<PAGE>
As filed with the Securities and Exchange Commission on October 14, 1999
Registration No. 333-32099
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 7 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)
Douglas P. Williams, 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>
[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, Supplement No. 2 dated June 30, 1998,
Supplement No. 3 dated August 12, 1998, Supplement No. 6 dated January 12, 1999
(which supersedes Supplement No. 4 dated November 1, 1998 and Supplement No. 5
dated December 14, 1998), Supplement No. 7 dated April 15, 1999, Supplement No.
8 dated June 15, 1999 and Supplement No. 10 dated October 10, 1999 (which
supersedes Supplement No. 9 dated September 1, 1999) (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. Supplement No. 3
includes descriptions of transactions involving joint ventures with Affiliates
and acquisitions of certain real properties. Supplement No. 6 includes
descriptions of certain co-tenancy arrangements with Affiliates, acquisitions of
certain real properties and revisions to the Prospectus to decrease the minimum
purchase requirements for participants in other real estate programs.
Supplement No. 7 includes updated Prior Performance Tables and financial
statements and descriptions of the acquisition of an office building in
Harrisburg, Pennsylvania and the development of an office building in Lake
Forest, California. Supplement No. 8 includes descriptions of transactions
involving joint ventures with Affiliates and an acquisition of an industrial
building in Fountain Inn, South Carolina. Supplement No. 10 includes
descriptions of acquisitions of certain real properties and various revisions to
the Prospectus.
<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
3
<PAGE>
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.
16
<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.
18
<PAGE>
MANAGEMENT COMPENSATION
The following table summarizes and discloses all of the compensation and
fees (including reimbursement of expenses) to be paid by the Company to the
Dealer Manager, the Soliciting Dealers, the Advisor and the Management Company
during the various phases of the organization and operation of the Company.
<TABLE>
<CAPTION>
FORM OF COMPENSATION DETERMINATION ESTIMATED 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.
20
<PAGE>
CONFLICTS OF INTEREST
The Company is subject to various conflicts of interest arising out of its
relationship with the Advisor and its Affiliates, including conflicts related to
the arrangements pursuant to which the Advisor and its Affiliates will be
compensated by the Company. See "Management."
The following chart indicates the relationship between Wells Real Estate
Funds, Inc., the parent corporation of the Advisor and the Affiliates of the
Advisor which will be providing services to the Company.
================================================================================
| 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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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
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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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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.
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"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 Keogler, Morgan & Company, Inc., a full service brokerage
firm, and Keogler Investment Advisory, Inc., in which he served as Chairman of
the Board of Directors, President and Chief Executive Officer. In January 1997,
both companies were sold to Sun America, Inc., a publicly traded New York Stock
Exchange Company. Mr. Keogler continued to serve as President and Chief
Executive Officer of those companies until his retirement in January 1998.
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>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 3 DATED AUGUST 12, 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 and
Supplement No. 2 dated June 30, 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) The contribution of the Iomega Building located in Ogden, Weber
County, Utah by Wells Real Estate Fund X, L.P. ("Wells Fund X") to the Fund IX,
Fund X, Fund XI and REIT Joint Venture (the "IX-X-XI-REIT Joint Venture");
(iii) The Joint Venture Agreements entered into between Wells Operating
Partnership, L.P. ("Wells OP") and Wells Development Corporation ("Wells
Development");
(iv) The Joint Venture between Wells Real Estate Fund XI, L.P. ("Wells
Fund XI") and Wells Fund X (the "Fund X-XI Joint Venture") and the contracts
between the Fund X-XI Joint Venture and Wells Development;
(v) The acquisition of the Fairchild Building located in Fremont, Alameda
County, California;
(vi) The acquisition of the Cort Furniture Building located in Fountain
Valley, Orange County, California;
(vii) Revisions to the "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" section of the Prospectus; and
(viii) 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 August 10, 1998, the Company had raised a total of
$5,739,061 in offering proceeds (573,906 Shares).
The Iomega Building
Contribution of the Iomega Building. On July 1, 1998, Wells Fund X
contributed a single-story warehouse and office building with 108,000 rentable
square feet (the "Iomega Building") to the IX-X-XI-REIT Joint Venture as a
capital contribution. Wells Fund X was credited with making a capital
contribution to the IX-X-XI-REIT Joint Venture in the amount of $5,050,425,
which represents the purchase price of $5,025,000 plus $25,425 in closing costs
originally paid by Wells Fund X for the Iomega Building on April 1, 1998.
<PAGE>
As of August 1, 1998, Wells Fund X had made total capital contributions to
the IX-X-XI-REIT Joint Venture of $18,410,965 and held an equity percentage
interest in the IX-X-XI-REIT Joint Venture of 49.9%; Wells Real Estate Fund IX,
L.P. had made total capital contributions to the IX-X-XI-REIT Joint Venture of
$14,571,686 and held an equity percentage interest in the IX-X-XI-REIT Joint
Venture of 39.5%; Wells Fund XI had made total capital contributions to the
IX-X-XI-REIT Joint Venture of $2,482,810 and held an equity percentage interest
in the IX-X-XI-REIT Joint Venture of 6.7%; and Wells OP had made total capital
contributions to the IX-X-XI-REIT Joint Venture of $1,421,466 and held an equity
percentage interest in the IX-X-XI-REIT Joint Venture of 3.9%.
Description of the Building and Site. The exterior of the Iomega Building
is constructed of concrete tilt-up wall panels approximately 23 feet in height
in the warehouse area with windows along the west and north sides of the
building. The office portion of the Iomega Building on the north side is
constructed of masonry block. Construction of the Iomega Building was completed
in 1989. In 1997, the current tenant, Iomega Corporation, completed construction
of a 16,000 square foot two-level office space addition inside the warehouse
area on the west side of the Iomega Building. The Iomega Building contains an
asphaltic concrete paved parking lot with 286 parking spaces. A railroad spur
provides access to two rail docks on the east side of the Iomega Building.
Access to the Iomega Building is controlled by on-site security guards. The
IX-X-XI-REIT Joint Venture has no current plans to further develop, improve or
renovate the Iomega Building.
The Iomega Building is located at 2976 South Commerce Way in the Ogden
Commercial and Industrial Park (the "Ogden Commercial Park") in Ogden City,
Utah. The site is an 8.03 acre tract of land located in an area containing
primarily light manufacturing and warehousing buildings. The Iomega Building is
one of the largest and most modern warehouse and office buildings in the Ogden
Commercial Park. Although the Ogden Commercial Park is a well established
industrial park, there are vacant land parcels immediately adjacent to the
Iomega Building on the north, west and south sides.
The Ogden Commercial Park is located one mile north of Roy City, one mile
northwest of Riverdale City and three miles southwest of the Ogden central
business district. Interstate 15, a major north-south freeway through the state,
and Interstate 84, a major east-west freeway through Weber County, are within
one mile of the site.
Description of Iomega Lease. The entire Iomega Building is currently under
a net Lease Agreement dated April 9, 1996 (the "Iomega Lease") with Iomega
Corporation ("Iomega"). Wells Fund X assigned its rights under the Iomega Lease
to the IX-X-XI REIT Joint Venture in connection with the contribution of the
Iomega Building on July 1, 1998. The Iomega Lease has a ten year lease term
which commenced on August 1, 1996 and expires on July 31, 2006. The Iomega Lease
contains no extension provisions. Iomega's world headquarters are located within
one mile of the Iomega Building. In the event that Iomega vacates the Iomega
Building at the expiration of its current lease term, the IX-X-XI-REIT Joint
Venture would be required to find one or more new suitable tenants for the
Iomega Building at the then prevailing market rental rates.
Iomega, a New York Stock Exchange company, is a manufacturer of computer
storage devices used by individuals, businesses, government and educational
institutions, including "Zip" drives and disks, "Jaz" one gigabyte drives and
disks, and tape backup drives and cartridges. Iomega reported total sales of in
excess of $1.7 billion, net income of in excess of $115 million and a net worth
of in excess of $400 million for its fiscal year ended December 31, 1997.
The monthly base rent payable under the Iomega Lease is $40,000 through
November 12, 1999. Beginning on the 40th and 80th months of the lease term, the
monthly base rent payable under the Iomega Lease will be increased to reflect an
amount equal to 100% of the increase in the Consumer Price Index (as defined in
the Iomega Lease) during the preceding 40 months; provided however, that in no
event shall the base rent be increased with respect to any one year by more than
6% or by less than 3% per annum, compounded annually, on a cumulative basis from
the beginning of the lease term. Under the Iomega Lease, Iomega is responsible
for all utilities, taxes, insurance and other operating costs with respect to
the Iomega Building during the term of the lease. The estimated annual real
estate taxes on the Iomega Building are $63,390. The Joint Venture, as landlord,
is responsible for
-2-
<PAGE>
maintenance of the structural soundness of the roof, foundation and exterior
walls of the Iomega Building, reasonable wear and tear and uninsured losses and
damages caused by Iomega excluded.
Iomega has used all of its $500,000 tenant improvement allowance provided
under the Iomega Lease for the construction of the 16,000 square foot two-level
office space addition described above and the addition of an additional parking
lot outside the south entrance of the Iomega Building.
Under the terms of the Iomega Lease, the IX-X-XI-REIT Joint Venture is
responsible for carrying and maintaining all risk liability insurance covering
the full replacement cost of the Iomega Building. Iomega is responsible for
carrying and maintaining all risk property insurance covering the full
replacement cost of all property and improvements installed or placed on the
premises by Iomega; worker's compensation insurance with no less than the
minimum limits required by law; employer's liability insurance with such limits
as required by law; and commercial liability insurance, with a minimum limit of
$1,000,000 per occurrence and a minimum umbrella limit of $1,000,000, for a
total minimum combined general liability and umbrella limit of $2,000,000 for
property damage, personal injuries or deaths occurring in or about the premises.
The cost of the insurance paid by the landlord is billed on a monthly basis to
the tenant at a rate of $334. Management believes that the Iomega Building is
adequately insured against loss for property damage, personal injury and deaths
of persons in or about the premises.
The Joint Ventures
The Fremont Joint Venture. In July 1998, Wells OP entered into a Joint
Venture Agreement known as Wells/Fremont Associates (the "Fremont Joint
Venture") with Wells Development. The purpose of the Fremont Joint Venture is
the acquisition, ownership, leasing, operation, sale and management of real
properties, including, but not limited to, that certain office building
containing 58,424 rentable square feet located in Fremont, Alameda County,
California (the "Fairchild Building").
Wells Development had previously entered into that certain Agreement for
the Purchase and Sale of Property dated June 8, 1998 with Rose Ventures V, Inc.,
a California corporation, and Thomas G. Haury and Carleen S. Haury to acquire
the Fairchild Building (the "Fairchild Contract"). Prior to the closing of the
Fairchild Building, Wells Development assigned its rights to the Fairchild
Contract to the Fremont Joint Venture, and on July 21, 1998, the Fremont Joint
Venture acquired the Fairchild Building pursuant to the Fairchild Contract.
The Cort Joint Venture. In July 1998, Wells OP entered into another Joint
Venture Agreement with Wells Development known as Wells/Orange County Associates
(the "Cort Joint Venture") for the purpose of the acquisition, ownership,
leasing, operation, sale and management of real properties, including, but not
limited to, that certain office building containing 52,000 rentable square feet
located in Fountain Valley, Orange County, California (the "Cort Furniture
Building").
Wells Development had previously entered into that certain Purchase and
Sale Agreement and Joint Escrow Instructions dated June 12, 1998 with Spencer
Fountain Valley Holdings, Inc., a California corporation ("Spencer"), to acquire
the Cort Furniture Building (the "Cort Contract"). Prior to the closing of the
Cort Furniture Building, Wells Development assigned its rights to the Cort
Contract to the Cort Joint Venture, and on July 31, 1998, the Cort Joint Venture
acquired the Cort Furniture Building pursuant to the Cort Contract.
The Fund X-XI Joint Venture. In July 1998, Wells Fund XI entered into a
Joint Venture Agreement with Wells Fund X known as Fund X and Fund XI Associates
(the "Fund X-XI Joint Venture") for the purpose of the acquisition, ownership,
leasing, operation, sale and management of real properties, and interests in
real properties, including, but not limited to, the acquisition of equity
interests in the Fremont Joint Venture and the Cort Joint Venture (as described
below).
-3-
<PAGE>
Wells OP is acting as the initial Administrative Venturer of both the
Fremont Joint Venture and the Cort Joint Venture and, as such, is responsible
for establishing policies and operating procedures with respect to the business
and affairs of each of these joint ventures. However, approval of each of Wells
OP and ultimately the Fund X-XI Joint Venture will be required for any major
decision or any action which materially affects the Fremont Joint Venture or the
Cort Joint Venture or its real property investments.
Contracts to Acquire Joint Venture Interests
Acquisition of the Fremont Joint Venture Interest. On July 17, 1998, the
Fund X-XI Joint Venture entered into an Agreement for the Purchase and Sale of
Joint Venture Interest (the "Fremont JV Contract") with Wells Development.
Pursuant to the Fremont JV Contract, the Fund X-XI Joint Venture contracted to
acquire Wells Development's interest in the Fremont Joint Venture (the "Fremont
JV Interest") which, at closing, will result in the Fund X-XI Joint Venture
becoming a joint venture partner with Wells OP in the ownership of the Fairchild
Building. Wells Fund X, Wells XI and Wells Development are all Affiliates of
Wells Capital, Inc. (the "Advisor") and the Company.
At the time of entering into the Fremont JV Contract, the Fund X-XI Joint
Venture delivered $2,000,000 to Wells Development as an earnest money deposit.
Wells Development contributed the earnest money it received from the Fund X-XI
Joint Venture to the Fremont Joint Venture as its initial capital contribution
of $2,000,000, and Wells OP simultaneously contributed $995,480 to the Fremont
Joint Venture as its initial capital contribution.
Acquisition of the Cort JV Interest. On July 30, 1998, the Fund X-XI Joint
Venture entered into another Agreement for the Purchase and Sale of Joint
Venture Interest (the "Cort JV Contract") with Wells Development. Pursuant to
the Cort JV Contract, the Fund X-XI Joint Venture contracted to acquire Wells
Development's interest in the Cort Joint Venture (the "Cort JV Interest") which,
at closing, will result in the Fund X-XI Joint Venture becoming a joint venture
partner with Wells OP in the ownership of the Cort Furniture Building.
At the time of entering into the Cort JV Contract, the Fund X-XI Joint
Venture delivered $1,500,000 to Wells Development as an earnest money deposit.
Wells Development contributed the earnest money it received from the Fund X-XI
Joint Venture to the Cort Joint Venture as its initial capital contribution of
$1,500,000, and Wells OP simultaneously contributed $168,000 to the Cort Joint
Venture as its initial capital contribution.
The Fairchild Building
Purchase of the Fairchild Building. On July 21, 1998, the Fremont Joint
Venture acquired the Fairchild Building pursuant to the Fairchild Contract for a
purchase price of $8,900,000. The Fremont Joint Venture incurred acquisition
expenses including legal fees, title insurance fees, loan origination fees,
appraisal fees and other closing costs of approximately $60,000. The Fremont
Joint Venture used the $2,995,480 aggregate capital contributions described
above to partially fund the purchase of the Fairchild Building. The Fremont
Joint Venture also obtained a loan in the amount of $5,960,000 from NationsBank,
N.A., the proceeds of which were used to fund the remainder of the cost of the
Fairchild Building (the "Fairchild Loan").
The Fairchild Loan. The Fairchild Loan matures on July 21, 1999 (the
"Fairchild Maturity Date"), unless the Fremont Joint Venture exercises its
option to extend the Fairchild Maturity Date to January 21, 2000. The interest
rate on the Fairchild Loan is a variable rate per annum equal to the rate
appearing on Telerate Page 3750 as the London InterBank Offered Rate (the "LIBOR
Rate") for a thirty day period plus 220 basis points. Commencing on September 1,
1998, and on the first day of each calendar month thereafter continuing through
and including the first day of the calendar month in which the Fairchild
Maturity Date occurs, the Fremont Joint Venture is required to pay to
NationsBank monthly installments of principal in the amount of $10,498 plus
accrued interest. The Fairchild Loan is secured by a first mortgage against the
Fairchild Building. In addition Leo F. Wells, III and Wells Development,
Affiliates of the Advisor and the Company, are co-guarantors of the Fairchild
Loan.
-4-
<PAGE>
Closing of the Fremont JV Interest. Under the Joint Venture Agreement of
the Fremont Joint Venture, cash flow distributions will be paid to Wells OP and
Wells Development in accordance with each such entity's equity interest in the
Fremont Joint Venture based upon each entity's relative capital contribution to
the Fremont Joint Venture. As of July 31, 1998, Wells OP held an approximately
33% equity interest and Wells Development held an approximately 67% equity
interest in the Fremont Joint Venture. As additional offering proceeds are
raised by the Wells REIT, it is anticipated that Wells OP will make additional
capital contributions to the Fremont Joint Venture, which will be utilized to
pay down the Fairchild Loan and will increase Wells OP's relative equity
interest (and decrease Wells Development's relative equity interest) in the
Fremont Joint Venture. Cash flow distributions payable by the Fremont Joint
Venture to Wells Development shall be credited as a purchase price adjustment or
paid to the Fund X-XI Joint Venture at the closing of the acquisition of the
Fremont JV Interest from Wells Development, since Wells Development is
prohibited from making any profit on the transaction during the holding period.
At such time as sufficient funds have been raised, either in the Fund X-XI
Joint Venture or the Wells REIT, or a combination thereof, to pay off the
Fairchild Loan, the Fund X-XI Joint Venture shall close the acquisition of the
Fremont JV Interest. This closing shall take place on or before July 21, 1999;
however, the Fund X-XI Joint Venture has the right to extend the closing date
for two successive periods of six months if sufficient cash has not been raised
to pay off the Fairchild Loan. At the conclusion of such transaction, the Fund
X-XI Joint Venture will be admitted to the Fremont Joint Venture as a joint
venturer partner in the place of Wells Development. The ultimate equity
percentage interests in the Fremont Joint Venture to be owned by Wells OP and
the Fund X-XI Joint Venture are dependent upon the amount of offering proceeds
which are raised in the future by the Company and by Wells Fund XI and,
accordingly, are indeterminable at this time.
Description of the Fairchild Building. The Fairchild Building is a
two-story office and manufacturing building with 58,424 rentable square feet.
The Fairchild Building is composed of painted concrete tilt-up wall panels,
plaster walls with a clay tile covered mansard roof on the building's west and
north sides and aluminum framed windows. Construction of the Fairchild Building
was completed in 1985.
The Fairchild Building is located at 47320 Kato Road on the corner of Kato
Road and Auburn Road in the City of Fremont, California. The site is
approximately 3.05 acres and is located in a commercial area composed of similar
use buildings. The parking area surrounds the Fairchild Building and contains
approximately 184 paved parking spaces.
An independent appraisal of the Fairchild Building was prepared by CB
Richard Ellis Appraisal Services, a division of CB Commercial, as of June 29,
1998, pursuant to which the market value of the land and the leased fee interest
in the Fairchild Building subject to the Fairchild Lease (described below) was
estimated to be $8,900,000. The value estimate contained in this appraisal was
based upon a number of assumptions, including that the Fairchild Building will
continue operating at a stabilized level with Fairchild occupying 100% of the
rentable areas, and is not necessarily an accurate reflection of the fair market
value of the property. The Fremont Joint Venture also obtained an environmental
report prior to closing evidencing that the environmental condition of the land
encompassing the Fairchild Building was satisfactory.
Fremont is considered Alameda County's extension of Silicon Valley as it
is home to a large number of high-technology manufacturing and new product
development companies. Fremont, which is the second largest city in Alameda
County and the fourth largest city in the Bay Area with a population of
approximately 190,000, is 25 miles south of Oakland and 15 miles north of San
Jose along Interstate 880. Fremont encompasses approximately 94 square miles and
is the largest source of current and future growth and development in Alameda
County due to its abundance of land relative to other areas and its location on
the fringe of Silicon Valley.
The Fremont Joint Venture will experience competition for its current
tenant from owners and managers of various other office and manufacturing
buildings located in the immediate area of the Fairchild Building, which
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<PAGE>
could adversely affect the Fremont Joint Venture's ability to retain Fairchild
as a tenant, and if necessary in the future, to attract and retain other
tenants.
The Fairchild Lease. The entire 58,424 rentable square feet of the
Fairchild Building is currently under a net lease agreement dated September 19,
1997 (the "Fairchild Lease") with Fairchild Technologies U.S.A., Inc.
("Fairchild"). Fairchild took early possession of the second floor of the
Fairchild Building on October 1, 1997 at a monthly base rental of $22,456. The
Fairchild Lease commenced on December 1, 1997 (the "Rental Commencement Date")
and expires on November 30, 2004, subject to Fairchild's right to extend the
Fairchild Lease for an additional five-year period. Fairchild must give written
notice of its intention to exercise said option not more than 180 days and not
less than 90 days before the last day of the initial term of the Fairchild
Lease. In the event that Fairchild vacates the Fairchild Building at the
expiration of its current lease term, the Fremont Joint Venture would be
required to find one or more new suitable tenants for the Fairchild Building at
the then prevailing market rental rates.
Fairchild is a global leader in the design and manufacture of production
equipment for semiconductor and compact disk manufacturing. The semiconductor
equipment group recently unveiled a new line of semiconductor wafer processing
equipment which will provide alternatives to the traditional semiconductor chip
production methods.
Fairchild is a wholly-owned subsidiary of the Fairchild Corporation, a
Delaware corporation ("Fairchild Corp"). Fairchild Corp is the largest aerospace
fastener and fastening system manufacturer and is one of the largest independent
aerospace parts distributors in the world. Fairchild Corp is a leading supplier
to aircraft manufacturers such as Boeing, Airbus, Lockheed Martin, British
Aerospace and Bombardier and to airlines such as Delta Airlines and U.S.
Airways. The aerospace fastener segment accounted for approximately 51.4% of the
company's net sales and the aerospace parts distribution segment accounted for
approximately 35.9% of the company's net sales in fiscal year 1997. The
obligations of Fairchild under the Fairchild Lease are guaranteed by Fairchild
Corp, which reported total consolidated sales of in excess of $680 Million and a
net worth of in excess of $232 Million for its fiscal year ended June 30, 1997.
The monthly base rent payable under the Fairchild Lease is $68,128 through
November 30, 1998. On each one-year anniversary of the Rental Commencement Date,
the monthly base rent in effect for the preceding year shall be adjusted upward
by a 3% increase. The monthly base rent during the first year of the extended
term of the Fairchild Lease, if exercised by Fairchild, shall be 95% of the then
fair market rental value of the Fairchild Building subject to the annual 3%
increase adjustments. If Fairchild and the Fremont Joint Venture are unable to
agree upon the fair rental value for the extended lease term, each party shall
select an appraiser and the two appraisers shall establish the rent by
agreement. Under the Fairchild Lease, Fairchild is responsible for all
utilities, taxes, insurance and other operating costs with respect to the
Fairchild Building during the term of the Fairchild Lease. Currently, the annual
real estate taxes for the Fairchild Building are approximately $37,000. The
Fremont Joint Venture, as landlord, is responsible for the maintenance and
repair of the structural elements of the roof, bearing walls and foundation of
the Fairchild Building.
Under the terms of the Fairchild Lease, Fairchild is required to carry and
maintain, at its own cost and expense, certain types of insurance in form
acceptable to the Fremont Joint Venture, naming the Fremont Joint Venture as an
additional insured. With respect to insurance against loss or damage to the
Fairchild Building, Fairchild is required to name the Fremont Joint Venture as
loss payee under its policy. Among other types of insurance, the Fairchild Lease
requires that Fairchild maintain liability insurance coverage covering the
leased premises and Fairchild's use thereof against claims for personal injury,
death, property damage and product liability, in single limit amounts of not
less than $2,000,000 per occurrence, and an equivalent form of insurance against
loss or damage of the Fairchild Building, including earthquake insurance, in an
amount not less than 100% of the actual replacement value of the building and
improvements thereto. Management believes that the Fairchild Building is
adequately insured against loss for property damage, personal injury and deaths
of persons in or about the premises.
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<PAGE>
The Cort Furniture Building
Purchase of the Cort Furniture Building. On July 31, 1998, the Cort Joint
Venture acquired the Cort Furniture Building pursuant to the Cort Contract for a
purchase price of $6,400,000. The Cort Joint Venture incurred acquisition
expenses including legal fees, title insurance fees, loan origination fees,
appraisal fees and other closing costs of approximately $63,000. In addition, at
closing, the Cort Joint Venture paid $85,000 in real estate brokerage
commissions to Collins Commercial and Daum Commercial Real Estate, neither of
which are affiliated in any way with the Company or the Advisor. The Cort Joint
Venture used the $1,668,000 aggregate capital contributions to partially fund
the purchase of the Cort Furniture Building. The Cort Joint Venture also
obtained a loan in the amount of $4,875,000 from NationsBank, N.A., the proceeds
of which were used to fund the remainder of the cost of the Cort Furniture
Building (the "Cort Loan").
The Cort Loan. The Cort Loan matures on July 31, 1999 (the "Cort Maturity
Date"), unless the Cort Joint Venture exercises its option to extend the Cort
Maturity Date to January 31, 2000. The interest rate on the Cort Loan is a
variable rate per annum equal to the rate appearing on Telerate Page 3750 as the
LIBOR Rate for a thirty day period plus 220 basis points. Commencing on
September 1, 1998, and on the first day of each calendar month thereafter
continuing through and including the first day of the calendar month in which
the Cort Maturity Date occurs, the Cort Joint Venture is required to pay to
Nationsbank monthly installments of principal in the amount of $8,587 plus
accrued interest. The Cort Loan is secured by a first mortgage against the Cort
Furniture Building. Leo F. Wells, III and Wells Development are also
co-guarantors of the Cort Loan.
