEABLE PURSUANT
- -------------------------------------------------------------------------------
TO SECTION 14 OF THE SECURITIES ACT.
- ------------------------------------
THE COMPANY ALSO HAS PURCHASED AND MAINTAINS INSURANCE ON BEHALF OF ALL OF
--------------------------------------------------------------------------
ITS DIRECTORS AND EXECUTIVE OFFICERS AGAINST LIABILITY ASSERTED AGAINST OR
- --------------------------------------------------------------------------
INCURRED BY THEM IN THEIR OFFICIAL CAPACITIES WITH THE COMPANY, WHETHER OR NOT
- ------------------------------------------------------------------------------
THE COMPANY IS REQUIRED OR HAS THE POWER TO INDEMNIFY THEM AGAINST THE SAME
- ---------------------------------------------------------------------------
LIABILITY.
- ----------
ITEM 35. TREATMENT OF PROCEEDS FROM SHARES BEING REGISTERED
None.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS
Balance Sheet as of DECEMBER 31, 1997 (audited).
-----------
ITEM 37. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 33 of this
Registration Statement, 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 trustee,
officer, or controlling person of the Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such trustee, 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
II-14
<PAGE>
controlling precedent, submit to a court of appropriate jurisdiction the
question as to 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.
The undersigned Registrant hereby undertakes to provide to the Dealer
Manager at the closing specified in the Dealer Manager Agreement certificates in
such denominations and registered in such names as required by the Dealer
Manager to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(2) 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:
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(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;
(3) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof
(4) 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.
(5) The undersigned registrant hereby undertakes to provide to the Dealer
Manager at the closing specified in the Dealer Manager Agreement, certificates
in such denominations and registered in such names as required by the Dealer
Manager to permit prompt delivery to each purchaser.
(6) 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.
(7) The registrant will send to each STOCKHOLDER at least on an annual
-----------
basis a detailed statement of any transactions with the Advisor or its
Affiliates, and of fees, commissions, compensation and other benefits paid, or
accrued to the Advisor or its Affiliates for the fiscal year completed, showing
the amount paid or accrued to each recipient and the services performed.
(8) The registrant will provide to the STOCKHOLDERS the financial
------------
statements required by Form 10-K for the first full fiscal year of operations of
the Company.
(9) The registrant will file a sticker supplement pursuant to Rule 424(c)
under the Act during the distribution period describing each property not
identified in the prospectus at such time as there arises a reasonable
probability that such property will be acquired and to consolidate all such
stickers into a post-effective amendment filed at least once every three months,
with the information contained in such amendment provided simultaneously to the
existing STOCKHOLDERS. Each sticker supplement should disclose all
------------
compensation and fees received by the Advisor and its Affiliates in connection
with any such acquisition. The post-
II-15
<PAGE>
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.
(10) The registrant will 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 percent or more (on a
cumulative basis) of the net proceeds of the Offering, and to provide the
information contained in such report to the STOCKHOLDERS at least once each
------------
quarter after the distribution period of the Offering has ended.
II-16
<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 of the
requirements for filing on Form S-11 and has duly caused this Amendment No. 4
-
to the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of Norcross, State of Georgia, on
JANUARY 23, 1998.
- -----------------
WELLS REAL ESTATE INVESTMENT TRUST, INC.
a Maryland corporation
(Registrant)
By: /s/ Leo F. Wells, III
---------------------
President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Leo F. Wells, III and Brian M. Conlon, or either of them, his true and lawful
attorney-in-fact, for him and in his name, place and stead, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
or any additional Registration Statement filed pursuant to Rule 462 and to cause
the same to be filed with the Securities and Exchange Commission, hereby
granting to said attorneys-in-fact full power and authority to do and perform
all and every act and thing whatsoever requisite or desirable to be done in and
about the premises as fully to all intents and purposes as the undersigned might
or could do in person, hereby ratifying and confirming all acts and things that
said attorneys-in-fact may do or cause to be done by virtue of these presents.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed below on JANUARY 23,
- -----------
1998 by the following persons in the capacities indicated.
- ----
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Leo F. Wells
--------------------- President and Director
Leo F. Wells, III (Principal Executive Officer)
/s/ Brian M. Conlon
---------------------- Executive Vice President and Director
Brian M. Conlon (Principal Financial and Accounting
Officer)
/S/ WALTER W. SESSOMS DIRECTOR
-------------------------------------
WALTER W. SESSOMS
-----------------
/S/ JOHN L. BELL DIRECTOR
-------------------------------------
JOHN L. BELL
------------
/S/ RICHARD W. CARPENTER DIRECTOR
-------------------------------------
RICHARD W. CARPENTER
--------------------
</TABLE>
II-17
<PAGE>
EXHIBIT INDEX
<TABLE>
Exhibits
- --------
<S> <C>
**1.1 Form of Dealer Manager Agreement
- --
*3.1-- Form of Amended and Restated Articles of Incorporation of the
----- Registrant
*3.2-- Bylaws of the Registrant
------
***4.2-- Form of Dividend Reinvestment Plan
*5.1-- Opinion of Hunton & Williams
-----------
** 8.1-- Form of Opinion of Hunton & Williams as to Tax Matters
* 10.1-- Form of Agreement of Limited Partnership of Wells Operating Partnership, L.P.
----
**10.2 Form of Escrow Agreement
- --
**10.3 Form of Advisory Agreement
*10.4 Form of Management Agreement
*10.5 Form of Leasing and Tenant Coordinating Agreement
* 23.1-- Consent of Hunton & Williams (included in Exhibits
5.1 and 8.1)
* 23.2 Consent of Arthur Andersen LLP
- -
**24.1-- Powers of Attorney (included on signature page)
**27.1 Financial Data Schedule
____________________________________________
</TABLE>
* -- Filed herewith
- ----------------------
** -- Previously filed
***-- Included in the Prospectus as Exhibit C and incorporated herein by
reference.
II-18
<PAGE>
EXHIBIT 3.1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
WELLS REAL ESTATE INVESTMENT TRUST, INC.
Wells Real Estate Investment Trust, Inc., a Maryland corporation having its
principal office at 3885 Holcomb Bridge Road, Norcross, Georgia 30092
(hereinafter, the "Company"), hereby certifies to the Department of Assessments
and Taxation of the State of Maryland, that:
FIRST: The Company desires to amend and restate its articles of
incorporation as currently in effect.
SECOND: The provisions of the articles of incorporation which are now in
effect and as amended hereby, dated ____________ in accordance with the Maryland
General Corporation Law (the "MGCL"), are as follows:
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
WELLS REAL ESTATE INVESTMENT TRUST, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE COMPANY; DEFINITIONS.............................................1
SECTION 1.1 NAME..........................................................1
SECTION 1.2 RESIDENT AGENT................................................1
SECTION 1.3 NATURE OF COMPANY.............................................1
SECTION 1.4 PURPOSE.......................................................1
SECTION 1.5 DEFINITIONS...................................................1
ARTICLE II BOARD OF DIRECTORS.................................................9
SECTION 2.1 NUMBER........................................................9
SECTION 2.2 EXPERIENCE...................................................10
SECTION 2.3 COMMITTEES...................................................10
SECTION 2.4 INITIAL BOARD; TERM..........................................10
SECTION 2.5 FIDUCIARY OBLIGATIONS........................................10
SECTION 2.6 APPROVAL BY INDEPENDENT DIRECTORS............................10
SECTION 2.7 RESIGNATION, REMOVAL OR DEATH................................10
SECTION 2.8 BUSINESS COMBINATION STATUTE.................................10
SECTION 2.9 CONTROL SHARE ACQUISITION STATUTE............................10
ARTICLE III POWERS OF DIRECTORS..............................................11
SECTION 3.1 GENERAL......................................................11
SECTION 3.2 SPECIFIC POWERS AND AUTHORITY................................11
(i) INVESTMENTS.............................................11
(ii) REIT QUALIFICATION.....................................11
(iii) SALE, DISPOSITION AND USE OF COMPANY PROPERTY.........12
(iv) FINANCINGS.............................................12
(v) LENDING.................................................12
(vi) ISSUANCE OF SECURITIES.................................13
(vii) EXPENSES AND TAXES....................................13
(viii) COLLECTION AND ENFORCEMENT...........................13
(ix) DEPOSITS...............................................13
(x) ALLOCATION; ACCOUNTS....................................13
(xi) VALUATION OF PROPERTY..................................14
(xii) OWNERSHIP AND VOTING POWERS...........................14
(xiii) OFFICERS, ETC.; DELEGATION OF POWERS.................14
(xiv) ASSOCIATIONS..........................................14
(xv) REORGANIZATIONS, ETC...................................14
(xvi) INSURANCE.............................................15
(xvii) DISTRIBUTIONS........................................15
</TABLE>
(i)
<PAGE>
ARTICLE I
THE COMPANY; DEFINITIONS
SECTION 1.1 NAME. The name of the corporation (the "Company") is:
Wells Real Estate Investment Trust, Inc.
So far as may be practicable, the business of the Company shall be conducted and
transacted under that name, which name (and the word "Company" wherever used in
these Articles of Amendment and Restatement of Wells Real Estate Investment
Trust, Inc. (these "Articles of Incorporation"), except where the context
otherwise requires) shall refer to the Directors collectively but not
individually or personally and shall not refer to the Stockholders or to any
officers, employees or agents of the Company or of such Directors.
Under circumstances in which the Directors determine that the use of the name
"Wells Real Estate Investment Trust, Inc." is not practicable, they may use any
other designation or name for the Company.
SECTION 1.2 RESIDENT AGENT. The name and address of the resident agent for
service of process of the Company in the State of Maryland is The Corporation
Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The Company may
have such principal office within the State of Maryland as the Directors may
from time to time determine. The Company may also have such other offices or
places of business within or without the State of Maryland as the Directors may
from time to time determine.
SECTION 1.3 NATURE OF COMPANY. The Company is a Maryland corporation within
the meaning of the MGCL.
SECTION 1.4 PURPOSE. The purposes for which the Company is formed are to
conduct any business for which corporations may be organized under the laws of
the State of Maryland including, but not limited to: (i) acquiring and operating
commercial properties, including without limitation, office buildings, shopping
centers, business and industrial parks and other commercial and industrial
properties, including properties which are under construction or development,
are newly constructed, or have been constructed and have operating histories;
and (ii) entering into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing.
SECTION 1.5 DEFINITIONS. As used in these Articles of Incorporation, the
following terms shall have the following meanings unless the context otherwise
requires (certain other terms used in Article VII hereof are defined in Sections
7.2, 7.3, 7.6, and 7.7 hereof):
"ACQUISITION EXPENSES" means any and all expenses incurred by the Company,
the Advisor, or any Affiliate of either in connection with the selection or
acquisition of any Property, whether or not acquired, including, without
limitation, 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.
1
<PAGE>
"ACQUISITION FEE" means any and all fees and commissions, exclusive of
Acquisition Expenses, paid by any Person or entity to any other Person or entity
(including any fees or commissions paid by or to any Affiliate of the Company or
the Advisor) in connection with the purchase, development or construction of a
Property, including, without limitation, real estate commissions, acquisition
fees, finder's fees, selection fees, development fees, construction fees,
nonrecurring management fees, consulting fees, loan fees, points, or any other
fees or commissions of a similar nature. Excluded shall be development fees and
construction fees paid to any Person or entity not affiliated with the Advisor
in connection with the actual development and construction of any Property.
"ADVISOR" or "ADVISORS" means the Person or Persons, if any, appointed,
employed or contracted with by the Company pursuant to Section 4.1 hereof and
responsible for directing or performing the day-to-day business affairs of the
Company, including any Person to whom the Advisor subcontracts substantially all
of such functions.
"ADVISORY AGREEMENT" means the agreement between the Company and the
Advisor pursuant to which the Advisor will direct or perform the day-to-day
business affairs of the Company.
"AFFILIATE" or "AFFILIATED" means, as to any individual, corporation,
partnership, trust, limited liability company or other legal entity (other than
the Trust), (i) any Person or entity directly or indirectly through one or more
intermediaries controlling, controlled by, or under common control with another
Person or entity; (ii) any Person or entity, directly or indirectly owning,
controlling, or holding with power to vote ten percent (10%) or more of the
outstanding voting securities of another Person or entity; (iii) any officer,
director, general partner or trustee of such Person or entity; (iv) any Person
ten percent (10%) or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held, with power to vote, by such other Person;
and (v) if such other Person or entity is an officer, director, general partner,
or trustee of a Person or entity, the Person or entity for which such Person or
entity acts in any such capacity.
"ASSETS" means Properties.
"AVERAGE INVESTED ASSETS" means, for a specified period, the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in equity interests in and loans secured by real estate before
reserves for depreciation or bad debts or other similar non-cash reserves,
computed by taking the average of such values at the end of each month during
such period.
"BYLAWS" means the bylaws of the Company, as the same are in effect from
time to time.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute thereto. Reference to any provision of the Code
shall mean such provision as in effect from time to time, as the same may be
amended, and any successor provision thereto, as interpreted by any applicable
regulations as in effect from time to time.
2
<PAGE>
"COMPANY PROPERTY" means any and all property, real, personal or otherwise,
tangible or intangible, which is transferred or conveyed to the Company
(including all rents, income, profits and gains therefrom), which is owned or
held by, or for the account of, the Company.
"COMPETITIVE REAL ESTATE COMMISSION" means a real estate or brokerage
commission for the purchase or sale of property which is reasonable, customary,
and competitive in light of the size, type, and location of the property.
"CONSTRUCTION FEE" means a fee or other remuneration for acting as general
contractor and/or construction manager to construct improvements, supervise and
coordinate projects or to provide major repairs or rehabilitations on a Company
Property.
"CONTRACT PRICE FOR THE PROPERTY" means the amount actually paid or
allocated to the purchase, development, construction or improvement of a
property exclusive of Acquisition Fees and Acquisition Expenses.
"DEALER MANAGER" means Wells Investment Securities, Inc., an Affiliate of
the Advisor, or such other Person or entity selected by the Board of Directors
to act as the dealer manager for the offering. Wells Investment Securities,
Inc. is a member of the National Association of Securities Dealers, Inc.
"DEVELOPMENT FEE" means a fee for the packaging of a Property; including
negotiating and approving plans, and undertaking to assist in obtaining zoning
and necessary variances and financing for the specific Property, either
initially or at a later date.
"DIRECTORS," "BOARD OF DIRECTORS" or "BOARD" means, collectively, the
individuals named in Section 2.4 of these Amended and Restated Articles of
Incorporation so long as they continue in office and all other individuals who
have been duly elected and qualify as Directors of the Company hereunder.
"DISTRIBUTIONS" means any distributions of money or other property,
pursuant to Section 7.2(iv) hereof, by the Company to owners of Shares,
including distributions that may constitute a return of capital for federal
income tax purposes. The Company will make no distributions other than
distributions of money or readily marketable securities unless the requirements
of Section 7.2(iv) hereof are satisfied.
"EQUITY SHARES" means transferable shares of beneficial interest of the
Company of any class or series, including Common Shares or Preferred Shares.
"GROSS PROCEEDS" means the aggregate purchase price of all Shares sold for
the account of the Company, without deduction for Selling Commissions, volume
discounts, the marketing support and due diligence expense reimbursement fee or
Organizational and Offering Expenses. For the purpose of computing Gross
Proceeds, the purchase price of any Share for which reduced Selling Commissions
are paid to the Dealer Manager or a Soliciting Dealer (where net proceeds to the
Company are not reduced) shall be deemed to be $10.00.
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"INDEPENDENT DIRECTOR" means a Director who is not, and within the last two
(2) years has not been, directly or indirectly associated with the Advisor by
virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment by the Advisor or its Affiliates, (iii) service as an officer or
director of the Advisor or its Affiliates, (iv) performance of services, other
than as a Director, for the Company, (v) service as a director or trustee of
more than three (3) real estate investment trusts advised by the Advisor, or
(vi) maintenance of a material business or professional relationship with the
Advisor or any of its Affiliates. An indirect relationship shall include
circumstances in which a Director's spouse, parents, children, siblings,
mothers- or fathers-in-law, sons- or daughters-in-law or brothers- or sisters-
in-law is or has been associated with the Advisor, any of its Affiliates or the
Company. A business or professional relationship is considered material if the
gross revenue derived by the Director from the Advisor and Affiliates exceeds
five percent (5%) of either the Director's annual gross revenue during either of
the last two (2) years or the Director's net worth on a fair market value basis.
"INDEPENDENT EXPERT" means a Person or entity with no material current or
prior business or personal relationship with the Advisor or the Directors and
who is engaged to a substantial extent in the business of rendering opinions
regarding the value of assets of the type held by the Company.
"INITIAL INVESTMENT" means that portion of the initial capitalization of
the Company contributed by the Sponsor or its Affiliates pursuant to Section
II.A. of the NASAA REIT Guidelines.
"INITIAL PUBLIC OFFERING" means the offering and sale of Equity Shares of
the Company pursuant to the Company's first effective registration statement
covering such Common Shares filed under the Securities Act of 1933, as amended.
"INVESTED CAPITAL" means the amount calculated by multiplying the total
number of Shares purchased by Stockholders by the issue price, reduced by the
portion of any Distribution that is attributable to Net Sales Proceeds and by
any amounts paid by the Company to repurchase Shares pursuant to the Company's
plan for repurchase of Shares.
"JOINT VENTURES" means those joint venture or general partnership
arrangements in which the Company is a co-venturer or general partner which are
established to acquire Properties.
"LEVERAGE" means the aggregate amount of indebtedness of the Company for
money borrowed (including purchase money mortgage loans) outstanding at any
time, both secured and unsecured.
"LISTING" means the listing of the Shares of the Company on a national
securities exchange or over-the-counter market.
"MGCL" means the Maryland General Corporation Law.
"MORTGAGE" means mortgages, deeds of trust or other security interests on
or applicable to Real Property.
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"NASAA REIT GUIDELINES" means the Statement of Policy Regarding Real Estate
Investment Trusts published by the North American Securities Administrators
Association.
"NET ASSETS" means the total assets of the Company (other than
intangibles), at cost, before deducting depreciation or other non-cash reserves,
less total liabilities, calculated quarterly by the Company on a basis
consistently applied.
"NET INCOME" means for any period, the total revenues applicable to such
period, less the total expenses applicable to such period excluding additions to
reserves for depreciation, bad debts or other similar non-cash reserves;
provided, however, Net Income for purposes of calculating total allowable
Operating Expenses shall exclude the gain from the sale of the Company's assets.
"NET SALES PROCEEDS" means in the case of a transaction described in clause
(i)(A) of the definition of Sale, the proceeds of any such transaction less the
amount of all real estate commissions and closing costs paid by the Company. In
the case of a transaction described in clause (i)(B) of such definition, Net
Sales Proceeds means the proceeds of any such transaction less the amount of any
legal and other selling expenses incurred in connection with such transaction.
In the case of a transaction described in clause (i)(C) of such definition, Net
Sales Proceeds means the proceeds of any such transaction actually distributed
to the Company from the Joint Venture. In the case of a transaction or series of
transactions described in clause (i)(D) of the definition of Sale, Net Sales
Proceeds means the proceeds of any such transaction less the amount of all
commissions and closing costs paid by the Company. In the case of a transaction
described in clause (ii) of the definition of Sale, Net Sales Proceeds means the
proceeds of such transaction or series of transactions less all amounts
generated thereby and reinvested in one or more Properties within one hundred
eighty (180) days thereafter and less the amount of any real estate commissions,
closing costs, and legal and other selling expenses incurred by or allocated to
the Company in connection with such transaction or series of transactions. Net
Sales Proceeds shall also include, in the case of any lease of a Property
consisting of a building only, any amounts from tenants, borrowers or lessees
that the Company determines, in its discretion, to be economically equivalent to
the proceeds of a Sale. Net Sales Proceeds shall not include, as determined by
the Company in its sole discretion, any amounts reinvested in one or more
Properties, or other assets, to repay outstanding indebtedness, or to establish
reserves.
"OPERATING EXPENSES" means all costs and expenses incurred by the Company,
as determined under generally accepted accounting principles, which in any way
are related to the operation of the Company or to Company business, including
advisory fees, the Subordinated Incentive Fee and the Advisor's subordinated ten
percent (10%) share of Net Sales Proceeds, but excluding (i) the expenses of
raising capital such as Organizational and Offering Expenses, legal, audit,
accounting, underwriting, brokerage, listing, registration, and other fees,
printing and other such expenses and tax incurred in connection with the
issuance, distribution, transfer, registration and Listing of the Shares, (ii)
interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves, (v) Acquisition Fees and Acquisition
Expenses, and (vi) real estate commissions on the Sale of property, and other
expenses connected with the acquisition and ownership of real estate interests,
mortgage loans, or other property (such as the
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costs of foreclosure, insurance premiums, legal services, maintenance, repair,
and improvement of property).
"OPERATING PARTNERSHIP" means the partnership through which the Company
will own the Properties.
"OP UNITS" means a unit of limited partnership interest in the Operating
Partnership.
"ORGANIZATIONAL and OFFERING EXPENSES" means any and all costs and
expenses, other than Selling Commissions and marketing support and due diligence
expenses, incurred by the Company, the Advisor or any Affiliate of either in
connection with the formation, qualification and registration of the Company,
and the marketing and distribution of Shares, including, without limitation, the
following: total underwriting and brokerage discounts and commissions
(including fees of the underwriters' attorneys), expenses for printing,
engraving, amending, supplementing, mailing and distributing costs, salaries of
employees while engaged in sales activity, telegraph and telephone costs, all
advertising and marketing expenses (including the costs related to investor and
broker-dealer sales meetings), charges of transfer agents, registrars, trustees,
escrow holders, depositories, experts, and fees, expenses and taxes related to
the filing, registration and qualification of the sale of the securities under
Federal and State laws, including accountants' and attorneys' fees.
"PERSON" means an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity, or any government or any agency or political subdivision
thereof, and also includes a group as that term is used for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended.
"PROPERTY" or "PROPERTIES" means (i) the real properties, including the
buildings located thereon, (ii) the real properties only, or (iii) the buildings
only, which are acquired by the Company, either directly or through joint
venture arrangements or other partnerships.
"PROSPECTUS" means the same as that term is defined in Section 2(10) of the
Securities Act of 1933, including a preliminary prospectus, an offering circular
as described in Rule 256 of the General Rules and Regulations under the
Securities Act of 1933 or, in the case of an intrastate offering, any document
by whatever name known, utilized for the purpose of offering and selling
securities to the public.
"REAL PROPERTY" or "REAL ESTATE" means land, rights in land (including
leasehold interests), and any buildings, structures, improvements, furnishings,
fixtures and equipment located on or used in connection with land and rights or
interests in land.
"REIT" means a corporation, trust, association or other legal entity (other
than a real estate syndication) which is engaged primarily in investing in
equity interests in real estate (including fee ownership and leasehold
interests) or in loans secured by real estate or both.
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"REIT PROVISIONS OF THE CODE" means Sections 856 through 860 of the Code
and any successor or other provisions of the Code relating to real estate
investment trusts (including provisions as to the attribution of ownership of
beneficial interests therein) and the regulations promulgated thereunder.
"ROLL-UP ENTITY" means a partnership, real estate investment trust,
corporation, trust or similar entity that would be created or would survive
after the successful completion of a proposed Roll-Up Transaction.
"ROLL-UP TRANSACTION" means a transaction involving the acquisition,
merger, conversion, or consolidation, directly or indirectly, of the Company and
the issuance of securities of a Roll-Up Entity. Such term does not include: (i)
a transaction involving securities of the Company that have been listed on a
national securities exchange or included for quotation on the National Market
System of the National Association of Securities Dealers Automated Quotation
System for at least 12 months; or (ii) a transaction involving the conversion to
corporate, trust, or association form of only the Company if, as a consequence
of the transaction, there will be no significant adverse change in Stockholder
voting rights, the term of existence of the Company, compensation to the Advisor
or the investment objectives of the Company.
"SALE" or "SALES" (i) means any transaction or series of transactions
whereby: (A) the Company sells, grants, transfers, conveys or relinquishes its
ownership of any Property or portion thereof, including the lease of any
Property consisting of the building only, and including any event with respect
to any Property which gives rise to a significant amount of insurance proceeds
or condemnation awards; (B) the Company sells, grants, transfers, conveys or
relinquishes its ownership of all or substantially all of the interest of the
Company in any Joint Venture in which it is a co-venturer or partner; (C) any
Joint Venture in which the Company as a co-venturer or partner sells, grants,
transfers, conveys or relinquishes its ownership of any Property or portion
thereof, including any event with respect to any Property which gives rise to
insurance claims or condemnation awards; or (D) the Company sells, grants,
conveys, or relinquishes its interest in any asset, or portion thereof,
including and event with respect to any asset which gives rise to a significant
amount of insurance proceeds or similar awards, but (ii) shall not include any
transaction or series of transactions specified in clause (i)(A), (i)(B), or
(i)(C) above in which the proceeds of such transaction or series of transactions
are reinvested in one or more Properties within one hundred eighty (180) days
thereafter.
"SECURITIES" means Equity Shares, Shares-in-Trust, any other stock, shares
or other evidences of equity or beneficial or other interests, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in, temporary or interim certificates for, receipts
for, guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.
"SELLING COMMISSIONS" means any and all commissions payable to
underwriters, dealer managers, or other broker-dealers in connection with the
sale of Shares, including, without limitation, commissions payable to Wells
Investment Securities, Inc.
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"SHARES" means the up to 16,500,000 Shares of common stock of the Company
to be sold in the Initial Public Offering.
"SOLICITING DEALERS" means those broker-dealers that are members of the
National Association of Securities Dealers, Inc., or that are exempt from
broker-dealer registration, and that, in either case, enter into participating
broker or other agreements with the Dealer Manager to sell Shares.
"SPONSOR" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Company or any Person who will control,
manage or participate in the management of the Company, and any Affiliate of
such Person. Not included is any Person whose only relationship with the Company
is that of an independent property manager of Company assets, and whose only
compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants, and underwriters whose only compensation
is for professional services. A Person may also be deemed a Sponsor of the
Company by:
a. taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Company, either
alone or in conjunction with one or more other Persons;
b. receiving a material participation in the Company in connection
with the founding or organizing of the business of the Company,
in consideration of services or property, or both services and
property;
c. having a substantial number of relationships and contacts with
the Company;
d. possessing significant rights to control Company properties;
e. receiving fees for providing services to the Company which are
paid on a basis that is not customary in the industry; or
f. providing goods or services to the Company on a basis which was
not negotiated at arms length with the Company.
"STOCKHOLDERS" means the registered holders of the Company's Equity Shares.
"STOCKHOLDERS 8% RETURN" means an 8% per annum cumulative, noncompounding
return on Invested Capital.
"SUBORDINATED INCENTIVE FEE" means the fee payable to the Advisor under
certain circumstances if the Shares are listed on a national securities exchange
or over-the-counter market.
"SUCCESSOR" means any successor in interest of the Company.
"TERMINATION DATE" means the date of termination of the Advisory Agreement.
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"TOTAL PROCEEDS" means Gross Proceeds from the Initial Public Offering.
"UNIMPROVED REAL PROPERTY" means Property in which the Company has an
equity interest that is not acquired for the purpose of producing rental or
other operating income, that has no development or construction in process and
for which no development or construction is planned, in good faith, to commence
within one year.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 NUMBER. The number of Directors initially shall be five (5),
which number may be increased or decreased from time to time by resolution of
the Directors then in office or by a majority vote of the Stockholders entitled
to vote: provided, however, that the total number of Directors shall be not
fewer than three (3) and not more than fifteen (15), subject to increase or
decrease by the affirmative vote of 80% of the members of the entire Board of
Directors. A majority of the Board of Directors will be Independent Directors
except for a period of 60 days after the death, removal or resignation of an
Independent Director. Any vacancies will be filled by the affirmative vote of a
majority of the remaining directors, though less than a quorum. Independent
Directors shall nominate replacements for vacancies in the Independent Director
positions. No reduction in the number of Directors shall cause the removal of
any Director from office prior to the expiration of his term. For the purposes
of voting for Directors, each Share of stock may be voted for as many
individuals as there are directors to be elected and for whose election the
Share is entitled to be voted, or as may otherwise be required by the MGCL or
other applicable law as in effect from time to time. A director may be removed
with or without cause by the vote of the holders of a majority of the
outstanding shares of capital stock entitled to vote for the election of
directors at a special meeting of the shareholders called for the purpose of
removing such director.
SECTION 2.2 EXPERIENCE. A Director shall have had at least three (3) years
of relevant experience demonstrating the knowledge and experience required to
successfully acquire and manage the type of assets being acquired by the
Company. At least one of the Independent Directors shall have three (3) years of
relevant real estate experience.
SECTION 2.3 COMMITTEES. Subject to the MGCL, the Directors may establish
such committees as they deem appropriate, in their discretion, provided that the
majority of the members of each committee are Independent Directors.
SECTION 2.4 INITIAL BOARD; TERM. The initial Directors are Leo F. Wells,
III, Brian M. Conlon, John L. Bell, Richard W. Carpenter and __________________.
Each Director shall hold office for one (1) year, until the next annual meeting
of Stockholders and until his successor shall have been duly elected and shall
have qualified. Directors may be elected to an unlimited number of successive
terms.
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SECTION 2.5 FIDUCIARY OBLIGATIONS. The Directors serve in a fiduciary
capacity to the Company and have a fiduciary duty to the Stockholders of the
Company, including a specific fiduciary duty to supervise the relationship of
the Company with the Advisor.
SECTION 2.6 APPROVAL BY INDEPENDENT DIRECTORS. A majority of Independent
Directors must approve all matters to which 2.1, 4.1, 4.2, 4.5, 4.6, 4.7, 4.8,
4.9, 4.10, 4.12, 4.13, 4.14, 5.2, 5.4(xii), 5.4(xiv), 7.13, 8.1 and 9.2 herein
apply.
SECTION 2.7 RESIGNATION, REMOVAL OR DEATH. Any Director may resign by
written notice to the Board of Directors, effective upon execution and delivery
to the Company of such written notice or upon any future date specified in the
notice. A Director may be removed from office with or without cause only at a
meeting of the Stockholders called for that purpose, by the affirmative vote of
the holders of not less than a majority of the Equity Shares then outstanding
and entitled to vote, subject to the rights of any Preferred Shares to vote for
such Directors. The notice of such meeting shall indicate that the purpose, or
one of the purposes, of such meeting is to determine if a Director should be
removed.
SECTION 2.8 BUSINESS COMBINATION STATUTE. Notwithstanding any other
provision of these Articles of Incorporation or any contrary provision of law,
the Maryland Business Combination Statute, found in Title 3, subtitle 6 of the
MGCL, as amended from time to time, or any successor statute thereto, shall not
apply to any "business combination" (as defined in Section 3-601(e) of the MGCL,
as amended from time to time, or any successor statute thereto) of the Company
and any Person.
SECTION 2.9 CONTROL SHARE ACQUISITION STATUTE. Notwithstanding any other
provision of these Articles of Incorporation or any contrary provision of law,
the Maryland Control Share Acquisition Statute, found in Title 3, subtitle 7 of
the MGCL, as amended from time to time, or any successor statute thereto shall
not apply to any acquisition of Securities of the Company by any Person.
ARTICLE III
POWERS OF DIRECTORS
SECTION 3.1 GENERAL. Subject to the express limitations herein or in the
Bylaws and to the general standard of care required of directors under the MGCL
and other applicable law, (i) the business and affairs of the Company shall be
managed under the direction of the Board of Directors and (ii) the Directors
shall have full, exclusive and absolute power, control and authority over the
Company Property and over the business of the Company as if they, in their own
right, were the sole owners thereof, except as otherwise limited by these
Articles of Incorporation. The Directors have established the written policies
on investments and borrowing set forth in this Article III and Article V hereof
and shall monitor the administrative procedures, investment operations and
performance of the Company and the Advisor to assure that such policies are
carried out. The Directors may take any actions that, in their sole judgment and
discretion, are necessary or desirable to conduct the business of the Company. A
majority of the
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Board of Directors, including a majority of Independent Directors, hereby ratify
these Articles of Incorporation, which shall be construed with a presumption in
favor of the grant of power and authority to the Directors. Any construction of
these Articles of Incorporation or determination made in good faith by the
Directors concerning their powers and authority hereunder shall be conclusive.
The enumeration and definition of particular powers of the Directors included in
this Article III shall in no way be limited or restricted by reference to or
inference from the terms of this or any other provision of these Articles of
Incorporation or construed or deemed by inference or otherwise in any manner to
exclude or limit the powers conferred upon the Directors under the general laws
of the State of Maryland as now or hereafter in force.
SECTION 3.2 SPECIFIC POWERS AND AUTHORITY. Subject only to the express
limitations herein, and in addition to all other powers and authority conferred
by these Articles of Incorporation or by law, the Directors, without any vote,
action or consent by the Stockholders, shall have and may exercise, at any time
or times, in the name of the Company or on its behalf the following powers and
authorities:
(i) INVESTMENTS. Subject to Article V and Section 9.5 hereof, to
invest in, purchase or otherwise acquire and to hold real, personal or mixed,
tangible or intangible, property of any kind wherever located, or rights or
interests therein or in connection therewith, all without regard to whether such
property, interests or rights are authorized by law for the investment of funds
held by trustees or other fiduciaries, or whether obligations the Company
acquires have a term greater or lesser than the term of office of the Directors
or the possible termination of the Company, for such consideration as the
Directors may deem proper (including cash, property of any kind or Securities of
the Company); provided, however, that the Directors shall take such actions as
they deem necessary and desirable to comply with any requirements of the MGCL
relating to the types of assets held by the Company.
