<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1998
Registration No. 333-32099
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 2 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 Its
Governing Instruments)
3885 Holcomb Bridge Road
Norcross, Georgia 30092
(770) 449-7800
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal executive offices)
Brian M. Conlon, Executive Vice President
Wells Real Estate Investment Trust, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
(770) 449-7800
(Name, Address, Including Zip Code and Telephone Number, Including Area Code, of
Agent for Service)
Copies to:
Donald Kennicott, Esq.
Michael K. Rafter, Esq.
Holland & Knight LLP
One Atlantic Center, Suite 2000
1201 West Peachtree Street, N.E.
Atlanta, Georgia 30309-3400
-----------------------------------------------------------
Maryland 58-2328421
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
-----------------------------------------------------------
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 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(d) under
the Securities Act, check the following box and list the Securities Act
registration statement 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,
check the following box. [ ]
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
Registration Statement Item and Heading Location of Heading in Prospectus
------------------------------------------------- ---------------------------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Facing Page, Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover and Outside Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Outside Front Cover Page of Prospectus; Summary of the Offering;
Risk Factors; Estimated Use of Proceeds; Management Compensation
4. Determination of Offering Price.................. Risk Factors
5. Dilution......................................... Risk Factors
6. Selling Security Holders......................... *
7. Plan of Distribution............................. Outside Front Cover Page of Prospectus; Summary of the Offering;
Estimated Use of Proceeds; Plan of Distribution
8. Use of Proceeds.................................. Estimated Use of Proceeds; Investment Objectives and Criteria
9. Selected Financial Data.......................... *
10. Management's Discussion and Analysis of
Financial Condition and Results of Operations.... Management's Discussions and Analysis of Financial Condition and
Results of Operations
11. General Information as to Registrant............. Summary of the Offering; Management; The Advisor and the Advisory
Agreement; Description of Capital Stock; Partnership Agreement
12. Policy with Respect to Certain Activities........ Investment Objectives and Criteria; Summary of Reinvestment Plan
13. Investment Policies of Registrant................ Investment Objectives and Criteria; Real Property Investments;
Conflicts of Interest
14. Description of Real Estate....................... Investment Objectives and Criteria; Real Property Investments
15. Operating Data................................... *
16. Tax Treatment of Registrant and its Security
Holders.......................................... Federal Income Tax Considerations; ERISA Considerations
17. Market Price of and Dividends on the
Registrant's Common Entry and Related
Stockholder Matters.............................. *
18. Description of Registrant's Securities........... Description of Capital Stock; Distribution Policy; Partnership
Agreement
19. Legal Proceedings................................ Management; The Advisor and the Advisory Agreement; Legal Matters
20. Security Ownership of Certain Beneficial Owners
and Management................................... Management Compensation; Management; The Advisor and the Advisory
Agreement
21. Directors and Executive Officers................. Management
22. Executive Compensation........................... Management Compensation; Conflicts of Interest; Management
23. Certain Relationships and Related Transactions... Management Compensation; Conflicts of Interest; Management
24. Selection, Management and Custody of
Registrant's Investments......................... Management Compensation; Conflicts of Interest; Investment
Objectives and Criteria; Real Property Investments; Plan of
Distribution
25. Policies with Respect to Certain Transactions.... Management Compensation; Conflicts of Interest; Management
26. Limitations of Liability......................... Description of Capital Stock; Partnership Agreement
27. Financial Statements and Information............. Appendix I; Exhibit A
28. Interests of Named Experts and Counsel........... Conflicts of Interest; Experts
29. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... *
</TABLE>
*Not Applicable.
<PAGE>
[THE FOLLOWING IS TEXT TO A STICKER TO BE ATTACHED TO THE FRONT COVER PAGE OF
THE PROSPECTUS IN A MANNER THAT WILL NOT OBSCURE THE RISK FACTORS:]
SUPPLEMENTAL INFORMATION - The Prospectus of Wells Real Estate Investment
Trust, Inc. consists of this sticker, the Prospectus dated January 30, 1998,
Supplement No. 1 dated April 20, 1998, and Supplement No. 2 dated June 30, 1998
(the Supplements are contained inside the back cover page of the Prospectus).
Supplement No. 1 includes updated Prior Performance Tables and certain revisions
to the Prospectus. Supplement No. 2 includes descriptions of the acquisition of
ownership interests in certain real properties and revisions to the Prospectus
to reflect the increase in the size of the Board of Directors.
<PAGE>
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
(individually, a "property," collectively, "properties"). The Company's
operations will be managed by Wells Capital, Inc., a Georgia corporation (the
"Advisor"), an Affiliate (as defined herein) 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
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 (as defined
herein) 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 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
Any than By participating in this Offering must be made pursuant to a separate
prospectus. See "Summary of Reinvestment Plan" and Exhibit C hereto.
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 the 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>
<CAPTION>
Proceeds to
Price to Company
Public (1) Selling Commissions (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
</TABLE>
=====================================================================
(See footnotes on following page)
WELLS INVESTMENT SECURITIES, INC.
The date of this Prospectus is January 30, 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 to participating dealers a
warrant to purchase one Share at a price of $12.00 per Share for every 25
Shares sold (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% 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) January 30, 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
January 30, 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>
TABLE OF CONTENTS
Page
----
SUMMARY OF THE OFFERING.................................................. 1
RISK FACTORS............................................................. 9
Investment Risks...................................................... 9
Lack of Liquidity of Shares........................................ 9
Total Reliance on the Advisor...................................... 9
Conflicts of Interest Related to the Company's Affiliates.......... 9
Possible Lack of Diversification Resulting from
Subscriptions for Less than the Maximum Number of Shares......... 10
Substantial Management Compensation.............................. 10
No Identified Sources for Funding of Future
Capital Needs.................................................... 10
Joint Ventures May Negatively Affect the
Company.......................................................... 10
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
Potential Adverse Economic and Regulatory
Changes.......................................................... 11
Blind Pool Offering; Lack of Properties Requires
Total Reliance on Abilities of Advisor........................... 11
Indebtedness on Properties Brings Risks............................ 12
Potential Increased Costs and Delays
Related to Property Development.................................. 12
Competition for Investments........................................ 12
Potential Adverse Effects of Delays in
Investments...................................................... 12
Failure to List and Resulting Liquidation May
Adversely Affect Returns to Stockholders......................... 12
Potential Liabilities Related to Environmental
Matters.......................................................... 13
Uninsured Losses................................................... 13
Tax Risks............................................................. 13
Failure to Qualify as a REIT....................................... 13
REIT Minimum Distribution Requirements;
Possible Incurrence of Additional Debt........................... 13
Failure of the Operating Partnership to be
Classified as a Partnership for Federal
Income Tax Purposes; Impact on REIT
Status............................................................. 14
ERISA Risks........................................................ 14
INVESTOR SUITABILITY STANDARDS........................................... 15
ESTIMATED USE OF PROCEEDS................................................ 17
MANAGEMENT COMPENSATION.................................................. 19
CONFLICTS OF INTEREST.................................................... 21
Interests in Other Companies.......................................... 21
Other Activities of the Advisor and its Affiliates.................... 22
Competition........................................................... 22
Affiliated Dealer Manager............................................. 23
Affiliated Property Manager........................................... 23
Affiliated Developer.................................................. 23
Lack of Separate Representation....................................... 23
Joint Ventures with Affiliates of the Advisor......................... 23
Receipt of Fees and Other Compensation by Advisor
and Affiliates...................................................... 23
Certain Conflict Resolution Procedures................................ 23
SUMMARY OF REINVESTMENT PLAN............................................. 25
General............................................................... 25
Investment of Distributions........................................... 25
Participant Accounts, Fee, and Allocation of Shares................... 25
Reports to Participants............................................... 26
Election to Participate or Terminate Participation.................... 26
Federal Income Tax Considerations..................................... 27
Amendments and Termination............................................ 27
SHARE REPURCHASE PROGRAM................................................. 27
PRIOR PERFORMANCE SUMMARY................................................ 28
Prior Wells Public Programs........................................... 28
MANAGEMENT............................................................... 32
General............................................................... 32
Fiduciary Responsibility of the Board of Directors.................... 32
Directors and Executive Officers...................................... 33
Committees............................................................ 35
Compensation of Directors and Officers................................ 35
THE ADVISOR AND THE ADVISORY AGREEMENT................................... 36
The Advisor........................................................... 36
The Advisory Agreement................................................ 37
WELLS MANAGEMENT......................................................... 39
INVESTMENT OBJECTIVES AND CRITERIA....................................... 40
General............................................................... 40
Acquisition and Investment Policies................................... 40
Development and Construction of Properties............................ 42
Terms of Leases and Lessee Creditworthiness........................... 42
Borrowing Policies.................................................... 43
Joint Venture Investments............................................. 43
Other Policies........................................................ 44
REAL PROPERTY INVESTMENTS................................................ 45
DISTRIBUTION POLICY...................................................... 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................... 46
DESCRIPTION OF CAPITAL STOCK............................................. 46
Common Stock.......................................................... 46
Preferred Stock....................................................... 47
Soliciting Dealer Warrants............................................ 47
Articles of Incorporation and Bylaw Provisions........................ 47
Limitation of Liability and Indemnification........................... 50
Business Combinations................................................. 51
Control Share Acquisition Statute..................................... 51
Amendment to the Articles of Incorporation............................ 52
Dissolution of the Company............................................ 52
Advance Notice of Director Nominations and New
Business............................................................ 53
(i)
<PAGE>
Meeting of Stockholders.............................................. 53
Operations........................................................... 53
Inspection of Books and Records...................................... 53
Restrictions on "Roll-Up" Transactions............................... 53
FEDERAL INCOME TAX CONSIDERATIONS....................................... 55
Taxation of the Company.............................................. 55
Requirements for Qualification....................................... 56
Failure to Qualify................................................... 61
Taxation of Taxable U.S. Shareholders................................ 62
Taxation of Shareholders on the Disposition of the
Shares............................................................. 63
Capital Gains and Losses............................................. 63
Information Reporting Requirements and Backup Withholding............ 63
Taxation of Tax-Exempt Shareholders.................................. 63
Taxation of Non-U.S. Shareholders.................................... 64
Other Tax Consequences............................................... 65
Tax Aspects of the Operating Partnership............................. 65
Sale of the Operating Partnership's Property......................... 68
ERISA CONSIDERATIONS.................................................... 68
Employee Benefit Plans, Tax-Qualified Retirement
Plans, and IRAs.................................................... 69
Status of the Company and the Operating Partnership
under ERISA........................................................ 69
PARTNERSHIP AGREEMENT................................................... 71
Management........................................................... 71
Transferability of Interests in the Operating Partnership............ 71
Capital Contribution................................................. 71
Redemption Rights.................................................... 71
Operations........................................................... 72
Distributions and Allocations........................................ 72
Term................................................................. 73
Tax Matters.......................................................... 73
PLAN OF DISTRIBUTION.................................................... 73
SUPPLEMENTAL SALES MATERIAL............................................. 77
LEGAL MATTERS........................................................... 77
EXPERTS................................................................. 78
ADDITIONAL INFORMATION.................................................. 78
GLOSSARY................................................................ 78
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
(ii)
<PAGE>
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."
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 30, 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
1
<PAGE>
the Company's 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
2
<PAGE>
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 intends to elect to be taxed as a REIT
for federal income 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 OFFERING: It is anticipated that approximately 84% of the
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
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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 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,
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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: (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 The Advisor and other Affiliates will receive
AND 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
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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
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
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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--Fed eral 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 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.
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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 January 30, 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."
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."
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.--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
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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."
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."
SUBSTANTIAL MANAGEMENT COMPENSATION; PROCEEDS TO BENEFIT AFFILIATED
PARTIES. The Advisor and the other Affiliates will perform services for the
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."
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 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
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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."
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
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."
"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
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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."
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 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.
12
<PAGE>
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 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
13
<PAGE>
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 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.
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.
15
<PAGE>
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.
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<PAGE>
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%
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-
17
<PAGE>
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 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.
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<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 MAXIMUM
AND ENTITY RECEIVING OF AMOUNT DOLLAR AMOUNT (1)(2)
- -------------------- ------------- --------------------
ORGANIZATIONAL AND OFFERING STAGE
---------------------------------
<C> <S> <C>
Selling Commissions - The Up to 7% of Gross Offering Proceeds before $10,500,000 at the Maximum
Dealer Manager reallowance of commissions earned by participating Offering and $87,500 at
broker-dealers. The Dealer Manager intends to the Minimum Offering
reallow 100% of commissions earned by participating
broker-dealers.
Reimbursement of Organization Up to 3% of Gross Offering Proceeds. All $4,500,000 at the Maximum
and Offering Expenses - The Organization and Offering Expenses (excluding Offering and $37,500 at
Advisor and its Affiliates Selling Commissions) will be advanced by the Advisor the Minimum Offering.
and its Affiliates and reimbursed by the Company.
Marketing support and due Up to 2.5% of Gross Offering Proceeds for $3,750,000 at the Maximum
diligence expense - Dealer reimbursement of bona fide marketing and due Offering and $31,250 at
Manager and Soliciting diligence expenses. the Minimum Offering.
Dealers
ACQUISITION AND DEVELOPMENT STAGE
---------------------------------
Acquisition and Advisory Fees For the review and evaluation of potential real $4,500,000 at the Maximum
- - The Advisor or its property acquisitions, a fee of up to 3% of Gross Offering and $43,750 at
Affiliates Offering Proceeds, plus reimbursement of costs and the Minimum Offering.
expenses for the acquisition of properties.
Reimbursement of Acquisition Up to .5% of the Gross Offering Proceeds for $750,000 at the Maximum
Expenses - The Advisor reimbursement of expenses related to real property Offering and $6,250 at the
acquisitions, such as legal fees, travel and Minimum Offering.
communication expenses, title insurance premiums
expenses.
OPERATIONAL STAGE
-----------------
Property Management and For supervising the management of the Company's Actual amounts are
Leasing Fees - The properties, a fee equal to 4.5% of the gross rental dependent upon results of
Management Company incomes (approximately 2% - 3% of which is expected operations and therefore
to come from direct tenant chargebacks resulting in cannot be determined at
a net fee payable by each property of 1.5% to 2.5%), the present time.
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.
Real Estate Commissions - The In connection with the sale of any Company property, Actual amounts are
Advisor or Its Affiliates an amount not exceeding the lesser of: (A) 50% of dependent upon results of
the reasonable, customary and Competitive Real operations and therefore
Estate Brokerage Commissions customarily paid for cannot be determined at
the sale of a comparable property in light of the the present time.
size, type and location of the property, or (B) 3%
of the gross sales price of each property (subject
to limitationslimitations), subordinated to
distributions toshareholders from Sale Proceeds of
an amount which,together with prior distributions
to the shareholders, will equal (i) 100% of their
InvestedCapital plus (ii) an 8% per annum cumulative
(noncompounded) return on their Invested Capital
(their "Common Return").
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
Subordinated Incentive fee Upon Listing, a fee equal to 10% of the amount by which (i) Actual amounts are
upon Listing - The Advisor the market value of the Company plus the total distributions dependent upon results of
made to shareholders from the Company's inception until the operations and therefore
date of Listing exceeds (ii) the sum of (A) 100% of Invested cannot be determined at
Capital and (B) the total distributions required to pay the the present time.
Common Return to the shareholders from inception through the
date on which the market value is determined.
LIQUIDATION/TERMINATION STAGE
-----------------------------
Subordinated Participation in After all shareholders have received a return of Actual amounts are
Nonliquidating Net Sale their Invested Capital and their Common Return, then dependent upon results of
Proceeds and Liquidating the Advisor is entitled to receive the following operations and therefore
Distributions - The Advisor amounts: (a) an amount equal to the capital cannot be determined at
contributed by the Advisor to the Operating the present time.
Partnership, (b) then, 10% of remaining Residual
Proceeds available for distribution.
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.
</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.
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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.
================================================================================
| WELLS REAL ESTATE FUNDS, INC. |
================================================================================
| | |
| 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 |
======================= ====================
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 interest of the
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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. 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.
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<PAGE>
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 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
23
<PAGE>
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 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.
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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.
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
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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 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."
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<PAGE>
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.
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.
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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.
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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:
Type of Property New Existing Construction
- ---------------- ----- -------- ------------
Office Buildings 4% 26% 35%
Shopping Centers --- 11% 24%
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.
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
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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
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 hereto for further detail on
the performance of Wells Fund VI.
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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 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.
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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 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
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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."
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company are listed below:
Name Age Positions
---- --- ---------
Leo F. Wells, III 53 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
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
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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-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.
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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.
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.
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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:
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
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 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
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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 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
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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
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 January 30, 1999, 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
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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:
Leo F. Wells, III President
Brian M. Conlon Executive Vice President
Michael C. Berndt Vice President and Chief Financial Officer
M. Scott Meadows Vice President - Property Management
Michael L. Watson Vice President - Construction
Robert H. Stroud Vice President - Leasing
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.
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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 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
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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 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.
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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."
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.
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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.
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."
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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 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.
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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 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.
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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.
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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 for each
Share 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 one year from the effective date of this Offering 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 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
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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 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
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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.
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
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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 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.
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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 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
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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 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 January 30, 2008 (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.
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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.
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
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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, 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,
1998. 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,
1998, 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 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
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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), 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
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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 1998 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 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
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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.
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.
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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 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, option, futures contract, forward rate agreement or similar
financial instrument to reduce its interest rate risk with respect to
indebtedness incurred or to be 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.
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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.
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 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 and retained earnings) 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%
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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 monetary 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 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
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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 or retained capital gains)
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 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.
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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 noncorporate taxpayers
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. The maximum tax rate applicable to noncorporate taxpayers on
long-term capital gain from the sale of "Section 1250 property" (depreciable
real property) is 25% to the extent such gain would have been treated as
ordinary income if the property were "Section 1245 property." With respect to
distributions designated by the Company as capital gain dividends and deemed
distributions of retained capital gains, the Company may designate (subject to
certain limits) whether such a distribution is taxable to shareholders at a 20%,
25% or 28% rate. 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.
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 has issued final regulations regarding the backup withholding rules
as applied to Non-U.S. shareholders. Those regulations would alter the current
system of backup withholding compliance and will be effective for distributions
made after December 31, 1998. 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,
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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.
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 or retained capital
gains 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 has issued
regulations that modify the manner in which the Company complies with the
withholding requirements. Those regulations are effective for distributions
made after December 31, 1998. 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.
The Company is required 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%.
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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 or could be 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 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.
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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 (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 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
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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.
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
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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.
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
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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 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
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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.
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.
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
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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 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.
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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
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 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.
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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 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 January 30,
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.
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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
$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
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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 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.
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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 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."
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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 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.
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"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.
"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.
79
<PAGE>
"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 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.
80
<PAGE>
"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.
"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.
81
<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
OPERATING PARTNERSHIP 200,000
--------
SHAREHOLDER'S EQUITY:
Common shares, $.01 par value; 5,000 shares authorized, 100 shares issued and 1
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
proposed 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 possesses 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.
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-4
<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 Purchase of Property 0.3% 0.0% 0.0% 0.0%
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
Available for Investment 15 mo. 12 mo. (7) (8)
(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 $25,000,000 $24,180,174 $32,042,689 $35,000,000 $125,018,232
to 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 Advisory Fees(3) $ 932,216 $ 846,306 $ 1,281,708 $ 1,400,000 $ 7,099,169
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor(4) $ 2,780,262 $ 1,943,504 $ 1,228,747 $ 161,427 $ 21,533,226
Amount Paid to Sponsor from Operations:
Property Management Fee(1) $ 78,975 $ 58,433 $ 26,780 $ 486 $ 791,998
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): (65,728) (46,235) (10,395) 112,594 (33,006)
Operations
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 Investors: 1,007,107 $ 969,011 643,334 151,336 --
Operating Cash Flow
Return of Capital -- -- 44,257 -- --
Undistributed Cash Flow from Prior
Year Operations 3,672 -- 5,412 -- --
---------- ---------- -----------
Cash Generated (Deficiency) after
Cash Distributions $ (3,672) $ 5,659 $ (59,669) $ 15,412 $ (33,006)
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
Investment -- -- -- -- 100
Property Acquisitions and Deferred
Project Costs (225) (233,501) 2,366,507 7,755,116 4,181,338
---------- ---------- ----------- ----------- -----------
Cash Generated (Deficiency) after Cash
Distributions and $ (3,897) $ (227,842) $(2,426,206) $(2,914,517) $ 5,824,145
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) 0 0 0 0 0
Tax and 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
Invested in Program 100%
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): (2,716) (278,728) (276,376) (2,478)
Operations
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 Year Operations 18,027 216,092 -- --
---------- ------------ ----------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (143,341) $ (216,092) $ 234,119 $ (2,478)
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 Investment -- -- -- 100
Property Acquisitions and Deferred Project Costs 234,924 10,721,376 5,912,454 3,856,239
---------- ------------ ----------- -----------
Cash Generated (Deficiency) after Cash Distributions and $ (378,265) $(10,937,468) $(4,708,217) $(7,195,998)
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) -- -- -- 0
Tax and 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 Invested in Program 100%
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): 20,883 431,728 47,595
Operations
Joint Ventures 760,628 424,304 14,243
--------- ------------ ------------
$ 781,511 $ 856,032 $ 61,838
Less Cash Distributions to Investors: 781,511 $ 856,032 52,195
Operating Cash Flow
Return of Capital 10,805 22,064 --
Undistributed Cash Flow from Prior Year Operations -- 9,643 --
--------- ------------ ------------
Cash Generated (Deficiency) after Cash Distributions $ (10,805) $ (31,707) $ (9,643)
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 Investment -- 100 --
Property Acquisitions and Deferred Project Costs 736,960 14,971,002 4,477,765
--------- ------------ ------------
Cash Generated (Deficiency) after Cash Distributions and $(747,765) $(14,441,804) $(15,555,270)
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 Units 29 30 4
- - Return of Capital Class A Units 14 22 3
- - Return of Capital Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in Program 100%
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): 623,268 204,790
Operations
Joint Ventures 279,984 20,287
----------- ------------
$ 903,252 $ 225,077
Less Cash Distributions to Investors: 903,252 --
Operating Cash Flow
Return of Capital 2,443 --
Undistributed Cash Flow from Prior Year Operations $ 222,077 $
----------- --
Cash Generated (Deficiency) after Cash Distributions $ (227,520) $ 225,077
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 Project Costs 7,931,566 6,618,273
----------- ------------
Cash Generated (Deficiency) after Cash Distributions and $(6,725,699) $(19,441,318)
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 Invested in Program 100%
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 Distributions $ 1,725
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 Project Costs 6,544,019
-----------
Cash Generated (Deficiency) after Cash Distributions and $23,557,385
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 Invested in Program 100%
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
January 30, 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
(1) INDIVIDUAL: One signature required.
(2) JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: All parties must sign.
(3) TENANTS IN COMMON: All parties must sign.
(4) COMMUNITY PROPERTY: Only one investor signature required.
(5) PENSION OR PROFIT SHARING PLANS: The trustee signs the Signature Page.
(6) TRUST: The trustee signs the Signature Page. Provide the name of the
trust, the name of the trustee and the name of the beneficiary.
(7) 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).
(8) 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.
(9) IRA AND IRA ROLLOVERS: Requires signature of authorized signer (e.g., an
officer) of the bank, trust company, or other fiduciary. The address of
the trustee must be provided in order for the trustee to receive checks and
other pertinent information regarding the investment.
(10) KEOGH (HR 10): Same rules as those applicable to IRAs.
(11) UNIFORM GIFT TO MINORS ACT (UGMA) or UNIFORM TRANSFERS TO MINORS ACT
(UTMA): The required signature is that of the custodian, not of the parent
(unless the parent has been designated as the custodian). Only one child
is permitted in each investment under UGMA or UTMA. In addition, designate
the state under which the gift is being made.
B-4
<PAGE>
INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO WELLS REAL ESTATE INVESTMENT TRUST, INC. SUBSCRIPTION AGREEMENT
<TABLE>
<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 Please check the appropriate box to indicate the type of entity or type of individuals
OWNERSHIP subscribing.
- --------------------------------------------------------------------------------------------------------------------------------
3. REGISTRATION Please enter the exact name in which the Shares are to be held. For joint tenants with right
NAME AND of survivorship or tenants in common, include the names of both investors. In the case of
ADDRESS 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 NAME Complete this Section only if the investor's name and address is different from the
AND ADDRESS 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 Please separately initial each representation made by the investor where indicated. Except
SIGNATURE 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 Please check if you plan to make one or more additional investments in the Company. All
INVESTMENTS 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 any other representations and
warranties as set forth in the Prospectus or Subscription
</TABLE>
B-5
<PAGE>
<TABLE>
<C> <S>
- --------------------------------------------------------------------------------------------------------------------------------
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
1.__________________INVESTMENT__________________________________________________
- ------------------------------------- Make Investment Check Payable to:
____________________________ NationsBank, N.A. as Escrow Agent
_________________
# of Shares Total $ Invested [_] Initial Investment (Minimum $1,000)
(#Shares x $10.00=$ Invested) [_] Additional Investment (Minimum
Minimum purchase $1,000 or 100 Shares $25.00)
- -------------------------------------- State in which sale was made______
2.__________________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).
(All additional investments must be made in increments of at least $10.)
3.__________________TYPE OF -------------------
OWNERSHIP__________________________________________________________________
<TABLE>
<CAPTION>
<S> <C>
[_] IRA (06) [_] Individual (01)
[_] Keogh (10) [_] Joint Tenants With Right of Survivorship (02)
[_] Qualified Pension Plan (11) [_] Community Property (03)
[_] Qualified Profit Sharing Plan (12) [_] Tenants in Common (04)
[_] Other Trust__________________________ [_] Custodian: A Custodian for______________________ under
For the Benefit of_____________________ the Uniform Gift to Minors Act of the State of ________ (08)
[_] Partnership (15) [_] Other____________________________________________
4.__________________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 ____________________________________________________
5.__________________INVESTOR NAME AND ADDRESS_________________________________________________________
Please print name(s) in which Shares are to be registered. Include trust name, if applicable.
(Complete only if different from registration name and address).
[_] Mr. [_] Mrs. [_] Ms. [_] MD [_] Ph.D. [_] DDS [_] Other___________________________________________________________
Name___________________________________________________________ Social Security Number
[ ][ ][ ]-[ ][ ]-[ ][ ][ ][ ]
Street Address
or P.O. Box ______________________________________________________________________________________________________
City ______________________________________________ State __________________ Zip Code ___________________________
Home Business
Telephone No. (_____)____________________ Telephone No. (_____)_____________________
Birthdate ________________________________ Occupation ____________________________________________________
</TABLE>
<PAGE>
6.__________________SUBSCRIBER SIGNATURE_______________________________________
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 accept and agree to be bound by the terms and conditions of the Articles
of Incorporation. _______ _______
Initials Initials
(c) I have (i) a net worth (exclusive of home, home furnishings and
automobiles) of $150,000 or more, or (ii) a net worth (as described above)
of at least $45,000 and had during the last tax year or estimate that I
will have during the current tax year a minimum of $45,000 annual gross
income, or that I meet the higher suitability requirements imposed by my
state of primary resident as set forth in the Prospectus under "INVESTOR-
SUITABILITY STANDARDS". _______ _______
Initials Initials
(d) If I am a California resident or if the Person to whom I subsequently
propose to assign or transfer any 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
(e) 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).
<PAGE>
7.__________________DISTRIBUTIONS_______________________________________________
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 __________
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 believe this
investment is suitable for the subscriber as defined in Section 3(b) of
Appendix F and that he has informed subscriber of all aspects of liquidity and
marketability of this investment as required by Section 4 of Appendix F
(Attachment No. 1 to Dealer Agreement).
Broker-Dealer Name___________________________ Telephone No. (____)____________
Broker-Dealer Street
Address or P.O. Box____________________________________________________________
City ___________________________ State ________________________ Zip Code ______
Registered
Representative Name ___________________________ Telephone No. (____)___________
Reg. Rep. Street
Address or P.O. Box____________________________________________________________
City ___________________________ State ________________________ Zip Code ______
______________________________________ ____________________________________
Broker-Dealer Signature, if required Registered Representative Signature
Please mail completed Subscription Agreement (with all signatures) and check(s)
made payable to
NationsBank, N.A., as Escrow Agent
WELLS INVESTMENT SECURITIES, INC.
800-448-1010 or 770-449-7800
Overnight address: Mailing address:
3885 Holcomb Bridge Road P.O. Box 926040
Norcross, Georgia 30092-9209 Norcross, Georgia 30092-9209
ACCEPTANCE BY CORPORATION Amount Date
---------- ----------
Received and Subscription Accepted: Check No. Certificate No.
-------- --------
By: Wells Real Estate Investment Trust, Inc.
------------------------
- ------------------------ -------------------------- ----------------------
Broker-Dealer # Registered Rep # Account #
<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 commenced January 30, 1998, 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 only until the Company begins to issue
certificates for all its outstanding Common Stock.
C-1
<PAGE>
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.
C-2
<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 _______________________
C-3
<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 ______________.
3. The Company's Quarterly Reports on Form l0-Q for the quarters ended
___________________________.
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
C-4
<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 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
C-5
<PAGE>
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 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.
C-6
<PAGE>
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
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.
C-7
<PAGE>
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:
Wells Real Estate Investment Trust, Inc.
Dividend Reinvestment Plan
3885 Holcomb Bridge Rd.
Norcross, GA 30092
C-8
<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:
(l) 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.
C-9
<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>
<CAPTION>
Page
----
<S> <C>
Summary of the Offering.......................... 1
Risk Factors..................................... 9
Investor Suitability Standards................... 15
Estimated Use of Proceeds........................ 17
Management Compensation.......................... 19
Conflicts of Interest............................ 21
Summary of Reinvestment Plan..................... 25
Share Repurchase Program......................... 27
Prior Performance Summary........................ 28
Management....................................... 32
The Advisor and the Advisory Agreement........... 36
Wells Management................................. 39
Investment Objectives and Criteria............... 40
Real Property Investments........................ 45
Distribution Policy.............................. 45
Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 46
Description of Capital Stock..................... 46
Federal Income Tax Considerations................ 55
ERISA Considerations............................. 68
Partnership Agreement............................ 71
Plan of Distribution............................. 73
Supplemental Sales Material...................... 77
Legal Matters.................................... 77
Experts.......................................... 78
Additional Information........................... 78
Glossary......................................... 78
Financial Statements............................. F-1
</TABLE>
Until April 30, 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 Dealers.
- --------------------------------------------------------------------------------
15,000,000 Shares of Common Stock
<PAGE>
WELLS REAL ESTATE
INVESTMENT TRUST, INC.
___________________
PROSPECTUS
___________________
WELLS INVESTMENT SECURITIES, INC.
January 30, 1998
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 1 DATED APRIL 20, 1998 TO THE PROSPECTUS
DATED JANUARY 30, 1998
This document supplements, and should be read in conjunction with, the
Prospectus of Wells Real Estate Investment Trust, Inc. dated January 30, 1998
(the "Prospectus"). Unless otherwise defined herein, capitalized terms used in
this Supplement shall have the same meanings as set forth in the Prospectus.
The purpose of this Supplement is to describe the following:
(i) The status of the offering of shares of common stock (the
"Shares") in Wells Real Estate Investment Trust, Inc. (the "Company");
(ii) Updated Prior Performance Tables included as Exhibit A to the
Prospectus; and
(iii) Revisions to the "INVESTOR SUITABILITY STANDARDS" and "PLAN OF
DISTRIBUTION" sections of the Prospectus.
STATUS OF THE OFFERING
Pursuant to the Prospectus, the offering of Shares in the Company commenced
on January 30, 1998. As of April 17, 1998, the Company had raised a total of
$451,700 in offering proceeds (45,170 Shares), which offering proceeds are being
held in escrow until the Company closes the Minimum Offering in accordance with
the terms of the Prospectus.
PRIOR PERFORMANCE TABLES
Prior Performance Tables dated as of December 31, 1997 are included as
Exhibit A to this Supplement.
INVESTOR SUITABILITY STANDARDS
The information contained on page 15 in the "INVESTOR SUITABILITY
STANDARDS" section of the Prospectus is revised as of the date of this
Supplement by the deletion of the fourth full paragraph of that section and the
insertion of the following paragraph in lieu thereof:
The minimum purchase is 100 Shares ($1,000) (except in certain states
and as otherwise 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 2.5 Shares ($25). 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 2.5
Shares ($25), except for (i) those made by investors in Maine, who must
still meet the minimum investment requirement for Maine residents of $1,000
for IRAs and $2,500 for non-IRAs, (ii) purchases of Shares pursuant to the
Reinvestment Plan, which may be in lesser amounts, and (iii) the minimum
purchase requirement for Minnesota investors other than IRAs and Qualified
Plans of 250 Shares ($2,500), and the minimum purchase for Minnesota IRAs
and Qualified Plans of 200 Shares ($2,000).
<PAGE>
PLAN OF DISTRIBUTION
The information contained on page 77 in the "PLAN OF DISTRIBUTION" section
of the Prospectus is revised as of the date of this Supplement by the deletion
of the second full paragraph on that page and the insertion of the following
paragraph in lieu thereof:
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 the year of subscription, $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 a 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. In the event
that Listing of the Shares occurs at any time prior to the end of the sixth
year following termination of the Offering, however, the obligation of the
Company and its Shareholders to make any further payments of commissions
under the Deferred Commission Option shall terminate, and participating
broker-dealers will not be entitled to receive any further portion of their
commissions following Listing of the Company's Shares.
2
<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 ("Wells Prior Public 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 Wells Prior Public Programs' Properties. The financial results of
the Wells Prior Public 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
Wells Prior Public 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.
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, 1994. Information is provided with regard to the manner in which
the proceeds of the offerings have been applied. Also set forth is information
pertaining to the timing and length of these offerings and the time period over
which the proceeds have been invested in the properties.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real
Estate Fund Estate Fund Estate Fund Estate Fund
VII, L.P. VIII, L.P. IX, L.P. X, L.P.
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Dollar Amount Raised $24,180,174/(3)/ $32,042,689/(4)/ $35,000,000/(5)/ $27,128,912/(6)/
=========== =========== =========== ===========
Percentage Amount Raised 100.0%/(3)/ 100.0%/(4)/ 100.0%/(5)/ 100.0%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 10.0% 10.0%
Organizational Expenses 5.0% 5.0% 5.0% 5.0%
Reserves/(1)/ 1.0% 0.0% 0.0% 0.0%
---- ---- ---- ----
Percent Available for Investment 84.0% 85.0% 85.0% 85.0%
Acquisition and Development Costs
Prepaid Items and Fees related to Purchase of Property 0.0% 0.2% 0.0% 0.0%
Cash Down Payment 16.3% 29.2% 0.0% 0.0%
Acquisition Fees/(2)/ 3.5% 4.5% 4.5% 4.5%
Development and Construction Costs 64.2% 48.0% 50.4% 14.4%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0% 0.0%
---- ---- ---- ----
Total Acquisition and Development Cost 84.0% 81.9% 54.9% 18.9%
---- ---- ---- ----
Percent Leveraged 0.0% 0.0% 0.0% 0.00%
==== ==== ==== ====
Date Offering Began 04/05/94 01/06/95 01/05/96 12/31/96
Length of Offering 12 mo. 12 mo. 12 mo. 12 mo.
Months to Invest 90% of Amount Available for
Investment (Measured from Beginning of Offering) 12 mo. 17 mo. /(7)/ /(8)/
Number of Investors 1,917 2,242 2,115 1,806
</TABLE>
_______________________
(1) Does not include General Partner contributions held as part of reserves.
(2) Includes acquisition 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 VII, L.P. closed its offering on January 5, 1995,
and the total dollar amount raised was $24,180,174.
(4) 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.
(5) 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.