Closing of the Cort JV Interest. Under the Joint Venture Agreement of the
Cort Joint Venture, cash flow distributions will be paid to Wells OP and Wells
Development in accordance with each such entity's equity interest in the Cort
Joint Venture based upon each entity's relative capital contribution to the Cort
Joint Venture. As of July 31, 1998, Wells Development held an approximately 90%
equity interest and Wells OP held an approximately 10% equity interest in the
Cort Joint Venture. As additional offering proceeds are raised by the Wells
REIT, it is anticipated that Wells OP will make additional capital contributions
to the Cort Joint Venture, which will be utilized to pay down the Cort Loan and
will increase Wells OP's relative equity interest (and decrease Wells
Development's relative equity interest) in the Cort Joint Venture. Cash flow
distributions payable by the Cort Joint Venture to Wells Development shall be
credited as a purchase price adjustment or paid to the Fund X-XI Joint Venture
at the closing of the acquisition of the Cort JV Interest from Wells
Development, since Wells Development is prohibited from making any profit on the
transaction during the holding period.
At such time as sufficient funds have been raised, either in the Fund X-XI
Joint Venture or the Company, or a combination thereof, to pay off the Cort Loan
on the Cort Furniture Building, the Fund X-XI Joint Venture shall close the
acquisition of the Cort JV Interest. This closing shall take place on or before
July 31, 1999; however, the Fund X-XI Joint Venture has the right to extend the
closing date for two successive periods of six months if sufficient cash has not
been raised to pay off the Cort Loan. At the conclusion of such transaction, the
Fund X-XI Joint Venture will be admitted to the Cort Joint Venture as a joint
venture partner in the place of Wells Development. The ultimate equity
percentage interests in the Cort Joint Venture to be owned by Wells OP and the
Fund X-XI Joint Venture are dependent upon the amount of offering proceeds which
are raised in the future by the Company and by Wells Fund XI and, accordingly,
are indeterminable at this time.
Description of the Cort Furniture Building. The Cort Furniture Building is
a single-story office and warehouse building with 52,000 rentable squire feet
comprised of an 18,000 square foot office and open showroom area and a 34,000
square foot warehouse area. The Cort Furniture Building's foundation is shallow
reinforced concrete spread footings under load bearing columns with floor slabs
consisting of four inch thick reinforced concrete slab. The exterior walls of
the Cort Furniture Building are load bearing concrete tilt-wall panels. The roof
framing is composed of one-half inch thick plywood decking supported by glu-lam
beams and wood joyces. The main entrance of the Cort Furniture Building consists
of covered walkways. The site contains approximately 150 paved parking spaces.
Construction of the Cort Furniture Building was completed in 1975.
-7-
<PAGE>
An independent appraisal of the Cort Furniture Building was prepared by
Cushman Wakefield, real estate appraisers and consultants, as of July 1, 1998,
pursuant to which the market value of the land and the leased fee interest in
the Cort Furniture Building subject to the Cort Furniture Lease (described
below) was estimated to be $6,400,000. The value estimate contained in this
appraisal was based upon a number of assumptions, including that the Cort
Furniture Building will continue operating at a stabilized level with Cort
occupying 100% of the rentable areas, and is not necessarily an accurate
reflection of the fair market value of the property. The Cort Joint Venture also
obtained an environmental report prior to closing evidencing that the
environmental condition of the land encompassing the Cort Furniture Building was
satisfactory.
The Cort Furniture Building is located at 10700 Spencer Street on the
southeast corner of Spencer Avenue and Mt. Langley Street adjacent on the south
side to Interstate 405 (with good freeway exposure) located in the City of
Fountain Valley, Orange County, California. The site consists of two parcels of
land totalling approximately 3.65 acres and is located in an established,
built-out industrial pocket within the southeastern region of the city. The site
is located approximately four miles West of the John Wayne Airport.
Fountain Valley is considered an established bedroom community which is
characterized by a family-oriented, affluent resident population. The city is
located on the fringe of one of the county's major regional employment centers.
Most development within the immediate area consists of mid-sized warehouse
distribution facilities, garden office buildings, corporate headquarter
facilities, small incubator industrial parks and various retail showroom
buildings. Fountain Valley encompasses approximately 9.75 square miles and is
considered to be in the stable stage of its life cycle with relatively little
vacant land parcels available for development. While the population of Fountain
Valley as of 1997 was approximately 55,000 residents, Orange County had a
population in excess of 2.6 million. Orange County employs about 10% of the
state's workers despite having only about 8% of the state's population.
The Cort Joint Venture will experience competition for its current tenant
from owners and managers from various other office and warehouse buildings
located in the immediate area of the Cort Furniture Building which could
adversely affect the Cort Joint Venture's ability to retain Cort as a tenant,
and if necessary in the future, to attract and retain other tenants.
The Cort Furniture Lease. The entire 52,000 rentable square feet of the
Cort Furniture Building is currently under a net lease agreement dated October
25, 1988 (The "Cort Furniture Lease") with Cort Furniture Rental Corporation, a
New York corporation ("Cort"). Cort uses the Cort Furniture Building as its
regional corporate headquarters with an attached clearance showroom and
warehouse storage areas. The Cort Furniture Building was originally developed
for and occupied by Mary Kay Cosmetics as their regional corporate headquarters.
In March 1988, the Cort Furniture Building was leased to Cort. Subsequently,
Cort exercised an option to purchase the property in mid-1988. In October 1988,
Cort sold the property to Spencer and leased back the property for a 15 year
term at an initial lease rate of $0.914 per square foot per month (on a triple
net basis).
The Cort Furniture Lease commenced on November 1, 1988 (the "Rental
Commencement Date") and contains a lease term of 15 years expiring on October
31, 2003. Cort has an option to extend the Cort Furniture Lease for an
additional five-year period of time. Such option must be exercised by Cort in a
written notice delivered to the Cort Joint Venture at least one year prior to
the expiration of the then current lease term. In the event that Cort vacates
the Cort Furniture Building at the expiration of its current lease term, the
Cort Joint Venture would be required to find one or more suitable tenants for
the Cort Furniture Building at the then prevailing market rental rates.
Cort is a wholly owned subsidiary of Cort Business Services Corporation, a
New York Stock Exchange Company trading under the symbol CBZ ("Cort Business
Services"). Cort Business Services is the largest and only national provider of
high-quality office and residential rental furniture and related accessories.
Cort Business Services has operations that cover 32 states and the District of
Columbia, including 109 rental showrooms, 72 clearance centers and 72
distribution centers. The obligations of Cort under the Cort Furniture Lease are
guaranteed
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<PAGE>
by Cort Business Services, which reported net income of in excess of $22 million
on total consolidated revenue of in excess of $287 million, and reported a net
worth of in excess of $149 million for its fiscal year ended December 31, 1997.
The monthly base rent payable under the Cort Furniture Lease is $63,247
through April 30, 2001 at which time the monthly base rent will be increased 10%
to $69,574 for the remainder of the lease term. The monthly base rent during the
first year of the extended term shall be 90% of the then fair market rental
value of the Cort Furniture Building, but will be no less than the rent in the
15th year of the Cort Furniture Lease. If Cort and the Cort Joint Venture are
unable to agree upon a fair rental value for the extended lease term, each party
shall select an appraiser and the two appraisers shall provide appraisals on the
Cort Furniture Building. If the appraisal values established are within 10% of
each other, the average of such appraised value shall be the fair market rental
value. If said appraisals are varied by more than 10%, the two appraisers shall
appoint a third appraiser and the middle appraisal of the three shall be the
fair rental value. Under the Cort Furniture lease, Cort is responsible for all
utilities, taxes, insurance and other operating costs with respect to the Cort
Furniture Building during the term of the Cort Furniture Lease. The estimated
annual real estate taxes on the Cort Furniture Building are $38,040. The Cort
Joint Venture, as landlord, is responsible for the maintenance and repair of the
structural portions of the exterior walls and the foundation of the Cort
Furniture Building, but shall not include painting or installing, maintaining or
repairing wall or floor coverings.
Under the terms of the Cort Furniture Lease, the Cort Joint Venture is
responsible for carrying and maintaining liability insurance covering the leased
premises including claims for personal injury, death, property damage and
product liability, in single limit amounts of not less than $1,000,000. The
insurance against property damage to the Cort Furniture Building shall be in an
amount not less than 100% of the actual replacement value of the building and
improvements thereto. The cost of said insurance is billed on a monthly basis to
the tenant. Cort is required to maintain property insurance for its personal
property on the premises, including all inventory, equipment, fixtures and
tenant improvements that have not become a part of the premises, in an amount
equal to the full replacement value of such personal property. Pursuant to the
terms of the Cort Loan, the Cort Joint Venture is required to carry and maintain
earthquake insurance on the Cort Furniture Building for the full replacement
value of the building. Management believes that the Cort Furniture Building is
adequately insured against loss for property damage, personal injury and deaths
of persons in or about the premises.
Property Management Fees
Iomega Building. Wells Management Company, Inc. ("Wells Management"), an
Affiliate of the Advisor and the Company, has been retained to manage and lease
all of the properties currently owned by the IX-X-XI-REIT Joint Venture,
including the Iomega Building. While Wells Fund XI and the Company 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 August 1, 1998, Wells Fund IX
and Wells Fund X held an aggregate 89.4% ownership percentage interest in the
IX-X-XI-REIT Joint Venture, while Wells Fund XI and the Company held an
aggregate 10.6% ownership percentage interest in the IX-X-XI-REIT Joint Venture,
89.4% of the gross revenues of the IX-X-XI-REIT Joint Venture are subject to a
6% property management and leasing fee, while 10.6% of the gross revenues of the
IX-X-XI-REIT Joint Venture are subject to a 4.5% property management and leasing
fee.
Fairchild and Cort Furniture Buildings. Wells Management has also been
retained to manage and lease the Fairchild Building and the Cort Furniture
Building. The Fremont Joint Venture and the Cort Joint Venture shall each pay
4.5% of gross revenues of these buildings to Wells Management for property
management and leasing services.
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<PAGE>
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 August 10, 1998, the Company had raised a total of
$5,739,061 in offering proceeds (573,906 Shares). After the payment of
$200,867 in acquisition and advisory fees and acquisition expenses, the
payment of $717,382 in selling commissions and organizational and offering
expenses, capital contributions of $1,421,466 to the IX-X-XI-REIT Joint
Venture, capital contributions of $995,480 to the Fremont Joint Venture
and capital contributions of $168,000 to the Cort Joint Venture, as of
August 10, 1998, the Company was holding net offering proceeds of
$2,235,866 available for investment in additional properties.
Financial Statements
The financial statements of the Iomega Building, the Fairchild Building
and the Cort Furniture Building for the year ended December 31, 1997, included
herein as Appendix I to this Supplement No. 3, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein upon the authority of said firm as
experts in giving said reports. The pro forma financial information for Wells
Real Estate Investment Trust, Inc. for the year ended December 31, 1997 and for
the six month period ended June 30, 1998, and the financial statements of the
Iomega Building, the Fairchild Building and the Cort Furniture Building for the
six month period ended June 30, 1998, which are included in Appendix I to this
Supplement No. 3, have not been audited.
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<PAGE>
APPENDIX F
INDEX TO FINANCIAL STATEMENTS
Page
----
Iomega Building
Audited Financial Statements
Report of Independent Public Accountants F-1
Statement of Revenues Over Certain Operating Expenses for
the year ended December 31, 1997 (Audited) and for the six
months ended June 30, 1998 (Unaudited) F-2
Notes to Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1997 (Audited) and for the
six months ended June 30, 1998 (Unaudited) F-3
Cort Furniture Building
Audited Financial Statements
Report of Independent Public Accountants F-5
Statement of Revenues Over Certain Operating Expenses for
the year ended December 31, 1997 (Audited) and for the six
months ended June 30, 1998 (Unaudited) F-6
Notes to Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1997 (Audited) and for the six
months ended June 30, 1998 (Unaudited) F-7
Fairchild Building
Audited Financial Statements
Report of Independent Public Accountants F-9
Statement of Revenues Over Certain Operating Expenses for
the year ended December 31, 1997 (Audited) and for the six
months ended June 30, 1998 (Unaudited) F-10
Notes to Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1997 (Audited) and for the six
months ended June 30, 1998 (Unaudited) F-11
Wells Real Estate Investment Trust, Inc.
Unaudited Pro Forma Financial Statements
Summary of Unaudited Pro Forma Financial Statements F-13
Pro Forma Balance Sheet as of June 30, 1998 F-14
Pro Forma Statement of Income (Loss) for the year ended
December 31, 1997 F-15
Pro Forma Statement of Income for the six months ended
June 30, 1998 F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund XI, L.P. and
Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the IOMEGA BUILDING for the year ended December 31, 1997. 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 certain 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 certain 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 Iomega
Building after acquisition by Fund IX, X, XI, and REIT Joint Venture (a joint
venture between Wells Real Estate Fund IX, L.P., Wells Real Estate Fund X, L.P.,
Wells Real Estate Fund XI, L.P. and Wells Operating Partnership, L.P.). The
accompanying statement of revenues over certain 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
Iomega Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Iomega Building for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 6, 1998
F-1
<PAGE>
IOMEGA BUILDING
STATEMENTS OF REVENUES OVER CERTAIN
OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
1997 1998
======== ========
(Unaudited)
RENTAL REVENUES $552,828 $276,414
OPERATING EXPENSES, net of reimbursements (1,426) 9,750
-------- --------
REVENUES OVER CERTAIN OPERATING EXPENSES $554,254 $266,664
======== ========
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
IOMEGA BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On July 1, 1998, Wells Real Estate Fund X, L.P. ("Fund X") contributed a
single-story warehouse and office building with 108,000 rentable square
feet (the "Iomega Building") to the Fund IX, Fund X, Fund XI, and REIT
Joint Venture ("IX-X-XI-REIT Joint Venture") (a Georgia joint venture) as
a capital contribution. Fund X was credited with making a capital
contribution to the IX-X-XI-REIT Joint Venture in the amount of
$5,050,425, which represents the purchase price of $5,025,000 plus
acquisition expenses of $25,425 originally paid by Fund X for the Iomega
Building on April 1, 1998. As of August 1, 1998, Fund X had made total
capital contributions to the IX-X-XI-REIT Joint Venture of $18,410,965 and
held an equity percentage interest in the IX-X-XI-REIT Joint Venture of
49.9%; Wells Real Estate Fund IX, L.P. had made total capital
contributions to the IX-X-XI-REIT Joint Venture of $14,571,686 and held an
equity percentage interest in the IX-X-XI-REIT Joint Venture of 39.5%;
Wells Operating Partnership, L.P. had made total capital contributions to
the IX-X-XI-REIT Joint Venture of $1,421,466 and held an equity percentage
interest in the IX-X-XI-REIT Joint Venture of 3.9%; and Wells Real Estate
Fund XI, L.P. had made total capital contributions to the IX-X-XI-REIT
Joint Venture of $2,482,810 and held an equity percentage interest in the
IX-X-XI-REIT Joint Venture of 6.7%.
The building is 100% occupied by one tenant with a ten year lease term
that expires on July 31, 2006. The monthly base rent payable under the
lease is $40,000 through November 12, 1999. Beginning on the 40th and 80th
months of the lease term, the monthly base rent payable under the lease
will be increased to reflect an amount equal to 100% of the increase in
the Consumer Price Index (as defined in the lease) during the preceding 40
months; provided however, that in no event shall the base rent be
increased with respect to any one year by more than 6% or by less than 3%
per annum, compounded annually, on a cumulative basis from the beginning
of the lease term. The lease is a triple net lease, whereby the terms
require the tenant to reimburse the IX-X-XI-REIT Joint Venture for certain
operating expenses, as defined in the lease, related to the building.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over
the life of the lease.
F-3
<PAGE>
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
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 and
management fees, not comparable to the operations of the Iomega Building
after acquisition by the IX-X-XI REIT Joint Venture.
F-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund XI, L.P. and
Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the CORT FURNITURE BUILDING for the year ended December 31, 1997.
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 certain 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 certain 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 Cort
Furniture Building after acquisition by the Cort Joint Venture (a joint venture
between Wells Operating Partnership, L.P. and Wells Development Corporation).
The accompanying statement of revenues over certain 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 Cort Furniture Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Cort Furniture Building for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 6, 1998
F-5
<PAGE>
CORT FURNITURE BUILDING
STATEMENTS OF REVENUES OVER CERTAIN
OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
1997 1998
======== ========
(Unaudited)
RENTAL REVENUES $771,618 $385,809
OPERATING EXPENSES 16,408 4,104
-------- --------
REVENUES OVER CERTAIN OPERATING EXPENSES $755,210 $381,705
======== ========
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CORT FURNITURE BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
The Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited
partnership organized to own and operate properties on behalf of the Wells
Real Estate Investment Trust, Inc, entered into a Joint Venture Agreement
known as Wells/Orange County Associates ("Cort Joint Venture") with Wells
Development Corporation. On July 31, 1998, the Cort Joint Venture acquired
the Cort Furniture Building, a 52,000-square-foot warehouse and office
building located in Fountain Valley, California, for a purchase price of
$6,400,000 plus acquisition expenses of approximately $150,000. The Cort
Joint Venture used the $1,668,000 aggregate capital contributions
described below to partially fund the purchase of the Cort Furniture
Building. The Cort Joint Venture obtained a loan in the amount of
$4,875,000 from NationsBank, N.A., the proceeds of which were used to fund
the remainder of the cost of the Cort Furniture Building (the "Cort
Loan"). The Cort Loan matures on July 31, 1999 (the "Cort Maturity Date"),
unless the Cort Joint Venture exercises its option to extend the Cort
Maturity Date to January 31, 2000. The interest rate on the Cort Loan is a
variable rate per annum equal to the rate appearing on Telerate Page 3750
as the LIBOR Rate for 30-day period plus 220 basis points.
The building is 100% occupied by one tenant with a 15-year lease term that
commenced on November 1, 1988 and expires on October 31, 2003. The monthly
base rent payable under the lease is $63,247 through April 30, 2001 at
which time the monthly base rent will be increased 10% to $69,574 for the
remainder of the lease term. The lease is a triple net lease, whereby the
terms require the tenant to reimburse the Cort Joint Venture for certain
operating expenses, as defined in the lease, related to the building.
Acquisition of the Cort Joint Venture Interest
Wells Real Estate Fund XI, L.P. ("Wells Fund XI") entered into a Joint
Venture Agreement with Wells Real Estate Fund X, L.P. ("Wells Fund X")
known as Fund X and Fund XI Associates ("Fund X-XI Joint Venture") for the
purpose of the acquisition, ownership, leasing, operation, sale and
management of real properties, and interests in real properties, including
but not limited to, the acquisition of equity interests in the Cort Joint
Venture.
F-7
<PAGE>
On July 30, 1998, the Fund X-XI Joint Venture entered into an Agreement
for the Purchase and Sale of Joint Venture Interest (the "Cort JV
Contract") with Wells Development. Pursuant to the Cort JV Contract, the
Fund X-XI Joint Venture contracted to acquire Wells Development's interest
in the Cort Joint Venture (the "Cort JV Interest") which, at closing, will
result in the Fund X-XI Joint Venture becoming a joint venture partner
with Wells OP in the ownership of the Cort Furniture Building. Wells Fund
X, Wells OP and Wells Development are all affiliates of Wells Fund XI.
At the time of entering into the Cort JV Contract, the Fund X-XI Joint
Venture delivered $1,500,000 to Wells Development as an earnest money
deposit (the "Cort Earnest Money"). Wells Fund XI contributed $750,000 of
the Cort Earnest Money as a capital contribution to the Fund X-XI Joint
Venture and, as of July 31, 1998, held an equity percentage interest in
the Fund X-XI Joint Venture of 50%; and Wells Fund X contributed $750,000
of the Cort Earnest Money as a capital contribution to the Fund X-XI Joint
Venture and, as of July 31, 1998, held an equity percentage interest in
the Fund X-XI Joint Venture of 50%. Wells Development contributed the Cort
Earnest Money it received from the Fund X-XI Joint Venture to the Cort
Joint Venture as its initial capital contribution, and Wells OP
simultaneously contributed $168,000 to the Cort Joint Venture as its
initial capital contribution.
Cash flow distributions allocable by the Cort Joint Venture to Wells
Development will be credited as a purchase price adjustment or paid to the
Fund X-XI Joint Venture at the closing of the acquisition of the Cort JV
Interest from Wells Development since Wells Development is prohibited from
making any profit on the transaction during the holding period. The Fund
X-XI Joint Venture will have no property rights in the Cort Building prior
to closing nor any potential liability on the Cort Loan, which will be
paid off prior to closing.
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 certain operating expenses is
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 interest,
depreciation, and management fees, not comparable to the operations of the
Cort Furniture Building after acquisition by the Cort Joint Venture.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund XI, L.P. and
Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the FAIRCHILD BUILDING for the year ended December 31, 1997. 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 certain 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 certain 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
Fairchild Building after acquisition by the Fremont Joint Venture (a joint
venture between Wells Operating Partnership, L.P. and Wells Development
Corporation). The accompanying statement of revenues over certain 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 Fairchild Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Fairchild Building for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 6, 1998
F-9
<PAGE>
FAIRCHILD BUILDING
STATEMENTS OF REVENUES OVER CERTAIN
OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
1997 1998
======== ========
(Unaudited)
RENTAL REVENUES $220,090 $440,178
OPERATING EXPENSES 67,573 10,420
-------- --------
REVENUES OVER CERTAIN OPERATING EXPENSES $152,517 $429,758
======== ========
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
FAIRCHILD BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
The Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited
partnership organized to own and operate properties on behalf of the Wells
Real Estate Investment Trust, Inc., entered into a Joint Venture Agreement
known as Wells/Fremont Associates ("Fremont Joint Venture") with Wells
Development Corporation. On July 21, 1998, the Fremont Joint Venture
acquired the Fairchild Building, a 58,424-square-foot warehouse and office
building located in Fremont, California, for a purchase price of
$8,900,000 plus acquisition expenses of approximately $60,000. The Fremont
Joint Venture used the $2,995,480 aggregate capital contributions
described below to partially fund the purchase of the Fairchild Building.
The Fremont Joint Venture obtained a loan in the amount of $5,960,000 from
NationsBank, N.A., the proceeds of which were used to fund the remainder
of the cost of the Fairchild Building (the "Fairchild Loan"). The
Fairchild Loan matures on July 21, 1999 (the "Fairchild Maturity Date"),
unless the Fremont Joint Venture exercises its option to extend the
Fairchild Maturity Date to January 21, 2000. The interest rate on the
Fairchild Loan is a variable rate per annum equal to the rate appearing on
Telerate Page 3750 as the LIBOR Rate for a 30-day period plus 220 basis
points.
The building is 100% occupied by one tenant with a seven-year lease term
that commenced on December 1, 1997 (with an early possession date of
October 1, 1997) and expires on November 30, 2004. The monthly base rent
payable under the lease is $68,128 with a 3% increase on each anniversary
of the commencement date. The lease is a triple net lease, whereby the
terms require the tenant to reimburse Wells/Fremont for certain operating
expenses, as defined in the lease, related to the building. Prior to
October 1, 1997, the building was unoccupied and all operating expenses
were paid by the former owner of the Fairchild Building.
Acquisition of the Fremont Joint Venture Interest
Wells Real Estate Fund XI, L.P. ("Wells Fund XI") entered into a Joint
Venture Agreement with Wells Real Estate Fund X, L.P. ("Wells Fund X")
known as Fund X and Fund XI Associates ("Fund X-XI Joint Venture") for the
purpose of the acquisition, ownership, leasing, operation, sale and
management of real properties, and interests in real properties,
F-11
<PAGE>
including but not limited to, the acquisition of equity interests in the
Fremont Joint Venture.
On July 17, 1998, the Fund X-XI Joint Venture entered into an Agreement
for the Purchase and Sale of Joint Venture Interest (the "Fremont JV
Contract") with Wells Development. Pursuant to the Fremont JV Contract,
the Fund X-XI Joint Venture contracted to acquire Wells Development's
interest in the Fremont Joint Venture (the "Freemont JV Interest") which,
at closing, will result in the Fund X-XI Joint Venture becoming a joint
venture partner with Wells OP in the ownership of the Fairchild Building.
Wells Fund X, Wells OP and Wells Development are all affiliates of Wells
Fund XI.
At the time of the entering into the Fremont JV Contract, the Fund X-XI
Joint Venture delivered $2,000,000 to Wells Development as an earnest
money deposit (the "Fremont Earnest Money"). Wells Fund XI contributed
$1,000,000 of the Fremont Earnest Money as a capital contribution to the
Fund X-XI Joint Venture and, as of July 21, 1998, held an equity
percentage interest in the Fund X-XI Joint Venture of 50%; and Wells Fund
X contributed $1,000,000 of the Fremont Earnest Money as a capital
contribution to the Fund X-XI Joint Venture and, as of July 21, 1998, held
an equity percentage interest in the Fund X-XI Joint Venture of 50%. Wells
Development contributed the Fremont Earnest Money it received from the
Fund X-XI Joint Venture to the Fremont Joint Venture as its initial
capital contribution, and Wells OP simultaneously contributed $995,480 to
the Fremont Joint Venture as its initial capital contribution.
Cash flow distributions allocable by the Fremont Joint Venture to Wells
Development will be credited as a purchase price adjustment or paid to the
Fund X-XI Joint Venture at the closing of the acquisition of the Fremont
JV Interest from Wells Development since Wells Development is prohibited
from making any profit on the transaction during the holding period. The
Fund X-XI Joint Venture will have no property rights in the Fairchild
Building prior to closing nor any potential liability on the Fairchild
Loan, which will be paid off prior to closing.
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 certain operating expenses is
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 interest,
depreciation, and management fees, not comparable to the operations of the
Fairchild Building after acquisition by Wells/Fremont.