(ii) REIT QUALIFICATION. The Board of Directors shall use its best
efforts to cause the Company and its Stockholders to qualify for U.S. federal
income tax treatment in accordance with the provisions of the Code applicable to
REITs (as those terms are defined in Section 1.5 hereof). In furtherance of the
foregoing, the Board of Directors shall use its best efforts to take such
actions as are necessary, and may take such actions as it deems desirable (in
its sole discretion) to preserve the status of the Company as a REIT; provided,
however, that in the event that the Board of Directors determines, by vote of at
least two-thirds (2/3) of the Directors, that it no longer is in the best
interests of the Company to qualify as a REIT, the Board of Directors shall take
such actions as are required by the Code, the MGCL and other applicable law, to
cause the matter of termination of qualification as a REIT to be submitted to a
vote of the Stockholders of the Company pursuant to Section 8.2.
(iii) SALE, DISPOSITION AND USE OF COMPANY PROPERTY. Subject to
Article V and Sections 9.5 and 10.3 hereof, the Board of Directors shall have
the authority to sell, rent, lease, hire, exchange, release, partition, assign,
mortgage, grant security interests in, encumber, negotiate, dedicate, grant
easements in and options with respect to, convey, transfer (including transfers
to entities wholly or partially owned by the Company or the Directors) or
otherwise dispose of any or all of the Company Property by deeds (including
deeds in lieu of foreclosure with or without consideration), trust deeds,
assignments, bills of sale, transfers, leases,
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mortgages, financing statements, security agreements and other instruments for
any of such purposes executed and delivered for and on behalf of the Company or
the Directors by one or more of the Directors or by a duly authorized officer,
employee, agent or nominee of the Company, on such terms as they deem
appropriate; to give consents and make contracts relating to the Company
Property and its use or other property or matters; to develop, improve, manage,
use, alter or otherwise deal with the Company Property; and to rent, lease or
hire from others property of any kind; provided, however, that the Company may
not use or apply land for any purposes not permitted by applicable law.
(iv) FINANCINGS. To borrow or, in any other manner, raise money for
the purposes and on the terms they determine, which terms may (i) include
evidencing the same by issuance of Securities of the Company and (ii) may have
such provisions as the Directors determine; to reacquire such Securities of the
Trust; to enter into other contracts or obligations on behalf of the Trust; to
guarantee, indemnify or act as surety with respect to payment or performance of
obligations of any Person; to mortgage, pledge, assign, grant security interests
in or otherwise encumber the Company Property to secure any such Securities of
the Company, contracts or obligations (including guarantees, indemnifications
and suretyships); and to renew, modify, release, compromise, extend, consolidate
or cancel, in whole or in part, any obligation to or of the Company or
participate in any reorganization of obligors to the Company; provided, however,
that the Company's Leverage on an aggregate basis may not exceed 50% of the
Company's Properties' aggregate value; provided, that Leverage on individual
Properties may exceed such limit.
(v) LENDING. Subject to all applicable limitations in these Articles
of Incorporation, to lend money or other Company Property on such terms, for
such purposes and to such Persons as they may determine.
(vi) ISSUANCE OF SECURITIES. Subject to the provisions of Article
VII hereof, to create and authorize and direct the issuance (on either a pro
rata or a non-pro rata basis) by the Company, in shares, units or amounts of one
or more types, series or classes, of Securities of the Company, which may have
such voting rights, dividend or interest rates, preferences, subordinations,
conversion or redemption prices or rights; maturity dates, distribution,
exchange, or liquidation rights or other rights as the Directors may determine,
without vote of or other action by the Stockholders, to such Persons for such
consideration, at such time or times and in such manner and on such terms as the
Directors determine, to list any of the Securities of the Company on any
securities exchange; and to purchase or otherwise acquire, hold, cancel,
reissue, sell and transfer any Securities of the Company.
(vii) EXPENSES AND TAXES. To pay any charges, expenses or
liabilities necessary or desirable, in the sole discretion of the Directors, for
carrying out the purposes of these Articles of Incorporation and conducting the
business of the Company, including compensation or fees to Directors, officers,
employees and agents of the Company, and to Persons contracting with the
Company, and any taxes, levies, charges and assessments of any kind imposed upon
or chargeable against the Company, the Company Property or the Directors in
connection therewith; and to prepare and file any tax returns, reports or other
documents and take any other appropriate action relating to the payment of any
such charges, expenses or liabilities.
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(viii) COLLECTION AND ENFORCEMENT. To collect, sue for and receive
money or other property due to the Company; to consent to extensions of the time
for payment, or to the renewal, of any Securities or obligations; to engage or
to intervene in, prosecute, defend, compound, enforce, compromise, release,
abandon or adjust any actions, suits, proceedings, disputes, claims, demands,
security interests or things relating to the Company, the Company Property or
the Company's affairs; to exercise any rights and enter into any agreements and
take any other action necessary or desirable in connection with the foregoing.
(ix) DEPOSITS. To deposit funds or Securities constituting part of
the Company Property in banks, trust companies, savings and loan associations,
financial institutions and other depositories, whether or not such deposits will
draw interest, subject to withdrawal on such terms and in such manner as the
Directors determine.
(x) ALLOCATION; ACCOUNTS. To determine whether moneys, profits or
other assets of the Company shall be charged or credited to, or allocated
between, income and capital, including whether or not to amortize any premium or
discount and to determine in what manner any expenses or disbursements are to be
borne as between income and capital (regardless of how such items would normally
or otherwise be charged to or allocated between income and capital without such
determination); to treat any dividend or other distribution on any investment
as, or apportion it between, income and capital; in their discretion to provide
reserves for depreciation, amortization, obsolescence or other purposes in
respect of any Company Property in such amounts and by such methods as they
determine what constitutes net earnings, profits or surplus; to determine the
method or form in which the accounts and records of the Company shall be
maintained; and to allocate to the Stockholders' equity account less than all of
the consideration paid for Securities and to allocate the balance to paid-in
capital or capital surplus.
(xi) VALUATION OF PROPERTY. To determine the value of all or any part
of the Company Property and of any services, Securities, property or other
consideration to be furnished to or acquired by the Company, and to revalue all
or any part of the Company Property, all in accordance with such appraisals or
other information as are reasonable, in their sole judgment.
(xii) OWNERSHIP AND VOTING POWERS. To exercise all of the rights,
powers, options and privileges pertaining to the ownership of any Mortgages,
Securities, Real Estate and other Company Property to the same extent that an
individual owner might, including without limitation to vote or give any
consent, request or notice or waive any notice, either in person or by proxy or
power of attorney, which proxies and powers of attorney may be for any general
or special meetings or action, and may include the exercise of discretionary
powers.
(xiii) OFFICERS, ETC.; DELEGATION OF POWERS. To elect, appoint or
employ such officers for the Company and such committees of the Board of
Directors with such powers and duties as the Directors may determine, the
Company's Bylaws provide or the MGCL requires; to engage, employ or contract
with and pay compensation to any Person (including subject to Section 9.5
hereof, any Director and any Person who is an Affiliate of any Director) as
agent, representative, Advisor, member of an advisory board, employee or
independent contractor (including advisors, consultants, transfer agents,
registrars, underwriters, accountants, attorneys-
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at-law, real estate agents, property and other managers, appraisers, brokers,
architects, engineers, construction managers, general contractors or otherwise)
in one or more capacities, to perform such services on such terms as the
Directors may determine; to delegate to one or more Directors, officers or other
Persons engaged or employed as aforesaid or to committees of Directors or to the
Advisor, the performance of acts or other things (including granting of
consents), the making of decisions and the execution of such deeds, contracts,
leases or other instruments, either in the names of the Company, the Directors
or as their attorneys or otherwise, as the Directors may determine; and to
establish such committees as they deem appropriate.
(xiv) ASSOCIATIONS. Subject to Section 9.5 hereof, to cause the
Company to enter into joint ventures, general or limited partnerships,
participation or agency arrangements or any other lawful combinations,
relationships or associations of any kind.
(xv) REORGANIZATIONS, ETC. Subject to Sections 10.2 and 10.3 hereof,
to cause to be organized or assist in organizing any Person under the laws of
any jurisdiction to acquire all or any part of the Company Property, carry on
any business in which the Company shall have an interest or otherwise exercise
the powers the Directors deem necessary, useful or desirable to carry on the
business of the Company or to carry out the provisions of these Articles of
Incorporation, to merge or consolidate the Company with any Person; to sell,
rent, lease, hire, convey, negotiate, assign, exchange or transfer all or any
part of the Company Property to or with any Person in exchange for Securities of
such Person or otherwise; and to lend money to, subscribe for and purchase the
Securities of, and enter into any contracts with, any Person in which the
Company holds, or is about to acquire, Securities or any other interests.
(xvi) INSURANCE. To purchase and pay for out of Company Property
insurance policies insuring the Stockholders, Company and the Company Property
against any and all risks, and insuring the Directors, Advisors and Affiliates
of the Company individually (each an "Insured") against all claims and
liabilities of every nature arising by reason of holding or having held any such
status, office or position or by reason of any action alleged to have been taken
or omitted by the Insured in such capacity, whether or not the Company would
have the power to indemnify against such claim or liability, provided that such
insurance be limited to the indemnification permitted by Section 9.2 hereof in
regard to any liability or loss resulting from negligence, gross negligence,
misconduct, willful misconduct or an alleged violation of federal or state
securities laws. Nothing contained herein shall preclude the Company from
purchasing and paying for such types of insurance, including extended coverage
liability and casualty and workers' compensation, as would be customary for any
Person owning comparable assets and engaged in a similar business, or from
naming the Insured as an additional insured party thereunder, provided that such
addition does not add to the premiums payable by the Company. The Board of
Directors' power to purchase and pay for such insurance policies shall be
limited to policies that comply with all applicable state laws and the NASAA
REIT Guidelines.
(xvii) DISTRIBUTIONS. To declare and pay dividends or other
Distributions to Stockholders, subject to the provisions of Section 7.2 hereof.
(xviii) DISCONTINUE OPERATIONS; BANKRUPTCY. To discontinue the
operations of the Company (subject to Section 10.2 hereof); to petition or apply
for relief under
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any provision of federal or state bankruptcy, insolvency or reorganization laws
or similar laws for the relief of debtors; to permit any Company Property to be
foreclosed upon without raising any legal or equitable defenses that may be
available to the Company or the Directors or otherwise defending or responding
to such foreclosure; to confess judgment against the Trust (as hereinafter
defined); or to take such other action with respect to indebtedness or other
obligations of the Directors, the Company Property or the Company as the
Directors, in such capacity, and in their discretion may determine.
(xix) TERMINATION of STATUS. To terminate the status of the Company
as a real estate investment trust under the REIT Provisions of the Code;
provided, however, that the Board of Directors shall take no action to terminate
the Company's status as a real estate investment trust under the REIT Provisions
of the Code until such time as (i) the Board of Directors adopts a resolution
recommending that the Company terminate its status as a real estate investment
trust under the REIT Provisions of the Code, (ii) the Board of Directors
presents the resolution at an annual or special meeting of the Stockholders and
(iii) such resolution is approved by the holders of a majority of the issued and
outstanding Common Shares (as defined in Section 7.2(ii) hereof).
(xx) FISCAL YEAR. Subject to the Code, to adopt, and from time to
time change, a fiscal year for the Company.
(xxi) SEAL. To adopt and use a seal, but the use of a seal shall not
be required for the execution of instruments or obligations of the Company.
(xxii) BYLAWS. To adopt, implement and from time to time alter,
amend or repeal the Bylaws of the Company relating to the business and
organization of the Company, provided that such amendments are not inconsistent
with the provisions of these Articles of Incorporation, and further provided
that the Directors may not amend the Bylaws, without the affirmative vote of a
majority of the Equity Shares, to the extent that such amendments adversely
affect the rights, preferences and privileges of Stockholders.
(xxiii) LISTING SHARES. To cause the Listing of the Shares at any
time after completion of the Initial Public Offering but in no event shall such
Listing occur more than ten (10) years after completion of the offering.
(xxiv) FURTHER POWERS. To do all other acts and things and execute
and deliver all instruments incident to the foregoing powers, and to exercise
all powers which they deem necessary, useful or desirable to carry on the
business of the Company or to carry out the provisions of these Articles of
Incorporation, even if such powers are not specifically provided hereby.
SECTION 3.3 DETERMINATION OF BEST INTEREST OF COMPANY. In determining
what is in the best interest of the Company, a Director shall consider the
interests of the Stockholders of the Company and, in his or her sole and
absolute discretion, may consider (i) the interests of the Company's employees,
suppliers, creditors and customers, (ii) the economy of the nation, (iii)
community and societal interests, and (iv) the long-term as well as short-term
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interests of the Company and its Stockholders, including the possibility that
these interests may be best served by the continued independence of the Company.
ARTICLE IV
ADVISOR
SECTION 4.1 APPOINTMENT AND INITIAL INVESTMENT OF ADVISOR. The Directors
are responsible for setting the general policies of the Company and for the
general supervision of its business conducted by officers, agents, employees,
advisors or independent contractors of the Company. However, the Directors are
not required personally to conduct the business of the Company, and they may
(but need not) appoint, employ or contract with any Person (including a Person
Affiliated with any Director) as an Advisor and may grant or delegate such
authority to the Advisor as the Directors may, in their sole discretion, deem
necessary or desirable. The term of retention of any Advisor shall not exceed
one (1) year, although there is no limit to the number of times that a
particular Advisor may be retained. The Advisor shall make an initial
investment of $200,000 in the Operating Partnership. The Advisor or any
Affiliate may not sell this initial investment while the Advisor remains a
Sponsor but may transfer the initial investment to other Affiliates.
SECTION 4.2 SUPERVISION OF ADVISOR. The Directors shall evaluate the
performance of the Advisor before entering into or renewing an advisory contract
and the criteria used in such evaluation shall be reflected in the minutes of
meetings of the Board. The Directors may exercise broad discretion in allowing
the Advisor to administer and regulate the operations of the Company, to act as
agent for the Company, to execute documents on behalf of the Company and to make
executive decisions which conform to general policies and principles established
by the Directors. The Directors shall monitor the Advisor to assure that the
administrative procedures, operations and programs of the Company are in the
best interests of the Stockholders and are fulfilled. The Independent Directors
are responsible for reviewing the fees and expenses of the Company at least
annually or with sufficient frequency to determine that the expenses incurred
are reasonable in light of the investment performance of the Company, its Net
Assets, its Net Income and the fees and expenses of other comparable
unaffiliated REITs. Each such determination shall be reflected in the minutes
of the meetings of the Board of Directors. In addition, from time to time, but
at least annually, a majority of the Independent Directors and a majority of
Directors not otherwise interested in the transaction must approve each
transaction with the Advisor or its Affiliates. The Independent Directors also
will be responsible for reviewing the performance of the Advisor and determining
that compensation to be paid to the Advisor is reasonable in relation to the
nature and quality of services performed and the investment performance of the
Company and that the provisions of the Advisory Agreement are being carried out.
Specifically, the Independent Directors will consider factors such as the Net
Assets and Net Income of the Company, the amount of the fee paid to the Advisor
in relation to the size, composition and performance of the Company's portfolio,
the success of the Advisor in generating opportunities that meet the investment
objectives of the Company, rates charged to other REITs and to investors other
than REITs by advisors performing the same or similar services, additional
revenues realized by the Advisor and its Affiliates through their relationship
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with the Company, whether paid by the Company or by others with whom the Company
does business, the quality and extent of service and advice furnished by the
Advisor, the performance of the investment portfolio of the Company, including
income, conservation or appreciation of capital, frequency of problem
investments and competence in dealing with distress situations, and the quality
of the portfolio of the Company relative to the investments generated by the
Advisor for its own account. The Independent Directors may also consider all
other factors which they deem relevant and the findings of the Independent
Directors on each of the factors considered shall be recorded in the minutes of
the Board of Directors. The Board of Directors shall determine whether any
successor Advisor possesses sufficient qualifications to perform the advisory
function for the Company and whether the compensation provided for in its
contract with the Company is justified.
SECTION 4.3 FIDUCIARY OBLIGATIONS. The Advisor has a fiduciary
responsibility to the Company and to the Stockholders.
SECTION 4.4 AFFILIATION AND FUNCTIONS. The Directors, by resolution or
in the Bylaws, may provide guidelines, provisions, or requirements concerning
the affiliation and functions of the Advisor.
SECTION 4.5 TERMINATION. Either a majority of the Independent Directors
or the Advisor may terminate the advisory contract on sixty (60) days' written
notice without cause or penalty, and, in such event, the Advisor will cooperate
with the Company and the Directors in making an orderly transition of the
advisory function.
SECTION 4.6 REAL ESTATE COMMISSION ON SALE OF PROPERTY. The Company
shall pay the Advisor a deferred, subordinated real estate disposition fee upon
Sale of one or more Properties, in an amount equal to the lesser of (i) one-half
(1/2) of a Competitive Real Estate Commission, or (ii) three percent (3%) of the
sales price of such Property or Properties. In addition, the amount paid when
added to the sums paid to unaffiliated parties in such a capacity shall not
exceed the lesser of the Competitive Real Estate Commission or an amount equal
to 6% of the sales price of such Property or Properties. Payment of such fee
shall be made only if the Advisor provides a substantial amount of services in
connection with the Sale of a Property or Properties and shall be subordinated
to receipt by the Stockholders of Distributions equal to the sum of (i) their
aggregate Stockholders' 8% Return and (ii) their aggregate Invested Capital. If,
at the time of a Sale, payment of such disposition fee is deferred because the
subordination conditions have not been satisfied, then the disposition fee shall
be paid at such later time as the subordination conditions are satisfied. Upon
Listing, if the Advisor has accrued but not been paid such real estate
disposition fee, then for purposes of determining whether the subordination
conditions have been satisfied, Stockholders will be deemed to have received a
Distribution in the amount equal to the product of the total number of Shares
outstanding and the average closing price of the Shares over a period, beginning
180 days after Listing, of 30 days during which the Shares are traded.
SECTION 4.7 SUBORDINATED SHARE OF NET SALES PROCEEDS. The Company shall
pay the Advisor a deferred, subordinated share from Sales of assets of the
Company, whether or not in liquidation of the Company, equal to 10% of Net Sales
Proceeds
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remaining after receipt by the Stockholders of Distributions equal to the sum of
(i) the Stockholders' 8% Return and (ii) 100% of Invested Capital. Upon
liquidation, the Advisor shall also receive an amount equal to the Advisor's
initial investment in the Operating Partnership after receipt by the
Stockholders of the distributions described in (i) and (ii) above. In the event
the share of Net Sales Proceeds set forth in this Section 4.7 is paid to the
Advisor, no other Net Sales Proceeds will be paid to the Advisor. In the case of
multiple Advisors, Advisors and any Affiliate shall be allowed such fees
provided such fees are distributed by a proportional method reasonably designed
to reflect the value added to the Company assets by each respective Advisor or
any Affiliate.
SECTION 4.8 SUBORDINATED INCENTIVE FEE UPON LISTING. At such time, if
any, as Listing occurs, the Advisor shall be paid the Subordinated Incentive Fee
in an amount equal to ten percent (10%) of the amount by which (i) the market
value of the Company (as defined below) plus the total Distributions paid to
Stockholders from the Company's inception until the date of Listing exceeds (ii)
the sum of (A) one hundred percent (100% ) of Invested Capital and (B) the total
Distributions required to be paid to the Stockholders in order to pay the
Stockholders' 8% Return from inception through the date the market value is
determined. For purposes of calculating the Subordinated Incentive Fee, the
market value of the Company shall be the average closing price or average of bid
and asked price, as the case may be, over a period of thirty (30) days during
which the Shares are traded with such period beginning one hundred eighty (180)
days after Listing. In the event the Subordinated Incentive Fee is paid to the
Advisor following Listing, no other performance fee will be paid to the Advisor.
In the case of multiple Advisors, Advisors and any Affiliate shall be allowed
incentive fees provided such fees are distributed by a proportional method
reasonably designed to reflect the value added to the Company assets by each
respective Advisor or any Affiliate.
SECTION 4.9 NEW ADVISOR FEE STRUCTURES. In the event that the Company
becomes a perpetual life entity, which will occur if the Shares become listed on
a national securities exchange or over-the-counter market, the Company and the
Advisor will negotiate in good faith a fee structure appropriate for an entity
with a perpetual life, subject to approval by a majority of the Independent
Directors. In negotiating a new fee structure, the Independent Directors shall
consider all of the factors they deem relevant. These are expected to include,
but will not necessarily be limited to: (i) the amount of the advisory fee in
relation to the asset value, composition, and profitability of the Company's
portfolio; (ii) the success of the Advisor in generating opportunities that meet
the investment objectives of the Company; (iii) the rates charged to other REITs
and to investors other than REITs by Advisors that perform the same or similar
services; (iv) additional revenues realized by the Advisor and its Affiliates
through their relationship with the Company, including loan administration,
underwriting or broker commissions, servicing, engineering, inspection and other
fees, whether paid by the Company or by others with whom the Company does
business; (v) the quality and extent of service and advice furnished by the
Advisor; (vi) the performance of the investment portfolio of the Company,
including income, conservation or appreciation of capital, and number and
frequency of problem investments; and (vii) the quality of the Property
portfolio of the Company in relation to the investments generated by the Advisor
for its own account. The Board of Directors, including a majority of the
Independent Directors, may not approve a new fee structure that, in its
judgment, is more favorable to the Advisor than the current fee structure.
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SECTION 4.10 REIMBURSEMENT FOR ORGANIZATIONAL AND OFFERING EXPENSES. The
Company shall reimburse the Advisor and its Affiliates an amount of up to 3% of
the Gross Proceeds for Organizational and Offering Expenses incurred by the
Advisor or its Affiliates.
SECTION 4.11 REIMBURSEMENT FOR MARKETING SUPPORT AND DUE DILIGENCE
EXPENSES. The Company shall reimburse the Advisor and its Affiliates an amount
of up to .5% of the Gross Proceeds for bona fide due diligence expenses and an
amount of up to 2.0% of the Gross Proceeds for bona fide marketing support
expenses incurred by the Advisor or its Affiliates.
SECTION 4.12 ACQUISITION FEES. The Company shall pay the Advisor and its
Affiliates and amount of up to 3% of the Gross Proceeds for the review and
evaluation of potential Real Property acquisitions.
SECTION 4.13 REIMBURSEMENT FOR ACQUISITION EXPENSES. The Company shall
reimburse the Advisor and its Affiliates an amount of up to .5% of the Gross
Proceeds for Acquisition Expenses incurred by the Advisor or its Affiliates.
SECTION 4.14 REIMBURSEMENT FOR OPERATING EXPENSES. The Company shall
reimburse the Advisor, at the end of each fiscal quarter, for Operating Expenses
incurred by the Advisor; provided, however that the Company shall not reimburse
the Advisor at the end of any fiscal quarter for Operating Expenses that, in the
four consecutive fiscal quarters then ended (the "Expense Year") exceed (the
"Excess Amount") the greater of 2% of Average Invested Assets or 25% of Net
Income (the "2%/25% Guidelines") for such year.
SECTION 4.15 REIMBURSEMENT LIMITATION. The Company shall not reimburse
the Advisor or its Affiliates for services for which the Advisor or its
Affiliates are entitled to compensation in the form of a separate fee.
ARTICLE V
INVESTMENT OBJECTIVES AND LIMITATIONS
SECTION 5.1 INVESTMENT OBJECTIVES. The Company's primary investment
objectives are: (viii) to preserve, protect and return the Invested Capital of
the Stockholders; (ix) to maximize cash available for Distribution; (x) to
realize capital appreciation upon the ultimate sale of the Company's Properties;
and (xi) to provide Stockholders with liquidity of their investment within ten
(10) years after the commencement of the Initial Public Offering through either
(a) the Listing of the Shares, or (b) if Listing does not occur within ten years
following the commencement of the Initial Public Offering, the dissolution of
the Company and orderly liquidation of its assets. The sheltering from tax of
income from other sources is not an objective of the Company. Subject to the
restrictions set forth herein, the Directors will use their best efforts to
conduct the affairs of the Company in such a manner as to continue to qualify
the Company for the tax treatment provided in the REIT Provisions of the Code;
provided, however,
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no Director, officer, employee or agent of the Company shall be liable for any
act or omission resulting in the loss of tax benefits under the Code, except to
the extent provided in Section 9.2 hereof.
SECTION 5.2 REVIEW OF OBJECTIVES. The Independent Directors shall review
the investment policies of the Company with sufficient frequency and at least
annually to determine that the policies being followed by the Company at any
time are in the best interests of its Stockholders. Each such determination and
the basis therefor shall be set forth in the minutes of the meetings of the
Board of Directors.
SECTION 5.3 CERTAIN PERMITTED INVESTMENTS.
(i) The Company may invest in Properties, as defined in Section 1.5
hereto.
(ii) The Company may invest in Joint Ventures with the Sponsor,
Advisor, one or more Directors or any Affiliate, if a majority of Directors
(including a majority of Independent Directors) not otherwise interested in the
transaction, approve such investment as being fair and reasonable to the Company
and on substantially the same terms and conditions as those received by the
other joint venturers.
(iii) Subject to any limitations in Section 5.4(ix), the Company may
invest in equity securities if a majority of Directors (including a majority of
Independent Directors) not otherwise interested in the transaction approve such
investment as being fair, competitive and commercially reasonable.
(iv) The Company may enter into a partnership, joint venture or co-
tenancy with unrelated parties if (a) the management of such partnership, joint
venture or co-tenancy is under the control of the Company; (ii) the Company, as
a result of such joint 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 Company to
do anything as a partner, joint venturer or co-tenant with respect to the
property which the Company or Advisor could not do directly because of the
Advisory Agreement; and (iv) the Advisor and its Affiliates are prohibited from
receiving any compensation, fees or expenses which are not permitted to be paid
under the Advisory Agreement.
SECTION 5.4 INVESTMENT LIMITATIONS. In addition to other investment
restrictions imposed by the Directors from time to time, consistent with the
Company's objective of qualifying as a REIT, the following shall apply to the
Company's investments:
(i) Not more than 10% of the Company's total assets shall be invested
in Unimproved Real Property or mortgage loans on Unimproved Real Property.
(ii) The Company shall not invest in commodities or commodity future
contracts. This limitation is not intended to apply to futures contracts, when
used solely for hedging purposes in connection with the Company's ordinary
business of investing in real estate assets and mortgages.
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(iii) The Company will not make or invest in mortgage loans (except
in connection with the sale or other disposition of a Property).
(iv) The Company shall not invest in or make mortgage loans unless an
appraisal is obtained concerning the underlying property except for those loans
insured or guaranteed by a government or government agency. Mortgage
indebtedness on any property shall not exceed such property's appraised value.
In cases in which a majority of Independent Directors so determine, and in all
cases in which the transaction is with the Advisor, Directors, or any
Affiliates, such appraisal of the underlying property must be obtained from an
Independent Expert. Such appraisal shall be maintained in the Company's records
for at least five (5) years and shall be available for inspection and
duplication by any Stockholder. In addition to the appraisal, a mortgagee's or
owner's title insurance policy or commitment as to the priority of the mortgage
or condition of the title must be obtained.
(v) The Company shall not make or invest in mortgage loans, including
construction loans, on any one (1) Property if the aggregate amount of all
mortgage loans outstanding on the Property, including the loans of the Company,
would exceed an amount equal to eighty-five percent (85%) of the appraised value
of the Property as determined by appraisal unless substantial justification
exists because of the presence of other underwriting criteria. For purposes of
this subsection, the "aggregate amount of all Mortgage Loans outstanding on the
Property, including the loans of the Company" shall include all interest
(excluding contingent participation in income and/or appreciation in value of
the mortgaged Property), the current payment of which may be deferred pursuant
to the terms of such loans, to the extent that deferred interest on each loan
exceeds five percent (5%) per annum of the principal balance of the loan.
(vi) The Company shall not invest in indebtedness ("Junior Debt")
secured by a mortgage on real property which is subordinate to the lien or other
indebtedness ("Senior Debt"), except where such amount of such Junior Debt, plus
the outstanding amount of Senior Debt, does not exceed 90% of the appraised
value of such property, if after giving effect thereto, the value of all such
mortgage loans of the Company (as shown on the books of the Company in
accordance with generally accepted accounting principles, after all reasonable
reserves but before provision for depreciation) would not then exceed 25% of the
Company's Net Assets. The value of all investments in Junior Debt of the
Company which does not meet the aforementioned requirements shall be limited to
10% of the Company's tangible assets (which would be included within the 25%
limitation).
(vii) The Company shall not engage in any short sale, or borrow, on
an unsecured basis, if such borrowing will result in an Asset Coverage of less
than 300%, except that such borrowing limitation shall not apply to a first
mortgage trust. "Asset Coverage," for the purpose of this Section 5.4(vi) means
the ratio which the value of the total assets of an issuer, less all liabilities
and indebtedness except indebtedness for unsecured borrowings, bears to the
aggregate amount of all unsecured borrowings of such issuer.
(viii) The Company shall not make or invest in any mortgage loans
that are subordinate to any mortgage, other indebtedness or equity interest of
the Advisor, the Directors, the Sponsor or an Affiliate of the Company. In
addition, the Company shall not invest in any
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security of any entity holding investments or engaging in activities prohibited
by these Articles of Incorporation.
(ix) The Company shall not invest in or underwrite the securities of
other issuers, including any publicly offered or traded limited partnership
interests, except for investments in joint ventures as described in the
Company's Prospectus and except for permitted temporary investments pending
utilization of Company funds, provided that following one year after the
commencement of operations of the Company no more than 45% of the value of the
Company's total assets (exclusive of Government securities and cash items) will
consist of, and no more than 45% of the Company's net income after taxes (for
the last four fiscal quarters combined) will be derived from, securities other
than (A) Government securities, or (B) securities in a corporation where real
estate is the principal asset and the acquisition of such real estate can best
be affected by the acquisition of the stock of such corporation, provided that
any such corporation is either (x) a corporation which is a majority owned
subsidiary of the Company and which is not an investment company as defined by
the Investment Company Act of 1940, as amended, or (y) a corporation which is
controlled primarily by the Company, through which corporation the Company
engages in the business of acquisition and operation of real estate and which is
not an investment company; all as approved by a majority of Directors,
(including a majority of Independent Directors) not otherwise interested in the
transaction as fair, competitive and commercially reasonable.
(x) The Company shall not issue (A) equity securities redeemable
solely at the option of the holder (except that Stockholders may offer their
Common Shares to the Company pursuant to that certain redemption plan adopted or
to be adopted by the Board of Directors on terms outlined in the section
relating to Common Shares entitled "Share Repurchase Program" in the Company's
Prospectus relating to the Initial Public Offering); (B) debt securities unless
the historical debt service coverage (in the most recently completed fiscal
year) as adjusted for known changes is sufficient to properly service that
higher level of debt; (C) Equity Shares on a deferred payment basis or under
similar arrangements; (D) non-voting or non-assessable securities; (E) options,
warrants, or similar evidences of a right to buy its securities (collectively,
"Options") unless (1) issued to all of its Stockholders ratably, (2) as part of
a financing arrangement, or (3) as part of a Stock Option Plan available to
Directors, officers or employees of the Company or the Advisor. Options may not
be issued to the Advisor, Director, Sponsor or any Affiliate thereof except on
the same terms as such Options are sold to the general public. Options may be
issued to persons other than the Advisor, Directors, Sponsor or any Affiliate
thereof but not at exercise prices less than the fair market value of the
underlying securities on the date of grant and not for consideration that in the
judgment of the Independent Directors has a market value less than the value of
such Option on the date of grant. Options issuable to the Advisor, Directors,
Sponsor or any Affiliate thereof shall not exceed 10% of the outstanding Shares
on the date of grant. The voting rights per share of Equity Shares of the
Company (other than the publicly held Equity Shares of the Company) sold in a
private offering shall not exceed the voting rights which bear the same
relationship to the voting rights of the publicly held Equity Shares as the
consideration paid to the Company for each privately offered Equity Share of the
Company bears to the book value of each outstanding publicly held Equity Share.
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(xi) The Company shall not enter into agreements with the Advisor or
its Affiliates for the provision of insurance covering the Company or any
Property.
(xii) A majority of the Directors shall authorize the consideration
to be paid for each Property, based on the fair market value of the Property.
If a majority of the Independent Directors determine, or if the Property is
acquired from the Advisor, a Director, the Sponsor or their Affiliates, such
fair market value shall be determined by a qualified independent real estate
appraiser selected by the Independent Directors.
(xiii) The Company shall not issue senior securities except notes to
banks and other lenders and Preferred Shares.
(xiv) The aggregate Leverage of the Company shall be reasonable in
relation to the Net Assets of the Company and shall be reviewed by the Directors
at least quarterly. The maximum amount of such Leverage shall not exceed 50% of
the Properties' aggregate value, provided, that Leverage on individual
Properties may exceed such limit.