(6) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund X, L.P. closed its offering on December 30, 1997,
and the total dollar amount raised was $27,128,912.
(7) As of December 31, 1997, 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, 1997 was 70.3% 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, 1997 was 83.5% of the total dollar
amount raised.
(8) As of December 31, 1997, Wells Real Estate Fund X, 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, 1997 was 17.7% 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, 1997 was 32.8% 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, 1994. These partnerships have
not sold or refinanced any of their properties to date. All figures are as of
December 31, 1997.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real Other
Estate Fund Estate Fund Estate Fund Estate Fund Public
VII, L.P. VIII, L.P. IX, L.P. X, L.P. Programs/(1)/
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Date Offering Commenced 04/05/94 01/06/95 01/05/96 12/31/96 --
Dollar Amount Raised $24,180,174 $32,042,689 $35,000,000 $27,128,912 $150,018,232
to Sponsor from Proceeds of Offering:
Underwriting Fees/(2)/ $ 178,122 $ 174,295 $ 309,556 $ 260,748 $ 571,739
Acquisition Fees
Real Estate Commissions -- -- -- -- --
Acquisition and Advisory Fees/(3)/ $ 846,306 $ 1,281,708 $ 1,400,000 $ 1,085,157 $ 8,031,385
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor/(4)/ $ 3,850,827 $ 1,630,740 $ 1,305,840 $ 438,195 $ 29,081,439
Amount Paid to Sponsor from Operations:
Property Management Fee/(1)/ $ 124,934 $ 85,523 $ 19,539 $ 0 $ 857,695
Partnership Management Fee -- -- -- -- --
Reimbursements $ 159,036 $ 112,773 $ 32,349 $ 11,137 $ 1,187,273
Leasing Commissions $ 97,856 $ 91,566 $ 29,162 $ 0 $ 800,710
General Partner Distributions -- -- -- -- 15,205
Other -- -- -- -- --
Dollar Amount of Property Sales and Refinancing
Payments to Sponsors:
Cash -- -- -- -- --
Notes -- -- -- -- --
Amount Paid to Sponsor from Property Sales
and Refinancing:
Real Estate Commissions -- -- -- -- --
Incentive Fees -- -- -- -- --
Other -- -- -- -- --
</TABLE>
____________________
(1) Includes compensation paid to General Partners from Wells Real Estate Fund
I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real
Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate
Fund V, L.P. and Wells Real Estate Fund VI, L.P. during the past three
years. In addition to the amounts shown, Affiliates of the 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 Wells Real Estate Fund I. At December 31,
1997, the amount of such fees due the General Partners totaled $2,088,727.
(2) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offerings of Wells Real
Estate Funds VII, VIII, IX and X, which were not reallowed to participating
broker-dealers.
(3) Fees paid to the General Partners or their Affiliates for acquisition and
advisory services in connection with the review and evaluation of potential
real property acquisitions.
(4) Includes $409,361 in net cash provided by operating activities, $3,059,640
in distributions to limited partners and $381,826 in payments to sponsor for
Wells Real Estate Fund VII, L.P.; $464,964 in net cash provided by operating
activities, $875,914 in distributions to limited partners and $289,862 in
payments to sponsor for Wells Real Estate Fund VIII, L.P.; $2,540 in net
cash provided by operating activities, $1,221,764 in distributions to
limited partners and $81,536 in payments to sponsor for Wells Real Estate
Fund IX, L.P.; $449,332 in net cash used by operating activities, $0 in
distributions to limited partners and $11,137 in payments to sponsor for
Wells Real Estate Fund X, L.P.; and $855,331 in net cash provided by
operating activities, $19,618,669 in distributions to limited partners and
$2,748,101 in payments to sponsor for other public programs.
A-3
<PAGE>
TABLE III
(UNAUDITED)
The following six (6) tables set forth operating results of prior programs
sponsored by the General Partners the offerings of which have been completed
since December 31, 1992. 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>
1997 1996 1995 1994 1993
------------ ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 633,247 $ 590,839 $ 764,624 $ 656,958 $ 458,213
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 72,404 78,939 68,735 88,987 96,964
Depreciation and Amortization/(3)/ 1,042 6,250 6,250 6,250 6,250
---------- ---------- ---------- ----------- -----------
Net Income (Loss) GAAP Basis/(4)/ $ 559,801 $ 505,650 $ 689,639 $ 561,721 $ 354,999
Taxable Income (Loss): Operations ========== ========== ========== =========== ===========
Cash Generated (Used By): $ 763,486 $ 666,780 $ 676,367 $ 528,025 $ 280,000
Operations ========== ========== ========== =========== ===========
Joint Ventures
(66,556) (65,728) (46,235) (10,395) 112,594
1,121,000 1,072,835 1,020,905 653,729 54,154
---------- ---------- ---------- ----------- -----------
$1,054,444 $1,007,107 $ 974,670 $ 643,334 $ 166,748
Less Cash Distributions to Investors:
Operating Cash Flow 1,054,444 1,007,107 969,011 643,334 151,336
Return of Capital 4,487 -- -- 44,257 --
Undistributed Cash Flow from Prior Year Operations 1,987 3,672 -- 15,412 --
---------- ---------- ---------- ----------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (6,474) $ (3,672) $ 5,659 $ (59,669) $ 15,412
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions __ -- -- -- --
Increase in Limited Partner Contributions -- -- -- -- 5,589,786
---------- ---------- ---------- ----------- -----------
$ __ $ (3,672) $ 5,659 $ (59,669) $ 5,605,198
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- 764,599
Return of Original Limited Partner's Investment -- -- -- --
Property Acquisitions and Deferred Project Costs (154,131) (225) (233,501) 2,366,507 7,755,116
Cash Generated (Deficiency) after Cash Distributions and ---------- ---------- ---------- ----------- -----------
Special Items
$ (160,605) $ (3,897) $ (227,842) $(2,426,176) $(2,914,517)
========== ========== ========== =========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 36 71 73 58 29
- Operations Class B Units 0 (378) (272) (180) (54)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 74 69 69 55 36
- Operations Class B Units (256) (260) (246) (181) (58)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 36 65 63 46 10
- Return of Capital Class A Units 32 -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 68 65 63 43 10
- Return of Capital Class A Units -- -- -- 3 --
- Operations Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
_________________
(1) Includes $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; $577,128 in equity in earnings of joint ventures and $13,711
from investment of reserve funds in 1996; and $623,249 in equity in earnings
of joint ventures and $9,998 from investment of reserve funds in 1997. At
December 31, 1997, the leasing status of all developed property was 95%.
(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, $592,281 for 1996, and $735,315 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated as follows: $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, $(434,564) to Class B Limited Partners and $0 to
General Partners for 1995; $1,095,296 to Class A Limited Partners,
$(589,646) to Class B Limited Partners and $0 to General Partners for 1996;
and $559,801 to Class A Limited Partners, $0 to Class B Limited Partners and
$0 to General Partners in 1997.
A-5
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VI, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ -------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 884,802 $ 675,782 $ 1,002,567 $ 819,535 $ 82,723
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 82,898 80,479 94,489 112,389 46,608
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250 4,687
---------- ---------- ------------ ----------- -----------
Net Income GAAP Basis/(4)/ $ 795,654 $ 589,053 $ 901,828 $ 700,896 $ 31,428
Taxable Loss: Operations ========== ========== ============ =========== ===========
Cash Generated (Used By): $1,091,770 $ 809,389 $ 916, 531 $ 667,682 $ 31,428
Operations ========== ========== ============ =========== ===========
Joint Ventures
(57,206) (2,716) 278,728 276,376 (2,478)
1,500,023 1,044,891 766,212 203,543 --
---------- ---------- ------------ ----------- -----------
Less Cash Distributions to Investors:
Operating Cash Flow $1,442,817 $1,042,175 $ 1,044,940 $ 479,919 $ (2,478)
Return of Capital
1,442,817 1,042,175 1,044,940 245,800 --
Undistributed Cash Flow from Prior Year Operations 9,986 125,314 -- -- --
-- 18,027 $ 216,092 -- --
---------- ------------ ---------- ------------
Cash Generated (Deficiency) after Cash Distributions $ (9,986) $ (143,341) (216,092 $ 234,119 $ (2,478)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- 12,836,461 12,836,539
---------- ---------- ------------ ----------- ------------
$ (9,986) $ (143,341) $ (216,092) $12,397,580 $12,834,061
Use of Funds:
Sales Commissions and Offering Expenses -- -- 1,776,909 1,781,724
Return of Original Limited Partner's Investment -- -- -- 100
Property Acquisitions and Deferred Project Costs 310,759 234,924 10,721,376 5,912,454 3,856,239
Cash Generated (Deficiency) after Cash Distributions and ---------- ---------- ------------ ----------- ------------
Special Items
$ (320,745) $ (378,265) $(10,937,468 $ 4,708,217 $ 7,195,998
========== ========== ============ =========== ============
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 78 59 57 43 9
- Operations Class B Units (247) (160) (60) (12) (5)
Capital Gain (Loss) -- -- -- -- 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 75 56 56 41 1
- Operations Class B Units (150) (99) (51) (22) --
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 67 56 57 14 --
- Return of Capital Class A Units -- -- 4 -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 67 50 61 14 --
- Return of Capital Class A Units 0 6 -- -- --
- Operations Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
(1) Includes $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, $607,214 in equity in earnings of joint ventures and $68,568
from investment of reserve funds in 1996, and $856,710 in equity in earnings
of joint ventures and $28,092 from investment of reserve funds in 1997. At
December 31, 1997, the leasing status was 94%.
(2) Includes partnership administrative expenses.
(3) Included in equity in loss of joint ventures in gross revenues is
depreciation of $3,436 for 1993, $107,807 for 1994, $264,866 for 1995,
$648,478 for 1996, and $896,753 for 1997.
(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; $1,234,717 to Class A Limited
Partners, $(645,664) to Class B Limited Partners and $0 to the General
Partners for 1996; and $1,677,826 to Class A Limited Partners, $(882,172) to
Class B Limited Partners and $0 to the General Partners for 1997.
A-6
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ----------- -------------- ------------- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 816,237 $ 543,291 $ 925,246 $ 286,371 N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 76,838 84,265 114,953 78,420
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 4,688
---------- --------- ------------ -----------
Net Income GAAP Basis/(4)/ $ 733,149 $ 452,776 $ 804,043 $ 203,263
========== ========= ============ ===========
Taxable Income: Operations $1,008,368 $ 657,443 $ 812,402 $ 195,067
========== ========= ============ ===========
Cash Generated (Used By):
Operations (43,250) 20,883 431,728 47,595
Joint Ventures 1,420,126 760,628 424,304 14,243
---------- --------- ------------ -----------
$1,376,876 $ 781,511 $ 856,032 $ 61,838
Less Cash Distributions to Investors:
Operating Cash Flow 1,376,876 781,511 856,032 52,195
Return of Capital 2,709 10,805 22,064 --
Undistributed Cash Flow from Prior Year Operations -- -- 9,643 --
---------- --------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ (2,709) $ (10,805) $ (31,707) $ 9,643
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- --
Increase in Limited Partner Contributions $ -- $ -- $ 805,212 $23,374,961
---------- --------- ------------ -----------
$ (2,709) $ (10,805) $ 773,505 $23,384,604
Use of Funds:
Sales Commissions and Offering Expenses -- -- 244,207 $ 3,351,569
Return of Original Limited Partner's Investment -- -- 100 --
Property Acquisitions and Deferred Project Costs 169,172 736,960 14,971,002 4,477,765
---------- --------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (171,881) $(747,765) $(14,441,804) $15,555,270
========== ========= ============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 86 62 57 29
- Operations Class B Units (168) (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 78 55 55 28
- Operations Class B Units (111) (58) (16) 17
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 70 43 52 7
- Return of Capital Class A Units -- -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 70 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 Units 54 29 30 4
- Return of Capital Class A Units 16 14 22 3
- Return of Capital Class B Units -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
____________________
(1) Includes $78,799 in equity in earnings of joint ventures and $207,572 from
investment of reserve funds in 1994, $403,325 in equity in earnings of joint
ventures and $521,921 from investment of reserve funds in 1995, $457,144 in
equity in earnings of joint ventures and $86,147 from investment of reserve
funds in 1996, and $785,398 in equity in earnings of joint ventures and
$30,839 from investment of reserve funds in 1997. At December 31, 1997, the
leasing status was 92% 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, $605,247 for 1996, and
$877,869 for 1997.
(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; $1,062,605
to Class A Limited Partners, $(609,829) to Class B Limited Partners and $0
to the General Partners for 1996; and $1,615,965 to class A Limited
Partners, $(882,816) to Class B Limited Partners and $0 to the General
Partners for 1997.
(footnotes continued on following page)
A-7
<PAGE>
(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, 1997, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$972,030.
A-8
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------------- ------------- ------------ ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,204,018 $ 1,057,694 $ 402,428 N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 95,201 114,854 122,264
Depreciation and Amortization/(3)/ 6,250 6,250 6,250
------------ ----------- -----------
Net Income GAAP Basis/(4)/ $ 1,102,567 $ 936,590 273,914
============ =========== ===========
Taxable Income: Operations $ 1,213,524 $ 1,001,974 404,348
============ =========== ===========
Cash Generated (Used By):
Operations 7,909 623,268 204,790
Joint Ventures 1,229,282 279,984 20,287
------------ ----------- -----------
$ 1,237,191 $ 903,252 225,077
Less Cash Distributions to Investors:
Operating Cash Flow 1,237,191 903,252 --
Return of Capital 183,315 2,443 --
Undistributed Cash Flow from Prior Year Operations -- 225,077 --
------------ ----------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (183,315) $ (227,520) 225,077
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions/(5)/ -- 1,898,147 30,144,542
------------ ----------- -----------
$ (183,315) $ 1,670,627 30,369,619
Use of Funds:
Sales Commissions and Offering Expenses -- 464,760 4,310,028
Return of Limited Partner's Investment 8,600 -- --
Property Acquisitions and Deferred Project Costs 10,675,811 7,931,566 6,618,273
------------ ----------- -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(10,867,726) $(6,725,699) 19,441,318
============ =========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 73 46 28
- Operations Class B Units (150) (47) (3)
Capital Gain (Loss) -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 65 46 17
- Operations Class B Units (95) (33) (3)
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 54 43 --
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 47 43 --
- Return of Capital Class A Units 7 0 --
- Operations Class B Units -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 42 33 --
- Return of Capital Class A Units 12 10 --
- Return of Capital Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
_______________________
(1) Includes $28,377 in equity in earnings of joint ventures and $374,051 from
investment of reserve funds in 1995, $241,819 in equity in earnings of joint
ventures and $815,875 from investment of reserve funds in 1996, and
$1,034,907 in equity in earnings of joint ventures and $169,111 from
investment of reserve funds in 1997. At December 31, 1997, the leasing
status was 96% 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, $265,259 for 1996, and $841,666 for 1997.
(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; $1,207,540 to Class A Limited Partners, $(270,653) to
Class B Limited Partners and $(297) to the General Partners for 1996; and
$1,947,536 to Class A Limited Partners, $(844,969) to Class B Limited
Partners and $0 to the General Partners for 1997.
(footnotes continued on following page)
A-9
<PAGE>
(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, 1997, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$551,455.
A-10
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------------- ------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,199,300 $ 406,891 N/A N/A N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 101,284 101,885
Depreciation and Amortization/(3)/ 6,250 6,250
------------ -----------
Net Income GAAP Basis/(4)/ $ 1,091,766 $ 298,756
============ ===========
Taxable Income: Operations $ 1,083,824 $ 304,552
============ ===========
Cash Generated (Used By):
Operations $ 501,390 $ 151,150
Joint Ventures 527,390 --
------------ -----------
$ 1,028,780 $ 151,150
Less Cash Distributions to Investors:
Operating Cash Flow 1,028,780 149,425
Return of Capital $ 41,834 $ --
Undistributed Cash Flow From Prior Year Operations 1,725 --
------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ (43,559) $ 1,725
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- --
Increase in Limited Partner Contributions -- 35,000,000
------------ -----------
$ (43,559) $35,001,725
Use of Funds:
Sales Commissions and Offering Expenses 323,039 4,900,321
Return of Original Limited Partner's Investment 100 --
Property Acquisitions and Deferred Project Costs 13,427,158 6,544,019
------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(13,793,856) $23,557,385
============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 53 28
- Operations Class B Units (77) (11)
Capital Gain (Loss) -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 46 26
- Operations Class B Units (47) (48)
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 36 13
- Return of Capital Class A Units -- --
- Return of Capital Class B Units -- --
Source (on Cash Basis)
- Operations Class A Units 35 13
- Return of Capital Class A Units 1 --
- Operations Class B Units -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 29 10
- Return of Capital Class A Units 7 3
- Return of Capital Class B Units -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
___________________________
(1) Includes $23,077 in equity in earnings of joint ventures and $383,884 from
investment of reserve funds in 1996, and $593,914 in equity in earnings of
joint ventures and $605,386 from investment of reserve funds in 1997. At
December 31, 1997, 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 $25,286 for 1996, and $469,126 for 1997.
(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; and $1,564,778 to Class A Limited Partners, $(472,806) to
Class B Limited Partners and $(206) to the General Partners for 1997.
(footnotes continued on following page)
A-11
<PAGE>
(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, 1997, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$236,379.
A-12
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 372,507 N/A N/A N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 88,232
Depreciation and Amortization/(3)/ 6,250
-----------
Net Income GAAP Basis/(4)/ $ 278,025
===========
Taxable Income: Operations $ 382,543
===========
Cash Generated (Used By):
Operations $ 200,668
===========
Joint Ventures $ 200,668
Less Cash Distributions to Investors:
Operating Cash Flow --
Return of Capital --
Undistributed Cash Flow From Prior Year Operations --
-----------
Cash Generated (Deficiency) after Cash Distributions $ 200,668
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions --
Increase in Limited Partner Contributions $27,128,912
-----------
$27,329,580
Use of Funds:
Sales Commissions and Offering Expenses 3,737,363
Return of Original Limited Partner's Investment 100
Property Acquisitions and Deferred Project Costs 5,188,485
-----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $18,403,632
===========
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 (9)
Capital Gain (Loss) --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 35
- Operations Class B Units 0
Capital Gain (Loss) --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units --
- Return of Capital Class A Units --
- Return of Capital Class B Units --
Source (on Cash Basis)
- Operations Class A Units --
- Return of Capital Class A Units --
- Operations Class B Units --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units --
- Return of Capital Class A Units --
- Return of Capital Class B Units --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
(1) Includes $(10,035) in equity in earnings of joint ventures and $382,542 from
investment of reserve funds in 1997. At December 31, 1997, the leasing
status was 67% 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 $18,675 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $302,862 to Class A Limited
Partners, $(24,675) to Class B Limited Partners and $(162) to the General
Partners for 1997.
(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, 1997, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled $0.
A-13
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 2 DATED JUNE 30, 1998 TO THE PROSPECTUS
DATED JANUARY 30, 1998
This document supplements, and should be read in conjunction with, the
Prospectus of Wells Real Estate Investment Trust, Inc. dated January 30, 1998,
as supplemented and amended by Supplement No. 1 dated April 20, 1998
(collectively, the "Prospectus"). Unless otherwise defined herein, capitalized
terms used in this Supplement shall have the same meanings as set forth in the
Prospectus.
The purpose of this Supplement is to describe the following:
(i) The status of the offering of shares of common stock (the "Shares")
in Wells Real Estate Investment Trust, Inc. (the "Company");
(ii) Revisions to the "MANAGEMENT" section of the Prospectus;
(iii) Revisions to the "REAL PROPERTY INVESTMENTS" section of the Prospectus;
(iv) Revisions to the "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" section of the Prospectus; and
(v) Inclusion of Audited and Pro Forma Financial Statements as described in
the "Financial Statements" section of this Supplement.
STATUS OF THE OFFERING
Pursuant to the Prospectus, the offering of Shares in the Company commenced on
January 30, 1998. The Company commenced operations on June 5, 1998, upon the
acceptance of subscriptions for the minimum offering of $1,250,000 (125,000
Shares). As of June 30, 1998, the Company had raised a total of $2,683,595 in
offering proceeds (268,359 Shares).
MANAGEMENT
The information contained on page 32 in the "General" subsection of the
"MANAGEMENT" section of the Prospectus is revised as of the date of this
Supplement by the deletion of the second full paragraph in that subsection and
the insertion of the following paragraph in lieu thereof:
The Company currently has nine 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.
The information beginning on page 33 in the "MANAGEMENT" section of the
Prospectus is revised as of the date of this Supplement by the deletion of the
entire text of the "Directors and Executive Officers" subsection and the
insertion of the following in lieu thereof:
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company are listed below:
Name Age Positions
---- --- ---------
Leo F. Wells, III 53 President and Director
Brian M. Conlon 40 Executive Vice President, Treasurer,
Secretary and Director
<PAGE>
John L. Bell 58 Independent Director
Richard W. Carpenter 61 Independent Director
Walter W. Sessoms 64 Independent Director
Bud Carter 60 Independent Director
William H. Keogler, Jr. 52 Independent Director
Donald S. Moss 62 Independent Director
Neil H. Strickland 62 Independent Director
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. Mr. Wells 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. ("Wells Management"), a property management
company he founded in 1983; Wells Investment Securities, Inc. (the Dealer
Manager), a registered securities broker-dealer he formed in 1984; Wells
Advisors, Inc., a company he organized in 1991 to act as a non-bank custodian
for IRAs; and Wells Development Corporation ("Wells Development"), a company he
organized in 1997 to temporarily own, operate, manage, and/or develop real
properties.
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 25
real estate limited partnerships formed for the purpose of acquiring, developing
and operating office buildings and other commercial properties. As of June 16,
1998, these 25 real estate limited partnerships represented investments
totalling $282,525,732 from 25,800 investors. See "Prior Performance Tables"
contained in Supplement No. 1 to the Prospectus.
BRIAN M. CONLON is the Executive Vice President, Secretary, Treasurer and a
Director of the Company. He also serves as Executive Vice President of
both the Advisor and Wells Development. 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).
He is also a general securities principal and holds a Georgia real estate
brokerage license. 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 was the owner and Chairman of Bell-Mann, Inc., the largest
commercial flooring contractor in the Southeast ("Bell-Mann") from February
1971 to February 1996.
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Mr. Bell also served on the Board of Directors of Realty South Investors, a REIT
traded 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 a "Dealer Acquisition Plan" for Shaw Industries, Inc.,
a floor covering manufacturer and distributor, which plan included the
acquisition of Bell-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 both 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 of 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
primarily for investment in commercial real estate within the United States.
Mr. Carpenter is currently President and Director of Realmark Holdings
Corp., a residential and commercial real estate 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 of
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 consulting 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 REIT
investing in commercial properties. 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 to June 1989, Senior Vice President-Regulatory and
External Affairs from June 1989 to 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.
BUD CARTER was an award-winning broadcast news director and anchorman for
several radio and television stations in the Midwest for over 20 years. From
1975 to 1980, Mr. Carter served as General Manager of WTAZ-FM, a radio station
in Peoria, Illinois and served as editor
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and publisher of The Peoria Press, a weekly business and political journal in
Peoria, Illinois. From 1981 until 1989, Mr. Carter was also an owner and General
Manager of Transitions, Inc., a corporate outplacement company in Atlanta,
Georgia.
Mr. Carter currently serves as Senior Vice President for The Executive
Committee, a 42-year old international organization established to aid
presidents and CEOs share ideas on ways to improve the management and
profitability of their respective companies. The Executive Committee operates in
numerous large cities throughout the United States, Canada, Australia, France,
Italy, Malaysia, Brazil, the United Kingdom and Japan. The Executive Committee
has more than 6,000 presidents and CEOs who are members. In addition, Mr. Carter
was the first Chairman of the organization recruited in Atlanta and still serves
as Chairman of the first two groups formed in Atlanta, each comprised of 14
noncompeting CEOs and presidents. Mr. Carter is a graduate of the University of
Missouri where he earned degrees in journalism and social psychology.
WILLIAM H. KEOGLER, JR. was employed by Brooke Bond Foods, Inc. as a Sales
Manager from June 1965 to September 1968. From July 1968 to December 1974, Mr.
Keogler was employed by Kidder Peabody & Company, Inc. and Dupont, Glore, Forgan
as a corporate bond salesman responsible for managing the industrial corporate
bond desk and the utility bond area. From December 1974 to July 1982, Mr.
Keogler was employed by Robinson-Humphrey, Inc. as the Director of Fixed Income
Trading Departments responsible for all municipal bond trading and municipal
research, corporate and government bond trading, unit trusts and SBA/FHA loans,
as well as the oversight of the publishing of the Robinson-Humphrey Southeast
Unit Trust, a quarterly newsletter. Mr. Keogler was elected to the Board of
Directors of Robinson-Humphrey, Inc. in 1982. From July 1982 to October 1984,
Mr. Keogler was Executive Vice President, Chief Operating Officer, Chairman of
the Executive Investment Committee and member of the Board of Directors and
Chairman of the MFA Advisory Board for the Financial Service Corporation. He was
responsible for the creation of a full service trading department specializing
in general securities with emphasis on municipal bonds and municipal trusts.
Under his leadership, Financial Service Corporation grew to over 1,000
registered representatives and over 650 branch offices. In March 1985, Mr.
Keogler founded the investment firm of Keogler, Morgan & Company, Inc., a full
service brokerage firm. Mr. Keogler currently serves as Chairman of the Board of
Directors, President and Chief Executive Officer of Keogler, Morgan & Company,
Inc. The firm now employs over 500 registered representatives.
Mr. Keogler serves on the Board of Trustees of Senior Citizens Services of
Atlanta. He graduated from Adelphi University in New York where he earned
a degree in psychology.
DONALD S. MOSS was employed by Avon Products, Inc. ("Avon") from 1957 until
his retirement in 1986. While at Avon, Mr. Moss served in a number of key
positions, including Vice President and Controller from 1973 to 1976, Group Vice
President of Operations-Worldwide from 1976 to 1979, Group Vice President of
Sales-Worldwide from 1979 to 1980, Senior Vice President-International from 1980
to 1983 and Group Vice President-Human Resources and Administration from 1983
until his retirement in 1986. Mr. Moss was also a member of the board of
directors of Avon Canada, Avon Japan, Avon Thailand, and Avon Malaysia from
1980-1983.
Mr. Moss is currently a Director of the Atlanta Athletic Club. He formerly
was the National Treasurer and a Director of the Girls Clubs of America from
1973 to 1976. Mr. Moss graduated from the University of Illinois where he
received a degree in business.
NEIL H. STRICKLAND was employed by Loyalty Group Insurance (which
subsequently merged with America Fore Loyalty Group and is now known as The
Continental Group) as an automobile insurance underwriter. From 1957 to 1961,
Mr. Strickland served as Assistant Supervisor of the Casualty Large Lines
Retrospective Rating Department. From 1961 to 1964,
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Mr. Strickland served as Branch Manager of Wolverine Insurance Company, a full
service property and casualty service company, where he had full responsibility
for underwriting of insurance and office administration in the State of Georgia.
In 1964, Mr. Strickland and a non-active partner started Superior Insurance
Service, Inc., a property and casualty wholesale general insurance agency. Mr.
Strickland served as President and was responsible for the underwriting and all
other operations of the agency. In 1967, Mr. Strickland sold his interest in
Superior Insurance Service, Inc. and started Strickland General Agency, Inc., a
property and casualty general insurance agency concentrating on commercial
customers. Mr. Strickland is currently the Senior Operation Executive of
Strickland General Agency, Inc. and devotes most of his time to long-term
planning, policy development and senior administration.
Mr. Strickland is a past President of the Norcross Kiwanis Club and served
as both Vice President and President of the Georgia Surplus Lines Association.
He also served as President and a Director of the National Association of
Professional Surplus Lines Offices. Mr. Strickland currently serves as a
Director of First Capital Bank, a community bank located in the State of
Georgia. Mr. Strickland graduated from Georgia State University where he
received a degree in business administration. He also received an L.L.B. degree
from Atlanta Law School.
REAL PROPERTY INVESTMENTS
The information contained on page 45 in the "REAL PROPERTY INVESTMENTS"
section of the Prospectus is revised as of the date of this Supplement by the
deletion of the first paragraph of that section and the insertion of the
following paragraphs in lieu thereof:
JOINT VENTURE AGREEMENT
The Company, as sole general partner of Wells Operating Partnership,
L.P. ("Wells OP"), a Georgia limited partnership organized to own and
operate properties on behalf of the Company, entered into an Amended and
Restated Joint Venture Agreement (the "Joint Venture Agreement") with Wells
Real Estate Fund IX, L.P. ("Wells Fund IX"), Wells Real Estate Fund X, L.P.
("Wells Fund X") and Wells Real Estate Fund XI, L.P. ("Wells Fund XI")
known as The Fund IX, Fund X, Fund XI and REIT Joint Venture (the "Joint
Venture") for the purpose of the acquisition, ownership, development,
leasing, operation, sale and management of real properties. Wells Fund IX,
Wells Fund X and Wells Fund XI are all Affiliates of the Company and the
Advisor. The Joint Venture (formerly known as "Fund IX and X Associates")
was originally formed on March 20, 1997 between Wells Fund IX and Wells
Fund X, and on June 11, 1998, Wells Fund XI and Wells OP were admitted as
joint venturers to the Joint Venture. The investment objectives of Wells
Fund IX, Wells Fund X and Wells Fund XI are substantially identical to
those of the Company.
The Joint Venture Agreement provides that all income, profit, loss,
cash flow, resale gain, resale loss and sale proceeds of the Joint Venture
will be allocated and distributed between Wells Fund IX, Wells Fund X,
Wells Fund XI and Wells OP based on their respective capital contributions
to the Joint Venture. As of June 30, 1998, Wells OP had made total capital
contributions to the Joint Venture of $1,421,466 and held an equity
percentage interest in the Joint Venture of 4.4%; Wells Fund IX had made
total capital contributions to the Joint Venture of $14,571,686 and held an
equity percentage interest in the Joint Venture of 45.8%; Wells Fund X had
made total capital contributions to the Joint Venture of $13,360,540 and
held an equity percentage interest in the Joint Venture of 42.0%; and Wells
Fund XI had made total capital contributions to the Joint Venture of
$2,482,810 and held an equity percentage interest in the Joint Venture of
7.8%.
The Joint Venture Agreement allows each joint venturer to make a
buy/sell election upon receipt by any joint venturer of a bonafide third-
party offer to purchase all or substantially all of the properties or the
last remaining property of the Joint Venture. Upon receipt of notice of
such
5
<PAGE>
third-party offer, each joint venturer must elect within thirty (30) days
after receipt of the notice to either (i) purchase the entire interest of
each venturer that wishes to accept the offer on the same terms and
conditions as the third-party offer to purchase, or (ii) consent to the
sale of the properties or last remaining property pursuant to such third-
party offer.
On June 24, 1998, Wells OP contributed $1,421,466 in cash to the
Joint Venture. Said $1,421,466 capital contribution by Wells OP was
aggregated with cash contributions made by Wells Fund IX in the amount of
$650,000, Wells Fund X in the amount of $950,000 and Wells Fund XI in the
amount of $2,482,810 to purchase a one-story office building located in
Oklahoma City, Oklahoma (the "Lucent Building") from Wells Development, an
Affiliate of the Company and the Advisor.
THE LUCENT BUILDING
Purchase of the Oklahoma City Property. On June 24, 1998, the Joint
--------------------------------------
Venture acquired a one-story office building containing approximately
57,186 rentable square feet which was developed and constructed on certain
real property located in Oklahoma City, Oklahoma (the "Oklahoma City
Property") by Wells Development pursuant to that certain Agreement for the
Purchase and Sale of Real Property (the "Contract") dated May 30, 1997
between Wells Development and the Joint Venture, as amended.
Wells Development had acquired the Oklahoma City Property on May 30,
1997, for a purchase price of $695,636, plus $20,869 in real estate
brokerage commissions and $58,000 in legal fees, title insurance premiums
and other closing costs. Simultaneously with the acquisition of the
Oklahoma City Property, Wells Development entered into the Contract with
the Joint Venture for the sale of the Oklahoma City Property following the
construction and development thereon of the Lucent Building, as described
below.
Pursuant to the terms of the Contract, the Joint Venture made an
earnest money deposit to Wells Development in the amount of $1,600,000
consisting of a $650,000 contribution funded by Wells Fund IX and a
$950,000 contribution funded by Wells Fund X. The earnest money deposit
paid by the Joint Venture under the Contract was used by Wells Development
to fund the purchase of the Oklahoma City Property, as described below, and
to fund the initial costs of the construction and development of the Lucent
Building. Wells Development also used part of the earnest money deposit to
acquire an additional strip of land along the northern boundary of the
Oklahoma City Property to expanded the parking area for the property.
In addition to the earnest money deposit, Wells Development obtained
a loan in the amount of $3,900,000 from NationsBank, N.A. to fund the
construction and development of the Lucent Building (the "Construction
Loan"). As set forth below, the Construction Loan was paid off upon the
sale of the Lucent Building to the Joint Venture, and Wells Development
delivered title to the Joint Venture debt-free at closing.
The purchase price of the Lucent Building was $5,504,276, which was
equal to the aggregate cost to Wells Development of the acquisition,
construction and development of the Lucent Building, including interest and
other carrying costs, and accordingly, Wells Development made no profit
from the sale of the Lucent Building to the Joint Venture.
Description of the Building and the Site. The Oklahoma City Property
----------------------------------------
contains a one-story office building with 57,186 net rentable square feet
and 55,017 net useable square feet with a high tilt-up concrete panel
exterior and steel framing. Construction of the Lucent Building was
completed in January 1998. The parking area contains approximately 385
paved parking spaces.
The Lucent Building is located at 14400 Hertz Quail Springs Parkway,
Oklahoma City, Oklahoma. The site consists of approximately 5.3 acres
located in the Quail Springs Office Park
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in the northwest sector of Oklahoma City. Oklahoma City is located near the
center of the state and is the State Capitol of Oklahoma. Oklahoma City is
currently the 42nd largest metropolitan area in the United States. The
population of the Oklahoma City metropolitan area, which has been
increasing steadily over the past two decades, is currently in excess of
1,000,000.
The site is located approximately ten miles northwest of the central
business district of Oklahoma City. Access is available from Memorial Road
on the south and May Avenue on the east with all access streets being four
lane concrete boulevards with curbs and gutters.
The Lucent Lease. On May 30, 1997, Wells Development entered into a
----------------
Lease Agreement (the "Lucent Lease") with Lucent Technologies Inc. ("Lucent
Technologies"), pursuant to which Lucent Technologies agreed to lease all
of the Lucent Building upon completion of the improvement thereof. At the
closing of the sale of the Lucent Building to the Joint Venture, Wells
Development transferred and assigned its interest in the Lucent Lease to
the Joint Venture.
Lucent Technologies is a telecommunications company which was spun
off by AT&T in April of 1996. The company is in the business of designing,
developing and marketing communications systems and technologies ranging
from microchips to whole networks and is one of the world's leading
designers, developers and manufacturers of telecommunications system
software and products. For the fiscal year ended September 30, 1997, Lucent
Technologies, a public company traded on the New York Stock Exchange,
reported net income of approximately $541 million dollars on revenues in
excess of $26 billion dollars. As of March 31, 1998, Lucent Technologies
had total assets of in excess of $24 billion dollars and a net worth of in
excess of $5 billion dollars.
The initial term of the Lucent Lease is ten years which commenced on
January 5, 1998 (the "Rental Commencement Date"). Lucent Technologies has
the option to extend the initial term of the Lucent Lease for two
additional five year periods. Each extension option must be exercised by
giving written notice to the landlord at least twelve months prior to the
expiration date of the then current lease term.