F-12
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
(Unaudited Pro Forma Financial Statements)
The following unaudited pro forma balance sheet as of June 30, 1998 and the pro
forma statements of (loss) income for the year ended December 31, 1997 and six
months ended June 30, 1998 have been prepared to give effect to the following
transaction as if each occurred as of June 30, 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 adjusted equity interest in the
Fund IX, Fund X, Fund XI, and REIT Joint Venture ("Joint Venture") (a joint
venture between Wells Real Estate Fund IX, L.P., Wells Real Estate Fund X, L.P.,
Wells Real Estate Fund XI, L.P., and Wells Operating Partnership, L.P. and
formerly Fund IX--Fund X Associates) after giving effect to the Joint Venture's
acquisition of the Lucent Building and the contribution by Wells Real Estate
Fund X, L.P. of the Iomega Building to the Joint Venture; (ii) the acquisition
of the Cort Furniture Building by Wells/Orange County Associates (a joint
venture between Wells Operating Partnership, L.P. and Wells Development
Corporation), and (iii) the acquisition of the Fairchild Building by
Wells/Fremont Associates (a joint venture between Wells Operating Partnership,
L.P. and Wells Development Corporation).
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.
F-13
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
Wells ----------------------------------
Real Estate Cort
Investment Fairchild Furniture Pro Forma
Trust, Inc. Building Building Total
=========== =============== ================ ===========
<S> <C> <C> <C> <C>
ASSETS:
Investment in joint venture $ 1,472,065 $ 1,039,082(a) $ 175,001(d) $ 2,686,148
Cash and cash equivalents 1,112,656 (995,480)(b) (117,176)(e) 0
Deferred project costs 34,651 (34,651)(c) 0 0
Deferred offering costs 604,201 0 0 604,201
Due from affiliates 15,307 0 0 15,307
Prepared expenses and other assets 10,000 0 0 10,000
----------- --------------- ---------------- -----------
Total assets 3,248,880 8,951 57,825 3,315,656
=========== =============== ================ ===========
LIABILITIES:
Sales commission payable 33,675 0 0 33,675
Due to affiliate 655,160 8,951(c) 57,825(e,f) 721,936
----------- --------------- ---------------- -----------
Total liabilities 688,835 8,951 57,825 755,611
----------- --------------- ---------------- -----------
MINORITY INTEREST OF UNIT HOLDER IN
OPERATING PARTNERSHIP 200,000 0 0 200,000
----------- --------------- ---------------- -----------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 40,000,000 shares
authorized, 268,459 shares issued and outstanding 2,685 0 0 2,685
Additional paid-in capital 2,346,461 0 0 2,346,461
Retained earnings 10,899 0 0 10,899
----------- --------------- ---------------- -----------
Total shareholder's equity 2,360,045 0 0 2,360,045
----------- --------------- ---------------- -----------
Total liabilities and shareholder's equity $ 3,248,880 $ 8,951 $ 57,825 $ 3,315,656
=========== =============== ================ ===========
</TABLE>
(a) Reflects Wells Operating Partnership, L.P.'s contribution to
Wells/Fremont Associates.
(b) Reflects Wells Operating Partnership, L.P.'s portion of the
$8,900,000 purchase price related to the Fairchild Building.
(c) Reflects deferred project costs allocated to Wells Operating
Partnership, L.P.'s investment in Wells/Fremont Associates
(d) Reflects Wells Operating Partnership, L.P.'s contribution to
Wells/Orange County Associates.
(e) Reflects Wells Operating Partnership, L.P.'s portion of the
$6,400,000 purchase price related to the Cort Furniture
Building.
(f) Reflects deferred project costs allocated to Wells Operating
Partnership, L.P.'s investment in Wells/Orange County
Associates.
F-14
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
Wells -----------------------------------------------
Real Estate Fund IX, Fund X, Cort Pro
Investment Fund XI and REIT Fairchild Furniture Forma
Trust, Inc. Joint Venture Building Building Total
=========== ================ ============= ============ =========
<S> <C> <C> <C> <C> <C>
REVENUES:
Equity in income (loss) of joint venture $0 $ 12,341(a) $(203,458)(b) $ 18,252(c) $(172,865)
EXPENSES 0 0 0 0 0
=========== ================ ============= ============ =========
NET INCOME (LOSS) $0 $ 12,341 $(203,458) $ 18,252 $(172,865)
=========== ================ ============= ============ =========
INCOME (LOSS) PER SHARE (basic and diluted) $0 $ 123.41 $(2,034.58) $ 182.52 $(1,728.65)
=========== ================ ============= ============ =========
</TABLE>
(a) Reflects Wells Operating Partnership, L.P.'s 3.9% equity in
earnings of Fund IX, Fund X, Fund XI, and REIT Joint Venture
which totaled $316,445 after giving effect to the contribution
by Wells Real Estate Fund X of the Iomega Building to the
Joint Venture. The pro forma adjustments result from rental
revenues less operating expenses, management fees, and
depreciation expense.
(b) Reflects Wells Operating Partnership, L.P.'s 33.3% equity in
net loss of Wells/Fremont Associates which totaled $610,374.
The pro forma adjustments result from rental revenues less
operating expenses, management fees, depreciation, and
interest expense.
(c) Reflects Wells Operating Partnership, L.P.'s 10% equity in
earnings of Wells/Orange County Associates which totaled
$182,520. The pro forma adjustments result from rental
revenues less operating expenses, management fees,
depreciation, and interest expense.
F-15
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
--------------------------------------------
Wells Fund IX,
Real Estate Fund X, Fund XI, Cort Pro
Investment and REIT Joint Fairchild Furniture Forma
Trust, Inc. Venture Building Building Total
=========== ================ =========== =========== =======
<S> <C> <C> <C> <C> <C>
REVENUES:
Equity in income of joint ventures $ 6,631 $33,348(a) $12,201(b) $9,848(c) $62,028
Interest income 4,286 0 0 0 4,286
----------- ---------------- ----------- ----------- -------
10,917 33,348 12,201 9,848 66,314
EXPENSES:
Office expense 18 0 0 0 18
----------- ---------------- ----------- ----------- -------
NET INCOME $10,899 $33,348 $12,201 $9,848 $66,296
=========== ================ =========== =========== =======
EARNINGS PER SHARE (basic and diluted) $0.04 $0.12 $0.05 $0.04 $0.25
=========== ================ =========== =========== =======
</TABLE>
(a) Reflects Wells Operating Partnership, L.P.'s 3.9% equity in
earnings of Fund IX, Fund X, Fund XI, and REIT Joint Venture
which totaled $855,066 after giving effect to the Joint
Venture's acquisition of the Lucent Building and the
contribution by Wells Real Estate Fund X of the Iomega
Building to the Joint Venture.. The pro forma adjustments
result from rental revenues less operating expenses,
management fees, depreciation, and amortization.
(b) Reflects Wells Operating Partnership, L.P.'s 33.3% equity in
earnings of Wells/Fremont Associates which totaled $36,606.
The pro forma adjustments result from rental revenues less
operating expenses, management fees, depreciation, and
interest expense.
(c) Reflects Wells Operating Partnership, L.P.'s 10% equity in
earnings of Wells/Orange County Associates which totaled
$98,480. The pro forma adjustments result from rental revenues
less operating expenses, management fees, depreciation, and
interest expense.
F-16
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 6 DATED JANUARY 15, 1999 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, Supplement
No. 2 dated June 30, 1998, Supplement No. 3 dated August 12, 1998, Supplement
No. 4 dated November 1, 1998 and Supplement No. 5 dated December 14, 1998
(collectively, the "Prospectus"). This Supplement No. 6 supersedes Supplement
No. 4 and Supplement No. 5. 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:
(1) The status of the offering of shares of common stock in Wells
Real Estate Investment Trust, Inc. (the "Company");
(2) Revisions to the "Investor Suitability Standards" and "Plan of
Distribution" sections of the Prospectus;
(3) Revisions to the "Legal Matters" and "Conflicts of Interest -Lack
of Separate Representation" sections of the Prospectus;
(4) Contract for an undivided interest in a 7.25 acre tract of land
located in Knox County, Tennessee (the "Associates Property") with Wells
Development Corporation ("Wells Development"), an Affiliate of the Advisor, and
the proposed construction and development of an office building thereon;
(5) The acquisition of an office building in Tampa, Hillsborough
County, Florida within the Sunforest Business Park;
(6) The status of the ABB Building;
(7) The status of the Cort Furniture Building;
(8) The status of the Fairchild Building;
(9) Revisions to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the Prospectus; and
(10) Pro Forma Balance Sheet included as Appendix I.
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 January 10, 1999, the Company had raised a total of $32,484,200
in offering proceeds (3,248,420 shares).
INVESTOR SUITABILITY STANDARDS
The information contained on page 15 in the "Investor Suitability
Standards" section of the Prospectus, as amended in Supplement No. 1 to the
Prospectus, is revised and amended 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
<PAGE>
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 or units or shares in other public real estate 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 or reinvestment plans of other
public real estate programs, 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
requirement for Minnesota IRAs and Qualified Plans of 200 shares ($2,000).
LACK OF SEPARATE REPRESENTATION
The information contained on page 23 in the "Conflicts of Interest" section
of the Prospectus under the heading "Lack of Separate Representation" shall be
amended by inserting the following paragraph:
The firm of Hunton & Williams ceased acting as counsel to the Company,
the Advisor and their Affiliates immediately following the effective date
of the Prospectus. Holland & Knight LLP has served as counsel to the
Company since the effective date of the Prospectus. Holland & Knight LLP
also serves as counsel to 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 may be required to cause the Company to retain
separate counsel for such matters.
CONTRACT BETWEEN WELLS DEVELOPMENT AND WELLS OPERATING PARTNERSHIP, L.P. FOR
ASSOCIATES PROPERTY
Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited
partnership organized to own and operate properties on behalf of the Company,
entered into an Agreement for the Purchase and Sale of Property (the "Purchase
Agreement") with Wells Development dated September 15, 1998 for the purchase of
an undivided interest in the Associates Property. The purchase price to be paid
by Wells OP for its undivided interest shall be $1,650,000 representing a 55%
undivided interest in the Associates Property. Simultaneously, Wells
Development entered into another Agreement for the Purchase and Sale of Property
for the remaining undivided interest with Beaver Ruin-ARC Way, Ltd. and Carter
Boulevard, Ltd., both Georgia limited partnerships affiliated with the Advisor
(collectively referred to as "Beaver/Carter"). The purchase price of the
undivided interest to be acquired by Beaver/Carter shall be $1,350,000
representing a 45% undivided interest in the Associates Property. Beaver/Carter
has paid $1,350,000 to Wells Development as an earnest money deposit pursuant to
its contract, and is scheduled to close on its 45% undivided interest on or
before January 19, 1999. Wells Development will use the earnest money deposit
received from Beaver/Carter, along with a loan in the amount of $4,500,000 from
First Capital Bank (as described below), to partially fund the purchase and
development of the Associates Property. It is currently anticipated that Wells
OP will close on its 55% undivided interest at such time as Wells Development
has expended the $1,350,000 earnest money deposit and $4,500,000 in loan
proceeds. Wells Development shall not make any profit or incur any loss in
connection with this transaction. At closing, Wells OP shall pay the purchase
price for its 55% undivided interest in cash or execute a promissory note for
any unfunded portion of the purchase price.
At closing, Wells OP shall deliver to Wells Development a closing
statement, a Tenancy-in-Common Agreement, and such other documents as may be
reasonably required by Wells Development in order to effectuate the transaction.
Wells OP's obligation to close on the undivided interest is conditioned upon the
following events:
2
<PAGE>
. Wells OP shall have available to it at the date of closing sufficient
proceeds available for investment in properties to fund the purchase
price;
. all the representations and warranties set forth in the Purchase
Agreement shall be true and correct in all material respects on the
date of closing;
. the receipt by Wells OP of an acceptable appraisal for the property;
. the receipt by Wells OP of evidence reasonably satisfactory to it that
the property is free of any Hazardous Materials;
. the receipt of evidence that Associates Housing Finance, LLC has
executed an acceptable lease in connection with the Associates
Property;
. the execution of a Tenancy-in-Common Agreement with Beaver/Carter in
form and substance reasonably satisfactory to Wells OP;
. evidence that the transaction contemplated by the Beaver/Carter
agreement has closed; and
. a policy of title insurance insuring Wells OP's undivided interest in
the Associates Property.
TENANCY-IN-COMMON
Tenancy-in-Common Agreement. At or near the date that Wells OP closes the
---------------------------
acquisition of its undivided interest in the Associates Property, Wells OP will
enter into a Tenancy-in-Common Agreement with Beaver/Carter or assume the
obligations of Wells Development under a Tenancy-in-Common Agreement with
Beaver/Carter. This Tenancy-in-Common Agreement will set forth the rights of
the parties with regard to their co-ownership of the Associates Property
including, but not limited to, the contribution of funds for the payment of
expenses required in connection with the ownership and management of the
property. While the Tenancy-in-Common Agreement to be entered into with
Beaver/Carter has not yet been prepared, it is anticipated that such agreement
may contain a right of first refusal or buy-sell provision which would allow
either party to require the other party to sell its interest in the Associates
Property upon the happening of certain events. In the event that the Tenancy-
in-Common Agreement does contain such a right of first refusal or buy-sell
provision, the Company may be unable to finance any such buy-out right at the
required time. Further, in the event that such Tenancy-in-Common Agreement
fails to grant the Company the power to control property decisions, an impasse
could be reached on matters pertaining to the ownership or operation of the
Associates Property, which may have a detrimental impact on the success of this
property.
Co-Tenancy Risks. Due to the nature of a co-tenancy interest, it may be
----------------
difficult for the Company to sell its co-tenancy interest in the Associates
Property. Further, ownership of properties in co-tenancies involves certain
risks not otherwise present, including the possibility that the co-tenant in the
investment might become bankrupt, that the co-tenant may be in a position to
take action contrary to the Company's policies or objectives, or that the co-
tenant may have economic or business interests or goals which are inconsistent
with the business interests and goals of the Company. It should be noted in
this regard that Beaver/Carter obtained the proceeds used to invest in the
Associates Property from a sale of another property in a transaction intended to
qualify as a tax free like-kind exchange. Accordingly, Beaver/Carter has a
relatively low tax basis in its interest in the Associates Property and may not
desire to sell the Associates Property at the same time as the Company desires
to sell the Associates Property.
THE ASSOCIATES PROPERTY
Purchase of the Associates Property. Wells Development entered into a Real
-----------------------------------
Estate Option Agreement for Lot 10 dated June 21, 1998 and a Real Estate Option
Agreement for Lot 11 dated April 22, 1998, (collectively, the "Option
Agreement") with The Development Corporation of Knox County, a Tennessee
nonprofit corporation (the "Seller"). The Option Agreement provided Wells
Development the option to purchase the Associates Property for
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a purchase price of $130,000 per acre. The Seller is not affiliated with the
Company or its Advisor. Wells Development exercised the options pursuant to the
Option Agreement and acquired the Associates Property on October 7, 1998 for a
purchase price of $812,500 reflecting a site preparation discount of $130,000.
In connection with the closing of the acquisition of the Associates Property,
Wells Development paid title insurance premiums of $2,400 and other
miscellaneous closing costs of $3,245.
Wells Development entered into a Development Agreement (as hereinafter
described) for the construction of a one-story office building containing
approximately 71,400 rentable square feet to be erected on the Associates
Property (the "Project"). Wells Development entered into a Lease Agreement (the
"Associates Lease") with Associates Housing Finance, LLC ("Associates") pursuant
to which Associates agreed to lease 50,000 rentable square feet of the Project
upon its completion.
An independent appraisal of the Associates Property was prepared by CB
Richard Ellis, Inc., real estate appraisers as of September 14, 1998, pursuant
to which the market value of the land and the leased fee interest in the
Associates Property subject to the Associates Lease (described below) was
estimated to be $7,800,000, in cash or terms equivalent to cash. This value
estimate was based upon a number of assumptions, including that the Project will
be finished in accordance with plans and specifications and that the building
will be operating following completion at a stabilized level with Associates
occupying 50,000 rentable square feet and 94% of the remaining rentable area
occupied by other tenants. Wells Development also obtained an environmental
report prior to closing evidencing that the environmental condition of the
Associates Property was satisfactory.
The Associates Loan. Wells Development obtained a construction loan from
-------------------
First Capital Bank in the amount of $4,500,000, the proceeds of which are being
used to fund the development and construction of the Project (the "Associates
Loan"). The Associates Loan matures on November 30, 1999, unless Wells
Development exercises its option to extend the Associates Loan maturity date an
additional 12 months. The interest rate on the Associates Loan is a variable
rate equal to the six month London Inter Bank Offered Rate, plus 200 basis
points, rounded up to the nearest 1/8%. Wells Development is required to pay to
First Capital Bank monthly installments of interest only with a final payment of
principal, plus all accrued and unpaid interest due on the maturity date. The
Associates Loan will be secured by a first priority mortgage against the
Project. In addition, Leo F. Wells, III (an officer and director of the Company
and the Advisor) and Wells Management Company, Inc., an Affiliate of the
Advisor, will be co-guarantors of the Associates Loan. At closing, Wells OP
shall assume or take title to the Associates Property subject to the Associates
Loan.
A nonrefundable loan fee of $22,500 (.5% of the loan amount) has been paid
by Wells Development. An additional nonrefundable loan extension fee of $11,250
(.25% of the loan amount) will be payable upon acceptance of the 12 month
extension option, if exercised.
Location of the Associates Property. The Associates Property is located in
-----------------------------------
an office park known as Centerpoint Business Park, on Pellissippi Parkway just
north of the intersection of Interstates 40 and 75, in Knox County, Tennessee.
The site is outside the city limits of Knoxville and approximately 10 miles west
of the Knoxville central business district. Pellissippi Parkway and the
commercial area along the Interstate 40/75 corridor has evolved recently from a
residential suburb into one of the area's fastest growing commercial and retail
districts. The area has become competitive with the metropolitan Knoxville area
office market due to its growth in office space.
Knoxville, the county seat of Knox County, Tennessee, is the third largest
city in the State of Tennessee, after Memphis and Nashville, and the largest
city in eastern Tennessee. Knoxville is located at the intersection of two
major interstate highways, I-40 which extends east to west, and I-75 which
extends north to south. The Knoxville economy is largely oriented to trade and
manufacturing, due to its location as the geographic center of the eastern
portion of the United States and the wide range of available transportation
resources. Knoxville's central location and transportation access has also
caused it to emerge as a convention center. The Knoxville metropolitan
statistical area population in 1990 was 604,812, compared to the 1980 census of
565,970.
The western portion of Knox County, in which the Associates Property is
located, has experienced the most growth and development in the Knoxville
metropolitan area during the past 12 years due primarily to available land
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and services. It is anticipated that the Knoxville metropolitan area will
continue to grow as 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.
Access to the Associates Property is provided by Pellissippi Parkway, a
limited access thoroughfare traversing southeast to the Knoxville airport, with
an interchange at Interstate 40/75 south of the Associates Property. Nearby
Kingston Pike also provides east and west traffic flow for the Centerpoint
Business Park, and serves as the major commercial center in the immediate area
with a number of large strip shopping centers, a regional mall, gas stations,
convenience stores, office buildings, restaurants and other various
retail/commercial uses. The Project will be highly visible from both
Centerpoint Parkway and Pellissippi Parkway, since the building elevation will
be at or above road grade.
Wells Development will experience competition for tenants from owners and
managers of various other office buildings located in the immediate area of the
Project which would adversely effect Wells Development's ability to attract and
retain tenants.
Development Agreement. On September 15, 1998, Wells Development entered
---------------------
into a Development Agreement (the "Development Agreement") with ADEVCO
Corporation, a Georgia corporation (the "Developer"), as the exclusive
development manager to supervise, manage and coordinate the planning, design,
construction and completion of the Project.
The Developer is an Atlanta based real estate development and management
company formed in 1990 which specializes in the development of office buildings.
The Developer has previously developed or is developing a total of six office
buildings for Affiliates of the Advisor. In this regard, the Developer entered
into:
. a development agreement with Wells Real Estate Fund III, L.P. ("Wells
Fund III"), a public real estate program previously sponsored by the
Advisor and its Affiliates, for the development of a two-story office
building containing approximately 34,300 rentable square feet located
in Greenville, North Carolina (the "Greenville Project");
. a development agreement with Fund IV and Fund V Associates, a joint
venture between Wells Real Estate Fund IV, L.P., ("Wells Fund IV") and
Wells Real Estate Fund V, L.P. ("Wells Fund V"), both public real
estate programs previously sponsored by the Advisor and its
Affiliates, for the development of a four-story office building
located in Jacksonville, Florida containing approximately 87,600
rentable square feet (the "Jacksonville IBM Project");
. a development agreement with the Fund VII-VIII Joint Venture, a joint
venture between Wells Real Estate Fund VII, L.P.("Wells Fund VII"),
and Wells Real Estate Fund VIII, L.P. ("Wells Fund VIII"), both public
real estate programs previously sponsored by the Advisor and its
Affiliates, for the development of a two-story office building
containing approximately 62,000 rentable square feet located in
Alachua County, near Gainesville, Florida (the "Gainesville Project");
. a development agreement with Fund VI, Fund VII and Fund VIII
Associates, a joint venture among Wells Real Estate Fund VI, L.P.
("Wells Fund VI"), a public real estate program previously sponsored
by the Advisor and its Affiliates, Wells Fund VII and Wells Fund VIII,
for the development of a four-story office building containing
approximately 92,964 rentable square feet located in Jacksonville,
Florida (the "BellSouth Project");
. a development agreement with Fund VIII and Fund IX Associates, a joint
venture between Wells Fund VIII and Wells Real Estate Fund IX, L.P.
("Wells Fund IX"), a public real estate program sponsored by the
Advisor and its Affiliates, for the development of a four-story office
building containing approximately 96,750 rentable square feet located
in Madison, Wisconsin (the "Madison Project"); and
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. a Development Agreement with Wells Fund IX for the development of a
three-story office building containing approximately 83,885 rentable
square feet located in Knoxville, Tennessee (the "ABB Building").
The Greenville Project was completed on schedule, and International
Business Machines Corporation ("IBM"), which leased approximately 23,312
rentable square feet of the building, took possession under its lease on April
16, 1991. The Jacksonville IBM Project was also completed on schedule, and IBM,
which leased approximately 68,100 rentable square feet of the building, took
possession under its lease on June 1, 1993. The Gainesville Project was
completed in advance of schedule, and CH2M Hill, Inc., which leased
approximately 50,000 rentable square feet of the building, took possession under
its lease on December 18, 1995. The BellSouth Project was completed in advance
of schedule, and BellSouth, which leased approximately 64,558 rentable square
feet of the building, took possession under its lease on May 20, 1996.
Construction of the Madison Building was completed on schedule, and Westel-
Milwaukee Company, Inc. d/b/a Cellular One, which leased approximately 75,000
rentable square feet of the building, took possession under its lease on June
15, 1997. The ABB Building was completed on schedule, and ABB Flakt, Inc.,
which leased approximately 55,000 rentable square feet of the building took
possession under its lease on January 1, 1998.
The President of the Developer is David M. Kraxberger. Mr. Kraxberger has
been in the real estate business for over 17 years. From 1984 to 1990, Mr.
Kraxberger served as Senior Vice President of Office Development for The Oxford
Group, Inc., an Atlanta based real estate company with operations in seven
southeastern states. Mr. Kraxberger holds a Masters Degree in Business
Administration from Pepperdine University in Los Angeles, California, and is a
member of the Urban Land Institute and the National Association of Industrial
Office Parks. Mr. Kraxberger also holds a Georgia real estate license.
Pursuant to the terms of a Guaranty Agreement, Mr. Kraxberger has personally
guaranteed the performance of the Developer under the Development Agreement.
Mr. Kraxberger has also personally guaranteed the performance of the contractor,
Integra Construction, Inc., under the Construction Contract (as hereinafter
described) pursuant to the terms of a separate Guaranty Agreement. Neither the
Developer nor Mr. Kraxberger are affiliated with the Advisor or its Affiliates.
The primary responsibilities of the Developer under the Development
Agreement include:
. the supervision, coordination, administration and management of the
work, activities and performance of the architect under the
Architect's Agreement (as described below) and the contractor under
the Construction Contract (as described below);
. the implementation of a development budget setting forth an estimate
of all expenses and costs to be incurred with respect to the planning,
design, development and construction of the Project;
. the review of all applications for disbursement made by or on behalf
of Wells Development under the Architect's Agreement and the
Construction Contract;
. the supervision and management of tenant build-out at the Project; and
. the negotiation of contracts with, supervision of the performance of,
and review and verification of applications for payment of the fees,
charges and expenses of such design and engineering professionals,
consultants and suppliers as the Developer deems necessary for the
design and construction of the Project in accordance with the
development budget.
The Developer will also perform other services typical of development
managers including, but not limited to, arranging for preliminary site plans,
surveys and engineering plans and drawings, overseeing the selection by the
Contractor of major subcontractors and reviewing all applicable building codes,
environmental, zoning and land use laws and other applicable local, state and
federal laws, regulations and ordinances concerning the development, use and
operation of the Project or any portion thereof. The Developer is required to
advise Wells Development on a weekly basis as to the status of the Project and
submit to Wells Development monthly reports with respect to the progress of
construction, including a breakdown of all costs and expenses under the
development budget. The Developer is required to obtain prior written approval
from Wells Development before incurring and paying any
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costs which will result in aggregate expenditures under any one category or line
item in the development budget exceeding the amount budgeted therefor. If the
Developer determines at any time that the development budget is not compatible
with the then prevailing status of the Project and will not adequately provide
for the completion of the Project, the Developer will prepare and submit to
Wells Development for approval an appropriate revision of the development
budget.
In discharging its duties and responsibilities under the Development
Agreement, the Developer has full and complete authority and discretion to act
for and on behalf of Wells Development. The Developer has agreed to indemnify
Wells Development from any and all claims, demands, losses, liabilities,
actions, lawsuits, and other proceedings, judgments and awards, and any costs
and expenses arising out of the negligence, fraud or any willful act or omission
by the Developer. Wells Development has agreed to indemnify the Developer from
and against any and all claims, demands, losses, liabilities, actions, lawsuits
and other proceedings, judgments and awards, and any costs and expenses arising
out of (1) any actions taken by the Developer within the scope of its duties or
authority, excluding negligence, fraud or willful acts of the Developer, and (2)
the negligence, fraud or any willful act or omission on the part of Wells
Development.