(xv) The Sponsor, Advisor, Directors and any Affiliates thereto shall
not make loans to the Company, or to joint ventures in which the Company is a
co-venturer, for the purpose of acquiring Properties. Any loans to the Company
by such parties for other purposes must be approved by a majority of Directors
(including a majority of Independent Directors) not otherwise interested in the
transaction as fair, competitive and commercially reasonable and no less
favorable to the Company than comparable loans between unaffiliated parties.
(xvi) The Company shall not make loans to the Sponsor, Advisor,
Directors, officers or any principal of the Company or any of its Affiliate.
(xvii) The Company shall not operate so as to be classified as an
"investment company" under the Investment Company Act of 1940, as amended.
(xviii) The Company will not make any investment that the Company
believes will be inconsistent with its objectives of qualifying and remaining
qualified as a REIT.
(xix) The Company shall not invest in real estate contracts of sale
unless such contracts of sale are in recordable form and appropriately recorded
in the chain of title.
The foregoing investment limitations may not be modified or eliminated
without the approval of Stockholders owning a majority of the outstanding Equity
Shares and a majority of the Independent Directors not otherwise interested in
the transaction.
ARTICLE VI
CONFLICTS OF INTEREST
SECTION 6.1 SALES AND LEASES TO COMPANY. The Company may purchase or
lease a Property or Properties from the Sponsor, Advisor, Director, or any
Affiliate upon a
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finding by a majority of Directors (including a majority of Independent
Directors) not otherwise interested in the transaction that such transaction is
competitive and commercially reasonable to the Company and at a price to the
Company no greater than the cost of the asset to such Sponsor, Advisor, Director
or Affiliate, or, if the price to the Company is in excess of such cost, that
substantial justification for such excess exists and such excess is reasonable
and only if the possibility of such acquisition(s) is disclosed, and there is
appropriate disclosure of the material facts concerning each such investment. In
no event shall the cost of such asset to the Company exceed its current
appraised value.
SECTION 6.2 SALES AND LEASES TO THE SPONSOR, ADVISOR, DIRECTORS OR
AFFILIATES. An Advisor, Director or Affiliate may purchase or lease a Property
or Properties from the Company if a majority of Directors (including a majority
of Independent Directors) not otherwise interested in the transaction determine
that the transaction is fair and reasonable to the Company.
SECTION 6.3 OTHER TRANSACTIONS.
(i) No goods or services will be provided by the Advisor or its
Affiliates to the Company, except for transactions in which the Advisor or its
Affiliates provide goods or services to the Company in accordance with these
Articles of Incorporation or if a majority of the Directors (including a
majority of the Independent Directors) not otherwise interested in such
transactions approve such transactions as fair and reasonable to the Company and
on terms and conditions not less favorable to the Company than those available
from unaffiliated third parties.
(ii) The Company shall not make loans to the Sponsor, Advisor,
Directors or any Affiliates thereof. The Sponsor, Advisor, Directors and any
Affiliates thereof shall not make loans to the Company, or to joint ventures in
which the Company is a co-venturer, for the purpose of acquiring Properties.
Any loans to the Company by such parties for other purposes must be approved by
a majority of the Directors (including a majority of the Independent Directors)
not otherwise interested in such transaction as fair, competitive, and
commercially reasonable, and no less favorable to the Company than comparable
loans between unaffiliated parties.
SECTION 6.4 CONFLICT RESOLUTION PROCEDURES. In the event that an
investment opportunity becomes available which is suitable for both the Company
and a public or private entity with which the Advisor or its Affiliates are
affiliated, for which both entities have sufficient uninvested funds, then the
entity which has had the longest period of time elapse since it was offered an
investment opportunity will first be offered the investment opportunity. An
investment opportunity will not be considered suitable for an entity if the
2%/25% Guidelines could not be satisfied if the entity were to make the
investment. In determining whether or not an investment opportunity is suitable
for more than one entity, the Board of Directors and the Advisor will examine
such factors, among others, as the cash requirements of each entity, the effect
of the acquisition both on diversification of each entity's investments by types
of commercial office properties and geographic area, and on diversification of
the tenants of its properties (which also may affect the need for one of the
entities to prepare or produce audited financial statements for a property or a
tenant), the anticipated cash flow of each entity, the size of the investment,
the amount of funds available to each program, and the length of time such funds
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have been available for investment. If the subsequent development, such as a
delay in the closing of a property or a delay in the construction of a property,
causes any such investment, in the opinion of the Board of Directors and the
Advisor, to be more appropriate for an entity other than the entity which
committed to make the investment, however, the Advisor has the right to agree
that the other entity affiliated with the Advisors or its Affiliates may make
the investment.
ARTICLE VII
SHARES
SECTION 7.1 AUTHORIZED SHARES. The total number of shares of capital
stock which the Company is authorized to issue is ninety million (90,000,000),
consisting of forty million (40,000,000) Common Shares (as defined and described
in Section 7.2(ii) hereof), five million (5,000,000) Preferred Shares (as
defined in Section 7.3 hereof) and forty-five million (45,000,000) Shares-in-
Trust (as defined in Section 7.8 hereof). All shares of capital stock shall be
fully paid and nonassessable when issued. Shares may be issued for such
consideration as the Directors determine or, if issued as a result of a share
dividend or share split, without any consideration. If shares of one class of
stock are classified or reclassified into shares of another class of stock
pursuant to Sections 7.2(ii), or 7.3 of this Article VII, the number of
authorized shares of the former class shall be automatically decreased and the
number of shares of the latter class shall be automatically increased, in each
case by the number of shares so classified or reclassified, so that the
aggregate number of shares of stock of all classes that the Company has
authority to issue shall not be more than the total number of shares of stock
set forth in the second sentence of this Section 7.1.
SECTION 7.2 COMMON SHARES.
(i) COMMON SHARES SUBJECT TO TERMS OF PREFERRED SHARES. The Common
Shares shall be subject to the express terms of any series of Preferred Shares.
(ii) DESCRIPTION. Common Shares (herein so called) shall have a par
value of $.01 per share and shall entitle the holders to one (1) vote per share
on all matters upon which Stockholders are entitled to vote pursuant to Section
8.2 hereof, and shares of a particular class of issued Common Shares shall have
equal dividend, distribution, liquidation and other rights, and shall have no
preference, cumulative, preemptive, conversion or exchange rights. The
Directors may classify or reclassify any unissued Common Shares by setting or
changing the number, designation, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption of any such Common Shares
and, in such event, the Company shall file for record with the State Department
of Assessments and Taxation of the State of Maryland articles supplementary in
substance and form as prescribed by Title 2 of the MGCL.
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(iii) DISTRIBUTION RIGHTS. The holders of Common Shares shall be
entitled to receive such Distributions as may be authorized by the Board of
Directors of the Company out of funds legally available therefor.
(iv) DIVIDEND OR DISTRIBUTION RIGHTS. The Directors from time to time
may authorize and the Company may pay to Stockholders such dividends or
Distributions in cash or other property as the Directors in their discretion
shall determine. The Directors shall endeavor to authorize and the Company may
pay such dividends and Distributions as shall be necessary for the Company to
qualify as a real estate investment trust under the REIT Provisions of the Code;
provided, however, Stockholders shall have no right to any dividend or
Distribution unless and until declared by the Directors. The exercise of the
powers and rights of the Directors pursuant to this section shall be subject to
the provisions of any class or series of Equity Shares at the time outstanding.
The receipt by any Person in whose name any Equity Shares are registered on the
records of the Company or by his duly authorized agent shall be a sufficient
discharge for all dividends or Distributions payable or deliverable in respect
of such Equity Shares and from all liability to see to the application thereof.
Distributions in kind shall not be permitted, except for distributions of
readily marketable securities and distributions of beneficial interests in a
liquidating trust established for the dissolution of the Company and the
liquidation of its assets in accordance with the terms of these Articles of
Incorporation.
(v) RIGHTS UPON LIQUIDATION. In the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any distribution of the
assets of the Company, the aggregate assets available for distribution to
holders of the Common Shares (including holders of Shares-in-Trust resulting
from the exchange of Common Shares pursuant to Section 7.7(iii) hereof) shall be
determined in accordance with applicable law. Except as provided below as a
consequence of the limitations on distributions to holders of Shares-in-Trust,
each holder of Common Shares shall be entitled to receive, ratably with (i) each
other holder of Common Shares and (ii) each holder of Shares-in-Trust resulting
from the exchange of Common Shares, that portion of such aggregate assets
available for distribution as the number of the outstanding Common Shares held
by such holder bears to the total number of outstanding Common Shares and
Shares-in-Trust resulting from the exchange of Common Shares then outstanding.
Anything herein to the contrary notwithstanding, in no event shall the amount
payable to a holder of Shares-in-Trust exceed (i) the price per share such
holder paid for the Common Shares in the purported Transfer or Acquisition (as
those terms are defined in Section 7.7(i)) or change in capital structure or
other transaction or event that resulted in the Shares-in-Trust or (ii) if the
holder did not give full value for such Shares-in-Trust (as through a gift, a
devise or other event or transaction), a price per share equal to the Market
Price (as that term is defined in Section 7.7(i)) for the Common Shares on the
date of the purported Transfer, Acquisition, change in capital structure or
other transaction or event that resulted in such Shares-in-Trust. Any amount
available for distribution in excess of the foregoing limitations shall be paid
ratably to the holders of Common Shares and other holders of Shares-in-Trust
resulting from the exchange of Common Shares to the extent permitted by the
foregoing limitations.
(vi) VOTING RIGHTS. Except as may be provided otherwise in these
Articles of Incorporation, and subject to the express terms of any series of
Preferred Shares, the holders of the Common Shares shall have the exclusive
right to vote on all matters (as to which a common
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Stockholder shall be entitled to vote pursuant to applicable law) at all
meetings of the Stockholders of the Company, and shall be entitled to one (1)
vote for each Common Share entitled to vote at such meeting.
SECTION 7.3 PREFERRED SHARES. The Directors are hereby expressly granted
the authority to authorize from time to time the issuance of one or more series
of Preferred Shares. Prior to the issuance of each such class or series, the
Board of Directors, by resolution, shall fix the number of shares to be included
in each series, and the designation, preferences, terms, rights, restrictions,
limitations and qualifications and terms and conditions of redemption of the
shares of each class or series. The authority of the Board of Directors with
respect to each series shall include, but not be limited to, determination of
the following:
(i) The designation of the series, which may be by distinguishing
number, letter or title.
(ii) The dividend rate on the shares of the series, if any, whether
any dividends shall be cumulative and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of the
series.
(iii) The redemption rights, including conditions and the price or
prices, if any, for shares of the series.
(iv) The terms and amounts of any sinking fund for the purchase or
redemption of shares of the series.
(v) The rights of the shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Company, and the relative rights of priority, if any, of payment of
shares of the series.
(vi) Whether the shares of the series shall be convertible into shares
of any other class or series, or any other security, of the Company or any other
corporation or other entity, and, if so, the specification of such other class
or series of such other security, the conversion price or prices or rate or
rates, any adjustments thereof, the date or dates on which such shares shall be
convertible and all other terms and conditions upon which such conversion may be
made.
(vii) Restrictions on the issuance of shares of the same series or of
any other class or series.
(viii) The voting rights of the holders of shares of the series
subject to the limitations contained in this Section 7.3; provided, however,
that the voting rights of the holders of shares of any series of Preferred
Shares shall not exceed the voting rights of the holders of Common Shares.
(ix) Any other relative rights, preferences and limitations on that
series. Subject to the express provisions of any other series of Preferred
Shares then outstanding. Notwithstanding any other provision of these Articles
of Incorporation, the Board of Directors
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may increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares, or alter the designation or classify or
reclassify any unissued shares of a particular series of Preferred Shares, by
fixing or altering, in one or more respects, from time to time before issuing
the shares, the terms, rights, restrictions and qualifications of the shares of
any such series of Preferred Shares.
SECTION 7.4 GENERAL NATURE OF SHARES. All Shares shall be personal
property entitling the Stockholders only to those rights provided in these
Articles of Incorporation, the MGCL or in the resolution creating any class or
series of Shares. The legal ownership of the Company Property and the right to
conduct the business of the Company are vested exclusively in the Directors; the
Stockholders shall have no interest therein other than the beneficial interest
in the Company conferred by their Shares and shall have no right to compel any
partition, division, dividend or Distribution of the Company or any of the
Company Property. The death of a Stockholder shall not terminate the Company or
give his legal representative any rights against other Stockholders, the
Directors or the Company Property, except the right, exercised in accordance
with applicable provisions of the Bylaws, to require the Company to reflect on
its books the change in ownership of the Shares. Holders of Shares shall not
have any preemptive or other right to purchase or subscribe for any class of
securities of the Company which the Company may at any time issue or sell.
SECTION 7.5 NO ISSUANCE OF SHARE CERTIFICATES. Until Listing, the
Company shall not issue share certificates except to Stockholders who make a
written request to the Company. A Stockholder's investment shall be recorded on
the books of the Company. To transfer his or her Shares a Stockholder shall
submit an executed form to the Company, which form shall be provided by the
Company upon request. Such transfer will also be recorded on the books of the
Company. Upon issuance or transfer of Shares, the Company will provide the
Stockholder with information concerning his or her rights with regard to such
stock, in a form substantially similar to Section 7.7(xii), and as required by
the Bylaws and the MGCL or other applicable law.
SECTION 7.6 SUITABILITY OF STOCKHOLDERS
(i) INVESTOR SUITABILITY STANDARDS. Subject to suitability standards
established by individual states, to become a Stockholder in the Company, if
such prospective Stockholder is an individual (including an individual
beneficiary of a purchasing Individual Retirement Account), or if the
prospective Stockholder 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 to the Company, among other requirements as the
Company may require from time to time:
(a) 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 Shares) 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
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(b) 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 Shares) has a net worth (excluding home, furnishings
and automobiles) of not less than $150,000.
(ii) DETERMINATION OF SUITABILITY OF SALE. The Sponsor and each
Person selling Shares on behalf of the Sponsor or the Company shall make every
reasonable effort to determine that the purchase of Shares is a suitable and
appropriate investment for each Stockholder. In making this determination, the
Sponsor or each Person selling Shares on behalf of the Sponsor or the Company
shall ascertain that the prospective Stockholder: (l) meets the minimum income
and net worth standards established for the Company; (m) can reasonably benefit
from the Company based on the prospective Stockholder's overall investment
objectives and portfolio structure; (n) is able to bear the economic risk of the
investment based on the prospective Stockholder's overall financial situation;
and (o) has apparent understanding of: (1) the fundamental risks of the
investment; (2) the risk that the Stockholder may lose the entire investment;
(3) the lack of liquidity of Company Shares; (4) the restrictions on
transferability of Company Shares; (16) the background and qualifications of the
Sponsor or the Advisor; and (17) the tax consequences of the investment.
The Sponsor or each Person selling shares on behalf of the Sponsor or the
Company shall make this determination on the basis of information it has
obtained from a prospective Stockholder. Relevant information for this purpose
will include at least the age, investment objectives, investment experiences,
income, net worth, financial situation, and other investments of the prospective
Stockholder, as well as any other pertinent factors.
The Sponsor or each Person selling Shares on behalf of the Sponsor or the
Company shall maintain records of the information used to determine that an
investment in Shares is suitable and appropriate for a Stockholder. The Sponsor
or each Person selling Shares on behalf of the Sponsor or the Company shall
maintain these records for at least six years.
(iii) MINIMUM INVESTMENT. Subject to certain individual state
requirements, no sale or transfer of Shares will be permitted of less than 100
Shares ($1,000), and a Stockholder shall not transfer, fractionalize or
subdivide such Shares so as to retain less than such minimum number thereof.
SECTION 7.7 RESTRICTIONS ON OWNERSHIP AND TRANSFER.
(i) DEFINITIONS. For purposes of Sections 7.7 and 7.8, the following
terms shall have the following meanings:
"ACQUIRE" means the acquisition of Beneficial or Constructive Ownership of
Equity Shares by any means, including, without limitation, the exercise of any
rights under any option, warrant, convertible security, pledge or other security
interest or similar right to acquire Shares, but shall not include the
acquisition of any such rights unless, as a result, the acquirer would be
considered a Beneficial Owner or Constructive Owner. The terms "Acquires" and
"Acquisition" shall have correlative meanings.
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"BENEFICIAL OWNERSHIP" means ownership of Shares by an individual who would
be treated as an owner of such Shares under Section 542(a)(2) of the Code,
either directly or constructively through the application of Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code. For purposes of this
definition, the term "individual" shall include any organization, trust, or
other entity that is treated as an individual for purposes of Section 542(a)(2)
of the Code. The terms "Beneficial Owner," "Beneficially Owns" and
"Beneficially Owned" shall have correlative meanings.
"BENEFICIARY" means a beneficiary of the Trust as determined pursuant to
Section 7.8(v)(a) hereof.
"COMMON SHARE OWNERSHIP LIMIT" means, with respect to the Common Shares,
nine point eight percent (9.8%) of the outstanding Common Shares, subject to
adjustment pursuant to Section 7.7(x) (but not more than nine point nine percent
(9.9%) of the outstanding Common Shares, as so adjusted) and to any other
limitations contained in this Section 7.7.
"CONSTRUCTIVE OWNERSHIP" means ownership of Equity Shares by a person who
would be treated as an owner of such shares, either actually or constructively,
directly or indirectly, through the application of Section 318 of the Code, as
modified by Section 856(d)(5) thereof. The terms "Constructive Owner,"
"Constructively Owns" and "Constructively Owned" shall have correlative
meanings.
"MARKET PRICE" means, on any date, the average of the Closing Price for the
five consecutive Trading Days ending on such date. The "Closing Price" on any
date shall mean the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the NYSE or,
if the Equity Shares are not listed or admitted to trading on the NYSE, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Equity Shares are listed or admitted to trading or, if the Equity Shares are not
listed or admitted to trading on any national securities exchange, the last
quoted price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotations system that may then be
in use or, if the Equity Shares are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Equity Shares selected by the Board of
Directors, or, if no such market maker exists, as determined in good faith by
the Board of Directors.
"OWNERSHIP LIMIT" means the Common Share Ownership Limit or the Preferred
Share Ownership Limit, or both, as the context may require.
"PREFERRED SHARE OWNERSHIP LIMIT" means, with respect to the Preferred
Shares, nine point eight percent (9.8%) of the outstanding Shares of a
particular series of Preferred Shares of the Company, subject to adjustment
pursuant to Section 7.7(x) (but not more
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than nine point nine percent (9.9%) of the outstanding Preferred Shares, as so
adjusted) and to any other limitations contained in this Section 7.7.
"PURPORTED BENEFICIAL HOLDER" means, with respect to any purported Transfer
or Acquisition which results in Shares-in-Trust, the Person for whom the
applicable Purported Record Holder held the Equity Shares that were, pursuant to
paragraph (iii) of this Section 7.7, automatically exchanged for Shares-in-Trust
upon the occurrence of such event or transaction. The Purported Beneficial
Holder and the Purported Record Holder may be the same Person.
"PURPORTED BENEFICIAL TRANSFEREE" means, with respect to any purported
Transfer or Acquisition which results in Shares-in-Trust, the purported
beneficial transferee for whom the Purported Record Transferee would have
acquired Equity Shares if such Transfer or Acquisition which results in Shares-
in-Trust had been valid under Section 7.7(ii). The Purported Beneficial
Transferee and the Purported Record Transferee may be the same Person.
"PURPORTED RECORD HOLDER" means, with respect to any purported Transfer or
Acquisition which results in Shares-in-Trust, the record holder of the Equity
Shares that were, pursuant to Section 7.7(iii), automatically exchanged for
Shares-in-Trust upon the occurrence of such an event or transaction. The
Purported Record Holder and the Purported Beneficial Holder may be the same
Person.
"PURPORTED RECORD TRANSFEREE" means, with respect to any purported Transfer
or Acquisition which results in Shares-in-Trust, the record holder of the Equity
Shares if such Transfer or Acquisition which results in Shares-in-Trust had been
valid under Section 7.7(ii). The Purported Record Transferee and the Purported
Beneficial Transferee may be the same Person.
"RESTRICTION TERMINATION DATE" means the first day after the date of the
closing of the Initial Public Offering on which the Board of Directors of the
Company determines, pursuant to Section 3.2(xix) hereof, that it is no longer in
the best interests of the Company to attempt or continue to qualify as a REIT.
"SHARES-IN-TRUST" means those share for which Equity Shares are
automatically exchanged as a result of a purported Transfer, Acquisition, change
in the capital structure of the Company, other purported change in the
Beneficial or Constructive Ownership of Equity Shares or other event or
transaction as described in Section 7.7(iii).
"TRADING DAY" means a day on which the principal national securities
exchange on which the affected class or series of Equity Shares are listed or
admitted to trading is open for the transaction of business or, if the affected
class or series of Equity Shares are not listed or admitted to trading, shall
mean any day other than a Saturday, Sunday or other day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"TRANSFER" means any sale, transfer, gift, hypothecation, assignment,
devise or other disposition of a direct or indirect interest in Equity Shares or
the right to vote or receive dividends
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on Equity Shares, including (i) the granting of any option (including any option
to acquire an option or any series of such options) or entering into any
agreement for the sale, transfer or other disposition of Equity Shares or the
right to vote or receive dividends on Equity Shares or (ii) the sale, transfer,
assignment or other disposition of any securities or rights convertible into or
exchangeable for Equity Shares, whether voluntary or involuntary, of record,
constructively or beneficially, and whether by operation of law or otherwise.
The terms "Transfers," "Transferred" and "Transferable" shall have correlative
meanings.
"TRUST" means the trust created pursuant to Section 7.8(i) hereof.
"TRUSTEE" means the trustee of the Trust, as appointed by the Company,
which Trustee shall not be an Affiliate of the Company.
(ii) OWNERSHIP AND TRANSFER LIMITATIONS.
(a) Notwithstanding any other provision of these Articles of
Incorporation, except as provided in Section 7.7(ix) and Section 7.9,
from the date of the Initial Public Offering and prior to the
Restriction Termination Date, no Person shall Beneficially or
Constructively Own Equity Shares in excess of the Common or Preferred
Share Ownership Limits.
(b) Notwithstanding any other provision of these Articles of
Incorporation, except as provided in Section 7.7(ix) and Section 7.9,
from the date of the Initial Public Offering and prior to the
Restriction Termination Date, any Transfer, Acquisition, change in the
capital structure of the Company, other purported change in Beneficial
or Constructive Ownership of Equity Shares or other event or
transaction that, if effective, would result in any Person
Beneficially or Constructively Owning Equity Shares in excess of the
Common or Preferred Share Ownership Limits shall be void AB INITIO as
to the Transfer, Acquisition, change in the capital structure of the
Company, other purported change in Beneficial or Constructive
Ownership or other event or transaction with respect to that number of
Equity Shares which would otherwise be Beneficially or Constructively
Owned by such Person in excess of the Common or Preferred Share
Ownership Limits, and none of the Purported Beneficial Transferee, the
Purported Record Transferee, the Purported Beneficial Holder or the
Purported Record Holder shall acquire any rights in that number of
Equity Shares.
(c) Notwithstanding any other provision of these Articles of
Incorporation, and except as provided in Section 7.9, from the date of
the Initial Public Offering and prior to the Restriction Termination
Date, any Transfer, Acquisition, change in the capital structure of
the Company, or other purported change in Beneficial or Constructive
Ownership (including actual ownership) of Equity Shares or other event
or transaction that, if effective, would result in the Equity Shares
being actually owned by fewer than 100 Persons (determined without
reference to any rules of attribution) shall be void AB INITIO as to
the Transfer, Acquisition, change in the capital structure of the
Company, other purported change in Beneficial or Constructive
Ownership (including actual ownership) with respect to that number of
Equity Shares which otherwise would be owned by the transferee, and
the intended transferee or
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subsequent owner (including a Beneficial Owner or Constructive Owner) shall
acquire no rights in that number of Equity Shares.
(d) Notwithstanding any other provision of these Articles of
Incorporation, except as provided in Section 7.9, from the date of the Initial
Public Offering and prior to the Restriction Termination Date, any Transfer,
Acquisition, change in the capital structure of the Company, other purported
change in Beneficial or Constructive Ownership of Equity Shares or other event
or transaction that, if effective, would cause the Company to fail to qualify as
a REIT by reason of being "closely held" within the meaning of Section 856(h) of
the Code or otherwise, directly or indirectly, would cause the Company to fail
to qualify as a REIT shall be void AB INITIO as to the Transfer, Acquisition,
change in the capital structure of the Company, other purported change in
Beneficial or Constructive Ownership or other event or transaction with respect
to that number of Equity Shares which would cause the Company to be "closely
held" within the meaning of Section 856(h) of the Code or otherwise, directly or
indirectly, would cause the Company to fail to qualify as a REIT, and none of
the Purported Beneficial Transferee, the Purported Record Transferee, the
Purported Beneficial Holder or the Purported Record Holder shall acquire any
rights in that number of Equity Shares.
(e) Notwithstanding any other provision of these Articles of
Incorporation, except as provided in Section 7.9, from the date of the Initial
Public Offering and prior to the Restriction Termination Date, any Transfer,
Acquisition, change in capital structure of the Company, or other purported
change in Beneficial or Constructive Ownership of Equity Shares or other event
or transaction that, if effective, would (i) cause the Company to own (directly
or Constructively) an interest in a tenant or the Operating Partnership's real
property that is described in Section 856(d)(2)(B) of the Code and (ii) cause
the Company to fail to satisfy any of the gross income requirements of section
856(c) of the Code, shall be void AB INITIO as to the Transfer, Acquisition,
change in capital structure of the Company, other purported change in Beneficial
or Constructive Ownership or other event or transaction with respect to that
number of Equity Shares which would cause the Company to own an interest
(directly or Constructively) in a tenant or the Operating Partnership's real
property that is described in Section 856(d)(2)(B) of the Code, and none of the
Purported Beneficial Transferee, the Purported Record Transferee, the Purported
Beneficial Holder or the Purported Record Holder shall acquire any rights in
that number of Equity Shares.
(iii) EXCHANGE FOR SHARES-IN-TRUST.
(a) If, notwithstanding the other provisions contained in this Article
VII, at any time from the date of the Initial Public Offering and prior to the
Restriction Termination Date, there is a purported Transfer, Acquisition, change
in the capital structure of the Company, other purported change in the
Beneficial or Constructive Ownership of Equity Shares or other event or
transaction such that any Person would either Beneficially or Constructively Own
Equity Shares in excess of the Common or Preferred Share Ownership Limit, then,
except as otherwise provided in Section 7.7(ix), such Equity Shares (rounded up
to the next whole number of shares) in excess of the Common or Preferred Share
Ownership Limit automatically shall be exchanged for an equal number of Shares-
in-Trust having terms, rights, restrictions and qualifications identical
thereto, except to the extent that this Article VII requires different terms.
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Such exchange shall be effective as of the close of business on the business day
next preceding the date of the purported Transfer, Acquisition, change in
capital structure, other change in purported Beneficial or Constructive
Ownership of Shares, or other event or transaction.
(b) If, notwithstanding the other provisions contained in this Article
VII, at any time after the date of the Initial Public Offering and prior to the
Restriction Termination Date, there is a purported Transfer, Acquisition, change
in the capital structure of the Company, other purported change in the
Beneficial or Constructive Ownership of Equity Shares or other event or
transaction which, if effective, would result in a violation of any of the
restrictions described in subparagraphs (b), (c), (d) and (e) of paragraph (ii)
of this Section 7.7, or otherwise, directly or indirectly, would cause the
Company to fail to qualify as a REIT, then the Shares (rounded up to the next
whole number of Shares) being Transferred or which are otherwise affected by the
change in capital structure or other purported change in Beneficial or
Constructive Ownership and which, in any case, would result in a violation of
any of the restrictions described in subparagraphs (b), (c), (d) and (e) of
paragraph (ii) of this Section 7.7 or otherwise would cause the Company to fail
to qualify as a REIT automatically shall be exchanged for an equal number of
Shares-in-Trust having terms, rights, restrictions and qualifications identical
thereto, except to the extent that this Article VII requires different terms.
Such exchange shall be effective as of the close of business on the business day
prior to the date of the purported Transfer, Acquisition, change in capital
structure, other purported change in Beneficial or Constructive Ownership or
other event or transaction.
(iv) REMEDIES FOR BREACH. If the Board of Directors or its designee
shall at any time determine in good faith that a Transfer, Acquisition, change
in the capital structure of the Company or other purported change in Beneficial
or Constructive Ownership or other event or transaction has taken place in
violation of Section 7.7(ii) or that a Person intends to Acquire or has
attempted to Acquire Beneficial or Constructive Ownership of any Equity Shares
in violation of this Section 7.7, the Board of Directors or its designee shall
take such action as it deems advisable to refuse to give effect to or to prevent
such Transfer, Acquisition, change in the capital structure of the Company,
other attempt to Acquire Beneficial or Constructive Ownership of any Shares or
other event or transaction, including, but not limited to, refusing to give
effect thereto on the books of the Company or instituting injunctive proceedings
with respect thereto; provided, however, that any Transfer, Acquisition, change
in the capital structure of the Company, attempted Transfer or other attempt to
Acquire Beneficial or Constructive Ownership of any Equity Shares or other event
or transaction in violation of subparagraphs (b), (c), (d) and (e) of Section
7.7(ii) (as applicable) shall be void AB INITIO and where applicable
automatically shall result in the exchange described in Section 7.7(iii),
irrespective of any action (or inaction) by the Board of Directors or its
designee.
(v) NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or
attempts to Acquire Beneficial or Constructive Ownership of Equity Shares in
violation of Section 7.7(ii) and any Person who Beneficially or Constructively
Owns Shares-in-Trust as a transferee of Equity Shares resulting in an exchange
for Shares-in-Trust, pursuant to Section 7.7(iii), or otherwise shall
immediately give written notice to the Company, or, in the event of a proposed
or attempted Transfer, Acquisition, or purported change in Beneficial or
Constructive Ownership, shall give at least fifteen (15) days prior written
notice to the Company, of such event and shall
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promptly provide to the Company such other information as the Company, in its
sole discretion, may request in order to determine the effect, if any, of such
Transfer, attempted Transfer, Acquisition, Attempted Acquisition or purported
change in Beneficial or Constructive Ownership on the Company's status as a
REIT.
(vi) OWNERS REQUIRED TO PROVIDE INFORMATION. From the date of the
Initial Public Offering and prior to the Restriction Termination Date:
(a) Every Beneficial or Constructive Owner of more than five percent
(5%), or such lower percentages as determined pursuant to regulations under the
Code or as may be requested by the Board of Directors, in its sole discretion,
of the outstanding shares of any class or series of Equity Shares of the Company
shall annually, no later than January 31 of each calendar year, give written
notice to the Company stating (i) the name and address of such Beneficial or
Constructive Owner; (ii) the number of shares of each class or series of Equity
Shares Beneficially or Constructively Owned; and (iii) a description of how such
shares are held. Each such Beneficial or Constructive Owner promptly shall
provide to the Company such additional information as the Company, in its sole
discretion, may request in order to determine the effect, if any, of such
Beneficial or Constructive Ownership on the Company's status as a REIT and to
ensure compliance with the Common or Preferred Share Ownership Limit and other
restrictions set forth herein.
(b) Each Person who is a Beneficial or Constructive Owner of Equity
Shares and each Person (including the Stockholder of record) who is holding
Equity Shares for a Beneficial or Constructive Owner promptly shall provide to
the Company such information as the Company, in its sole discretion, may request
in order to determine the Company's status as a REIT, to comply with the
requirements of any taxing authority or other governmental agency, to determine
any such compliance or to ensure compliance with the Common or Preferred Share
Ownership Limits and other restrictions set forth herein.
(vii) REMEDIES NOT LIMITED. Nothing contained in this Article VII
except Section 7.9 shall limit the scope or application of the provisions of
this Section 7.7, the ability of the Company to implement or enforce compliance
with the terms thereof or the authority of the Board of Directors to take any
such other action or actions as it may deem necessary or advisable to protect
the Company and the interests of its Stockholders by preservation of the
Company's status as a REIT and to ensure compliance with the Ownership Limit for
any class or series of Equity Shares and other restrictions set forth herein,
including, without limitation, refusal to give effect to a transaction on the
books of the Company.
(viii) AMBIGUITY. In the case of an ambiguity in the application of
any of the provisions of this Section 7.7, including any definition contained in
Sections 1.5 and 7.7(i), the Board of Directors shall have the power and
authority, in its sole discretion, to determine the application of the
provisions of this Section 7.7 with respect to any situation based on the facts
known to it.
(ix) EXCEPTION. The Board of Directors, upon receipt of a ruling from
the Internal Revenue Service, an opinion of counsel or other evidence
satisfactory to the Board of
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Directors, in its sole discretion, in each case to the effect that the
restrictions contained in subparagraphs (c), (d) and (e) of Section 7.7(ii) will
not be violated, may waive or change, in whole or in part, the application of
the Common or Preferred Share Ownership Limits with respect to any Person that
is not an individual, as such term is defined in Section 542(a)(2) of the Code.