The annual base rent payable under the Lucent Lease will be $508,383
payable in equal monthly installments of $42,365 during the first five
years of the initial lease term, and $594,152 payable in equal monthly
installments of $49,513 during the second five years of the initial lease
term. The annual base rent for each extended term under the lease will be
based upon the fair market rent then being charged by landlords under new
leases of office space in the metropolitan Oklahoma City market for similar
space in a building of comparable quality with comparable amenities. The
Lucent Lease provides that if the parties cannot agree upon the appropriate
fair market value rate, the rate will be established by real estate
appraisers.
Under the Lucent Lease, the Joint Venture, as landlord, is
responsible for (a) all maintenance, repairs and replacements to the
structural components of the Lucent Building, including without limitation,
the roof, exterior walls, bearing walls, support beams, foundations,
columns, exterior doors, windows, skylights and lateral support, and (b)
for the portion of the Lucent Lease term ending on the first anniversary of
the Rental Commencement Date, all maintenance, repairs and replacements to
the parking area surrounding the Lucent Building including lighting systems
for the parking area. Under the Lucent Lease, Lucent Technologies is
responsible for the payment of all property taxes, operating expenses and
other repair and maintenance work relating to the Lucent Building. Lucent
Technologies is also required to reimburse the landlord the cost of
casualty insurance for the property.
The landlord is responsible for a construction allowance of $857,790
(calculated at the rate of $15 per rentable square foot), which was funded
by Wells Development prior to the sale of the Lucent Building to the Joint
Venture and is included as a portion of the purchase price paid for the
Lucent Building.
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Under the Lucent Lease, Lucent Technologies also has a one-time
option to terminate the Lucent Lease on the seventh (7th) anniversary of
the Rental Commencement Date, which is exercisable by written notice to the
landlord at least twelve (12) months in advance of such 7th anniversary. If
Lucent Technologies elects to exercise its option to terminate the Lucent
Lease, Lucent Technologies would be required to pay a termination payment
intended to compensate the landlord for the present value of funds expended
as construction allowance and leasing commissions relating to the Lucent
Lease, amortized over and attributable to the remaining lease term, and a
rental payment equal to approximately eighteen (18) months of monthly
rental payments. It is currently anticipated that the termination payment
required to be paid by Lucent Technologies, in the event it exercises its
option to terminate the Lucent Lease on the 7th anniversary would be
approximately $1,338,903 based upon certain assumptions.
In addition, Lucent Technologies has a one-time option under the
Lucent Lease to reduce the size of its leased premises by 15,000 square
feet of useable area effective the last day of the month which is the
second (2nd) anniversary of the Rental Commencement Date. Such option to
reduce the leased premises is exercisable by providing at least 180 days
prior written notice to the landlord and paying the landlord a reduction
payment equal to $750,000 on the effective date of such reduction.
There are no assurances that the Joint Venture will be able to
attract or obtain suitable replacement tenants for the Lucent Building upon
the expiration of the Lucent Lease or upon the 7th anniversary of the
Lucent Lease if Lucent Technologies elects to exercise its option to
terminate the Lucent Lease or for the unleased portion of the Lucent
Building in the event that Lucent Technologies exercises its option to
reduce the size of its leased premises.
In connection with the execution of the Lucent Lease, Wells
Development entered into agreements with each of two real estate brokers,
one of which is a firm affiliated with ADEVCO Corporation, the developer of
the Oklahoma City Property, for the payment of commissions in connection
with services rendered in procuring the Lucent Lease. The commission
agreements require Wells Development to pay a total of $330,764 in leasing
commissions, $110,255 of which is payable to said affiliate of the
developer. One-half of the leasing commissions were paid by Wells
Development simultaneously with the closing of its acquisition of the
Oklahoma City Property, with the remainder of the leasing commissions
funded by Wells Development prior to the sale of the Lucent Building to the
Joint Venture. The leasing commissions relating to the Lucent Lease were
included as a portion of the purchase price paid for the Lucent Building by
the Joint Venture. Neither broker is affiliated with Wells Development,
Wells Fund IX, Wells Fund X, Wells Fund XI, the Company or any affiliates
thereof.
As of June 30, 1998, the Company held a 4.4% ownership interest in
each of the properties described below as a result of its ownership
interest in the Joint Venture:
THE ABB BUILDING
Description of the Building and the Site. The Joint Venture owns
----------------------------------------
certain real property located in Knoxville, Tennessee (the "Knoxville
Property"). The Knoxville Property contains a three-story steel framed
office building with a reflective insulated glass and brick exterior
containing approximately 87,000 gross square feet and 83,885 rentable
square feet (the "ABB Building"). The Knoxville Property was originally
purchased by Wells Fund IX on December 13, 1996, and was later contributed
by Wells Fund IX to the Joint Venture on March 26, 1997. Construction of
the ABB Building was completed in December 1997. The project site is
approximately 5.622 acres and contains approximately 297 paved parking
spaces.
The ABB Building is located in an office park known as Center Point
Business Park on Pellissippi Parkway just north of the intersection of
Interstates 40 and 75, in Knox County, Tennessee approximately 10 miles
west of the Knoxville central business district. The Pellissippi
<PAGE>
Parkway and the commercial area along the Interstate 40 and 75 corridor
have evolved recently from a residential suburb into one of the area's
fastest growing commercial and retail districts.
The western portion of Knox County in which the Knoxville Property
is located has experienced the most growth and development in the Knoxville
metropolitan area during the past 10 years due primarily to available land
and services. It is anticipated that the Knoxville metropolitan area will
continue to grow into a major regional center of trade and tourism due to
its location at the intersection of Interstates 40 and 75 and the recent
extension of the Pellissippi Parkway to the Knoxville airport.
The ABB Lease. On December 10, 1996, Wells Fund IX entered into a
-------------
Lease Agreement (the "ABB Lease") with ABB Flakt, Inc. ("ABB") pursuant to
which ABB agreed to lease 55,000 rentable square feet of the ABB Building,
comprising approximately 66% of the rentable square feet of the ABB
Building. Wells Fund IX assigned its interest in the ABB Lease to the Joint
Venture on March 26, 1997, simultaneously with the contribution of the
Knoxville Property to the Joint Venture. The Joint Venture is currently
negotiating lease terms with a major tenant for lease of the remainder of
the ABB Building.
ABB is a Delaware corporation which is principally engaged in the
business of pollution control engineering and consulting. ABB will use the
leased area as office space for approximately 220 employees. ABB Asea Brown
Boveri, Ltd., a Swiss corporation based in Zurich, is the holding company
of the ABB Asea Brown Boveri Group (the "ABB Group") which is comprised of
approximately 1,000 companies around the world, including ABB. The ABB
Group revenue is predominately provided by contracts with utilities and
independent power producers for the design and engineering, construction,
manufacture and marketing of products, services and systems in connection
with the generation, transmission and distribution of electricity. In
addition, the ABB Group generates a significant portion of its revenues
from the sale of industrial automation products, systems and services to
pulp and paper, automotive and other manufacturers. For the fiscal year
ended December 31, 1997, the ABB Group reported net income of approximately
$572 million dollars and net worth of approximately $5.2 billion dollars.
ABB, Inc., the United States parent company of ABB, reported gross revenues
in 1997 in excess of $4 billion dollars. The ABB Group's total number of
employees for 1997 was approximately 213,000 worldwide and approximately
21,000 in the United States.
As security for ABB's obligations under the Lease, ABB has provided
to Wells Fund IX (and Wells Fund IX has in turn assigned to the Joint
Venture), and agreed to maintain in full force and effect at all times
during the 10 year period from the Rental Commencement Date, an irrevocable
standby letter of credit in accordance with the terms and conditions set
forth in the ABB Lease. Each letter of credit issued pursuant to the
provisions of the ABB Lease is required to be in a form of an irrevocable
credit, to be issued by an "approved issuer," to name the Joint Venture as
the beneficiary and to specify that the Joint Venture, as beneficiary, may
draw against the letter of credit upon the occurrence of a "drawing event."
"Approved issuer" is defined to require that the letter of credit issuer
shall have and maintain a Moody's Bank Credit Report Service rating of P-1
or its equivalent. "Drawing event" is defined to include any failure of ABB
to pay any installment of rent or other charge or assessment pursuant to
the terms of the ABB Lease within five days of notice thereof, or any other
event of default with respect to which the Joint Venture has exercised or
is exercising its remedies. The letter of credit maintained by ABB is
required to be in the amount of $4,000,000 until the seventh anniversary of
the Rental Commencement Date; $3,000,000 from the seventh anniversary of
the Rental Commencement Date to the eighth anniversary of the Rental
Commencement Date; $2,000,000 from the eighth anniversary of the Rental
Commencement Date to the ninth anniversary of the Rental Commencement Date;
and $1,000,000 from the ninth anniversary of the Rental Commencement Date
to the tenth anniversary of the Rental Commencement Date. The original
letter of credit which was delivered by ABB to Wells Fund IX simultaneously
with the execution of the ABB Lease was issued by Svenska Handelsbanken, a
Parkway Swedish bank which is the largest bank in the
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Nordic region with over $90 billion of assets and a credit rating issued by
Moody's Bank Credit Report Service of P-1/Aa3, and was issued in the amount
of $4,000,000 for a one year term. If the Joint Venture draws on the letter
of credit, the Joint Venture shall apply the proceeds first toward the
performance of the obligations which ABB has failed to perform under the
ABB Lease, and the remainder, if any, shall be held by the Joint Venture in
certain permitted investments as additional security for the performance by
ABB of the ABB Lease.
The initial term of the lease is nine years and eleven months which
commenced on January 1, 1998 (the "Rental Commencement Date").
The annual base rent payable under the ABB Lease is $646,250 payable
in equal monthly installments of $53,854 during the first five years of the
initial lease term, and $728,750 payable in equal monthly installments of
$60,729 during the last four years and eleven months of the initial lease
term.
Under the ABB Lease, ABB is responsible for all expenses, costs and
disbursements (excluding specific costs billed to specific tenants of the
building) of every kind and nature relating to or incurred or paid in
connection with the ownership, management, operation, repair and
maintenance of the ABB Building, including compensation of employees
engaged in the operation and management or maintenance of the ABB Building,
supplies, equipment and materials, utilities, repairs and general
maintenance, insurance, a management fee in the amount of 4% of the gross
rental income from the ABB Building, and all taxes and governmental charges
attributable to the ABB Building or its operations (excluding taxes imposed
or measured on or by the income of the Joint Venture from operation of the
ABB Building).
Under the terms of the ABB Lease, the Joint Venture is responsible
for a construction allowance of $976,600 (calculated at the rate of $19 per
useable square foot of the premises). In addition, the Joint Venture has
agreed to provide ABB on the fifth (5th) anniversary of the Rental
Commencement Date a redecoration allowance of an amount equal to (i) $5.00
per square foot of useable area of the premises leased as of the 5th
anniversary of the Rental Commencement Date which has been leased and
occupied by ABB for at least three consecutive years ending with such 5th
anniversary reduced by (ii) $177,000.
The terms of the ABB Lease provide that ABB has the right of first
refusal for the lease of any space in the ABB Building not initially leased
by ABB. In the event that the Joint Venture has secured a potential tenant
for any of such space, the Joint Venture has agreed to give ABB ten (10)
business days to exercise its right to add such space to the leased
premises. The base rent payable and other charges and any allowances shall
be solely as set forth in the notice to ABB of the proposed terms of the
lease for the potential tenant of such space. If ABB does not so exercise
its right of first refusal within such 10 business day period, the Joint
Venture will have the right to lease the space to the potential tenant,
except that, after the expiration of any such lease to another party, such
space will again become subject to ABB's right of first refusal. The ABB
Lease further provides that the Joint Venture agrees that during the term
of the ABB Lease, no leases of space with other tenants for any space not
initially leased by ABB pursuant to the ABB Lease shall have a term in
excess of three years from the last day of the month in which such third-
party tenant takes possession of such space.
ABB has a one-time option to terminate the ABB Lease as of the
seventh (7th) anniversary of the Rental Commencement Date which is
exercisable by written notice to the Joint Venture at least twelve (12)
months in advance of such 7th anniversary. If ABB elects to exercise this
termination option, ABB is required to pay to the Joint Venture, on or
before ninety (90) days prior to the 7th anniversary of the Rental
Commencement Date, a termination payment intended to compensate the Joint
Venture for the present value of certain sums which the Joint Venture has
expended in connection with the ABB Lease amortized over and attributable
to the remaining lease term and a rent payment equal to approximately
fifteen (15) months of monthly base rental
10
<PAGE>
payments. It is currently anticipated that the termination payment required
to be paid by ABB in the event it exercises its option to terminate the ABB
Lease on the 7th anniversary would be approximately $1,818,000 based upon
certain assumptions.
THE OHMEDA BUILDING
Description of the Building and the Site. The Joint Venture owns
-----------------------------------------
certain real property located in Louisville, Boulder County, Colorado (the
"Louisville Property"). The Louisville Property contains a two-story office
building with approximately 106,750 rentable square feet (the "Ohmeda
Building"). Construction of the Ohmeda Building was completed in January
1988.
The Joint Venture purchased the Ohmeda Building on February 13,
1998, for a purchase price of $10,325,000, plus closing costs of
approximately $6,644.
The Ohmeda Building was designed to accommodate the needs of a high-
technology tenant, and to provide the tenant substantial interior
flexibility in order to accommodate new product developments, changes in
electronics manufacturing techniques and the introduction of automated
material handling systems. The Ohmeda Building is modular re-tan brick with
flush mortar joints and energy efficient insulated solarban glass set in a
clear aluminum mullion system. The office area represents approximately 47%
of the building area, and the non-office area represents approximately 53%.
The lower level has 17 foot high ceilings and is divided into three areas:
the production area, the materials and finished goods handling area, and
the support administration, exercise room and cafeteria area. The cafeteria
and the exercise room contain a glass curtain wall offering panoramic views
of the mountains to the west. The upper level on the west side contains
managerial and financial offices, as well as research and employee amenity
space.
The site is approximately five miles southeast of Boulder and
approximately 17 miles northwest of Denver, situated near Highway 36
(Centennial Parkway), which is the main thoroughfare between Boulder and
Denver. The site is a 15 acre tract of land in the Centennial Valley
Business Park in Louisville, Colorado with scenic views both to and from
the site. The Louisville Property is situated approximately 100 feet above
Centennial Parkway with access by a "Z" curve roadway east of the site. All
of the Ohmeda Building access points, including a glass vestibule entry
court, are turned away from the strong winds from the west. The parking
area, which contains approximately 500 parking spaces, is concealed from
the view of Centennial Parkway and is open to the scenic views of the
mountains.
The Ohmeda Lease. The entire 106,750 rentable square feet of the
----------------
Ohmeda Building is currently under a net Lease Agreement dated February 26,
1987, as amended by First Amendment to Lease dated December 3, 1987, and as
amended by Second Amendment to Lease dated October 20, 1997 (the "Ohmeda
Lease") with Ohmeda, Inc., a Delaware corporation ("Ohmeda"). The Ohmeda
Lease currently expires in January 2005, subject to (i) Ohmeda's right to
effectuate an early termination of the Ohmeda Lease under the terms and
conditions described below, and (ii) Ohmeda's right to extend the Ohmeda
Lease for two additional five year periods of time.
Ohmeda is a medical supply firm based in Boulder, Colorado and is a
worldwide leader in vascular access and hemodynamic monitoring for hospital
patients. Ohmeda also has a special products division, which produces
neonatal and other oxygen care products. Ohmeda recently extended an
agreement with Hewlett-Packard to include co-marketing and promotion of
combined Ohmeda/H-P neonatal products.
Ohmeda was a wholly owned subsidiary of the BOC Group, Inc., a
Nevada corporation ("BOC"), which is a wholly-owned subsidiary of BOC
Holdings, whose ultimate parent is The BOC Group PLC, an English
corporation. On April 3, 1998, BOC sold the division of Ohmeda that
occupies the Ohmeda Building to Instrumentarium Corporation, a Finnish
company
<PAGE>
("Instrumentarium"). The obligations of Ohmeda under the Ohmeda Lease are
currently guaranteed by both BOC and Instrumentarium. BOC, which is in the
businesses of gases and related products, vacuum technology and health
care, reported total consolidated sales of in excess of $2 billion for its
fiscal year ended September 30, 1997, and a net worth of in excess of $462
million. Instrumentarium is an international healthcare company
concentrating on selected fields of medical technology manufacturing,
marketing and distribution.
The monthly base rental payable under the Ohmeda Lease is $83,710
through January 31, 2003; $87,891 from February 1, 2003 through January 31,
2004; and $92,250 from February 1, 2004 through January 31, 2005. Under the
Ohmeda Lease, Ohmeda is responsible for all utilities, taxes, insurance and
other operating costs with respect to the Ohmeda Building during the term
of the Ohmeda Lease. In addition, Ohmeda shall pay a $21,000 per year
management fee for maintenance and administrative services of the Ohmeda
Building. The Joint Venture, as landlord, is responsible for maintenance of
the roof, exterior and structural walls, foundations, other structural
members and floor slab, provided that the landlord's obligation to make
repairs specifically excludes items of cosmetic and routine maintenance
such as the painting of walls.
The Ohmeda Lease contains an early termination clause that allows
Ohmeda the right to terminate the Ohmeda Lease, subject to certain
conditions, on either January 31, 2001 or January 31, 2002. In order to
exercise this early termination clause, Ohmeda must give the Joint Venture
notice on or before 5:00 p.m. MST, January 31, 2000, and said notice must
identify which early termination date Ohmeda is exercising. If Ohmeda
exercises its right to terminate on January 31, 2001, then Ohmeda must
tender $753,388 plus an amount equal to the amount of real property taxes
estimated to be payable to the landlord in 2002 for the tax year 2001 based
on the most recent assessment information available on the early
termination date. If Ohmeda exercises its right to terminate on January 31,
2002, then Ohmeda must tender $502,259 plus an amount equal to the amount
of real property taxes estimated to be payable to the landlord in 2003 for
the tax year 2002 based on the most recent assessment information available
on the early termination date. At the present time, real property taxes
relating to this property are approximately $135,500 per year. The payment
of these amounts by Ohmeda for early termination must be made on or before
the 180th day prior to the appropriate early termination date. If the
amount of the real property taxes actually assessed is greater or lesser
than the amount paid by Ohmeda on the early termination date, then the
difference shall be adjusted accordingly within thirty (30) days of notice
of such difference.
The Ohmeda Lease contains a provision whereby the tenant has the
option to extend the primary lease term for up to two consecutive five year
terms at the then current market rental rates.
In addition, the Ohmeda Lease contains an option to expand the
premises by an amount of square feet up to a total of 200,000 square feet
which, if exercised by Ohmeda, will require the Joint Venture to expend
funds necessary to acquire additional land, if such land is necessary to
such expansion and available for purchase for said expansion purposes, and
to construct the expansion space. Ohmeda's option to expand the premises is
subject to deliverance of at least four (4) months' prior written notice to
the Joint Venture. During the 4 months subsequent to the notice of Ohmeda's
intention to expand the premises, Ohmeda and the Joint Venture shall
negotiate in good faith and enter into an amendment to the Ohmeda Lease for
the construction and rental of the expansion space. If Ohmeda exercises its
option to expand the premises, the right to terminate clause described
above will automatically be canceled, and the primary lease term shall be
extended for a period of ten (10) years from the date on which a
certificate of occupancy is issued by the City of Louisville with respect
to the expansion space. The base rental for the expansion space payable
under the Ohmeda Lease shall be calculated to generate a rate of return to
the Joint Venture on its project costs and any retrofit expenses with
respect to the existing premises incurred by landlord over the new, 10 year
extended primary lease term, equal to the prime lending rate published by
Norwest Bank, N.A. on the first day of such extended primary
<PAGE>
lease term, plus 3.0%, plus full amortization of the tenant finish costs
with respect to the expansion space and the existing premises. This base
rental shall be payable through January 31, 2005. The base rental payable
under the Ohmeda Lease from February 1, 2005 through the remaining balance
of the new, extended 10 year primary lease term, shall be based on a
combined rental rate equal to the sum of (i) the base rental payable by
Ohmeda during lease year number seven for the existing premises, plus (ii)
the base rent payable by Ohmeda during lease year number seven for the
expansion space, plus an amount equal to 2% of the combined rental rate.
Thereafter, the base rent payable for the entire premises shall be the base
rent payable during the previous lease year plus an amount equal to 2% of
the base rent payable during such previous lease year.
THE INTERLOCKEN BUILDING
Description of the Building and the Site. The Joint Venture owns
----------------------------------------
certain real property located in Broomfield, Boulder County, Colorado (the
"Broomfield Property"). The Broomfield Property contains a three-story
multi-tenant office building with 51,974 rentable square feet (the
"Interlocken Building"). Construction of the Interlocken Building was
completed in December 1996.
The Joint Venture purchased the Interlocken Building on March 20,
1998, for a purchase price of $8,275,000, plus closing costs of
approximately $18,000.
The first floor of the Interlocken Building has multiple tenants and
contains 15,599 rentable square feet; the second floor is leased to ODS
Technologies, L.P. ("ODS") and contains 17,146 rentable square feet; and
the third floor is leased to Transecon, Inc. ("Transecon") and contains
19,229 rentable square feet.
The Broomfield Property fronts on Highway 36 (the Boulder-Denver
Turnpike), which is the main thoroughfare between Boulder and Denver, and
is located approximately eight miles southeast of Boulder and approximately
15 miles northwest of Denver. The site is a 5.1 acre tract of land in the
Interlocken Business Park in Broomfield, Colorado. The Broomfield Property
contains a parking lot surrounding the entire building with ample parking
spaces available for tenants and visitors. The Interlocken Business Park is
a 963-acre business park containing primarily advanced technology and
research/development oriented companies. The Interlocken Conference Resort,
which will contain a 430-room hotel, 57,000 square feet of conference space
and a 27-hole championship golf course, is nearly complete and will border
the Park's western boundary.
Description of Leases. As stated above, the entire third floor of
---------------------
the Interlocken Building containing 19,229 rentable square feet (37% of the
total rentable square feet) is currently under lease to Transecon dated
June 27, 1996 (the "Transecon Lease"). The Transecon Lease currently
expires in October 2001, subject to Transecon's right to extend for one
additional term of five years upon 180 days' notice.
Transecon is a consumer distributor of environmental friendly
products, including on-site video and audio production of environmental and
alternative health videos using state-of-the-art electronics and sound
stage. Transecon was founded in 1989 and currently employs approximately 60
people.
The monthly base rental payable under the Transecon Lease is
approximately $24,000 for the initial term of the lease, and is calculated
under the Transecon Lease based upon 18,011 rentable square feet. Under the
Transecon Lease, Transecon is responsible for its share of utilities,
taxes, insurance and other operating costs with respect to the Interlocken
Building during the term of the Transecon Lease. In addition, Transecon has
a right of first refusal under the lease for any second floor space
proposed to be leased by the landlord. If Transecon elects to
13
<PAGE>
extend the lease, the monthly base rental shall be a market rate, but no
less than $24,000 and no more than $27,700. In accordance with the
Transecon Lease, Golden Rule, Inc., an affiliate of Transecon, occupies
6,621 rentable square feet of the third floor. Transecon guarantees the
entire payment due under the Transecon Lease.
Transecon also leases 1,510 rentable square feet on the first floor.
The monthly base rent payable for this space is approximately $2,000
through January 1999; approximately $2,100 through January 2000;
approximately $2,150 through January 2001; and approximately $2,200 through
October 2001.
The entire second floor of the Interlocken Building containing
17,146 rentable square feet (33% of total rentable square feet) is
currently under lease to ODS dated January 14, 1997 (the "ODS Lease"). The
ODS Lease currently expires in September 2003, subject to ODS's right to
extend for one additional term of three years upon 180 days' notice.
ODS provides in-home financial transaction services via telephone
and television, and it has developed interactive computer-based
applications for such in-home purchasing. Originally based in Tulsa,
Oklahoma, ODS has relocated its business to the Interlocken Building.
The monthly base rental payable under the ODS Lease is approximately
$22,150 through January 1999; approximately $22,600 through January 2000;
approximately $23,100 through January 2001; approximately $23,550 through
January 2002; approximately $24,050 through January 2003; and approximately
$24,550 through September 2003. The rental payments to be made by the
tenant under the ODS Lease are also secured by the assignment of a $275,000
letter of credit which may be drawn upon by the landlord in the event of a
tenant default under the lease. Under the ODS Lease, ODS is responsible for
its share of utilities, taxes, insurance and other operating costs with
respect to the Interlocken Building during the term of the ODS Lease. If
ODS elects to extend the lease, the monthly base rental shall be a market
rate as described in the ODS Lease.
The first floor of the Interlocken Building containing 15,599
rentable square feet is occupied by several tenants whose leases expire in
late 2001 or 2002. The aggregate monthly base rental payable under these
leases for 1998 is approximately $21,250. Each lessee is responsible for
its share of utilities, taxes, insurance and other operating costs with
respect to the Interlocken Building during the term of its lease. Most of
these leases contain a right to extend for one additional five year period
upon 180 days' notice.
In the event that Transecon, ODS or any of the first floor tenants
fail to extend their respective leases, the Joint Venture will be required
to find one or more new suitable tenants for the Interlocken Building at
the then prevailing market rental rates.
PROPERTY MANAGEMENT FEES
Wells Management Company, Inc. ("Wells Management"), an Affiliate of
the Company and the Advisor, has been retained to manage and lease all of
the properties currently owned by the Joint Venture. While the Company and
Wells Fund XI are authorized to pay aggregate management and leasing fees
to Wells Management in the amount of 4.5% of gross revenues, Wells Fund IX
and Wells Fund X are authorized to pay aggregate management and leasing
fees to Wells Management in the amount of 6% of gross revenues. Since, as
of June 30, 1998, Wells Fund IX and Wells Fund X held an aggregate 87.8%
ownership percentage interest in the Joint Venture, while the Company and
Wells Fund XI held an aggregate 12.2% ownership percentage interest in the
Joint Venture, 87.8% of the gross revenues of the Joint Venture are subject
to a 6% property management and leasing fee, while 12.2% of the gross
revenues of the Joint Venture are subject to a 4.5% property management and
leasing fee. Wells Management has also received an initial lease fee equal
to the first month's rent for the ABB Lease and the Lucent Lease. In
14
<PAGE>
addition, Wells Management is entitled to one-time initial lease-up fees
equal to five percent (5%) of the gross revenues over the initial terms of
the ABB Lease and the Lucent Lease (not to exceed five years).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The information contained on page 46 in the "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" section of the
Prospectus is revised as of the date of this Supplement by the deletion of the
first paragraph of that section and the insertion of the following paragraph in
lieu thereof:
The Company commenced operations on June 5, 1998, upon the
acceptance of subscriptions for the minimum offering of $1,250,000 (125,000
Shares). As of June 30, 1998, the Company had raised a total of $2,683,595
in offering proceeds (268,359 Shares). After the payment of $93,926 in
acquisition and advisory fees and expenses, the payment of $335,449 in
selling commissions and organizational and offering expenses and the
payment of $1,421,466 in capital contributions to the Joint Venture, as of
June 30, 1998, the Company was holding net offering proceeds of $832,754
available for investment in additional properties.
FINANCIAL STATEMENTS
The financial statements of Fund IX and X Associates (the Joint Venture)
as of December 31, 1997 and for the period from March 20, 1997 to December 31,
1997 and of the Lucent Building for the three months ended March 31, 1998,
included herein as Appendix I to this Supplement No. 2, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports thereto, and are included herein upon the authority of said firm as
experts in giving said reports. The interim financial information of Fund IX and
X Associates (the Joint Venture) as of March 31, 1998 and for the three month
period ended March 31, 1998, and the pro forma financial information for Wells
Real Estate Investment Trust, Inc. as of December 31, 1997 and for the three
month period ended March 31, 1998, which are included in Appendix I to this
Supplement No. 2, have not been audited.
15
<PAGE>
APPENDIX I
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
FUND IX AND X ASSOCIATES
Financial Statements
Report of Independent Public Accountants I-1
Balance Sheets as of March 31, 1998 (Unaudited) and
December 31, 1997 (Audited) I-2
Statements of Income (Loss) for the three months ended March 31,
1998 (Unaudited) and the Period from Inception (March 20, 1997)
to December 31, 1997 (Audited) I-3
Statements of Partners' Capital for the three months ended March 31,
1998 (Unaudited) and the Period from Inception (March 20, 1997)
to December 31, 1997 (Audited) I-4
Statements of Cash Flows for the three months ended March 31, 1998
(Unaudited) and the Period from Inception (March 20, 1997) to
December 31, 1997 (Audited) I-5
Notes to Financial Statements I-6
LUCENT BUILDING
Audited Financial Statements
Report of Independent Public Accountants I-10
Statement of Revenues Over Operating Expenses for the three months
ended March 31, 1998 I-11
Notes to Statement of Revenues Over Operating Expenses for the three
months ended March 31, 1998 I-12
WELLS REAL ESTATE INVESTMENT TRUST, INC.
Unaudited Pro Forma Financial Statements
Summary of Unaudited Pro Forma Financial Statements I-13
Pro Forma Balance Sheet as of March 31, 1998 I-14
Pro Forma Statement of Loss for the year ended December
31, 1997 I-15
Pro Forma Statement of Income for the three months ended
March 31, 1998 I-16
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Fund IX and X Associates:
We have audited the accompanying balance sheet of FUND IX AND X ASSOCIATES (a
Georgia Joint Venture) as of December 31, 1997 and the related statements of
loss, partners' capital, and cash flows for the period from inception (March 20,
1997) to December 31, 1997. These financial statements are the responsibility
of the Joint Venture's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fund IX and X Associates as of
December 31, 1997 and the results of its operations and its cash flows for the
period from inception (March 20, 1997) to December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 9, 1998
I-1
<PAGE>
FUND IX AND X ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
REAL ESTATE ASSETS, AT COST:
Land $ 5,004,893 $ 607,930
Building and improvements, less accumulated
depreciation of $205,915 in 1998 and $36,863 in 1997 22,005,710 6,445,300
Construction in progress 6,498 35,622
------------- --------------
Total real estate assets 27,017,101 7,088,852
CASH AND CASH EQUIVALENTS 390,276 289,171
ACCOUNTS RECEIVABLE 150,402 40,512
PREPAID EXPENSES AND OTHER ASSETS 383,399 329,310
------------- --------------
Total assets $ 27,941,178 $ 7,747,845
============= ==============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable $ 385,072 $ 379,770
Due to affiliates 2,281 2,479
------------- --------------
Total liabilities 387,353 382,249
------------- --------------
PARTNERS' CAPITAL:
Wells Real Estate Fund IX 14,569,085 3,702,793
Wells Real Estate Fund X 12,984,740 3,662,803
------------- --------------
Total partners' capital 27,553,825 7,365,596
------------- --------------
Total liabilities and partners' capital $ 27,941,178 $ 7,747,845
============= ==============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
I-2
<PAGE>
FUND IX AND X ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND THE PERIOD FROM INCEPTION (MARCH 20, 1997)
TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Rental income $ 351,203 $ 28,512
------------ -----------
EXPENSES:
Depreciation and amortization 178,881 36,863
Management and leasing fees 22,838 1,711
Operating costs, net of reimbursements 24,052 10,118
Property administration 5,632 0
------------ -----------
231,403 48,692
------------ -----------
NET INCOME (LOSS) $ 119,800 $ (20,180)
============ ===========
NET INCOME (LOSS) ALLOCATED TO WELLS REAL ESTATE FUND IX $ 57,858 $ (10,145)
============ ===========
NET INCOME (LOSS) ALLOCATED TO WELLS REAL ESTATE FUND X $ 61,942 $ (10,035)
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
I-3
<PAGE>
FUND IX AND X ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND THE PERIOD FROM INCEPTION (MARCH 20, 1997)
TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
WELLS REAL WELLS REAL TOTAL
ESTATE ESTATE PARTNERS'
FUND IX FUND X CAPITAL
----------------- ------------------ -------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 0 $ 0 $ 0
Net loss (10,145) (10,035) (20,180)
Partnership contributions 3,712,938 3,672,838 7,385,776
----------------- ------------------ -------------------
BALANCE, DECEMBER 31, 1997 3,702,793 3,662,803 7,365,596
Partnership distributions (100,863) (101,419) (202,282)
Net income 57,858 61,942 119,800
Partnership contributions 10,909,297 9,361,414 20,270,711
----------------- ------------------ -------------------
BALANCE, MARCH 31, 1998 (UNAUDITED) $ 14,569,085 $ 12,984,740 $ 27,553,825
================= ================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
I-4
<PAGE>
FUND IX AND X ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND THE PERIOD FROM INCEPTION (MARCH 20, 1997)
TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 119,800 $ (20,180)
------------- -------------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation 178,881 36,863
Changes in assets and liabilities:
Accounts receivable (109,890) (40,512)
Prepaid expenses and other assets (54,089) (329,310)
Accounts payable 5,302 379,770
Due to affiliates (198) 2,479
------------ -------------
Total adjustments 20,006 49,290
------------ -------------
Net cash provided by operating activities 139,806 29,110
============ =============
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate from partners (19,123,419) (5,715,847)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to joint venture partners (202,282) 0
Contributions received from partners 19,287,000 5,975,908
------------ -------------
Net cash provided by financing activities 19,084,718
------------ -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 101,105 289,171
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 289,171 0
------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 390,276 $ 289,171
============ =============
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Deferred project costs applied by partners, net of deferred project costs
transferred $ 983,711 $ 318,981
============ =============
Contribution of real estate assets $ 0 $ 1,090,887
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
I-5
<PAGE>
FUND IX AND X ASSOCIATES
(A GEORGIA JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
On March 20, 1997, Fund IX and X Associates (a joint venture between Wells
Real Estate Fund IX, L.P. ("Fund IX") and Wells Real Estate Fund X, L.P.
("Fund X") was formed to acquire, develop, operate, and sell real properties.
On March 20, 1997, Fund IX contributed a 5.62-acre tract of real property in
Knoxville, Tennessee, and improvements thereon, known as the ABB Property, to
Fund IX and X Associates (the "Joint Venture"). A 83,885-square-foot, three-
story office building was constructed and commenced operations at the end of
1997.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Joint Venture considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market accounts.
USE OF ESTIMATES AND FACTORS AFFECTING THE PARTNERSHIP
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The carrying values of the real estate assets are based on management's
current intent to hold the real estate assets as long-term investments. The
success of the Joint Venture's future operations and the ability to realize
the investment in its assets will be dependent on the Joint Venture's ability
to maintain an appropriate level of rental rates, occupancy, and operating
expenses in future years. Management believes that the steps it is taking
will enable the Joint Venture to realize its investment in its assets.
I-6
<PAGE>
INCOME TAXES
The Joint Venture is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners of Fund IX and Fund X are required to include their
respective shares of profits and losses in their individual income tax
returns.
REAL ESTATE ASSETS
Real estate assets held by the Joint Venture are stated at cost less
accumulated depreciation. Major improvements and betterments are capitalized
when they extend the useful life of the related asset. All ordinary repairs
and maintenance are expensed as incurred.
Management continually monitors events and changes in circumstances which
could indicate that the carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present that
indicate the carrying amounts of real estate assets may not be recoverable,
management assesses the recoverability of real estate assets under Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of," by
determining whether the carrying value of such real estate assets will be
recovered through the future cash flows expected from the use of the asset
and its eventual disposition. Management believes that there has been no
impairment in the carrying value of real estate assets held by the Joint
Venture.
Depreciation of buildings and land improvements is calculated using the
straight-line method over 25 years. Tenant improvements are amortized over
the life of the related lease or the life of the asset, whichever is shorter.
REVENUE RECOGNITION
All leases on real estate assets held by the Joint Venture are classified as
operating leases, and the related rental income is recognized on a straight-
line basis over the terms of the respective leases.