Wells Development may elect to provide funds to the Developer so that the
Developer can pay Wells Development's obligations with respect to the
construction and development of the Project directly. All such funds of Wells
Development which may be received by the Developer with respect to the
development or construction of the Project will be deposited in a bank account
approved by Wells Development. If at any time there are in the bank account
funds of Wells Development temporarily exceeding the immediate cash needs of the
Project, the Developer may invest such excess funds in savings accounts,
certificates of deposit, United States Treasury obligations and commercial paper
as the Developer deems appropriate or as Wells Development may direct, provided
that the form of any such investment is consistent with the Developer's need to
be able to liquidate any such investment to meet the cash needs of the Project.
The Developer shall be reimbursed for all advances, costs and expenses paid for
and on behalf of Wells Development. The Developer will not be reimbursed,
however, for its own administrative costs or for costs relating to travel and
lodging incurred by its employees and agents. The Developer may be required to
advance its own funds for the payment of any costs or expenses incurred by or on
behalf of Wells Development in connection with the development of the Project if
there are cost overruns in excess of the contingency contained in the
development budget.
As compensation for the services to be rendered by the Developer under the
Development Agreement, Wells Development will pay a development fee of $112,500.
The fee will be due and payable ratably (on the basis of the percentage of
construction completed) as the construction and development of the Project is
completed. Wells Development will also pay the Developer an "Associates Work
Fee" of $112,500. The Associates Work Fee is for services rendered by the
Developer with respect to the supervision and management of tenant build-out of
the premises leased by Associates pursuant to the Associates Lease. The fee is
due and payable in one lump sum upon the completion of the construction of the
Project and the tenant improvements under the Associates Lease.
As of the date of this Supplement No. 6, Wells Development has spent in
excess of $1,350,000 towards the construction of the Project. It is anticipated
that the aggregate of all costs and expenses to be incurred by Wells Development
with respect to the acquisition of the Property, the planning, design,
development, construction and completion of the Project and the build-out of
tenant improvements under the Associates Lease and tenant improvements for the
premises not leased initially by Associates will total approximately $7,428,090
comprised of the following expenditures:
Construction Contract $2,726,640
Tenant Improvements - Associates Premises 2,042,000
Tenant Improvements - Additional Space 380,000
Land 812,500
Contractor's Bond 28,000
Work Fee 60,000
Architectural Fees 141,300
Architect's Expenses 36,000
Space Planning 150,000
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Development Fee 112,500
Associates Work Fee 112,500
Additional site work 130,000
Survey and Engineering 47,050
Landscaping 137,500
Signage 12,500
Marketing 25,500
Contingency 199,100
Construction Interest 175,000
Loan Fees 25,000
Legal Fees 75,000
The total of all the foregoing expenses anticipated to be incurred by Wells
Development with respect to the Project, exclusive of costs relating to
marketing, closing costs and tenant improvements and leasing commissions for the
premises not leased initially by Associates, will total approximately
$6,205,590. Under the terms of the Development Agreement, the Developer has
agreed that in the event that the total of all such costs and expenses exceeds
$6,205,590, the amount of fees payable to the Developer shall be reduced by the
amount of any such excess. Unless the fees otherwise payable to the Developer
are reduced as set forth above, it is estimated that the total sums due and
payable to the Developer under the Development Agreement will be approximately
$225,000.
In the event the Developer should for any reason cease to manage the
development of the Project, Wells Development would have to locate a suitable
successor development manager. No assurances can be given as to whether a
suitable successor development manager could be found, or what the contractual
terms or arrangement with any such successor would be.
Construction Contract. Wells Development entered into a construction
---------------------
contract (the "Construction Contract") on September 10, 1998 with the general
contracting firm of Integra Construction, Inc. (the "Contractor") for the
construction of the Project. The Contractor is a Georgia corporation based in
Atlanta specializing in commercial, industrial and institutional building. The
Contractor commenced operations in November 1994. Its principals were formerly
employed by McDevitt & Street Company, a large general contracting firm which
operates throughout the United States and which has served previously as the
general contractor for properties developed by limited partnerships sponsored by
the Advisor. The Contractor is presently engaged in the construction of five
projects with a total construction value of in excess of $14,400,000, and since
July 1995, has completed twenty-six projects with a total construction value in
excess of $28,600,000. The Contractor has served as the general contractor for
the construction of the Gainesville Project, an office building in Gainesville,
Florida which is owned by a joint venture between Wells Fund VII and Wells Fund
VIII, and the ABB Building, an office building in Knoxville, Tennessee which is
owned by a joint venture among Wells Fund IX, Wells Fund X, Wells Fund XI and
Wells OP. The Contractor is not affiliated with Wells Development or the
Advisor.
The Contractor has begun construction of the Project which will consist of
a one-story steel framed office building with reflective insulated glass and
brick exterior containing approximately 71,400 rentable square feet. As of
December 31, 1998, the Project was estimated to be 21% complete and the
Contractor has billed Wells Development $599,773. As of January 15, 1999, Wells
Development has paid the full balance of $599,773 to the Contractor. The
Property is currently zoned to permit the intended development and operation of
the Project as a commercial office building and has access to all utilities
necessary for the development and operation of the Project, including water,
electricity, sanitary sewer and telephone.
The Construction Contract provides that Wells Development will pay the
Contractor a fixed sum of $2,726,640 for the construction of the Project,
excluding tenant improvements. It is anticipated that the Construction Contract
will be amended to provide for the construction of the tenant improvements
required pursuant to the Associates Lease at such time as the plans and
specifications are drawn for such improvements and the budget for such
improvements is firmly established. The Contractor will be responsible for all
costs of labor, materials, construction equipment and machinery necessary for
completion of the Project. In addition, the Contractor will be required to
secure and pay for any additional business licenses, tap fees and building
permits which may be necessary for construction of the Project.
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Wells Development is making monthly progress payments to the Contractor in
an amount of 90% of the portion of the contract price properly allocable to
labor, materials and equipment, less the aggregate of any previous payments made
by Wells Development; provided, however, that when a total of $137,732 has been
withheld as retainage, no further retainage will be withheld from the monthly
progress payments. As of December 31, 1998, $59,977 has been withheld as
retainage. When construction is substantially complete and the space is
available for occupancy, Wells Development will make a semi-final payment in the
amount of all of the unpaid balance, except that Wells Development may retain an
amount in accordance with the terms of the Construction Contract which is
necessary to protect its remaining interest until final completion of the
Project. Wells Development will pay the entire unpaid balance when the Project
has been fully completed in accordance with the terms and conditions of the
Construction Contract. As a condition of final payment, the Contractor will be
required to execute and deliver a release of all claims and liens against Wells
Development.
The Contractor will be responsible to Wells Development for the acts or
omissions of its subcontractors and suppliers of materials and of persons either
directly or indirectly employed by them. The Contractor has agreed to indemnify
Wells Development from and against all liability, claims, damages, losses,
expenses and costs of any kind or description arising out of or in connection
with the performance of the Construction Contract, provided that such liability,
claim, damage, loss or expense is caused in whole or in part by any action or
omission of the Contractor, any subcontractor or materialmen, anyone directly or
indirectly employed by any of them or anyone for whose acts any of them may be
liable. The Construction Contract also requires the Contractor to obtain and
maintain, until completion of the Project, adequate insurance coverage relating
to the Project, including insurance for workers' compensation, personal injury
and property damage.
The Contractor is required to work expeditiously and diligently to maintain
progress in accordance with the construction schedule and to achieve substantial
completion of the Project within the contract time. The Contractor is required
to employ all such additional labor, services and supervision, including such
extra shifts and overtime, as may be necessary to maintain progress in
accordance with the construction schedule. It is anticipated that the Project
will be completed on or before January 1, 2000. As described below, in the
event the Project is not completed by January 1, 2000, Associates' sole remedy
shall be to terminate its lease with Wells Development. Wells Development shall
obtain a completion and performance bond in an amount sufficient to complete
construction and development of the Project to reduce the risk of non-
performance and to assure compliance with approved plans and specifications. In
addition, performance by the Contractor of the Construction Contract has been
personally guaranteed by David B. Blackmore and Drew S. White, founding
principals of the Contractor, as well as David Kraxberger, a principal of the
Developer.
Architect's Agreement. Smallwood, Reynolds, Stewart, Stewart & Associates,
---------------------
Inc. (the "Architect") is the architect for the Project pursuant to the
Architect's Agreement entered into with Wells Development. The Architect, which
was founded in 1979, is based in Atlanta, Georgia, has a staff of over 200
persons, and specializes in programming, planning, architecture, interior
design, landscape architecture and construction administration. The Architect
has its principal office in Atlanta, Georgia and additional offices in Tampa,
Florida and Singapore, Malaysia. The Architect has designed a wide variety of
projects, with a total construction cost in excess of $2 billion, including
facilities for corporate office space, educational and athletic facilities,
retail space, manufacturing, warehouse and distribution facilities, hotels and
resorts, correctional institutions, and luxury residential units. The Architect
has performed architectural services with respect to the Gainesville Project and
the Knoxville Project. The Architect is not affiliated with Wells Development
or the Advisor.
The Architect's basic services under the Architect's Agreement include the
schematic design phase, the design development phase, the construction documents
phase and the construction phase. During the schematic design phase, the
Architect prepares schematic design documents consisting of drawings and other
documents illustrating the scale and relationship of Project components. The
Architect has completed the schematic design phase, and has been paid a fee of
$21,195 for such services. During the design development phase, the Architect
prepares design development documents consisting of drawings and other documents
to fix and describe the size and character of the entire Project as to
architectural, structural, mechanical, plumbing and fire protection and
electrical systems, materials and such other elements as may be appropriate.
The Architect has completed the design development stage, and has been paid
$42,390 for these services. During the construction documents phase, the
Architect prepares construction documents consisting of drawings and
specifications setting forth in detail the
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requirements for the construction of the Project. The Architect has completed
approximately 95% of the construction documents phase, and has been paid $63,585
for these services. During the construction phase, the Architect is to provide
administration of the Construction Contract and advise and consult with the
Developer and Wells Development concerning various matters relating to the
construction of the Project. The Architect is required to visit the Project
site at intervals appropriate to the stage of construction and to become
generally familiar with the progress and quality of the work and to determine
if, in general, the work is proceeding in accordance with the contract schedule.
The Architect is required to keep Wells Development informed of the progress and
quality of the work. The Architect is also required to determine the amounts
owing to the Contractor based on observations of the site and evaluations of the
Contractor's application for payment and shall issue certificates for payment in
amounts determined in accordance with the Construction Contract described above.
The Architect will also conduct inspections to determine the date of completion
of the Project and shall issue a final certificate for payment. The Architect
will be paid $14,130 for its services performed during the construction phase.
The total amount of fees payable to the Architect under the Architect's
Agreement is $141,300. Payments are being paid to the Architect on a monthly
basis in proportion to the services performed within each phase of service. In
addition, the Architect and its employees and consultants are reimbursed for
expenses including, but not limited to, transportation in connection with the
Project, living expenses in connection with out-of-town travel, long distance
communications and fees paid for securing approval of authorities having
jurisdiction over the Project. It is estimated that the total reimbursable
expenses in connection with the development of the Project will be approximately
$36,000.
Associates Lease. On September 10, 1998, Wells Development entered into a
----------------
Lease Agreement (the "Associates Lease") with Associates Housing Finance, LLC
("Associates") pursuant to which Associates agreed to lease 50,000 rentable
square feet of the Project, comprising approximately 70% of the Project.
Associates is a wholly owned subsidiary of Associates First Capital
Corporation ("First Capital"), a Delaware corporation which was recently spun
off by Ford Motor Company. First Capital is a leading diversified consumer and
commercial finance company which provides finance, leasing and related services
to individual consumers and businesses in the United States and internationally.
First Capital reported net income for the year ended December 31, 1997 of over
$1 billion on gross revenues of over $8 billion and a net worth of over $6
billion. First Capital has guaranteed $6,206,952 of the Associates Lease. This
guaranteed amount declines on a monthly basis over the lease term provided there
is no continuing default under the Associates Lease.
First Capital divides its activities into consumer finance and commercial
finance. First Capital's consumer finance operations provide a variety of
consumer financing products and services, including home equity lending,
personal lending, retail sales finance and credit cards. The commercial finance
operations provide retail financing, leasing and wholesale financing for heavy-
duty and medium-duty trucks and truck trailers, construction, material handling
and other industrial and communications equipment, manufactured housing,
recreational vehicle, auto fleet leasing and other commercial products and
services.
Associates is First Capital's subsidiary engaged in the financing of
manufactured housing, and is the third largest provider of such services in the
United States. Associates purchases manufactured housing retail installment
contracts originated by retail dealers, originates and services direct loans to
purchasers, and provides wholesale financing to approved manufactured housing
dealers. Associates also provides commercial business loans to certain
manufactured housing dealers to provide capital to build new retail sales
centers, update existing facilities or expand into community park sales.
The initial term of the Associates Lease will be eighty-four months to
commence on the earlier of (1) the date which is thirty (30) days after
substantial completion of the building, or (2) the date upon which tenant takes
possession and occupies any portion of the premises for business purposes.
Associates has the option to extend the initial term of the Associates Lease for
two successive five year periods. Each extension option must be exercised no
less than nine months prior to the expiration of the then current lease term.
The annual base rent payable under the Associates Lease will be $600,000
($12.00 per square foot) payable in equal monthly installments of $50,000 during
the first twenty-eight months of the lease term; $625,000 ($12.50
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per square foot) payable in equal monthly installments of $52,083 during the
next twenty-eight months of the lease term; and $650,000 ($13.00 per square
foot) payable in equal monthly installments of $54,167 during the last twenty-
eight months of the lease term. The annual base rent for each extended term
under the Associates Lease will be the "market rate" for the period covered by
the extended term. The term "market rate" is defined in the Associates Lease as
the annual effective rental rate per square foot of rentable floor area then
being charged by landlords under new leases of office space in the metropolitan
Knoxville, Tennessee market for similar space in a building of comparable
quality and with comparable parking and other amenities. The Associates Lease
provides that if the parties cannot agree on the appropriate market rate, the
market rate shall be established by real estate appraisers.
In addition to the base rent, Associates is required to pay additional rent
equal to its share of all "operating expenses" during the lease term.
"Operating expenses" is defined to include 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 Project.
"Operating expenses" include compensation of employees engaged in the operation,
management or maintenance of the Project, supplies, equipment and materials,
utilities, repairs and general maintenance, insurance, a management fee in the
amount of 3.5% of the gross rental income from the Project, and all taxes and
governmental charges attributable to the Project or its operation (excluding
taxes imposed or measured on or by the income of Wells Development from the
operation of the Project).
Under the terms of the Associates Lease, Wells Development is responsible
for a construction allowance of $1,500,000 (calculated at the rate of $30 per
usable square foot of the premises). The Associates Lease also provides that so
long as Associates shall occupy 50% or more of the rentable floor area of the
building, Associates shall have the right to design and designate the location
of one monument-type sign naming the building and Wells Development will pay
$7,500 of the cost associated with purchasing and installing such sign.
The terms of the Associates Lease provide that Associates has a right of
first refusal for the lease of any space in the building not initially leased by
Associates. In the event that Wells Development has secured a potential tenant
for any of such space, Wells Development has agreed to give Associates 10
business days to exercise its right to add such space to the leased premises.
In the event that Associates exercises its right of first refusal, the lease of
the additional space will be subject to all the terms and conditions of the
Associates Lease, including the base rental which shall be based upon the number
of square feet of rentable area added to the premises. If Associates does not
so exercise its right of first refusal within such 10 business day period, Wells
Development will have the right to lease the space to the potential tenant and
Associates shall have no further rights relating to the additional space.
The Associates Lease provides that Wells Development is required to cause
the Project to be substantially completed as soon as practicable under the
circumstances, with a goal of achieving substantial completion on or before
January 1, 2000 (subject to force majeure and any delays caused by Associates).
If substantial completion has not occurred on or before January 1, 2000,
Associates' sole right and remedy shall be to terminate the Associates Lease
upon 10 days written notice to Wells Development; provided substantial
completion does not occur during such 10 day period.
Property Management Fees. Following construction and completion of the
------------------------
Project, property management and leasing services will be performed by Wells
Management Company, Inc. (the "Property Manager"), an Affiliate of the Advisor.
As compensation for its services, the Property Manager will receive fees equal
to 4.5% of the gross revenues for property management services and leasing
services with respect to the Project. In addition, the Property Manager will
receive a one-time initial lease-up fee relating to the Associates Lease equal
to the first month's rent plus 5% of the gross revenues over the initial term of
the Associates Lease. In addition, the Property Manager may also receive
initial lease-up fees relating to the lease-up of space not initially leased by
Associates, as provided in the Prospectus.
Lease-Up Risk. As set forth above, Associates has agreed to lease
-------------
approximately 70% of the Project. However, since Wells Development has not yet
obtained any leases for the remaining approximately 30% of office space at the
Project, Wells Development will be subject to the normal lease-up risks of a new
commercial office
11
<PAGE>
building with respect to the unleased portion of the Project. No assurances can
be given that Wells Development will be able to attract or obtain suitable
tenants for the remaining approximately 30% of space at the Project or that it
will be able to attract or obtain suitable tenants for the space initially
leased by Associates upon the expiration of its lease.
THE PWC BUILDING
Purchase of the PWC Building. On December 31, 1998, Wells OP acquired a
----------------------------
four-story office building containing approximately 130,090 rentable square feet
(the "PWC Building") which was recently developed and constructed on an
approximately 9 acre tract of real property located in Tampa, Hillsborough
County, Florida. Wells OP purchased the PWC Building from Carter Sunforest,
L.P. (the "Seller"), a Georgia limited partnership, pursuant to the terms of the
Amended and Restated Purchase Agreement dated December 4, 1998 (the "Purchase
Agreement") between the Seller and Wells OP. The total purchase price for the
PWC Building pursuant to the Purchase Agreement was $21,127,854. Wells OP paid
TriNet Corporate Realty Trust, a Maryland corporation, ("TriNet"), the sum of
$420,000 for the rights to purchase the PWC Building as they were the original
purchasers under the Purchase Agreement, out of which TriNet paid the Seller
$100,000 as a real estate commission. At the closing, Wells OP paid a purchase
price of $20,707,854 to the Seller plus $98,609.30 for closing costs. Neither
Seller nor TriNet are affiliated with the Company or its Advisor.
The SouthTrust Loan. Wells OP purchased the PWC Building subject to a loan
-------------------
from SouthTrust Bank, National Association ("SouthTrust") in the outstanding
principal amount of $14,132,537.87 (the "SouthTrust Loan"). The SouthTrust Loan
consists of a revolving credit facility whereby SouthTrust agreed to loan up to
$15.5 million. The SouthTrust Loan matures on December 31, 2000. The interest
rate on the SouthTrust Loan is a variable rate per annum equal to the London
InterBank Offered Rate for a thirty day period plus 185 basis points. Commencing
on February 1, 1999, Wells OP is required to pay to SouthTrust monthly
installments of principal in the amount of $12,500.00 plus accrued interest. The
SouthTrust Loan is secured by a first mortgage against the PWC Building.
Description of the Building and the Site. The PWC Building is a four-story
----------------------------------------
office building with 130,091 rentable square feet located in Tampa, Florida.
The building is constructed using a steel frame design and concrete tilt-up wall
panels. Construction of the PWC Building was completed in December 1998. The
parking area contains approximately 600 paved parking spaces, including a two
level parking deck accommodating 312 spaces, approximately 126 of which are
covered.
An independent appraisal of the PWC Building was prepared by RE Marketing
Consultants, Inc., as of March 2, 1998, pursuant to which the market value of
the land and the leased fee interest subject to the PWC Lease (described below)
was estimated to be $22,000,000, in cash or terms equivalent to cash. This
value estimate was based upon a number of assumptions, including that the PWC
Building will continue operating at a stabilized level with PWC occupying 100%
of the rentable area, and is not necessarily an accurate reflection of the fair
market value of the property. Wells OP also obtained an environmental report
prior to closing evidencing that the environmental condition of the land
encompassing the PWC Building was satisfactory.
The site consists of approximately 9 acres of land located between
Eisenhower Boulevard and George Road approximately 1,250 feet south of West
Hillsborough Avenue. The site is located in Sunforest Business Park which is
located in the southwest quadrant of the Veteran's Expressway and West
Hillsborough Avenue. The Sunforest Business Park is located in the Westshore
Business District, which is a suburban business center surrounding Tampa
International Airport. The total supply of office space in this subsector is
9.8 million square feet, which is 3.57 million square feet larger than the
Downtown Central Business District. The overall occupancy rate in the Westshore
Business District is 93.5% compared to the countywide occupancy rate of 90.5%.
According to the 1990 census, the Tampa Bay area, including Tampa, St.
Petersburg and Clearwater, comprises 2.16 million people, and is the 22nd
largest metropolitan area in the United States. Tampa is bordered on the west
and south by Upper and Old Tampa Bays and is divided by the Hillsborough River.
The City of Tampa is located in Hillsborough County midway down the west coast
of Florida. In contrast to much of Florida's West
12
<PAGE>
Coast, Hillsborough County is relatively young with approximately 87% of the
population under 65 years of age and a median of age 33.2 years.
The PWC Lease. On December 31, 1998, the Seller assigned all of its rights
-------------
pursuant to the Lease Agreement dated as of March 30, 1998 between the Seller,
as landlord, and Price Waterhouse LLP, which has subsequently merged with
Coopers & Lybrand to form PriceWaterhouseCoopers ("PWC"), as tenant (such
agreement, as assigned, is referred to herein as the "PWC Lease"). The PWC
Lease currently expires in December 2008, subject to PWC's right to extend the
lease for two additional five year periods of time.
PWC provides a full range of business advisory services to leading global,
national and local companies and to public institutions. These services include
audit, accounting and tax advice; management, information technology and human
resource consulting; financial advisory services including mergers and
acquisitions, business recovery, project finance and litigation support;
business process outsourcing services; and legal advice through a global network
of affiliated law firms. PWC employs more than 140,000 people in 152 countries.
The annual base rent payable under the PWC Lease will be $1,915,741.13
($14.73 per square foot) payable in equal monthly installments of $159,645.09
during the first year of the initial lease term. The base rent escalates at the
rate of 3% per year throughout the ten year lease term. In addition, PWC is
required to pay a "reserve" of $13,009.00 ($.10 per square foot) as additional
rent. Under the PWC Lease, PWC is responsible for the payment of all property
taxes, operating expenses and other repair and maintenance work relating to the
PWC Building. PWC is also required to reimburse the landlord the cost of
casualty insurance for the property. Wells OP, as landlord, is responsible for
all maintenance, repairs and replacements to the roof and structural components
of the PWC Building, including without limitation, the roof system, exterior
walls, load bearing walls, foundations, glazing and curtain wall systems.
The initial term of the PWC Lease is ten years which commenced on December
28, 1998 (the "Rental Commencement Date"). As stated above, PWC has the option
to extend the initial term of the PWC Lease for two additional five year
periods. Each extension option must be exercised by giving (i) written "non-
binding" notice to the landlord at least 15 months but not more than 18 months
prior to the expiration date of the then current lease term, or (ii) written
"binding" notice to the landlord at least 12 months prior to the expiration date
of the then current lease term. The annual base rent for each renewal term
under the lease will be equal to the greater of (i) ninety percent (90%) of the
"market rent rate" for such space multiplied by the rentable area of the leased
premises, or (ii) one hundred percent (100%) of the base rent paid during the
last lease year of the initial term, or the then current renewal term, as the
case may be. If the base rent for the first lease year under the renewal term
is determined pursuant to Clause (i) above, then the base rent for each lease
year of such renewal term after the first lease year shall be one hundred three
percent (103%) of the base rent for the immediately preceding lease year. If
the base rent for the first lease year of a renewal term is determined pursuant
to Clause (ii) above, then there shall be no escalation of the base rent until
such time that the total base rent paid during the renewal term is equal to the
total base rent that would have been paid during such renewal term if the base
rent had been determined pursuant to Clause (i) above; and thereafter, the base
rent for each subsequent lease year of such renewal term shall be one hundred
three percent (103%) of the base rent for the immediately preceding lease year.
The "market rent rate" under the PWC lease shall be determined by agreement
of the parties within thirty (30) days after the date on which PWC delivers its
notice of renewal. If Wells OP and PWC are unable to reach agreement on the
market rent rate within said thirty (30) day period, then each party shall
simultaneously submit to the other in a sealed envelope its good faith estimate
of the market rent rate within seven (7) days of expiration of the thirty (30)
day period. If the higher of such estimates is not more than one hundred five
percent (105%) of the lower of such estimates then the market rent rate shall be
the average of the two estimates. Otherwise, within five (5) days either party
may request in writing to resolve the dispute by arbitration. The "market rate
rent" should be based upon the fair market rent then being charged by landlords
under new leases of office space in the Westshore Business District for similar
space in a building of comparable quality with comparable amenities.
In addition, the PWC Lease contains an option to expand the premises to
include a second three or four story building with an amount of square feet up
to a total of 132,000 square feet (the "Expansion Building") which, if exercised
by PWC, will require Wells OP to expend funds necessary to construct the
Expansion Building. PWC
13
<PAGE>
may exercise its expansion option by delivering written notice to Wells OP at
any time between the sixtieth (60th) day after the Rental Commencement Date and
the expiration of the initial term of the lease. If PWC for any reason fails to
deliver the expansion notice on or prior to the last day of the initial term,
the expansion option shall automatically expire. Upon PWC's delivery of the
expansion notice and commencement of construction of the improvements by Wells
OP, the term of the lease shall automatically be extended for an additional
period of ten (10) years from the date of substantial completion of the
Expansion Building, without further action by either PWC or Wells OP. During
the first five lease years of the initial term, Wells OP shall be obligated to
construct the Expansion Building if PWC delivers the expansion notice. Wells OP
and PWC have agreed that Wells OP shall not be required to construct the
Expansion Building, however, if PWC delivers the expansion notice after the end
of the fifth lease year and, following delivery of such expansion notice, Wells
OP determines not to construct the Expansion Building based upon the base rent
it would receive for the Expansion Building. If Wells OP notifies PWC in
writing of such determination within thirty (30) days after Wells OP's receipt
of the expansion notice, PWC shall have the right to exercise its option to
purchase the PWC building (the "Purchase Option"), as described below.