In connection with any such waiver or change, the Board of Directors may require
such representations and undertakings from such Person or affiliates and may
impose such other conditions as the Board deems necessary, advisable or prudent,
in its sole discretion, to determine the effect, if any, of the proposed
transaction or ownership of Equity Shares on the Company's status as a REIT.
(x) INCREASE IN COMMON OR PREFERRED SHARE OWNERSHIP LIMIT. Subject to
the limitations contained in Section 7.7(xi), the Board of Directors may from
time to time increase the Common or Preferred Share Ownership Limits.
(xi) LIMITATIONS ON MODIFICATIONS.
(a) The Ownership Limit for a class or series of Equity Shares may not
be increased and no additional ownership limitations may be created if, after
giving effect to such increase or creation, the Company would be "closely held"
within the meaning of Section 856(h) of the Code (assuming ownership of shares
of Equity Shares by all Persons equal to the greatest of (A) the actual
ownership, (B) the Beneficial Ownership of Equity Shares by each Person, or (C)
the applicable Ownership Limit with respect to such Person).
(b) Prior to any modification of the Ownership Limit with respect to
any Person, the Board of Directors may require such opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary, advisable or
prudent, in its sole discretion, in order to determine or ensure the Company's
status as a REIT.
(c) Neither the Preferred Share Ownership Limit nor the Common Share
Ownership Limit may be increased to a percentage that is greater than nine point
nine percent (9.9%).
(xii) NOTICE TO STOCKHOLDERS UPON ISSUANCE OR TRANSFER. Upon
issuance or transfer of Shares, the Company shall provide the recipient with a
notice containing information about the shares purchased or otherwise
transferred, in lieu of issuance of a share certificate, in a form substantially
similar to the following:
"The securities issued or transferred are subject to restrictions on
transfer and ownership for the purpose of maintenance of the Company's
status as a real estate investment trust (a "REIT") under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"). Except as otherwise provided pursuant to the Articles of
Incorporation of the Company, no Person may (i) Beneficially or
Constructively Own Common Shares of the Company in excess of 9.8% (or
such greater percent as may be determined by the Board of Directors of
the Company) of the outstanding Common Shares; (ii) Beneficially or
Constructively Own shares of any series of Preferred Shares of the
Company in
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excess of 9.8% (or such greater percent as may be determined by the
Board of Directors of the Company) of the outstanding shares of such
series of Preferred Shares; or (iii) Beneficially or Constructively
Own Common Shares or Preferred Shares (of any class or series) which
would result in the Company being "closely held" under Section 856(h)
of the Code or which otherwise would cause the Company to fail to
qualify as a REIT. Any Person who has Beneficial or Constructive
Ownership, or who Acquires or attempts to Acquire Beneficial or
Constructive Ownership of Common Shares and/or Preferred Shares in
excess of the above limitations and any Person who Beneficially or
Constructively Owns Shares-in-Trust as a transferee of Common or
Preferred Shares resulting in an exchange for Shares-in-Trust (as
described below) immediately must notify the Company in writing or, in
the event of a proposed or attempted Transfer or Acquisition or
purported change in Beneficial or Constructive Ownership, must give
written notice to the Company at least 15 days prior to the proposed
or attempted transfer, transaction or other event. Any Transfer or
Acquisition of Common Shares and/or Preferred Shares or other event
which results in violation of the ownership or transfer limitations
set forth in the Company's Articles of Incorporation shall be void AB
INITIO and the Purported Beneficial and Record Transferee shall not
have or acquire any rights in such Common Shares and/or Preferred
Shares. If the transfer and ownership limitations referred to herein
are violated, the Common Shares or Preferred Shares represented hereby
automatically will be exchanged for Shares-in-Trust to the extent of
violation of such limitations, and such Shares-in-Trust will be held
in trust by a trustee appointed by the Company, all as provided by the
Articles of Incorporation of the Company. All defined terms used in
this legend have the meanings identified in the Company's Articles of
Incorporation, as the same may be amended from time to time, a copy of
which, including the restrictions on transfer, will be sent without
charge to each Stockholder who so requests."
SECTION 7.8 SHARES-IN-TRUST.
(i) OWNERSHIP IN TRUST. Upon any purported Transfer, Acquisition,
change in the capital structure of the Company, other purported change in
Beneficial or Constructive Ownership or event or transaction that results in
Shares-in-Trust pursuant to Section 7.7(iii), such Shares-in-Trust shall be
deemed to have been transferred to the Trust for the benefit of such Beneficiary
or Beneficiaries to whom an interest in such Shares-in-Trust may later be
transferred pursuant to Section 7.8(v). Shares-in-Trust so held in trust shall
be issued and outstanding stock of the Company. The Purported Record Transferee
(or Purported Record Holder) shall have no rights in such Shares-in-Trust. The
Purported Beneficial Transferee or Purported Record Transferee shall have no
rights in such Shares-in-Trust except as provided in Section 7.8(iii).
(ii) DISTRIBUTION RIGHTS. Shares-in-Trust shall be entitled to the
same rights and privileges as all other shares of the same class or series. The
Trustee will receive all Distributions and dividends on the Shares-in-Trust and
will hold such dividends or distributions in trust for the benefit of the
Beneficiary. Any dividend or Distribution with a record date on or
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after the date that Equity Shares have been exchanged for Shares-in-Trust which
were paid on such Equity Shares shall be repaid to the Trustee upon demand, and
any such dividend or Distribution declared on such Equity Shares but unpaid
shall be paid to the Trustee to hold in trust for the benefit of the
Beneficiary.
(iii) RIGHTS UPON LIQUIDATION.
(a) Except as provided below, in the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any other distribution of
the assets, of the Company, each holder of Shares-in-Trust resulting from the
exchange of Preferred Shares of any specified series shall be entitled to
receive, ratably with each other holder of Shares-in-Trust resulting from the
exchange of Preferred Shares of such series and each holder of Preferred Shares
of such series, such accrued and unpaid dividends, liquidation preferences and
other preferential payments, if any, as are due to holders of Preferred Shares
of such series. In the event that holders of shares of any series of Preferred
Shares are entitled to participate in the Company's distribution of its residual
assets, each holder of Shares-in-Trust resulting from the exchange of Preferred
Shares of any such series shall be entitled to participate, ratably with (A)
each other holder of Shares-in-Trust resulting from the exchange of Preferred
Shares of all series entitled to so participate; (B) each holder of Preferred
Shares of all series entitled to so participate; and (C) each holder of Common
Shares and Shares-in-Trust resulting from the exchange of Common Shares (to the
extent permitted by Section 7.7(iii) hereof), that portion of the aggregate
assets available for distribution (determined in accordance with applicable law)
as the number of shares of such Shares-in-Trust held by such holder bears to the
total number of (1) outstanding Shares-in-Trust resulting from the exchange of
Preferred Shares of all series entitled to so participate; (2) outstanding
Preferred Shares of all series entitled to so participate; and (3) outstanding
Common Shares and Shares-in-Trust resulting from the exchange of Common Shares.
The Trustee shall distribute ratably to the Beneficiaries of the Trust, when
determined, any such assets received in respect of the Shares-in-Trust in any
liquidation, dissolution or winding up, or any distribution of the assets, of
the Company. Anything to the contrary herein notwithstanding, in no event shall
the amount payable to a holder with respect to Shares-in-Trust resulting from
the exchange of Preferred Shares exceed (A) the price per share such holder paid
for the Preferred Shares in the purported Transfer, Acquisition, change in
capital structure or other transaction or event that resulted in the Shares-in-
Trust or (B) if the holder did not give full value for such Shares-in-Trust (as
through a gift, devise or other event or transaction), a price per share equal
to the Market Price for the shares of Preferred Shares on the date of the
purported Transfer, Acquisition, change in capital structure or other
transaction or event that resulted in such Shares-in-Trust. Any amount
available for distribution in excess of the foregoing limitations shall be paid
ratably to the holders of Preferred Shares and Shares-in-Trust resulting from
the exchange of Preferred Shares to the extent permitted by the foregoing
limitations.
(b) Except as provided below, in the event of any voluntary or
involuntary liquidation, dissolution or winding up, or any other distribution of
the assets, of the Company, each holder of Shares-in-Trust resulting from the
exchange of Common Shares shall be entitled to receive, ratably with (A) each
other holder of such Shares-in-Trust and (B) each holder of Common Shares, that
portion of the aggregate assets available for distribution to holders of Common
Shares (including holders of Shares-in-Trust resulting from the exchange of
Common
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Shares pursuant to Section 7.7(iii)), determined in accordance with applicable
law, as the number of such Shares-in-Trust held by such holder bears to the
total number of outstanding Common Shares and outstanding Shares-in-Trust
resulting from the exchange of Common Shares then outstanding. The Trustee shall
distribute ratably to the Beneficiaries of the Shares-in-Trust, when determined,
any such assets received in respect of the Shares-in-Trust in any liquidation,
dissolution or winding up, or any distribution of the assets, of the Company.
Anything herein to the contrary notwithstanding, in no event shall the amount
payable to a holder with respect to Shares-in-Trust exceed (A) the price per
share such holder paid for the Equity Shares in the purported Transfer,
Acquisition, change in capital structure or other transaction or event that
resulted in the Shares-in-Trust or (B) if the holder did not give full value for
such Equity Shares (as through a gift, devise or other event or transaction), a
price per share equal to the Market Price for the Equity Shares on the date of
the purported Transfer, Acquisition, change in capital structure or other
transaction or event that resulted in such Shares-in-Trust. Any amount available
for distribution in excess of the foregoing limitations shall be paid ratably to
the holders of Common Shares and Shares-in-Trust resulting from the exchange of
Common Shares to the extent permitted by the foregoing limitations.
(iv) VOTING RIGHTS. The Trustee shall be entitled to vote the Shares-
in-Trust on any matters on which holders of Shares are entitled to vote (except
as required otherwise by the MGCL).
(v) RESTRICTIONS ON TRANSFER; DESIGNATION OF BENEFICIARY; SALES OF
SHARES-IN-TRUST.
(a) Except as described in this Section 7.8(v), Shares-in-Trust shall
not be transferable. The Beneficiary shall be one or more charitable
organizations named by the Company. However, the for purposes of sales by the
Trustee as set forth herein, Trustee shall designate a permitted transferee of
the Shares-in-Trust, provided that the transferee (i) purchases such Shares-in-
Trust for valuable consideration and (ii) acquires such Shares-in-Trust without
such acquisition resulting in another automatic exchange of Equity Shares into
Shares-in-Trust. Within 20 days after receiving notice from the Company that
Common Shares or other shares have been transferred to the Trust as Shares-in-
Trust, the Company shall, at its sole option (the "Option") (i) repurchase such
Shares-in-Trust from the Purported Record Transferee or Purported Record Holder
(a "Redemption"), or (ii) cause the Trustee to sell the Shares-in-Trust on
behalf of the such person to a third party (a "Sale").
(b) In the event of a Redemption or Sale, the Purported Record
Transferee or Purported Record Holder shall receive a per share price equal to
the lesser of (i) the price per share in the transaction that created such
Shares-in-Trust (or, in the case of a gift or devise, the Market Price per share
on the date of such transfer) or (ii) the Market Price per share on the date
that the Company, or its designee, purchases such Shares-in-Trust, provided that
--------
for sales by the Trustee, such price per share shall be net of any commissions
and other expenses of the sale.. The proceeds from a Redemption or Sale shall
be sent to such person within five business days after the closing of such sale
transaction.
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(c) In connection with the Option, all Shares-in-Trust will be deemed
to have been offered for sale to the Company, or its designee, and the Company
will have the right to accept such offer for a period of 20 days after the later
of (i) the date of the purported transfer which resulted in such Shares-in-Trust
or (ii) the date the Company determines in good faith that a transfer resulting
in such Shares-in-Trust occurred.
(d) Any amounts received by the Trustee in excess of the amounts paid
to the Purported Record Transferee shall be distributed to the Beneficiary.
(vi) REMEDIES NOT LIMITED. Nothing contained in this Article VII
except Section 7.9 shall limit the scope or application of the provisions of
this Section 7.8, the ability of the Company to implement or enforce compliance
with the terms hereof or the authority of the Board of Directors to take any
such other action or actions as it may deem necessary or advisable to protect
the Company and the interests of its Stockholders by preservation of the
Company's status as a REIT and to ensure compliance with applicable Share
Ownership Limits and the other restrictions set forth herein, including, without
limitation, refusal to give effect to a transaction on the books of the Company.
(vii) AUTHORIZATION. At such time as the Board of Directors
authorizes a series of Preferred Shares pursuant to Section 7.3 of this Article
VII, without any further or separate action of the Board of Directors, there
shall be deemed to be authorized a series of Shares-in-Trust consisting of the
number of shares included in the series of Preferred Shares so authorized and
having terms, rights, restrictions and qualifications identical thereto, except
to the extent that such Shares-in-Trust are already authorized or this Article
VII requires different terms.
SECTION 7.9 SETTLEMENTS. Nothing in Sections 7.7 and 7.8 shall preclude
the settlement of any transaction with respect to the Common Shares entered into
through the facilities of the New York Stock Exchange or other national
securities exchange on which the Common Shares are listed.
SECTION 7.10 SEVERABILITY. If any provision of this Article VII or any
application of any such provision is determined to be void, invalid or
unenforceable by any court having jurisdiction over the issue, the validity and
enforceability of the remaining provisions of this Article VII shall not be
affected and other applications of such provision shall be affected only to the
extent necessary to comply with the determination of such court.
SECTION 7.11 WAIVER. The Company shall have authority at any time to
waive the requirements that Shares-in-Trust be issued or be deemed outstanding
in accordance with the provisions of this Article VII if the Company determines,
based on an opinion of nationally recognized tax counsel, that the issuance of
such Shares-in-Trust or the fact that such Shares-in-Trust are deemed to be
outstanding, would jeopardize the status of the Company as a REIT (as that term
is defined in Section 1.5).
SECTION 7.12 REPURCHASE OF SHARES. The Board of Directors may establish,
from time to time, a program or programs by which the Company voluntarily
repurchases Shares from its Stockholders, provided, however, that such
repurchase does not impair the capital or
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operations of the Company. The Sponsor Advisor, Directors or any Affiliates
thereof may not receive any fees on the repurchase of Shares by the Company.
SECTION 7.13 DISTRIBUTION REINVESTMENT PLANS. The Board of Directors may
establish, from time to time, a Distribution reinvestment plan or plans (a
"Reinvestment Plan"). Pursuant to such Reinvestment Plan, (i) all material
information regarding the Distribution to the Stockholders and the effect of
reinvesting such distribution, including the tax consequences thereof, shall be
provided to the Stockholders at least annually, and (ii) each Stockholder
participating in such Reinvestment Plan shall have a reasonable opportunity to
withdraw from the Reinvestment Plan at least annually after receipt of the
information required in clause (i) above.
ARTICLE VIII
STOCKHOLDERS
SECTION 8.1 MEETINGS OF STOCKHOLDERS. There shall be an annual meeting of
the Stockholders, to be held at such time and place as shall be determined by or
in the manner prescribed in the Bylaws, at which the Directors shall be elected
and any other proper business may be conducted. The annual meeting will be held
on a date which is a reasonable period of time following the distribution of the
Company's annual report to Stockholders but not less than thirty (30) days after
delivery of such report. A majority of Stockholders present in person or by
proxy at an annual meeting at which a quorum is present, may, without the
necessity for concurrence by the Directors, vote to elect the Directors. A
quorum shall be 50% of the then outstanding Shares. Special meetings of
Stockholders may be called in the manner provided in the Bylaws, including by
the president or by a majority of the directors, and shall be called by an
officer of the Company upon written request of Stockholders holding in the
aggregate not less than ten percent (10%) of the outstanding Equity Shares
entitled to be cast on any issue proposed to be considered at any such special
meeting. Upon receipt of a written request, either in person or by mail,
stating the purpose(s) of the meeting, the sponsor shall provide all
Stockholders within ten days after receipt of said request, written notice,
either in person or by mail, of a meeting and the purpose of such meeting to be
held on a date not less than 15 nor more than 60 days after the distribution of
such notice, at a time and place specified in the request, or if none is
specified, at a time and place convenient to the Stockholders. If there are no
Directors, the officers of the Company shall promptly call a special meeting of
the Stockholders entitled to vote for the election of successor Directors. Any
meeting may be adjourned and reconvened as the Directors determine or as
provided by the Bylaws.
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SECTION 8.2 VOTING RIGHTS OF STOCKHOLDERS. Subject to the provisions of
any class or series of Shares then outstanding and the mandatory provisions of
any applicable laws or regulations, the Stockholders shall be entitled to vote
only on the following matters; (a) election or removal of Directors, without the
necessity for concurrence by the Directors, as provided in Sections 8.1, 2.4 and
2.7 hereof; (b) amendment of these Articles of Incorporation, without the
necessity for concurrence by the Directors, as provided in Section 10.1 hereof;
(c) termination of the Company, without the necessity for concurrence by the
Directors, as provided in Section 11.2 hereof; (d) reorganization of the Company
as provided in Section 10.2 hereof; (e) merger, consolidation or sale or other
disposition of all or substantially all of the Company Property, as provided in
Section 10.3 hereof; and (f) termination of the Company's status as a real
estate investment trust under the REIT Provisions of the Code, as provided in
Section 3.2(xix) hereof. The Stockholders may terminate the status of the
Company as a REIT under the Code by a vote of a majority of the Shares
outstanding and entitled to vote. Except with respect to the foregoing matters,
no action taken by the Stockholders at any meeting shall in any way bind the
Directors.
SECTION 8.3 VOTING LIMITATIONS ON SHARES HELD BY THE ADVISOR, DIRECTORS
AND AFFILIATES. With respect to Shares owned by the Advisor, the Directors, or
any of their Affiliates, neither the Advisor, nor the Directors, nor any of
their Affiliates may vote or consent on matters submitted to the Stockholders
regarding the removal of the Advisor, Directors or any of their Affiliates or
any transaction between the Company and any of them. In determining the
requisite percentage in interest of Shares necessary to approve a matter on
which the Advisor, Directors and any of their Affiliates may not vote or
consent, any Shares owned by any of them shall not be included.
SECTION 8.4 STOCKHOLDER ACTION TO BE TAKEN BY MEETING. Any action
required or permitted to be taken by the Stockholders of the Company must be
effected at a duly called annual or special meeting of Stockholders of the
Company and may not be effected by any consent in writing of such Stockholders.
SECTION 8.5 RIGHT OF INSPECTION. Any Stockholder and any designated
representative thereof shall be permitted access to all records of the Company
at all reasonable times, and may inspect and copy any of them for a reasonable
charge. Inspection of the Company books and records by the office or agency
administering the securities laws of a jurisdiction shall be provided upon
reasonable notice and during normal business hours.
SECTION 8.6 ACCESS TO STOCKHOLDER LIST. An alphabetical list of the
names, addresses and telephone numbers of the Stockholders of the Company, along
with the number of Shares held by each of them (the "Stockholder List"), shall
be maintained as part of the books and records of the Company and shall be
available for inspection by any Stockholder or the Stockholder's designated
agent at the home office of the Company upon the request of the Stockholder. The
Stockholder List shall be updated at least quarterly to reflect changes in the
information contained therein. A copy of such list shall be mailed to any
Stockholder so requesting within ten (10) days of the request. The copy of the
Stockholder List shall be printed in alphabetical order, on white paper, and in
a readily readable type size (in no event smaller than 10-point type). The
Company may impose a reasonable charge for expenses incurred in
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reproduction pursuant to the Stockholder request. A Stockholder may request a
copy of the Stockholder List in connection with matters relating to
Stockholders' voting rights, and the exercise of Stockholder rights under
federal proxy laws.
If the Advisor or Directors neglect or refuse to exhibit, produce or mail a
copy of the Stockholder List as requested, the Advisor and the Directors shall
be liable to any Stockholder requesting the list for the costs, including
attorneys' fees, incurred by that Stockholder for compelling the production of
the Stockholder List, and for actual damages suffered by any Stockholder by
reason of such refusal or neglect. It shall be a defense that the actual
purpose and reason for the requests for inspection or for a copy of the
Stockholder List is to secure such list of Stockholders or other information for
the purpose of selling such list or copies thereof, or of using the same for a
commercial purpose other than in the interest of the applicant as a Stockholder
relative to the affairs of the Company. The Company may require the Stockholder
requesting the Stockholder List to represent that the list is not requested for
a commercial purpose unrelated to the Stockholder's interest in the Company.
The remedies provided hereunder to Stockholders requesting copies of the
Stockholder List are in addition, to and shall not in any way limit, other
remedies available to Stockholders under federal law, or the laws of any state.
SECTION 8.7 REPORTS. The Directors, including the Independent Directors,
shall take reasonable steps to insure that the Company shall cause to be
prepared and mailed or delivered to each Stockholder as of a record date after
the end of the fiscal year and each holder of other publicly held securities of
the Company within one hundred twenty (120) days after the end of the fiscal
year to which it relates an annual report for each fiscal year ending after the
initial public offering of its securities which shall include: (i) financial
statements prepared in accordance with generally accepted accounting principles
which are audited and reported on by independent certified public accountants;
(ii) the ratio of the costs of raising capital during the period to the capital
raised; (iii) the aggregate amount of advisory fees and the aggregate amount of
other fees paid to the Advisor and any Affiliate of the Advisor by the Company
and including fees or charges paid to the Advisor and any Affiliate of the
Advisor by third parties doing business with the Company; (iv) the Operating
Expenses of the Company, stated as a percentage of Average Invested Assets and
as a percentage of its Net Income; (v) a report from the Independent Directors
that the policies being followed by the Company are in the best interests of its
Stockholders and the basis for such determination; (vi) separately stated, full
disclosure of all material terms, factors, and circumstances surrounding any and
all transactions involving the Company, Directors, Advisors, Sponsors and any
Affiliate thereof occurring in the year for which the annual report is made, and
the Independent Directors shall be specifically charged with a duty to examine
and comment in the report on the fairness of such transactions; and (vii)
Distributions to the Stockholders for the period, identifying the source of such
Distributions, and if such information is not available at the time of the
distribution, a written explanation of the relevant circumstances will accompany
the Distributions (with the statement as to the source of Distributions to be
sent to Stockholders not later than sixty (60) days after the end of the fiscal
year in which the distribution was made).
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ARTICLE IX
LIABILITY OF STOCKHOLDERS, DIRECTORS, ADVISORS AND AFFILIATES;
TRANSACTIONS BETWEEN AFFILIATES AND THE COMPANY
SECTION 9.1 LIMITATION OF STOCKHOLDER LIABILITY. No Stockholder shall be
liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Company by reason of his being a Stockholder, nor
shall any Stockholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any Person in connection with the Company Property or
the affairs of the Company by reason of his being a Stockholder. The Company
shall include a clause in its contracts which provides that Stockholders shall
not be personally liable for obligations entered into on behalf of the Company.
SECTION 9.2 LIMITATION OF LIABILITY AND INDEMNIFICATION.
(i) The Company shall indemnify and hold harmless a Director, Advisor,
or Affiliate (the "Indemnitee") against any or all losses or liabilities
reasonably incurred by the Indemnitee in connection with or by reason of any act
or omission performed or omitted to be performed on behalf of the Company in
such capacity, provided, that the Directors, Advisor or Affiliates have
determined, in good faith, that the course of conduct which caused the loss or
liability was in the best interests of the Company. The Company shall not
indemnify or hold harmless the Indemnitee if: (a) in the case that the
Indemnitee is a Director (other than an Independent Director), an Advisor or an
Affiliate, the loss or liability was the result of negligence or misconduct by
the Indemnitee, or (b) in the case that the Indemnitee is an Independent
Director, the loss or liability was the result of gross negligence or willful
misconduct by the Indemnitee. Any indemnification of expenses or agreement to
hold harmless may be paid only out of the Net Assets of the Company and no
portion may be recoverable from the Stockholders.
(ii) The Company shall not provide indemnification for any loss,
liability or expense arising from or out of an alleged violation of federal or
state securities laws by such party unless one or more of the following
conditions are met: (a) there has been a successful adjudication on the merits
of each count involving alleged securities law violations as to the Indemnitee,
(b) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the Indemnitee; or (c) a court of competent
jurisdiction approves a settlement of the claims against the Indemnitee and
finds that indemnification of the settlement and the related costs should be
made, and the court considering the request for indemnification has been advised
of the position of the Securities and Exchange Commission and of the published
position of any state securities regulatory authority in which securities of the
Company were offered or sold as to indemnification for violations of securities
laws.
(iii) Notwithstanding anything to the contrary contained in the
provisions of subsection (i) and (ii) above of this Section, the Company shall
not indemnify or hold harmless an Indemnitee if it is established that: (a) the
act or omission was material to the loss or liability and was committed in bad
faith or was the result of active or deliberate dishonesty, (b) the Indemnitee
actually received an improper personal benefit in money, property, or services,
(c) in the case of any criminal proceeding, the Indemnitee had reasonable cause
to believe that the act or omission
44
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was unlawful, or (d) in a proceeding by or in the right of the Company, the
Indemnitee shall have been adjudged to be liable to the Company.
(iv) The Directors may take such action as is necessary to carry out
this Section 9.2 and are expressly empowered to adopt, approve and amend from
time to time Bylaws, resolutions or contracts implementing such provisions. No
amendment of these Articles of Incorporation or repeal of any of its provisions
shall limit or eliminate the right of indemnification provided hereunder with
respect to acts or omissions occurring prior to such amendment or repeal.
SECTION 9.3 PAYMENT OF EXPENSES. The Company shall pay or reimburse
reasonable legal expenses and other costs incurred by a Director, Advisor, or
Affiliate in advance of final disposition of a proceeding if all of the
following are satisfied: (i) the proceeding relates to acts or omissions with
respect to the performance of duties or services on behalf of the Company, (ii)
the Indemnitee provides the Company with written affirmation of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the Company as authorized by Section 9.2 hereof, (iii) the legal proceeding was
initiated by a third party who is not a Stockholder or, if by a Stockholder of
the Company acting in his or her capacity as such, a court of competent
jurisdiction approves such advancement, and (iv) the Indemnitee provides the
Company with a written agreement to repay the amount paid or reimbursed by the
Company, together with the applicable legal rate of interest thereon, if it is
ultimately determined that the Indemnitee did not comply with the requisite
standard of conduct and is not entitled to indemnification. Any indemnification
payment or reimbursement of expenses will be furnished in accordance with the
procedures in Section 2-418(e) of the Maryland General Corporation Law.
SECTION 9.4 EXPRESS EXCULPATORY CLAUSES IN INSTRUMENTS. Neither the
Stockholders nor the Directors, officers, employees or agents of the Company
shall be liable under any written instrument creating an obligation of the
Company by reason of their being Stockholders, Directors, officers, employees or
agents of the Company, and all Persons shall look solely to the Company Property
for the payment of any claim under or for the performance of that instrument.
The omission of the foregoing exculpatory language from any instrument shall not
affect the validity or enforceability of such instrument and shall not render
any Stockholder, Director, officer, employee or agent liable thereunder to any
third party, nor shall the Directors or any officer, employee or agent of the
Company be liable to anyone as a result of such omission.
SECTION 9.5 TRANSACTIONS WITH AFFILIATES. The Company shall not engage
in transactions with any Affiliates, except to the extent that each such
transaction has, after disclosure of such affiliation, been approved or ratified
by the affirmative vote of a majority of the Directors (including a majority of
the Independent Directors) not Affiliated with the person who is party to the
transaction and:
(i) The transaction is fair and reasonable to the Company and its
Stockholders.
(ii) The terms of such transaction are at least as favorable as the
terms of any comparable transactions made on an arms-length basis and known to
the Directors.
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(iii) The total consideration is not in excess of the appraised value
of the property being acquired, if an acquisition is involved.
(iv) Payments to the Advisor, its Affiliates and the Directors for
services rendered in a capacity other than that as Advisor or Director may only
be made upon a determination that:
(a) The compensation is not in excess of their compensation paid
for any comparable services; and
(b) The compensation is not greater than the charges for
comparable services available from others who are competent and not Affiliated
with any of the parties involved.
(v) The Company will not make loans to the Advisor or other
Affiliates, or to any director, officer or principal of the Company or any of
its Affiliates.
Transactions between the Company and its Affiliates are further subject to
any express restrictions in these Articles of Incorporation (including Article
IV and Section 7.7) or adopted by the Directors in the Bylaws or by resolution,
and further subject to the disclosure and ratification requirements of MGCL
(section) 2-419 and other applicable law.
ARTICLE X
AMENDMENT; REORGANIZATION; MERGER, ETC.
SECTION 10.1 AMENDMENT.
(i) These Articles of Incorporation may be amended, without the
necessity for concurrence by the Directors, by the affirmative vote of the
holders of not less than a majority of the Equity Shares then outstanding and
entitled to vote thereon, except that: (1) no amendment may be made which would
change any rights with respect to any outstanding class of securities, by
reducing the amount payable thereon upon liquidation, or by diminishing or
eliminating any voting rights pertaining thereto; (2) Section 10.2 hereof and
this Section 10.1 shall not be amended (or any other provision of these Articles
of Incorporation be amended or any provision of these Articles of Incorporation
be added that would have the effect of amending such sections); (3) no term or
provision of the Articles of Incorporation may be added, amended or repealed in
any respect that would, in the determination of the Board of Directors, cause
the Company not to qualify as REIT under the Code; (4) certain provisions of the
Articles of Incorporation, including provisions relating to the removal of
directors, Independent Directors, preemptive rights of holders of stock and
indemnification and limitation of liability of officers and directors may not be
amended or repealed and (5) provisions imposing cumulative voting in the
election of directors may not be added to the Articles of Incorporation, without
the affirmative vote of the holders of a majority of the Equity Shares then
outstanding and entitled to vote thereon.
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(ii) The Directors, by a majority vote, may amend provisions of these
Articles of Incorporation from time to time as necessary to enable the Company
to qualify as a real estate investment trust under the REIT Provisions of the
Code. With the exception of the foregoing, the Directors may not amend these
Articles of Incorporation.
(iii) An amendment to these Articles of Incorporation shall become
effective as provided in Section 12.5.
(iv) These Articles of Incorporation may not be amended except as
provided in this Section 10.1.
SECTION 10.2 REORGANIZATION. Subject to the provisions of any class or
series of Equity Shares at the time outstanding, the Directors shall have the
power (i) to cause the organization of a corporation, association, trust or
other organization to take over the Company Property and to carry on the affairs
of the Company, or (ii) merge the Company into, or sell, convey and transfer the
Company Property to any such corporation, association, trust or organization in
exchange for Securities thereof or beneficial interests therein, and the
assumption by the transferee of the liabilities of the Company, and upon the
occurrence of (i) or (ii) above terminate the Company and deliver such
Securities or beneficial interests ratably among the Stockholders according to
the respective rights of the class or series of Equity Shares held by them
provided, however, that any such action shall have been approved, at a meeting
of the Stockholders called for that purpose, by the affirmative vote of the
holders of not less than a majority of the Equity Shares then outstanding and
entitled to vote thereon.
SECTION 10.3 MERGER, CONSOLIDATION OR SALE OF COMPANY PROPERTY. Subject
to the provisions of any class or series of Equity Shares at the time
outstanding, the Directors shall have the power to (i) merge the Company into
another entity, (ii) consolidate the Company with one (1) or more other entities
into a new entity; (iii) sell or otherwise dispose of all or substantially all
of the Company Property; or (iv) dissolve or liquidate the Company, other than
before the initial investment in Company Property; provided, however, that such
action shall have been approved, at a meeting of the Stockholders called for
that purpose, by the affirmative vote of the holders of not less than a majority
of the Equity Shares then outstanding and entitled to vote thereon. Any such
transaction involving an Affiliate of the Company or the Advisor also must be
approved by a majority of the Directors (including a majority of the Independent
Directors) not otherwise interested in such transaction as fair and reasonable
to the Company and on terms and conditions not less favorable to the Company
than those available from unaffiliated third parties.
In connection with any proposed Roll-Up Transaction, an appraisal of all
Assets shall be obtained from a competent independent appraiser. The Assets
shall be appraised on a consistent basis, and the appraisal shall be based on
the evaluation of all relevant information and shall indicate the value of the
Assets as of a date immediately prior to the announcement of the proposed Roll-
Up Transaction. The appraisal shall assume an orderly liquidation of Assets
over a 12-month period. The terms of the engagement of the independent
appraiser shall clearly state that the engagement is for the benefit of the
Company and the Stockholders. A summary of the appraisal, indicating all
material assumptions underlying the appraisal, shall be included in a report
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to Stockholders in connection with a proposed Roll-Up Transaction. In connection
with a proposed Roll-Up Transaction, the person sponsoring the Roll-Up
Transaction shall offer to Stockholders who vote against the proposed Roll-Up
Transaction the choice of:
(i) accepting the securities of a Roll-Up Entity offered in the
proposed Roll-Up Transaction; or
(ii) one of the following:
(a) remaining as Stockholders of the Company and preserving their
interests therein on the same terms and conditions as existed previously; or
(b) receiving cash in an amount equal to the Stockholder's pro
rata share of the appraised value of the Net Assets of the Company.