PARTNERS' DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS
Cash available for distribution and allocations of profit and loss to Fund IX
and Fund X by the Joint Venture are made in accordance with the terms of the
joint venture agreement. Generally, these items are allocated in proportion
to the partners' respective ownership interests. Cash distributions are
generally paid by the Joint Venture to Fund IX and Fund X quarterly.
DEFERRED LEASE ACQUISITION COSTS
Costs incurred to procure operating leases are capitalized and amortized on a
straight-line basis over the terms of the related leases.
I-7
<PAGE>
2. DEFERRED PROJECT COSTS
The Wells Real Estate Funds pay a percentage of limited partner contributions
to Wells Capital, Inc., an affiliate of the Joint Venture, for acquisition
and advisory services. These payments, as stipulated by the partnership
agreement, can be up to 5% of the limited partner contributions, subject to
certain overall limitations contained in the partnership agreement. These
fees are allocated to specific properties as they are purchased or developed
and are included in capitalized assets of the Joint Venture.
3. FUTURE MINIMUM RENTAL INCOME
The future minimum rental income due Fund IX and X Associates under
noncancelable operating leases at December 31, 1997 is as follows:
Year ending December 31:
1998 $ 646,250
1999 646,250
2000 646,250
2001 646,250
2002 646,250
Thereafter 3,583,021
-----------
$6,814,271
===========
4. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Joint Venture or its partners.
In the normal course of business, the Joint Venture or its partners may
become subject to such litigation or claims.
5. SUBSEQUENT EVENTS (UNAUDITED)
On February 13, 1998, the Joint Venture acquired a two-story office building,
the Ohmeda Building, a 106,750-square-foot office building located in
Louisville, Colorado, for a cash purchase price of $10,325,000 plus
acquisition expenses of $6,644. The building is 100% occupied by one tenant
with an original lease term of ten years that commenced February 1, 1988.
The lease term was extended for an additional seven years commencing February
1, 1998.
On March 20, 1998, the Joint Venture acquired the Interlocken Building, a
51,974-square-foot three-story multitenant office building located in
Broomfield, Colorado, for a cash purchase price of $8,275,000 plus
acquisition expenses of $18,000.
On June 11, 1998, Wells Operating Partnership, L.P. (of which Wells Real
Estate Investment Trust, Inc. is the sole general partner) and Wells Real
Estate Fund XI, L.P. were admitted to the Joint Venture. The Joint Venture
agreement was restated and amended as such and was renamed the Fund IX, Fund
X, Fund XI, and REIT Joint Venture.
I-8
<PAGE>
On June 24, 1998, Fund IX, Fund X, Fund XI, and REIT Joint Venture acquired
the Lucent Building, a one-story office building, from Wells Development
Corporation, an affiliate of the Joint Venture, for a cash purchase price of
$5,504,276 which equaled the book value of the building. The building is
100% occupied by one tenant with an original lease term of ten years that
commenced January 1, 1998.
I-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund IX, L.P.,
Wells Real Estate Fund X, L.P.,
Wells Real Estate Fund XI, L.P., and
Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over operating expenses
for the LUCENT BUILDING for the three months ended March 31, 1998. This
financial statement is the responsibility of 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 require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues over operating expenses is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of revenues
over operating expenses. 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.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Lucent
Building after acquisition by Wells Real Estate Fund IX, L.P., Wells Real Estate
Fund X, L.P., Wells Real Estate Fund XI, L.P., and Wells Real Estate Investment
Trust, Inc. The accompanying statement of revenues over operating expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and is not intended to be a complete
presentation of the Lucent Building's revenues and expenses.
In our opinion, the statement of revenues over operating expenses presents
fairly, in all material respects, the revenues over operating expenses
(exclusive of expenses described in Note 2) of the Lucent Building for the three
months ended March 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 30, 1998
I-10
<PAGE>
LUCENT BUILDING
STATEMENT OF REVENUES OVER
OPERATING EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1998
REVENUES:
Rental revenue $137,817
OPERATING EXPENSES 675
--------
REVENUES OVER OPERATING EXPENSES $137,142
--------
The accompanying notes are an integral part of this statement.
I-11
<PAGE>
LUCENT BUILDING
NOTES TO STATEMENT OF REVENUES OVER
OPERATING EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF REAL ESTATE PROPERTY ACQUIRED
On June 24, 1998, Wells Real Estate Fund IX, L.P., Wells Real Estate Fund X,
L.P., Wells Real Estate Fund XI, L.P., and Wells Real Estate Investment
Trust, Inc., through Fund IX, Fund X, Fund XI, and REIT Joint Venture (a
Georgia joint venture), acquired the Lucent Building, a 57,186-square-foot
one-story office building located in Oklahoma City, Oklahoma, for a cash
purchase price of $5,504,276. The building is 100% occupied by one tenant
with an original lease term of 10 years that commenced January 1, 1998. The
lease is a triple net lease, whereby the terms require the tenant to pay all
operating expenses relating to the building.
RENTAL REVENUES
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over operating expenses are presented
on the accrual basis. This statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange
Commission for real estate properties acquired. Accordingly, the statement
excludes certain historical expenses, such as depreciation, interest, and
management fees, not comparable to the operations of the Lucent Building
after acquisition by Wells Real Estate Fund IX, L.P., Wells Real Estate Fund
X, L.P, Wells Real Estate Fund XI, L.P., and Wells Real Estate Investment
Trust, Inc.
I-12
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
(UNAUDITED PRO FORMA FINANCIAL STATEMENTS)
The following unaudited pro forma balance sheet as of March 31, 1998 and the pro
forma statements of (loss) income for the year ended December 31, 1997 and three
months ended March 31, 1998 have been prepared to give effect to the following
transactions as if each occurred as of March 31, 1998 with respect to the
balance sheet and on January 1, 1997 with respect to the statements of
(loss)income : (i) Wells Real Estate Investment Trust, Inc.'s acquisition of an
interest in Fund IX, Fund X, Fund XI, and REIT Joint Venture (formerly Fund IX-
Fund X Associates) and (ii) the Fund IX, Fund X, Fund XI, and REIT Joint
Venture's acquisition of the Lucent Building which commenced operations in
January 1998.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisition been consummated at
the beginning of the period presented.
The pro forma financial statements are based on available information and
certain assumptions that management believes are reasonable. Final adjustments
may differ from the pro forma adjustments herein.
I-13
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
WELLS
REAL ESTATE
INVESTMENT PRO FORMA PRO FORMA
TRUST, INC. ADJUSTMENTS TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
ASSETS:
Investment in joint venture $ 0 $1,480,741 (a) $1,480,741
Cash 317,378 (317,378)(b) 0
Deferred project costs 4,072 (4,072)(c) 0
Deferred offering costs 461,108 0 461,108
Accounts receivable 18 0 18
----------- ----------------- ----------
Total assets $ 782,576 $1,159,291 $1,941,867
=========== ================= ==========
LIABILITIES:
Sales commission payable $ 11,053 $ 0 $ 11,053
Due to affiliate 468,718 1,159,291 (b)(c) 1,628,009
----------- ----------------- ----------
Total liabilities 479,771 1,159,291 1,639,062
=========== ================= ==========
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP 200,000 0 200,000
----------- ----------------- ----------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 40,000,000 shares authorized, 11,735
shares issued and outstanding 117 0 117
Additional paid-in capital 102,688 0 102,688
----------- ----------------- ----------
Total shareholder's equity 102,805 0 102,805
----------- ----------------- ----------
Total liabilities and shareholder's equity $ 782,576 $1,159,291 $1,941,867
=========== ================= ==========
</TABLE>
(a) Reflects Wells Real Estate Investment Trust, Inc.'s contribution
to Fund IX, Fund X, Fund XI, and REIT Joint Venture.
(b) Reflects Wells Real Estate Investment Trust, Inc.'s portion of
the $5,504,276 purchase price related to the Lucent Building.
(c) Reflects the deferred project costs allocated to the Fund IX,
Fund X, Fund XI, and REIT Joint Venture.
I-14
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF LOSS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
WELLS
REAL ESTATE
INVESTMENT PRO FORMA PRO FORMA
TRUST, INC. ADJUSTMENT TOTAL
---------------- ----------------- ---------------
<S> <C> <C> <C>
REVENUES:
Equity in loss of joint venture $ 0 $ (888)(a) $ (888)
---------------- ----------------- ---------------
NET LOSS $ 0 $ (888) $ (888)
================ ================= ===============
EARNINGS PER SHARE (BASIC AND DILUTED) $0.00 $ (8.88) $ (8.88)
================ ================= ===============
</TABLE>
(a) Reflects Wells Real Estate Investment Trust, Inc.'s 4.4% equity in
earnings of the Fund IX, Fund X, Fund XI, and REIT Joint Venture.
I-15
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
WELLS
REAL ESTATE
INVESTMENT PRO FORMA PRO FORMA
TRUST, INC. ADJUSTMENT TOTAL
---------------- ----------------- ----------------
<S> <C> <C> <C>
REVENUES:
Equity in income of joint ventures $ 0 $9,282(a) $9,282
---------------- ----------------- ----------------
NET INCOME $ 0 $9,282 $9,282
================ ================= ================
EARNINGS PER SHARE (BASIC AND DILUTED) $0.00 $ 0.79 $ 0.79
================ ================= ================
</TABLE>
(a) Reflects Wells Real Estate Investment Trust, Inc.'s 4.4% equity in
earnings of the Fund IX, Fund X, Fund XI, and REIT Joint Venture,
including the Lucent Building on a pro forma basis.
I-16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Items 31 through 35 and Item 37 of Part II are incorporated by reference to the
Registrant's Registration Statement, as amended to date, Commission File No.
333-32099.
Item 36 Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements:
--------------------
The following financial statements of Wells Real Estate Investment
Trust, Inc. are filed as part of this Registration Statement and
are included in the Prospectus:
Audited Balance Sheet
(1) Report of Independent Public Accountants,
(2) Consolidated Balance Sheet as of December 31, 1997, and
(3) Notes to Consolidated Balance Sheet.
The following financial statements of Fund IX and X Associates are
filed as part of this Registration Statement and are included in
Supplement No. 2 to the Prospectus:
Financial Statements
(1) Report of Independent Public Accountants,
(2) Balance Sheets as of March 31, 1998 (Unaudited) and
December 31, 1997 (Audited),
(3) Statements of Income (Loss) for the three months ended
March 31, 1998 (Unaudited) and the Period from
Inception (March 20, 1997) to December 31, 1997
(Audited),
(4) Statements of Partners' Capital for the three months
ended March 31, 1998 (Unaudited) and the Period from
Inception (March 20, 1997) to December 31, 1997
(Audited),
(5) Statements of Cash Flows for the three months ended
March 31, 1998 (Unaudited) and the Period from
Inception (March 20, 1997) to December 31, 1997
(Audited), and
(6) Notes to Financial Statements.
The following financial statements relating to the acquisition of
the Lucent Building by the Joint Venture are filed as part of this
Registration Statement and included in Supplement No. 2 to the
Prospectus:
Audited Statement of Revenues Over Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Operating Expenses for the
three months ended March 31, 1998, and
(3) Notes to Statement of Revenues Over Operating Expenses
for the three months ended March 31, 1998.
The following financial statements of Wells Real Estate Investment
Trust, Inc. are filed as part of this Registration Statement and
are included in Supplement No. 2 to the Prospectus:
Unaudited Pro Forma Combined Financial Statements
(1) Summary of Unaudited Pro Forma Combined Financial
Statements,
(2) Pro Forma Combined Balance Sheet as of March 31, 1998,
II-1
<PAGE>
(3) Pro Forma Combined Statement of Loss for the year ended
December 31, 1997, and
(4) Pro Forma Combined Statement of Income for the three
months ended March 31, 1998.
(b) Exhibits (See Exhibit Index):
----------------------------
Exhibit
No. Description
- -------- -----------
1.1 Form of Dealer Manager Agreement between the Registrant and Wells
Investment Securities, Inc. (previously filed and incorporated by
reference to the Registrant's Registration Statement on Form S-11, as
amended to date, Commission File No. 333-32099)
3.1 Form of Amended and Restated Articles of Incorporation of the
Registrant (previously filed and incorporated by reference to the
Registrant's Registration Statement on Form S-11, as amended to date,
Commission File No. 333-32099)
3.2 Bylaws of the Registrant (previously filed and incorporated by
reference to the Registrant's Registration Statement on Form S-11, as
amended to date, Commission File No. 333-32099)
4.1 Form of Subscription Agreement and Subscription Agreement Signature
Page (included as Exhibit B to Prospectus)
4.2 Form of Dividend Reinvestment Plan (included as Exhibit C to
Prospectus)
5.1 Form of Opinion of Hunton & Williams (previously filed and
incorporated by reference to the Registrant's Registration Statement
on Form S-11, as amended to date, Commission File No. 333-32099)
8.1 Form of Opinion of Hunton & Williams as to Tax Matters (previously
filed and incorporated by reference to the Registrant's Registration
Statement on Form S-11, as amended to date, Commission File No. 333-
32099)
10.1 Form of Agreement of Limited Partnership of Wells Operating
Partnership, L.P. (previously filed and incorporated by reference to
the Registrant's Registration Statement on Form S-11, as amended to
date, Commission File No. 333-32099)
10.2 Form of Escrow Agreement (previously filed and incorporated by
reference to the Registrant's Registration Statement on Form S-11, as
amended to date, Commission File No. 333-32099)
10.3 Form of Advisory Agreement (previously filed and incorporated by
reference to the Registrant's Registration Statement on Form S-11, as
amended to date, Commission File No. 333-32099)
10.3(a) First Amendment to Advisory Agreement dated June 1, 1998
10.4 Amended and Restated Joint Venture Agreement of The Fund IX, Fund X,
Fund XI and REIT Joint Venture (the "Joint Venture") dated June 11,
1998
10.5 Lease Agreement for the ABB Building dated December 10, 1996 between
the Joint Venture (as successor in interest by assignment) and ABB
Flakt, Inc. (previously filed as Exhibit 10(kk) and incorporated by
reference to the Registration Statement on Form S-11 of Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., as
amended, Commission File No. 33-83852)
II-2
<PAGE>
10.6 Agreement for the Purchase and Sale of Real Property relating to the
Ohmeda Building dated November 14, 1997 between Lincor Centennial,
Ltd. and Wells Real Estate Fund X, L.P.
10.7 Agreement for the Purchase and Sale of Property relating to the
Interlocken Building dated February 11, 1998 between Orix Prime West
Broomfield Venture and Wells Development Corporation
10.8 Agreement for the Purchase and Sale of Real Property relating to the
Lucent Building dated May 30, 1997 between Wells Development
Corporation and the Joint Venture (previously filed as Exhibit 10(k)
and incorporated by reference to the Registration Statement on Form S-
11 of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI,
L.P., as amended to date, Commission File No. 333-7979)
10.8(a) First Amendment to the Agreement for the Purchase and Sale of Real
Property relating to the Lucent Building dated April 21, 1998 between
Wells Development Corporation and the Joint Venture
10.9 Development Agreement relating to the Lucent Building dated May 30,
1997 between Wells Development Corporation and ADEVCO Corporation
(previously filed as Exhibit 10(m) and incorporated by reference to
the Registration Statement on Form S-11 of Wells Real Estate Fund X,
L.P. and Wells Real Estate Fund XI, L.P., as amended to date,
Commission File No. 333-7979)
10.10 Net Lease Agreement for the Lucent Building dated May 30, 1997
between the Joint Venture (as successor in interest by assignment) and
Lucent Technologies, Inc. (previously filed as Exhibit 10(l) and
incorporated by reference to the Registration Statement on Form S-11
of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P.,
as amended to date, Commission File No. 333-7979)
10.10(a) First Amendment to Net Lease Agreement for the Lucent Building dated
March 30, 1998 between the Joint Venture (as successor in interest by
assignment) and Lucent Technologies, Inc.
23.1 Consent of Hunton & Williams (included in Exhibits 5.1 and 8.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney
- -----------------------------------
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-11 and has duly caused this Post-Effective
Amendment No. 2 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Norcross, and State of
Georgia, on the 6th day of July, 1998.
WELLS REAL ESTATE INVESTMENT TRUST, INC.
A MARYLAND CORPORATION
(Registrant)
By: /s/ Leo F. Wells, III
-----------------------------------
Leo F. Wells, III
President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 2 to Registration Statement has been signed below on
July 6, 1998 by the following persons in the capacities indicated.
/s/ Leo F. Wells, III President and Director
- ------------------------------ (Principal Executive Officer)
Leo F. Wells, III
/s/ Brian M. Conlon Executive Vice President and Director
- ------------------------------ (Principal Financial and Accounting Officer)
Brian M. Conlon
/s/ Walter W. Sessoms * Director
- ------------------------------
Walter W. Sessoms
/s/ John L. Bell * Director
- ------------------------------
John L. Bell
/s/ Richard W. Carpenter * Director
- ------------------------------
Richard W. Carpenter
/s/ Bud Carter * Director
- ------------------------------
Bud Carter
/s/ Donald S. Moss * Director
- ------------------------------
Donald S. Moss
/s/ Neil H. Strickland * Director
- ------------------------------
Neil H. Strickland
/s/ William H. Keogler, Jr. * Director
- ------------------------------
William H. Keogler, Jr.
* By Brian M. Conlon, attorney-in-fact, pursuant to Power of Attorney
included as Exhibit 24.1 hereto.
II-4
<PAGE>
EXHIBIT INDEX
-------------
Sequential
Exhibit No. Description
- ----------- -----------
1.1 Form of Dealer Manager Agreement between the Registrant and Wells
Investment Securities, Inc. (previously filed and incorporated by
reference to the Registrant's Registration Statement on Form S-11, as
amended to date, Commission File No. 333-32099)
3.1 Form of Amended and Restated Articles of Incorporation of the
Registrant (previously filed and incorporated by reference to the
Registrant's Registration Statement on Form S-11, as amended to date,
Commission File No. 333-32099)
3.2 Bylaws of the Registrant (previously filed and incorporated by
reference to the Registrant's Registration Statement on Form S-11, as
amended to date, Commission File No. 333-32099)
4.1 Form of Subscription Agreement and Subscription Agreement Signature
Page (included as Exhibit B to Prospectus)
4.2 Form of Dividend Reinvestment Plan (included as Exhibit C to
Prospectus)
5.1 Form of Opinion of Hunton & Williams (previously filed and
incorporated by reference to the Registrant's Registration Statement
on Form S-11, as amended to date, Commission File No. 333-32099)
8.1 Form of Opinion of Hunton & Williams as to Tax Matters (previously
filed and incorporated by reference to the Registrant's Registration
Statement on Form S-11, as amended to date, Commission File No. 333-
32099)
10.1 Form of Agreement of Limited Partnership of Wells Operating
Partnership, L.P. (previously filed and incorporated by reference to
the Registrant's Registration Statement on Form S-11, as amended to
date, Commission File No. 333-32099)
10.2 Form of Escrow Agreement (previously filed and incorporated by
reference to the Registrant's Registration Statement on Form S-11, as
amended to date, Commission File No. 333-32099)
10.3 Form of Advisory Agreement (previously filed and incorporated by
reference to the Registrant's Registration Statement on Form S-11, as
amended to date, Commission File No. 333-32099)
10.3(a) First Amendment to Advisory Agreement dated June 1, 1998 (filed
herewith)
10.4 Amended and Restated Joint Venture Agreement of The Fund IX, Fund X,
Fund XI and REIT Joint Venture (the "Joint Venture") dated June 11,
1998 (filed herewith)
10.5 Lease Agreement for the ABB Building dated December 10, 1996 between
the Joint Venture (as successor in interest by assignment) and ABB
Flakt, Inc. (previously filed as Exhibit 10(kk) and incorporated by
reference to the Registration Statement on Form S-11 of Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., as
amended, Commission File No. 33-83852)
10.6 Agreement for the Purchase and Sale of Real Property relating to the
Ohmeda Building dated November 14, 1997 between Lincor Centennial,
Ltd. and Wells Real Estate Fund X, L.P. (filed herewith)
10.7 Agreement for the Purchase and Sale of Property relating to the
Interlocken Building dated February 11, 1998 between Orix Prime West
Broomfield Venture and Wells Development Corporation (filed herewith)
<PAGE>
10.8 Agreement for the Purchase and Sale of Real Property relating to the
Lucent Building dated May 30, 1997 between Wells Development
Corporation and the Joint Venture (previously filed as Exhibit 10(k)
and incorporated by reference to the Registration Statement on Form S-
11 of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI,
L.P., as amended to date, Commission File No. 333-7979)
10.8(a) First Amendment to the Agreement for the Purchase and Sale of Real
Property relating to the Lucent Building dated April 21, 1998 between
Wells Development Corporation and the Joint Venture (filed herewith)
10.9 Development Agreement relating to the Lucent Building dated May 30,
1997 between Wells Development Corporation and ADEVCO Corporation
(previously filed as Exhibit 10(m) and incorporated by reference to
the Registration Statement on Form S-11 of Wells Real Estate Fund X,
L.P. and Wells Real Estate Fund XI, L.P., as amended to date,
Commission File No. 333-7979)
10.10 Net Lease Agreement for the Lucent Building dated May 30, 1997 between
the Joint Venture (as successor in interest by assignment) and Lucent
Technologies, Inc. (previously filed as Exhibit 10(l) and incorporated
by reference to the Registration Statement on Form S-11 of Wells Real
Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to
date, Commission File No. 333-7979)
10.10(a) First Amendment to Net Lease Agreement for the Lucent Building dated
March 30, 1998 between the Joint Venture (as successor in interest by
assignment) and Lucent Technologies, Inc. (filed herewith)
23.1 Consent of Hunton & Williams (included in Exhibits 5.1 and 8.1)
23.2 Consent of Arthur Andersen LLP (filed herewith)
24.1 Power of Attorney (filed herewith)
- -----------------------------------
<PAGE>
EXHIBIT 10.3(a)
FIRST AMENDMENT TO ADVISORY AGREEMENT
<PAGE>
FIRST AMENDMENT TO ADVISORY AGREEMENT
THIS AMENDMENT TO ADVISORY AGREEMENT ("Amendment"), dated as of the 1st day of
June, 1998, is authorized and executed by WELLS REAL ESTATE INVESTMENT TRUST,
INC., a Maryland corporation (the "Company"), and WELLS CAPITAL, INC., a Georgia
corporation (the "Advisor").
RECITALS
--------
WHEREAS, the Company and the Advisor entered into that certain Advisory
Agreement dated as of January 30, 1998, whereby the Advisor agreed to perform
certain services for the Company, subject to the supervision of the Board of
Directors of the Company;
WHEREAS, the Advisor and the Company believe that the amount of the fidelity
bond required under Section 12 of the Advisory Agreement is unnecessarily high
for the risk involved to the Company for the types of losses that may
foreseeably result from the services performed by the Advisor for the Company;
WHEREAS, the Advisor and the Company desire to reduce the amount of such
fidelity bond requirement from $10,000,000 to $200,000; and
WHEREAS, the Advisor and the Company desire to amend the Advisory Agreement to
better reflect the understanding of the parties.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements contained herein, the parties hereby agree, and the Advisory
Agreement is hereby amended as follows:
1. Section (12) of the Advisory Agreement is hereby deleted in its entirety
and the following substituted in lieu thereof:
"(12) FIDELITY BOND. The Advisor shall maintain a fidelity bond for the
benefit of the Company which bond shall insure the Company from losses of up
to $200,000 per occurrence and shall be of the type customarily purchased by
entities performing services similar to those provided to the Company by the
Advisor."
2. Except as expressly modified by this Amendment, the Advisory Agreement
shall remain unaltered and in full force and effect.
3. This Amendment shall be governed by and construed in accordance with the
laws of the State of Maryland.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date and year first above written.
WELLS REAL ESTATE INVESTMENT
TRUST, INC.
A Maryland Corporation
By: /s/ Brian M. Conlon
---------------------------------
Brian M. Conlon
Executive Vice President
WELLS CAPITAL, INC.
A Georgia Corporation
By: /s/ Leo F. Wells, III
---------------------------------
Leo F. Wells, III
President
<PAGE>
EXHIBIT 10.4
AMENDED AND RESTATED JOINT VENTURE AGREEMENT
OF THE FUND IX, FUND X, FUND XI AND REIT
JOINT VENTURE
<PAGE>
AMENDED AND RESTATED
JOINT VENTURE AGREEMENT
OF
THE FUND IX, FUND X, FUND XI AND REIT JOINT VENTURE
THIS AMENDED AND RESTATED JOINT VENTURE AGREEMENT OF THE FUND IX, FUND X,
FUND XI AND REIT JOINT VENTURE (the "Agreement") is made and entered into as of
the 11th day of June, 1998, by and among WELLS REAL ESTATE FUND IX, L.P., a
Georgia limited partnership having Leo F. Wells, III and Wells Partners, L.P., a
Georgia limited partnership, as general partners ("Fund IX"), WELLS REAL ESTATE
FUND X, L.P., a Georgia limited partnership having Leo F. Wells, III and Wells
Partners, L.P., a Georgia limited partnership, as general partners ("Fund X"),
WELLS REAL ESTATE FUND XI, L.P., a Georgia limited partnership having Leo F.
Wells, III and Wells Partners, L.P., a Georgia limited partnership, as general
partners ("Fund XI"), and WELLS OPERATING PARTNERSHIP, L.P., a Delaware limited
partnership having Wells Real Estate Investment Trust, Inc., a Maryland
corporation, as general partner (the "Wells REIT"), for the purpose of amending
and restating that certain Joint Venture Agreement of Fund IX and Fund X
Associates dated March 20, 1997, as amended (the "Original Agreement"), and to
effect the admission of Fund XI and the Wells REIT to the Joint Venture. Each
of the parties may also be referred to herein as a "Venturer" and together as
the "Venturers."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Fund IX and Fund X have previously formed a joint venture (the
"Joint Venture") pursuant to the terms of that certain Joint Venture Agreement
of Fund IX and Fund X Associates dated March 20, 1997 (as amended, the "Original
Agreement"); and
WHEREAS, the Joint Venture has previously acquired and currently owns the
following three properties: (i) the ABB Building located in Knoxville, Knox
County, Tennessee, (ii) the Ohmeda Building located in Louisville, Boulder
County, Colorado, and (iii) the 360 Interlocken Building located in Broomfield,
Boulder County, Colorado; and
WHEREAS, it is contemplated that the Joint Venture shall acquire certain
additional Properties, including but not limited to: (i) the purchase of the
Lucent Technologies Building located in Oklahoma City, Oklahoma, and (ii) the
acquisition of the Iomega Building located in Ogden, Weber County, Utah, to be
transferred and contributed to the Joint Venture by Fund X as an additional
Capital Contribution; and
WHEREAS, the parties desire to effect the admission of Fund XI and the
Wells REIT to the Joint Venture pursuant to the terms and provisions hereof; and
WHEREAS, the parties desire to amend and restate the Original Agreement in
its entirety as hereinafter set forth.
<PAGE>
NOW, THEREFORE, for and in consideration of the mutual covenants
hereinafter set forth, the parties hereto hereby covenant and agree as follows:
ADMISSION OF FUND XI AND
THE WELLS REIT TO THE JOINT VENTURE
-----------------------------------
Fund XI and the Wells REIT are hereby admitted to the Joint Venture
pursuant to the terms and provisions of this Agreement.
RESTATEMENT OF ORIGINAL AGREEMENT
---------------------------------
The Original Agreement is hereby amended and restated in its entirety as
follows:
1. DEFINITIONS.
-----------
For the purposes of this Agreement, the following defined terms shall
have the meanings ascribed thereto.
1.1 "Administrative Venturer" means the Entity responsible for the
-----------------------
conduct of the ordinary and usual business of the Venture and the implementation
of the decisions of the Venturers, all as is more fully set forth in Subsection
4.2 hereof. The initial Administrative Venturer shall be Fund IX.
1.2 "Agreed Value" means with respect to Contributed Property the
------------
fair market value of such property as of the date of contribution to the Venture
as determined by the general partners of the Venturers.
1.3 "Approve," "Approved" or "Approval" means, as to the subject
------- -------- --------
matter thereof and as the context may require, an express consent evidenced by
and contained in a written statement signed by the approving Entity. A copy of
each such written statement shall be kept at the office of the respective
Venturer and shall be available for inspection by the other Venturer upon
request.
1.4 "Bankrupt" or "Bankruptcy" means the occurrence of one or more
-------- ----------
of the following events:
(i) The appointment of a permanent or temporary receiver of the assets
and properties of the Venture or a Venturer, and the failure to secure the
removal thereof within 60 days after such appointment;
(ii) The adjudication of the Venture or a Venturer as bankrupt or the
commission by the Venture or a Venturer of an act of bankruptcy;
2
<PAGE>
(iii) The making by the Venture or a Venturer of an assignment for the
benefit of creditors;
(iv) The levying upon or attachment by process of the assets and
properties of the Venture or a Venturer; or
(v) The use by the Venture or a Venturer, whether voluntary or
involuntary, of any debt or relief proceedings under the present or future law
of any state or of the United States.
1.5 "Capital Account" means a separate account maintained for each
---------------
Venturer in a manner which complies with Treasury Regulation Section 1.704-1(b),
as may be amended or revised from time to time.
1.6 "Capital Contributions" means the aggregate contributions to
---------------------
the capital of the Venture made by the Venturers as Capital Contributions
pursuant to Subsection 3.1 hereof.
1.7 "Contributed Property" means the interest of each Venturer
--------------------
contributing property (excluding cash or cash equivalents) to the Venture in
such property.
1.8 "Defaulting Venturer" means any Venturer failing to perform any
-------------------
of the obligations of such Venturer under this Agreement or violating the
provisions of this Agreement.
1.9 "Distribution Percentage Interests" means collectively the
---------------------------------
interests in the income, gains, losses, deductions, credits, Net Cash Flow,
Extraordinary Receipts, as determined by Subsection 3.2 hereof, as such may be
adjusted from time to time as provided in this Agreement.
1.10 "Entity" means any person, corporation, partnership (general or
------
limited), joint venture, association, joint stock company, trust or other
business entity or organization.
1.11 "Extraordinary Receipts" means those funds of the Venture which
----------------------
are derived from (i) the net proceeds of any casualty insurance insuring any of
the Properties or any portion thereof, to the extent not applied to the repair,
restoration or replacement of the Properties or any portion thereof as may be
Approved by the Venturers; (ii) the net proceeds of any condemnation, or any
taking by eminent domain, or any transfer in lieu thereof, of any of the
Properties, or any portion thereof, to the extent not applied to the repair,
restoration or reconstruction of any remaining portion of the Properties as may
be Approved by the Venturers; (iii) the net proceeds of any sale of any of the
Properties, or any portion thereof; and (iv) the net proceeds of any
indebtedness (or any refinancing of such indebtedness) secured in whole or in
part by any of the Properties or any portion thereof.
3
<PAGE>
1.12 "Fiscal Year" means the fiscal year of the Venture established
-----------
under Subsection 3.4(c) hereof.
1.13 "I.R.C." means the Internal Revenue Code of 1986, as amended.
------
1.14 "Lease" means a lease or rental agreement now or hereafter
-----
existing between the Venture, as lessor or landlord (whether initially or by
assignment) and an Entity.
1.15 "Leasing Agreements" means, collectively, those certain Leasing
------------------
and Tenant Coordinating Agreements between the Venturers as "Owner" and Wells
Management Company, Inc. as "Agent" therein, concerning the leasing of the
Properties.
1.16 "Major Decisions" means any decision or action to (i) convey by
---------------
the Venture substantially all the assets of the Venture; (ii) acquire any
Property; (iii) finance or borrow or execute any promissory note or other
obligation (other than a Lease) or mortgage or other encumbrance in the name of
or on behalf of the Venture; (iv) retain the services of a manager other than
Wells Management Company, Inc.; (v) approve each construction and architectural
contract and all architectural plans, specifications and drawings and all
revisions or changes thereof in connection with the development and construction
of any improvements for any Property; (vi) reduce any portion of the insurance
program for the Properties or the Venture; (vii) determine any fee or other
amount to be paid to either Venturer or any affiliate of a Venturer; (viii) make
any expenditure or incur any obligation by or on behalf of the Venture involving
a sum in excess of $15,000 for any transaction or group of similar transactions
except for expenditures made and obligations incurred pursuant to and
specifically set forth in a budget Approved by the Venturers; (ix) adjust,
settle or compromise any claim, obligation, debt, demand, suit or judgment
against the Venture or any Venturer in its capacity as a Venturer, or waive any
breach of or default in any monetary or non-monetary obligation owed to the
Venture, involving singly or in the aggregate an amount in excess of $15,000, or
in the initiation of any such claim or suit for the benefit of the Venture; (x)
convey or sell any Property or authorize the conveyance or sale of all
Properties; and (xi) make any other decision or action which by the provisions
of this Agreement is required to be Approved by the Venturers or which in a
material respect affects the Venture or any of the assets or operations thereof.
All Major Decisions shall be made by the Venturers in a timely manner with due
regard for the necessity of obtaining and evaluating the information necessary
for making such Major Decisions.
1.17 "Management Agreements" means, collectively, those certain
---------------------
Management Agreements between the Venturers as "Owner" and Wells Management
Company, Inc. as "Manager" therein, concerning the management of the Property.
1.18 "Manager" means Wells Management Company, Inc.
-------
1.19 "Net Cash Flow" means for a given fiscal period, those funds of
-------------
the Venture constituting the gross cash receipts of the Venture from the
operation of the Properties (including interest and proceeds from business
interruption or rent insurance) for such period
4
<PAGE>
exclusive of Capital Contributions by the Venturers and Extraordinary Receipts,
which are available for distribution to the Venturers following (i) the payment
of all operating, fixed cost and capital expenditures of the Venture, for which
no reserves have been established, applicable to such period; (ii) the payment
of all principal and interest with respect to any debt secured by any mortgage
permitted by this Agreement applicable to such period; and (iii) the
establishment by the Venturers of appropriate reserves for taxes, debt service,
maintenance, repairs and other expenses and working capital requirements of the
Venture including, without limitation, accruals for real estate taxes, insurance
and other annual expense items (unless and to the extent the same are escrowed
with a mortgagee).
1.20 "Nondefaulting Venturer" in the context wherein one or more
----------------------
Venturers become a Defaulting Venturer, means the remaining Venturer or
Venturers (provided the remaining Venturer or Venturers are not also Defaulting
Venturers).
1.21 "Notice" means a written advice or notification required or
------
permitted by this Agreement, as more particularly provided in Subsection 8.1
hereof.
1.22 "Prime Rate" means the rate of interest announced from time to
----------
time by NationsBank of Georgia, N.A. as its prime rate. In the event the prime
rate of NationsBank of Georgia, N.A. is hereafter discontinued or becomes
unascertainable, the Administrative Venturer shall designate a comparable
reference rate to be the Prime Rate.
1.23 "Property" means any and all tract or tracts of land (and all
--------
rights and appurtenances incident thereto) owned or to be owned by the Venture
and all improvements located, constructed or developed thereon or to be
constructed or developed thereon.
1.24 "Properties" means, collectively, all Property of the Venture at
----------
any given time.
1.25 "Purchasing Party" means the Venturers other than the Selling
----------------
Party in the event of a proposed transfer described in Subsection 6.4 hereof.
1.26 "Selling Party" means the Venturer desiring to transfer its
-------------
interest in a transaction described in Subsection 6.4 hereof.
1.27 "Venture" means this joint venture formed pursuant to the laws of
-------
the State of Georgia by this Agreement.
1.28 "Venturer" or "Venturers" means the party or parties to this
--------
Agreement and all permitted successors and assigns thereof.