If PWC elects to exercise its expansion option, in addition to the
construction of a second building which is of a quality equal to or better than
the PWC building, Wells OP will be required to expand the parking garage such
that a sufficient number of parking spaces, at least equal to four (4) parking
spaces per 1,000 square feet of rentable area, is maintained. Wells OP agrees
to fund the cost of the design, development and construction of the Expansion
Building up to a maximum of $150.00 per square foot of rentable area, as
increased by increases in the Consumer Price Index between the Rental
Commencement Date and the date of expansion notice (the "Maximum Expansion
Cost"). PWC shall be responsible for the payment of any costs of the Expansion
Building in excess of the Maximum Expansion Cost.
The base rent per square foot of rentable area payable for the Expansion
Building in the first lease year of such building shall be an amount equal to
the product of (a) the Expansion Building cost per square foot of rentable area
multiplied by (b) the sum of 300 basis points plus the weekly average yield on
United States Treasury Obligations, amortized on an annual basis over a period
of twenty (20) years. The base rent for each subsequent lease year shall be one
hundred three percent (103%) of the base rent for the immediately preceding
lease year.
In the event that PWC elects to exercise its expansion option and Wells OP
determines not to proceed with the construction of the Expansion Building as
described above, or if Wells OP is otherwise required to construct the Expansion
Building and fails to do so in a timely basis pursuant to the PWC Lease, PWC may
exercise its Purchase Option by giving Wells OP written notice of such exercise
within thirty (30) days after either such event. If PWC properly exercises its
Purchase Option, PWC must simultaneously deliver a deposit in the amount of
$50,000 in the form of cash, wire transfer or cashier's check. The purchase
price for the PWC Building pursuant to the Purchase Option shall be equal to (a)
the average of the monthly base rent for each month remaining in the initial
term as of the closing date on the Purchase Option multiplied by 12 (the
"Average Annual Base Rent"), and (b) the Average Annual Base Rent shall be
multiplied by 11.
There are no assurances that Wells OP will be able to attract or obtain
suitable replacement tenants for the PWC Building upon the expiration of the PWC
Lease.
PROPERTY MANAGEMENT FEES
Wells Management Company, Inc. ("Wells Management"), an Affiliate of the
Company and the Advisor, has been retained to manage and lease the PWC Building.
The Company shall pay management and leasing fees to Wells Management in the
amount of 4.5% of gross revenues.
THE STATUS OF THE ABB BUILDING
On September 10, 1998, a joint venture by and among Wells Fund IX, Wells
Fund X, Wells Fund XI and Wells OP (the "Fund IX-X-XI-REIT Joint Venture"),
entered into a Lease Agreement (the "Temporary Lease") with Associates pursuant
to which Associates has agreed to lease 23,490 rentable square feet of the ABB
Building on a temporary basis until substantial completion of the Project (as
defined in the Associates Lease). The rental
14
<PAGE>
commencement date of the Temporary Lease is September 14, 1998 and the
expiration date of the lease term is May 31, 1999 subject to Associates' right
to extend the Temporary Lease and subject to Associates' right to terminate the
lease in the event the rental commencement date of the Associates Lease takes
place. In any event, the Temporary Lease may not be extended beyond May 31,
2000.
The annual base rental rate for the Temporary Lease is $234,900 ($10 per
square foot) payable in equal monthly installments of $19,575 during the term of
the Temporary Lease, subject to an increase to $293,625 ($12.50 per square foot)
payable in equal monthly installments of $24,469 under certain conditions.
Under the Temporary Lease, Associates is responsible for its share of 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 by the income of the
Fund IX-X-XI-REIT Joint Venture from operation of the ABB Building).
Under the terms of the Temporary Lease, the Fund IX-X-XI-REIT Joint Venture
is responsible for a construction allowance of $233,155 (calculated at the rate
of $9.50 per square foot of the premises).
THE STATUS OF THE CORT FURNITURE BUILDING
On September 1, 1998, the Fund X-XI Joint Venture, a Georgia Joint Venture
by and between Wells Fund X and Wells Fund XI, acquired Wells Development's
equity interest in Wells/Orange County Associates, a Georgia joint venture with
Wells OP (the "Cort Joint Venture"). As of January 10, 1999 Wells OP had made
total capital contributions to the Cort Joint Venture of $2,870,982 and held an
equity percentage interest in the Cort Joint Venture of 44%, and the Fund X-XI
Joint Venture made total capital contributions to the Cort Joint Venture of
$3,695,000 and held an equity percentage interest in the Cort Joint Venture of
56%. Prior to the Fund X-XI Joint Venture's acquisition of an equity interest
in the Cort Joint Venture, the NationsBank Loan previously encumbering the Cort
Furniture Building was paid off and satisfied of record.
THE STATUS OF THE FAIRCHILD BUILDING
On October 8, 1998, the Fund X-XI Joint Venture acquired Wells
Development's equity interest in Wells/Fremont Associates, a Georgia joint
venture with Wells OP (the "Fremont Joint Venture"). As of January 10, 1999,
Wells OP had made total capital contributions to the Fremont Joint Venture of
$6,983,110 and held an equity percentage interest in the Fremont Joint Venture
of 77.5%, and the Fund X-XI Joint Venture had made total capital contributions
to the Fremont Joint Venture of $2,000,000 and held an equity percentage
interest in the Fremont Joint Venture of 22.5%. Prior to the Fund X-XI Joint
Venture's acquisition of an equity interest in the Fremont Joint Venture, the
NationsBank Loan previously encumbering the Fairchild Building was paid off and
satisfied of record.
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 January 10, 1999, the Company had raised a total of $32,484,200 in
offering proceeds (3,248,420 shares), and had paid $1,136,947 in
acquisition and advisory fees and acquisition expenses and $4,060,525 in
selling commissions and organizational and offering expenses. As of
January 10, 1999, the
15
<PAGE>
Company had invested $18,442,540 in properties and was holding net offering
proceeds of $8,844,188 available for investment in additional properties.
PLAN OF DISTRIBUTION
The information contained on page 74 in the "Plan of Distribution" section
of the Prospectus is revised as of the date of this Supplement by the deletion
of the fourth full paragraph on that page and the insertion of the following
paragraph in lieu thereof:
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 purchases pursuant to the
Reinvestment Plan or reinvestment plans of other public real estate
programs, all accepted subscriptions will be 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 or
units or shares in other public real estate 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 or reinvestment plans of other public real estate
programs.
LEGAL MATTERS
The information contained on page 77 in the "Legal Matters" section of the
Prospectus is revised and amended by insertion of the following paragraph after
the first paragraph in that section:
Immediately following the effective date of the Prospectus, Hunton &
Williams ceased acting as counsel to the Company and the Advisor. Holland
& Knight LLP has, since that time, served as counsel to the Company and the
Advisor. Holland & Knight LLP has represented the Advisor, as well as
Affiliates of the Advisor, in other matters in the past and is likely to
continue to do so in the future. See "Conflicts of Interest."
FINANCIAL STATEMENTS
The pro forma balance sheet of Wells Real Estate Investment Trust, Inc. as
of September 30, 1998, which is included in Appendix I to this Supplement No. 6,
has not been audited.
16
<PAGE>
APPENDIX I
INDEX TO FINANCIAL STATEMENTS
Page
----
WELLS REAL ESTATE INVESTMENT TRUST, INC.
Unaudited Pro Forma Financial Statements
Summary of Unaudited Pro Forma Balance Sheet I-1
Pro Forma Balance Sheet as of September 30, 1998 I-2
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
(Unaudited Pro Forma Balance Sheet)
The following unaudited pro forma balance sheet as of September 30, 1998 has
been prepared to give effect to Wells Real Estate Investment Trust, Inc.'s
acquisition of the PricewaterhouseCoopers Building as if the transaction had
occurred as of September 30, 1998.
I-1
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
WELLS
REAL ESTATE
INVESTMENT PRO FORMA PRO FORMA
TRUST, INC. ADJUSTMENTS TOTAL
------------- --------------- -------------
<S> <C> <C> <C>
ASSETS:
Real estate assets, at cost:
Land $ 0 $ 1,520,834 (a) $ 1,520,834
Building 0 20,076,845 (a) 20,076,845
------------- --------------- -------------
Total real estate assets 0 21,597,679 21,597,679
Investment in joint ventures 9,861,770 0 9,861,770
Cash 591,122 (591,122)(a) 0
Due from affiliates 162,877 0 162,877
Deferred project costs 10,584 (10,584)(b) 0
Deferred offering costs 648,130 0 648,130
Prepaid expenses and other assets 11,250 0 11,250
------------- --------------- -------------
Total assets $11,285,733 $20,995,973 $32,281,706
============= =============== =============
LIABILITIES:
Notes payable $ 0 $14,132,538 (a) $14,132,538
Sales commissions payable 99,599 0 99,599
Due to affiliates 681,674 6,863,435(a)(b) 7,545,109
Partnership distribution payable 102,987 0 102,987
Minority interest of unit holder in Operating
Partnership 200,000 0 200,000
------------- --------------- -------------
Total liabilities 1,084,260 20,995,973 22,080,233
------------- --------------- -------------
SHAREHOLDER'S EQUITY:
Common shares, $.01 par value, 165,000,000
shares authorized, 1,169,292 issued and
outstanding 11,693 0 11,693
Additional paid-in capital 10,219,740 0 10,219,740
Account deficit (29,690) 0 (29,690)
------------- --------------- -------------
Total shareholders' equity 10,201,473 0 10,201,473
------------- --------------- -------------
Total liabilities and shareholders'
equity $11,285,733 $20,995,973 $32,281,706
============= =============== =============
</TABLE>
(a) Reflects Wells Real Estate Investment Trust, Inc.'s purchase
price related to the PricewaterhouseCoopers Building.
(b) Reflects the deferred project costs allocated to the
PricewaterhouseCoopers Building.
I-2
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 7 DATED APRIL 15, 1999 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, Supplement
No. 2 dated June 30, 1998, Supplement No. 3 dated August 12, 1998 and Supplement
No. 6 dated January 15, 1999 (collectively, the "Prospectus"). Supplement No. 6
included the information in and superseded Supplement No. 4 dated November 1,
1998 and Supplement No. 5 dated December 14, 1998. 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 in Wells
Real Estate Investment Trust, Inc. (the "Company");
(ii) The acquisition of an office building in Harrisburg, Pennsylvania
(the "Vanguard Cellular Building") by Wells Operating Partnership, L.P. ("Wells
OP"), the operating partnership of the Company;
(iii) The acquisition of land in Lake Forest, Orange County, California
by Wells OP and the approximately 150,000 square foot office building to be
developed thereon (the "Matsushita Project");
(iv) Revisions to the "Management" section of the Prospectus;
(v) Revisions to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the Prospectus;
(vi) Revisions to the "Plan of Distribution" section of the Prospectus
and the Subscription Agreement;
(vii) Updated Audited Financial Statements of the Company, an Audited
Statement of Revenues Over Certain Operating Expenses relating to the Vanguard
Cellular Building and Unaudited Pro Forma Financial Statements of the Company
are contained in Appendix I hereto; and
(viii) Updated Prior Performance Tables are included as Exhibit "A"
hereto.
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 April 5, 1999, the Company had raised a total of $57,235,152 in
offering proceeds (5,723,515 shares).
THE VANGUARD CELLULAR BUILDING
Purchase of the Vanguard Cellular Building. On February 4, 1999, Wells OP
------------------------------------------
acquired a four-story office building containing approximately 81,859 rentable
square feet which was recently developed on an approximately 10.5 acre tract of
real property located in Harrisburg, Dauphin County, Pennsylvania.
Wells OP purchased the Vanguard Cellular Building from Walsh Higgins No.
33, L.P. ("Walsh Higgins") for a purchase price of $12,291,200 pursuant to the
terms of the Agreement for the Purchase and Sale of Property dated November 30,
1998. At the closing, Wells OP incurred acquisition expenses, including
transfer taxes, title insurance premiums, recording fees and tax proration
items, of approximately $161,700. In addition, Wells OP paid legal fees of
approximately $50,000 outside of closing. Wells OP expended cash proceeds in
the amount of $6,332,100 and obtained a loan in the amount of $6,425,000 from
NationsBank, N.A., the net proceeds of which were used to fund the remainder of
the purchase price of the Vanguard Cellular Building (the "Vanguard Loan").
Walsh Higgins is not affiliated with the Company or the Advisor.
<PAGE>
The Vanguard Loan. The Vanguard Loan matures on January 4, 2002. The
-----------------
interest rate on the Vanguard Loan is a fixed rate equal to the rate appearing
on Telerate Page 3750 as the London InterBank Offered Rate plus 200 basis points
over a six month period. The interest rate is fixed for the initial six months
of the loan at 7% per annum. A principal installment in the amount of
$6,150,000 is due and payable by Wells OP on August 1, 1999. Thereafter, Wells
OP is required to make quarterly installments of principal in an amount equal to
one-ninth of the outstanding principal balance as of October 1, 1999. The
Vanguard Loan is secured by a first mortgage against the Vanguard Cellular
Building. Leo F. Wells, III (an officer and director of the Company and the
Advisor), and the Company are co-guarantors of the Vanguard Loan. Wells OP
incurred loan expenses, including legal fees, loan origination fees and
appraisal fees, of approximately $29,000 in connection with obtaining the
Vanguard Loan.
Description of the Building and the Site. The Vanguard Cellular Building
----------------------------------------
is a four-story office building with 81,859 rentable square feet consisting of
over 24,000 square feet of gross floor area on each of first three levels and
approximately 8,200 square feet of gross floor area on the lower level. The
building is constructed using a steel frame design and finished with a high
quality brick masonry exterior. Construction of the Vanguard Cellular Building
was completed in November 1998. The parking area contains approximately 570
paved parking spaces.
An independent appraisal of the Vanguard Cellular Building was prepared by
CB Richard Ellis, Inc., real estate appraisers, as of December 1, 1998, pursuant
to which the market value of the land and the leased fee interest subject to the
Vanguard Cellular Lease (described below) was estimated to be $13,100,000, in
cash or terms equivalent to cash. This value estimate was based upon a number
of assumptions, including that the Vanguard Cellular Building will continue
operating at a stabilized level with Pennsylvania Cellular Telephone Corp.
("Pennsylvania Telephone"), a North Carolina corporation and wholly owned
subsidiary of Vanguard Cellular Systems, Inc. ("Vanguard Cellular"), occupying
100% of the rentable area, and is not necessarily an accurate reflection of the
fair market value of the property. Wells OP also obtained an environmental
report prior to closing evidencing that the environmental condition of the land
encompassing the Vanguard Cellular Building was satisfactory.
The site is located in the Lower Paxton Township, a suburb of Harrisburg in
Dauphin County, Pennsylvania. The site consists of approximately 10.5 acres of
land in Commerce Park, a planned business park, at the intersection of Progress
Avenue and Interstate Drive just off of the Progress Avenue exit of Interstate
81. The Greater Harrisburg Area is subdivided into three submarkets: the
Downtown Business District; the East Shore Business District; and the West Shore
Business District. The Greater Harrisburg Area's office building market is
evenly distributed among the three submarkets with no one submarket containing
more than thirty-eight percent (38%) of the total office buildings. The
Vanguard Cellular Building is located in the East Shore Business District on the
eastern side of the Susquehanna River approximately 10 miles northeast of the
Downtown Business District.
Harrisburg is the capital of the State of Pennsylvania, and is well
positioned to take advantage of the established road, rail and water
transportation systems in the northeast region. Harrisburg is located
approximately 100 miles west of Philadelphia, approximately 195 miles east of
Pittsburgh, approximately 75 miles north of Baltimore and approximately 90 miles
north of Washington, D.C. This central location allows Harrisburg to take
advantage of the economic, trade and industrial activities that occur in the
region. Over the past several years, the Harrisburg area has experienced
increases in population, income levels and employment. In fact, the
unemployment rate in Dauphin County is considerably lower than the statewide and
national rates. The Harrisburg area's economy is based principally in the
industrial and manufacturing, government and services sectors.
The Vanguard Cellular Lease. The Vanguard Cellular Building is leased to
---------------------------
Pennsylvania Telephone, a subsidiary of Vanguard Cellular, pursuant to the
Build-To-Suit Office Lease Agreement dated as of September 26, 1997, as amended
by instruments on September 15, 1998 and January 18, 1999 (the "Vanguard
Cellular Lease"). At the closing of the Vanguard Cellular Building, the Walsh
Higgins assigned all of its rights to the Vanguard Cellular Lease to Wells OP.
Vanguard Cellular is an independent operator of cellular telephone systems
in the United States with over 664,000 subscribers located in twenty-six markets
in the Mid-Atlantic, Ohio Valley and New England regions of the United States.
Vanguard Cellular markets its wireless products and services under the name
CellularOne, a nationally recognized brand name partially owned by Vanguard
Cellular. Vanguard Cellular operates primarily in
2
<PAGE>
suburban and rural areas that are close in proximity to major urban areas, which
it believes affords several advantages over its traditional urban competitors,
including (i) greater network capacity, (ii) greater roaming revenue
opportunities, (iii) lower distribution costs, and (iv) higher barriers to entry
by competitors. The obligations of Pennsylvania Telephone under the Vanguard
Cellular Lease are guaranteed by Vanguard Cellular, which reported net income in
excess of $74 million on revenues in excess of $420 million and a net worth in
excess of $100 million for the year ended December 31, 1998.
As of October 2, 1998, Vanguard Cellular had entered into a definitive
merger agreement, as amended, with AT&T Corp. pursuant to which Vanguard
Cellular will be merged with and into a wholly owned subsidiary of AT&T. The
board of directors of each company have approved the merger. However, the
transaction is subject to the approval of Vanguard Cellular's shareholders and
certain other conditions. A special meeting of Vanguard Cellular's shareholders
to consider the merger is scheduled for April 27, 1999.
The initial term of the Vanguard Cellular Lease is ten years which
commenced on November 16, 1998 (the "Vanguard Commencement Date"). Vanguard has
the option to extend the initial term of the Vanguard Cellular Lease for three
additional five year periods and one additional four year and eleven month
period. 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 following table summarizes the annual base rent payable during
the initial term of the Vanguard Cellular Lease:
<TABLE>
<CAPTION>
YEAR ANNUAL RENT $ PER SQ. FT. MONTHLY RENT
---- ------------- ------------- ------------
<S> <C> <C> <C>
1 $ 880,264.10 $10.75
Month 1 $ 0.00
Months 2-7 51,853.50
Months 8-12 113,828.62
2 1,390,833.11 16.99 115,902.76
3 1,416,220.59 17.30 118,018.38
4 1,442,115.81 17.62 120,176.32
5 1,468,528.94 17.94 122,377.41
6 1,374,010.89 16.79 114,500.91
7 1,401,491.11 17.12 116,790.93
8 1,429,520.93 17.46 119,126.74
9 1,458,111.35 17.81 121,509.28
10 1,487,273.58 18.17 123,939.47
</TABLE>
The annual base rent for each extended term under the lease will be equal
to 93% of the "fair market rent" determined either (i) as agreed upon by the
parties, or (ii) as determined by appraisal pursuant to the terms and conditions
of the Vanguard Cellular Lease. The fair market rent shall be multiplied by the
"fair market escalator" (which represents the yearly rate of increases in the
fair market rent for the entire renewal term), if any. If the fair market rent
is to be determined by appraisal, both the landlord and the tenant shall
designate an independent appraiser, and both appraisers shall mutually designate
a third appraiser. After their appointment, the appraisers shall determine the
fair market rent and the fair market escalator by submitting independent
appraisals. The fair market rent and fair market escalator shall be deemed to
be the middle appraisal of the three submitted.
Under the Vanguard Cellular Lease, the tenant is required to pay as
additional rent all real estate taxes, special assessments, water rates and
charges, sewer rates and charges, public utilities, insurance premiums, street
lighting, excise levies, licenses, permits, governmental inspection fees and
other governmental charges and all other charges incurred in the use, occupancy,
operation, leasing or possession of the Vanguard Cellular Building. In
addition, the tenant is responsible for all routine maintenance and repairs
relating to the Vanguard Cellular Building. Wells OP, as the landlord, is
responsible for (i) maintenance, repairs and replacements to the structural
components of the Vanguard Cellular Building, including without limitation, the
roof, floor slabs, foundation walls and footings, structural steel, exterior
walls, driveways, roadways, sidewalks, curbs, parking areas and loading areas,
and (ii) making necessary capital replacements of the heating, ventilation and
air condition system, electrical, plumbing, fire protection and other mechanical
systems in the building.
3
<PAGE>
In addition, the Vanguard Cellular Lease contains an option to expand the
premises to create additional office space of not less than 40,000 gross square
feet and not more than 90,000 gross square feet, as well as additional parking
to accommodate such office space (the "Expansion Improvements"). If
Pennsylvania Telephone exercises its option for the Expansion Improvements,
Wells OP will be obligated to expend the funds necessary to construct the
Expansion Improvements. Pennsylvania Telephone may exercise its expansion
option by delivering written notice to Wells OP at any time before the last
business day of the 96th month of the initial term of the Vanguard Cellular
Lease.
Within 60 days after Wells OP's receipt of the expansion notice, Wells OP
shall consult with Pennsylvania Telephone concerning Pennsylvania Telephone's
specific requirements with regard to the Expansion Improvements and, within such
60 day period, Wells OP shall notify Pennsylvania Telephone in writing of the
total estimated expansion costs to be incurred in planning and constructing the
Expansion Improvements. Within 60 days after Pennsylvania Telephone receives
Wells OP's written notification of the costs for the Expansion Improvements,
Pennsylvania Telephone shall notify Wells OP in writing either (i) that
Pennsylvania Telephone authorizes Wells OP to proceed with the construction of
the Expansion Improvements, (ii) that Pennsylvania Telephone intends to submit
revised specifications within 60 days to reduce the estimated costs of the
Expansion Improvements to an amount satisfactory to Pennsylvania Telephone, or
(iii) that Pennsylvania Telephone elects not to expand the premises. If
Pennsylvania Telephone fails to deliver its notice to proceed within the above
mentioned 60 day period, then Pennsylvania Telephone shall be deemed to have
elected not to expand.
If Pennsylvania Telephone delivers its notice to proceed with the Expansion
Improvements, Pennsylvania Telephone shall be deemed to have exercised its
option for such full or partial renewal terms such that, as of the date of
substantial completion of the Expansion Improvements, the remaining lease term
shall be ten years from such date of substantial completion. Pennsylvania
Telephone shall continue to have the right to exercise its option for any of the
renewal terms discussed above which remain beyond the ten year additional term;
provided that, if the remaining portion of a renewal term after the ten year
extension shall be less than one year, then the ten year term shall be further
extended to include the remaining portion of the renewal term which is less than
one year.
The annual base rent for the Expansion Improvements for the first twelve
months shall be equal to the product of (i) expansion costs, multiplied by (ii)
a factor of 1.07, multiplied by (iii) the greater of (A) 10.50%, or (B) an
annual interest rate equal to 375 basis points in excess of the ten year United
States Treasury Note Rate then most recently announced by the United States
Treasury as of the commencement date of the Expansion Improvements (the
"Expansion Commencement Date"). Thereafter, the annual base rent for the
Expansion Improvements shall be increased annually by the lesser of (a) 5%, or
(b) 75% of the percentage by which the United States, Bureau of Labor
Statistics, Consumer Price Index for All Items - All Urban Wage Earners and
Clerical Workers for the Philadelphia Area (the "CPI Index") published nearest
to the expiration date of each twelve month period subsequent to the Expansion
Commencement Date is greater than the CPI Index most recently published prior to
the Vanguard Commencement Date.
Management of the Company believes that the Vanguard Cellular Building has
been adequately insured against loss from fire, windstorm, hail, explosion,
vandalism, riot and civil commotion, damage from vehicles and aircraft, smoke
damage, water damage, and such other risks or hazards which are customarily
insured against with respect to improvements similar in design, construction,
general location, use and occupancy to the Vanguard Cellular Building.
Management also believes that the Vanguard Cellular Building is adequately
insured against claims for bodily injury, personal injury or property damage for
any loss, liability or damage that may occur on the premises.
Property Management Fees. Wells Management Company, Inc. ("Wells
------------------------
Management"), an Affiliate of the Company and the Advisor, has been retained to
manage and lease the Vanguard Cellular Building. Wells OP shall pay management
and leasing fees to Wells Management in the amount of 4.5% of gross revenues
from the Vanguard Cellular Building.
Financial Statements. Attached as Appendix I are an Audited Statement of
--------------------
Revenues Over Certain Operating Expenses relating to the Vanguard Cellular
Building and Unaudited Pro Forma Financial Statements of the Company.
4
<PAGE>
THE MATSUSHITA PROPERTY
Purchase of the Matsushita Property. On March 15, 1999, Wells OP purchased
-----------------------------------
an 8.837 acre tract of land located in Lake Forest, Orange County, California
(the "Matsushita Property") pursuant to that certain Purchase and Sale Agreement
and Joint Escrow Instructions dated February 17, 1999 between Wells OP and MSGW
California I, L.L.C., a Delaware limited liability company ("MSGW"). The
purchase price for the Matsushita Property was $4,450,230. In connection with
the closing of the acquisition of the Matsushita Property, Wells OP paid title
insurance premiums and other miscellaneous closing costs of approximately
$16,000. Wells OP paid legal fees of $39,514 outside of the closing. MSGW is
not affiliated with the Company or the Advisor.
Wells OP entered into a Development Agreement (as described below) for the
construction of a two-story office building containing approximately 150,000
rentable square feet to be erected on the Matsushita Property (the "Matsushita
Project"). Wells OP entered into an Office Lease (the "Matsushita Lease") with
Matsushita Avionics Systems Corporation, a Delaware corporation ("Matsushita
Avionics"), pursuant to which Matsushita Avionics agreed to lease all of the
Matsushita Project upon its completion.