The Company is prohibited from participating in any proposed Roll-Up
Transaction:
(iii) which would result in the Stockholders having democracy rights
in a Roll-Up Entity that are less than the rights provided for in Sections 8.1,
8.2, 8.4, 8.5, 8.6, 8.7 and 9.1 of these Articles of Incorporation;
(iv) which includes provisions that would operate as a material
impediment to, or frustration of, 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), or which would limit the ability
of an investor to exercise the voting rights of its Securities of the Roll-Up
Entity on the basis of the number of Shares held by that investor;
(v) in which investor's rights to access of records of the Roll-Up
Entity will be less than those described in Sections 8.5 and 8.6 hereof; or
(vi) in which any of the costs of the Roll-Up Transaction would be
borne by the Company if the Roll-Up Transaction is not approved by the
Stockholders.
ARTICLE XI
DURATION OF COMPANY
SECTION 11.1 The Company automatically will terminate and dissolve on
December 31, 2007, will undertake orderly liquidation and Sales of Company
assets and will distribute any Net Sales Proceeds to Stockholders, unless
Listing occurs, in which event the Company shall continue perpetually unless
dissolved pursuant to the provisions contained herein or pursuant to any
applicable provision of the MGCL.
SECTION 11.2 DISSOLUTION OF THE COMPANY BY STOCKHOLDER VOTE. The Company
may be terminated at any time, without the necessity for concurrence by the
Board of Directors, by the vote or written consent of a majority of the
outstanding Equity Shares.
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ARTICLE XII
MISCELLANEOUS
SECTION 12.1 GOVERNING LAW. These Articles of Incorporation are executed
by the undersigned Directors and delivered in the State of Maryland with
reference to the laws thereof, and the rights of all parties and the validity,
construction and effect of every provision hereof shall be subject to and
construed according to the laws of the State of Maryland without regard to
conflicts of laws provisions thereof.
SECTION 12.2 RELIANCE BY THIRD PARTIES. Any certificate shall be final
and conclusive as to any persons dealing with the Company if executed by an
individual who, according to the records of the Company or of any recording
office in which these Articles of Incorporation may be recorded, appears to be
the Secretary or an Assistant Secretary of the Company or a Director, and if
certifying to: (i) the number or identity of Directors, officers of the Company
or Stockholders; (ii) the due authorization of the execution of any document;
(iii) the action or vote taken, and the existence of a quorum, at a meeting of
the Directors or Stockholders; (iv) a copy of the Articles of Incorporation or
of the Bylaws as a true and complete copy as then in force; (v) an amendment to
these Articles of Incorporation; (vi) the dissolution of the Company; or (vii)
the existence of any fact or facts which relate to the affairs of the Company.
No purchaser, lender, transfer agent or other person shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made on
behalf of the Company by the Directors or by any duly authorized officer,
employee or agent of the Company.
SECTION 12.3 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(i) The provisions of these Articles of Incorporation are severable,
and if the Directors shall determine that any one or more of such provisions are
in conflict with the REIT Provisions of the Code, or other applicable federal or
state laws, the conflicting provisions shall be deemed never to have constituted
a part of these Articles of Incorporation, even without any amendment of these
Articles of Incorporation pursuant to Section 10.1 hereof; provided, however,
that such determination by the Directors shall not affect or impair any of the
remaining provisions of these Articles of Incorporation or render invalid or
improper any action taken or omitted prior to such determination. No Director
shall be liable for making or failing to make such a determination.
(ii) If any provision of these Articles of Incorporation shall be held
invalid or unenforceable in any jurisdiction, such holding shall not in any
manner affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of these Articles of Incorporation in any
jurisdiction.
SECTION 12.4 CONSTRUCTION. In these Articles of Incorporation, unless the
context otherwise requires, words used in the singular or in the plural include
both the plural and singular and words denoting any gender include both genders.
The title and headings of different parts are inserted for convenience and shall
not affect the meaning, construction or effect of these Articles of
Incorporation. In defining or interpreting the powers and duties of the Company
and
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its Directors and officers, reference may be made, to the extent appropriate, to
the Code and to Titles 1 through 3 of the Corporations and Associations Article
of the Annotated Code of Maryland, referred to herein as the "MGCL."
SECTION 12.5 RECORDATION. These Articles of Incorporation and any
amendment hereto shall be filed for record with the State Department of
Assessments and Taxation of Maryland and may also be filed or recorded in such
other places as the Directors deem appropriate, but failure to file for record
these Articles of Incorporation or any amendment hereto in any office other than
in the State of Maryland shall not affect or impair the validity or
effectiveness of these Articles of Incorporation or any amendment hereto. A
restated Articles of Incorporation shall, upon filing, be conclusive evidence of
all amendments contained therein and may thereafter be referred to in lieu of
the original Declaration of Trust and the various amendments thereto.
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THIRD: This amendment and restatement of the Articles of Incorporation of
the Company has been approved by a majority of the Directors and approved by the
Stockholders as required by law.
FOURTH: The Company currently has authority to issue five thousand (5,000)
shares of capital stock, all of one class of common stock, par value $0.01 per
share. The number, classes, par values and preferences, rights, powers,
restrictions, limitations, qualifications, terms and conditions of the shares of
capital stock that the Company will have authority to issue upon effectiveness
of this amendment and restatement of its Articles of Incorporation are set forth
in Article VII of the foregoing amendment and restatement of such Articles of
Incorporation.
<PAGE>
IN WITNESS WHEREOF, these Amended and Restated Articles of Incorporation
have been signed on this _____ day of January, 1998 by the undersigned
Directors, each of whom acknowledges, under penalty of perjury, that this
document is his free act and deed, and that to the best of his knowledge,
information and belief, the matters and facts set forth herein are true in all
material respects.
__________________________________________
Leo F. Wells, III
__________________________________________
Brian M. Conlon
__________________________________________
John L. Bell
__________________________________________
Richard W. Carpenter
__________________________________________
Walter W. Sessoms
<PAGE>
EXHIBIT 3.2
WELLS REAL ESTATE INVESTMENT TRUST, INC.
B Y L A W S
-----------
ARTICLE I
OFFICES
-------
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation
----------------
shall be located at such place or places as the Board of Directors may
designate. The initial principal office of the Corporation shall be 3885
Holcomb Bridge Road, Norcross, Georgia 30092.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional
------------------
offices at such places as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. PLACE. All meetings of stockholders shall be held at the
-----
principal office of the Corporation or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for the
--------------
election of directors and the transaction of any business within the powers of
the Corporation shall be held on a date and at the time set by the Board of
Directors within a reasonable period (not less than 30 days) following delivery
of the annual report.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders may be
----------------
called by the President, a majority of the Board of Directors or a majority of
the Independent Directors (as defined in the Corporation's Articles of
Incorporation), and shall be called by the secretary of the Corporation upon the
written request of the holders of shares entitled to cast not less than ten
percent (10%) of all the votes entitled to be cast at such meeting. Such
request shall state the purpose of such meeting and the matters proposed to be
acted on at such meeting. Within ten days after receipt of such a written
request, the secretary shall give written notice of such meeting and the
purposes thereof to all stockholders, with such meeting to be held not less than
15 days nor more than 60 days after distribution of such notice. Such meeting
shall be at the time and place specified in the request, and if none is
specified, at a time and place convenient to stockholders.
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<PAGE>
Section 4. NOTICE. Except as provided otherwise in Section 3 of this
------
Article II above for special meetings, not less than ten nor more than 90 days
before each meeting of stockholders, the secretary shall give to each
stockholder not entitled to vote who is entitled to notice of the meeting
written or printed notice stating the time and place of the meeting and, in the
case of a special meeting or as otherwise may be called, either by mail or by
presenting it to such stockholder personally or by leaving it at his residence
or usual place of business. If mailed, such notice shall be deemed to be given
when deposited in the United States mail addressed to the stockholder at his
post office address as it appears on the records of the Corporation, with
postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Corporation may be
---------------
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except as otherwise set forth in Section 12(a) of this
Article II and except for such business as is required by any statute to be
stated in such notice. No business shall be transacted at a special meeting of
stockholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of stockholders, the chairman
------------
of the board, if there be one, shall conduct the meeting or, in the case of
vacancy in office or absence of the conduct the meeting in the order stated:
the vice chairman of the order of rank and seniority, or a chairman chosen by
the stockholders entitled to cast a majority of the votes which all stockholders
present in person or by proxy are entitled to cast, shall act as chairman, and
the secretary, or, in his absence, an assistant secretary, or in the absence of
both the secretary and assistant secretaries, a person appointed by the chairman
shall act as secretary.
Section 7. QUORUM. At any meeting of stockholders, the presence in person
------
or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter of the
Corporation for the vote necessary for the adoption of any measure. If,
however, such quorum shall not be present at any meeting of the stockholders,
the stockholders entitled to vote at such meeting, present in person or by
proxy, shall have the power to adjourn the meeting from time to time to a date
not more than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
------
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted. A majority of the votes cast at a meeting of stockholders duly called
and at which a quorum is present shall be sufficient to approve any other matter
which may properly come before the meeting, unless more than a majority of the
votes cast is required by statute or by the charter of the Corporation. Unless
otherwise provided in the charter, each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders.
-2-
<PAGE>
Stock 9. PROXIES. A stockholder may vote the stock owned of record by
-------
him, either in person or by proxy executed in writing by the stockholder or by
his duly authorized attorney-in-fact. Such proxy shall be filed with the
secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 10. (a) VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the
----------------------------------
Corporation registered in the name of a corporation, partnership, trust or other
entity, if entitled to be voted, may be voted by an officer thereof, a general
partner or trustee thereof, as the case may be, or a proxy appointed by any of
the foregoing individuals, unless some other person who has been appointed to
vote such stock pursuant to a bylaw or a resolution of the governing body of
such corporation or other entity or agreement of the partners of a partnership
presents a certified copy of such bylaw, resolution or agreement, in which case
such person may vote such stock. Any director or other fiduciary may vote stock
registered in his name as such fiduciary, either in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it shall
not be voted at any meeting and shall not be counted in determining the total
number of outstanding shares entitled to be voted at any given time, unless they
are held by it in a fiduciary capacity, in which case they may be voted and
shall be counted in determining the total number of outstanding shares at any
given time.
The Board of Directors may adopt by resolution a procedure by which a stock
holder may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books and any other provisions with respect to the
procedure which the Board of Directors considers necessary or desirable. On
receipt of such certification, the person specified in the certification shall
be regarded as, for the purposes set forth in the certification, the stockholder
who makes the certification.
(b) Exemption From Control Share Acquisition Statute. Notwithstanding any
------------------------------------------------
other provision of the charter of the Corporation or these Bylaws, Title 3,
Subtitle 7 of the corporations and Associations Article of the Annotated Code of
Maryland (or any successor statute) shall not apply to any acquisition by any
person of shares of stock of the Corporation. This section may be repealed, in
whole or in part, at any time, whether before or after an acquisition of control
shares and, upon such repeal, may, to the extent provided by any successor
bylaw, apply to any prior or subsequent control share acquisition.
Section 11. INSPECTORS. At any meeting of stockholders, the chairman of
----------
the meeting may appoint one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented at
the meeting based upon their determination of the validity and effect of
proxies, count all votes, report the results and perform
-3-
<PAGE>
such other acts as are proper to conduct the election and voting with
impartiality and fairness to all the stockholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be prima
-----
facie evidence thereof.
- -----
Section 12. NOMINATIONS AND STOCKHOLDER BUSINESS.
------------------------------------
(a) Annual Meetings of Stockholders. (1) Nominations of persons for
-------------------------------
election to the Board of Directors and the proposal of business to be considered
by the stockholders may be made at an annual meeting of stockholders (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the direction of
the Board of Directors or (iii) by any stockholder of the Corporation who was a
stockholder of record both at the time of giving of notice provided for in this
Section 12(a) and at the time of the annual meeting of stockholders, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Section 12(a).
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) or paragraph (a)(1) of
this Section 12, the stockholder must be given timely notice thereof in writing
to the secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered to the secretary at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90/th/ day
prior to such annual meeting and not later than the close of business on the
later of the 60/th/ day prior to such annual meeting or the tenth day following
the day on which public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (ii) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and of the beneficial
owner, if any, on whose behalf the proposal is made; and (iii) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, (x) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (y) the number of shares of each class of stock of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
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(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 12 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at lease 70
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section 12(a) shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the secretary at the principal executive
offices of the Corporation no later than the close of business on the tenth day
following the day on which such public announcement is first may be the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who is a stockholder of record both at the time of giving of notice
provided for in this Section 12(b) at the time of the special meeting, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Section 12(b). In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to the
Board of Directors, any such stockholder may nominate a person or persons (as
the case may be) for election to such position as specified in the Corporation's
notice of meeting, if the stockholder's notice containing the information
required by paragraph (a)(2) of this Section 12 shall be delivered to the
secretary at the principal executive offices of the Corporation not earlier than
the 90/th/ day prior to such special meeting and not later than the close of
business on the later of the 60/th/ day prior to such special meeting or the
tenth day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
(c) General. (1) Only such persons who are nominated in accordance with
-------
the procedures set forth in this Section 12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholder
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 12. The presiding officer of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this Section 12 and, if any Section 12, to declare that such defective
nomination or proposal be disregarded.
(2) For purposes of this Section 12, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 12, a
stockholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the
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rules and regulations thereunder with respect to the matters set forth in this
Section 12. Nothing in this Sections 12 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Section 13. VOTING BY BALLOT. Voting on any question or in any election
----------------
may be viva voce unless the presiding officer shall order or any stockholder
---- ----
shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
---------
Section 1. GENERAL POWERS. The business and affairs of the Corporation
--------------
shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or
---------------------------------
at any special meeting called for that purpose, a majority of the entire Board
of Directors may establish, increase or decrease the number of directors,
provided that the number thereof shall never be less than the minimum number
required by the Maryland General Corporation Law, nor more than 15, and further
provided that the tenure of office of a director shall not be affected by any
decrease in the number of directors.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
---------------------------
Directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this Bylaw being necessary. The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of Maryland, for the holding of regular meetings of the
Board of Directors without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
----------------
may be called by or at the request of the chairman of the board, president or by
a majority of the directors then in office. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either within
or without the State of Maryland, as the place for holding any special meeting
of the Board of Directors called by them.
Section 5. NOTICE. Notice of any special meeting of the Board of
------
Directors shall be delivered personally or by telephone, facsimile transmission,
United States mail or courier to each director at his business or residence
address. Notice by personal delivery, by telephone or a facsimile transmission
shall be given at lease two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting and shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. Telephone notice shall be deemed to be given when the
director is personally given such notice in a telephone call to which he is a
party. Facsimile transmission notice shall be deemed to be given upon
completion of the transmission of the message to the number given to the
Corporation by the director and receipt of a completed answer-back indicating
receipt. Neither the business to be transacted at, nor the purpose of, any
annual, regular or special meeting of the Board of Directors need be stated in
the notice, unless specifically required by statute or these Bylaws.
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Section 6. QUORUM. A majority of the directors shall constitute a quorum
------
for transaction of business at any meeting of the Board of Directors, provided
that, if less than a majority of such directors are present at said meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice and provided further that if, pursuant to the charter of
the Corporation or these Bylaws, the vote of a majority of a particular group of
directors is required for action, a quorum must also include a majority of such
group.
The directors present at a meeting which has been duly called and convened
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. (a) The action of the majority of the directors
------
present at a meeting at which a quorum is present shall be the action of the
Board of Directors, unless the concurrence of a greater proportion is required
for such action by applicable statute.
(b) Any action pertaining to any transaction in which the Corporation is
purchasing, selling, leasing or mortgaging any real estate asset, making a joint
venture investment or engaging in any other transaction in which an advisor,
director or officer of the Corporation, any affiliated lessee or affiliated
contract manager of any property of the Corporation or any affiliate of the
foregoing, has any direct or indirect interest other than as a result of their
status as a director, officer or stockholder of the Corporation, shall be
approved by the affirmative vote of a majority of the Independent Directors (as
defined in the Corporation's Articles of Incorporation), even if the Independent
Directors constitute less than a quorum.
Section 8. TELEPHONE MEETINGS. Directors may participate in a meeting by
------------------
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or permitted
----------------------------
to be taken at any meeting of the Board of Directors may be taken without a
meeting, if a consent in writing to such action is signed by each director and
such written consent is filed with the minutes of proceedings of the Board of
Directors.
Section 10. VACANCIES. If for any reason any or all the directors cease
---------
to be directors, such event shall not terminate the Corporation or affect these
Bylaws or the powers of the remaining directors hereunder (even if fewer than
three directors remained). Any vacancy on the Board of Directors for any cause
other than an increase in the number of directors shall be filled by a majority
of the remaining directors, although such majority is less than a quorum. Any
vacancy in the number of directors created by an increase in the number of
directors may be filled by a majority vote of the entire Board of Directors.
The newly-created or eliminated directorships resulting from any increase or
decrease shall be apportioned by the Board of Directors among the three classes
of directorships as provided in the Corporation's charter so as to keep the
number of directors in each class as nearly equal as possible. Any individual
so elected as director shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualifies.
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Section 11. COMPENSATION. Directors shall not receive any stated salary
------------
for their services as directors but, by resolution of the Board of Directors,
may receive fixed sums per year and/or per meeting and/or per visit to real
property or other facilities owned or leased by the Corporation and for any
service or activity they performed or engaged in as directors. Directors may be
reimbursed for expenses of attendance, if any, at each annual, regular or
special meeting of the Board of Directors or of any committee thereof and for
their expenses, if any, in connection with each property visit and other service
or activity they performed or engaged in as directors; but nothing herein
contained shall be construed to preclude any directors from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 12. LOSS OF DEPOSITS. No director shall be liable for any loss
----------------
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom monies or stock have been
deposited.
Section 13. SURETY BONDS. Unless required by law, no director shall be
------------
obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 14. RELIANCE. Each director, officer, employee and agent of the
--------
Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
Section 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
-----------------------------------------------------------
The directors shall have no responsibility to devote their full time to the
affairs of the Corporation. Any director or officer, employee or agent of the
Corporation. Any director or officer, employee or agent of the Corporation, in
his personal capacity or in a capacity as an affiliate, employee, or agent of
any other person, or otherwise, may have business interests and engage in
business activities similar to or in addition to or in competition with those of
or relating to the Corporation.
ARTICLE IV
COMMITTEES
----------
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors may
---------------------------------
appoint from among its members an Executive Committee, an Audit Committee, a
Compensation Committee, a Leasing Committee, a Nominating Committee and other
committees, composed of two or more directors, to serve at the pleasure of the
Board of Directors. The members of the Audit Committee and Compensation
Committee shall at all times consist solely of Independent Directors.
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Section 2. POWERS. The Board of Directors may delegate to committees
------
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in the
--------
same manner as notice for special meetings of the Board of Directors. A
majority of the members of the committee shall constitute a quorum for the
transaction of business at any meeting of the committee. The act of a majority
of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee,
and such chairman or any two members of any committee may fix the time and place
of its meeting unless the Board shall otherwise provide. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint another director to act in
the place of such absent member. Each committee shall keep minutes of its
proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of
------------------
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
-----------------------------
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
---------
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
--------
Section 1. GENERAL PROVISIONS. The officers of the Corporation shall be
------------------
appointed by the Board of Directors, and shall include a President, a Treasurer
and a Secretary, and any other officers as determined by the Board of Directors.
Such officers may include a Chairman of the Board, a President, a Chief
Executive Officer, a Chief Operating Officer, a Chief Financial Officer, one or
more Vice Presidents, one or more Assistant Treasurers, a Secretary, and/or one
or more Assistant Secretaries. In addition, the Board of Directors may from
time to time appoint such other officers with such powers and duties as they
shall deem necessary or desirable. The officers of the Corporation shall be
elected annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of stockholders, except that the chief
executive officer may appoint one or more vice presidents, assistant secretaries
and assistant treasurers. If the election of officers shall not be held at such
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<PAGE>
meeting, such election shall be held as soon thereafter as may be convenient.
Each officer shall hold office until his successor is elected and qualifies or
until his death, resignation or removal in the manner hereinafter provided. Any
two or more offices may be held by the same person. In its discretion, the
Board of Directors may leave unfilled any office except that of President,
Treasurer and Secretary. Election of an officer or agent shall not itself
create contract rights between the Corporation and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
-----------------------
Corporation may be removed by the Board of Directors if in its judgment the best
interests of the Corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the Corporation may resign at any time by giving written notice of
his resignation to the Board of Directors, the chairman of the board, the
president or the secretary. Any resignation shall take effect at any time
subsequent to the time specified therein, immediately upon its receipt. The
acceptance of a resignation shall not be necessary to make it effective unless
otherwise stated in the resignation. Such resignation shall be without
prejudice to the contract rights, if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by the Board
---------
of Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may designate
-----------------------
a chief executive officer. In the absence of such designation, the chairman of
the board shall be the chief executive officer of the Corporation. The chief
executive officer shall have general responsibility for implementation of the
policies of the Corporation, as determined by the Board of Directors, and for
the management of the business and affairs of the Corporation.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may designate
-----------------------
a chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may designate
-----------------------
a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 7. CHAIRMAN OF THE BOARD. The Board of Directors shall designate
---------------------
a chairman of the board. The chairman of the board shall preside over the
meetings of the Board of Directors and of the stockholders at which he shall be
present. The chairman of the board shall perform such other duties as may be
assigned to him or them by the Board of Directors.
Section 8. PRESIDENT. The president or chief executive officer, as the
---------
case may be, shall in general supervise and control all of the business and
affairs of the Corporation. In the absence of a designation of a chief
operating officer by the Board of Directors, the president shall be the chief
operating officer. He may execute any deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Corporation or shall be required by law to be otherwise executed;
and in general shall perform all duties incident to the
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office of president and such other duties as may be prescribed by the Board of
Directors from time to time.
Section 9. VICE PRESIDENTS. In the absence of the president or in the
---------------
event of a vacancy in such office, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the president and when so acting
shall have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Board of Directors. The Board of
Directors may designate one or more vice presidents as executive vice president
or as vice president for particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of the
---------
proceedings of the stockholders, the Board of Directors and committees of the
Board of Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (c) be custodian of the corporate records and of the seal of
the Corporation; (d) keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such stockholder; (e)
have general charge of the share transfer books of the Corporation; and (f) in
general perform such other duties as from time to time may be assigned to him by
the chief executive officer, the present or by the Board of Directors.
Section 11. TREASURER. The treasurer shall have the custody of the funds
---------
and securities of the Corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. In the absence of a designation of a chief financial officer by the
Board of Directors, the treasurer shall be the chief financial officer of the
Corporation.
The treasurer shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the president and Board of Directors, at the regular meetings of
the Board of Directors or whenever it may so require, an account of all his
transactions as treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, monies and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant
----------------------------------------------
secretaries and assistance treasurers, in general, shall perform such duties as
shall be assigned to them by the secretary or treasurer, respectively, or by the
president or the Board of Directors. The assistant treasurers shall, if
required by the Board of Directors, give bonds for the
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faithful performance of their duties in such sums and with such surety or
sureties as shall be satisfactory to the Board of Directors.
Section 13. SALARIES. The salaries and other compensation of the officers
--------
shall be fixed from time to time by the Board of Directors and no officer shall
be prevented from receiving such salary or other compensation by reason of the
fact that he is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
Section 1. CONTRACTS. The Board of Directors may authorize any officer or
---------
agent to enter into any contract or to execute and deliver any instrument in the
name of and on behalf of the Corporation and such authority may be general or
confined to specific instances. Any agreement, deed, mortgage, lease or other
document executed by one or more of the directors or by an authorized person
shall be valid and binding upon the Board of Directors and upon the Corporation
when authorized or ratified by action of the Board of Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the
-----------------
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or agent of the Corporation in
such manner as shall from time to time be determined by the Board of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
designate.
ARTICLE VII
STOCK
-----
Section 1. CERTIFICATES. If the Board of Directors of the Company
------------
determines to issue certificates to evidence ownership of shares of the stock of
the Company, each stockholder shall be entitled to a certificate or certificates
which shall represent and certify the number of shares of each class of stock
held by him in the Corporation. Each certificate shall be signed by the chief
executive officer, the president or a vice president and countersigned by the
secretary or an assistant secretary or the treasurer or an assistant treasurer
and may be sealed with the seal, if any, of the Corporation. The signatures may
be either manual or facsimile. Certificates shall be consecutively numbered;
and if the Corporation shall, from time to time, issue several classes of stock,
each class may have its own number series. Each certificate representing shares
which are preferred or limited as to their dividends or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. If the Corporation has authority to issue stock of more than one
class, the certificate shall contain on the face or back a full statement or
summary of the designations and any preferences, conversion
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and other rights, voting powers, restrictions, limitations as to dividends and
other distributions, qualifications and terms and conditions of redemption of
each class of stock and, if the Corporation is authorized to issue any preferred
or special class in series, the differences in the relative rights and
preferences between the shares of each series to the extent they have been set
and the authority of the Board of Directors to set the relative rights and
preferences of subsequent series. In lieu of such statement or summary, the
certificate may state that the Corporation will furnish a full statement of such
information to any stockholder upon request and without charge. If any class of
stock is restricted by the Corporation as to transferability, the certificate
shall contain a full statement of the restriction or state that the Corporation
will furnish information about the restrictions to the stockholder on request
and without charge.
Section 2. TRANSFERS. Upon surrender to the Corporation or the transfer
---------
agent of the Corporation of a stock certificate duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of record of any
share of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of any class of stock
will be subject in all respects to the charter of the Corporation and all of the
terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the Board
-----------------------
of Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing the
issuance of a new certificate, an officer designated by the Board of Directors
may, in his discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or the owner's
legal representative to advertise the same in such manner as he shall require
and/or to give bond, with sufficient surety, to the Corporation to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board
--------------------------------------------------
of Directors may set, in advance, a record date for the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
determining stockholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
stockholders for any other proper purpose. Such date, in any case, shall not
be prior to the close of business on the day the record date is fixed and shall
be not more than 90 days and, in the case of a meeting of stockholders, not less
than ten days, before the date on which the meeting or particular action
requiring such determination of stockholders of record is to be held or taken.
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In lieu of fixing a record date, the Board of Directors may provide that
the stock transfer books shall be closed for stated period but not longer than
20 days. If the stock transfer books are closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and stock transfer books are not closed for the
determination of stockholders, (a) the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30/th/ day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of stockholders entitled
to receive payment of a dividend or an allotment of any other rights shall be
the close of business on the day on which the resolution of the directors,
declaring the divided or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination has
been made as provided in this section, such determination shall apply to any
adjournment thereof, except when (i) the determination has been made through the
closing of the transfer books and the stated period of closing has expired or
(ii) the meeting is adjourned to a date more than 120 days after the record date
fixed for the original meeting, in either of which case a new record date shall
be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its principal
------------
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors
-----------------------------------
may issue fractional stock or provide for the issuance of scrip, all on such
terms and under such conditions as they may determine. Notwithstanding any
other provision of the charter or these Bylaws, the Board of Directors may issue
units consisting of different securities of the Corporation. Any security
issued in a unit shall have the same characteristics as any identical securities
issued by the Corporation, except that the Board of Directors may provide that
for a specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit
ARTICLE VIII
ACCOUNTING YEAR
---------------
The Board of Directors shall have the power, from time to time, to fix the
fiscal year of the Corporation by a duly adopted resolution.
-14-
<PAGE>
ARTICLE IX
DISTRIBUTIONS
-------------
Section 1. AUTHORIZATION. Dividends and other distributions upon the
-------------
stock of the Corporation may be authorized and declared by the Board of
Directors, subject to the provisions of law and the charter of the Corporation.
Dividends and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other
-------------
distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing any property of the Corporation
or for such other purpose as the Board of Directors shall determine to be in the
best interest of the Corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
-----------------
Subject to the provisions of the charter of the Corporation, the Board of
Directors may from time to time adopt, amend, revise or terminate any policy or
policies with respect to investments by the Corporation as it shall deem
appropriate in its sole discretion.
ARTICLE XI
SEAL
----
Section 1. SEAL. The Board of Directors may authorize the adoption of a
----
seal by the Corporation. The seal shall contain the name of the Corporation and
the year of its incorporation and the words "Incorporated Maryland." The Board
of Directors may authorize one or more duplicate seals and provide for the
custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or
-------------
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the word
"(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf of the Corporation.
ARTICLE XII
WAIVER OF NOTICE
----------------
Whenever any notice is required to be given pursuant to the charter of the
Corporation or these Bylaws or pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed
-15-
<PAGE>
equivalent to the giving of such notice. Neither the business to be transacted
at nor the purpose of any meeting need be set forth in the waiver of notice,
unless specifically required by statute. The attendance of any person at any
meeting shall constitute a waiver of notice of such meeting, except where such
person attends a meeting for the express purpose of objecting to the transaction
of any business on the ground that the meeting is not lawfully called or
convened.
ARTICLE XIII
AMENDMENT OF BYLAWS
-------------------
The Board of Directors shall have the exclusive power to adopt, alter or
repeal any provision of these Bylaws and to make new Bylaws.
-16-
<PAGE>
EXHIBIT 5.1
[Form of Legal Opinion]
January __, 1998
Wells Investment Securities, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Wells Real Estate Investment Trust, Inc.
----------------------------------------
Offering and Sale of up to 16,500,000 shares of Common Stock
------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Wells Real Estate Investment Trust, Inc., a
Maryland corporation (the "Company"), in connection with the public offering and
sale (the "Offering") of up to 16,500,000 shares of the common stock, par value
$0.01 per share, of the Company (the "Shares") pursuant to a Form S-11
registration statement filed with the Securities and Exchange Commission on July
25, 1997, as amended through the date hereof (the "Registration Statement").
In giving this opinion letter, we have examined the following:
(i) the Company's Articles of Incorporation, as duly filed with the
Department of Assessments and Taxation of the State of Maryland (the "State of
Maryland") on July 3, 1997;
(ii) the Articles of Correction to the Company's Articles of
Incorporation, as duly filed with the State of Maryland on July 23, 1997;
(iii) the Company's Articles of Amendment and Restatement to its
Articles of Incorporation ("Articles of Amendment"), in the form filed as an
exhibit to the Registration Statement;
(iv) the Company's Bylaws;
<PAGE>
Wells Investment Securities, Inc.
January __, 1998
Page 2
(v) the Registration Statement, including the prospectus contained
therein as part of the Registration Statement; and
(vi) originals (or copies identified to our satisfaction) of such
other documents and records of the Company, together with certificates of public
officials and officers of the Company, and such other documents as we have
deemed necessary or appropriate for purposes of this opinion.
With respect to all of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity of originals of all documents submitted to us as
certified or reproduced copies.
Based solely on the foregoing, and without further investigation, we are of
the opinion that:
when, as and if (i) the Registration Statement has become effective
pursuant to the provisions of the Securities Act, (ii) the Articles of Amendment
are properly filed with and accepted by the State of Maryland, (iii) the Shares
are validly and properly issued by the Company pursuant to the Offering and in
the form and containing the terms described in the Registration Statement, and
(iv) all legally required consents, approvals and authorizations of governmental
regulatory authorities have been obtained, including without limitation the
order of effectiveness from the SEC, the Shares, when sold, will be legally
issued, fully paid and non-assessable.
Except as described herein, we have performed no due diligence and have
made no efforts to verify the accuracy and genuineness of the documents and
assumptions set forth above. We do not purport to express an opinion on any
laws other than those of the State of Maryland. We hereby consent to the filing
of this opinion as an exhibit to the Registration Statement.
We undertake no obligation to update the opinions expressed herein after
the date of this letter. This opinion letter is solely for the information and
use of the addressee and it may not be distributed, relied upon for any purpose
by any other person, quoted in
<PAGE>
Wells Investment Securities, Inc.
January __, 1998
Page 3
whole or in part or otherwise reproduced in any document, or filed with any
governmental agency without our express written consent.