5
<PAGE>
1.29 Other terms defined in this Agreement:
Term Section
---- -------
"Assignment" 6.1
"Right of First Refusal" 6.2
"Certification" 6.4(a)
"Accepting Venturer" 6.5(a)
"Dissenting Venturer" 6.5(a)
2. THE VENTURE.
-----------
2.1 Formation of Venture. Fund IX and Fund X have previously formed
--------------------
the Joint Venture on March 20, 1997, pursuant to the terms of the Original
Agreement and for the limited purposes and scope set forth therein and herein.
The rights and obligations of the Venturers and the status, administration and
termination of the Venture shall be governed by the laws of the State of
Georgia. The Venture is being formed for the sole purpose of acquiring, owning,
developing, operating and eventually selling the Properties.
2.2 Purposes and Scope of Venture. Subject to the provisions of
-----------------------------
this Agreement, the activities of the Venture shall be limited strictly to the
acquisition, ownership, financing, development, leasing, operation, sale and
management of the Properties for the production of income and profit, including
all activities reasonably necessary or desirable to accomplish such purposes,
and shall not be extended by implication or otherwise unless Approved by all
venturers. Nothing in this Agreement shall be deemed to restrict in any way the
freedom of any Venturer to conduct any other business or activity whatsoever
(including, without limitation, the acquisition, development, leasing, sale,
operation and management of other real property) without any accountability to
the Venture or any other Venturer, even if such business or activity competes
with the business of the Venture, it being understood by each Venturer that the
other Venturer may be interested directly or indirectly in various other
businesses and undertakings not included in the Venture.
2.3 Name of Venture. The business and affairs of the Venture shall
---------------
be conducted solely under the name "The Fund IX, Fund X, Fund XI and REIT Joint
Venture" (or such other names as shall be approved by the Venturers), and such
name shall be used at all times in connection with the business and affairs of
the Venture. The Venturers shall execute any assumed or fictitious name
certificate or certificates required by law to be filed in connection with the
formation of the Venture and shall cause such certificate or certificates to be
filed in the appropriate records.
2.4 Scope of Authority. Except as otherwise expressly and
------------------
specifically provided in this Agreement, no Venturer shall have any authority to
act for, or assume any obligations or responsibility on behalf of, any other
Venturer or the Venture.
6
<PAGE>
2.5 Principal Place of Business. The principal place of business
---------------------------
and initial office of the Venture shall be located at 3885 Holcomb Bridge Road,
Norcross, Georgia 30092, and may be relocated as may be from time to time
Approved by the Venturers.
2.6 Representations, Warranties and Indemnity. In order to induce
-----------------------------------------
the other Venturer to enter into this Agreement, each Venturer does hereby make
to each other Venturer the representations and warranties hereinafter set forth,
and does hereby agree to indemnify and hold each other Venturer harmless from
any and all loss, expense or liability any other Venturer may suffer as a result
of any inaccuracy as of the date hereof in any representation and warranty set
forth below:
(a) Authorization. The execution and delivery of this Agreement
-------------
has been duly authorized by the agreements by which each Venturer was either
created or currently governed.
(b) Claims. There is no claim, litigation, proceeding or
------
governmental investigation pending, or, so far as is known to each Venturer,
threatened, against or relating to each Venturer, or the transactions
contemplated by this Agreement which does or would reasonably be expected
materially and adversely to affect the ability of each Venturer to enter into
this Agreement or to carry out its obligations hereunder, and there is not any
basis for any such claim, litigation, proceeding or governmental investigation.
(c) Conflicts. Neither the consummation of the transactions
---------
contemplated by this Agreement to be performed, nor the fulfillment of the
terms, conditions and provisions of this Agreement, conflict with or will result
in the breach of any of the terms, conditions or provisions of, or constitute a
default under, the agreements by which each Venturer was created or is currently
governed or any material agreement, indenture, instrument or undertaking to
which each Venturer is a party.
(d) Investment Objectives. The investment objectives of each
---------------------
Venturer with respect to the Properties and the objectives of the Venture are:
(i) to maximize Net Cash Flow; (ii) to preserve, protect and return the
Venturers' investment in the Venture; and (iii) to realize appreciation upon the
sale of the Properties.
(e) Charges to the Venturer. Neither Venturer will be charged,
-----------------------
directly or indirectly, more than once for the same services.
2.7 Term of Venture.
---------------
(a) Commencement. The Venture term shall begin on the date of
------------
this Agreement as set forth above and end upon dissolution of the Venture.
(b) Dissolution and Termination. Dissolution shall occur upon the
---------------------------
occurrence of any of the events described in Section 7 of this Agreement. Upon
dissolution, the
7
<PAGE>
assets shall be liquidated in due course and distributed as provided in
Subsection 3.3(c)(i) hereof. The Venture shall continue until termination in
accordance with the relevant dissolution and termination provisions of the
Georgia Uniform Partnership Act.
3. FINANCIAL STRUCTURE.
-------------------
3.1 Capital Contributions. The Venturers shall from time to time make
---------------------
Capital Contributions to the Venture in such amounts as are agreed to by the
Venturers.
3.2 Distribution Percentage Interest. The Distribution Percentage
--------------------------------
Interest of each of the Venturers shall be equal to the percentage equivalent
(rounded to the nearest one-hundredth of a percent) of a fraction, the numerator
---------
of which is the aggregate of all Capital Contributions (or the Agreed Value
thereof) made by each such Venturer to the Joint Venture, and the denominator of
-----------
which is the aggregate amount of all Capital Contributions (or the Agreed Value
thereof) made to the Joint Venture by all of the Venturers. Each Venturer's
interest in the Venture shall always be proportional to its Capital
Contributions. By their execution hereof, the Venturers hereby acknowledge and
agree that the Agreed Value of the tract of land located in Knox County,
Tennessee, which was transferred and contributed to the Joint Venture by Fund IX
in March, 1997, for all purposes under this Agreement, shall be deemed to be
$1,306,393 (which amount was equivalent to the purchase price and all
acquisition and development costs and expenses expended by Fund IX to such date
with respect to such property). The Venturers further acknowledge and agree
that, upon its transfer and contribution to the Joint Venture by Fund X, the
Agreed Value of the Iomega Building, for all purposes under this Agreement,
shall be deemed to be $5,059,624 (which amount is equivalent to the purchase
price and all acquisition costs and expenses expended to date by Fund X with
respect to the Iomega Building).
Each Venturer (the "First Venturer") does hereby agree to indemnify
and hold the other Venturers (collectively, the "Second Venturer") harmless from
and against any claim, action, liability, loss, damage, cost or expense,
including, without limitation, attorney's fees and expenses incurred by the
Second Venturer by reason of (i) any act or omission of the First Venturer in
connection with the operation of the Venture and the Properties, or (ii) the
claims made by third parties to the extent that the Second Venturer's percentage
share of the total liability, loss, damage, cost or expense incurred by the
Venture and the Venturers in connection with such claims exceeds its
Distribution Percentage Interest at the time such liability, loss, damage, cost
or expense is suffered or incurred. Upon dissolution, each Venturer shall look
solely to the assets of the Venture for the return of its investment, and if the
Venture Property remaining after payment or discharge of the debts and
liabilities of the Venture, including debts and liabilities owed to one or more
of the Venturers, is insufficient to return the aggregate Capital Contributions
of each Venturer, such Venturers shall have no recourse against the Venture or
any other Venturer.
3.3 Allocations and Distributions. Allocations for accounting
-----------------------------
purposes and for federal, state and local income tax purposes of each item of
income, loss, deduction and gain,
8
<PAGE>
and distributions of Net Cash Flow and Extraordinary Receipts shall be allocated
among the Venturers as follows:
(a) Allocation of Tax Items. For federal, state and local income
-----------------------
tax purposes and for purposes of maintaining the Venturers' Capital Accounts,
except as otherwise provided herein, each item of income, gain, loss and
deduction of the Venture for each tax year shall be allocated to the Venturers
in accordance with their Distribution Percentage Interests.
(b) Net Cash Flow. All distributions of Net Cash Flow shall be
-------------
made in accordance with the Venturers' Distribution Percentage Interests and
shall be made at such intervals as may be approved by the Venturers, but in no
event less frequently than quarterly.
(c) Extraordinary Receipts. Distributions of Extraordinary
----------------------
Receipts shall be made as follows:
(i) Distributions Not in Connection With Dissolution.
------------------------------------------------
Distribution of Extraordinary Receipts not generated in connection with an event
of dissolution shall be made as follows: first, to the establishment of any
-----
reserve approved by the Venturers; and second, to the Venturers based on their
------
respective Distribution Percentage Interests.
(ii) Distributions in Connection With Dissolution.
--------------------------------------------
Distribution of Extraordinary Receipts generated in connection with an event of
dissolution (as well as the other assets of the Venture) shall be made as
follows: first, to the payment of debts and liabilities of the Venture to
-----
creditors (including all mortgages, but excluding any other debts or liabilities
to Venturers or affiliates of Venturers), and to the expenses of liquidation;
second, to the establishment of such reserves as the Venturers may deem
- ------
reasonably necessary for contingent or unforeseen liabilities or obligations of
the Venture, which may be held in escrow for a reasonable period of time and
then distributed pursuant to the remainder of this Subsection; third, to the
-----
repayment of any remaining debts and obligations of the Venture to the Venturers
or affiliates of the Venturers; and fourth, to the Venturers in accordance with
------
the positive balances in their respective Capital Accounts.
(d) Compliance with Section 704(c). To comply with Section 704(c)
------------------------------
of the I.R.C., items of income, gain, loss, depreciation and cost recovery
deductions attributable to Contributed Property shall be allocated for federal
income tax purposes among the Venturers in the manner provided under Section
704(c) of the I.R.C. taking into account the variation, if any, between the
Agreed Value of such Property and its adjusted tax basis at the time of
contribution.
(e) Qualified Income Offset. Notwithstanding any provision to the
-----------------------
contrary contained herein, in the event that any Venturer receives an
adjustment, allocation or distribution described in Treasury Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which causes a deficit balance in
such Venturer's Capital Account, such Venturer will be allocated items of income
or gain (consisting of a pro rata portion of each item of partnership income,
9
<PAGE>
including gross income, and gain for such year) in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible, all in
accordance with Treasury Regulations Section 1.704-1(b)(2)(ii)(d). (It is the
intent of the Venturers that the foregoing provision constitute a "Qualified
Income Offset," as defined in Treasury Regulations Section 1.704-1(b)(2)(ii)(d),
and the foregoing provision shall in all events be interpreted so as to
constitute a valid "Qualified Income Offset.")
3.4 Income Taxes and Accounting.
---------------------------
(a) Income Tax Returns. All income tax returns of the Venture
------------------
shall be prepared on an accrual basis (except to the extent as may otherwise be
Approved by all Venturers or be required by law, statute or regulation governing
such tax and returns).
(b) Elections. Any provision of this Agreement to the contrary
---------
notwithstanding, solely for federal income tax purposes, each of the Venturers
hereby recognizes that the Venture will be subject to all provisions of
Subchapter K of Chapter 1 of Subtitle A of the I.R.C.; provided, however, that
the filing of U.S. Partnership Returns of Income shall not be construed to
extend the purposes of the Venture or expand the obligations or liabilities of
the Venturers. The Venture shall file an election under Section 754 of the
I.R.C. only in the event of a transfer or proposed transfer by any one or more
Venturers of all or any part of their interest or interests in the Venture to
any Entity. Such election shall be filed by the Venture upon the request of any
Venturer made with respect to the income tax return for the period which
includes the date of transfer of such interest in the Venture; such request
shall be in writing and shall be made not less than 60 days prior to the initial
date established by law for filing such income tax return.
(c) Fiscal Year. The Venture shall operate on a calendar year
-----------
basis.
(d) Books of Account. The books of account of the Venture and the
----------------
Venturer's Properties shall be kept and maintained at all times by the
Administrative Venturer or the delegated representative thereof at the principal
place of business of the Administrative Venturer. The books of account shall be
maintained on an accrual basis, unless otherwise determined by the
Administrative Venturer, in accordance with generally accepted accounting
principles, consistently applied, and shall show all items of income and expense
relating to the Venture and the Properties.
(e) Reports. The Administrative Venturer shall cause to be
-------
prepared at the expense of the Venture and furnished to each of the Venturers
the information and data with respect to the Venture during the Fiscal Year as
shall enable each Venturer on a timely basis to prepare or cause to be prepared
the reports required under their respective partnership agreements to be made to
their partners. In addition, within 60 days after the end of each Fiscal Year,
the Administrative Venturer shall use its best efforts to cause to be prepared
and to deliver to each Venturer a report setting forth in sufficient detail all
such information and data with respect to business transactions effected by or
involving the Venture during such Fiscal Year as
10
<PAGE>
shall enable the Venture and each Venturer to prepare its federal, state and
local income tax returns on a timely basis in accordance with the laws, rules
and regulations then prevailing. The Administrative Venturer shall cause to be
prepared federal, state and local tax returns required of the Venture and submit
such returns to the Venturers no later than 30 days prior to the date required
for the filing thereof and shall file the same.
(f) Records. Any Venturer shall have the right at all reasonable
-------
times during usual business hours to audit, examine and make copies of the books
of account of the Venture. Such right may be exercised through any agent or
employee of such Venturer designated by such Venturer or by an independent
certified public accountant designated by such Venturer. Any Venturer shall bear
all expenses incurred in any examination or audit made for such Venturer's
account.
(g) Audits. In the event that the Internal Revenue Service or any
------
other governmental agency with jurisdiction shall conduct, commence or give
notification of intent to conduct or commence any audit or other investigation
of the books, records, tax returns or other affairs of the Venture, the
Administrative Venturer shall immediately advise the Venturers thereof by
Notice. The Administrative Venturer shall be the "tax matters partner," as that
term is defined by I.R.C., if one is needed for the Venture.
3.5 Banking. Funds of the Venture shall be deposited in an account
-------
or accounts of a type, in form and name and in a bank or banks selected by the
Administrative Venturer. No funds other than Venture funds shall be deposited
in any such account. Withdrawals from bank accounts shall be made by the
Administrative Venturer and by such other parties as may be designated by the
Venturers.
4. MANAGEMENT.
----------
4.1 Authority of Administrative Venturer. The overall management
------------------------------------
and control of the business and affairs of the Venture shall be vested in the
Venturers, collectively, acting by and through the Administrative Venturer. The
Administrative Venturer shall have responsibility for establishing the policies
and operating procedures with respect to the business and affairs of the Venture
and for making all decisions, except as otherwise provided herein and except
Major Decisions, as to all matters which the Venture has authority to perform,
as fully as if the Venturers were themselves making such decisions. All
decisions, other than Major Decisions, with respect to the management and
control of the Venture made by the Administrative Venturer shall be binding on
the Venture and all Venturers. The Administrative Venturer shall be responsible
for performing, or for causing to be performed, all acts necessary to accomplish
the purposes of the Venture. No act shall be taken, sum expended, decision made
or obligation incurred by the Venture, or any Venturer, with respect to a matter
within the scope of any of the Major Decisions, unless such matter has been
Approved by all of the Venturers. Except as otherwise expressly provided for in
this Agreement, documents executed by or behalf of the Venture shall be executed
only with the Approval of the Administrative Venturer.
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4.2 Administrative Venturer. The initial Administrative Venturer
-----------------------
shall be Fund IX. The Administrative Venturer shall, at the expense of the
Venture, discharge or cause the discharge of the duties of the Administrative
Venturer unless and until (i) the Administrative Venturer resigns as the
Administrative Venturer, or (ii) the Administrative Venturer becomes a
Defaulting Venturer. In the event of an occurrence described in either clause
(i) or (ii) of the immediately preceding sentence, the then current
Administrative Venturer shall thereupon be relieved from any further performance
of the functions of the Administrative Venturer under this Agreement and a
replacement for the Administrative Venturer shall be appointed by the remaining
Venturers. In the event an Entity not a Venturer shall be appointed to be
Administrative Venturer, such Entity shall discharge the functions of the
Administrative Venturer under this Agreement but shall not be entitled to any of
the rights, titles or interests of a Venturer. The breach or violation by the
Administrative Venturer of any provision of this Subsection, or of any other
duty or obligation imposed upon the Administrative Venturer by this Agreement,
shall subject to the Administrative Venturer to the provisions of Subsection 4.4
hereof as a Defaulting Venturer (provided the Administrative Venturer is then
also a Venturer) only if such breach or violation by the Administrative Venturer
involves fraud, negligence or willful misconduct. Furthermore, the
Administrative Venturer shall be liable to the Venture and to the Venturers for
any breach or violation of the Administrative Venturer's duties and obligations
under this Subsection only if such breach or violation involves fraud,
negligence or willful misconduct.
(a) Records. The Administrative Venturer shall maintain or cause
-------
to be maintained at the expense of the Venture, books of account as described in
Subsection 3.4(d) hereof.
(b) Property Taxes and Licenses. The Administrative Venturer
---------------------------
shall cause to be filed each year timely ad valorem tax returns for the
Properties.
(c) Leases. The Administrative Venturer is authorized to
------
negotiate and execute Leases on behalf of the Venture without further Approval
of the Venturers and is authorized to delegate this responsibility pursuant to a
management agreement. Initially, this responsibility will be delegated to the
Manager under the Management Agreements and Leasing Agreements by and between
the Venturers and the Manager.
(d) Indemnity. The Venture shall indemnify and hold the
---------
Administrative Venturer harmless against all claims, actions, liability, loss,
damage, cost or expense, including attorney's fees and expenses, by reason of
any act or omission of the Administrative Venturer that is duly authorized and
performed in accordance with the terms and provisions of this Agreement.
However, any Entity which is both the Administrative Venturer and a Venturer
shall be responsible as a Venturer, to the extent of the proportionate liability
thereof, for such obligation for the Venture to so indemnify and hold harmless
the Administrative Venturer. The liability of the Venturers under this
Subsection shall be several, and not joint, and shall be shared in proportion to
the Distribution Percentage Interests of the Venturers.
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4.3 Compensation of Venturers. No payment will be made by the
-------------------------
Venture to any Venturer for the services of such Venturer or any affiliate,
partner or employee of any Venturer, other than as provided in the Management
Agreements and the Leasing Agreements.
4.4 Defaulting Venturer. If any Venturer fails to perform any of
-------------------
its obligations under this Agreement or violates the terms of this Agreement,
such Venturer shall be a Defaulting Venturer, and any Nondefaulting Venturer
shall have the right to give such Defaulting Venturer a Notice specifically
setting forth the nature of the default and stating that such Defaulting
Venturer shall have a period of 15 days to pay any sums of money specified
therein as due and owing to the Venture or to any Venturer, or 30 days (or such
longer period as is specified in the next succeeding sentence) to cure any other
default specified in such Notice. If the monies specified are not paid within
such 15 day period or such Defaulting Venturer does not cure all other defaults
within such 30 day period, or, if the defaults are not capable of being cured
within such 30 day period, such Defaulting Venturer has not commenced in good
faith the curing of such defaults within such 30 days period and does not
thereafter prosecute to completion with diligence and continuity the curing
thereof, a Nondefaulting Venturer shall have all rights provided in Subsections
4.4(a) through 4.4(c) below, in addition to any other rights it may have under
the Georgia Uniform Partnership Act. If a Defaulting Venturer completely cures
all of such defaults within the aforesaid cure periods, then such defaults shall
be deemed no longer to exist and such Venturer shall be deemed no longer to
constitute a Defaulting Venturer unless and until another default by such
Venturer occurs. A Defaulting Venturer shall have no power or authority to bind
the Venture or the Venturers but shall cooperate with and, to the extent
requested, assist a Nondefaulting Venturers in every way possible.
(a) Equitable Relief. The Nondefaulting Venturer may bring any
----------------
proceeding in the nature of injunction, specific performance or other equitable
remedy, it being acknowledged by each of the Venturers that damages at law may
be an inadequate remedy for a default or threatened breach of this Agreement.
(b) Damages. The Nondefaulting Venturer may bring any action at
-------
law by or on behalf of itself or the Venture as may be permitted in order to
recover damages.
(c) Dissolution. The Nondefaulting Venturer may institute such
-----------
proceedings as may be appropriate to secure an accounting and to dissolve, wind
up and terminate the Venture.
(d) Additional Remedies. The rights and remedies of the Venturers
-------------------
under this Agreement shall not be mutually exclusive; that is, the exercise of
one or more of the provisions hereof shall not preclude the exercise of any
other provisions hereof, except as may be expressly provided in this Agreement.
Each of the Venturers confirms that damages at law may be an inadequate remedy
for a breach or threatened breach of this Agreement and agrees that, in the
event of a breach or threatened breach of any provision hereof, the respective
rights and obligations hereunder shall be enforceable by specific performance,
injunction or other
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equitable remedy, but nothing herein contained is intended to, nor shall it,
limit or affect any right or rights at law or by statute or otherwise of any
Venturer aggrieved as against any other Venturer for breach or threatened breach
of any provisions of this Agreement, it being the intention of this Subsection
to make clear the Agreement of the Venturers that the respective rights and
obligations of the Venturers under this Agreement shall be enforceable in equity
as well as at law or otherwise.
4.5 Limitation on Authority. Notwithstanding any provision of this
-----------------------
Agreement to the contrary, no Venturer shall have the authority to take any
action which, if taken singularly by such Venturer separate from the Venture,
would be prohibited by such Venturer's governing documents.
4.6 Holding Title as Nominee. With the consent of the other
------------------------
Venturers, any Venturer shall be authorized to hold title to a Property or
Properties as agent or as nominee on behalf of the Venture.
5. INSURANCE.
---------
5.1 Minimum Insurance Requirements. The Venture shall carry and
------------------------------
maintain in force the insurance hereinafter described, the premiums for which
shall be a cost and expense of the Venture.
(a) Liability Insurance. Comprehensive general liability
-------------------
insurance for the benefit of the Venture and the Venturers as named insureds
against claims for "personal injury" liability.
(b) Other Insurance. Such other insurance as the Venturers may
---------------
reasonably deem to be necessary or as may be required by any mortgagee of any
Property of the Venture.
5.2 Insureds. All of the policies of insurance described in
--------
Subsection 5.1 shall name the Venture and each of the Venturers as named
insureds, as their respective interests may appear. All such insurance shall be
effected under policies issued by insurers and be in forms and for amounts
Approved by the Venturers.
6. TRANSFERS AND OTHER DISPOSITIONS.
--------------------------------
6.1 Prohibited Transfers. No Venturer may sell, transfer, assign,
--------------------
mortgage, pledge, hypothecate or otherwise dispose of, encumber or permit or
suffer any encumbrance on (all referred to as "Assignment"), all or any part of
the interest of such Venturer in the Venture or in the Properties (including,
but not limited to, the right to receive any distributions under this Agreement)
unless such an Assignment is Approved by all Venturers, provided that this
restriction on Assignment shall not apply to the Assignment of units of
partnership interests or
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beneficial interests in a Venturer. Any Assignment made in violation of this
Section 6 shall be void.
6.2 Exceptions. The prohibition in Subsection 6.1 hereof shall not
----------
apply to an Assignment permitted under Subsection 6.4 hereof ("Right of First
Refusal").
6.3 Notice. Each Venturer shall promptly by Notice inform the other
------
Venturer of the occurrence of any disposition not required to have been Approved
by the other Venturer.
6.4 Right of First Refusal. If any Selling Party shall desire to
----------------------
transfer (for the purposes of this Subsection the terms "transfer" and
"transferred" include any and all types of disposition) all or any portion of
its interest in the Venture to any Entity, such Selling Party may consummate
such transfer only if (i) such sale is a sale of Selling Party's interest in the
Venture separate and distinct from any other property, (ii) the consideration
payable is cash and/or note(s) and not an interest in other property, and (iii)
the provisions and conditions of Subsections (a) through (d) hereof have been
complied with.
(a) Certification. The Selling Party shall deliver to the
-------------
Purchasing Party a written certification ("Certification") reflecting (i) the
name of the prospective transferee of the entire interest of the Selling Party
in the Venture; (ii) the price for which, and the terms upon which, the Selling
Party is willing to transfer and such prospective transferee is willing to buy
the entire interest of the Selling Party in the Venture (which price and terms
shall be based either upon preliminary discussions and negotiations, evidenced
in a writing signed by the prospective transferee, between the Selling Party and
such prospective transferee or upon a fully negotiated and executed purchase
agreement, a copy of which shall be furnished to the Purchasing Party); and
(iii) whether the Selling Party has any interest, financial or otherwise, in the
prospective transferee and whether, to the best knowledge of the Selling Party,
there exists any other contract or offer for the purchase of all or any portion
of the Properties or of the Selling Party's interest in the Venture. Such
Certification shall be accompanied by a request (in the form of a Notice) by the
Selling Party to the Purchasing Party to either Approve such transfer and
prospective transferee or to purchase the Selling Party's interest in the
Venture for the price and upon the terms provided in such Certification. The
Selling Party may transfer the interest of the Selling Party in the Venture only
to such prospective transferee or to the Purchasing Party. The Purchasing Party
must either approve such prospective transferee or purchase the interest of the
Selling Party in the Venture.
(b) Purchasing Party's Rights. The Purchasing Party shall have
-------------------------
the right either (i) to allow the Selling Party to transfer the interest of the
Selling Party in the Venture for a price and upon terms no more favorable to the
prospective transferee than those reflected, and to the prospective transferee
named in the Certification, or (ii) to purchase the Selling Party's entire
interest in the Venture at the price contained in the Certification and on the
other terms and conditions of the Certification. The price for which, and the
terms upon which, the Selling Party shall transfer its interest in the Venture
shall, by way of illustration and not limitation, be deemed "more favorable"
than those reflected in the Certification if (i) the
15
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total actual transfer price is lower than that set forth in such Certification,
(ii) a lesser portion of the price is paid in cash at the time of the transfer
than that set forth in such Certification, or (iii) the portion of the price not
paid in cash at the time of the transfer is payable over a longer period of
time, at a lower interest rate or with lower or less frequent periodic payments
than those set forth in such Certification.
(c) Notice of Election. The Purchasing Party shall have a period
------------------
of 60 days after receipt of the Selling Party's Certification specified in
Subsection 6.4(a) hereof to serve upon the Selling Party a Notice which shall
specify whether such Purchasing Party will Approve a transfer to such
prospective transferee, or whether the Purchasing Party shall purchase the
entire interest of the Selling Party as provided in Subsection 6.4(b) hereof. If
the Purchasing Party fails to give such Notice within the allocated time, the
Purchasing Party shall be deemed to have approved the transfer of the interest
to such prospective transferee, and the Purchasing Party shall, if requested by
the Selling Party, execute, acknowledge and deliver such documents, or cause the
same to be executed, acknowledged and delivered, including without limitation,
the rights and restrictions contained in this Section 6 with respect to further
transfers. Any such new Venturer shall execute and deliver to the other
Venturers such documents as the other Venturers may reasonably request
confirming the assumption by such new Venturer of the obligations of the Selling
Party under this Agreement. At the time of closing of a transfer to a third
party transferee pursuant to this Subsection 6.4, the Purchasing Party shall
execute and deliver to the Selling Party and such transferee a written estoppel
certificate in recordable form pursuant to which the Purchasing Party shall
certify and agree that to the best of the Purchasing Party's knowledge and
belief the pending transfer is permitted pursuant to this Subsection (provided,
that to the best of the Purchasing Party's knowledge and belief such transfer
is, in fact, permitted by this Subsection). In such estoppel certificate, the
Purchasing Party shall waive any further right whatsoever to attempt to force a
rescission or setting aside of such transfer; provided, however, the Purchasing
Party shall expressly reserve any rights thereafter to pursue any action for
damages against both the Selling Party and the transferee should the Purchasing
Party thereafter determine that, contrary to the Purchasing Party's earlier best
knowledge and belief, the transfer was in fact not consummated in strict
accordance with the terms of this Section 6.
(d) Power of Attorney. In the event that either (i) the
-----------------
Purchasing Party shall have failed to respond, in the manner and within the time
required by Subsection 6.4(c) hereof, to the Selling Party's Certification
specified in Subsection 6.4(a) hereof, or (ii) the Purchasing Party shall have
served upon the Selling Party a Notice specifying that the Purchasing Party has
approved a transfer to a prospective transferee of the Selling Party as
contemplated by Subsection 6.4(c) hereof, and the Purchasing Party shall have
thereafter failed or refused, within ten days after receipt of a Notice from the
other Venturer requesting same, to execute, acknowledge and deliver such
documents, or cause the same to be done, as shall be required to effectuate a
transfer of such interest in accordance with the Certification, then, and in
either of such events, the Selling Party may execute, acknowledge and deliver
such documents for, on behalf of and in the stead of the Purchasing Party, and
such execution, acknowledgment and delivery by the Selling Party shall be for
all purposes as effective against and binding upon
16
<PAGE>
the Purchasing Party as though such execution, acknowledgment and delivery had
been by the Purchasing Party; provided, however, that no such documents executed
by the Selling Party shall contain any undertaking on behalf of the Purchasing
Party beyond the scope of the undertakings necessary for the Selling Party to
effectuate such transfer. Each Venturer does hereby irrevocably constitute and
appoint each other Venturer as the true and lawful attorney in fact of such
Venturer and the successors and assigns thereof, in the name, place and stead of
such Venturer or the successors or assigns thereof, as the case may be, to
execute, acknowledge and deliver such documents in the event such Venturer shall
be the Purchasing Party under the circumstances contemplated by this Subsection
6.4(d). It is expressly understood, intended and agreed by each Venturer, for
such Venturer and the successors and assigns thereof, that the grant of the
power of attorney to each other Venturer pursuant to this Subsection 6.4(d) is
coupled with an interest, is irrevocable and shall survive the death,
termination or legal incompetency of such granting Venturer, as the case may be,
or the assignment of the interest of such granting Venturer in the Venture, or
the dissolution of the Venture.
6.5 Offer from Third Party to Purchase Properties.
---------------------------------------------
(a) In the event that one or more of the Venturers receives a
bona fide offer from an unrelated third party for the sale of all or
substantially all of the Properties or last remaining Property owned by the
Venturer at the time of such offer, which offer such Venturer or Venturers wish
to accept (the "Accepting Venturer"), but the other Venturer or Venturers wish
to reject, the Venturer or Venturers not desiring to sell the Properties
pursuant to said offer (the "Dissenting Venturer") must elect within thirty (30)
days after receipt by the Dissenting Venturer of notice of said offer from the
Accepting Venturer to either (i) purchase the Accepting Venturer's entire
interest in the Venture on the same terms and conditions as the third party
offer to purchase; or (ii) consent to the sale of the Properties or last
remaining Property of the Venturer pursuant to such third party offer. The
Accepting Venturer shall deliver to the Dissenting Venturer a written notice
(the "Notice") reflecting (i) the name and address of the person or entity
desiring to purchase the Properties or last remaining Property of the Venture;
(ii) the sales price to be paid by such person or entity; and (iii) shall
include a copy of the third party offer. In the event that the Dissenting
Venturer elects to purchase the Accepting Venturer's entire interest in the
Venture, the purchase price payable for the Accepting Partner's interest in the
Venture shall be equal to the amount such Accepting Venturer would have received
if the Property or Properties had been sold to such unrelated third party in
accordance with the terms of its offer, after payment of all sales commissions
and other fees and expenses which would have been due and payable upon the sale
of said Property or Properties and the repayment of all debts of the Venture, if
any.
(b) As set forth above, the Dissenting Venturer shall have 30
days after receipt of the Notice in which to make its election. The election of
the Dissenting Venturer shall be made by written notice to the Accepting
Venturer. In the event that the Dissenting Venturer elects to purchase the
Accepting Venturer's interest in the Venture pursuant to alternative (i) above,
the Dissenting Venturer shall have an additional 30 days following the receipt
of the Notice within which to close the purchase of the Accepting Venturer's
interest in the Venture.
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<PAGE>
The failure of the Dissenting Venturer to either elect to purchase the Accepting
Venturer's interest in the Venture pursuant to subparagraph (a)(i) above within
30 days after the receipt by the Dissenting Venturer of the Notice, or the
failure to close the purchase of the Accepting Venturer's interest in the
Venture within the foregoing time period shall be conclusively deemed to
constitute a consent to the sale of the Properties or last remaining Property of
the Venturer pursuant to such third party offer.
(c) The closing of any purchase and sale under this Section 6.5
shall be held at the principal office of the Venturer or at such other place as
shall be mutually agreed to by the Venturers within 30 days following the
receipt by the Accepting Venturer of written notice that the Dissenting Venturer
has exercised its option to purchase the Accepting Venturer's interest in the
Venture. At the closing, an appropriate assignment of the Accepting Venturer's
interest in the Venture, with covenants against Assignor's acts, together with
such other instruments and documents as may be necessary or appropriate to
effect the transfer of the Accepting Venturer's interest in the Venture, shall
be executed and delivered. The Venturers shall also execute and deliver an
amendment to this Agreement, if appropriate. The purchase price payable to the
Accepting Venturer shall be paid at closing by wire transfer of immediately
available federal funds. Effective the date of closing, the Accepting Venturer
shall cease to be a member of the Venture, and the Accepting Venturer shall have
no further rights, duties or obligations with respect to the Venture arising out
of this Agreement. Subsequent to the closing date, the Accepting Venturer shall
have no further interest in the Venture's capital, income, profits, losses,
gains, allocations or distributions.
(d) Upon any default or breach of any provision of this Section
6.5, the nonbreaching party shall be entitled to sue such defaulting party and
recover damages or enforce the terms hereof by specific performance.
(e) In the event that either (i) the Dissenting Venturer shall
have failed to respond, in the manner and within the time required by Subsection
6.5(a) hereof, to the Accepting Venturer's Notice specified in Subsection 6.5(a)
hereof, or (ii) the Dissenting Venturer shall have served upon the Accepting
Venturer a notice specifying its intent to approve the transfer of the
Properties or Property, and the Dissenting Venturer shall have thereafter failed
or refused within ten (10) days after receipt of a notice from the Accepting
Venturer requesting same to execute, acknowledge and deliver such documents,
instruments and writings, or to cause the same to be done, as required to
effectuate the contemplated sale of the Properties, or (iii) the Dissenting
Venturer shall have failed to close the purchase of the Accepting Venturer's
interest in the Venture within the time period set forth in Subsection 6.5(c)
hereof, then, in such event, the Accepting Venturer may execute, acknowledge and
deliver such documents, instruments and writings for, and on behalf of, and in
the name, place and stead of, the Dissenting Venturer, and such execution,
acknowledgment and delivery by such Accepting Venturer shall be for all purposes
as effective against and binding upon the Venture and the Dissenting Venturer as
if such execution, acknowledgment and delivery had been made by the Dissenting
Venturer; provided, however, that no such documents executed by the Accepting
Venturer pursuant to the terms hereof shall contain any undertaking on behalf of
the Dissenting
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<PAGE>
Venturer beyond the scope of the undertaking as necessary for the Accepting
Venturer to effectuate the transfer and sale of the Properties of the Venture.
Each Venturer does hereby irrevocably constitute and appoint each other Venturer
as its true and lawful attorney-in-fact of such Venturer and its successors and
assigns, in the name, place and stead of such Venturer or its successors or
assigns, as the case may be, to execute, acknowledge and deliver any and all
such deeds, assignments, documents, instruments and writings in the event such
Venturer shall be the Dissenting Venturer under the circumstances contemplated
by this Subsection 6.5(e). It is expressly understood, intended and agreed by
each Venturer, for such Venturer and its successors and assigns, that the grant
of the power of attorney to each other Venturer pursuant to this Subsection
6.5(e) is coupled with an interest, is irrevocable and shall survive the death,
termination or legal incompetence of such granting Venturer, as the case may be,
or the assignment of the interest of such granting Venturer in the Venture, or
the dissolution of the Venture.