Termination of Existing Lease. Matsushita Avionics is currently a tenant
-----------------------------
of a building located at 15253 Bake Parkway, Irvine, California (the "Existing
Building") pursuant to an Office Lease dated April 29, 1996 (the "Existing
Lease"). The Existing Building is owned by Fund VIII and Fund IX Associates
(the "Fund VIII-IX Joint Venture"), a Georgia joint venture between Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., both of which are
Affiliates of the Company and the Advisor. Matsushita Avionics and the Fund
VIII-IX Joint Venture have entered into a Lease and Guaranty Termination
Agreement dated February 18, 1999 pursuant to which Matsushita Avionics will be
vacating the Existing Building and relieved of any of its obligations under the
Existing Lease upon the Matsushita Commencement Date of the Matsushita Lease, as
described below.
Rental Income Guaranty by Wells OP. In consideration for the Fund VIII-IX
----------------------------------
Joint Venture releasing Matsushita Avionics from its obligations under the
Existing Lease and thereby allowing Wells OP to enter into the Matsushita Lease
with Matsushita Avionics, Wells OP entered into a Rental Income Guaranty
Agreement dated as of February 18, 1999, whereby Wells OP guaranteed the Fund
VIII-IX Joint Venture that it will receive rental income on the Existing
Building at least equal to the rent and building expenses that the Fund VIII-IX
Joint Venture would have received over the remaining term of the Existing Lease.
Description of the Matsushita Project and the Site. The Matsushita Project
--------------------------------------------------
involves the construction of a two-story office building containing 150,000
rentable square feet. The building will be constructed using concrete tilt-up
walls and high performance glass with parking for approximately 600 vehicles.
The Matsushita Property is currently zoned to permit the intended development
and operation of the Matsushita Project as a commercial office building and has
access to all utilities necessary for the development and operation of the
Matsushita Project, including water, electricity, sanitary sewer and telephone.
The site consists of an 8.837 acre tract of land located in the Pacific
Commercentre, which is a 33 acre master-planned business park positioned near
the Irvine Spectrum in the heart of Southern California's Technology Coast.
Pacific Commercentre is a nine building complex featuring office, technology,
and light manufacturing uses, and is located in the city of Lake Forest in
Southern Orange County with easy access to the Foothill Transportation Corridor
and the San Diego Freeway. The John Wayne Airport is located approximately
eight miles from the site.
The City of Lake Forest was incorporated in 1991, and is located between
the cities of Irvine and Mission Viejo. Lake Forest is experiencing growth as a
result of northeastern expansion of already developed areas of Orange County.
One of the major factors in the recent growth is its location along the route of
the Foothill Transportation Corridor, a planned tollway with one leg of
construction that has been completed in the vicinity of the Pacific
Commercentre. Existing land uses in the area include residential tracts of
varying densities and small commercial centers. There are several large ranches
that are planned for development as master planned communities containing a
variety of residential, commercial and industrial uses.
An independent appraisal of the Matsushita Project dated March 16, 1999 was
prepared by CB Richard Ellis, Inc., real estate appraisers, pursuant to which
the market value of the land and the leased fee interest in the
5
<PAGE>
Matsushita Project subject to the Matsushita Lease (described below) was
estimated to be $18.9 million, in cash or terms equivalent to cash, as of
December 21, 1999 (the anticipated completion date). This value estimate was
based upon a number of assumptions, including that the Matsushita Project will
be finished in accordance with plans and specifications, that total development
costs would not exceed $17.8 million and that the building will be operated
following completion at a stabilized level with Matsushita Avionics occupying
100% of the building at a rental rate calculated based upon the $17.8 million
development budget. Prior to closing of the Matsushita Loan (described below),
NationsBank will obtain a revised independent appraisal of the Matsushita
Property reflecting a value estimate based upon a development budget of $18.4
million. Wells OP obtained an environmental report prior to closing of the
Matsushita Property evidencing that the environmental condition of the
Matsushita Property is satisfactory.
The Matsushita Project Loans. Wells OP obtained $3,500,000 in additional
----------------------------
financing for the Matsushita Project from SouthTrust Bank, N.A. pursuant to the
revolving credit facility (the "SouthTrust Loan") extended to Wells OP in
connection with the acquisition of the PriceWaterhouseCoopers Building in Tampa,
Florida (the "PWC Building"), which is secured by a first mortgage against the
PWC Building. See Supplement No. 6 to the Prospectus for a discussion of the
terms of the SouthTrust Loan. Subsequent to the acquisition of the PWC
Building, the Company had used the proceeds from the sale of its shares to pay-
down the balance of the SouthTrust Loan to zero, leaving in place a revolving
credit facility secured by the PWC Building available to fund additional
property acquisitions.
In addition, Wells OP obtained a commitment for a construction loan from
NationsBank, N.A. ("NationsBank") in the maximum principal amount of
$15,375,000, the proceeds of which will be used to fund the development and
construction of the Matsushita Project (the "Matsushita Loan"). The Matsushita
Loan shall mature 24 months from the date of the loan closing. The interest
rate on the Matsushita Loan will be a variable rate equal to either (1) the
NationsBank "prime rate," or (2) at the option of Wells OP, the rate per annum
appearing on Telerate Page 3750 as the London Inter Bank Offered Rate for a 30
day period, plus 200 basis points. Wells OP will make monthly installments of
interest and, commencing one year after the date of the loan closing, Wells OP
will make monthly installments of principal in the amount of $10,703 until
maturity. On the maturity date, the entire outstanding principal balance plus
any accrued but unpaid interest shall be due and payable. At the closing, Wells
OP will pay a nonrefundable origination fee of $76,900 to NationsBank. The
Matsushita Loan will be secured by a first priority mortgage against the
Matsushita Project. Leo F. Wells, III (an officer and director of the Company
and the Advisor) and the Company will be co-guarantors of the Matsushita Loan.
The Matsushita Loan, if obtained, will result in 100% financing of the
Matsushita Project.
Although management of Wells OP currently anticipates obtaining the
Matsushita Loan from NationsBank as described above, Wells OP has not yet
entered into a loan agreement. Therefore, there is no guarantee that Wells OP
will obtain the Matsushita Loan or that the loan obtained to fund the Matsushita
Project will be on the terms described above.
Development Agreement. On March 31, 1999, Wells OP entered into a
---------------------
Development Agreement (the "Development Agreement") with ADEVCO Corporation, a
Georgia corporation (the "Developer"), as the exclusive development manager to
supervise, manage and coordinate the planning, design, construction and
completion of the Matsushita Project.
The Developer is an Atlanta based real estate development and management
company formed in 1990 which specializes in the development of office buildings.
The Developer has previously developed or is developing a total of seven office
buildings for Affiliates of the Advisor. See Supplement No. 6 to the Prospectus
for a description of the Developer and projects previously developed by the
Developer.
The primary responsibilities of the Developer under the Development
Agreement include:
. the supervision, coordination, administration and management of the
work, activities and performance of the architect under the
Architect's Agreement (as described below) and the contractor under
the Construction Contract (as described below);
6
<PAGE>
. the implementation of a development budget setting forth an estimate
of all expenses and costs to be incurred with respect to the planning,
design, development and construction of the Matsushita Project;
. the review of all applications for disbursement made by or on behalf
of Wells OP under the Architect's Agreement and the Construction
Contract;
. the supervision and management of tenant build-out at the Matsushita
Project; and
. the negotiation of contracts with, supervision of the performance of,
and review and verification of applications for payment of the fees,
charges and expenses of such design and engineering professionals,
consultants and suppliers as the Developer deems necessary for the
design and construction of the Matsushita Project in accordance with
the development budget.
The Developer will also perform other services typical of development
managers including, but not limited to, arranging for preliminary site plans,
surveys and engineering plans and drawings, overseeing the selection by the
Contractor of major subcontractors and reviewing all applicable building codes,
environmental, zoning and land use laws and other applicable local, state and
federal laws, regulations and ordinances concerning the development, use and
operation of the Matsushita Project or any portion thereof. The Developer is
required to advise Wells OP on a weekly basis as to the status of the Matsushita
Project and submit to Wells OP monthly reports with respect to the progress of
construction, including a breakdown of all costs and expenses under the
development budget. The Developer is required to obtain prior written approval
from Wells OP before incurring and paying any costs which will result in
aggregate expenditures under any one category or line item in the development
budget exceeding the amount budgeted therefor. If the Developer determines at
any time that the development budget is not compatible with the then prevailing
status of the Matsushita Project and will not adequately provide for the
completion of the Matsushita Project, the Developer will prepare and submit to
Wells OP for approval an appropriate revision of the development budget.
In discharging its duties and responsibilities under the Development
Agreement, the Developer has full and complete authority and discretion to act
for and on behalf of Wells OP. The Developer has agreed to indemnify Wells OP
from any and all claims, demands, losses, liabilities, actions, lawsuits, and
other proceedings, judgments and awards, and any costs and expenses arising out
of the negligence, fraud or any willful act or omission by the Developer. Wells
OP has agreed to indemnify the Developer from and against any and all claims,
demands, losses, liabilities, actions, lawsuits and other proceedings, judgments
and awards, and any costs and expenses arising out of (1) any actions taken by
the Developer within the scope of its duties or authority, excluding negligence,
fraud or willful acts of the Developer, and (2) the negligence, fraud or any
willful act or omission on the part of Wells OP and its partners and their
respective officers, directors and employees.
Wells OP may elect to provide funds to the Developer so that the Developer
can pay Wells OP's obligations with respect to the construction and development
of the Matsushita Project directly. All such funds of Wells OP which may be
received by the Developer with respect to the development or construction of the
Matsushita Project will be deposited in a bank account approved by Wells OP. If
at any time the funds contained in the bank account of Wells OP temporarily
exceeds the immediate cash needs of the Matsushita Project, the Developer may
invest such excess funds in savings accounts, certificates of deposit, United
States Treasury obligations and commercial paper as the Developer deems
appropriate or as Wells OP may direct, provided that the form of any such
investment is consistent with the Developer's need to be able to liquidate any
such investment to meet the cash needs of the Matsushita Project. The Developer
shall be reimbursed for all advances, costs and expenses paid for and on behalf
of Wells OP. The Developer will not be reimbursed, however, for its own
administrative costs or for costs relating to travel and lodging incurred by its
employees and agents. The Developer may be required to advance its own funds
for the payment of any costs or expenses incurred by or on behalf of Wells OP in
connection with the development of the Matsushita Project if there are cost
overruns in excess of the contingency contained in the development budget.
7
<PAGE>
As compensation for the services to be rendered by the Developer under the
Development Agreement, Wells OP will pay a development fee of $250,000. The fee
will be due and payable ratably (on the basis of the percentage of construction
completed) as the construction and development of the Matsushita Project is
completed.
It is anticipated that the aggregate of all costs and expenses to be
incurred by Wells OP with respect to the acquisition of the Matsushita Property,
the planning, design, development, construction and completion of the Matsushita
Project, the build-out of tenant improvements under the Matsushita Lease and the
contingency reserve will total approximately $18,400,000. The development
budget may be adjusted upward or downward based upon changes agreed to by Wells
OP and Matsushita Avionics. Since the development budget has not yet been
finalized as of the date of this Supplement, a detailed breakdown of costs is
not available at this time.
Under the terms of the Development Agreement, the Developer has agreed
that, in the event that the total of all such costs and expenses exceeds
$18,400,000 (except for changes agreed to by Wells OP and Matsushita Avionics),
the amount of fees payable to the Developer shall be reduced by the amount of
any such excess. Unless the fees otherwise payable to the Developer are reduced
as set forth above, it is estimated that the total sums due and payable to the
Developer under the Development Agreement will be approximately $250,000.
In the event the Developer should for any reason cease to manage the
development of the Matsushita Project, Wells OP would have to locate a suitable
successor development manager. No assurances can be given as to whether a
suitable successor development manager could be found, or what the contractual
terms or arrangement with any such successor would be.
Construction Contract. Wells OP anticipates entering into a construction
---------------------
contract (the "Construction Contract") with the general contracting firm of
GWGC, Inc. doing business as Gordon & Williams General Contractors, Inc. (the
"Contractor") for the construction of the Matsushita Project. The Contractor is
a California corporation based in Laguna Hills, California specializing in
commercial, industrial, amusement park and office buildings. The Contractor
commenced operations in 1990. The Contractor is presently engaged in the
construction of ten projects with a total construction value of in excess of $72
million, and since 1993, has completed 45 projects with a total construction
value in excess of $1.9 billion. It is anticipated that the Contractor will
begin construction of the Matsushita Project in May 1999.
The Construction Contract will provide that Wells OP shall pay the
Contractor a fee equal to 3% of the cost of the work performed by the
Contractor, as adjusted by approved change orders, for the construction of the
Matsushita Project, excluding tenant improvements. The Contractor will be
responsible for all costs of labor, materials, construction equipment and
machinery necessary for completion of the Matsushita Project. In addition, the
Contractor will be required to secure and pay for any additional business
licenses, tap fees and building permits which may be necessary for construction
of the Matsushita Project. Under the Construction Contract, the cost of the
work and the Contractor's fees will be guaranteed not to exceed $6,500,000 (the
"Guaranteed Maximum Price"), subject to additions and deductions by approved
change orders. To the extent that costs incurred by the Contractor exceed such
Guaranteed Maximum Price, the Contractor will be required to pay all such costs
without reimbursement by Wells OP.
Any amounts saved by the Contractor as a result of bids awarded or
subcontracted at amounts below the approved costs for such items shall be set
aside as a contingency reserve. The Contractor may only be reimbursed from the
contingency reserve for reasonable costs incurred in connection with certain
unknown and unforeseeable risks enumerated in the Construction Contract, and
only to the extent that such costs will not cause the Contractor to exceed the
Guaranteed Maximum Price. In the event that, at the time of final completion,
the total aggregate sum of the actual cost of the work, the Contractor's fees
and any amounts incurred to remedy defects in the work is less than the
Guaranteed Maximum Price, the difference shall be divided evenly by the
Contractor and Wells OP.
Wells OP will make monthly progress payments to the Contractor in an amount
of 90% of the portion of the contract price properly allocable to labor,
materials and equipment, less the aggregate of any previous payments made by
Wells OP. Wells OP will pay the entire unpaid balance when the Matsushita
Project has been fully completed in accordance with the terms and conditions of
the Construction Contract. As a condition of final payment, the Contractor will
be required to execute and deliver a release of all claims and liens against
Wells OP.
8
<PAGE>
The Contractor will be responsible to Wells OP for the acts or omissions of
its subcontractors and suppliers of materials and of persons either directly or
indirectly employed by them. The Contractor will agree to indemnify Wells OP
from and against all liability, claims, damages, losses, expenses and costs of
any kind or description arising out of or in connection with the performance of
the Construction Contract, provided that such liability, claim, damage, loss or
expense is caused in whole or in part by any action or omission of the
Contractor, any subcontractor or materialmen, anyone directly or indirectly
employed by any of them or anyone for whose acts any of them may be liable. The
Construction Contract will also require the Contractor to obtain and maintain,
until completion of the Matsushita Project, adequate insurance coverage relating
to the Matsushita Project, including insurance for workers' compensation,
personal injury and property damage.
The Contractor will be required to work expeditiously and diligently to
maintain progress in accordance with the construction schedule and to achieve
substantial completion of the Matsushita Project within the contract time. The
Contractor will be required to employ all such additional labor, services and
supervision, including such extra shifts and overtime, as may be necessary to
maintain progress in accordance with the construction schedule. It is
anticipated that the Matsushita Project will be completed on or before December
20, 1999. Wells OP shall obtain a completion and performance bond in an amount
sufficient to complete construction and development of the Matsushita Project to
reduce the risk of non-performance and to assure compliance with approved plans
and specifications. In addition, performance by the Contractor of the
Construction Contract has been personally guaranteed by David Kraxberger, a
principal of the Developer.
Architect's Agreement. Ware & Malcomb Architects, Inc. (the "Architect")
---------------------
is the architect for the Matsushita Project pursuant to the Architect's
Agreement dated January 11, 1999 entered into with Wells OP. The Architect,
which was founded in 1972, is based in Irvine, California, has a professional
staff of over 75 persons, and specializes in the design of office buildings,
corporate facilities, industrial and research and development buildings,
healthcare and high-tech facilities, as well as commercial/retail centers. The
Architect has additional offices in Woodland Hills and Pleasanton, California.
The Architect had revenues in 1998 of over $12 million. The Architect is not
affiliated with the Company or the Advisor.
The Architect's basic services under the Architect's Agreement include the
schematic design phase, the design development phase, the construction documents
phase, the bidding or negotiation phase and the construction phase. During the
schematic design phase, the Architect will prepare schematic design documents
consisting of drawings and other documents illustrating the scale and
relationship of the Matsushita Project components. The Architect will be paid a
fee of $93,371 for such services. During the design development phase, the
Architect will prepare design development documents consisting of drawings and
other documents to fix and describe the size and character of the entire
Matsushita Project as to architectural, structural, mechanical, plumbing and
fire protection and electrical systems, materials and such other elements as may
be appropriate. The Architect will be paid $124,494 for these services. During
the construction documents phase, the Architect will prepare construction
documents consisting of drawings and specifications setting forth in detail the
requirements for the construction of the Matsushita Project. The Architect will
be paid $311,236 for these services. During the bidding or negotiation phase,
the Architect will assist Wells OP in obtaining bids or negotiated proposals and
assist in awarding and preparing contracts for construction. The Architect will
be paid $31,124 for these services. During the construction phase, the
Architect is to provide administration of the Construction Contract and advise
and consult with the Developer and Wells OP concerning various matters relating
to the construction of the Matsushita Project. The Architect is required to
visit the Matsushita Project site at intervals appropriate to the stage of
construction and to become generally familiar with the progress and quality of
the work and to determine if, in general, the work is proceeding in accordance
with the contract schedule. The Architect is required to keep Wells OP informed
of the progress and quality of the work. The Architect is also required to
determine the amounts owing to the Contractor based on observations of the site
and evaluations of the Contractor's application for payment and shall issue
certificates for payment in amounts determined in accordance with the
Construction Contract described above. The Architect will also conduct
inspections to determine the date of completion of the Matsushita Project and
shall issue a final certificate for payment. The Architect will be paid $62,247
for its services performed during the construction phase.
The total amount of fees payable to the Architect under the Architect's
Agreement is $622,472. Payments are being paid to the Architect on a monthly
basis in proportion to the services performed within each phase of
9
<PAGE>
service. In addition, the Architect and its employees and consultants are
reimbursed for expenses including, but not limited to, transportation in
connection with the Matsushita Project, living expenses in connection with out-
of-town travel, long distance communications and fees paid for securing approval
of authorities having jurisdiction over the Matsushita Project. It is estimated
that the total reimbursable expenses in connection with the development of the
Matsushita Project will be approximately $60,000.
Matsushita Lease. On February 18, 1999, Wells OP entered into an Office
----------------
Lease (the "Matsushita Lease") pursuant to which Matsushita Avionics agreed to
lease 100% of the 150,000 rentable square feet of the Matsushita Project.
Matsushita Avionics is a wholly owned subsidiary of Matsushita Electric
Corporation of America ("Matsushita Electric"), a Delaware corporation.
Matsushita Avionics manufactures and sells audiovisual products to the airline
industry for passenger use in airplanes. Matsushita Electric is a wholly owned
subsidiary of Matsushita Electric Industrial Co., Ltd. ("Matsushita
Industrial"), a Japanese company which is the world's largest consumer
electronics manufacturer. Matsushita Electric oversees the North American
operations of Matsushita Industrial. In North America, Matsushita Electric
makes consumer, commercial and industrial electronics, including products
ranging from juke boxes to flat digital television sets, primarily under the
Panasonic brand name. Matsushita Electric has more than 20 plants in the U.S.,
Mexico and Canada and employs over 23,000 people. Matsushita Electric has
guaranteed the obligations of Matsushita Avionics under the Matsushita Lease.
Matsushita Electric reported net income for the fiscal year ended March 31, 1998
of over $709 million on gross revenues of over $8 billion and a net worth of
over $1.2 billion.
The initial term of the Matsushita Lease will be seven years to commence
(the "Matsushita Commencement Date") on the earlier of (1) the date Matsushita
Avionics commences business in the premises, or (2) the date upon which a series
of conditions are met, including but not limited to, Wells OP's completion of
the improvements and a certificate of occupancy is issued. Matsushita Avionics
has the option to extend the initial term of the Matsushita Lease for two
successive five year periods. Each extension option must be exercised not more
than 19 months and not less than 15 months prior to the expiration of the then
current lease term.
The monthly base rent payable under the Matsushita Lease shall be as
follows:
Monthly Installment
Lease Year of Base Rent
---------- ------------
1-2 $152,500
3-4 $162,260
5-6 $172,020
7 $181,780
The monthly base rent is based upon a projected total cost for the
Matsushita Project of $17,847,769. If the total project cost, as provided in
the work letter attached as an exhibit to the Matsushita Lease, is more or less
than $17,847,769, then the monthly base rent shall be adjusted upward or
downward, as the case may be, by ten percent (10%) of the difference.
The monthly base rent payable during the option term shall be ninety-five
percent (95%) of the stated rental rate at which, as of the commencement of the
option term, tenants are leasing non-expansion, non-affiliated, non-sublease,
non-encumbered, non-equity space comparable in size, location and quality to the
Matsushita Project for a term of five years in the Lake Forest and Irvine area
of Southern California. The monthly base rent during the option term shall be
adjusted upward during the option term at the beginning of the 24th and 48th
month of each option term by an amount equal to six percent (6%) of the monthly
base rent payable immediately preceding such period. Within 30 days of tenant
providing written notice of its intent to exercise a renewal option, Wells OP
shall deliver to Matsushita Avionics notice containing the proposed rent for the
option term. If, after reasonable good faith efforts, landlord and tenant are
unable to agree upon the option rent before the 13th month prior to the
expiration of the appropriate lease term, option rent shall be determined by
arbitration.
10
<PAGE>
In addition to the monthly base rent, Matsushita Avionics is required to
pay additional rent equal to all "operating expenses" and "tax expenses" during
the lease term. "Operating expenses" is defined to include all direct and
indirect costs, expenses and assessments charged to the real property with
respect to its efficient and economical operation, management, use, maintenance
and repair, including insurance premiums. Tax expenses shall mean all federal,
state, county or local government taxes, fees or other impositions of every kind
and nature in connection with the ownership, leasing and operation of the
Matsushita Project. Matsushita Avionics shall also be responsible for the
furnishing of all services and utilities to the premises, including but not
limited to, heating, ventilation and air conditioning, electricity, water,
telephone, janitorial and security services, window washing and landscaping
services.
Under the terms of the Matsushita Lease, Matsushita Avionics shall operate,
keep, and maintain, and as necessary, repair, restore, replace, and make any
capital improvements to the structural portions of the building, including the
ceilings, floor surface, interior walls and wall covering, shafts, stairs,
parking areas, stairwells, elevator cabs, washrooms, and building mechanical,
electrical, gas, plumbing and sprinkler systems. Wells OP shall maintain and
repair the structural skeleton of the building consisting only of the floor
slabs, foundation, roof structure, roof membrane, exterior walls and exterior
glass and mullions.
Property Management Fees. Following construction and completion of the
------------------------
Matsushita Project, property management and leasing services will be performed
by Wells Management Company, Inc. (the "Property Manager"), an Affiliate of the
Company and the Advisor. As compensation for its services, the Property Manager
will receive fees equal to 4.5% of the gross revenues for property management
services and leasing services with respect to the Matsushita Project. In
addition, the Property Manager will receive a one-time initial lease-up fee
relating to the Matsushita Lease equal to the first month's rent plus 5% of the
gross revenues over the initial term of the Matsushita Lease.
MANAGEMENT
The information contained on page 35 in the "Compensation of Directors and
Officers" subsection of the "Management" section of the Prospectus is revised as
of the date of this Supplement by the deletion of that full paragraph and the
insertion of the following in lieu thereof:
Each Independent Director of the Board of Directors is paid a fee of
$250 for each board meeting attended by such director. All directors
receive reimbursement of reasonable out-of-pocket expenses incurred in
connection with meetings of the Board of Directors. No director who is
also an officer of the Company receives separate compensation for services
rendered as a director.
On March 17, 1999, the Board of Directors adopted the Wells Real
Estate Investment Trust, Inc. Independent Director Stock Option Plan (the
"Plan") to foster and promote the long-term financial success of the
Company by providing an incentive to persons not affiliated with the
Company to serve as directors through stock ownership in the Company. If
the Plan is approved by the Shareholders at the upcoming 1999 Annual
Meeting of Shareholders, each of the seven Independent Directors of the
Company will immediately receive an initial grant of options to purchase
2,500 shares of the Company (the "Initial Options"), and subsequent grants
of options to purchase 1,000 shares of the Company on the date of each
annual meeting of shareholders beginning with the 2000 Annual Meeting (the
"Subsequent Options"). The Initial Options and the Subsequent Options are
hereinafter collectively referred to as the "Options." However, options
may not be granted at any time when the grant, along with grants to other
Independent Directors, would exceed 10% of the issued and outstanding
Shares. The option price for the Initial Options will be $12.00 per share.
The option price for the Subsequent Options shall be the greater of (1)
$12.00 per share or (2) the fair market value of the Shares as defined in
Section 3.5 of the Plan.
One-fifth of the Initial Options are exercisable beginning on the date
of their grant and an additional one-fifth of the Initial Options will
become exercisable on each anniversary of the date of their grant for a
period of four years until 100% of the shares become exercisable. The
11
<PAGE>
Subsequent Options granted under the Plan will become exercisable on the
second anniversary of the date of their grant.