Very truly yours,
Hunton & Williams
<PAGE>
EXHIBIT 10.1
AGREEMENT OF LIMITED PARTNERSHIP
OF
WELLS OPERATING PARTNERSHIP, L.P.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
<TABLE>
<CAPTION>
<C> <S> <C>
DEFINED TERMS............................................................. 1
ARTICLE II
PARTNERSHIP FORMATION AND IDENTIFICATION.................................. 8
2.01 Formation..................................................... 8
2.02 Name, Office and Registered Agent............................. 8
2.03 Partners...................................................... 8
2.04 Term and Dissolution.......................................... 8
2.05 Filing of Certificate and Perfection of Limited Partnership... 9
2.06 Certificates Describing Partnership Units..................... 9
ARTICLE III
BUSINESS OF THE PARTNERSHIP............................................... 10
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS........................................ 10
4.01 Capital Contributions......................................... 10
4.02 Additional Capital Contributions and Issuances of
Additional Partnership Interests.............................. 10
4.03 Additional Funding............................................ 13
4.04 Capital Accounts.............................................. 13
4.05 Percentage Interests.......................................... 13
4.06 No Interest on Contributions.................................. 13
4.07 Return of Capital Contributions............................... 13
4.08 No Third Party Beneficiary.................................... 14
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS......................................... 14
5.01 Allocation of Profit and Loss................................. 14
5.02 Distribution of Cash.......................................... 16
5.03 REIT Distribution Requirements................................ 17
5.04 No Right to Distributions in Kind............................. 17
5.05 Limitations on Return of Capital Contributions................ 17
5.06 Distributions Upon Liquidation................................ 17
5.07 Substantial Economic Effect................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VI
<C> <S> <C>
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER................... 18
6.01 Management of the Partnership............................... 18
6.02 Delegation of Authority..................................... 21
6.03 Indemnification and Exculpation of Indemnitees.............. 21
6.04 Liability of the General Partner............................ 22
6.05 Reimbursement of General Partner............................ 23
6.06 Outside Activities.......................................... 28
6.07 Employment or Retention of Affiliates....................... 24
6.08 General Partner Participation............................... 24
6.09 Title to Partnership Assets................................. 24
6.10 Miscellaneous............................................... 25
ARTICLE VII
CHANGES IN GENERAL PARTNER.............................................. 25
7.01 Transfer of the General Partner's Partnership Interest...... 25
7.02 Admission of a Substitute or Additional General Partner..... 27
7.03 Effect of Bankruptcy, Withdrawal, Death or Dissolution
of a General Partner........................................ 28
7.04 Removal of a General Partner................................ 28
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS.......................... 29
8.01 Management of the Partnership............................... 29
8.02 Power of Attorney........................................... 30
8.03 Limitation on Liability of Limited Partners................. 30
8.04 Ownership by Limited Partner of Corporate General
Partner or Affiliate........................................ 30
8.05 Exchange Right.............................................. 30
8.06 Registration................................................ 32
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS.............................. 33
9.01 Purchase for Investment..................................... 33
9.02 Restrictions on Transfer of Limited Partnership Interests... 33
9.03 Admission of Substitute Limited Partner..................... 35
9.04 Rights of Assignees of Partnership Interests................ 36
9.05 Effect of Bankruptcy, Death, Incompetence or Termination
of a Limited Partner........................................ 36
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
9.06 Joint Ownership of Interests................................ 37
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS........................... 37
10.01 Books and Records.......................................... 37
10.02 Custody of Partnership Funds; Bank Accounts................ 37
10.03 Fiscal and Taxable Year.................................... 38
10.04 Annual Tax Information and Report.......................... 38
10.05 Tax Matters Partner; Tax Elections;
Special Basis Adjustments.................................. 38
10.06 Reports to Limited Partners................................ 39
ARTICLE XI
AMENDMENT OF AGREEMENT; MERGER....................................... 39
ARTICLE XII............................................................. 40
GENERAL PROVISIONS................................................... 40
12.01 Notices................................................... 40
12.02 Survival of Rights........................................ 40
12.03 Additional Documents...................................... 40
12.04 Severability.............................................. 40
12.05 Entire Agreement.......................................... 40
12.06 Pronouns and Plurals...................................... 40
12.07 Headings.................................................. 40
12.08 Counterparts.............................................. 40
12.09 Governing Law............................................. 41
</TABLE>
EXHIBITS
EXHIBIT A - Partners, Capital Contributions and Percentage Interests
EXHIBIT B - Notice of Exercise of Exchange Right
iii
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
WELLS OPERATING PARTNERSHIP, L.P.
RECITALS
Wells Operating Partnership, L.P. (the "Partnership") was formed as a
limited partnership under the laws of the State of Delaware, pursuant to a
Certificate of Limited Partnership filed with the Office of the Secretary of
State of the State of Delaware effective as of _______________, 1997. This
Agreement of Limited Partnership is entered into this ___ day of
________________, 1997 between Wells Real Estate Investment Trust, Inc., a
Maryland corporation (the "General Partner") and the Limited Partner(s) set
forth on Exhibit A hereto (the "Agreement").
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINED TERMS
-------------
The following defined terms used in this Agreement shall have the meanings
specified below:
"ACT" means the Delaware Revised Uniform Limited Partnership Act, as it may
be amended from time to time.
"ADDITIONAL FUNDS" has the meaning set forth in Section 4.03 hereof.
"ADDITIONAL SECURITIES" means any additional REIT Shares (other than REIT
Shares issued in connection with an exchange pursuant to Section 8.05 hereof) or
rights, options, warrants or convertible or exchangeable securities containing
the right to subscribe for or purchase REIT Shares, as set forth in Section
4.02(a)(ii).
"ADMINISTRATIVE EXPENSES" means (i) all administrative and operating costs
and expenses incurred by the Partnership, (ii) those administrative costs and
expenses of the General Partner, including any salaries or other payments to
directors, officers or employees of the General Partner, and any accounting and
legal expenses of the General Partner, which expenses, the Partners have agreed,
are expenses of the Partnership and not the General Partner, and (iii) to the
extent not included in clause (ii) above, REIT Expenses; provided, however, that
-------- -------
Administrative Expenses shall not include any administrative costs and expenses
incurred by the General Partner that are attributable to Properties or
partnership interests in a Subsidiary Partnership that are owned by the General
Partner directly.
<PAGE>
"AFFILIATE" means, (i) any Person that, directly or indirectly, controls or
is controlled by or is under common control with such Person, (ii) any other
Person that owns, beneficially, directly or indirectly, 10% or more of the
outstanding capital stock, shares or equity interests of such Person, or (iii)
any officer, director, employee, partner or trustee of such Person or any Person
controlling, controlled by or under common control with such Person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such Person). For the purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities or partnership interests or otherwise.
"AGREED VALUE" means the fair market value of a Partner's non-cash Capital
Contribution as of the date of contribution as agreed to by such Partner and the
General Partner. The names and addresses of the Partners, number of Partnership
Units issued to each Partner, and the Agreed Value of non-cash Capital
Contributions as of the date of contribution is set forth on Exhibit A.
---------
"AGREEMENT" means this Agreement of Limited Partnership.
"ARTICLES OF INCORPORATION" means the Articles of Incorporation of the
General Partner filed with the Maryland State Department of Assessments and
Taxation, as amended or restated from time to time.
"CAPITAL ACCOUNT" has the meaning provided in Section 4.04 hereof.
"CAPITAL CONTRIBUTION" means the total amount of cash, cash equivalents,
and the Agreed Value of any Property or other asset contributed or agreed to be
contributed, as the context requires, to the Partnership by each Partner
pursuant to the terms of the Agreement. Any reference to the Capital
Contribution of a Partner shall include the Capital Contribution made by a
predecessor holder of the Partnership Interest of such Partner.
"CASH AMOUNT" means an amount of cash per Partnership Unit equal to the
Value of the REIT Shares Amount on the date of receipt by the General Partner of
a Notice of Exchange.
"CERTIFICATE" means any instrument or document that is required under the
laws of the State of Delaware, or any other jurisdiction in which the
Partnership conducts business, to be signed and sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner in Section 8.02 hereof) and filed for recording in the
appropriate public offices within the State of Delaware or such other
jurisdiction to perfect or maintain the Partnership as a limited partnership, to
effect the admission, withdrawal, or substitution of any Partner of the
Partnership, or to protect the limited liability of the Limited Partners as
limited partners under the laws of the State of Delaware or such other
jurisdiction.
"CODE" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
2
<PAGE>
"COMMISSION" means the U.S. Securities and Exchange Commission.
"CONVERSION FACTOR" means 1.0, provided that in the event that the General
-------------
Partner (i) declares or pays a dividend on its outstanding REIT Shares in REIT
Shares or makes a distribution to all holders of its outstanding REIT Shares in
REIT Shares, (ii) subdivides its outstanding REIT Shares, or (iii) combines its
outstanding REIT Shares into a smaller number of REIT Shares, the Conversion
Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the
numerator of which shall be the number of REIT Shares issued and outstanding on
the record date for such dividend, distribution, subdivision or combination
(assuming for such purposes that such dividend, distribution, subdivision or
combination has occurred as of such time), and the denominator of which shall be
the actual number of REIT Shares (determined without the above assumption)
issued and outstanding on such date and, provided further, that in the event
that an entity other than an Affiliate of the General Partner shall become
General Partner pursuant to any merger, consolidation or combination of the
General Partner with or into another entity (the "Successor Entity"), the
Conversion Factor shall be adjusted by multiplying the Conversion Factor by the
number of shares of the Successor Entity into which one REIT Share is converted
pursuant to such merger, consolidation or combination, determined as of the date
of such merger, consolidation or combination. Any adjustment to the Conversion
Factor shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event; provided, however, that
-------- -------
if the General Partner receives a Notice of Exchange after the record date, but
prior to the effective date of such dividend, distribution, subdivision or
combination, the Conversion Factor shall be determined as if the General Partner
had received the Notice of Exchange immediately prior to the record date for
such dividend, distribution, subdivision or combination.
"EVENT OF BANKRUPTCY" as to any Person means the filing of a petition for
relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978
or similar provision of law of any jurisdiction (except if such petition is
contested by such Person and has been dismissed within 90 days); insolvency or
bankruptcy of such Person as finally determined by a court proceeding; filing by
such Person of a petition or application to accomplish the same or for the
appointment of a receiver or a trustee for such Person or a substantial part of
his assets; commencement of any proceedings relating to such Person as a debtor
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or hereinafter in
effect, either by such Person or by another, provided that if such proceeding is
commenced by another, such Person indicates his approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is contested by such
Person and has not been finally dismissed within 90 days.
"EXCHANGE AMOUNT" means either the Cash Amount or the REIT Shares Amount,
as selected by the General Partner or the General Partner in its sole and
absolute discretion pursuant to Section 8.05(b) hereof.
"EXCHANGE RIGHT" has the meaning provided in Section 8.05(a) hereof.
"EXCHANGING PARTNER" has the meaning provided in Section 8.05(a) hereof.
3
<PAGE>
"GENERAL PARTNER" means Wells Real Estate Investment Trust, Inc. a Maryland
corporation, and any Person who becomes a substitute or additional General
Partner as provided herein, and any of their successors as General Partner.
"GENERAL PARTNERSHIP INTEREST" means a Partnership Interest held by the
General Partner that is a general partnership interest.
"INDEMNITEE" means (i) any Person made a party to a proceeding by reason of
its status as the General Partner, the General Partner or a director, officer or
employee of the General Partner, the Partnership or the General Partner, and
(ii) such other Persons (including Affiliates of the General Partner, General
Partner or the Partnership) as the General Partner may designate from time to
time, in its sole and absolute discretion.
"INDEPENDENT DIRECTOR" means a director of the General Partner who is not
an officer or employee of the General Partner, any Affiliate of an officer or
employee or any Affiliate of (i) any lessee of any property of the General
Partner or any Subsidiary of the General Partner, (ii) any Subsidiary of the
General Partner, or (iii) any partnership that is an Affiliate of the General
Partner.
"LIMITED PARTNER" means any Person named as a Limited Partner on Exhibit A
---------
attached hereto, and any Person who becomes a Substitute or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"LIMITED PARTNERSHIP INTEREST" means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of such
Limited Partner to any and all benefits to which such Limited Partner may be
entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.
"LOSS" has the meaning provided in Section 5.01(f) hereof.
"MINIMUM LIMITED PARTNERSHIP INTEREST" means the lesser of (i) 1% or (ii)
if the total Capital Contributions to the Partnership exceeds $50 million, 1%
divided by the ratio of the total Capital Contributions to the Partnership to
$50 million; provided, however, that the Minimum Limited Partnership Interest
-------- -------
shall not be less than 0.2% at any time.
"NOTICE OF EXCHANGE" means the Notice of Exercise of Exchange Right
substantially in the form attached as Exhibit B hereto.
---------
"NYSE" means the New York Stock Exchange.
"OFFER" has the meaning set forth in Section 7.01(c) hereof.
"OFFERING" means the initial offer and sale by the General Partner and the
purchase by the Dealer Manager (as defined in the Prospectus) of REIT Shares for
sale to the public.
4
<PAGE>
"ORIGINAL LIMITED PARTNER" means the Limited Partner designated as
"Original Limited Partner" on Exhibit A hereto.
---------
"PARTNER" means any General Partner or Limited Partner.
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section 1.704-
2(i)(5).
"PARTNERSHIP" means Wells Operating Partnership, L.P., a Delaware limited
partnership.
"PARTNERSHIP INTEREST" means an ownership interest in the Partnership held
by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations Section
1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of
Partnership Minimum Gain is determined by first computing, for each Partnership
nonrecourse liability, any gain the Partnership would realize if it disposed of
the property subject to that liability for no consideration other than full
satisfaction of the liability, and then aggregating the separately computed
gains. A Partner's share of Partnership Minimum Gain shall be determined in
accordance with Regulations Section 1.704-2(g)(1).
"PARTNERSHIP RECORD DATE" means the record date established by the General
Partner for the distribution of cash pursuant to Section 5.02 hereof, which
record date shall be the same as the record date established by the General
Partner for a distribution to its shareholders of some or all of its portion of
such distribution.
"PARTNERSHIP UNIT" means a fractional, undivided share of the Partnership
Interests of all Partners issued hereunder. The allocation of Partnership Units
among the Partners shall be as set forth on Exhibit A, as may be amended from
---------
time to time.
"PERCENTAGE INTEREST" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by a Partner by the total number of Partnership Units then outstanding.
The Percentage Interest of each Partner shall be as set forth on Exhibit A, as
---------
may be amended from time to time.
"PERSON" means any individual, partnership, corporation, joint venture,
trust or other entity.
"PROFIT" has the meaning provided in Section 5.01(f) hereof.
"PROPERTY" means any office or industrial property or other investment in
which the Partnership holds an ownership interest.
5
<PAGE>
"PROSPECTUS" means the final prospectus delivered to purchasers of REIT
Shares in the Offering.
"REGULATIONS" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through 860
of the Code.
"REIT EXPENSES" means (i) costs and expenses relating to the formation and
continuity of existence and operation of the General Partner and any
Subsidiaries thereof (which Subsidiaries shall, for purposes hereof, be included
within the definition of General Partner), including taxes, fees and assessments
associated therewith, any and all costs, expenses or fees payable to any
director, officer, or employee of the General Partner, (ii) costs and expenses
relating to any public offering and registration of securities by the General
Partner and all statements, reports, fees and expenses incidental thereto,
including, without limitation, underwriting discounts and selling commissions
applicable to any such offering of securities, and any costs and expenses
associated with any claims made by any holders of such securities or any
underwriters or placement agents thereof, (iii) costs and expenses associated
with any repurchase of any securities by the General Partner, (iv) costs and
expenses associated with the preparation and filing of any periodic or other
reports and communications by the General Partner under federal, state or local
laws or regulations, including filings with the Commission, (v) costs and
expenses associated with compliance by the General Partner with laws, rules and
regulations promulgated by any regulatory body, including the Commission and any
securities exchange, (vi) costs and expenses associated with any 401(k) plan,
incentive plan, bonus plan or other plan providing for compensation for the
employees of the General Partner, (vii) costs and expenses incurred by the
General Partner relating to any issuing or redemption of Partnership Interests,
and (viii) all other operating or administrative costs of the General Partner
incurred in the ordinary course of its business on behalf of or in connection
with the Partnership.
"REIT SHARE" means a common share of beneficial interest in the General
Partner (or successor Entity, as the case may be).
"REIT SHARES AMOUNT" means a number of REIT Shares equal to the product of
the number of Partnership Units offered for exchange by an Exchanging Partner,
multiplied by the Conversion Factor as adjusted to and including the Specified
Exchange Date; provided that in the event the General Partner issues to all
-------------
holders of REIT Shares rights, options, warrants or convertible or exchangeable
securities entitling the shareholders to subscribe for or purchase REIT Shares,
or any other securities or property (collectively, the "rights"), and the rights
have not expired at the Specified Exchange Date, then the REIT Shares Amount
shall also include the rights issuable to a holder of the REIT Shares Amount of
REIT Shares on the record date fixed for purposes of determining the holders of
REIT Shares entitled to rights.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
6
<PAGE>
"SERVICE" means the Internal Revenue Service.
"SPECIFIED EXCHANGE DATE" means the first business day of the month that is
at least 60 business days after the receipt by the General Partner of the Notice
of Exchange.
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"SUBSIDIARY PARTNERSHIP" means any partnership of which the partnership
interests therein are owned by the General Partner or a wholly-owned subsidiary
of the General Partner.
"SUBSTITUTE LIMITED PARTNER" means any Person admitted to the Partnership
as a Limited Partner pursuant to Section 9.03 hereof.
"SUCCESSOR ENTITY" has the meaning provided in the definition of
"Conversion Factor" contained herein.
"SURVIVING GENERAL PARTNER" has the meaning set forth in Section 7.01(d)
hereof.
"TRANSACTION" has the meaning set forth in Section 7.01(c) hereof.
"TRANSFER" has the meaning set forth in Section 9.02(a) hereof.
"TRANSFER RESTRICTION DATE" means January31, 2000.
"VALUE" means, with respect to any security, the average of the daily
market price of such security for the ten consecutive trading days immediately
preceding the date of such valuation. The market price for each such trading
day shall be: (i) if security is listed or admitted to trading on any securities
exchange or the NYSE, the sale price, regular way, on such day, or if no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, on such day, (ii) if security is not listed or admitted to trading
on any securities exchange or the NYSE, the last reported sale price on such day
or, if no sale takes place on such day, the average of the closing bid and asked
prices on such day, as reported by a reliable quotation source designated by the
General Partner, or (iii) if security is not listed or admitted to trading on
any securities exchange or the NYSE and no such last reported sale price or
closing bid and asked prices are available, the average of the reported high bid
and low asked prices on such day, as reported by a reliable quotation source
designated by the General Partner, or if there shall be no bid and asked prices
on such day, the average of the high bid and low asked prices, as so reported,
on the most recent day (not more than ten days prior to the date in question)
for which prices have been so reported; provided that if there are no bid and
-------------
asked prices reported during the ten days prior to the date in question, the
value of the security shall be determined by the General Partner acting in good
faith on the basis of such quotations and other information as it considers, in
its reasonable judgment, appropriate. In the event the security includes any
additional rights, then the value of such rights shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
7
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ARTICLE II
PARTNERSHIP FORMATION AND IDENTIFICATION
----------------------------------------
2.01 FORMATION. The Partners hereby agree to form the Partnership pursuant
---------
to the Act and upon the terms and conditions set forth in this Agreement.
2.02 NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership is
---------------------------------
Wells Operating Partnership, L.P. The specified office and place of business of
the Partnership shall be 3885 Holcomb Bridge Road, Norcross, Georgia 30092. The
General Partner may at any time change the location of such office, provided the
General Partner gives notice to the Partners of any such change. The name and
address of the Partnership's registered agent is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. The sole duty of the registered agent as such is to forward to
the Partnership any notice that is served on him as registered agent.
2.03 PARTNERS.
--------
(a) The General Partner of the Partnership is Wells Real Estate
Investment Trust, Inc., a Maryland corporation. Its principal place of business
is the same as that of the Partnership.
(b) The Limited Partners are those Persons identified as Limited
Partners on Exhibit A hereto, as amended from time to time.
---------
2.04 TERM AND DISSOLUTION.
--------------------
(a) The term of the Partnership shall continue in full force and
effect until December 31, 2050, except that the Partnership shall be dissolved
upon the first to occur of any of the following events:
(i) The occurrence of an Event of Bankruptcy as to a General
Partner or the dissolution, death, removal or withdrawal of a General
Partner unless the business of the Partnership is continued pursuant
to Section 7.03(b) hereof; provided that if a General Partner is on
-------- ----
the date of such occurrence a partnership, the dissolution of such
General Partner as a result of the dissolution, death, withdrawal,
removal or Event of Bankruptcy of a partner in such partnership shall
not be an event of dissolution of the Partnership if the business of
such General Partner is continued by the remaining partner or
partners, either alone or with additional partners, and such General
Partner and such partners comply with any other applicable
requirements of this Agreement;
(ii) The passage of 90 days after the sale or other disposition
of all or substantially all of the assets of the Partnership (provided
--------
that if the Partnership receives an installment obligation as
----
consideration for such sale or other disposition, the Partnership
shall continue, unless sooner dissolved under the provisions of this
Agreement, until such time as such note or notes are paid in full);
8
<PAGE>
(iii) The exchange of all Limited Partnership Interests (other
than any of such interests held by the General Partner or Affiliates
of the General Partner); or
(iv) The election by the General Partner that the Partnership
should be dissolved.
(b) Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to Section 7.03(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership's assets and apply
and distribute the proceeds thereof in accordance with Section 5.06 hereof.
Notwithstanding the foregoing, the liquidating General Partner may either (i)
defer liquidation of, or withhold from distribution for a reasonable time, any
assets of the Partnership (including those necessary to satisfy the
Partnership's debts and obligations), or (ii) distribute the assets to the
Partners in kind.
2.05 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP. The
-----------------------------------------------------------
General Partner shall execute, acknowledge, record and file at the expense of
the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
2.06 CERTIFICATES DESCRIBING PARTNERSHIP UNITS. At the request of a
-----------------------------------------
Limited Partner, the General Partner, at its option, may issue a certificate
summarizing the terms of such Limited Partner's interest in the Partnership,
including the number of Partnership Units owned and the Percentage Interest
represented by such Partnership Units as of the date of such certificate. Any
such certificate (i) shall be in form and substance as approved by the General
Partner, (ii) shall not be negotiable and (iii) shall bear a legend to the
following effect:
This certificate is not negotiable. The Partnership Units represented
by this certificate are governed by and transferable only in accordance
with the provisions of the Agreement of Limited Partnership of Wells
Operating Partnership, L.P., as amended from time to time.
ARTICLE III
BUSINESS OF THE PARTNERSHIP
---------------------------
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act, provided, however, that such business
shall be limited to and conducted in such a manner as to permit the General
Partner at all times to qualify as a REIT, unless the General Partner otherwise
ceases to qualify as a REIT, (ii) to enter into any partnership, joint venture
or other similar arrangement to engage in any of the foregoing or the ownership
of interests in any entity engaged in any of the foregoing and (iii) to do
anything necessary or incidental to the
9
<PAGE>
foregoing. In connection with the foregoing, and without limiting the General
Partner's right in its sole and absolute discretion to cease qualifying as a
REIT, the Partners acknowledge that the General Partner's current status as a
REIT and the avoidance of income and excise taxes on the General Partner inures
to the benefit of all the Partners and not solely to the General Partner.
Notwithstanding the foregoing, the Limited Partners agree that the General
Partner may terminate its status as a REIT under the Code at any time to the
full extent permitted under the Articles of Incorporation. The General Partner
shall also be empowered to do any and all acts and things necessary or prudent
to ensure that the Partnership will not be classified as a "publicly traded
partnership" for purposes of Section 7704 of the Code.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
----------------------------------
4.01 CAPITAL CONTRIBUTIONS. The General Partner and the Limited Partner
---------------------
have made capital contributions to the Partnership in exchange for the
Partnership Interests set forth opposite their names on Exhibit A, as amended
---------
from time to time.
4.02 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL
------------------------------------------------------------
PARTNERSHIP INTERESTS. Except as provided in this Section 4.02 or in Section
- ---------------------
4.03, the Partners shall have no right or obligation to make any additional
Capital Contributions or loans to the Partnership. The General Partner may
contribute additional capital to the Partnership, from time to time, and receive
additional Partnership Interests in respect thereof, in the manner contemplated
in this Section 4.02.
(a) Issuances of Additional Partnership Interests.
(i) General. The General Partner is hereby authorized to cause
-------
the Partnership to issue such additional Partnership Interests in the form of
Partnership Units for any Partnership purpose at any time or from time to time,
to the Partners (including the General Partner and the General Partner) or to
other Persons for such consideration and on such terms and conditions as shall
be established by the General Partner in its sole and absolute discretion, all
without the approval of any Limited Partners. Any additional Partnership
Interests issued thereby may be issued in one or more classes, or one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined by the General Partner in its sole and absolute discretion and
without the approval of any Limited Partner, subject to Delaware law, including,
without limitation, (i) the allocations of items of Partnership income, gain,
loss, deduction and credit to each such class or series of Partnership
Interests; (ii) the right of each such class or series of Partnership Interests
to share in Partnership distributions; and (iii) the rights of each such class
or series of Partnership Interests upon dissolution and liquidation of the
Partnership; provided, however, that no additional Partnership Interests shall
-------- -------
be issued to the General Partner or the General Partner unless:
(1) (A) the additional Partnership Interests are issued in
connection with an issuance of REIT Shares of or other interests in
the General Partner, which
10
<PAGE>
shares or interests have designations, preferences and other rights,
all such that the economic interests are substantially similar to the
designations, preferences and other rights of the additional
Partnership Interests issued to the General Partner or the General
Partner by the Partnership in accordance with this Section 4.02 and
(B) the General Partner or the General Partner shall make a Capital
Contribution to the Partnership in an amount equal to the proceeds
raised in connection with the issuance of such shares of stock of or
other interests in the General Partner;
(2) the additional Partnership Interests are issued in exchange
for property owned by the General Partner or the General Partner with
a fair market value, as determined by the General Partner, in good
faith, equal to the value of the Partnership Interests; or
(3) the additional Partnership Interests are issued to all
Partners in proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue Partnership Units for less than fair market
value, so long as the General Partner concludes in good faith that such issuance
is in the best interests of the General Partner and the Partnership.
(ii) Upon Issuance of Additional Securities. The General Partner
--------------------------------------
shall not issue any additional REIT Shares (other than REIT Shares issued in
connection with an exchange pursuant to Section 8.05 hereof) or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase REIT Shares (collectively, "Additional Securities")
other than to all holders of REIT Shares, unless (A) the General Partner shall
cause the Partnership to issue to the General Partner, as the General Partner
may designate, Partnership Interests or rights, options, warrants or convertible
or exchangeable securities of the Partnership having designations, preferences
and other rights, all such that the economic interests are substantially similar
to those of the Additional Securities, and (B) the General Partner contributes
the proceeds from the issuance of such Additional Securities and from any
exercise of rights contained in such Additional Securities, directly and through
the General Partner, to the Partnership; provided, however, that the General
-------- -------
Partner is allowed to issue Additional Securities in connection with an
acquisition of a property to be held directly by the General Partner, but if and
only if, such direct acquisition and issuance of Additional Securities have been
approved and determined to be in the best interests of the General Partner and
the Partnership by a majority of the Independent Directors (as defined in the
General Partner's Amended and Restated Articles of Incorporation). Without
limiting the foregoing, the General Partner is expressly authorized to issue
Additional Securities for less than fair market value, and to cause the
Partnership to issue to the General Partner corresponding Partnership Interests,
so long as (x) the General Partner concludes in good faith that such issuance is
in the best interests of the General Partner and the Partnership, including
without limitation, the issuance of REIT Shares and corresponding Partnership
Units pursuant to an employee share purchase plan providing for employee
purchases of REIT Shares at a discount from fair market value or employee stock
options that have an exercise price that is less than the fair market value of
the REIT Shares, either at the time of issuance or at the time of exercise, and
(y) the General Partner contributes all
11
<PAGE>
proceeds from such issuance to the Partnership. For example, in the event the
General Partner issues REIT Shares for a cash purchase price and contributes all
of the proceeds of such issuance to the Partnership as required hereunder, the
General Partner shall be issued a number of additional Partnership Units equal
to the product of (A) the number of such REIT Shares issued by the General
Partner, the proceeds of which were so contributed, multiplied by (B) a
fraction, the numerator of which is 100%, and the denominator of which is the
Conversion Factor in effect on the date of such contribution.
(b) Certain Deemed Contributions of Proceeds of Issuance of REIT
------------------------------------------------------------
Shares. In connection with any and all issuances of REIT Shares, the General
- ------
Partner shall make Capital Contributions to the Partnership of the proceeds
therefrom, provided that if the proceeds actually received and contributed by
-------- ----
the General Partner are less than the gross proceeds of such issuance as a
result of any underwriter's discount or other expenses paid or incurred in
connection with such issuance, then the General Partner shall be deemed to have
made Capital Contributions to the Partnership in the aggregate amount of the
gross proceeds of such issuance and the Partnership shall be deemed
simultaneously to have paid such offering expenses in accordance with Section
6.05 hereof and in connection with the required issuance of additional
Partnership Units to the General Partner for such Capital Contributions pursuant
to Section 4.02(a) hereof.
(c) Minimum Limited Partnership Interest. In the event that either an
------------------------------------
exchange pursuant to Section 8.05 hereof or additional Capital Contributions by
the General Partner would result in the Limited Partners, in the aggregate,
owning less than the Minimum Limited Partnership Interest, the General Partner
and the Limited Partners shall form another partnership and contribute
sufficient Limited Partnership Interests together with such other Limited
Partners so that the limited partners of such partnership own at least the
Minimum Limited Partnership Interest.
4.03 ADDITIONAL FUNDING. If the General Partner determines that it is in
------------------
the best interests of the Partnership to provide for additional Partnership
funds ("Additional Funds") for any Partnership purpose, the General Partner may
(i) cause the Partnership to obtain such funds from outside borrowings, or (ii)
elect to have the General Partner, the General Partner or any of their
Affiliates provide such Additional Funds to the Partnership through loans or
otherwise.
4.04 CAPITAL ACCOUNTS. A separate capital account (a "Capital Account")
----------------
shall be established and maintained for each Partner in accordance with
Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner
acquires an additional Partnership Interest in exchange for more than a de
--
minimis Capital Contribution, (ii) the Partnership distributes to a Partner more
- -------
than a de minimis amount of Partnership property as consideration for a
-- -------
Partnership Interest, or (iii) the Partnership is liquidated within the meaning
of Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue
the property of the Partnership to its fair market value (as determined by the
General Partner, in its sole and absolute discretion, and taking into account
Section 7701(g) of the Code) in accordance with Regulations Section 1.704-
1(b)(2)(iv)(f). When the Partnership's property is revalued by the General
Partner, the Capital Accounts of the Partners shall be adjusted in accordance
with Regulations Sections 1.704-1(b)(2)(iv)(f) and (g), which generally require
such Capital Accounts to be adjusted to reflect the manner in which the
unrealized gain or loss inherent in such property (that has not been reflected
in the Capital
12
<PAGE>
Accounts previously) would be allocated among the Partners pursuant to Section
5.01 if there were a taxable disposition of such property for its fair market
value (as determined by the General Partner, in its sole and absolute
discretion, and taking into account Section 7701(g) of the Code) on the date of
the revaluation.
4.05 PERCENTAGE INTERESTS. If the number of outstanding Partnership Units
--------------------
increases or decreases during a taxable year, each Partner's Percentage Interest
shall be adjusted by the General Partner effective as of the effective date of
each such increase or decrease to a percentage equal to the number of
Partnership Units held by such Partner divided by the aggregate number of
Partnership Units outstanding after giving effect to such increase or decrease.
If the Partners' Percentage Interests are adjusted pursuant to this Section
4.05, the Profits and Losses for the taxable year in which the adjustment occurs
shall be allocated between the part of the year ending on the day when the
Partnership's property is revalued by the General Partner and the part of the
year beginning on the following day either (i) as if the taxable year had ended
on the date of the adjustment or (ii) based on the number of days in each part.
The General Partner, in its sole and absolute discretion, shall determine which
method shall be used to allocate Profits and Losses for the taxable year in
which the adjustment occurs. The allocation of Profits and Losses for the
earlier part of the year shall be based on the Percentage Interests before
adjustment, and the allocation of Profits and Losses for the later part shall be
based on the adjusted Percentage Interests.
4.06 NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to
----------------------------
interest on its Capital Contribution.
4.07 RETURN OF CAPITAL CONTRIBUTIONS. No Partner shall be entitled to
-------------------------------
withdraw any part of its Capital Contribution or its Capital Account or to
receive any distribution from the Partnership, except as specifically provided
in this Agreement. Except as otherwise provided herein, there shall be no
obligation to return to any Partner or withdrawn Partner any part of such
Partner's Capital Contribution for so long as the Partnership continues in
existence.
4.08 NO THIRD PARTY BENEFICIARY. No creditor or other third party having
--------------------------
dealings with the Partnership shall have the right to enforce the right or
obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of, and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners
herein set forth to make Capital Contributions or loans to the Partnership shall
be deemed an asset of the Partnership for any purpose by any creditor or other
third party, nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners. In
addition, it is the intent of the parties hereto that no distribution to any
Limited Partner shall be deemed a return of money or other property in violation
of the Act. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Limited Partner is
obligated to return such money or property, such obligation shall be the
obligation of such Limited Partner and not of the General Partner. Without
limiting the generality of the foregoing, a deficit Capital
13
<PAGE>
Account of a Partner shall not be deemed to be a liability of such Partner nor
an asset or property of the Partnership.
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS
---------------------------------
5.01 ALLOCATION OF PROFIT AND LOSS.
-----------------------------
(a) General. Profit and Loss of the Partnership for each fiscal year
-------
of the Partnership shall be allocated among the Partners in accordance with
their respective Percentage Interests.