7. DISSOLUTION AND TERMINATION.
---------------------------
The Venture shall dissolve on December 31, 2028, or upon the
occurrence of any of the following:
(i) A decree of a court of competent jurisdiction declaring
dissolution;
(ii) Sale of all or substantially all of the assets of the Venture
and the receipt and distribution of the proceeds therefrom;
(iii) The Venture or any Venturer is adjudicated insolvent or
bankrupt;
(iv) Termination of any of the Venturers; or
(v) Unanimous consent of the Venturers.
Upon the occurrence of any of the events set forth in this Section 7, Notice
thereof shall be given to all of the Venturers by the Administrative Venturer
and the Administrative Venturer shall, as required by Subsection 2.7(b) hereof,
proceed to terminate and wind up the Venture and shall distribute the
Extraordinary Receipts (and the other assets of the Venture) resulting therefrom
in accordance with Subsection 3.3(c) hereof.
8. MISCELLANEOUS PROVISIONS.
------------------------
8.1 Notices. Notices given under this Agreement shall be in writing
-------
and shall be deemed to have been properly given or served by the deposit of such
with the United States Postal Service, or any official successor thereto,
designated as registered or certified mail, return receipt requested, bearing
adequate postage and addressed as hereinafter provided. The time period in which
a response to any such Notice must be given or any action taken with respect
thereto, however, shall commence to run from the date of receipt on the return
receipt of the
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Notice. Rejection or other refusal to accept or the inability to deliver because
of changed address or status of which no Notice was given to the Administrative
Venturer shall be deemed to be receipt of the Notice sent. In the event that
registered or certified mail is not being accepted for prompt delivery, each
Notice may then be served by personal service addressed as hereinafter provided.
By giving to the other Venturers at least 30 days' Notice thereof, any Venturer
shall have the right from time to time during the term of this Agreement to
change his Notice address(es) and to specify as his Notice address(es) any other
address(es) within the continental United States of America. Each Notice to the
Venturers shall be sent to the addresses set forth below (unless such Notice
address is properly changed):
Wells Real Estate Fund IX, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Wells Real Estate Fund X, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Wells Real Estate Fund XI, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Wells Operating Partnership, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
8.2 Governing Law. This Agreement and the obligations of the
-------------
Venturers hereunder shall be interpreted, construed and enforced in accordance
with the laws of the State of Georgia, including the Georgia Uniform Partnership
Act.
8.3 Fees and Commissions. Except as may otherwise be provided
--------------------
herein, each Venturer hereby represents to each other Venturer that there are no
claims for brokerage or other commissions or finder's or other similar fees in
connection with the transactions contemplated by this Agreement insofar as such
claims shall be based on arrangements or agreements made by or on behalf of the
Venturer so representing, and each Venturer so representing hereby indemnifies
and agrees to hold harmless each other Venturer from and against all
liabilities, cost, damages and expenses from any such claims.
8.4 Waiver. No consent or waiver, express or implied, by any
------
Venturer to or of any breach or default by any other Venturer in the performance
by such other Venturer of the obligations thereof under this Agreement shall be
deemed or construed to be a consent or waiver to or of any other breach or
default in the performance by such other Venturer of the same or any other
obligations of such other Venturer under this Agreement. Failure on the part of
any Venturer to complain or any act or failure to act of any other Venturer or
to declare any
20
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other Venturer in default, irrespective of how long such failure continues,
shall not constitute a waiver of such Venturer of the rights thereof under this
Agreement.
8.5 Severability. If any provision of this Agreement or the
------------
application thereof to any Entity or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to any other Entity or circumstance shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
8.6 Status Reports. Recognizing that each Venturer may find it
--------------
necessary from time to time to establish to third parties such as accountants,
banks, mortgagees or the like, the then current status of performance hereunder,
upon the written request of any other Venturer, made from time to time by
Notice, each Venturer shall furnish promptly a written statement (in recordable
form, if requested) on the status of any matter pertaining to this Agreement to
the best of the knowledge and belief of the Venturer making such statement.
8.7 Entire Agreement - Amendment. This Agreement constitutes the
----------------------------
entire agreement of the Venturers with respect to the subject matter hereof.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the Venturer against whom enforcement of the change, waiver, discharge or
termination is sought. The execution of any amendment to this Agreement, or the
execution of any other agreement or amendment thereto, by all Venturers shall
establish that such execution was made in accordance with any applicable
requirements for Approval.
8.8 Terminology. All personal pronouns used in this Agreement,
-----------
whether used in the masculine, feminine or neuter gender, shall include all
other genders; the singular shall include the plural; and the plural shall
include the singular. Titles of Sections, Subsections and Paragraphs in this
Agreement are for convenience only, and neither limit nor amplify the provisions
of this Agreement, and all references in this Agreement to Sections, Subsections
or Paragraphs shall refer to the Section, Subsection or Paragraph of this
Agreement unless specific reference is made to another document or instrument.
8.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall comprise but a single instrument.
8.10 Successors and Assigns. Subject to the restrictions on transfers
----------------------
and encumbrances set forth herein, this Agreement shall inure to the benefit of
and be binding upon the Venturers and their respective heirs, executors, legal
representatives, successors and assigns. Whenever in this Agreement a reference
to any Entity or Venturer is made, such reference shall be deemed to include a
reference to the heirs, executors, legal representatives, successors and assigns
of such Entity or Venturer.
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IN WITNESS WHEREOF, the undersigned Venturers have executed this Amended
and Restated Joint Venture Agreement of The Fund IX, Fund X, Fund XI and REIT
Joint Venture under seal as of the day and year first above written.
WELLS REAL ESTATE FUND IX, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(As General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ------------------------------
Leo F. Wells, III
President
/s/ Judith A. Miller
- ------------------------------
Unofficial Witness [Corporate Seal]
/s/ Nancy B. Malatista
- ------------------------------
Notary Public
Notary Public, Gwinnett County,
Georgia
My Commission Expires
June 24, 2000
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ------------------------------
Leo F. Wells, III
General Partner
/s/ Judith A. Miller
- ------------------------------
Unofficial Witness
/s/ Nancy B. Malatista
- ------------------------------
Notary Public
Notary Public, Gwinnett County,
Georgia
My Commission Expires
June 24, 2000
22
<PAGE>
WELLS REAL ESTATE FUND X, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(As General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ------------------------------
Leo F. Wells, III
President
/s/ Judith A. Miller
- ------------------------------
Unofficial Witness [Corporate Seal]
/s/ Nancy B. Malatista
- ------------------------------
Notary Public
Notary Public, Gwinnett County,
Georgia
My Commission Expires
June 24, 2000
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ------------------------------
Leo F. Wells, III
General Partner
/s/ Judith A. Miller
- ------------------------------
Unofficial Witness
/s/ Nancy B. Malatista
- ------------------------------
Notary Public
Notary Public, Gwinnett County,
Georgia
My Commission Expires
June 24, 2000
23
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(As General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ------------------------------
Leo F. Wells, III
President
/s/ Judith A. Miller
- ------------------------------
Unofficial Witness [Corporate Seal]
/s/ Nancy B. Malatista
- ------------------------------
Notary Public
Notary Public, Gwinnett County,
Georgia
My Commission Expires
June 24, 2000
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ------------------------------
Leo F. Wells, III
General Partner
/s/ Judith A. Miller
- ------------------------------
Unofficial Witness
/s/ Nancy B. Malatista
- ------------------------------
Notary Public
Notary Public, Gwinnett County,
Georgia
My Commission Expires
June 24, 2000
24
<PAGE>
WELLS OPERATING PARTNERSHIP, L.P.
A Delaware Limited Partnership
By: Wells Real Estate Investment Trust, Inc.
A Maryland Corporation
(As General Partner)
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ------------------------------
Leo F. Wells, III
President
/s/ Judith A. Miller
- ------------------------------
Unofficial Witness [Corporate Seal]
/s/ Nancy B. Malatista
- ------------------------------
Notary Public
Notary Public, Gwinnett County,
Georgia
My Commission Expires
June 24, 2000
25
<PAGE>
EXHIBIT 10.6
AGREEMENT FOR THE PURCHASE AND SALE OF REAL PROPERTY
BETWEEN LINCOR CENTENNIAL, LTD.
AND
WELLS REAL ESTATE FUND X, L.P.
<PAGE>
AGREEMENT FOR THE PURCHASE AND SALE OF PROPERTY
-----------------------------------------------
THIS AGREEMENT FOR THE PURCHASE AND SALE OF PROPERTY (the "Agreement"), is
made and entered into as of the 14th day of November, 1997 , by and between
LINCOR CENTENNIAL, LTD., a Colorado limited partnership (hereinafter referred to
as "Seller"), and WELLS REAL ESTATE FUND X, L.P., a Georgia limited partnership
(hereinafter referred to as "Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller desires to sell and Purchaser desires to purchase the
Property (as hereinafter defined) subject to the terms and conditions
hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
agreements contained herein, the sum of Ten Dollars ($10.00) in hand paid by
Purchaser to Seller at and before the sealing and delivery of these presents and
for other good and valuable consideration, the receipt, adequacy, and
sufficiency which are hereby expressly acknowledged by the parties hereto, the
parties hereto do hereby covenant and agree as follows:
1. Purchase and Sale of Property. Subject to and in accordance with the
-----------------------------
terms and provisions of this Agreement, Seller hereby agrees to sell to
Purchaser and Purchaser hereby agrees to purchase from Seller, the Property,
which term "Property" shall mean and include the following:
(a) all that tract or parcel of land located in the
City of Louisville, County of Boulder, State of Colorado containing
approximately 15 acres, and being more particularly described on Exhibit
"A" attached hereto and by this reference made a part hereof (herein
referred to as the "Land"); and
(b) Seller's interest in all rights, privileges, and easements
appurtenant to the Land, including all water rights, mineral rights,
reversions, or other appurtenances to said Land, and all right, title, and
interest of Seller, if any, in and to any land lying in the bed of any
street, road, alley, or right-of-way, open or proposed, adjacent to or
abutting the Land; and
(c) all buildings, structures, and improvements situated on the
Land, including, without limitation, that certain two story
office/production building containing approximately 106,750 square feet of
space (including approximately 50,300 square feet of office space), the
parking areas containing approximately 500 parking spaces and other
amenities constructed on the Land, and all apparatus, built-in appliances,
equipment, pumps, machinery, plumbing, heating, air conditioning,
electrical and other fixtures owned by Seller and located on or to be
located on the Land (all of which are herein collectively referred to as
the "Improvements"); and
(d) all personal property owned by Seller and located on or to be
located on or in, or used in connection with, the Land and Improvements
(all of which are herein collectively referred to as the "Personal
Property"); and
(e) all of Seller's right, title, and interest, as landlord or lessor,
in and to the Lease (as hereinafter defined); and
(f) all of Seller's right, title, and interest, if any, in and to the
plans and specifications with respect to the Improvements and any
guarantees, trademarks, rights of copyright, warranties, or other rights
<PAGE>
related to the ownership of or use and operation of the Land, Personal
Property, or Improvements, all governmental licenses and permits, and all
intangibles associated with the Land, Personal Property, and Improvements,
including Seller's interest in the name of the Improvements and the logo
therefor, if any.
2. Earnest Money. Within two (2) business days after the Effective Date
-------------
(as defined in Section 29), Purchaser shall deliver to Land Title Guarantee
Company ("Escrow Agent"), whose offices are at 2425 Canyon Boulevard, Suite 230,
Boulder, Colorado 80301, Purchaser's check, payable to Escrow Agent, in the
amount of $50,000.00 (the "Initial Earnest Money"). In the event this Agreement
is not sooner terminated, Purchaser shall also deposit with Escrow Agent an
additional $50,000.00 (the "Additional Earnest Money") on or before January 7,
1998. The Initial Earnest Money and Additional Earnest Money is referred to
herein as the Earnest Money. The Earnest Money shall be held and disbursed by
Escrow Agent pursuant to a written Escrow Agreement, a copy of which is attached
hereto as Exhibit "C" and by this reference made a part hereof (the "Escrow
Agreement"). The Earnest Money shall be paid by Escrow Agent to Seller at
Closing (as hereinafter defined) and shall be applied as a credit to the
Purchase Price (as hereinafter defined), or shall otherwise be paid to Seller or
refunded to Purchaser in accordance with the terms of this Agreement and the
Escrow Agreement. All interest and other income from time to time earned on the
Earnest Money shall belong to Purchaser and shall be disbursed to Purchaser at
any time and from time to time as Purchaser shall direct Escrow Agent, all as
provided in the Escrow Agreement. In no event shall any such interest or other
income be deemed a part of the Earnest Money.
3. Purchase Price. Subject to adjustment and credits as otherwise
--------------
specified in this Agreement, the purchase price (the "Purchase Price") to be
paid by Purchaser to Seller for the Property shall be TEN MILLION THREE HUNDRED
TWENTY FIVE THOUSAND DOLLARS ($10,325,000.00). The Purchase Price shall be paid
by Purchaser to Seller at the Closing (as hereinafter defined) by wire transfer
of immediately available federal funds subject to prorations, adjustments and
credits as otherwise specified in this Agreement.
4. Purchaser's Inspection and Review Rights. Commencing on the Effective
----------------------------------------
Date and ending on the date of Closing, and subject to the rights of the Tenant
(as hereinafter defined), Purchaser and its agents, engineers, or
representatives, with Seller's reasonable, good faith cooperation, shall have
the privilege of going upon the Property as needed to inspect, examine, test,
and survey the Property at all reasonable times and from time to time upon 24
hours advance notice, which notice may be given to Broker. Purchaser agrees not
to interfere with the operation of Tenant's business. Such privilege shall
include the right to make tests, borings, and other tests to obtain information
necessary to determine surface and subsurface conditions, provided, however,
that no borings shall be made without the advance consent of Seller, which
consent shall not be unreasonably withheld. Such privilege shall also include
the right to make any other tests deemed reasonably necessary by Purchaser.
Purchaser hereby agrees to indemnify and hold Seller harmless from any liens,
claims, liabilities, expenses and damages, including, without limitation,
reasonable attorney's fees, incurred through the exercise of such privilege;
Purchaser further agrees to repair any damage to the Property caused by the
exercise of such privilege; and said indemnities shall survive any termination
of this Agreement. At all reasonable times prior to the Closing (as hereinafter
defined), Seller shall make available to Purchaser, or Purchaser's agents and
representatives, at the offices of Broker and for copying at Purchaser's
expense, all books, records, and files in Seller's possession relating to the
ownership and operation of the Property, including, without limitation, title
matters, surveys, tenant files, service and maintenance agreements, and other
contracts, books, records, operating statements, and other information relating
2
<PAGE>
to the Property. Seller further agrees to in good faith assist and cooperate
with Purchaser in coming to a thorough understanding of the books, records, and
files relating to the Property. Seller further agrees to provide copies of any
of such books, records, and files as may be reasonably requested by Purchaser,
with the copying costs to be borne by Purchaser. Seller further agrees to
provide to Purchaser prior to the date which is five (5) business days after the
Effective Date the most current surveys of the Land and Improvements in the
possession of Seller. Seller further agrees to provide to Purchaser prior to the
date which is five (5) days after the Effective Date, a statement setting forth
all revenues from the Property and setting forth all costs and expenses of
operating, maintaining, and repairing the Property (and the costs of replacing
component parts thereof) incurred by Seller, in each case during the entire
period from the date of Seller's acquisition of the Property, through September
30, 1997, which statement shall be certified by Seller to the best of Seller's
knowledge after diligent inquiry and review of records, to be complete and
accurate in all material respects. Seller shall update said statement through
December 31, 1997, as soon as possible after December 31, 1997.
5. Special Condition to Closing. Purchaser shall have until the 21st
----------------------------
business day after the Effective Date (the "Inspection Period") to make
investigations, examinations, inspections, market studies, feasibility studies,
lease reviews, and tests relating to the Property and the operation thereof in
order to determine, in Purchaser's sole opinion and discretion, the suitability
of the Property for acquisition by Purchaser. Purchaser shall have the right to
terminate this Agreement at any time prior to the expiration of the Inspection
Period by giving written notice to Seller of such election to terminate prior to
5:00 p.m. Louisville, Colorado time on the last day of the Inspection Period. In
the event this Agreement is so terminated, Seller shall be entitled to receive
the sum of One Hundred Dollars ($100), whereupon, except as expressly provided
to the contrary in this Agreement, no party hereto shall have any other or
further rights or obligations under this Agreement. Seller acknowledges that the
sum of $100 is good and adequate consideration for the termination rights
granted to Purchaser hereunder.
6. General Conditions Precedent to Purchaser's Obligations Regarding the
---------------------------------------------------------------------
Closing. In addition to any other conditions to Purchaser's obligations
- -------
hereunder, the obligations and liabilities of Purchaser hereunder shall in all
respects be conditioned upon the satisfaction of each of the following
conditions prior to or simultaneously with the Closing (as hereinafter defined),
any of which may be waived by written notice from Purchaser to Seller:
(a) Seller shall have complied in all material respects with and
otherwise performed in all material respects each of the covenants and
obligations of Seller set forth in this Agreement.
(b) All representations and warranties of Seller as set forth in this
Agreement shall be true and correct in all material respects as of the date
of Closing.
(c) There shall have been no material adverse change to the title to
the Property which has not been cured and the Title Company (as hereinafter
defined) shall have issued the Title Commitment (as hereinafter defined) on
the Land and Improvements without exceptions other than as have been
approved by Purchaser as Permitted Exceptions (as hereinafter defined) and
the Title Company shall be prepared to issue to Purchaser upon the Closing
a fee simple owner's title insurance policy on the Land and Improvements
pursuant to such Title Commitment.
(d) Purchaser shall have received the Tenant Estoppel Certificate (as
hereinafter defined), duly executed by the Tenant (as hereinafter defined).
3
<PAGE>
(e) Purchaser shall have received the Title Commitment, marked to
change the effective date thereof through the date and time of recording
the Warranty Deed from Seller to Purchaser, to reflect that Purchaser is
vested with the fee simple title to the Land and the Improvements, and to
reflect that all requirements for the issuance of the final title policy
pursuant to such Title Commitment have been satisfied.
(f) There shall have been no material adverse change in the condition
of the Property or the improvements thereon subsequent to the Inspection
Period.
7. Title and Survey. Seller covenants and agrees that Seller, at its sole
----------------
cost and expense, shall, on or before ten (10) days after the Effective Date of
this Agreement cause Old Republic National Title Insurance Company, or such
other such title insurance company acceptable to Purchaser (herein referred to
as the "Title Company"), to deliver to Purchaser its commitment (herein referred
to as the "Title Commitment") to issue to Purchaser, upon the recording of the
Warranty Deed conveying title to the Property from Seller to Purchaser, the
payment of the Purchase Price, and the payment to the Title Company of the
policy premium therefor, an owner's policy of title insurance with extended
coverage, in the amount of the Purchase Price, insuring good and marketable fee
simple record title to the Property to be in Purchaser without exception
(including any general exception) except for matters set forth on Exhibit "B"
attached hereto and by this reference made a part thereof (herein referred to as
the ("Permitted Exceptions"). The Title Policy to be issued shall not contain
any exception for mechanic's or materialman's liens or any exception for unpaid
taxes other than an exception for taxes not yet due and payable. Such Title
Policy shall not contain any exception for rights of parties in possession
other than an exception for the right of the Tenant (as hereinafter defined)
under the Lease. If the Title Commitment shall contain an exception for the
state of facts which would be disclosed by a survey of the Property or an "area
and boundaries" exception, the Title Commitment shall provide that such
exception will be deleted upon the presentation of an "as-built" survey, in
which case the Title Commitment shall be amended to contain an exception only
for the matters shown on the as-built survey which Seller shall obtain at its
sole cost and expense for the benefit of Purchaser. Seller shall also cause to
be delivered to Purchaser together with such Title Commitment, legible copies of
all documents and instruments referred to therein. Purchaser, upon receipt of
the Title Commitment and the copies of the documents and instruments referred to
therein, shall then have ten (10) days during which to examine the same, after
which Purchaser shall notify Seller of any defects or objections affecting the
marketability of the title to the Property including the Permitted Exceptions.
Seller shall then have until the Closing to cure such defects and objections and
shall, in good faith, exercise reasonable diligence to cure such defects and
objections. If Seller fails to satisfy such defects or objections by the date of
Closing, then, at the option of Purchaser: (i) if any such defects or objections
arose by, through, or under Seller or if any such defects or objections consist
of taxes, mortgages, deeds of trust, deeds to secure debt, mechanic's or
materialman's liens, or other such monetary encumbrances, Purchaser shall have
the right to cure such defects or objections, in which event the Purchase Price
shall be reduced by an amount equal to the costs and expenses incurred by
Purchaser in connection with the curing of such defects or objections, and upon
such curing, the Closing hereof shall proceed in accordance with the terms of
this Agreement; or (ii) Purchaser shall have the right to terminate this
Agreement by giving written notice of such termination to Seller, whereupon any
Earnest Money shall be refunded promptly to Purchaser, and Purchaser and Seller
shall have no further rights, obligations, or liabilities hereunder, except as
may be expressly
4
<PAGE>
provided to the contrary herein; or (iii) Purchaser shall have the right to
accept title to the Property subject to such defects and objections with no
reduction in the Purchase Price, in which event such defects and objections
shall be deemed "Permitted Exceptions"; or (iv) Purchaser may elect to extend
the Closing for thirty (30) days in order to allow Seller additional time to
satisfy such defects and objections. If the Purchaser elects option (iv) above,
and such defects and objections are not cured by Seller to the satisfaction of
Purchaser within such extended time period, Purchaser shall then have the
options set forth in items (i), (ii), and (iii) above.
8. Representations and Warranties of Seller. Seller hereby makes the
----------------------------------------
following representations and warranties to Purchaser:
(a) Lease. Attached hereto as Exhibit "D" and by this reference made
-----
a part hereof are true and accurate copy of the lease in effect with OHMEDA
INC., a Delaware corporation ("Tenant") relating to the Property, together
with all modifications and amendments to such lease, including the guaranty
of THE BOC GROUP, INC., a Nevada corporation (such lease, as modified and
amended, being herein referred to as the "Lease"). Seller is the "landlord"
under the Lease and owns unencumbered legal title to the Lease and the
rents and other income thereunder.
(b) Lease - Assignment. To Seller's knowledge, the Tenant has not
------------------
assigned its interest in the Lease or sublet any portion of the premises
leased to the Tenant under the Lease.
(c) Lease - Default. (i) Seller has not received any notice of
---------------
termination or default under the Lease, (ii) there are no existing or
uncured defaults by Seller or, to the Seller's knowledge, by the Tenant
under the Lease, (iii) there are no events which with the passage of time
or notice, or both, would constitute a default by Seller or, to the
Seller's knowledge, by the Tenant, and Seller has complied with each and
every undertaking, covenant, and obligation of Seller under the Lease, and
(iv) Seller has not received notice that Tenant has asserted any defense,
set-off, or counterclaim with respect to its tenancy or its obligation to
pay rent, additional rent, or other charges pursuant to the Lease.
(d) Lease - Rents and Special Consideration. Tenant: (i) has not
---------------------------------------
prepaid rent for more than one month in advance under the Lease, (ii) has
not received and is not entitled to receive any rent concession in
connection with its tenancy under the Lease, except as expressly set forth
in the Lease (iii) is not entitled to any special work (not yet performed),
or consideration (not yet given) in connection with its tenancy under the
Lease, except that expressly described in the Second Amendment to Lease
included in Exhibit "D" hereto, and sufficient funds will be escrowed at
Closing to satisfy Seller's obligations with respect thereto; and (iv) does
not have any deed, option, or other evidence of any right or interest in or
to the Property, except as evidenced by the express terms of the Lease.
(e) Lease - Commissions. No rental, lease, or other commissions with
-------------------
respect to the Lease are payable to any party. All commissions payable
under, relating to, or as a result of the Lease have been cashed-out and
paid and satisfied in full by Seller or by Seller's predecessor in title to
the Property or will be so satisfied on or before Closing.
(f) Service Contracts. Attached hereto and incorporated herein by
-----------------
this reference as Exhibit "E" is a complete and accurate list and
description of all of the service contracts, management agreements, or
5
<PAGE>
other agreements (other than the Lease) which are in effect and which
relate to the operation, management, or maintenance the Property (said
agreements being herein collectively referred to as the "Service
Contracts"). Seller shall provide Purchaser with complete and accurate
copies of all Service Contracts within five (5) business days after the
effective date of this Agreement. All such Service Contracts are in full
force and effect in accordance with their respective provisions, and to
Seller's knowledge there is no default, or claim of default, or any event
which with the passage of time or notice, or both, would constitute a
default on the part of any party to any of such Service Contracts. Seller
agrees to cancel any of the Service Contracts specified by Purchaser in a
written notice to Seller to the extent permitted by the terms of the
Service Contracts. Seller has cancelled or will cancel, effective as of the
Closing, any agreement in the nature of a management agreement or service
contract between Seller or any party affiliated with or related.
(g) No Other Agreements. Other than the Lease, the Service Contracts
-------------------
and the Permitted Exceptions, Seller has not entered into any leases,
service contracts, management agreements, or other agreements or
instruments, to which Seller is a party and that grant to any person
whomsoever or any entity whatsoever any right, title, interest or benefit
in or to all or any part of the Property or any rights relating to the use,
operation, management, maintenance, or repair of all or any part of the
Property.
(h) No Litigation. There are no actions, suits, or proceedings
-------------
pending, or to Seller's knowledge, threatened by any organization, person,
individual, or governmental agency against Seller with respect to the
Property or against the Property, nor does Seller have any knowledge of any
basis for such action. Seller has no knowledge of any pending or threatened
application for changes in the zoning applicable to the Property or any
portion thereof.
(i) Condemnation. To Seller's knowledge no condemnation or other
------------
taking by eminent domain of the Property or any portion thereof has been
instituted and, there are no pending or threatened condemnation or eminent
domain proceedings (or proceedings in the nature or in lieu thereof)
affecting the Property or any portion thereof or its use.
(j) Violations. Seller has not received written notice of any
----------
violations of law, municipal or county ordinances, or other legal
requirements with respect to the Property that remain uncured. Seller will
obtain a letter from applicable authorities addressed to Purchaser and
confirming that the Property is currently zoned in a classification such as
will permit the operation of the Property as an office building and the
conditions, if any, to the granting of the zoning of the Property have been
satisfied.
(k) Employees. There are no employment, collective bargaining, or
---------
similar agreements or arrangements between Seller and any of its employees
or others which will be binding on Purchaser or any of Purchaser's
successors in title.
(l) Bankruptcy. Seller is solvent and has not made a general
----------
assignment for the benefit of creditors nor been adjudicated a bankrupt or
insolvent, nor has a receiver, liquidator, or trustee for any of Seller's
properties (including the Property) been appointed or a petition filed by
or to Seller's knowledge against Seller for bankruptcy, reorganization, or
arrangement pursuant to the Federal Bankruptcy Act or any similar Federal
or state statute, or any proceeding instituted for the dissolution or
liquidation of Seller.
6
<PAGE>
(m) Pre-existing Right to Acquire. No person or entity has any right
-----------------------------
or option to acquire the Property or any portion thereof which will have
any force or effect after the execution of this Agreement, other than
Purchaser, except as set forth in the Lease.
(n) Effect of Certification. Neither this Agreement nor the
-----------------------
transactions contemplated herein will constitute a breach or violation of,
or default under, or will be modified, restricted, or precluded by the
Lease, the Service Contracts, or the Permitted Exceptions.
(o) Authorization. This Agreement has been duly authorized and
-------------
executed on behalf of Seller and constitutes the valid and binding
agreement of Seller, enforceable in accordance with its terms, and all
necessary action on the part of Seller to authorize the transactions herein
contemplated has been taken, and no further action is necessary for such
purpose.
(p) Seller Not a Foreign Person. Seller is not a "foreign person"
---------------------------
which would subject Purchaser to the withholding tax provisions of Section
1445 of the Internal Revenue Code of 1986, as amended.
(q) Utilities. All installation and connection charges for
---------
utilities serving the Property have been paid in full.
(r) Property Taxes. All property taxes required to be paid with
--------------
respect to the Property under any law, ordinance rule, regulation, order,
or requirement of any governmental authority have been, or will be, as the
case may be, truthfully, correctly, and timely paid. Seller agrees to
provide copies of all ad valorem tax bills for 1997, within five business
days of the Effective Date.
At Closing, Seller shall represent and warrant to Purchaser that all
representations and warranties of Seller in this Agreement remain true and
correct as of the date of the Closing, except for any changes in any such
representations or warranties that occur and are disclosed by Seller to
Purchaser expressly and in writing at any time and from time to time prior to
Closing, which disclosures shall thereafter be updated by Seller to the date of
Closing. If there is any change in any representations or warranties and Seller
does not cure or correct such changes prior to Closing, then Purchaser may, at
Purchaser's option, (i) close and consummate the transaction contemplated by
this Agreement, or (ii) terminate this Agreement by written notice to Seller,
whereupon any Earnest Money shall be immediately returned by Escrow Agent to
Purchaser, and thereafter the parties hereto shall have no further rights or
obligations hereunder, except only for such rights or obligations that, by the
express terms hereof, survive any termination of this Agreement.
9. Seller's Additional Covenants. Seller does hereby further covenant and
-----------------------------
agree as follows:
(a) Operation of Property. Seller hereby covenants that, from the
---------------------
date of this Agreement up to and including the date of Closing or earlier
termination hereof, Seller shall: (i) not negotiate with any third party
respecting the sale of the Property or any interest therein, (ii) not
modify, amend, or terminate the Lease or enter into any new lease,
contract, or other agreement respecting the Property, without the consent
of Purchaser, which consent shall not be withheld or delayed and (iii) not
grant or otherwise create or consent to the creation of any easement,
restriction, lien, assessment, or encumbrance respecting the Property.
7
<PAGE>
(b) Preservation of Lease. Seller shall, from and after the date of
---------------------
this Agreement to the date of Closing, use its best efforts to perform and
discharge all of the duties and obligations and shall otherwise comply with
every covenant and agreement of the landlord under the Lease, at Seller's
expense, in the manner and within the time limits required thereunder.
Furthermore, Seller shall, for the same period of time, use diligent and
good faith efforts to cause the Tenant under the Lease to perform all of
its duties and obligations and otherwise comply with each and every one of
its covenants and agreements under such Lease and shall take such actions
as are reasonably necessary to enforce the terms and provisions of the
Lease. Seller shall obtain execution of the Second Amendment to Lease, a
copy of which is included with Exhibit "D", by the proper parties on or
before the end of the Inspection Period.
(c) Tenant Estoppel Certificates. Prior to Closing, Seller shall
----------------------------
use its best efforts to obtain and deliver to Purchaser a fully completed
and duly executed estoppel certificate from Tenant in the form attached
hereto as Exhibit "F" (herein referred to as the "Tenant Estoppel
Certificate"). The Tenant Estoppel Certificate shall be executed as of a
date not more than twenty (20) days prior to Closing.
(d) Insurance. From and after the date of this Agreement to the date
---------
and time of Closing, Seller shall, at its expense, continue to maintain the
insurance policies covering the Property which are currently in force and
effect.
(e) Securities Act Compliance. Seller acknowledges that Purchaser
-------------------------
may be required by the Securities and Exchange Commission to file audited
financial statements for one to three years with regard to the Property. At
no cost or liability to Seller, Seller shall (i) cooperate with Purchaser,
its counsel, accountants, agents, and representatives, provide them with
access to Seller's books and records with respect to the ownership,
management, maintenance, and operation of the Property for the applicable
period, and permit them to copy the same, (ii) execute a form of "rep"
letter in form and substance reasonably satisfactory to Seller, and (iii)
furnish Purchaser with such additional information concerning the same as
Purchaser shall reasonably request. Purchaser will pay the costs associated
with any such audit.
10. Closing. Provided that all of the conditions set forth in this
-------
Agreement are theretofore satisfied or performed in all material respects, it
being fully understood and agreed, however, that Purchaser may expressly waive
in writing, at or prior to Closing, any conditions that are unsatisfied or
unperformed at such time, the consummation of the sale by Seller and purchase by
Purchaser of the Property (herein referred to as the "Closing") shall be held on
or before February 20, 1998, and at such specific time and date (but not earlier
than January 2, 1998) as shall be designated by Purchaser in a written notice to
Seller not less than five (5) business days prior to Closing at the office of
the Title Company, and, absent notice, at 1:00 p.m., local time, on February 20,
1998.
11. Seller's Closing Documents. For and in consideration of, and as a
--------------------------
condition precedent to, Purchaser's delivery to Seller of the Purchase Price,
Seller shall obtain or execute, at Seller's expense, and deliver to Purchaser at
Closing the following documents (all of which shall be duly executed,
acknowledged, and notarized where required):
(a) Special Warranty Deed. A Special Warranty Deed ("Warranty Deed")
---------------------
in the form of Exhibit "G" hereto conveying to Purchaser marketable fee
simple title to the Land and Improvements, together with all rights,
members, easements, and appurtenances thereto, subject only to the
Permitted Exceptions. The legal description set forth in the Warranty Deed
8
<PAGE>
shall be as set forth on Exhibit "A" attached hereto. In the event
Purchaser shall obtain a new or updated survey of the Land and Improvements
and the legal description set forth in Purchaser's survey shall differ from
the legal description set forth on Exhibit "A" hereto, Seller shall execute
and deliver to Purchaser a quitclaim deed containing a legal description
based upon such survey obtained by Purchaser;
(b) Bill of Sale. A Bill of Sale conveying to Purchaser marketable
------------
title to the Personal Property in the form and substance of Exhibit "H"
attached hereto and by this reference made a part hereof;
(c) Blanket Transfer. A Blanket Transfer and Assignment in the form
----------------
and substance of Exhibit "I" attached hereto and by this reference made a
part hereof;
(d) Assignment and Assumption of Lease. An Assignment and
-----------------------------------
Assumption of Lease in the form and substance of Exhibit "J" attached
hereto and by this reference made a part hereof, assigning to Purchaser all
of Seller's right, title, and interest in and to the Lease and the rents
thereunder;
(e) ALTA Affidavit. A customary ALTA affidavit in the form required
--------------
by the Title Company;
(f) FIRPTA Certificate. A FIRPTA Certificate in the form and
------------------
substance of Exhibit "K" attached hereto and by this reference made a part
hereof;
(g) Surveys and Plans. Such surveys, site plans, plans and
-----------------
specifications, and other matters relating to the Property as are described
in subparagraph (a) of the Blanket Transfer and Assignment and are in the
possession of Seller or Seller's agents;
(h) Certificates of Occupancy. The original certificates of
-------------------------
occupancy for all space within the Improvements;
(i) Lease. An original executed counterpart or certified copy of the
-----
Lease and all amendments to and modifications thereof;
(j) Estoppel Certificates. The Tenant Estoppel Certificate;
---------------------
(k) Keys and Records. All of the keys to any doors or locks on the
----------------
Property and the original tenant files and other books and records relating
to the Property in Seller's possession;
(l) Tenant Notice. Notice from Seller to the Tenant of the sale of
-------------
the Property to Purchaser in the form of Exhibit "L" hereto;
(m) Settlement Statement. A settlement statement setting forth the
--------------------
amounts paid by or on behalf of and/or credited to each of Purchaser and
Seller pursuant to this Agreement; and
(n) Other Documents. Such other documents as shall be reasonably
---------------
required by Purchaser's counsel.
12. Purchaser's Closing Documents. Purchaser shall deliver the balance
-----------------------------
of the Purchase Price and shall obtain or execute and deliver to Seller at
Closing the following documents, all of which shall be duly executed and
acknowledged where required and shall survive the Closing:
9
<PAGE>
(a) Assignment and Assumption of Lease. The Assignment and
----------------------------------
Assumption of Lease in the form and substance of Exhibit "J" hereto;
(b) Settlement Statement. A settlement statement setting forth the
--------------------
amounts paid by or on behalf of and/or credited to each of Purchaser and
Seller pursuant to this Agreement;
(c) Other Documents. Such other documents as shall be reasonably
---------------
required by Seller's counsel.