A total of 100,000 shares have been authorized and reserved for
issuance under the Plan. If the number of outstanding shares is increased,
decreased or changed into, or exchanged for, a different number or kind of
shares or securities of the Company through a reorganization or merger in
which the Company is the surviving entity, or through a combination,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation or otherwise, an appropriate adjustment will be made in the
number and kind of shares that may be issued pursuant to the Options. A
corresponding adjustment to the exercise price of the Options granted prior
to any change will also be made. Any such adjustment, however, will be
made without change in the total payment, if any, applicable to the portion
of the Options not exercised but with a corresponding adjustment in the
exercise price for each share.
Options granted under the Plan shall lapse on the first to occur of
(1) the tenth anniversary of the date of grant, (2) the removal for cause
of the Independent Director as a member of the Board of Directors, or (3)
three months following the date the Independent Director ceases to be a
Director for any reason other than death or disability, and may be
exercised by payment of cash or through the delivery of common stock.
Options granted under the Plan are generally exercisable in the case of
death or disability for a period of one year after death or the disabling
event. No Option issued pursuant to the Plan may be exercised if such
exercise would jeopardize the Company's status as a REIT under the Internal
Revenue Code.
No Option may be sold, pledged, assigned or transferred by an
Independent Director in any manner otherwise than by will or the laws of
descent or distribution.
Upon the dissolution or liquidation of the Company or upon the
reorganization, merger or consolidation with one or more corporations as a
result of which the Company is not the surviving corporation or upon sale
of all or substantially all of the properties, the Plan will terminate, and
any outstanding Options will terminate and be forfeited. Notwithstanding
the foregoing, the Board of Directors may provide in writing in connection
with, or in contemplation of, any such transaction for any or all of the
following alternatives: (1) for the assumption by the successor
corporation of the Options granted or the substitution by such corporation
for such Options of options covering the stock of the successor
corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and exercise prices; (2)
for the continuance of the Plan by such successor corporation in which
event the Plan and the Options will continue in the manner and under the
terms so provided; or (3) for the payment in cash or shares of common stock
in lieu of and in complete satisfaction of such Options.
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 April 5, 1999, the Company had raised a total of $57,235,152 in
offering proceeds (5,723,515 Shares), and had paid $2,003,230 in
acquisition and advisory fees and acquisition expenses and $7,154,394 in
selling commissions and organizational and offering expenses. As of April
5, 1999, the Company had invested $43,472,358 in properties and was holding
net offering proceeds of $4,605,170 available for investment in additional
properties.
12
<PAGE>
The following shall be added to the "Management's Discussion and Analysis
of Financial Condition and Result of Operations" section of the Prospectus:
YEAR 2000 ISSUES
The Company is presently reviewing the potential impact of Year 2000
compliance issues on its information systems and business operations. A
full assessment of Year 2000 compliance issues was begun in late 1997 and
was completed on March 31, 1999. Renovations and replacements of equipment
have been and are being made as warranted. The costs incurred by the
Company and its Affiliates thus far for renovations and replacements have
been immaterial. Some testing of systems has begun and all testing is
expected to be complete by June 30, 1999.
As to the status of the Company's information technology systems, it
is presently believed that all major systems and software packages with the
exception of the accounting and property management package are Year 2000
compliant. The Company's affiliated entities are purchasing the upgrade
for the accounting and property management package system; however, it is
not slated to be installed until second quarter 1999. At the present time,
it is believed that all major non-information technology systems are Year
2000 compliant. The cost to upgrade any non-compliant systems is believed
to be immaterial.
The Company is in the process of confirming with the Company's
vendors, including third-party service providers such as banks, that their
systems will be Year 2000 compliant. Based on the information received
thus far, the primary third-party service providers with which the Company
has relationships have confirmed their Year 2000 readiness.
The Company relies on computers and operating systems provided by
equipment manufacturers, and also on application software designed for use
with its accounting, property management and investment portfolio tracking.
The Company has preliminarily determined that any costs, problems or
uncertainties associated with the potential consequences of Year 2000
issues are not expected to have a material impact on the future operations
or financial condition of the Company. The Company will perform due
diligence as to the Year 2000 readiness of each property owned by the
Company and each property contemplated for purchase by the Company.
The Company's reliance on embedded computer systems (i.e.,
microcontrollers) is limited to facilities related matters, such as office
security systems and environmental control systems.
The Company is currently formulating contingency plans to cover any
areas of concern. Alternate means of operating the business are being
developed in the unlikely circumstance that the computer and phone systems
are rendered inoperable. An off-site facility from which the Company could
operate is being sought as well as alternate means of communication with
key third-party vendors. A written plan is being developed for testing and
dispensation to each staff member of the Advisor of the Company.
Management believes that the Company's risk of Year 2000 problems is
minimal. In the unlikely event there is a problem, the worst case
scenarios would include the risks that the elevator or security systems
within the Company's properties would fail or the key third-party vendors
upon which the Company relies would be unable to provide accurate investor
information. In the event that the elevator shuts down, the Company has
devised a plan for each building whereby the tenants will use the stairs
until the elevators are fixed. In the event that the security system shuts
down, the Company has devised a plan for each building to hire temporary
on-site security guards. In the event that a third-party vendor has Year
2000 problems relating to investor information, the Company intends to
perform a full system back-up of all investor information as of December
31, 1999 so that the Company will have accurate hard-copy investor
information.
13
<PAGE>
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 addition
of the following paragraph after the second full paragraph on that page:
Investors who wish to elect the Deferred Commission Option should make
the election on their Subscription Agreement Signature Page, the revised
form of which is included as Exhibit "B" to this Supplement. Election of
the Deferred Commission Option shall authorize the Company to withhold
dividends or other cash distributions otherwise payable to such investor
for the purpose of paying commissions due under the Deferred Commission
Option. Such dividends or cash distributions otherwise payable to
investors may be pledged by the Company, the Dealer Manager, the Advisor or
their Affiliates to secure one or more loans, the proceeds of which would
be used to satisfy sales commission obligations.
FINANCIAL STATEMENTS AND PRIOR PERFORMANCE TABLES
The financial statements of the Company as of December 31, 1998 and 1997,
and for each of the years in the two year period ended December 31, 1998,
included in this Supplement in Appendix I have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included in this Supplement in reliance upon the authority of
said firm as experts in giving said report.
The statement of revenues over certain operating expenses of the Vanguard
Cellular Building for the period from Inception (November 16, 1998) to December
31, 1998, included in this Supplement in Appendix I, has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and is included herein upon the authority of said firm as
experts in giving said report. The pro forma financial information for Wells
Real Estate Investment Trust, Inc. as of December 31, 1998 and for the year
ended December 31, 1998, which are included in Appendix I to this Supplement,
have not been audited.
Prior Performance Tables dated as of December 31, 1998 are included as
Exhibit "A" to this Supplement.
14
<PAGE>
APPENDIX I
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
Audited Financial Statements
Report of Independent Public Accountants I-1
Consolidated Balance Sheets as of December 31, 1998 and
December 31, 1997 I-2
Consolidated Statement of Income for the year ended
December 31, 1998 I-3
Consolidated Statement of Shareholders' Equity for the
year ended December 31, 1998 I-4
Consolidated Statement of Cash Flows for the year ended
December 31, 1998 I-5
Notes to Consolidated Financial Statements I-6
VANGUARD CELLULAR BUILDING
Audited Financial Statements
Report of Independent Public Accountants I-23
Statement of Revenues Over Certain Operating Expenses for the
period from Inception (November 16, 1998) to December 31, 1998 I-24
Notes to Statement of Revenues Over Certain Operating Expenses for
the period from Inception (November 16, 1998) to December 31, 1998 I-25
WELLS REAL ESTATE INVESTMENT TRUST, INC.
Unaudited Pro Forma Financial Statements
Summary of Unaudited Pro Forma Financial Statements I-27
Pro Forma Balance Sheet as of December 31, 1998 I-28
Pro Forma Income Statement for the year ended December 31, 1998 I-29
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying consolidated balance sheets of WELLS REAL
ESTATE INVESTMENT TRUST, INC. (a Maryland corporation) AND SUBSIDIARY as of
December 31, 1998 and 1997 and the related consolidated statements of income,
shareholders' equity, and cash flows for the year ended December 31, 1998.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Real Estate Investment
Trust, Inc. and subsidiary as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 27, 1999
I-1
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
----------- ----------
<S> <C> <C>
REAL ESTATE ASSETS, AT COST:
Land $ 1,520,834 $ 0
Building 20,076,845 0
----------- ----------
Total real estate assets 21,597,679 0
INVESTMENT IN JOINT VENTURES 11,568,677 0
CASH AND CASH EQUIVALENTS 7,979,403 201,000
DEFERRED OFFERING COSTS 548,729 289,073
DEFERRED PROJECT COSTS 335,421 0
DUE FROM AFFILIATES 262,345 0
PREPAID EXPENSES AND OTHER ASSETS 540,319 0
----------- ----------
Total assets $42,832,573 $ 490,073
=========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued expenses $ 187,827 $ 0
Note payable 14,059,930 0
Shareholder distributions payable 408,176 0
Due to affiliate 554,953 289,073
----------- ----------
Total liabilities 15,210,886 289,073
----------- ----------
MINORITY INTEREST OF UNIT HOLDER IN OPERATING
PARTNERSHIP 200,000 200,000
----------- ----------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 16,500,000
shares authorized, 3,154,136 and 100 shares
issued and outstanding, respectively 31,541 1
Additional paid-in capital 27,056,112 999
Retained earnings 334,034 0
----------- ----------
Total shareholders' equity 27,421,687 1,000
----------- ----------
Total liabilities and shareholders'
equity $42,832,573 $ 490,073
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
I-2
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
REVENUES:
Rental income $ 20,994
Equity in income of joint ventures 263,315
Interest income 110,869
--------
395,178
--------
EXPENSES:
Operating costs, net of reimbursements 11,033
General and administrative 29,943
Legal and accounting 19,552
Computer costs 616
--------
61,144
--------
NET INCOME $334,034
========
EARNINGS PER SHARE:
Basic and diluted $0.40
========
The accompanying notes are an integral part of this consolidated statement.
I-3
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN RETAINED SHAREHOLDERS'
--------------------
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- -------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 100 $ 1 $ 999 $ 0 $ 1,000
Issuance of common stock 3,154,036 31,540 31,508,820 0 31,540,360
Net income 0 0 0 334,034 334,034
Distributions 0 0 (511,163) 0 (511,163)
Sales commissions 0 0 (2,996,334) 0 (2,996,334)
Other offering expenses 0 0 (946,210) 0 (946,210)
---------- ------- ----------- -------- -----------
BALANCE, DECEMBER 31, 1998 $3,154,136 $31,541 $27,056,112 $334,034 $27,421,687
---------- ------- ----------- -------- -----------
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
I-4
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 334,034
------------
Adjustments to reconcile net income to net cash used in operating activities:
Equity in income of joint ventures (263,315)
Changes in assets and liabilities:
Prepaid expenses and other assets (540,319)
Accounts payable and accrued expenses 187,827
Due to affiliates 6,224
------------
Total adjustments (609,583)
------------
Net cash used in operating activities (275,549)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (21,299,071)
Investment in joint ventures (11,276,007)
Deferred project costs paid (1,103,913)
Distributions received from joint ventures 178,184
------------
Net cash used in investing activities (33,500,807)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 14,059,930
Distributions (102,987)
Issuance of common stock 31,540,360
Sales commission paid (2,996,334)
Offering costs paid (946,210)
------------
Net cash provided by financing activities 41,554,759
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,778,403
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 201,000
------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,979,403
============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to real estate assets $ 298,608
============
Deferred project costs contributed to joint ventures $ 469,884
============
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
I-5
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wells Real Estate Investment Trust, Inc. (the "Company") is a Maryland
corporation that qualifies as a real estate investment trust ("REIT"). The
Company is conducting an offering for the sale of 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. During 1997, the Company 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, 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 is conducted through Wells
Operating Partnership, L.P. (the "Operating Partnership"), a Delaware limited
partnership. During 1997, the Operating Partnership 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 financial statements of the
Company include the amounts of the Operating Partnership.
The Company owns interests in several properties through a joint venture
among the Operating Partnership, 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"). This joint venture is referred to as the
Fund IX, Fund X, Fund XI, and REIT Joint Venture ("Fund IX, X, XI, and REIT
Joint Venture"). In addition, the Company owns two properties through joint
ventures between the Operating Partnership and a joint venture between Wells
Fund X and Wells Fund XI, referred to as "Fund X and XI Associates." In
addition, the Operating Partnership directly owns an office building in
Tampa, Florida.
I-6
<PAGE>
Through its investment in the Fund IX, X, XI, and REIT Joint Venture, the
Company owns interests in the following properties: (i) a three-story office
building in Knoxville, Tennessee (the "ABB Building"), (ii) a two-story
office building in Louisville, Colorado (the "Ohmeda Building"), (iii) a
three-story office building in Broomfield, Colorado (the "360 Interlocken
Building"), (iv) a one-story warehouse facility in Ogden, Utah (the "Iomega
Building"), and (v) a one-story office building in Oklahoma City, Oklahoma
(the "Lucent Technologies Building").
The following properties are owned by the Operating Partnership through
investments in joint ventures with Fund X and XI Associates: (i) a one-story
office and warehouse building in Fountain Valley, California (the "Cort
Furniture Building") owned by Wells/Orange County Associates and (ii) a
warehouse and office building in Fremont, California (the "Fairchild
Building") owned by Wells/Fremont Associates.
USE OF ESTIMATES AND FACTORS AFFECTING THE COMPANY
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities 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 real estate are based on management's current intent
to hold the real estate assets as long-term investments. The success of the
Company's future operations and the ability to realize the investment in its
assets will be dependent on the Company's ability to maintain rental rates,
occupancy, and an appropriate level of operating expenses in future years.
Management believes that the steps it is taking will enable the Company to
realize its investment in its assets.
REAL ESTATE ASSETS
Real estate assets held by the Company and joint ventures are stated at cost
less accumulated depreciation. Major improvements and betterments are
capitalized when they extend the useful life of the related asset. All
repair and maintenance are expensed as incurred.
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets 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 has determined that there has been
no impairment in the carrying value of real estate assets held by the Company
or the joint ventures as of December 31, 1998.
I-7
<PAGE>
Depreciation of building and 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.
INVESTMENT IN JOINT VENTURES
The Operating Partnership does not have control over the operations of the
joint ventures; however, it does exercise significant influence.
Accordingly, the Operating Partnership's investment in the joint ventures is
recorded using the equity method of accounting.
REVENUE RECOGNITION
All leases on real estate assets held by the Company or the joint ventures
are classified as operating leases, and the related rental income is
recognized on a straight-line basis over the terms of the respective leases.
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.
CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company 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.
2. DEFERRED PROJECT COSTS
The Company paid a percentage of shareholder contributions to the Advisor for
acquisition and advisory services. These payments, as stipulated in the
prospectus, can be up to 3.5% of shareholder contributions, subject to
certain overall limitations contained in the prospectus. Aggregate fees paid
through December 31, 1998 were $1,103,913 and amounted to 3.5% of
shareholders' contributions received. These fees are allocated to specific
properties as they are purchased or developed and are included in capitalized
assets of the joint ventures or real estate assets. Deferred project costs
at December 31, 1998 represent fees not yet applied to properties.
3. DEFERRED OFFERING COSTS
Organization and offering expenses, to the extent they exceed 3% of gross
proceeds, will be paid by the Advisor and not by the Company. Organization
and offering expenses do not include sales or underwriting commissions but do
include such costs as legal and accounting fees, printing costs, and other
offering expenses.
I-8
<PAGE>
As of December 31, 1998 and 1997, the Advisor had paid organization and
offering expenses related to the Company of $946,211 and $0, respectively.
4. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1998 represents the Operating
Partnership's share of the cash to be distributed for the fourth quarter of
1998 as follows:
Fund IX, X, XI, and REIT Joint Venture $ 38,360
Wells/Orange County Associates 77,123
Wells/Fremont Associates 146,862
--------
$262,345
--------
The Company entered into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the Advisor.
In consideration for supervising the management and leasing of the Operating
Partnership's properties, the Operating Partnership will pay Wells Management
management and leasing fees equal to the lesser of (a) fees that would be
paid to a comparable outside firm, or (b) 4.5% of the gross revenues
generally paid over the life of the lease plus a separate competitive fee for
the one-time initial lease-up of newly constructed properties generally paid
in conjunction with the receipt of the first month's rent. In the case of
commercial properties which are leased on a long-term (ten or more years) net
lease basis, the maximum property management fee from such leases shall be 1%
of the gross revenues generally paid over the life of the leases except for a
one-time initial leasing fee of 3% of the gross revenues on each lease
payable over the first five full years of the original lease term.
The Operating Partnership's portion of the management and leasing fees and
lease acquisition costs paid to Wells Management by the joint ventures was
$5,673 for the year ended December 31, 1998.
The Advisor performs certain administrative services for the Operating
Partnership, such as accounting and other partnership administration, and
incurs the related expenses. Such expenses are allocated among the Operating
Partnership and the various Wells Real Estate Funds based on time spent on
each fund by individual administrative personnel. In the opinion of
management, such allocation is a reasonable basis for allocating such
expenses.
The Advisor is a general partner in various Wells Real Estate Funds. As
such, there may exist conflicts of interest where the Advisor, while serving
in the capacity as general partner for Wells Real Estate Funds, may be in
competition with the Operating Partnership for tenants in similar geographic
markets.
I-9
<PAGE>
5. INVESTMENT IN JOINT VENTURES
The Operating Partnership's investment and percentage ownership in joint
ventures at December 31, 1998 is summarized as follows:
AMOUNT PERCENT
------------ -----------
Fund IX, X, XI, and REIT Joint Venture $ 1,443,378 4%
Wells/Orange County Associates 2,958,617 44
Wells/Fremont Associates 7,166,682 78
-----------
$11,568,677
-----------
The following is a roll forward of the Operating Partnership's investment in
joint ventures for the year ended December 31, 1998:
Investment in joint ventures, beginning of year $ 0
Equity in income of joint ventures 263,315
Contributions to joint ventures 11,745,890
Distributions from joint venture (440,528)
-----------
Investment in joint ventures, end of year $11,568,677
-----------
FUND IX, X, XI, AND REIT JOINT VENTURE
On March 20, 1997, Wells Fund IX and Wells Fund X entered into a joint
venture agreement. The joint venture, Fund IX and X Associates, was formed
to acquire, develop, operate, and sell real properties. On March 20, 1997,
Wells Fund IX contributed a 5.62-acre tract of real property in Knoxville,
Tennessee, and improvements thereon, known as the ABB Building, to the Fund
IX and X Associates joint venture. A 83,885-square-foot, three-story
building was constructed and commenced operations at the end of 1997.
On February 13, 1998, the joint venture purchased a two-story office
building, known as the Ohmeda Building, in Louisville, Colorado. On March
20, 1998, the joint venture purchased a three-story office building, known as
the 360 Interlocken Building, in Broomfield, Colorado. On June 11, 1998,
Fund IX and X Associates was amended and restated to admit Wells Fund XI and
the Operating Partnership. The joint venture was renamed the Fund IX, X, XI,
and REIT Joint Venture. On June 24, 1998, the new joint venture purchased a
one-story office building, known as the Lucent Technologies Building, in
Oklahoma City, Oklahoma. On April 1, 1998, Wells Fund X purchased a one-
story warehouse facility, known as the Iomega Building, in Ogden, Utah. On
July 1, 1998, Wells Fund X contributed the Iomega Building to the Fund IX, X,
XI, and REIT Joint Venture.
I-10
<PAGE>
Following are the financial statements for the Fund IX, X, XI, and REIT
Joint Venture:
THE FUND IX, X, XI, AND REIT JOINT VENTURE
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
Assets
1998 1997
----------- ----------
Real estate assets, at cost:
Land $ 6,454,213 $ 607,930
Building and improvements, less
accumulated depreciation of $1,253,156 in
1998 and $36,863 in 1997 30,686,845 6,445,300
Construction in progress 990 35,622
---------- ----------
Total real estate assets 37,142,048 7,088,852
Cash and cash equivalents 1,329,457 289,171
Accounts receivable 133,257 40,512
Prepaid expenses and other assets 441,128 329,310
----------- ----------
Total assets $39,045,890 $7,747,845
----------- ----------
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 409,737 $ 379,770
Due to affiliates 4,406 2,479
Partnership distributions payable 1,000,127 0
----------- ----------
Total liabilities 1,414,270 382,249
----------- ----------
Partners' capital:
Wells Real Estate Fund IX 14,960,100 3,702,793
Wells Real Estate Fund X 18,707,139 3,662,803
Wells Real Estate Fund XI 2,521,003 0
Wells Operating Partnership, L.P. 1,443,378 0
----------- ----------
Total partners' capital 37,631,620 7,365,596
----------- ----------
Total liabilities and
partners' capital $39,045,890 $7,747,845
----------- ----------
I-11
<PAGE>
THE FUND IX, X, XI, AND REIT JOINT VENTURE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM INCEPTION (MARCH 20, 1997) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Revenues:
Rental income $2,945,980 $ 28,512
Interest income 20,438 0
---------- --------
2,966,418 28,512
---------- --------
Expenses:
Depreciation 1,216,293 36,863
Management and leasing fees 226,643 1,711
Operating costs, net of reimbursements (140,506) 10,118
Property administration 34,821 0
Legal and accounting 15,351 0
---------- --------
1,352,602 48,692
---------- --------
Net income (loss) $1,613,816 $(20,180)
---------- --------
Net income (loss) allocated to Wells
Real Estate Fund IX $ 692,116 $(10,145)
========== ========
Net income (loss) allocated to Wells
Real Estate Fund X $ 787,481 $(10,035)
========== ========
Net income allocated to Wells
Real Estate Fund XI $ 85,352 $ 0
========== ========
Net income allocated to Wells
Operating Partnership, L.P. $ 48,867 $ 0
========== ========
</TABLE>
I-12
<PAGE>
THE FUND IX, X, XI, AND REIT JOINT VENTURE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM INCEPTION (MARCH 20, 1997) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
WELLS REAL WELLS REAL WELLS REAL WELLS TOTAL
ESTATE ESTATE ESTATE OPERATING PARTNERS'
FUND IX FUND X FUND XI PARTNERSHIP, L.P. CAPITAL
------------ ----------- ---------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 0 $ 0 $ 0 $ 0 $ 0
Net loss (10,145) (10,035) 0 0 (20,180)
Partnership contributions 3,712,938 3,672,838 0 0 7,385,776
------------ ----------- ---------- ---------------- -----------
Balance, December 31, 1997 3,702,793 3,662,803 0 0 7,365,596
Net income 692,116 787,481 85,352 48,867 1,613,816
Partnership contributions 11,771,312 15,613,477 2,586,262 1,480,741 31,451,792
Partnership distributions (1,206,121) (1,356,622) (150,611) (86,230) (2,799,584)
------------ ----------- ---------- ---------------- -----------
Balance, December 31, 1998 $ 14,960,100 $18,707,139 $2,521,003 $ 1,443,378 $37,631,620
------------ ----------- ---------- ---------------- -----------
</TABLE>
I-13
<PAGE>
THE FUND IX, X, XI, AND REIT JOINT VENTURE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM INCEPTION (MARCH 20, 1997) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,613,816 $ (20,180)
--------------- --------------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 1,216,293 36,863
Changes in assets and liabilities:
Accounts receivable (92,745) (40,512)
Prepaid expenses and other assets (111,818) (329,310)
Accounts payable 29,967 379,770
Due to affiliates 1,927 2,479
--------------- --------------
Total adjustments 1,043,624 49,290
--------------- --------------
Net cash provided by operating activities 2,657,440 29,110
--------------- --------------
Cash flows from investing activities:
Investment in real estate (24,788,070) (5,715,847)
--------------- --------------
Cash flows from financing activities:
Distributions to joint venture partners (1,799,457) 0
Contributions received from partners 24,970,373 5,975,908
--------------- --------------
Net cash provided by financing activities 23,170,916 5,975,908
--------------- --------------
Net increase in cash and cash equivalents 1,040,286 289,171
Cash and cash equivalents, beginning of period 289,171 0
--------------- --------------
Cash and cash equivalents, end of year $ 1,329,457 $ 289,171
=============== ==============
Supplemental disclosure of noncash activities:
Deferred project costs contributed $ 1,470,780 $ 318,981
Contribution of real estate assets $ 5,010,639 $ 1,090,887
=============== ==============
</TABLE>
WELLS/ORANGE COUNTY ASSOCIATES
On July 27, 1998, the Operating Partnership entered into a joint venture
agreement with Wells Development Corporation, referred to as Wells/Orange County
Associates. On July 31, 1998, Wells/Orange County Associates acquired a 52,000-
square-foot warehouse and office building located in Fountain Valley,
California, known as the Cort Furniture Building.
On September 1, 1998, Fund X and XI Associates acquired Wells Development
Corporation's interest in Wells/Orange County Associates which resulted in Fund
X and XI Associates becoming a joint venture partner with the Operating
Partnership in the ownership of the Cort Furniture Building.