(b) Minimum Gain Chargeback. Notwithstanding any provision to the
-----------------------
contrary, (i) any expense of the Partnership that is a "nonrecourse deduction"
within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated in
accordance with the Partners' respective Percentage Interests, (ii) any expense
of the Partnership that is a "partner nonrecourse deduction" within the meaning
of Regulations Section 1.704-2(i)(2) shall be allocated to the Partner that
bears the "economic risk of loss" of such deduction in accordance with
Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in
Partnership Minimum Gain within the meaning of Regulations Section 1.704-2(f)(1)
for any Partnership taxable year, then, subject to the exceptions set forth in
Regulations Section 1.704-2(f)(2),(3), (4) and (5), items of gain and income
shall be allocated among the Partners in accordance with Regulations Section
1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j),
and (iv) if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
within the meaning of Regulations Section 1.704-2(i)(4) for any Partnership
taxable year, then, subject to the exceptions set forth in Regulations Section
1.704(2)(g), items of gain and income shall be allocated among the Partners in
accordance with Regulations Section 1.704-2(i)(4) and the ordering rules
contained in Regulations Section 1.704-2(j). A Partner's "interest in
partnership profits" for purposes of determining its share of the nonrecourse
liabilities of the Partnership within the meaning of Regulations Section 1.752-
3(a)(3) shall be such Partner's Percentage Interest.
(c) Qualified Income Offset. If a Partner receives in any taxable
-----------------------
year an adjustment, allocation, or distribution described in subparagraphs (4),
(5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that causes or increases
a deficit balance in such Partner's Capital Account that exceeds the sum of such
Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain, as determined in accordance with Regulations Sections 1.704-2(g)
and 1.704-2(i), such Partner shall be allocated specially for such taxable year
(and, if necessary, later taxable years) items of income and gain in an amount
and manner sufficient to eliminate such deficit Capital Account balance as
quickly as possible as provided in Regulations Section 1.704-1(b)(2)(ii)(d).
After the occurrence of an allocation of income or gain to a Partner in
accordance with this Section 5.01(c), to the extent permitted by Regulations
Section 1.704-1(b), items of expense or loss shall be allocated to such Partner
in an amount necessary to offset the income or gain previously allocated to such
Partner under this Section 5.01(c).
14
<PAGE>
(d) Capital Account Deficits. Loss shall not be allocated to a
------------------------
Limited Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of
such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain. Any Loss in excess of that limitation shall be allocated to the
General Partner. After the occurrence of an allocation of Loss to the General
Partner in accordance with this Section 5.01(d), to the extent permitted by
Regulations Section 1.704-1(b), Profit shall be allocated to such Partner in an
amount necessary to offset the Loss previously allocated to each Partner under
this Section 5.01(d).
(e) Allocations Between Transferor and Transferee. If a Partner
---------------------------------------------
transfers any part or all of its Partnership Interest, the distributive shares
of the various items of Profit and Loss allocable among the Partners during such
fiscal year of the Partnership shall be allocated between the transferor and the
transferee Partner either (i) as if the Partnership's fiscal year had ended on
the date of the transfer, or (ii) based on the number of days of such fiscal
year that each was a Partner without regard to the results of Partnership
activities in the respective portions of such fiscal year in which the
transferor and the transferee were Partners. The General Partner, in its sole
and absolute discretion, shall determine which method shall be used to allocate
the distributive shares of the various items of Profit and Loss between the
transferor and the transferee Partner.
(f) Definition of Profit and Loss. "Profit" and "Loss" and any items
-----------------------------
of income, gain, expense, or loss referred to in this Agreement shall be
determined in accordance with federal income tax accounting principles, as
modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and Loss
shall not include items of income, gain and expense that are specially allocated
pursuant to Sections 5.01(b), 5.01(c), or 5.01(d). All allocations of income,
Profit, gain, Loss, and expense (and all items contained therein) for federal
income tax purposes shall be identical to all allocations of such items set
forth in this Section 5.01, except as otherwise required by Section 704(c) of
the Code and Regulations Section 1.704-1(b)(4). The General Partner shall have
the authority to elect the method to be used by the Partnership for allocating
items of income, gain, and expense as required by Section 704(c) of the Code
including a method that may result in a Partner receiving a disproportionately
larger share of the Partnership tax depreciation deductions, and such election
shall be binding on all Partners.
5.02 DISTRIBUTION OF CASH.
--------------------
(a) The Partnership shall distribute cash on a quarterly (or, at the
election of the General Partner, more frequent) basis, in an amount determined
by the General Partner in its sole and absolute discretion, to the Partners who
are Partners on the Partnership Record Date with respect to such quarter (or
other distribution period) in accordance with their respective Percentage
Interests on the Partnership Record Date; provided, however, that if a new or
-------- -------
existing Partner acquires an additional Partnership Interest in exchange for a
Capital Contribution on any date other than a Partnership Record Date, the cash
distribution attributable to such additional Partnership Interest relating to
the Partnership Record Date next following the issuance of such additional
Partnership Interest shall be reduced in the proportion to (i) the number of
days that
15
<PAGE>
such additional Partnership Interest is held by such Partner bears to (ii) the
number of days between such Partnership Record Date and the immediately
preceding Partnership Record Date.
(b) Notwithstanding any other provision of this Agreement, the General
Partner is authorized to take any action that it determines to be necessary or
appropriate to cause the Partnership to comply with any withholding requirements
established under the Code or any other federal, state or local law including,
without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the Code.
To the extent that the Partnership is required to withhold and pay over to any
taxing authority any amount resulting from the allocation or distribution of
income to the Partner or assignee (including by reason of Section 1446 of the
Code), either (i) if the actual amount to be distributed to the Partner equals
or exceeds the amount required to be withheld by the Partnership, the amount
withheld shall be treated as a distribution of cash in the amount of such
withholding to such Partner, or (ii) if the actual amount to be distributed to
the Partner is less than the amount required to be withheld by the Partnership,
the amount required to be withheld shall be treated as a loan (a "Partnership
Loan") from the Partnership to the Partner on the day the Partnership pays over
such amount to a taxing authority. A Partnership Loan shall be repaid through
withholding by the Partnership with respect to subsequent distributions to the
applicable Partner or assignee. In the event that a Limited Partner (a
"Defaulting Limited Partner") fails to pay any amount owed to the Partnership
with respect to the Partnership Loan within 15 days after demand for payment
thereof is made by the Partnership on the Limited Partner, the General Partner,
in its sole and absolute discretion, may elect to make the payment to the
Partnership on behalf of such Defaulting Limited Partner. In such event, on the
date of payment, the General Partner shall be deemed to have extended a loan (a
"General Partner Loan") to the Defaulting Limited Partner in the amount of the
payment made by the General Partner and shall succeed to all rights and remedies
of the Partnership against the Defaulting Limited Partner as to that amount.
Without limitation, the General Partner shall have the right to receive any
distributions that otherwise would be made by the Partnership to the Defaulting
Limited Partner until such time as the General Partner Loan has been paid in
full, and any such distributions so received by the General Partner shall be
treated as having been received by the Defaulting Limited Partner and
immediately paid to the General Partner.
Any amounts treated as a Partnership Loan or a General Partner Loan
pursuant to this Section 5.02(b) shall bear interest at the lesser of (i) the
base rate on corporate loans at large United States money center commercial
banks, as published from time to time in The Wall Street Journal, or (ii) the
-----------------------
maximum lawful rate of interest on such obligation, such interest to accrue from
the date the Partnership or the General Partner, as applicable, is deemed to
extend the loan until such loan is repaid in full.
(c) In no event may a Partner receive a distribution of cash with
respect to a Partnership Unit if such Partner is entitled to receive a cash
dividend as the holder of record of a REIT Share for which all or part of such
Partnership Unit has been or will be exchanged.
5.03 REIT DISTRIBUTION REQUIREMENTS. The General Partner shall use its
------------------------------
reasonable efforts to cause the Partnership to distribute amounts sufficient to
enable the General Partner to pay shareholder dividends that will allow the
General Partner to (i) meet its distribution
16
<PAGE>
requirement for qualification as a REIT as set forth in Section 857 of the Code
and (ii) avoid any federal income or excise tax liability imposed by the Code.
5.04 NO RIGHT TO DISTRIBUTIONS IN KIND. No Partner shall be entitled to
---------------------------------
demand property other than cash in connection with any distributions by the
Partnership.
5.05 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding any of
----------------------------------------------
the provisions of this Article V, no Partner shall have the right to receive and
the General Partner shall not have the right to make, a distribution that
includes a return of all or part of a Partner's Capital Contributions, unless
after giving effect to the return of a Capital Contribution, the sum of all
Partnership liabilities, other than the liabilities to a Partner for the return
of his Capital Contribution, does not exceed the fair market value of the
Partnership's assets.
5.06 DISTRIBUTIONS UPON LIQUIDATION. Upon liquidation of the Partnership,
------------------------------
after payment of, or adequate provision for, debts and obligations of the
Partnership, including any Partner loans, any remaining assets of the
Partnership shall be distributed to all Partners with positive Capital Accounts
in accordance with their respective positive Capital Account balances. For
purposes of the preceding sentence, the Capital Account of each Partner shall be
determined after all adjustments made in accordance with Sections 5.01 and 5.02
resulting from Partnership operations and from all sales and dispositions of all
or any part of the Partnership's assets. To the extent deemed advisable by the
General Partner, appropriate arrangements (including the use of a liquidating
trust) may be made to assure that adequate funds are available to pay any
contingent debts or obligations.
5.07 SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners that the
---------------------------
allocations of Profit and Loss under the Agreement have substantial economic
effect (or be consistent with the Partners' interests in the Partnership in the
case of the allocation of losses attributable to nonrecourse debt) within the
meaning of Section 704(b) of the Code as interpreted by the Regulations
promulgated pursuant thereto. Article V and other relevant provisions of this
Agreement shall be interpreted in a manner consistent with such intent.
ARTICLE VI
RIGHTS, OBLIGATIONS AND
POWERS OF THE GENERAL PARTNER
-----------------------------
6.01 MANAGEMENT OF THE PARTNERSHIP.
-----------------------------
(a) Except as otherwise expressly provided in this Agreement, the
General Partner shall have full, complete and exclusive discretion to manage and
control the business of the Partnership for the purposes herein stated, and
shall make all decisions affecting the business and assets of the Partnership.
Subject to the restrictions specifically contained in this Agreement, the powers
of the General Partner shall include, without limitation, the authority to take
the following actions on behalf of the Partnership:
(i) to acquire, purchase, own, operate, lease and dispose of any
real property and any other property or assets including, but not
limited to notes and
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mortgages, that the General Partner determines are necessary or
appropriate or in the best interests of the business of the
Partnership;
(ii) to construct buildings and make other improvements on the
properties owned or leased by the Partnership;
(iii) to authorize, issue, sell, redeem or otherwise purchase
any Partnership Interests or any securities (including secured and
unsecured debt obligations of the Partnership, debt obligations of the
Partnership convertible into any class or series of Partnership
Interests, or options, rights, warrants or appreciation rights
relating to any Partnership Interests) of the Partnership;
(iv) to borrow or lend money for the Partnership, issue or
receive evidences of indebtedness in connection therewith, refinance,
increase the amount of, modify, amend or change the terms of, or
extend the time for the payment of, any such indebtedness, and secure
such indebtedness by mortgage, deed of trust, pledge or other lien on
the Partnership's assets;
(v) to pay, either directly or by reimbursement, for all
operating costs and general administrative expenses of the Partnership
to third parties or to the General Partner or its Affiliates as set
forth in this Agreement,
(vi) to guarantee or become a comaker of indebtedness of the
General Partner or any Subsidiary thereof, refinance, increase the
amount of, modify, amend or change the terms of, or extend the time
for the payment of, any such guarantee or indebtedness, and secure
such guarantee or indebtedness by mortgage, deed of trust, pledge or
other lien on the Partnership's assets;
(vii) to use assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with this
Agreement, including, without limitation, payment, either directly or
by reimbursement, of all operating costs and general administrative
expenses of the General Partner, the Partnership or any Subsidiary of
either, to third parties or to the General Partner as set forth in
this Agreement;
(viii) to lease all or any portion of any of the Partnership's
assets, whether or not the terms of such leases extend beyond the
termination date of the Partnership and whether or not any portion of
the Partnership's assets so leased are to be occupied by the lessee,
or, in turn, subleased in whole or in part to others, for such
consideration and on such terms as the General Partner may determine;
(ix) to prosecute, defend, arbitrate, or compromise any and all
claims or liabilities in favor of or against the Partnership, on such
terms and in such manner as the General Partner may reasonably
determine, and similarly to prosecute, settle or defend litigation
with respect to the Partners, the Partnership, or the Partnership's
assets; provided, however, that the General Partner may not, without
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the consent of all of the Partners, confess a judgment against the
Partnership that is in excess of $20,000 or is not covered by
insurance;
(x) to file applications, communicate, and otherwise deal with
any and all governmental agencies having jurisdiction over, or in any
way affecting, the Partnership's assets or any other aspect of the
Partnership business;
(xi) to make or revoke any election permitted or required of the
Partnership by any taxing authority;
(xii) to maintain such insurance coverage for public liability,
fire and casualty, and any and all other insurance for the protection
of the Partnership, for the conservation of Partnership assets, or for
any other purpose convenient or beneficial to the Partnership, in such
amounts and such types, as it shall determine from time to time;
(xiii) to determine whether or not to apply any insurance
proceeds for any property to the restoration of such property or to
distribute the same;
(xiv) to establish one or more divisions of the Partnership, to
hire and dismiss employees of the Partnership or any division of the
Partnership, and to retain legal counsel, accountants, consultants,
real estate brokers, and such other persons, as the General Partner
may deem necessary or appropriate in connection with the Partnership
business and to pay therefor such reasonable remuneration as the
General Partner may deem reasonable and proper;
(xv) to retain other services of any kind or nature in connection
with the Partnership business, and to pay therefor such remuneration
as the General Partner may deem reasonable and proper;
(xvi) to negotiate and conclude agreements on behalf of the
Partnership with respect to any of the rights, powers and authority
conferred upon the General Partner;
(xvii) to maintain accurate accounting records and to file
promptly all federal, state and local income tax returns on behalf of
the Partnership;
(xviii) to distribute Partnership cash or other Partnership
assets in accordance with this Agreement;
(xix) to form or acquire an interest in, and contribute property
to, any further limited or general partnerships, joint ventures or
other relationships that it deems desirable (including, without
limitation, the acquisition of interests in, and the contributions of
property to, its Subsidiaries and any other Person in which it has an
equity interest from time to time);
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(xx) to establish Partnership reserves for working capital,
capital expenditures, contingent liabilities, or any other valid
Partnership purpose; and
(xxi) to merge, consolidate or combine the Partnership with or
into another person;
(xxii) to do any and all acts and things necessary or prudent to
ensure that the Partnership will not be classified as a "publicly
traded partnership" for purposes of Section 7704 of the Code; and
(xxiii) to take such other action, execute, acknowledge, swear
to or deliver such other documents and instruments, and perform any
and all other acts that the General Partner deems necessary or
appropriate for the formation, continuation and conduct of the
business and affairs of the Partnership (including, without
limitation, all actions consistent with allowing the General Partner
at all times to qualify as a REIT unless the General Partner
voluntarily terminates its REIT status) and to possess and enjoy all
of the rights and powers of a general partner as provided by the Act.
(b) Except as otherwise provided herein, to the extent the duties of
the General Partner require expenditures of funds to be paid to third parties,
the General Partner shall not have any obligations hereunder except to the
extent that partnership funds are reasonably available to it for the performance
of such duties, and nothing herein contained shall be deemed to authorize or
require the General Partner, in its capacity as such, to expend its individual
funds for payment to third parties or to undertake any individual liability or
obligation on behalf of the Partnership.
6.02 DELEGATION OF AUTHORITY. The General Partner may delegate any or all
-----------------------
of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.
6.03 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.
----------------------------------------------
(a) The Partnership shall indemnify an Indemnitee from and against any
and all losses, claims, damages, liabilities, joint or several, expenses
(including reasonable legal fees and expenses), judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
20
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does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 6.03(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 6.03(a). Any indemnification pursuant to this Section 6.03 shall
be made only out of the assets of the Partnership.
(b) The Partnership shall reimburse an Indemnitee for reasonable
expenses incurred by an Indemnitee who is a party to a proceeding in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 6.03 has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
(c) The indemnification provided by this Section 6.03 shall be in
addition to any other rights to which an Indemnitee or any other Person may be
entitled under any agreement, pursuant to any vote of the Partners, as a matter
of law or otherwise, and shall continue as to an Indemnitee who has ceased to
serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf of
the Indemnitees and such other Persons as the General Partner shall determine,
against any liability that may be asserted against or expenses that may be
incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.03, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of this Section 6.03; and actions
taken or omitted by the Indemnitee with respect to an employee benefit plan in
the performance of its duties for a purpose reasonably believed by it to be in
the interest of the participants and beneficiaries of the plan shall be deemed
to be for a purpose which is not opposed to the best interests of the
Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.03 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
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(h) The provisions of this Section 6.03 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
6.04 LIABILITY OF THE GENERAL PARTNER.
--------------------------------
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership or any Partners for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith. The General Partner shall not be in breach of any duty
that the General Partner may owe to the Limited Partners or the Partnership or
any other Persons under this Agreement or of any duty stated or implied by law
or equity provided the General Partner, acting in good faith, abides by the
terms of this Agreement.
(b) The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership, itself and its shareholders
collectively, that the General Partner is under no obligation to consider the
separate interests of the Limited Partners (including, without limitation, the
tax consequences to Limited Partners or the tax consequences of same, but not
all, of the Limited Partners) in deciding whether to cause the Partnership to
take (or decline to take) any actions. In the event of a conflict between the
interests of its shareholders on one hand and the Limited Partners on the other,
the General Partner shall endeavor in good faith to resolve the conflict in a
manner not adverse to either its shareholders or the Limited Partners; provided,
however, that for so long as the General Partner directly owns a controlling
interest in the Partnership, any such conflict that the General Partner, in its
sole and absolute discretion, determines cannot be resolved in a manner not
adverse to either its shareholders or the Limited Partner shall be resolved in
favor of the shareholders. The General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred, or benefits not derived by
Limited Partners in connection with such decisions, provided that the General
Partner has acted in good faith.
(c) Subject to its obligations and duties as General Partner set forth
in Section 6.01 hereof, the General Partner may exercise any of the powers
granted to it under this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner
shall not be responsible for any misconduct or negligence on the part of any
such agent appointed by it in good faith.
(d) Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any decision
of the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order (i) to protect the ability of the General Partner to continue
to qualify as a REIT or (ii) to prevent the General Partner from incurring any
taxes under Section 857, Section 4981, or any other provision of the Code, is
expressly authorized under this Agreement and is deemed approved by all of the
Limited Partners.
(e) Any amendment, modification or repeal of this Section 6.04 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the
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General Partner's liability to the Partnership and the Limited Partners under
this Section 6.04 as in effect immediately prior to such amendment, modification
or repeal with respect to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when claims relating to such
matters may arise or be asserted.
6.05 REIMBURSEMENT OF GENERAL PARTNER.
--------------------------------
(a) Except as provided in this Section 6.05 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding distributions,
payments, and allocations to which it may be entitled), the General Partner
shall not be compensated for its services as general partner of the Partnership.
(b) The General Partner shall be reimbursed on a monthly basis, or
such other basis as the General Partner may determine in its sole and absolute
discretion, for all REIT Expenses and Administrative Expenses.
6.06 OUTSIDE ACTIVITIES. Subject to Section 6.08 hereof, the Articles of
------------------
Incorporation and any agreements entered into by the General Partner or its
Affiliates with the Partnership or a Subsidiary, any officer, director,
employee, agent, trustee, Affiliate or shareholder of the General Partner, the
General Partner shall be entitled to and may have business interests and engage
in business activities in addition to those relating to the Partnership,
including business interests and activities substantially similar or identical
to those of the Partnership. Neither the Partnership nor any of the Limited
Partners shall have any rights by virtue of this Agreement in any such business
ventures, interest or activities. None of the Limited Partners nor any other
Person shall have any rights by virtue of this Agreement or the partnership
relationship established hereby in any such business ventures, interests or
activities, and the General Partner shall have no obligation pursuant to this
Agreement to offer any interest in any such business ventures, interests and
activities to the Partnership or any Limited Partner, even if such opportunity
is of a character which, if presented to the Partnership or any Limited Partner,
could be taken by such Person.
6.07 EMPLOYMENT OR RETENTION OF AFFILIATES.
-------------------------------------
(a) Any Affiliate of the General Partner may be employed or retained
by the Partnership and may otherwise deal with the Partnership (whether as a
buyer, lessor, lessee, manager, furnisher of goods or services, broker, agent,
lender or otherwise) and may receive from the Partnership any compensation,
price, or other payment therefor which the General Partner determines to be fair
and reasonable.
(b) The Partnership may lend or contribute to its Subsidiaries or
other Persons in which it has an equity investment, and such Persons may borrow
funds from the Partnership, on terms and conditions established in the sole and
absolute discretion of the General Partner. The foregoing authority shall not
create any right or benefit in favor of any Subsidiary or any other Person.
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such
23
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terms and subject to such conditions as the General Partner deems are consistent
with this Agreement and applicable law.
(d) Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that are fair and
reasonable to the Partnership.
6.08 GENERAL PARTNER PARTICIPATION. The General Partner agrees that all
-----------------------------
business activities of the General Partner, including activities pertaining to
the acquisition, development or ownership of office or industrial property or
other property, shall be conducted through the Partnership or one or more
Subsidiary Partnerships; provided, however, that the General Partner is allowed
-------- -------
to make a direct acquisition, but if and only if, such acquisition is made in
connection with the issuance of Additional Securities, which direct acquisition
and issuance have been approved and determined to be in the best interests of
the General Partner and the Partnership by a majority of the Independent
Directors.
6.09 TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets, whether
---------------------------
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
-------- -------
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
6.10 MISCELLANEOUS. In the event the General Partner redeems any REIT
-------------
Shares, then the General Partner shall cause the Partnership to purchase from
the General Partner a number of Partnership Units as determined based on the
application of the Conversion Factor on the same terms that the General Partner
exchanged such REIT Shares. Moreover, if the General Partner makes a cash
tender offer or other offer to acquire REIT Shares, then the General Partner
shall cause the Partnership to make a corresponding offer to the General Partner
to acquire an equal number of Partnership Units held by the General Partner. In
the event any REIT Shares are exchanged by the General Partner pursuant to such
offer, the Partnership shall redeem an equivalent number of the General
Partner's Partnership Units for an equivalent purchase price based on the
application of the Conversion Factor.
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ARTICLE VII
CHANGES IN GENERAL PARTNER
--------------------------
7.01 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST.
------------------------------------------------------
(a) The General Partner shall not transfer all or any portion of its
General Partnership Interest or withdraw as General Partner except as provided
in or in connection with a transaction contemplated by Section 7.01(c), (d) or
(e).
(b) The General Partner agree that the Percentage Interest for it will
at all times be in the aggregate, at least 1%.
(c) Except as otherwise provided in Section 6.04(b) or Section 7.01(d)
or (e) hereof, the General Partner shall not engage in any merger, consolidation
or other combination with or into another Person or sale of all or substantially
all of its assets, (other than in connection with a change in the General
Partner's state of incorporation or organizational form) in each case which
results in a change of control of the General Partner (a "Transaction"), unless:
(i) the consent of Limited Partners holding more than 50% of the
Percentage Interests of the Limited Partners is obtained;
(ii) as a result of such Transaction all Limited Partners will
receive for each Partnership Unit an amount of cash, securities, or
other property equal to the product of the Conversion Factor and the
greatest amount of cash, securities or other property paid in the
Transaction to a holder of one REIT Share in consideration of one REIT
Share, provided that if, in connection with the Transaction, a
-------- ----
purchase, tender or exchange offer ("Offer") shall have been made to
and accepted by the holders of more than 50% of the outstanding REIT
Shares, each holder of Partnership Units shall be given the option to
exchange its Partnership Units for the greatest amount of cash,
securities, or other property which a Limited Partner would have
received had it (A) exercised its Exchange Right and (B) sold,
tendered or exchanged pursuant to the Offer the REIT Shares received
upon exercise of the Exchange Right immediately prior to the
expiration of the Offer; or
(iii) the General Partner is the surviving entity in the
Transaction and either (A) the holders of REIT Shares do not receive
cash, securities, or other property in the Transaction or (B) all
Limited Partners (other than the General Partner or any Subsidiary)
receive an amount of cash, securities, or other property (expressed as
an amount per REIT Share) that is no less than the product of the
Conversion Factor and the greatest amount of cash, securities, or
other property (expressed as an amount per REIT Share) received in the
Transaction by any holder of REIT Shares.
(d) Notwithstanding Section 7.01(c), the General Partner may merge
with or into or consolidate with another entity if immediately after such merger
or consolidation (i)
25
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substantially all of the assets of the successor or surviving entity (the
"Survivor"), other than Partnership Units held by the General Partner, are
contributed, directly or indirectly, to the Partnership as a Capital
Contribution in exchange for Partnership Units with a fair market value equal to
the value of the assets so contributed as determined by the Survivor in good
faith and (ii) the Survivor expressly agrees to assume all obligations of the
General Partner, as appropriate, hereunder. Upon such contribution and
assumption, the Survivor shall have the right and duty to amend this Agreement
as set forth in this Section 7.01(d). The Survivor shall in good faith arrive at
a new method for the calculation of the Cash Amount, the REIT Shares Amount and
Conversion Factor for a Partnership Unit after any such merger or consolidation
so as to approximate the existing method for such calculation as closely as
reasonably possible. Such calculation shall take into account, among other
things, the kind and amount of securities, cash and other property that was
receivable upon such merger or consolidation by a holder of REIT Shares or
options, warrants or other rights relating thereto, and to which a holder of
Partnership Units could have acquired had such Partnership Units been exchanged
immediately prior to such merger or consolidation. Such amendment to this
Agreement shall provide for adjustment to such method of calculation, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for with respect to the Conversion Factor. The Survivor also shall in good faith
modify the definition of REIT Shares and make such amendments to Section 8.05
hereof so as to approximate the existing rights and obligations set forth in
Section 8.05 as closely as reasonably possible. The above provisions of this
Section 7.01(d) shall similarly apply to successive mergers or consolidations
permitted hereunder.
In respect of any transaction described in the preceding Paragraph,
the General Partner is required to use its commercially reasonable efforts to
structure such transaction to avoid causing the Limited Partners to recognize a
gain for federal income tax purposes by virtue of the occurrence of or their
participation in such transaction, provided such efforts are consistent with the
exercise of the Board of Trustees' fiduciary duties to the shareholders of the
General Partner under applicable law.
(e) Notwithstanding Section 7.01(c),
(i) a General Partner may transfer all or any portion of its
General Partnership Interest to (A) a wholly-owned Subsidiary of such
General Partner or (B) the owner of all of the ownership interests of
such General Partner, and following a transfer of all of its General
Partnership Interest, may withdraw as General Partner; and
(ii) the General Partner may engage in a transaction not required
by law or by the rules of any national securities exchange on which
the REIT Shares are listed to be submitted to the vote of the holders
of the REIT Shares.
7.02 ADMISSION OF A SUBSTITUTE OR ADDITIONAL GENERAL PARTNER. A Person
-------------------------------------------------------
shall be admitted as a substitute or additional General Partner of the
Partnership only if the following terms and conditions are satisfied:
26
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(a) the Person to be admitted as a substitute or additional General
Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such other
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner, and a certificate evidencing
the admission of such Person as a General Partner shall have been filed for
recordation and all other actions required by Section 2.05 hereof in connection
with such admission shall have been performed;
(b) if the Person to be admitted as a substitute or additional General
Partner is a corporation or a partnership it shall have provided the Partnership
with evidence satisfactory to counsel for the Partnership of such Person's
authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(c) counsel for the Partnership shall have rendered an opinion
(relying on such opinions from other counsel and the state or any other
jurisdiction as may be necessary) that the admission of the person to be
admitted as a substitute or additional General Partner is in conformity with the
Act, that none of the actions taken in connection with the admission of such
Person as a substitute or additional General Partner will cause (i) the
Partnership to be classified other than as a partnership for federal income tax
purposes, or (ii) the loss of any Limited Partner's limited liability.
7.03 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A GENERAL
--------------------------------------------------------------------
PARTNER.
- -------
(a) Upon the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the death,
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Partnership shall be dissolved and terminated unless the
Partnership is continued pursuant to Section 7.03(b) hereof. The merger of the
General Partner with or into any entity that is admitted as a substitute or
successor General Partner pursuant to Section 7.02 hereof shall not be deemed to
be the withdrawal, dissolution or removal of the General Partner.
(b) Following the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the death,
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the withdrawal,
death, dissolution, Event of Bankruptcy as to, or removal of a partner in, such
partnership shall be deemed not to be a dissolution of such General Partner if
the business of such General Partner is continued by the remaining partner or
partners), the Limited Partners, within 90 days after such occurrence, may elect
to continue the business of the Partnership for the balance of the term
specified in Section 2.04 hereof by selecting, subject to Section 7.02 hereof
and any other provisions of this Agreement, a substitute General Partner by
consent of a majority in interest of the Limited Partners. If the Limited
Partners elect to continue the business of the Partnership and admit a
substitute General Partner, the relationship with the
27
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Partners and of any Person who has acquired an interest of a Partner in the
Partnership shall be governed by this Agreement.
7.04 REMOVAL OF A GENERAL PARTNER.
----------------------------
(a) Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to be
removed automatically; provided, however, that if a General Partner is on the
-------- -------
date of such occurrence a partnership, the withdrawal, death, dissolution, Event
of Bankruptcy as to or removal of a partner in such partnership shall be deemed
not to be a dissolution of the General Partner if the business of such General
Partner is continued by the remaining partner or partners. The Limited Partners
may not remove the General Partner, with or without cause.
(b) If a General Partner has been removed pursuant to this Section
7.04 and the Partnership is continued pursuant to Section 7.03 hereof, such
General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership to the substitute General Partner approved by a
majority in interest of the Limited Partners in accordance with Section 7.03(b)
hereof and otherwise admitted to the Partnership in accordance with Section 7.02
hereof. At the time of assignment, the removed General Partner shall be
entitled to receive from the substitute General Partner the fair market value of
the General Partnership Interest of such removed General Partner as reduced by
any damages caused to the Partnership by such General Partner. Such fair market
value shall be determined by an appraiser mutually agreed upon by the General
Partner and a majority in interest of the Limited Partners within 10 days
following the removal of the General Partner. In the event that the parties are
unable to agree upon an appraiser, the removed General Partner and a majority in
interest of the Limited Partners each shall select an appraiser. Each such
appraiser shall complete an appraisal of the fair market value of the removed
General Partner's General Partnership Interest within 30 days of the General
Partner's removal, and the fair market value of the removed General Partner's
General Partnership Interest shall be the average of the two appraisals;
provided, however, that if the higher appraisal exceeds the lower appraisal by
- -------- -------
more than 20% of the amount of the lower appraisal, the two appraisers, no later
than 40 days after the removal of the General Partner, shall select a third
appraiser who shall complete an appraisal of the fair market value of the
removed General Partner's General Partnership Interest no later than 60 days
after the removal of the General Partner. In such case, the fair market value
of the removed General Partner's General Partnership Interest shall be the
average of the two appraisals closest in value.
(c) The General Partnership Interest of a removed General Partner,
during the time after default until transfer under Section 7.04(b), shall be
converted to that of a special Limited Partner; provided, however, such removed
-------- -------
General Partner shall not have any rights to participate in the management and
affairs of the Partnership, and shall not be entitled to any portion of the
income, expense, profit, gain or loss allocations or cash distributions
allocable or payable, as the case may be, to the Limited Partners. Instead,
such removed General Partner shall receive and be entitled only to retain
distributions or allocations of such items that it would have been entitled to
receive in its capacity as General Partner, until the transfer is effective
pursuant to Section 7.04(b).
28
<PAGE>
(d) All Partners shall have given and hereby do give such consents,
shall take such actions and shall execute such documents as shall be legally
necessary and sufficient to effect all the foregoing provisions of this Section.
ARTICLE VIII
RIGHTS AND OBLIGATIONS
OF THE LIMITED PARTNERS
-----------------------
8.01 MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not
-----------------------------
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.
8.02 POWER OF ATTORNEY. Each Limited Partner hereby irrevocably appoints
-----------------
the General Partner its true and lawful attorney-in-fact, who may act for each
Limited Partner and in its name, place and stead, and for its use and benefit,
to sign, acknowledge, swear to, deliver, file or record, at the appropriate
public offices, any and all documents, certificates, and instruments as may be
deemed necessary or desirable by the General Partner to carry out fully the
provisions of this Agreement and the Act in accordance with their terms, which
power of attorney is coupled with an interest and shall survive the death,
dissolution or legal incapacity of the Limited Partner, or the transfer by the
Limited Partner of any part or all of its Partnership Interest.
8.03 LIMITATION ON LIABILITY OF LIMITED PARTNERS. No Limited Partner shall
-------------------------------------------
be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of its Capital Contribution, if any, as and when due hereunder. After
its Capital Contribution is fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
8.04 OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR
------------------------------------------------------------
AFFILIATE. No Limited Partner shall at any time, either directly or indirectly,
own any stock or other interest in the General Partner or in any Affiliate
thereof, if such ownership by itself or in conjunction with other stock or other
interests 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 Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section.