13. Closing Costs. Seller shall pay the cost of the Title Commitment,
-------------
including the cost of the examination of title to the Property made in
connection therewith, the premium for the owner's policy of title insurance
issued pursuant thereto (with extended coverage but not with endorsements not
expressly called for herein), the cost of the as-built survey, the cost (to the
extent it is customary for Seller to pay such costs) of any documentary,
transfer, recording or other similar tax imposed by the State of Colorado,
Boulder County and local transfer taxes, if any, upon the conveyance of the
Property pursuant hereto, the attorneys' fees of Seller, one-half of any escrow
fee and all other costs and expenses incurred by Seller in closing and
consummating the purchase and sale of the Property pursuant hereto. Purchaser
shall pay its attorneys' fees, the cost (to the extent it is customary for
Purchaser to pay such costs) of any documentary, transfer, recording or other
similar tax imposed by the State of Colorado, Boulder County and local transfer
taxes, if any, upon the conveyance of the Property pursuant hereto, the costs of
any endorsements to the Title Policy not expressly provided for herein, one-half
of any escrow fee and all other costs and expenses incurred by Purchaser in
closing and consummating the purchase and sale of the Property pursuant hereto.
14. Prorations. The following items shall be prorated and/or credited
----------
between Seller and Purchaser as of Midnight preceding the date of Closing:
(a) Rents. Rents, additional rents, operating costs, and other income
-----
of the Property (other than security deposits) collected by Seller from
Tenant for the month of Closing. Purchaser shall also receive a credit
against the Purchase Price payable by Purchaser to Seller at Closing for
any rents or other sums (not including security deposits) prepaid by Tenant
for any period following the month of Closing. Seller hereby acknowledges
that Purchaser shall not be legally responsible to Seller for the
collection of any uncollected rent or other income under the Lease that is
past due or otherwise due and payable as of the date of Closing. Purchaser
agrees that if (i) Tenant is in arrears on the date of Closing in the
payment of rent or other charges under the Lease, and (ii) upon Purchaser's
receipt of any rental or other payment from such Tenant, such Tenant is, or
after application of a portion of such payment will be, current under the
Lease in the payment of all accrued rental and other charges that become
due and payable on the date of Closing or thereafter and in the payment of
any other obligations of Tenant to Purchaser, then Purchaser shall refund
to Seller, out of and to the extent of the portion of such payment
remaining after Purchaser deducts therefrom any and all sums due and owing
to Purchaser from Tenant from and after the date of Closing, an amount up
to the full amount of any arrearage existing on the date of Closing.
(b) Property Taxes. Except for such taxes which are the
--------------
responsibility of Tenant and for which Seller has not received payment,
City, state, county, and school district ad valorem taxes based on the ad
valorem tax bills for the Property, if then available, or if not, then on
the basis of the latest available tax figures and information. Should such
proration be based on such latest available tax figures and information and
10
<PAGE>
prove to be inaccurate upon receipt of the ad valorem tax bills for the
Property for the year of Closing, either Seller or Purchaser, as the case
may be, may demand at any time after Closing a payment from the other
correcting such malapportionment. In addition, if after Closing there is an
adjustment or reassessment by any governmental authority with respect to,
or affecting, any ad valorem taxes for the Property for the year of Closing
or any prior year, any additional tax payment or refund for the Property
required to be paid or refunded with respect to the year of Closing shall
be prorated between Purchaser and Seller and any such additional tax
payment or refund for the Property for any year prior to the year of
Closing shall be paid by or to Seller, as the case may be.
(c) Utility Charges. Except for utilities which are the
---------------
responsibility of Tenant and for which Seller has not received payment,
Seller shall pay all utility bills received prior to Closing and shall be
responsible for utilities furnished to the Property prior to Closing.
Purchaser shall be responsible for the payment of all bills for utilities
furnished to the Property subsequent to the Closing. Seller and Purchaser
hereby agree to prorate and pay their respective shares of all utility
bills received subsequent to Closing.
(d) Service Contracts. Except for Service Contracts which are paid
-----------------
by Tenant and for which Seller has not received payment, charges under any
Service Contracts shall be prorated as of Midnight preceding the date of
Closing.
15. Purchaser's Default. In the event of default by Purchaser under the
-------------------
terms of this Agreement, Seller's sole and exclusive remedy shall be to receive
the Earnest Money as liquidated damages and thereafter the parties hereto shall
have no further rights or obligations hereunder whatsoever. It is hereby agreed
that Seller's damages will be difficult to ascertain and that said sum
constitutes a reasonable liquidation thereof and is intended not as a penalty,
but as fully liquidated damages.
16. Seller's Default. In the event of default by Seller under the terms
----------------
of this Agreement, and in addition to the other remedies specifically set forth
herein, at Purchaser's option: (i) Purchaser may terminate this Agreement by
written notice to Seller, whereupon any Earnest Money shall be immediately
returned by Escrow Agent to Purchaser, and the parties hereto shall have no
further rights or obligations hereunder whatsoever, or (ii) Purchaser shall be
entitled to pursue the remedy of specific performance as its sole and exclusive
remedy, and to the extent consistent therewith to receive an immediate refund of
any Earnest Money.
17. Condemnation. If, prior to the Closing, all or any part of the
------------
Property valued at more than $100,000 is subjected to a bona fide threat of
condemnation by a body having the power of eminent domain or is taken by eminent
domain or condemnation (or sale in lieu thereof), or if Seller has received
notice that any condemnation action or proceeding with respect to the Property
is contemplated by a body having the power of eminent domain, Seller shall give
Purchaser immediate written notice of such threatened or contemplated
condemnation or of such taking or sale, and Purchaser may by written notice to
Seller given within ten (10) days of the receipt of such notice from Seller,
elect to cancel this Agreement. If Purchaser chooses to cancel this Agreement in
accordance with this Paragraph, then any Earnest Money shall be returned
immediately to Purchaser and except as otherwise provided herein, the rights,
duties, obligations, and liabilities of the parties hereunder shall immediately
terminate and be of no further force and effect. If Purchaser does not elect to
cancel this Agreement in accordance herewith or the portion of the Property in
question is valued at less than $100,000, this Agreement shall remain in full
11
<PAGE>
force and effect and the sale of the Property contemplated by this Agreement,
less any interest taken by eminent domain or condemnation, or sale in lieu
thereof, shall be effected with no further adjustment and without reduction of
the Purchase Price, and at the Closing, Seller shall assign, transfer, and set
over to Purchaser all of the right, title, and interest of Seller in and to any
awards that have been or that may thereafter be made for such taking.
18. Damage or Destruction. If any of the Improvements shall be destroyed
---------------------
or damaged prior to the Closing, and the estimated cost of repair or replacement
exceeds One Hundred Thousand Dollars ($100,000) or if the Lease shall terminate
as a result of such damage, Purchaser may, by written notice given to Seller
within ten (10) days after receipt of written notice from Seller of such damage
or destruction, elect to terminate this Agreement, in which event any Earnest
Money shall immediately be returned to Purchaser and except as expressly
provided herein to the contrary, the rights, duties, obligations, and
liabilities of all parties hereunder shall immediately terminate and be of no
further force or effect. If Purchaser does not elect to terminate this Agreement
pursuant to this Paragraph, or has no right to terminate this Agreement (because
the damage or destruction does not exceed $100,000 and the Lease remains in full
force and effect), and the sale of the Property is consummated, Purchaser shall
be entitled to receive all insurance proceeds paid or payable to Seller by
reason of such destruction or damage under the insurance required to be
maintained by Seller pursuant to Paragraph 9(d) hereof (less amounts of
insurance theretofore received and applied by Seller to restoration) and Seller
shall pay to Purchaser the amount of any deductible thereunder. If the amount of
said casualty or rent loss insurance proceeds is not settled by the date of
Closing, Seller shall execute at Closing all proofs of loss, assignments of
claim, and other similar instruments to ensure that Purchaser shall receive all
of Seller's right, title, and interest in and under said insurance proceeds.
19. Hazardous Substances. To the Seller's knowledge: (a) there are not
--------------------
"hazardous substances" (as defined in Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq. as
------
amended) at the Property; (b) there has been no release or threat of release of
any such hazardous substance; (c) the Property is not subject to regulation by
any governmental entity as result of the presence of (i) stored, leaked or
spilled petroleum products, (ii) underground storage tanks, (iii) an
accumulation of rubbish, debris or other solid waste, or because of the
presence, release, threat of release, discharge, storage, treatment, generation
or disposal of any "hazardous waste" (as defined in the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq., as amended),
-------
or "toxic substance" (as defined in the Toxic Substance Control Act,
15 U.S.C. Section 2601 et seq., as amended), including without limitation
------
asbestos and items or equipment containing polychlorinated biphenyls (PCBs) in
excess of 50 parts per million; and (d) no environmental condition exists on the
Property that either (X) requires the owner of the Property to report such
condition to any authority or agency of the State of Colorado or (Y) requires
the owner of the Property to make a notation of such condition in any public
records or conveyancing instrument upon the conveyance of the Property. Seller
covenants during the period of this Agreement not to discharge or store any such
materials on the Property.
20. Assignment. Purchaser's rights and duties under this Agreement shall
----------
be freely transferable and assignable by Purchaser, either in full or in part,
but in the event of any such transfer or assignment, Purchaser shall remain
liable for the performance of all obligations, covenants, conditions, and
agreements imposed upon Purchaser pursuant to the terms of this Agreement.
21. Broker's Commission. Seller has by separate agreement agreed to pay a
-------------------
real estate commission to Prime West Real Estate Services, Inc. (the "Broker").
Purchaser and Seller hereby represent each to the other that they have not
discussed this Agreement or the subject matter hereof with any real estate
broker or agent other than Broker so as to create any legal right in any such
broker or agent to claim a real estate commission with respect to the
12
<PAGE>
conveyance of the Property contemplated by this Agreement. Seller shall and does
hereby indemnify and hold harmless Purchaser from and against any claim, whether
or not meritorious, for any real estate sales commission, finder's fees, or like
compensation in connection with the sale contemplated hereby and arising out of
any act or agreement of Seller. Likewise, Purchaser shall and does hereby
indemnify and hold harmless Seller from and against any claim, whether or not
meritorious, for any real estate sales commission, finder's fees, or like
compensation in connection with the sale contemplated hereby and arising out of
any act or agreement of Purchaser, except any such claim asserted by Broker or
any broker or agent claiming under Broker.
22. Notices. Wherever any notice or other communication is required or
-------
permitted hereunder, such notice or other communication shall be in writing and
shall be delivered by overnight courier, by hand, or sent by U.S. registered or
certified mail, return receipt requested, postage prepaid, to the addresses set
out below or at such other addresses as are specified by written notice
delivered in accordance herewith:
PURCHASER: c/o Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Attn: Mr. Michael C. Berndt
with a copy to: O'Callaghan & Stumm LLP
127 Peachtree Street, N.E., Suite 1330
Atlanta, Georgia 30303
Attn: William L. O'Callaghan, Jr., Esq.
SELLER: LINCOR CENTENNIAL LTD.,
a Colorado limited partnership
c/o Merit Properties Group, LLC
3636 North Central Avenue, Suite 402
Phoenix, Arizona 85012
Attn: Edward P. Zinman, Esq.
with copy to: Brownstein Hyatt Farber & Strickland
22nd Floor
410 Seventeenth Street
Denver, Colorado 80202-4437
Attn: Steven M. Sommers, Esq.
Any notice or other communication given as hereinabove provided shall be deemed
effectively given or received on the date of delivery.
23. Possession. Possession of the Property shall be granted by Seller to
----------
Purchaser on the date of Closing, subject only to the Lease and the Permitted
Exceptions.
24. Time Periods. If the time period by which any right, option, or
------------
election provided under this Agreement must be exercised, or by which any act
required hereunder must be performed, or by which the Closing must be held,
expires on a Saturday, Sunday, or holiday, then such time period shall be
automatically extended through the close of business on the next regularly
scheduled business day in Louisville, Colorado.
25. Survival of Provisions. All covenants, warranties, and agreements set
----------------------
forth in this Agreement shall survive the execution or delivery of any and all
deeds and other documents at any time executed or delivered under, pursuant to,
or by reason of this Agreement, and shall survive the payment of all monies made
under, pursuant to, or by reason of this Agreement, for a period of 18 months.
26. Severability. This Agreement is intended to be performed in
------------
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules, and regulations. If any provision of this Agreement, or the
13
<PAGE>
application thereof to any person or circumstance, shall, for any reason and to
any extent be invalid or unenforceable, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby but rather shall be enforced to the greatest extent permitted
by law.
27. Authorization. Purchaser represents to Seller that this Agreement has
-------------
been duly authorized and executed on behalf of Purchaser and constitutes the
valid and binding agreement of Purchaser, enforceable in accordance with its
terms, and all necessary action on the part of Purchaser to authorize the
transactions herein contemplated has been taken, and no further action is
necessary for such purpose.
28. General Provisions. No failure of either party to exercise any power
------------------
given hereunder or to insist upon strict compliance with any obligation
specified herein, and no custom or practice at variance with the terms hereof,
shall constitute a waiver of either party's right to demand exact compliance
with the terms hereof. This Agreement contains the entire agreement of the
parties hereto, and no representations, inducements, promises, or agreements,
oral or otherwise, between the parties not embodied herein shall be of any force
or effect. Any amendment to this Agreement shall not be binding upon the parties
hereto unless such amendment is in writing and executed by all parties hereto.
The provisions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective, permitted heirs, legal
representatives, successors, and assigns. Time is of the essence of this
Agreement. This Agreement may be executed in multiple counterparts, each of
which shall constitute an original, but all of which taken together shall
constitute one and the same agreement. The headings inserted at the beginning of
each paragraph are for convenience only, and do not add to or subtract from the
meaning of the contents of each paragraph. This Agreement shall be construed and
interpreted under the laws of the State of Colorado. Except as otherwise
provided herein, all rights, powers, and privileges conferred hereunder upon the
parties shall be cumulative but not restrictive to those given by law. All
personal pronouns used in this Agreement, whether used in the masculine,
feminine, or neuter gender shall include all genders, and all references herein
to the singular shall include the plural and vice versa.
29. Effective Date. The "Effective Date" of this Agreement shall be
--------------
deemed to be the date this Agreement is fully executed by both Purchaser and
Seller and a fully executed original counterpart of this Agreement has been
received by both Purchaser and Seller. If the Effective Date does not occur on
or before November 18, 1997, this Agreement shall be null and void and of no
further force and effect.
[Remainder of page intentionally left blank]
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective seals to be affixed hereunto as of the day,
month and year first above written.
"SELLER":
LINCOR CENTENNIAL LTD., a Colorado
limited partnership
By: ATC CONSOLIDATED PROPERTIES LIMITED PARTNERSHIP,
an Arizona limited partnership,
General Partner
By: ATC CONSOLIDATED PROPERTIES, INC.,
an Arizona corporation,
General Partner
By: /s/ Edward P. Zinman
---------------------------------
Edward P. Zinman
Its: Secretary
(CORPORATE SEAL)
"PURCHASER":
WELLS REAL ESTATE FUND X, L.P.,
a Georgia limited partnership
By: Wells Partners, L.P., a Georgia limited
partnership, General Partner
By: Wells Capital, Inc., a Georgia
corporation, General Partner
By: /s/ Leo F. Wells
------------------------------
Its:
----------------------------
(CORPORATE SEAL)
15
<PAGE>
EXHIBIT 10.7
AGREEMENT FOR THE PURCHASE AND SALE OF PROPERTY
BETWEEN ORIX PRIME WEST BROOMFIELD VENTURE
AND
WELLS DEVELOPMENT CORPORATION
<PAGE>
AGREEMENT FOR THE PURCHASE AND SALE OF PROPERTY
-----------------------------------------------
THIS AGREEMENT FOR THE PURCHASE AND SALE OF PROPERTY (the "Agreement"), is
made and entered into as of the 11 day of February, 1998, by and between ORIX
PRIME WEST BROOMFIELD VENTURE, a Colorado general partnership (hereinafter
referred to as "Seller"), and WELLS DEVELOPMENT CORPORATION, a Georgia
corporation (hereinafter referred to as "Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller desires to sell and Purchaser desires to purchase the Property
(as hereinafter defined) subject to the terms and conditions hereinafter set
forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
agreements contained herein, the sum of Ten Dollars ($10.00) in hand paid by
Purchaser to Seller at and before the sealing and delivery of these presents and
for other good and valuable consideration, the receipt, adequacy, and
sufficiency which are hereby expressly acknowledged by the parties hereto, the
parties hereto do hereby covenant and agree as follows:
1. Purchase and Sale of Property. Subject to and in accordance with the terms
-----------------------------
and provisions of this Agreement, Seller hereby agrees to sell to Purchaser and
Purchaser hereby agrees to purchase from Seller, the Property, which term
"Property" shall mean and include the following:
(a) all that tract or parcel of land located in the County of Boulder,
State of Colorado containing approximately 5.143 acres, and being more
particularly described on Exhibit "A" attached hereto and by this reference
made a part hereof (herein referred to as the "Land"); and
(b) Seller's interest in all rights, privileges, and easements appurtenant
to the Land, including all water rights, mineral rights, reversions, or other
appurtenances to said Land, and all right, title, and interest of Seller, if
any, in and to any land lying in the bed of any street, road, alley, or
right-of-way, open or proposed, adjacent to or abutting the Land; and
(c) all buildings, structures, and improvements situated on the Land,
including, without limitation, that certain 3 story office building (the
"Building") containing approximately 51,974 rentable square feet of office
space, the parking areas containing approximately 200 parking spaces and
other amenities constructed on the Land, and all apparatus, built-in
appliances, equipment, pumps, machinery, plumbing, heating, air conditioning,
electrical and other fixtures owned by Seller and located on or to be located
on the Land (all of which are herein collectively referred to as the
"Improvements"); and
(d) all personal property owned by Seller and located on or to be located
on or in, or used in connection with, the Land and Improvements (all of which
are herein collectively referred to as the "Personal Property"); and
(e) all of Seller's right, title, and interest, as landlord or lessor, in
and to the Leases (as hereinafter defined); and
(f) all of Seller's right, title, and interest, if any, in and to the
<PAGE>
plans and specifications with respect to the Improvements and any
transferable guarantees, trademarks, rights of copyright, warranties, or
other rights related to the ownership of or use and operation of the Land,
Personal Property, or Improvements, all governmental licenses and permits,
and all intangibles associated with the Land, Personal Property, and
Improvements, including Seller's interest in the name of the Improvements and
the logo therefor, if any.
2. Earnest Money. Within two (2) business days after the Effective Date (as
-------------
defined in Section 29), Purchaser shall deliver to Security Title Guaranty Co.
("Escrow Agent"), whose offices are at Orchard Place I, 5995 Greenwood Plaza
Blvd, Suite 110, Greenwood Village, Colorado 80111-4710, Purchaser's check,
payable to Escrow Agent, in the amount of $50,000 (the "Earnest Money"). The
Earnest Money shall be held and disbursed by Escrow Agent pursuant to a written
Escrow Agreement, a copy of which is attached hereto as Exhibit "B" and by this
reference made a part hereof (the "Escrow Agreement"). The Earnest Money shall
be refunded by Escrow Agent to Purchaser at Closing (as hereinafter defined), or
shall otherwise be paid to Seller or refunded to Purchaser in accordance with
the terms of this Agreement and the Escrow Agreement. All interest and other
income from time to time earned on the Earnest Money shall belong to Purchaser
and shall be disbursed to Purchaser at any time and from time to time as
Purchaser shall direct Escrow Agent, all as provided in the Escrow Agreement. In
no event shall any such interest or other income be deemed a part of the Earnest
Money.
3. Purchase Price. Subject to adjustment and credits as otherwise specified
--------------
in this Agreement, the purchase price (the "Purchase Price") to be paid by
Purchaser to Seller for the Property shall be EIGHT MILLION TWO HUNDRED SEVENTY
FIVE THOUSAND DOLLARS ($8,275,000.00). The Purchase Price shall be paid by
Purchaser to Seller at the Closing (as hereinafter defined) by wire transfer of
immediately available federal funds subject to prorations, adjustments and
credits as otherwise specified in this Agreement.
4. Purchaser's Inspection and Review Rights. Commencing on the Effective Date
----------------------------------------
and ending on the date of Closing, and subject to the rights of the Tenants (as
hereinafter defined), Purchaser and its agents, engineers, or representatives,
with Seller's reasonable, good faith cooperation, shall have the privilege of
going upon the Property as needed to inspect, examine, test, and survey the
Property at all reasonable times and from time to time upon 24 hours advance
notice, which notice may be given to Prime West Real Estate Services, Inc. (the
"Manager"). Purchaser agrees not to interfere with the operation of Tenant's
business. Purchaser further agrees it will not enter the premises of any tenant
unless accompanied by a representative of Manager. Such privilege shall include
the right to make tests, borings, and other tests to obtain information
necessary to determine surface and subsurface conditions, provided, however,
that no borings shall be made without the advance consent of Seller, which
consent shall not be unreasonably withheld, and Purchaser shall provide a
certificate of insurance reasonably satisfactory to Seller prior to such tests.
Such privilege shall also include the right to make any other tests deemed
reasonably necessary by Purchaser. Purchaser hereby agrees to indemnify and hold
Seller harmless from any liens, claims, liabilities, expenses and damages,
including, without limitation, reasonable attorney's fees, incurred through the
exercise of such privilege; Purchaser further agrees to repair any damage to the
Property caused by the exercise of such privilege; and said indemnities shall
survive any termination of this Agreement. At all reasonable times prior to the
Closing (as hereinafter defined), Seller shall make available to Purchaser, or
Purchaser's agents and representatives, at the offices of Manager and for
copying at Purchaser's expense, all books, records, and files in Seller's
2
<PAGE>
possession relating to the ownership (exclusive of partnership documentation)
and operation of the Property, including, without limitation, title matters,
surveys, tenant files, service and maintenance agreements, and other contracts,
books, records, operating statements, and other information relating to the
Property. Seller further agrees to in good faith assist and cooperate with
Purchaser in coming to a thorough understanding of the books, records, and files
relating to the Property. Seller further agrees to provide copies of any of such
books, records, and files as may be reasonably requested by Purchaser, with the
copying costs to be borne by Purchaser. Seller further agrees to provide to
Purchaser prior to the date which is five (5) business days after the Effective
Date the most current surveys of the Land and Improvements in the possession of
Seller. Seller further agrees to provide to Purchaser prior to the date which is
five (5) days after the Effective Date, a statement (the "Operating Statement")
setting forth all revenues from the Property and setting forth all costs and
expenses of operating, maintaining, and repairing the Property (and the costs of
replacing component parts thereof) incurred by Seller, in each case during the
entire period from the date the Building first went into operation, through
December 31, 1997.Seller shall also use its reasonable efforts during the
Inspection Period to cause Scott, Cox & Associates, Inc. to address its Phase I
Environmental Audit dated September, 1994 and its summary of pier drilling dated
August 11, 1995, to Purchaser in such a way that Purchaser shall be entitled to
rely on same.
5. Special Condition to Closing. Purchaser shall have 45 days after the
----------------------------
Effective Date (the "Inspection Period") to make investigations, examinations,
inspections, market studies, feasibility studies, lease reviews, and tests
relating to the Property and the operation thereof in order to determine, in
Purchaser's sole opinion and discretion, the suitability of the Property for
acquisition by Purchaser. Purchaser shall have the right to terminate this
Agreement at any time prior to the expiration of the Inspection Period by giving
written notice to Seller of such election to terminate prior to 5:00 p.m.
Denver, Colorado time on the last day of the Inspection Period. In the event
this Agreement is so terminated, Seller shall be entitled to receive the sum of
One Hundred Dollars ($100), whereupon, except as expressly provided to the
contrary in this Agreement, no party hereto shall have any other or further
rights or obligations under this Agreement. Seller acknowledges that the sum of
$100 is good and adequate consideration for the termination rights granted to
Purchaser hereunder.
6. General Conditions Precedent to Purchaser's Obligations Regarding the
---------------------------------------------------------------------
Closing. In addition to any other conditions to Purchaser's obligations
- -------
hereunder, the obligations and liabilities of Purchaser hereunder shall in all
respects be conditioned upon the satisfaction of each of the following
conditions prior to or simultaneously with the Closing (as hereinafter defined),
any of which may be waived by written notice from Purchaser to Seller:
(a) Seller shall have complied in all material respects with and otherwise
performed in all material respects each of the covenants and obligations of
Seller set forth in this Agreement.
(b) All representations and warranties of Seller as set forth in this
Agreement shall be true and correct in all material respects as of the date
of Closing.
(c) There shall have been no material adverse change to the title to the
Property which has not been cured and the Title Company (as hereinafter
defined) shall have issued the Title Commitment (as hereinafter defined) on
the Land and Improvements without exceptions other than as have been
approved by Purchaser as Permitted Exceptions (as hereinafter defined) and
the Title Company shall be prepared to issue to Purchaser upon the Closing
a fee simple owner's title insurance policy on the Land and Improvements
pursuant to such Title Commitment.
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<PAGE>
(d) Purchaser shall have received the Tenant Estoppel Certificates (as
hereinafter defined), duly executed by the Tenants (as hereinafter
defined), provided however that with respect to any tenants occupying less
than 5000 square feet of rentable floor space, Seller may substitute its
certification regarding such matters if Seller has not been able to obtain
a certificate from such tenant.
(e) Purchaser shall have received the Title Commitment, marked to change
the effective date thereof through the date and time of recording the Special
Warranty Deed from Seller to Purchaser, to reflect that Purchaser is vested
with the fee simple title to the Land and the Improvements, and to reflect
that all requirements for the issuance of the final title policy pursuant to
such Title Commitment have been satisfied.
(f) There shall have been no material adverse change in the condition of
the Property or the improvements thereon subsequent to the Inspection Period.
7. Title and Survey. Seller covenants and agrees that Seller, at its sole
----------------
cost and expense, shall, on or before ten (10) days after the Effective Date of
this Agreement cause First American Title Insurance Company, or such other such
title insurance company acceptable to Purchaser (herein referred to as the
"Title Company"), to deliver to Purchaser its commitment (herein referred to as
the "Title Commitment") to issue to Purchaser, upon the recording of the Special
Warranty Deed conveying title to the Property from Seller to Purchaser, the
payment of the Purchase Price, and the payment to the Title Company of the
policy premium therefor, an owner's policy (ALTA 1992) of title insurance with
extended coverage, in the amount of the Purchase Price, insuring good and
marketable fee simple record title to the Property to be in Purchaser without
exception (including any general exception) except for matters set forth on
Exhibit "C" attached hereto and by this reference made a part thereof (herein
referred to as the "Permitted Exceptions"). The Title Policy to be issued shall
not contain any exception for mechanic's or materialman's liens or any exception
for unpaid taxes other than an exception for taxes not yet due and payable. Such
Title Policy shall not contain any exception for rights of parties in possession
other than an exception for the right of the Tenants (as hereinafter defined)
under the Leases. If the Title Commitment shall contain an exception for the
state of facts which would be disclosed by a survey of the Property or an "area
and boundaries" exception, the Title Commitment shall provide that such
exception will be deleted upon the presentation of an "as-built" survey, in
which case the Title Commitment shall be amended to contain an exception only
for the matters shown on the as-built survey which Seller shall obtain at its
sole cost and expense for the benefit of Purchaser. Seller shall also cause to
be delivered to Purchaser together with such Title Commitment, legible copies of
all documents and instruments referred to therein. Purchaser, upon receipt of
the Title Commitment and the copies of the documents and instruments referred to
therein, shall then have twenty (20) days from the later of the date of such
delivery or the Effective Date during which to examine the same, after which
Purchaser shall notify Seller of any defects or objections affecting the
marketability of the title to the Property including the Permitted Exceptions.
Purchaser shall also have the right to object to any matters arising subsequent
to the date of the Title Commitment. Seller shall then have until the Closing to
cure such defects and objections and shall, in good faith, exercise reasonable
diligence to cure such defects and objections. If Seller fails to satisfy such
4
<PAGE>
defects or objections by the date of Closing, then, at the option of Purchaser:
(i) if any such defects or objections arose by, through, or under Seller or if
any such defects or objections consist of taxes, mortgages, deeds of trust,
deeds to secure debt, mechanic's or materialman's liens, or other such monetary
encumbrances, Purchaser shall have the right to cure such defects or objections,
in which event the Purchase Price shall be reduced by an amount equal to the
costs and expenses incurred by Purchaser in connection with the curing of such
defects or objections, and upon such curing, the Closing hereof shall proceed in
accordance with the terms of this Agreement; or (ii) Purchaser shall have the
right to terminate this Agreement by giving written notice of such termination
to Seller, whereupon any Earnest Money shall be refunded promptly to Purchaser,
and Purchaser and Seller shall have no further rights, obligations, or
liabilities hereunder, except as may be expressly provided to the contrary
herein; or (iii) Purchaser shall have the right to accept title to the Property
subject to such defects and objections with no reduction in the Purchase Price,
in which event such defects and objections shall be deemed "Permitted
Exceptions"; or (iv) Purchaser may elect to extend the Closing for thirty (30)
days in order to allow Seller additional time to satisfy such defects and
objections. If the Purchaser elects option (iv) above, and such defects and
objections are not cured by Seller to the satisfaction of Purchaser within such
extended time period, Purchaser shall then have the options set forth in items
(i), (ii), and (iii) above.
8. Representations and Warranties of Seller. Seller hereby makes the
----------------------------------------
following representations and warranties to Purchaser:
(a) Leases. Attached hereto as Exhibit "D" and by this
------
reference made a part hereof is a true and accurate rent roll relating to
the Property, including, without limitation, the name of each tenant
("Tenant" or "Tenants") and any guarantor, base rent and estimated
additional rent payable under each lease, the commencement and expiration
date, any concessions and any rent arrearages. Seller shall deliver to
Purchaser within five days of the Effective Date copies of all leases
described on the rent roll, together with all modifications and amendments
to such Leases (such leases, as modified and amended, being herein referred
to as the "Lease" or "Leases"). Seller is the "landlord" under the Leases
and owns unencumbered legal title to the Leases and the rents and other
income thereunder, except for such matters as shall be discharged by Seller
at Closing.
(b) Leases - Assignment. To Seller's knowledge, no Tenant has assigned
-------------------
its interest in its Lease or sublet any portion of the premises leased to
the Tenant under its Lease, except as set forth on Exhibit "D".
(c) Leases - Default. (i) Seller has not received any notice of
----------------
termination or default under any Lease, (ii) there are no existing or
uncured defaults by Seller or, to the Seller=s knowledge, by the Tenant
under any Lease, (iii) there are no events which with the passage of time
or notice, or both, would constitute a default by Seller or, to the
Seller's knowledge, by any Tenant, and Seller has complied with each and
every undertaking, covenant, and obligation of Seller under the Leases, and
(iv) Seller has not received notice that any Tenant has asserted any
defense, set-off, or counterclaim with respect to its tenancy or its
obligation to pay rent, additional rent, or other charges pursuant to its
Lease.
(d) Leases - Rents and Special Consideration. No Tenant: (i) has prepaid
----------------------------------------
rent for more than one month in advance under its Lease, (ii) has received
5
<PAGE>
or is entitled to receive any rent concession in connection with its
tenancy under its Lease, except as expressly set forth in its Lease (iii)
is entitled to any special work (not yet performed), or consideration (not
yet given) in connection with its tenancy under its Lease except as
reflected on Exhibit "D" and for which funds shall be escrowed at Closing;
and (iv) has any deed, option, or other evidence of any right or interest
in or to the Property, except as evidenced by the express terms of its
Lease. The parties acknowledge that the purchase price has been calculated
on the assumption that rent will be due and payable under all Leases
commencing no later than the date of Closing, and, in the event rent has
not commenced under the leases to Direct Marketing Technology and
Transecon, Inc. with respect to suites 108 and 105, respectively, by the
date of Closing, then, with respect to such Leases, Seller agrees to pay
the rent and other charges pursuant to a master lease or other arrangement
in the same manner as if such Leases had taken effect and rent had
commenced thereunder. The master lease or other arrangement shall terminate
with respect to each such lease when the tenant thereunder begins the
payment of rent.
(e) Leases - Commissions. All commissions payable under, relating to, or
--------------------
as a result of the Leases have been cashed-out and paid and satisfied in
full by Seller or by Seller's predecessor in title to the Property or will
be so satisfied on or before Closing.
(f) Service Contracts. Attached hereto and incorporated herein by this
-----------------
reference as Exhibit "E" is a complete and accurate list and description of
all of the service contracts, management agreements, or other agreements
(other than the Leases) which are in effect and which relate to the
operation, management, or maintenance the Property (said agreements being
herein collectively referred to as the "Service Contracts"). Seller shall
provide Purchaser with complete and accurate copies of all Service
Contracts within five (5) business days after the Effective Date of this
Agreement. All such Service Contracts are in full force and effect in
accordance with their respective provisions, and to Seller=s knowledge
there is no default, or claim of default, or any event which with the
passage of time or notice, or both, would constitute a default on the part
of any party to any of such Service Contracts. Seller represents that all
Service Contracts are terminable on 30 days notice. Seller has canceled or
will cancel, effective as of the Closing, any agreement in the nature of a
management agreement or service contract between Seller and any party
affiliated with or related to Seller.
(g) No Other Agreements. Other than the Leases, the Service Contracts
-------------------
and the Permitted Exceptions, Seller has not entered into any leases,
service contracts, management agreements, or other agreements or
instruments, to which Seller is a party and that grant to any person
whomsoever or any entity whatsoever any right, title, interest or benefit
in or to all or any part of the Property or any rights relating to the use,
operation, management, maintenance, or repair of all or any part of the
Property.
(h) No Litigation. There are no actions, suits, or proceedings pending,
-------------
or to Seller's knowledge, threatened by any organization, person,
individual, or governmental agency against Seller with respect to the
Property or against the Property, nor does Seller have any knowledge of any
basis for such action. Seller has no knowledge of any pending or threatened
application for changes in the zoning applicable to the Property or any
portion thereof.
6
<PAGE>
(i) Condemnation. To Seller's knowledge no condemnation or other taking
------------
by eminent domain of the Property or any portion thereof has been
instituted and, there are no pending or threatened condemnation or eminent
domain proceedings (or proceedings in the nature or in lieu thereof)
affecting the Property or any portion thereof or its use.
(j) Violations. Seller has not received written notice of any violations
----------
of law, municipal or county ordinances, or other legal requirements with
respect to the Property that remain uncured. Seller will obtain a letter
from applicable authorities addressed to Purchaser and confirming that the
Property is currently zoned in a classification such as will permit the
operation of the Property as an office building and the conditions, if any,
to the granting of the zoning of the Property have been satisfied.
(k) Employees. There are no employment, collective bargaining, or
---------
similar agreements or arrangements between Seller and any of its employees
or others which will be binding on Purchaser or any of Purchaser's
successors in title.
(l) Bankruptcy. Seller is solvent and has not made a general assignment
----------
for the benefit of creditors nor been adjudicated a bankrupt or insolvent,
nor has a receiver, liquidator, or trustee for any of Seller's properties
(including the Property) been appointed or a petition filed by or to
Seller's knowledge against Seller for bankruptcy, reorganization, or
arrangement pursuant to the Federal Bankruptcy Act or any similar Federal
or state statute, or any proceeding instituted for the dissolution or
liquidation of Seller.
(m) Pre-existing Right to Acquire. No person or entity has any right or
-----------------------------
option to acquire the Property or any portion thereof which will have any
force or effect after the execution of this Agreement, other than
Purchaser, except as set forth in the Leases.
(n) Effect of Certification. Neither this Agreement nor the transactions
-----------------------
contemplated herein will constitute a breach or violation of, or default
under, or will be modified, restricted, or precluded by the Leases, the
Service Contracts, or the Permitted Exceptions.