8.05 EXCHANGE RIGHT.
--------------
(a) Subject to Sections 8.05(b), 8.05(c), 8.05(d), 8.05(e) and 8.05(f)
and the provisions of any agreements between the Partnership and one or more
Limited Partners with respect to Partnership Units held by them, each Limited
Partner, other than the General Partner, shall have the right (the "Exchange
Right") to require the Partnership to redeem on a Specified Exchange Date all or
a portion of the Partnership Units held by such Limited Partner at an
29
<PAGE>
exchange price equal to and in the form of the Cash Amount to be paid by the
Partnership, provided that such Partnership Units shall have been outstanding
--------
for at least one year. The Exchange Right shall be exercised pursuant to a
Notice of Exchange delivered to the Partnership (with a copy to the General
Partner) by the Limited Partner who is exercising the Exchange Right (the
"Exchanging Partner"); provided, however, that the Partnership shall not be
obligated to satisfy such Exchange Right if the General Partner elects to
purchase the Partnership Units subject to the Notice of Exchange pursuant to
Section 8.05(b); and provided, further, that no Limited Partner may deliver more
than two Notices of Exchange during each calendar year. A Limited Partner may
not exercise the Exchange Right for less than 1,000 Partnership Units or, if
such Limited Partner holds less than 1,000 Partnership Units, all of the
Partnership Units held by such Partner. The Exchanging Partner shall have no
right, with respect to any Partnership Units so exchanged, to receive any
distribution paid with respect to Partnership Units if the record date for such
distribution is on or after the Specified Exchange Date.
(b) Notwithstanding the provisions of Section 8.05(a), a Limited
Partner that exercises the Exchange Right shall be deemed to have offered to
sell the Partnership Units described in the Notice of Exchange to the General
Partner, and the General Partner may, in its sole and absolute discretion, elect
to purchase directly and acquire such Partnership Units by paying to the
Exchanging Partner either the Cash Amount or the REIT Shares Amount, as elected
by the General Partner (in its sole and absolute discretion), on the Specified
Exchange Date, whereupon the General Partner shall acquire the Partnership Units
offered for exchange by the exchanging Partner and shall be treated for all
purposes of this Agreement as the owner of such Partnership Units. If the
General Partner shall elect to exercise its right to purchase Partnership Units
under this Section 8.05(b) with respect to a Notice of Exchange, they shall so
notify the Exchanging Partner within five Business Days after the receipt by the
General Partner of such Notice of Exchange. Unless the General Partner (in its
sole and absolute discretion) shall exercise its right to purchase Partnership
Units from the Exchanging Partner pursuant to this Section 8.05(b), the General
Partner shall have any obligation to the Exchanging Partner or the Partnership
with respect to the Exchanging Partner's exercise of the Exchange Right. In the
event the General Partner shall exercise its right to purchase Partnership Units
with respect to the exercise of a Exchange Right in the manner described in the
first sentence of this Section 8.05(b), the Partnership shall have no obligation
to pay any amount to the Exchanging Partner with respect to such Exchanging
Partner's exercise of such Exchange Right, and each of the Exchanging Partner,
the Partnership, and the General Partner, as the case may be, shall treat the
transaction between the General Partner, as the case may be, and the Exchanging
Partner for federal income tax purposes as a sale of the Exchanging Partner's
Partnership Units to the General Partner, as the case may be. Each Exchanging
Partner agrees to execute such documents as the General Partner may reasonably
require in connection with the issuance of REIT Shares upon exercise of the
Exchange Right.
(c) Notwithstanding the provisions of Section 8.05(a) and 8.05(b), a
Limited Partner shall not be entitled to exercise the Exchange Right if the
delivery of REIT Shares to such Partner on the Specified Exchange Date by the
General Partner pursuant to Section 8.05(b) (regardless of whether or not the
General Partner would in fact exercise its rights under Section 8.05(b)) would
(i) result in such Partner or any other person owning, directly or indirectly,
REIT Shares in excess of the Ownership Limitation (as defined in the Articles of
30
<PAGE>
Incorporation) and calculated in accordance therewith, except as provided in the
Articles of Incorporation, (ii) result in REIT Shares being owned by fewer than
100 persons (determined without reference to any rules of attribution), except
as provided in the Articles of Incorporation, (iii) result in the General
Partner being "closely held" within the meaning of Section 856(h) of the Code,
(iv) cause the General Partner to own, directly or constructively, 10% or more
of the ownership interests in a tenant of the General Partner's, the
Partnership's, or a Subsidiary Partnership's, real property, within the meaning
of Section 856(d)(2)(B) of the Code, or (v) cause the acquisition of REIT Shares
by such Partner to be "integrated" with any other distribution of REIT Shares
for purposes of complying with the registration provisions of the Securities Act
of 1933, as amended (the "Securities Act"). The General Partner, in their sole
and absolute discretion, may waive the restriction on exchange set forth in this
Section 8.05(c); provided, however, that in the event such restriction is
-------- -------
waived, the Exchanging Partner shall be paid the Cash Amount.
(d) Any Cash Amount to be paid to an Exchanging Partner pursuant to
this Section 8.05 shall be paid on the Specified Exchange Date; provided,
--------
however, that the General Partner may elect to cause the Specified Exchange Date
- -------
to be delayed for up to an additional 180 days to the extent required for the
General Partner to cause additional REIT Shares to be issued to provide
financing to be used to make such payment of the Cash Amount. Notwithstanding
the foregoing, the General Partner agrees to use its best efforts to cause the
closing of the acquisition of exchanged Partnership Units hereunder to occur as
quickly as reasonably possible.
(e) Notwithstanding any other provision of this Agreement, the General
Partner shall place appropriate restrictions on the ability of the Limited
Partners to exercise their Exchange Rights as and if deemed necessary to ensure
that the Partnership does not constitute a "publicly traded partnership" under
section 7704 of the Code. If and when the General Partner determines that
imposing such restrictions is necessary, the General Partner shall give prompt
written notice thereof (a "Restriction Notice") to each of the Limited Partners,
which notice shall be accompanied by a copy of an opinion of counsel to the
Partnership which states that, in the opinion of such counsel, restrictions are
necessary in order to avoid the Partnership being treated as a "publicly traded
partnership" under section 7704 of the Code.
8.06 REGISTRATION. Subject to the terms of any agreement between the
------------
General Partner and one or more Limited Partners with respect to Partnership
Units held by them:
(a) Shelf Registration of the Common Stock. Within two weeks prior or
--------------------------------------
subsequent to the first date upon which the Partnership Units owned by any
Limited Partner may be exchanged (or such later date as may be required under
applicable provisions of the Securities Act), the General Partner agrees to file
with the Securities and Exchange Commission (the "Commission"), a shelf
registration statement on Form S-3 (if the General Partner is eligible to use
such form) under Rule 415 of the Securities Act (a "Registration Statement"), or
any similar rule that may be adopted by the Commission, with respect to all of
the shares of Common Stock that may be issued upon exchange of such Partnership
Units pursuant to Section 8.05 hereof ("Exchange Shares"). The General Partner
will use its best efforts to have the Registration Statement declared effective
under the Securities Act. The General Partner need not file a separate
Registration Statement, but may file one Registration Statement covering
Exchange
31
<PAGE>
Shares issuable to more than one Limited Partner. The General Partner further
agrees to supplement or make amendments to each Registration Statement, if
required by the rules, regulations or instructions applicable to the
registration form utilized by the General Partner or by the Securities Act or
rules and regulations thereunder for such Registration Statement.
(b) If a Registration Statement under subsection (a) above is not
available under the securities laws or the rules of the Commission, or if
required to permit the resale of Exchange Shares by "Affiliates" (as defined in
the Securities Act), upon the written request of any Limited Partner holding at
least 20,000 Partnership Units, the General Partner agrees to file with the
Commission a Registration Statement covering the resale of Exchange Shares by
Affiliates or others whose Exchange Shares are not covered by a Registration
Statement filed pursuant to subsection (a) above. The General Partner will use
its best efforts to have the Registration Statement declared effective under the
Securities Act. The General Partner need not file a separate Registration
Statement, but may file one Registration Statement covering Exchange Shares
issuable to more than one Limited Partner. The General Partner further agrees
to supplement or make amendments to each Registration Statement, if required by
the rules, regulations or instructions applicable to the registration form
utilized by the General Partner or by the Securities Act or rules and
regulations thereunder for such Registration Statement.
(c) Listing on Securities Exchange. If the General Partner shall list
------------------------------
or maintain the listing of any shares of Common Stock on any securities exchange
or national market system, it will at its expense and as necessary to permit the
registration and sale of the Exchange Shares hereunder, list thereon, maintain
and, when necessary, increase such listing to include such Exchange Shares.
(d) Registration Not Required. Notwithstanding the foregoing, the
-------------------------
General Partner shall not be required to file or maintain the effectiveness of a
registration statement relating to Exchange Shares after the first date upon
which, in the opinion of counsel to the General Partner, all of the Exchange
Shares covered thereby could be sold by the holders thereof in any period of
three months pursuant to Rule 144 under the Securities Act, or any successor
rule thereto.
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
------------------------------------------
9.01 PURCHASE FOR INVESTMENT.
-----------------------
(a) Each Limited Partner hereby represents and warrants to the General
Partner and to the Partnership that the acquisition of his Partnership Interests
is made as a principal for his account for investment purposes only and not with
a view to the resale or distribution of such Partnership Interest.
(b) Each Limited Partner agrees that he will not sell, assign or
otherwise transfer his Partnership Interest or any fraction thereof, whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and
32
<PAGE>
warranties to the General Partner set forth in Section 9.01(a) above and
similarly agree not to sell, assign or transfer such Partnership Interest or
fraction thereof to any Person who does not similarly represent, warrant and
agree.
9.02 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS.
---------------------------------------------------------
(a) Subject to the provisions of 9.02(b), (c) and (d), no Limited
Partner may offer, sell, assign, hypothecate, pledge or otherwise transfer all
or any portion of his Limited Partnership Interest, or any of such Limited
Partner's economic rights as a Limited Partner, whether voluntarily or by
operation of law or at judicial sale or otherwise (collectively, a "Transfer")
without the consent of the General Partner, which consent may be granted or
withheld in its sole and absolute discretion. Any such purported transfer
undertaken without such consent shall be considered to be null and void ab
initio and shall not be given effect. Each Original Limited Partner
acknowledges that the General Partner has agreed not to grant any such consent
prior to the Transfer Restriction Date. The General Partner may require, as a
condition of any Transfer to which it consents, that the transferor assume all
costs incurred by the Partnership in connection therewith.
(b) No Limited Partner may withdraw from the Partnership other than as
a result of a permitted Transfer (i.e., a Transfer consented to as contemplated
----
by clause (a) above or clause (c) below or a Transfer pursuant to 9.05 below) of
all of his Partnership Units pursuant to this Article IX or pursuant to an
exchange of all of his Partnership Units pursuant to 8.05. Upon the permitted
Transfer or redemption of all of a Limited Partner's Partnership Units, such
Limited Partner shall cease to be a Limited Partner.
(c) Subject to 9.02(d), (e) and (f) below, a Limited Partner may
Transfer, with the consent of the General Partner, all or a portion of his
Partnership Units to (i) a parent or parent's spouse, natural or adopted
descendant or descendants, spouse of such descendant, or brother or sister, or a
trust created by such Limited Partner for the benefit of such Limited Partner
and/or any such person(s), of which trust such Limited Partner or any such
person(s) is a trustee, (ii) a corporation controlled by a Person or Persons
named in (i) above, or (iii) if the Limited Partner is an entity, its beneficial
owners.
(d) No Limited Partner may effect a Transfer of its Limited
Partnership Interest, in whole or in part, if, in the opinion of legal counsel
for the Partnership, such proposed Transfer would require the registration of
the Limited Partnership Interest under the Securities Act of 1933, as amended,
or would otherwise violate any applicable federal or state securities or blue
sky law (including investment suitability standards).
(e) No Transfer by a Limited Partner of its Partnership Units, in
whole or in part, may be made to any Person if (i) in the opinion of legal
counsel for the Partnership, the transfer would result in the Partnership's
being treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in the
opinion of legal counsel for the Partnership, it would adversely affect the
ability of the General Partner to continue to qualify as a REIT or subject the
General Partner to any additional taxes under Section 857 or Section 4981 of the
Code, or (iii) such transfer is effectuated through an
33
<PAGE>
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code.
(f) No transfer of any Partnership Units may be made to a lender to
the Partnership or any Person who is related (within the meaning of Regulations
Section 1.752-4(b)) to any lender to the Partnership whose loan constitutes a
nonrecourse liability (within the meaning of Regulations Section 1.752-1(a)(2)),
without the consent of the General Partner, which may be withheld in its sole
and absolute discretion, provided that as a condition to such consent the lender
-------- ----
will be required to enter into an arrangement with the Partnership and the
General Partner to exchange or redeem for the Cash Amount any Partnership Units
in which a security interest is held simultaneously with the time at which such
lender would be deemed to be a partner in the Partnership for purposes of
allocating liabilities to such lender under Section 752 of the Code.
(g) Any Transfer in contravention of any of the provisions of this
Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
(h) Prior to the consummation of any Transfer under this Article IX,
the transferor and/or the transferee shall deliver to the General Partner such
opinions, certificates and other documents as the General Partner shall request
in connection with such Transfer.
9.03 ADMISSION OF SUBSTITUTE LIMITED PARTNER.
---------------------------------------
(a) Subject to the other provisions of this Article IX, an assignee of
the Limited Partnership Interest of a Limited Partner (which shall be understood
to include any purchaser, transferee, donee, or other recipient of any
disposition of such Limited Partnership Interest) shall be deemed admitted as a
Limited Partner of the Partnership only with the consent of the General Partner
and upon the satisfactory completion of the following:
(i) The assignee shall have accepted and agreed to be bound by
the terms and provisions of this Agreement by executing a counterpart
or an amendment thereof, including a revised Exhibit A, and such other
---------
documents or instruments as the General Partner may require in order
to effect the admission of such Person as a Limited Partner.
(ii) To the extent required, an amended Certificate evidencing
the admission of such Person as a Limited Partner shall have been
signed, acknowledged and filed for record in accordance with the Act.
(iii) The assignee shall have delivered a letter containing the
representation set forth in Section 9.01(a) hereof and the agreement
set forth in Section 9.01(b) hereof.
(iv) If the assignee is a corporation, partnership or trust, the
assignee shall have provided the General Partner with evidence
satisfactory to counsel for the Partnership of the assignee's
authority to become a Limited Partner under the terms and provisions
of this Agreement.
34
<PAGE>
(v) The assignee shall have executed a power of attorney
containing the terms and provisions set forth in Section 8.02 hereof.
(vi) The assignee shall have paid all legal fees and other
expenses of the Partnership and the General Partner and filing and
publication costs in connection with its substitution as a Limited
Partner.
(vii) The assignee has obtained the prior written consent of the
General Partner to its admission as a Substitute Limited Partner,
which consent may be given or denied in the exercise of the General
Partner's sole and absolute discretion.
(b) For the purpose of allocating Profits and Losses and distributing
cash received by the Partnership, a Substitute Limited Partner shall be treated
as having become, and appearing in the records of the Partnership as, a Partner
upon the filing of the Certificate described in Section 9.03(a)(ii) hereof or,
if no such filing is required, the later of the date specified in the transfer
documents or the date on which the General Partner has received all necessary
instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person seeking to
become a Substitute Limited Partner by preparing the documentation required by
this Section and making all official filings and publications. The Partnership
shall take all such action as promptly as practicable after the satisfaction of
the conditions in this Article IX to the admission of such Person as a Limited
Partner of the Partnership.
9.04 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS.
--------------------------------------------
(a) Subject to the provisions of Sections 9.01 and 9.02 hereof, except
as required by operation of law, the Partnership shall not be obligated for any
purposes whatsoever to recognize the assignment by any Limited Partner of its
Partnership Interest until the Partnership has received notice thereof.
(b) Any Person who is the assignee of all or any portion of a Limited
Partner's Limited Partnership Interest, but does not become a Substitute Limited
Partner and desires to make a further assignment of such Limited Partnership
Interest, shall be subject to all the provisions of this Article IX to the same
extent and in the same manner as any Limited Partner desiring to make an
assignment of its Limited Partnership Interest.
9.05 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A LIMITED
---------------------------------------------------------------------
PARTNER. The occurrence of an Event of Bankruptcy as to a Limited Partner, the
- -------
death of a Limited Partner or a final adjudication that a Limited Partner is
incompetent (which term shall include, but not be limited to, insanity) shall
not cause the termination or dissolution of the Partnership, and the business of
the Partnership shall continue if an order for relief in a bankruptcy proceeding
is entered against a Limited Partner, the trustee or receiver of his estate or,
if he dies, his executor, administrator or trustee, or, if he is finally
adjudicated incompetent, his committee, guardian or conservator, shall have the
rights of such Limited Partner for the purpose of settling
35
<PAGE>
or managing his estate property and such power as the bankrupt, deceased or
incompetent Limited Partner possessed to assign all or any part of his
Partnership Interest and to join with the assignee in satisfying conditions
precedent to the admission of the assignee as a Substitute Limited Partner.
9.06 JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be acquired
----------------------------
by two individuals as joint tenants with right of survivorship, provided that
such individuals either are married or are related and share the same home as
tenants in common. The written consent or vote of both owners of any such
jointly held Partnership Interest shall be required to constitute the action of
the owners of such Partnership Interest; provided, however, that the written
-------- -------
consent of only one joint owner will be required if the Partnership has been
provided with evidence satisfactory to the counsel for the Partnership that the
actions of a single joint owner can bind both owners under the applicable laws
of the state of residence of such joint owners. Upon the death of one owner of
a Partnership Interest held in a joint tenancy with a right of survivorship, the
Partnership Interest shall become owned solely by the survivor as a Limited
Partner and not as an assignee. The Partnership need not recognize the death of
one of the owners of a jointly-held Partnership Interest until it shall have
received notice of such death. Upon notice to the General Partner from either
owner, the General Partner shall cause the Partnership Interest to be divided
into two equal Partnership Interests, which shall thereafter be owned separately
by each of the former owners.
ARTICLE X
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS
------------------------------------------
10.01 BOOKS AND RECORDS. At all times during the continuance of the
-----------------
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with generally
accepted accounting principles, including: (a) a current list of the full name
and last known business address of each Partner, (b) a copy of the Certificate
of Limited Partnership and all certificates of amendment thereto, (c) copies of
the Partnership's federal, state and local income tax returns and reports, (d)
copies of the Agreement and any financial statements of the Partnership for the
three most recent years and (e) all documents and information required under the
Act. Any Partner or its duly authorized representative, upon paying the costs
of collection, duplication and mailing, shall be entitled to inspect or copy
such records during ordinary business hours.
10.02 CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS.
-------------------------------------------
(a) All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall be
made only on such signature or signatures as the General Partner may, from time
to time, determine.
(b) All deposits and other funds not needed in the operation of the
business of the Partnership may be invested by the General Partner in investment
grade instruments (or investment companies whose portfolio consists primarily
thereof), government obligations,
36
<PAGE>
certificates of deposit, bankers' acceptances and municipal notes and bonds. The
funds of the Partnership shall not be commingled with the funds of any other
Person except for such commingling as may necessarily result from an investment
in those investment companies permitted by this Section 10.02(b).
10.03 FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the
-----------------------
Partnership shall be the calendar year.
10.04 ANNUAL TAX INFORMATION AND REPORT. Within 75 days after the end
---------------------------------
of each fiscal year of the Partnership, the General Partner shall furnish to
each person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.
10.05 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS.
-------------------------------------------------------------
(a) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 6231(a)(7) of the Code. As Tax
Matters Partner, the General Partner shall have the right and obligation to take
all actions authorized and required, respectively, by the Code for the Tax
Matters Partner. The General Partner shall have the right to retain
professional assistance in respect of any audit of the Partnership by the
Service and all out-of-pocket expenses and fees incurred by the General Partner
on behalf of the Partnership as Tax Matters Partner shall constitute Partnership
expenses. In the event the General Partner receives notice of a final
Partnership adjustment under Section 6223(a)(2) of the Code, the General Partner
shall either (i) file a court petition for judicial review of such final
adjustment within the period provided under Section 6226(a) of the Code, a copy
of which petition shall be mailed to all Limited Partners on the date such
petition is filed, or (ii) mail a written notice to all Limited Partners, within
such period, that describes the General Partner's reasons for determining not to
file such a petition.
(b) All elections required or permitted to be made by the Partnership
under the Code or any applicable state or local tax law shall be made by the
General Partner in its sole and absolute discretion.
(c) In the event of a transfer of all or any part of the Partnership
Interest of any Partner, the Partnership, at the option of the General Partner,
may elect pursuant to Section 754 of the Code to adjust the basis of the
Properties. Notwithstanding anything contained in Article V of this Agreement,
any adjustments made pursuant to Section 754 shall affect only the successor in
interest to the transferring Partner and in no event shall be taken into account
in establishing, maintaining or computing Capital Accounts for the other
Partners for any purpose under this Agreement. Each Partner will furnish the
Partnership with all information necessary to give effect to such election.
10.06 REPORTS TO LIMITED PARTNERS.
---------------------------
(a) As soon as practicable after the close of each fiscal quarter
(other than the last quarter of the fiscal year), the General Partner shall
cause to be mailed to each Limited
37
<PAGE>
Partner a quarterly report containing financial statements of the Partnership,
or of the General Partner if such statements are prepared solely on a
consolidated basis with the General Partner, for such fiscal quarter, presented
in accordance with generally accepted accounting principles. As soon as
practicable after the close of each fiscal year, the General Partner shall cause
to be mailed to each Limited Partner an annual report containing financial
statements of the Partnership, or of the General Partner if such statements are
prepared solely on a consolidated basis with the General Partner, for such
fiscal year, presented in accordance with generally accepted accounting
principles. The annual financial statements shall be audited by accountants
selected by the General Partner.
(b) Any Partner shall further have the right to a private audit of the
books and records of the Partnership, provided such audit is made for
Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
ARTICLE XI
AMENDMENT OF AGREEMENT; MERGER
------------------------------
The General Partner's consent shall be required for any amendment to this
Agreement. The General Partner, without the consent of the Limited Partner, may
amend this Agreement in any respect or merge or consolidate the Partnership with
or into any other partnership or business entity (as defined in Section 17-211
of the Act) in a transaction pursuant to Section 7.01(c), (d) or (e) hereof;
provided, however, that the following amendments and any other merger or
- -------- -------
consolidation of the Partnership shall require the consent of Limited Partners
holding more than 50% of the Percentage Interests of the Limited Partner:
(a) any amendment affecting the operation of the Conversion Factor or
the Exchange Right (except as provided in Section 8.05(d) or 7.01(d) hereof) in
a manner adverse to the Limited Partner;
(b) any amendment that would adversely affect the rights of the
Limited Partner to receive the distributions payable to them hereunder, other
than with respect to the issuance of additional Partnership Units pursuant to
Section 4.02 hereof;
(c) any amendment that would alter the Partnership's allocations of
Profit and Loss to the Limited Partner, other than with respect to the issuance
of additional Partnership Units pursuant to Section 4.02 hereof; or
(d) any amendment that would impose on the Limited Partner any
obligation to make additional Capital Contributions to the Partnership.
ARTICLE XII
GENERAL PROVISIONS
------------------
12.01 NOTICES. All communications required or permitted under this
-------
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in
38
<PAGE>
the United States mail, registered, postage prepaid return receipt requested, to
the Partners at the addresses set forth in Exhibit A attached hereto; provided,
--------- --------
however, that any Partner may specify a different address by notifying the
- -------
General Partner in writing of such different address. Notices to the Partnership
shall be delivered at or mailed to its specified office.
12.02 SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting
------------------
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.
12.03 ADDITIONAL DOCUMENTS. Each Partner agrees to perform all further
--------------------
acts and execute, swear to, acknowledge and deliver all further documents which
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.
12.04 SEVERABILITY. If any provision of this Agreement shall be
------------
declared illegal, invalid, or unenforceable in any jurisdiction, then such
provision shall be deemed to be severable from this Agreement (to the extent
permitted by law) and in any event such illegality, invalidity or
unenforceability shall not affect the remainder hereof.
12.05 ENTIRE AGREEMENT. This Agreement and exhibits attached hereto
----------------
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
12.06 PRONOUNS AND PLURALS. When the context in which words are used
--------------------
in the Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.
12.07 HEADINGS. The Article headings or sections in this Agreement are
--------
for convenience only and shall not be used in construing the scope of this
Agreement or any particular Article.
12.08 COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
12.09 GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Agreement of Limited Partnership, all as of the ____ day of
____________________, 1998.
WELLS REAL ESTATE INVESTMENT TRUST, INC.
By: ___________________________________
Name: Brian Conlon
Title: Executive Vice President
40
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Agreed Value
of
Cash Capital Partnership Percentage
Partner Contribution Contribution Units Interest
- ------- ------------ --------------- ----------- -----------
<S> <C> <C> <C> <C>
GENERAL PARTNER:
Wells Real Estate Investment $ $ 100%
Trust, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Agreed Value
of
Cash Capital Partnership Percentage
Partner Contribution Contribution Units Interest
- ------- ------------ --------------- ----------- -----------
<S> <C> <C> <C> <C>
ORIGINAL LIMITED PARTNER:
Wells Capital, Inc. $200,000 $200,000 20,000 100%
3885 Holcomb Bridge Road
Norcross, Georgia 30092
</TABLE>
<PAGE>
EXHIBIT B
---------
NOTICE OF EXERCISE OF EXCHANGE RIGHT
In accordance with Section 8.05 of the Agreement of Limited Partnership
(the "Agreement") of Wells Operating Partnership, L.P., the undersigned hereby
irrevocably (i) presents for exchange ________ Partnership Units in Wells
Operating Partnership, L.P. in accordance with the terms of the Agreement and
the Exchange Right referred to in Section 8.05 thereof, (ii) surrenders such
Partnership Units and all right, title and interest therein, and (iii) directs
that the Cash Amount or REIT Shares Amount (as defined in the Agreement) as
determined by the General Partner deliverable upon exercise of the Exchange
Right be delivered to the address specified below, and if REIT Shares (as
defined in the Agreement) are to be delivered, such REIT Shares be registered or
placed in the name(s) and at the address(es) specified below.
Dated:________ __, _____
Name of Limited Partner:
______________________________
(Signature of Limited Partner)
______________________________
(Mailing Address)
______________________________
(City) (State) (Zip Code)
Signature Guaranteed by:
______________________________
If REIT Shares are to be issued, issue to:
Please insert social security or identifying number:
Name:
<PAGE>
EXHIBIT 10.4
MANAGEMENT AGREEMENT
--------------------
THIS MANAGEMENT AGREEMENT ("Agreement") is made and entered into as of
the ______ day of January, 1998, by and between WELLS REAL ESTATE INVESTMENT
TRUST, INC., a Delaware corporation ("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 stock for the
acquisition or construction of income-producing improvements on several tracts
as yet unspecified but to be acquired by Owner (the "Owner"); and
WHEREAS, Owner intends to employ Manager to manage any leasable
improvements that may be constructed on the Owner; 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 convenants 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 Owner, but shall exclude interest and
other investment income of Owner and proceeds received by Owner for 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 Owner and all parking and common areas located on Owner.
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 "Owner" 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.
<PAGE>
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 Owner 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.
2.2 General Duties. Manager shall devote its best efforts to performing
--------------
its duties hereunder to manage, operate and maintain the Owner 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 Owner.
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 Owner 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
Owner 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 Owner, or for the
safety of occupant or other persons, or required to avoid the suspension of any
necessary service of the Owner 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.
2
<PAGE>
(d) Personnel. In the event Owner notifies Manager of the necessity
---------
of Manager employing additional personnel to manage the Owner, Manager shall
cause to be hired personnel to maintain and operate the Owner. 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 Owner. 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, enter
----------------------
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 Owner, 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.
(f) Expenses. Manager shall analyze all bills received for services,
--------
work and supplies in connection with the maintaining and operating the Owner,
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 Owner. 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 Owner in the
ordinary course of business. In collecting such monies, Manager shall inform
tenants of the Owner 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
3
<PAGE>
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
Owner shall be promptly deposited by Manager in the Account. Manager
shall have the right to designated 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
Owner and shall be paid and/or withdrawn by Manager from the Account
prior to the making of any other disbursements therefrom.
(iii) By the 20/th/ 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 Owner.
(j). Ownership Agreement. Manager has received a copy of Owner's
-------------------
Agreement of Limited Ownership (the "Ownership 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 Ownership Agreement.
(k) Signs. Manager shall place and remove, or cause to be placed and
-----
removed, such signs upon the Owner as Manager deems appropriate, subject,
however, to the terms and conditions of the Leases and to any applicable
ordinances and regulations.
(l) Other Services. Manager shall recommend from time to time to
--------------
Owner such procedures with respect to Owner 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 Owner)
on behalf of Owner in the ordinary course of the management, operation and
maintenance of the Owner 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
4
<PAGE>
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 Owner 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. Managers shall maintain all office records and books of
-------
account and shall record therein, and keep copies of, each invoice received from
services, work and supplies ordered in connection with the maintenance and
operation of the Owner. Such records shall be maintained on a double entry
basis. Owner and persons designated by Owner shall at all reasonable time 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 Owner and that Agreement, all of which Manager agrees to keep
safe, available and separate from any records not pertaining to Owner, at a
place recommended by Manager and approved by Owner.
(b) Monthly Reports. On or before the 15/th/ 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 Owner 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 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.
5
<PAGE>
(d) Returns Required by Law. Managers 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 a
routine nature. Managers shall also report expeditiously to Owner notice of any
extensive damage to any part of the Owner.
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 Ownership
Property, to the extent permitted by the Statement of Policy Regarding Real
Estate Investment Trusts adopted by the North American Securities Administrators
Association, Inc. 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. Managers 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 two and
one-half percent (2.5%) of the Gross Revenues paid monthly from the rental
income received from Owner, over the term of this agreement ("Management Fee").
4.2 Audit Adjustment. If any audit of the records, books or accounts
----------------
relating to the Owner 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 cost of such audit.
ARTICLE V.
INSURANCE AND INDEMNIFICATION
5.1 Insurance to be Carried.
-----------------------
(a) The Owner 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
6
<PAGE>
Ownership Agreement 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 Ownership Property is
located, employer's liability insurance applicable to and covering all employees
of Manager at the Owner 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 Owner 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 Owner, and any damage or destruction
to the Owner 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 Owner, 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 of 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:
7
<PAGE>
(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
(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 Owner.
(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 Owner, except personal property paid for and owned by
Manager. Manager shall also, for a period of sixty
8
<PAGE>
(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 Owner.
(c) Manager shall render to Owner an accounting of all funds 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
Owner 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 respect 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.
Owner: WELLS REAL ESTATE INVESTMENT TRUST, INC.
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 of interest of the Limited Owners 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.
9
<PAGE>
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
Owner. There are no representations, agreements, arrangements or
understandings, oral or written, between Owner and Manager relating to the
management of the Owner 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 Owner or the
business of Owner.
7.11 Independent Contractor. Manager and Owner shall not be construed as
----------------------
joint venturers or Owners 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 Manger to Owner under this Agreement is that of
an independent contractor.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Wells Real Estate Investment Trust, Inc.
By:_________________________________
Name: ______________________________
Title: _______________________________
Wells Management Company, Inc.
By:_________________________________
Name: ______________________________
Title: _______________________________
11
<PAGE>
EXHIBIT 10.5
LEASING AND COORDINATING AGREEMENT
----------------------------------
THIS AGREEMENT, made as of the _____ day of ___________, 1998, between
WELLS REAL ESTATE INVESTMENT TRUST, INC., a Delaware corporation (the "Owner"),
and WELLS MANAGEMENT COMPANY, INC., a Georgia corporation (the "Agent").
WITNESSETH:
----------
WHEREAS, the Owner intends to raise money from the sale of the Owner's
stock for the acquisition or construction of income-producing improvements on
several tracts as yet unspecified but to be acquired by Owner; and
WHEREAS, the Owner intends to employ the Agent to manage any leasable
improvements that may be constructed by the Owner; 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 convenants
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 commercial
buildings to be developed by the Owner.
2. Effective Date and Terms. 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 Owner 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
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the Owner's engagement of the Agent as the exclusive leasing and tenant
coordination agent of the Owner 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 Owner
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;
<PAGE>
(c) to coordinate the construction of each tenant's space with the
contractor or the Owner and prepare an accounting of tenant coverage 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 Owner 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 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 Owner 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 Owner to the extent permitted by the
Statement of Policy Regarding Real Estate Investment Trusts 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
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Agent shall be compensated as follows:
(a) The Agent shall be paid two percent (2%) 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 the applicable provision 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
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<PAGE>
(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 Owner,
but shall exclude interests and other investments 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 Section 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 Owner. If the Owner 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.
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 subcontractor or any of their agents or employees or any other
persons performing any of the work on the Owner 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 Owner 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 Owner. 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 address
3
<PAGE>
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 Investment Trust, Inc.
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 not right to incur any liability on behalf of
the Owner or to bind the Owner by an 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 Owner or the
business of the Owner.
10. Independent Contractor. The Agent and the Owner shall not be
----------------------
construed as joint venturers or Owners 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.
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 Owner. 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 Owner 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 reasonably attorney's fees.
4
<PAGE>
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 Owners 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.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
executed as of the day and year first above written.
WELLS REAL ESTATE INVESTMENT TRUST, INC.
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
WELLS MANAGEMENT COMPANY, INC.
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 23, 1998