(o) Authorization. This Agreement has been duly authorized and executed
-------------
on behalf of Seller and constitutes the valid and binding agreement of
Seller, enforceable in accordance with its terms, and all necessary action
on the part of Seller to authorize the transactions herein contemplated has
been taken, and no further action is necessary for such purpose.
(p) Seller Not a Foreign Person. Seller is not a "foreign person" which
---------------------------
would subject Purchaser to the withholding tax provisions of Section 1445
of the Internal Revenue Code of 1986, as amended.
(q) Utilities. All installation and connection charges for utilities
---------
serving the Property have been paid in full.
(r) Property Taxes. All property taxes required to be paid with respect
--------------
to the Property under any law, ordinance rule, regulation, order, or
requirement of any governmental authority have been, or will be, as the
case may be, truthfully, correctly, and timely paid. Seller agrees to
provide copies of all ad valorem tax bills for 1997, within five business
days after the later of the Effective Date or receipt by Seller of such
bills.
7
<PAGE>
(s) Operating Statement. The Operating Statement delivered to Purchaser
-------------------
shall be true, correct and complete in all material respects.
At Closing, Seller shall represent and warrant to Purchaser that all
representations and warranties of Seller in this Agreement remain true and
correct as of the date of the Closing, except for any changes in any such
representations or warranties that occur and are disclosed by Seller to
Purchaser expressly and in writing at any time and from time to time prior to
Closing, which disclosures shall thereafter be updated by Seller to the date of
Closing. If there is any change in any representations or warranties and Seller
does not cure or correct such changes prior to Closing, then Purchaser may, at
Purchaser's option, (i) close and consummate the transaction contemplated by
this Agreement, or (ii) terminate this Agreement by written notice to Seller,
whereupon any Earnest Money shall be immediately returned by Escrow Agent to
Purchaser, and thereafter the parties hereto shall have no further rights or
obligations hereunder, except only for such rights or obligations that, by the
express terms hereof, survive any termination of this Agreement.
9. Seller's Additional Covenants. Seller does hereby further covenant and
-----------------------------
agree as follows:
(a) Operation of Property. Seller hereby covenants that, from the
---------------------
date of this Agreement up to and including the date of Closing or earlier
termination hereof, Seller shall: (i) not negotiate with any third party
respecting the sale of the Property or any interest therein, (ii) except
for an amendment to the Lease with Direct Marketing Technology, Inc. on
terms and conditions set forth in Exhibit "D", not modify, amend, or
terminate the Leases or enter into any new lease, contract, or other
agreement respecting the Property, without the consent of Purchaser, which
consent shall not be withheld or delayed and (iii) not grant or otherwise
create or consent to the creation of any easement, restriction, lien,
assessment, or encumbrance respecting the Property.
(b) Preservation of Leases. Seller shall, from and after the date of
----------------------
this Agreement to the date of Closing, use commercially reasonable efforts
to perform and discharge all of the duties and obligations and shall
otherwise comply with every covenant and agreement of the landlord under
the Leases, at Seller's expense, in the manner and within the time limits
required thereunder. Furthermore, Seller shall, for the same period of
time, use diligent and good faith efforts to cause the Tenants under the
Leases to perform all of its duties and obligations and otherwise comply
with each and every one of its covenants and agreements under such Leases
and shall take such actions as are reasonably necessary to enforce the
terms and provisions of the Leases.
(c) Tenant Estoppel Certificates. Subject to the provisions of
----------------------------
subparagraph 6(d) above, prior to Closing, Seller shall use its best
efforts to obtain and deliver to Purchaser a fully completed and duly
executed estoppel certificate from each Tenant in the form attached hereto
as Exhibit "F" (herein referred to as the "Tenant Estoppel Certificates").
The Tenant Estoppel Certificates shall be executed as of a date not more
than thirty (30) days prior to Closing.
(d) Insurance. From and after the date of this Agreement to the
---------
date and time of Closing, Seller shall, at its expense, continue to
maintain the insurance policies covering the Property which are currently
in force and effect.
8
<PAGE>
(e) Securities Act Compliance. Seller acknowledges that Purchaser may be
-------------------------
required by the Securities and Exchange Commission to file audited
financial statements for one to three years with regard to the Property. At
no cost or liability to Seller, Seller shall (i) cooperate with Purchaser,
its counsel, accountants, agents, and representatives, provide them with
access to Seller=s books and records with respect to the ownership,
management, maintenance, and operation of the Property for the applicable
period, and permit them to copy the same, (ii) execute a form of Arep@
letter in form and substance reasonably satisfactory to Seller, and (iii)
furnish Purchaser with such additional information concerning the same as
Purchaser shall reasonably request. Purchaser will pay the costs associated
with any such audit.
10. Closing. Provided that all of the conditions set forth in this Agreement
-------
are theretofore satisfied or performed in all material respects, it being fully
understood and agreed, however, that Purchaser may expressly waive in writing,
at or prior to Closing, any conditions that are unsatisfied or unperformed at
such time, the consummation of the sale by Seller and purchase by Purchaser of
the Property (herein referred to as the "Closing") shall be held on or before
March 31, 1998, and at such specific time and date as shall be designated by
Purchaser in a written notice to Seller not less than five (5) days prior to
Closing at the office of the Title Company, and, absent notice, at 10:00 a.m.,
local time, on March 31, 1998.
11. Seller's Closing Documents. For and in consideration of, and as a
--------------------------
condition precedent to, Purchaser's delivery to Seller of the Purchase Price,
Seller shall obtain or execute, at Seller's expense, and deliver to Purchaser at
Closing the following documents (all of which shall be duly executed,
acknowledged, and notarized where required):
(a) Special Warranty Deed. A Special Warranty Deed ("Warranty Deed") in
---------------------
the form of Exhibit "G" hereto conveying to Purchaser marketable fee simple
title to the Land and Improvements, together with all rights, members,
easements, and appurtenances thereto, subject only to the Permitted
Exceptions. The legal description set forth in the Warranty Deed shall be
as set forth on Exhibit "A" attached hereto. In the event Purchaser shall
obtain a new or updated survey of the Land and Improvements and the legal
description set forth in Purchaser's survey shall differ from the legal
description set forth on Exhibit "A" hereto, Seller shall execute and
deliver to Purchaser a quitclaim deed containing a legal description based
upon such survey obtained by Purchaser;
(b) Bill of Sale. A Bill of Sale conveying to Purchaser marketable title
------------
to the Personal Property in the form and substance of Exhibit "H" attached
hereto and by this reference made a part hereof;
(c) Blanket Transfer. A Blanket Transfer and Assignment in the form and
----------------
substance of Exhibit "I" attached hereto and by this reference made a part
hereof;
(d) Assignment and Assumption of Leases. An Assignment and Assumption of
-----------------------------------
Leases in the form and substance of Exhibit "J" attached hereto and by this
reference made a part hereof, assigning to Purchaser all of Seller's right,
title, and interest in and to the Leases and the rents thereunder;
(e) ALTA Affidavit. A customary ALTA affidavit in the form required by
--------------
the Title Company;
9
<PAGE>
(f) FIRPTA Certificate. A FIRPTA Certificate in the form and substance
------------------
of Exhibit "K" attached hereto and by this reference made a part hereof;
(g) Surveys and Plans. Such surveys, site plans, plans and
-----------------
specifications, and other matters relating to the Property as are described
in subparagraph (a) of the Blanket Transfer and Assignment and are in the
possession of Seller or Seller's agents;
(h) Certificates of Occupancy. The original certificates of occupancy
-------------------------
for all space within the Improvements;
(i) Leases. An original executed counterpart or certified copy of the
------
Leases and all amendments to and modifications thereof;
(j) Estoppel Certificates. The Tenant Estoppel Certificates;
---------------------
(k) Keys and Records. All of the keys to any doors or locks on the
----------------
Property and the original tenant files and other books and records relating
to the Property (other than Seller=s partnership documents) in Seller's
possession;
(l) Tenant Notice. Notice from Seller to each Tenant of the
-------------
sale of the Property to Purchaser in the form of Exhibit "L" hereto;
(m) Settlement Statement. A settlement statement setting forth the
--------------------
amounts paid by or on behalf of and/or credited to each of Purchaser and
Seller pursuant to this Agreement;
(n) Assignment and Assumption of Service Contracts. An Assignment and
----------------------------------------------
Assumption of Service Contracts in the form and substance of Exhibit "EE"
hereto; and
(o) Other Documents. Such other documents as shall be reasonably
---------------
required by Purchaser's counsel.
12. Purchaser's Closing Documents. Purchaser shall deliver the balance of
-----------------------------
the Purchase Price and shall obtain or execute and deliver to Seller at Closing
the following documents, all of which shall be duly executed and acknowledged
where required and shall survive the Closing:
(a) Assignment and Assumption of Leases. The Assignment and Assumption
-----------------------------------
of Leases in the form and substance of Exhibit "J" hereto;
(b) Settlement Statement. A settlement statement setting forth the
--------------------
amounts paid by or on behalf of and/or credited to each of Purchaser and
Seller pursuant to this Agreement;
(c) Assignment and Assumption of Service Contracts. An Assignment and
----------------------------------------------
Assumption of Service Contracts in the form and substance of Exhibit "EE"
hereto.
(d) Other Documents. Such other documents as shall be reasonably
---------------
required by Seller's counsel.
13. Closing Costs. Seller shall pay the cost of the Title Commitment,
-------------
including the cost of the examination of title to the Property made in
connection therewith, the premium for the owner's policy of title insurance
issued pursuant thereto (with extended coverage but not with endorsements not
expressly called for herein), the cost of the as-built survey, the cost (to the
10
<PAGE>
extent it is customary for Seller to pay such costs) of any documentary,
transfer, recording or other similar tax imposed by the State of Colorado,
Boulder County and local transfer taxes, if any, upon the conveyance of the
Property pursuant hereto, the attorneys' fees of Seller, one-half of any escrow
fee and all other costs and expenses incurred by Seller in Closing and
consummating the purchase and sale of the Property pursuant hereto. Purchaser
shall pay its attorneys' fees, the cost (to the extent it is customary for
Purchaser to pay such costs) of any documentary, transfer, recording or other
similar tax imposed by the State of Colorado, Boulder County and local transfer
taxes, if any, upon the conveyance of the Property pursuant hereto, the costs
of any endorsements to the Title Policy not expressly provided for herein, one-
half of any escrow fee and all other costs and expenses incurred by Purchaser
in Closing and consummating the purchase and sale of the Property pursuant
hereto.
14. Prorations. The following items shall be prorated and/or credited
----------
between Seller and Purchaser as of Midnight preceding the date of Closing:
(a) Rents. Rents, additional rents, operating costs, and other income
-----
of the Property (other than security deposits which shall be credited or
assigned to Purchaser at Closing) collected by Seller from Tenants for the
month of Closing. Purchaser shall also receive a credit against the
Purchase Price payable by Purchaser to Seller at Closing for any rents or
other sums (not including security deposits) prepaid by any Tenant for any
period following the month of Closing. Seller hereby acknowledges that
Purchaser shall not be legally responsible to Seller for the collection of
any uncollected rent or other income under the Leases that is past due or
otherwise due and payable as of the date of Closing. Purchaser agrees that
if (i) any Tenant is in arrears on the date of Closing in the payment of
rent or other charges under its Lease, and (ii) upon Purchaser's receipt of
any rental or other payment from such Tenant, such Tenant is, or after
application of a portion of such payment will be, current under its Lease
in the payment of all accrued rental and other charges that become due and
payable on the date of Closing or thereafter and in the payment of any
other obligations of Tenant to Purchaser, then Purchaser shall refund to
Seller, out of and to the extent of the portion of such payment remaining
after Purchaser deducts therefrom any and all sums due and owing to
Purchaser from Tenant from and after the date of Closing, an amount up to
the full amount of any arrearage existing on the date of Closing. With
respect to additional rents and operating costs, the parties anticipate
that a reconciliation for the calender year 1997 will be completed in
March, 1998, and the parties agree to cooperate in dealing with Tenants
regarding any shortages or overages. The parties also acknowledge that the
reconciliation of such items for calender year 1998 will not occur until
approximately March, 1999. At Closing, Seller shall transfer and assign to
Purchaser that portion of additional rents and operating expenses received
by Seller for 1998 and not applied by it to the payment of such expenses
accruing prior to Closing, and Purchaser shall arrange with Tenants the
reconciliation for 1998. For example, Seller will have collected from
Tenants ad valorem taxes for a portion of 1998 for taxes not payable until
after Closing, and Seller shall transfer such funds to Purchaser.
(b) Property Taxes. City, state, county, and school district ad valorem
--------------
taxes for 1997 based on the ad valorem tax bills for the Property, if then
available, or if not, then on the basis of the latest available tax figures
and information. Should such proration be based on such latest available
tax figures and information and prove to be inaccurate upon receipt of the
11
<PAGE>
ad valorem tax bills for the Property for the year of Closing, either
Seller or Purchaser, as the case may be, may demand at any time after
Closing a payment from the other correcting such malapportionment (after
adjusting for any Tenant recoveries). In addition, if after Closing there
is an adjustment or reassessment by any governmental authority with respect
to, or affecting, any ad valorem taxes for the Property for the year of
Closing or any prior year, any additional tax payment or refund for the
Property required to be paid or refunded with respect to the year of
Closing shall be prorated between Purchaser and Seller and any such
additional tax payment or refund for the Property for any year prior to the
year of Closing shall be paid by or to Seller, as the case may be (after
adjusting for any Tenant recoveries). As Seller is delivering all tax
deposits received from Tenants for 1998 to Purchaser at Closing, the
parties anticipate that the only proration for 1998 taxes will relate to
space with respect to which Leases commenced after January 1, 1998.
(c) Utility Charges. Seller shall pay all utility bills received prior
---------------
to Closing and shall be responsible for utilities furnished to the Property
prior to Closing. Purchaser shall be responsible for the payment of all
bills for utilities furnished to the Property subsequent to the Closing.
Seller and Purchaser hereby agree to prorate and pay their respective
shares of all utility bills received subsequent to Closing.
(d) Service Contracts. Charges under any Service Contracts
-----------------
shall be prorated as of Midnight preceding the date of Closing.
15. Purchaser's Default. In the event of default by Purchaser under the
-------------------
terms of this Agreement, Seller's sole and exclusive remedy shall be to receive
the Earnest Money as liquidated damages and thereafter the parties hereto shall
have no further rights or obligations hereunder whatsoever. It is hereby agreed
that Seller's damages will be difficult to ascertain and that said sum
constitutes a reasonable liquidation thereof and is intended not as a penalty,
but as fully liquidated damages.
16. Seller's Default. In the event of default by Seller under the terms of
----------------
this Agreement, and in addition to the other remedies specifically set forth
herein, at Purchaser's option: (i) Purchaser may terminate this Agreement by
written notice to Seller, whereupon any Earnest Money shall be immediately
returned by Escrow Agent to Purchaser, and the parties hereto shall have no
further rights or obligations hereunder whatsoever, or (ii) Purchaser shall be
entitled to pursue the remedy of specific performance as its sole and exclusive
remedy, and to the extent consistent therewith to receive an immediate refund of
any Earnest Money.
17. Condemnation. If, prior to the Closing, all or any part of the Property
------------
valued at more than $100,000 is subjected to a bona fide threat of condemnation
by a body having the power of eminent domain or is taken by eminent domain or
condemnation (or sale in lieu thereof), or if Seller has received notice that
any condemnation action or proceeding with respect to the Property is
contemplated by a body having the power of eminent domain, Seller shall give
Purchaser immediate written notice of such threatened or contemplated
condemnation or of such taking or sale, and Purchaser may by written notice to
Seller given within ten (10) days of the receipt of such notice from Seller,
elect to cancel this Agreement. If Purchaser chooses to cancel this Agreement in
accordance with this Paragraph, then any Earnest Money shall be returned
immediately to Purchaser and except as otherwise provided herein, the rights,
duties, obligations, and liabilities of the parties hereunder shall immediately
terminate and be of no further force and effect. If Purchaser does not elect to
12
<PAGE>
cancel this Agreement in accordance herewith or the portion of the Property in
question is valued at less than $100,000, this Agreement shall remain in full
force and effect and the sale of the Property contemplated by this Agreement,
less any interest taken by eminent domain or condemnation, or sale in lieu
thereof, shall be effected with no further adjustment and without reduction of
the Purchase Price, and at the Closing, Seller shall assign, transfer, and set
over to Purchaser all of the right, title, and interest of Seller in and to any
awards that have been or that may thereafter be made for such taking.
18. Damage or Destruction. If any of the Improvements shall be destroyed or
---------------------
damaged prior to the Closing, and the estimated cost of repair or replacement
exceeds One Hundred Thousand Dollars ($100,000) or if any Lease shall terminate
as a result of such damage, Purchaser may, by written notice given to Seller
within ten (10) days after receipt of written notice from Seller of such damage
or destruction, elect to terminate this Agreement, in which event any Earnest
Money shall immediately be returned to Purchaser and except as expressly
provided herein to the contrary, the rights, duties, obligations, and
liabilities of all parties hereunder shall immediately terminate and be of no
further force or effect. If Purchaser does not elect to terminate this Agreement
pursuant to this Paragraph, or has no right to terminate this Agreement (because
the damage or destruction does not exceed $100,000 and the Leases remain in full
force and effect), and the sale of the Property is consummated, Purchaser shall
be entitled to receive all insurance proceeds paid or payable to Seller by
reason of such destruction or damage under the insurance required to be
maintained by Seller pursuant to Paragraph 9(d) hereof (less amounts of
insurance theretofore received and applied by Seller to restoration) and Seller
shall pay to Purchaser the amount of any deductible thereunder. If the amount of
said casualty or rent loss insurance proceeds is not settled by the date of
Closing, Seller shall execute at Closing all proofs of loss, assignments of
claim, and other similar instruments to ensure that Purchaser shall receive all
of Seller's right, title, and interest in and under said insurance proceeds
other than rent loss proceeds attributable to the period prior to Closing.
19. Hazardous Substances. To the Seller's knowledge: (a) there are not
--------------------
"hazardous substances" (as defined in Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq. as
------
amended) at the Property; (b) there has been no release or threat of release of
any such hazardous substance; (c) the Property is not subject to regulation by
any governmental entity as result of the presence of (i) stored, leaked or
spilled petroleum products, (ii) underground storage tanks, (iii) an
accumulation of rubbish, debris or other solid waste, or because of the
presence, release, threat of release, discharge, storage, treatment, generation
or disposal of any "hazardous waste" (as defined in the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq., as amended), or "toxic
------
substance" (as defined in the Toxic Substance Control Act, 15 U.S.C. Section
2601 et seq., as amended), including without limitation asbestos and items or
------
equipment containing polychlorinated biphenyls (PCBs) in excess of 50 parts per
million; and (d) no environmental condition exists on the Property that either
(X) requires the owner of the Property to report such condition to any authority
or agency of the State of Colorado or (Y) requires the owner of the Property to
make a notation of such condition in any public records or conveyancing
instrument upon the conveyance of the Property. Seller covenants during the
period of this Agreement not to discharge or store any such materials on the
Property.
20. Assignment. Purchaser's rights and duties under this Agreement shall be
----------
freely transferable and assignable by Purchaser, but in the event of any such
transfer or assignment, Purchaser shall remain liable for the performance of all
obligations, covenants, conditions, and agreements imposed upon Purchaser
pursuant to the terms of this Agreement.
13
<PAGE>
21. Broker's Commission. Purchaser and Seller hereby represent each to the
-------------------
other that they have not discussed this Agreement or the subject matter hereof
with any real estate broker or agent so as to create any legal right in any such
broker or agent to claim a real estate commission with respect to the
conveyance of the Property contemplated by this Agreement. Seller shall and does
hereby indemnify and hold harmless Purchaser from and against any claim, whether
or not meritorious, for any real estate sales commission, finder's fees, or like
compensation in connection with the sale contemplated hereby and arising out of
any act or agreement of Seller. Likewise, Purchaser shall and does hereby
indemnify and hold harmless Seller from and against any claim, whether or not
meritorious, for any real estate sales commission, finder's fees, or like
compensation in connection with the sale contemplated hereby and arising out of
any act or agreement of Purchaser, except any such claim asserted by Prime West
Real Estate Services, Inc. or any broker or agent claiming thereunder.
22. Notices. Wherever any notice or other communication is required or
-------
permitted hereunder, such notice or other communication shall be in writing and
shall be delivered by nationally recognized overnight courier, by facsimile
(provided written confirmation of transmission is available) by hand, or sent by
U.S. registered or certified mail, return receipt requested, postage prepaid, to
the addresses set out below or at such other addresses as are specified by
written notice delivered in accordance herewith:
PURCHASER: Wells Development Corporation
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Attn: Mr. Michael C. Berndt
Facsimile: (770) 840-7224
with a copy to: O'Callaghan & Stumm LLP
127 Peachtree Street, N.E., Suite 1330
Atlanta, Georgia 30303
Attn: William L. O'Callaghan, Jr., Esq.
Facsimile: (404) 522-3080
SELLER: ORIX BROOMFIELD, INC,
100 North Riverside Plaza, Suite 1400
Chicago, IL 60606
Attn: James H. Purinton
Facsimile: (312) 669-6464
and Prime West Broomfield, Inc.
6025 South Quebec St., Suite 110
Englewood, CO 80111
Attn: Stephen F. Clarke
Facsimile: (303) 741-6988
with copy to: Katz Randall & Weinberg
333 W. Wacker Drive. Suite 1800
Chicago, IL 60606
Attn: Arnold Weinberg, Esq.
Facsimile: (312) 807-3903
Any notice or other communication given as hereinabove provided shall be deemed
effectively given or received on the date of delivery.
14
<PAGE>
23. Possession. Possession of the Property shall be granted by Seller to
----------
Purchaser on the date of Closing, subject only to the Leases and the Permitted
Exceptions.
24. Time Periods. If the time period by which any right, option, or election
------------
provided under this Agreement must be exercised, or by which any act required
hereunder must be performed, or by which the Closing must be held, expires on a
Saturday, Sunday, or holiday, then such time period shall be automatically
extended through the close of business on the next regularly scheduled business
day in Denver, Colorado.
25. Survival of Provisions. All covenants, warranties, and agreements set
----------------------
forth in this Agreement shall survive the execution or delivery of any and all
deeds and other documents at any time executed or delivered under, pursuant to,
or by reason of this Agreement, and shall survive the payment of all monies made
under, pursuant to, or by reason of this Agreement, for a period of 18 months.
26. Severability. This Agreement is intended to be performed in accordance
------------
with, and only to the extent permitted by, all applicable laws, ordinances,
rules, and regulations. If any provision of this Agreement, or the application
thereof to any person or circumstance, shall, for any reason and to any extent
be invalid or unenforceable, the remainder of this Agreement and the application
of such provision to other persons or circumstances shall not be affected
thereby but rather shall be enforced to the greatest extent permitted by law.
27. Authorization. Purchaser represents to Seller that this Agreement has
-------------
been duly authorized and executed on behalf of Purchaser and constitutes the
valid and binding agreement of Purchaser, enforceable in accordance with its
terms, and all necessary action on the part of Purchaser to authorize the
transactions herein contemplated has been taken, and no further action is
necessary for such purpose.
28. General Provisions. No failure of either party to exercise any power
------------------
given hereunder or to insist upon strict compliance with any obligation
specified herein, and no custom or practice at variance with the terms hereof,
shall constitute a waiver of either party's right to demand exact compliance
with the terms hereof. This Agreement contains the entire agreement of the
parties hereto, and no representations, inducements, promises, or agreements,
oral or otherwise, between the parties not embodied herein shall be of any force
or effect. Any amendment to this Agreement shall not be binding upon the parties
hereto unless such amendment is in writing and executed by all parties hereto.
The provisions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective, permitted heirs, legal
representatives, successors, and assigns. Time is of the essence of this
Agreement. This Agreement may be executed in multiple counterparts, each of
which shall constitute an original, but all of which taken together shall
constitute one and the same agreement. The headings inserted at the beginning of
each paragraph are for convenience only, and do not add to or subtract from the
meaning of the contents of each paragraph. This Agreement shall be construed and
interpreted under the laws of the State of Colorado. Except as otherwise
provided herein, all rights, powers, and privileges conferred hereunder upon the
parties shall be cumulative but not restrictive to those given by law. All
personal pronouns used in this Agreement, whether used in the masculine,
feminine, or neuter gender shall include all genders, and all references herein
to the singular shall include the plural and vice versa.
15
<PAGE>
29. Effective Date. The "Effective Date" of this Agreement shall be deemed
--------------
to be the date this Agreement is fully executed by both Purchaser and Seller and
a fully executed original counterpart of this Agreement has been received by
both Purchaser and Seller. If the Effective Date does not occur on or before
February 16, 1998, this Agreement shall be null and void and of no further force
and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and their respective seals to be affixed hereunto as of the day, month
and year first above written.
"SELLER":
ORIX PRIME WEST BROOMFIELD VENTURE, a
Colorado general partnership
By: Prime West Broomfield, Inc.
General Partner
By: /s/ Stephen F. Clarke
---------------------
Title: President
------------------
(CORPORATE SEAL)
By: ORIX Broomfield, Inc.
General Partner
By: /s/ Janet Primi
---------------------
Title: Deputy President
------------------
(CORPORATE SEAL)
"PURCHASER":
WELLS DEVELOPMENT CORPORATION
a Georgia corporation
By: /s/ Leo F. Wells, III
---------------------
Title: President
-------------------
(CORPORATE SEAL)
16
<PAGE>
EXHIBIT 10.8(a)
FIRST AMENDMENT TO
THE AGREEMENT FOR THE PURCHASE AND SALE OF REAL PROPERTY
BETWEEN WELLS DEVELOPMENT CORPORATION
AND
THE JOINT VENTURE
<PAGE>
FIRST AMENDMENT TO
AGREEMENT FOR THE PURCHASE
AND SALE OF REAL PROPERTY
THIS FIRST AMENDMENT, made and entered into as of the _____ day of April,
1998, by and between WELLS DEVELOPMENT CORPORATION, a Georgia corporation whose
address is 3885 Holcomb Bridge Road, Norcross, Georgia 30092 ("Seller"), WELLS
MANAGEMENT COMPANY, INC., whose address is 3885 Holcomb Bridge Road, Norcross,
Georgia 30092 ("Guarantor") and FUND IX AND FUND X ASSOCIATES, a Georgia joint
venture comprised of Wells Real Estate Fund IX, L.P., a Georgia limited
partnership, and Wells Real Estate Fund X, L.P., a Georgia limited partnership,
whose address is 3885 Holcomb Bridge Road, Norcross, Georgia 30092
(collectively, the "Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto entered into that certain Agreement for the
Purchase and Sale of Real Property (the "Purchase Agreement") dated as of May
30, 1997, relating to that certain parcel of land (the "Land") situated in the
Quail Springs Office Park in Oklahoma City, Oklahoma and being more particularly
described on Exhibit A hereto, the improvements to be constructed thereon and
the lease to be executed in connection therewith; and
WHEREAS, the tenant ("Tenant") under the aforesaid lease has requested that
the additional land described on Exhibit B hereto (the "Additional Land") be
acquired and additional parking be constructed thereon; and
WHEREAS, Seller has agreed to acquire the Additional Land and Tenant has
executed an amendment to its lease to increase the rental rate thereunder; and
WHEREAS, in order to finance the acquisition of the Additional Land and pay
for the additional parking and other improvements to be constructed thereon,
Purchaser has agreed to increase the Purchase Price and the Earnest Money under
the Purchase Agreement; and
WHEREAS, Guarantor is an affiliate of Seller and will benefit from this
transaction;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein set forth, the receipt, adequacy and sufficiency
of which are hereby expressly acknowledged by the parties hereto, Seller and
Purchaser do hereby covenant and agree as follows:
1. Agreement to Buy and Sell. The terms and conditions of paragraph 1 of the
-------------------------
Purchase Agreement shall remain the same, except that the Property, as defined
therein, shall be deemed to include the Additional Land.
2. Earnest Money. Within three (3) business days after the effective date of
-------------
this First Amendment, Purchaser shall deliver to Seller the amount of THREE
HUNDRED THOUSAND AND 00/100 Dollars ($300,000) as additional earnest money (said
amount to become a part of the Earnest Money referred to in the Purchase
Agreement.
3. Purchase Price. The terms and conditions of paragraph 3 of the Purchase
--------------
Agreement shall remain the same, except that it is estimated that the Purchase
Price, as defined therein, will be increased by the amount of approximately
$300,000.
<PAGE>
4. Closing and Closing Date. The Closing Date, as defined in the Purchase
------------------------
Agreement, may, at the election of Purchaser, be extended to that date which is
not later than the date of maturity of the Construction Loan (as defined in the
Purchase agreement). The remaining terms and conditions of paragraph 9 of the
Purchase Agreement shall remain unchanged.
5. Miscellaneous. Except as expressly modified by the terms and conditions
-------------
hereof, the terms and conditions of the Purchase Agreement shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by duly authorized representatives as of the day, month and year first
above written.
"SELLER":
WELLS DEVELOPMENT CORPORATION,
a Georgia corporation
By: /s/ Brian M. Conlon
-------------------
Title: Executive Vice President
------------------------
Date: April 21, 1998
--------
"GUARANTOR":
WELLS MANAGEMENT COMPANY, INC.
By: /s/ Brian M. Conlon
-------------------
Title: Executive Vice President
------------------------
Date: April 21, 1998
--------
"PURCHASER":
FUND IX AND FUND X ASSOCIATES,
a Georgia joint venture
By: WELLS REAL ESTATE FUND IX, L.P.,
a Georgia limited partnership, as
administrative venturer
By: Wells Partners, L.P., a Georgia
limited partnership, general
partner
By: Wells Capital, Inc., a
Georgia corporation
General Partner
By: /s/ Brian M. Conlon
-------------------------
Title: Executive Vice
President
----------------------
Date: April 21, 1998
--------
-2-
<PAGE>
EXHIBIT 10.10(a)
FIRST AMENDMENT TO NET LEASE AGREEMENT
BETWEEN THE JOINT VENTURE
AND
LUCENT TECHNOLOGIES, INC.
<PAGE>
FIRST AMENDMENT TO NET LEASE AGREEMENT
--------------------------------------
THIS FIRST AMENDMENT TO NET LEASE AGREEMENT (the "First Amendment") is made
and entered into this 30th day of March, 1998, by and between WELLS
DEVELOPMENT CORPORATION, a Georgia corporation (hereinafter referred to as
"Landlord") and LUCENT TECHNOLOGIES INC., a Delaware corporation (hereinafter
referred to as "Tenant").
W I T N E S S E T H
WHEREAS, Landlord and Tenant entered into that certain Net Lease Agreement
dated as of May 30, 1997 (the "Lease") relating to certain Premises located in
Quail Springs Office Park North, Oklahoma City, Oklahoma, as more particularly
therein described; and
WHEREAS, Tenant has requested Landlord to expand the size of the "Land" by
including therein an additional strip of real property having dimensions of
approximately 59 feet by 432 feet and containing approximately 25,808 square
feet of area along the northerly boundary of the Land and to expand the
Building's parking facilities by paving and striping additional parking spaces
along and within the northerly boundary of the Land, as so expanded; and
WHEREAS, Landlord has agreed to use reasonable efforts to acquire such
additional real property along the northerly boundary of the Land, and upon such
acquisition, to expand the Building's parking facilities by constructing
approximately 66 additional parking spaces within such additional real property;
and
WHEREAS, Landlord and Tenant desire to modify and amend the Lease to
provide for the expansion of the Premises and to provide for the increase in
Fixed Rent as herein provided.
NOW, THEREFORE, for and in consideration of the premises, the agreements
contained herein and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged by the parties hereto,
Landlord and Tenant do hereby agree as follows:
1. Defined Terms. All terms and words of art used herein, as indicated by
-------------
the initial capitalization thereof, shall have the same respective meanings
designated for such terms and words of art in the Lease.
2. Expansion of Premises. Landlord agrees to use reasonable efforts in good
---------------------
faith to acquire that certain real property having dimensions of approximately
59 feet by 432 feet and containing approximately 25,808 square feet of area
adjacent to the northerly boundary of the Land (such real property being
hereinafter referred to as the "Additional Land"). Effectively immediately upon
the acquisition of the Additional Land by Landlord, the Additional Land shall be
deemed to be a part of the Land, the Property and the Premises for all purposes
under the Lease, as amended.
<PAGE>
3. Improvement of Additional Land and Increase in Fixed Rent. Landlord
---------------------------------------------------------
agrees that within three (3) months after the acquisition by Landlord of the
Additional Land, Landlord shall cause additional parking improvements and
driveway improvements to be constructed within the Additional Land as depicted
on the Site Plan attached hereto as Exhibit "A" and by reference made a part
-----------
hereof, all at the sole cost and expense of Landlord. Effective as of the date
of substantial completion of such additional sixty-six (66) parking spaces and
driveway improvements and the delivery of notice by Landlord to Tenant that
Tenant may commence beneficial use of such additional parking spaces and
driveway improvements, the annual Fixed Rent payable by Tenant to Landlord under
the Lease for the balance of the Primary Term shall increase by the sum of
Twenty-Eight Thousand Five Hundred Ninety-Three and No/100 Dollars ($28,593.00),
payable in equal monthly installments of $2,382.75. The amount of such increase
in Fixed Rent shall be prorated for any partial month following the commencement
of such increase in Fixed Rent.
4. Ratification. Except as expressly modified and amended herein, the Lease
------------
shall remain in full force and effect and, as modified and amended herein, is
expressly ratified and confirmed by the parties hereto.
5. Binding Effect. This First Amendment shall be binding upon and shall
--------------
inure to the benefit of Landlord and Tenant and their respective legal
representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed as of the day, month and year first above written.
"LANDLORD"
WELLS DEVELOPMENT CORPORATION,
a Georgia corporation
By: /s/ Brian M. Conlon
-----------------------------
Name: Brian M. Conlon
---------------------------
Title: Executive Vice President
--------------------------
"TENANT"
LUCENT TECHNOLOGIES INC.,
a Delaware corporation
By: /s/ Erlizda B. Velarde
-----------------------------
Name: Erlizda B. Velarde
---------------------------
Title: R.I. Manager
--------------------------
2
<PAGE>
EXHIBIT 23.2
CONSENT OF ARTHUR ANDERSON LLP
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the December 31, 1997 financial statements of Wells Real Estate Investment
Trust, Inc. and to all references to our firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Atlanta, Georgia
July 9, 1998
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
<PAGE>
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 acting singly, as his true
and lawful attorney-in-fact, for him and in his name, place and stead, to sign
any and all 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 and each of them 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 or either of them may do or cause to
be done by virtue of these presents.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Power of Attorney has been signed below on May 7, 1998, by the following persons
and in the capacities indicated.
Signatures Title
- ---------- -----
/s/ Leo F. Wells, III President and Director
- -------------------------- (Principal Executive Officer)
Leo F. Wells, III
/s/ Brian M. Conlon Executive Vice President (Principal
- -------------------------- Financial and Accounting Officer)
Brian M. Conlon and Director
/s/ John L. Bell Director
- --------------------------
John L. Bell
/s/ Richard W. Carpenter Director
- --------------------------
Richard W. Carpenter
/s/ Walter W. Sessoms Director
- --------------------------
Walter W. Sessoms
<PAGE>
/s/ Bud Carter Director
- ---------------------------
Bud Carter
/s/ William H. Keogler, Jr. Director
- ---------------------------
William H. Keogler, Jr.
/s/ Donald S. Moss Director
- ---------------------------
Donald S. Moss
/s/ Neil H. Strickland Director
- ---------------------------
Neil H. Strickland