I-14
<PAGE>
Following are the financial statements for Wells/Orange County Associates:
WELLS/ORANGE COUNTY ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEET
DECEMBER 31, 1998
Assets
Real estate assets, at cost:
Land $2,187,501
Building, less accumulated depreciation of $92,087 4,572,028
----------
Total real estate assets 6,759,529
Cash and cash equivalents 180,895
Accounts receivable 13,123
----------
Total assets $6,953,547
==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 1,550
Partnership distributions payable 176,614
==========
Total liabilities 178,164
----------
Partners' capital:
Wells Operating Partnership, L.P. 2,958,617
Fund X and XI Associates 3,816,766
----------
Total partners' capital 6,775,383
----------
Total liabilities and partners' capital $6,953,547
==========
I-15
<PAGE>
WELLS/ORANGE COUNTY ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION (JULY 27, 1998)
TO DECEMBER 31, 1998
Revenues:
Rental income $331,477
Interest income 448
----------
331,925
----------
Expenses:
Depreciation 92,087
Management and leasing fees 12,734
Operating costs, net of reimbursements 2,288
Interest 29,472
Legal and accounting 3,930
----------
140,511
==========
Net income $191,414
==========
Net income allocated to Wells Operating Partnership, l.p. $ 91,978
==========
Net income allocated to Fund X and XI Associates $ 99,436
==========
WELLS/ORANGE COUNTY ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (JULY 27, 1998)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
WELLS
OPERATING FUND X TOTAL
PARTNERSHIP, AND XI PARTNERS'
L.P. ASSOCIATES CAPITAL
---------------- ----------------- ------------------
<S> <C> <C> <C>
Balance,December 31, 1997 $ 0 $ 0 $ 0
Net income 91,978 99,436 191,414
Partnership contributions 2,991,074 3,863,272 6,854,346
Partnership distributions (124,435) (145,942) (270,377)
------------------ ------------------ -----------------
Balance,December 31, 1998 $2,958,617 $3,816,766 $6,775,383
================== ================== =================
</TABLE>
I-16
<PAGE>
WELLS/ORANGE COUNTY ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JULY 27, 1998)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 191,414
-------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 92,087
Changes in assets and liabilities:
Accounts receivable (13,123)
Accounts payable 1,550
-------------
Total adjustments 80,514
-------------
Net cash provided by operating activities 271,928
-------------
Cash flows from investing activities:
Investment in real estate (6,563,700) Cash flows from financing
activities:
Issuance of note payable 4,875,000
Payment of note payable (4,875,000)
Distributions to partners (93,763)
Contributions received from partners 6,566,430
=============
Net cash provided by financing activities 6,472,667
-------------
Net increase in cash and cash equivalents 180,895
Cash and cash equivalents, beginning of period 0
-------------
Cash and cash equivalents, end of year $ 180,895
=============
Supplemental disclosure of noncash investing activities:
Deferred project costs contributed $ 287,916
=============
</TABLE>
WELLS/FREMONT ASSOCIATES
On July 15, 1998, the Operating Partnership entered into a joint venture
agreement with Wells Development Corporation, referred to as Wells/Fremont
Associates. On July 21, 1998, Wells/Fremont Associates acquired a
58,424-square-foot warehouse and office building located in Fremont,
California, known as the Fairchild Building.
On October 8, 1998, Fund X and XI Associates acquired Wells Development
Corporation's interest in Wells/Fremont Associates which resulted in Fund
X and XI Associates becoming a joint venture partner with the Operating
Partnership in the ownership of the Fairchild Building.
I-17
<PAGE>
Following are the financial statements for Wells/Fremont Associates:
WELLS/FREMONT ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEET
DECEMBER 31, 1998
Assets
Real estate assets, at cost:
Land $2,219,251
Building, less accumulated depreciation of $142,720 6,995,439
------------
Total real estate assets 9,214,690
Cash and cash equivalents 192,512
Accounts receivable 34,742
------------
Total assets $9,441,944
============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 3,565
Due to affiliate 2,052
Partnership distributions payable 189,490
------------
Total liabilities 195,107
------------
Partners' capital:
Wells Operating Partnership, L.P. 7,166,682
Fund X and XI Associates 2,080,155
------------
Total partners' capital 9,246,837
------------
Total liabilities and partners' capital $9,441,944
============
I-18
<PAGE>
WELLS/FREMONT ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION (JULY 15, 1998)
TO DECEMBER 31, 1998
Revenues:
Rental income $401,058
Interest income 3,896
---------
404,954
=========
Expenses:
Depreciation 142,720
Management and leasing fees 16,726
Operating costs, net of reimbursements 3,364
Interest 73,919
Legal and accounting 6,306
---------
243,035
---------
Net income $161,919
=========
Net income allocated to Wells Operating
Partnership, L.P. $122,470
=========
Net income allocated to Fund X and XI Associates $ 39,449
=========
WELLS/FREMONT ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (JULY 15, 1998)
TO DECEMBER 31, 1998
WELLS
OPERATING FUND X TOTAL
PARTNERSHIP, AND XI PARTNERS,
L.P ASSOCIATES CAPITAL
------------- ---------- ------------
Balance,December 31, 1997 $ 0 $ 0 $ 0
Net income 122,470 39,449 161,919
Partner contributions 7,274,075 2,083,334 9,357,409
Partnership distributions (229,863) (42,628) (272,491)
------------ ------------ ------------
Balance, December 31, 1998 $7,166,682 $2,080,155 $9,246,837
============ ============ ============
I-19
<PAGE>
WELLS/FREMONT ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JULY 15, 1998)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 161,919
------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 142,720
Changes in assets and liabilities:
Accounts receivable (34,742)
Accounts payable 3,565
Due to affiliate 2,052
------------
Total adjustments 113,595
------------
Net cash provided by operating activities 275,514
------------
Cash flows from investing activities:
Investment in real estate (8,983,111)
-------------
Cash flows from financing activities:
Issuance of note payable 5,960,000
Payment of note payable (5,960,000)
Distributions to partners (83,001)
Contributions received from partners 8,983,110
-------------
Net cash provided by financing activities 8,900,109
-------------
Net increase in cash and cash equivalents 192,512
Cash and cash equivalents, beginning of period 0
=============
Cash and cash equivalents, end of year $ 192,512
=============
Supplemental disclosure of noncash investing activities:
Deferred project costs contributed $ 374,299
=============
</TABLE>
6. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Operating Partnership's income tax basis net income for the year ended
December 31, 1998 is calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Financial statement net income $334,034
Increase (decrease) in net
income resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 82,618
Rental income accrued for financial reporting purposes in excess of
amounts for income tax purposes (35,427)
Expenses capitalized for income tax purposes, deducted for
financial reporting purposes 1,634
----------
Income tax basis net income $382,859
==========
</TABLE>
The Operating Partnership's income tax basis partners' capital at December
31, 1998 is computed as follows:
I-20
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Financial statement partners' capital Increase $27,421,687
(decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in excess
of amounts for income tax purposes
82,618
Capitalization of syndication costs for income tax purposes,
which are accounted for as cost of capital for financial
reporting purposes 3,942,545
Accumulated rental income accrued for financial reporting
purposes in excess of amounts for income tax purposes
(35,427)
Accumulated expenses capitalized for income tax purposes,
deducted for financial reporting purposes 1,634
Operating Partnership's distributions payable 408,176
============
Income tax basis partners' capital $31,821,233
============
</TABLE>
7. RENTAL INCOME
The future minimum rental income due from the Operating Partnership's
direct investment in real estate or its respective ownership interest in
the joint ventures under noncancelable operating leases at December 31,
1998 is as follows:
Year ended December 31:
1999 $3,056,108
2000 3,130,347
2001 3,229,087
2002 3,306,364
2003 3,332,111
Thereafter 12,865,333
------------
$28,919,350
============
Two tenants contributed 47% and 35% of rental income, which is included in
equity in income of joint ventures for the year ended December 31, 1998.
In addition, one tenant will contribute 77% of future minimum rental
income.
I-21
<PAGE>
The future minimum rental income due the Fund IX, X, XI, and REIT Joint
Venture under noncancealable operating leases at December 31, 1998 is as
follows:
Year ended December 31:
1999 $3,689,498
2000 3,615,011
2001 3,542,714
2002 3,137,241
2003 3,196,100
Thereafter 8,225,566
============
$25,406,130
============
Three significant tenants contributed 31%, 26%, and 13% of rental income
for the year ended December 31, 1998. In addition, four significant
tenants will contribute 27%, 25%, 21%, and 15% of future minimum rental
income.
The future minimum rental income due Wells/Orange County Associates under
noncancealable operating leases at December 31, 1998 is as follows:
Year ended December 31:
1999 $ 758,964
2000 758,964
2001 809,580
2002 834,888
2003 695,740
===========
$3,858,136
===========
One tenant contributed 100% of rental income for the year ended December
31, 1998 and will contribute 100% of future minimum rental income.
The future minimum rental income due Wells/Fremont Associates under
noncancelable operating leases at December 31, 1998 is as follows:
Year ended December 31:
1999 $ 844,167
2000 869,492
2001 895,577
2002 922,444
2003 950,118
Thereafter 894,832
===========
$5,376,630
===========
One tenant contributed 100% of rental income for the year ended December
31, 1998 and will contribute 100% of future minimum rental income.
8. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Company, the Operating
Partnership, or the Advisor. In the normal course of business, the
Company, the Operating Partnership, or the Advisor may become subject to
such litigation or claims.
I-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the VANGUARD CELLULAR BUILDING for the period from inception
(November 16, 1998) to December 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 certain 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 certain 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 Vanguard
Cellular Building after acquisition by Wells Operating Partnership, L.P. (on
behalf of Wells Real Estate Investment Trust, Inc.). The accompanying statement
of revenues over certain 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 Vanguard
Cellular Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Vanguard Cellular Building for the period from inception
(November 16, 1998) to December 31, 1998 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 26, 1999
I-23
<PAGE>
VANGUARD CELLULAR BUILDING
STATEMENT OF REVENUES OVER CERTAIN
OPERATING EXPENSES
FOR THE PERIOD FROM INCEPTION
(NOVEMBER 16, 1998) TO DECEMBER 31, 1998
RENTAL REVENUES $171,855
OPERATING EXPENSES, NET OF REIMBURSEMENTS 0
---------
REVENUES OVER CERTAIN OPERATING EXPENSES $171,855
---------
The accompanying notes are an integral part
of this statement.
I-24
<PAGE>
VANGUARD CELLULAR BUILDING
NOTES TO STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE PERIOD FROM INCEPTION
(NOVEMBER 16, 1998) TO DECEMBER 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF REAL ESTATE PROPERTY ACQUIRED
On February 4, 1999, Wells Operating Partnership, L.P. ("Wells OP"), a
Delaware limited partnership, formed to acquire and hold real estate
properties on behalf of Wells Real Estate Investment Trust, Inc. (the
"Registrant"), acquired a four-story office building (the "Vanguard
Cellular Building") containing approximately 81,859 rentable square feet,
for the price of $12,291,200 plus acquisition expenses, including legal
fees, of approximately $240,900. Wells OP paid $6,382,100 in cash and
obtained a loan in the amount of $6,450,000 from NationsBank, N. A. (the
"NationsBank Loan"). As of February 4, 1999, $6,150,000 was outstanding on
the NationsBank Loan. The NationsBank Loan gives Wells OP the option of
extending the term of the loan after the initial six months. The interest
rate for the initial six months of the NationsBank Loan is fixed at 7%. On
August 1, 1999, Wells OP may extend the NationsBank Loan at a rate of
LIBOR plus 200 basis points for up to 29 additional months. During the
term of the extension, Wells OP is required to make quarterly principal
installments in an amount equal to one-ninth of the outstanding principal
balance as of October 1, 1999. The NationsBank Loan is secured by a first
mortgage against the Vanguard Cellular Building. Legal fees, loan
origination costs, and appraisal fees incurred from obtaining the
NationsBank Loan totaled approximately $29,000.
The Vanguard Cellular Building is 100% occupied by one tenant with a ten-
year lease term that commenced on November 16, 1998 and expires on
November 15, 2008. Construction of the building was completed in November
1998. Under the terms of the lease agreement, monthly base rent payable is
subject to escalations of 2% per annum and certain lease inception
discounts. The lease is a triple net lease, whereby the terms require the
tenant to reimburse Wells OP for certain operating expenses, as defined in
the lease, related to the building. All of the operating expenses for the
period from lease inception (November 16, 1998) to December 31, 1998 have
been passed through to the tenant.
RENTAL REVENUES
Rental income from the lease is recognized on a straight-line basis over
the life of the lease.
I-25
<PAGE>
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
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 interest,
depreciation, and management fees, not comparable to the operations of the
Vanguard Cellular Building after acquisition by Wells OP.
I-26
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
(UNAUDITED PRO FORMA FINANCIAL STATEMENTS)
The following unaudited pro forma balance sheet as of December 31, 1998 and the
pro forma statement of income for the year ended December 31, 1998 have been
prepared to give effect to Wells Real Estate Investment Trust, Inc.'s
acquisition (through Wells Operating Partnership, L.P.) of the Vanguard Cellular
Building as if it had occurred as of December 31, 1998 with respect to the
balance sheet and on November 16, 1998 (lease inception date) with respect to
the income statement. Wells Operating Partnership, L.P. is a Delaware limited
partnership that was organized to own and operate properties on behalf of the
Wells Real Estate Investment Trust, Inc. Wells Real Estate Investment Trust,
Inc. is the general partner of the Wells Operating Partnership, L.P.
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.
I-27
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
WELLS
REAL ESTATE
INVESTMENT PRO FORMA
TRUST, INC. ADJUSTMENTS TOTAL
------------------- --------------------- --------------
<S> <C> <C> <C>
ASSETS:
Cash $ 7,979,403 $(6,382,100)(a) $ 1,597,329
Due to affiliate 262,345 0 262,345
Investment in JV 11,568,677 0 11,568,677
Prepaid and other assets 504,807 0 504,807
Deferred project costs 335,420 (265,896)(b) 69,498
Deferred offering costs 548,729 0 548,729
Loan origination costs, net 0 29,205 29,205
Tenant receivable 35,512 0 35,512
Land 1,520,834 689,584(a)(b) 2,210,418
Building, net 20,076,846 12,079,207(a)(b) 32,156,053
------------------ ---------------- ----------------
Total assets $42,832,573 $ 6,150,000 $48,982,573
================== ================ ================
LIABILITIES:
Notes payable $14,059,930 $(6,150,000(a) $20,209,930
Due to affiliates 554,953 0 554,953
Partnership distribution payable 408,176 0 408,176
Accounts payable 84,941 0 84,941
Commission payable 102,886 0 102,886
Minority interest 200,000 0 200,000
------------------- -------------- --------------
Total liabilities 15,410,886 6,150,000 21,560,886
------------------- -------------- --------------
SHAREHOLDERS' EQUITY:
Common stock 31,541 0 31,541
Additional paid-in capital 27,056,112 0 27,056,112
Retained earnings 334,034 0 334,034
------------------- -------------- --------------
Total shareholders' equity 27,421,687 0 27,421,687
------------------- -------------- --------------
Total liabilities and shareholders'
equity $42,832,573 $ 6,150,000 $48,982,573
=================== ============== ==============
</TABLE>
(a) Reflects Wells Real Estate Investment Trust Inc.'s
purchase price related to the Vanguard Cellular
Building.
(b) Reflects the deferred project costs allocated to the
Vanguard Cellular Building.
I-28
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
WELLS
REAL ESTATE
INVESTMENT PRO FORMA
TRUST, INC. ADJUSTMENTS TOTAL
------------ ------------- -------------
<S> <C> <C> <C>
REVENUE:
Rental income $ 20,994 $171,855(a) $192,849
Equity in earnings of investment in
joint ventures 263,315 0 263,315
Interest income 110,869 0 110,869
------------ ------------- ------------
Total revenue 395,178 171,855 567,033
============ ============= ============
EXPENSES:
Legal and accounting 19,552 0 19,552
Management and leasing fees 0 1,167 1,167
Partnership administration 17,861 0 17,861
Computer costs 616 0 616
Other operating 23,114 0 23,114
------------ ------------- -----------
Total operating expenses 61,143 1,167 62,310
------------ ------------- -----------
NET OPERATING INCOME 334,035 170,688 504,723
------------ ------------- -----------
DEPRECIATION EXPENSE 0 60,896(b) 60,896
AMORTIZATION EXPENSE 0 1,217 1,217
INTEREST EXPENSE 0 54,255(c) 54,255
------------ ------------- ------------
Net income $334,035 $ 54,320 $388,355
============ ============= ============
</TABLE>
(a) Rental income recognized on a straight-line basis.
(b) Depreciation expense on the Vanguard Cellular Building
based on the straight-line method and a 25 year life.
(c) Interest expense on the $6,150,000 note payable which bears
interest at 7%.
I-29
<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
substantially similar to 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. (See "Investment
Objectives and Criteria.") All of the Wells Prior Public Programs, except for
the Company, have used a substantial amount of capital, and no acquisition
indebtedness, to acquire their properties.
Prospective investors should read these Tables carefully together with the
summary information concerning the Wells Prior Public Programs as set forth in
the "Prior Performance Summary" section of this Prospectus.
Investors in the Company will not own any interest in the other Wells Prior
Public Programs and should not assume that they will experience returns, if any,
comparable to those experienced by investors in the Wells Prior Public Programs.
The Advisor is responsible for the acquisition, operation, maintenance and
resale of the real estate 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 in this Supplement to the Prospectus:
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 Wells Prior Public Programs
TABLE IV (Results of completed programs) and TABLE V (sales or disposals of
property) have been omitted since none of the Wells Prior Public 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 Part
II of 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 Wells Prior Public Programs for which offerings have been
completed since December 31, 1995. 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. All
figures are as of December 31, 1998.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real
Estate Fund Estate Fund Estate Fund Estate Fund
VIII, L.P. IX, L.P. X, L.P. XI, L.P.
---------- -------- ------- --------
<S> <C> <C> <C> <C>
Dollar Amount Raised $32,042,689/(3)/ $35,000,000/(4)/ $27,128,912/(5)/ $16,532,802/(6)/
=========== =========== =========== ===========
Percentage Amount Raised 100.0%/(3)/ 100.0%/(4)/ 100%/(5)/ 100%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 10.0% 9.5%
Organizational Expenses 5.0% 5.0% 5.0% 3.0%
Reserves/(1)/ 0.0% 0.0% 0.0% 0.0%
----------- ----------- ----------- -----------
Percent Available for Investment 85.0% 85.0% 85.0% 87.5%
Acquisition and Development Costs
Prepaid Items and Fees related to
Purchase of Property .1% 2.0% 2.4% 0.0%
Cash Down Payment 80.0% 66.4% 42.1% 29.5%
Acquisition Fees/(2)/ 4.5% 4.5% 4.5% 3.5%
Development and Construction Costs .4% 10.1% 12.0% 0.0%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0% 0.0%
----------- ----------- ----------- -----------
Total Acquisition and Development Cost 85.0% 83.0% 61.0% 33.0%
Percent Leveraged 0.0% 0.0% 0.0% 0.0%
=========== =========== =========== ===========
Date Offering Began 01/06/95 01/05/96 12/31/96 12/31/97
Length of Offering 12 mo. 12 mo. 12 mo. 12mo.
Months to Invest 90% of Amount
Available for Investment (Measured from 17 mo. 14 mo. 19 mo. /(7)/
Beginning of Offering)
Number of Investors as of 12/31/98 2,247 2,118 1,812 1,345
</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 $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.
(4) 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.
(5) 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.
(6) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund XI, L.P. closed its offering on December 30, 1998,
and the total dollar amount raised was $16,532,802.
A-2
<PAGE>
(7) As of December 31, 1998, Wells Real Estate Fund XI, 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, 1998 was 33% of the total dollar
amount raised.
A-3
<PAGE>
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by general partners or
their affiliates, including compensation paid out of offering proceeds and
compensation paid in connection with the ongoing operations of Wells Prior
Public Programs having similar or identical investment objectives the offerings
of which have been completed since December 31, 1995. These partnerships have
not sold or refinanced any of their properties to date. All figures are as of
December 31, 1998.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real Other
Estate Fund Estate Fund Estate Fund Estate Fund Public
VIII, L.P. IX, L.P. X, L.P. XI, L.P. Programs/(1)/
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Date Offering Commenced 01/06/95 01/05/96 12/31/96 12/31/97 --
Dollar Amount Raised $32,042,689 $35,000,000 $27,128,912 $16,532,802 $174,198,406
to Sponsor from Proceeds of Offering:
Underwriting Fees/(2)/ $ 174,295 $ 309,556 $ 260,748 $ 151,911 $ 749,861
Acquisition Fees
Real Estate Commissions -- -- -- --
Acquisition and Advisory Fees/(3)/ $ 1,281,708 $ 1,400,000 $ 1,085,157 $ 578,648 $ 8,877,691
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor/(4)/ $ 5,898,456 $ 4,472,419 $ 2,100,001 $ 87,465 $ 31,156,353
Amount Paid to Sponsor from Operations:
Property Management Fee/(1)/ $ 165,073 $ 82,791 $ 39,957 $ 6,267 $ 1,089,740
Partnership Management Fee -- -- -- -- --
Reimbursements $ 171,240 $ 72,803 $ 41,659 $ 14,623 $ 1,300,327
Leasing Commissions $ 225,234 $ 174,185 $ 110,655 $ 17,559 $ 1,148,836
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., Wells Real Estate Fund VI, L.P. and Wells Real Estate Fund
VII, 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, 1998, the amount of such fees due the
General Partners totaled $2,283,808.
(2) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offerings of Wells Real
Estate Funds VIII, IX, X, and XI, 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.
A-4
<PAGE>
(4) Includes $567,231 in net cash provided by operating activities, $4,769,678
in distributions to limited partners and $561,547 in payments to sponsor
for Wells Real Estate Fund VIII, L.P.; $732,687 in net cash provided by
operating activities, $3,409,953 in distributions to limited partners and
$329,779 in payments to sponsor for Wells Real Estate Fund IX, L.P.;
$500,687 in net cash provided by operating activities, $1,407,043 in
distributions to limited partners and $192,271 in payments to sponsor for
Wells Real Estate Fund X, L.P.; $50,858 in net cash used by operating
activities, $99,874 in distributions to limited partners and $38,449 in
payments to sponsor for Wells Restate Fund XI, L.P.; and $2,917,222 in net
cash provided by operating activities, $24,700,228 in distributions to
limited partners and $3,538,903 in payments to sponsor for other public
programs.
A-5
<PAGE>
TABLE III
(UNAUDITED)
The following six tables set forth operating results of Wells Prior
Public Programs the offerings of which have been completed since December 31,
1993. 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-6
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND VI, L.P.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 939,519 $ 884,802 $ 675,782 $ 1,002,567 $ 819,535
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 82,168 82,898 80,479 94,489 112,389
Depreciation and Amortization/(3)/ 1,563 6,250 6,250 6,250 6,250
---------- ---------- ---------- ------------- -----------
Net Income GAAP Basis/(4)/ $ 855,788 $ 795,654 $ 589,053 $ 901,828 700,896
========== ========== ========== ============= ===========
Taxable Income: Operations $1,206,968 $1,091,770 $ 809,389 $ 916,531 667,682
========== ========== ========== ============= ===========
Cash Generated (Used By):
Operations (70,649) (57,206) (2,716) 278,728 276,376
Joint Ventures 1,829,428 1,500,023 1,044,891 766,212 203,543
---------- ---------- ---------- ------------- -----------
$1,758,779 $1,442,817 $1,042,175 $ 1,044,940 $ 479,919
Less Cash Distributions to Investors:
Operating Cash Flow 1,745,626 1,442,817 1,042,175 1,044,940 245,800
Return of Capital 9,986 125,314 -- --
Undistributed Cash Flow from Prior Year Operations 13,153 -- $ 18,027 216,092 --
---------- ---------- ---------- ------------- -----------
Cash Generated (Deficiency) after Cash Distributions $ 13,153 $ (9,986) (143,341) $ (216,092) $ 234,119
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- -- 12,163,461
---------- ---------- ---------- ------------- -----------
$ 13,153 $ (9,986) $ (143,341) $ (216,092) $12,397,580
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- -- 1,776,909
Return of Original Limited Partner's Investment -- -- -- -- --
Property Acquisitions and Deferred Project Costs 135,602 310,759 234,924 10,721,376 5,912,454
---------- ---------- ---------- ------------- -----------
Cash Generated (Deficiency) after Cash Distributions
and $ (122,449) $ (320,745) $ (378,265) $ (10,937,468) $ 4,708,217
========== ========== ========== ============= ===========
Special Items
Net Income and Distributions Data per $1,000
Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 81 78 59 57 43
- Operations Class B Units (280) (247) (160) (60) (12)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 80 75 56 56 41
- Operations Class B Units (171) (150) (99) (51) (22)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 80 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 80 67 50 61 14
- Return of Capital Class A Units 0 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>
A-7
<PAGE>
- -------------------
(1) Includes $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, $856,710 in equity in earnings of
joint ventures and $28,092 from investment of reserve funds in 1997, and
$928,000 in equity in earnings of joint ventures and $11,519 from
investment of reserve funds in 1998. At December 31, 1998, the leasing
status was 95% .
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $107,807 for 1994, $264,866 for 1995, $648,478 for 1996,
$896,753 for 1997, and $917,224 for 1998.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $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; $1,677,826 to Class A
Limited Partners, $(882,172) to Class B Limited Partners and $0 to the
General Partners for 1997; and $1,770,058 to Class A Limited Partners
$(914,270) to Class B Limited Partners and $0 to the general partners for
1998.
A-8
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ------------ ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 846,306 $ 816,237 $ 543,291 $ 925,246 $ 286,371
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 85,722 76,838 84,265 114,953 78,420
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250 4,688
---------- ---------- --------- ------------ -----------
Net Income GAAP Basis/(4)/ $ 754,334 $ 733,149 $ 452,776 $ 804,043 $ 203,263
========== ========== ========= ============ ===========
Taxable Income: Operations $1,109,096 $1,008,368 $ 657,443 $ 812,402 $ 195,067
========== ========== ========= ============ ===========
Cash Generated (Used By):
Operations (72,194) (43,250) 20,883 431,728 47,595
Joint Ventures 1,770,742 1,420,126 760,628 424,304 14,243
---------- ---------- --------- ------------ -----------
$1,698,548 $1,376,876 $ 781,511 $ 856,032 $ 61,838
Less Cash Distributions to Investors:
Operating Cash Flow 1,636,158 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 $ 62,390 $ (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
---------- ---------- --------- ------------ -----------
$ 62,390 $ (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 181,070 169,172 736,960 14,971,002 4,477,765
---------- ---------- --------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (118,680) $ (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 85 86 62 57 29
- Operations Class B Units (224) (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 82 78 55 55 28
- Operations Class B Units (134) (111) (58) (16) 17
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 81 70 43 52 7
- Return of Capital Class A Units -- -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 81 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 62 54 29 30 4
- Return of Capital Class A Units 19 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>
A-9
<PAGE>
_______________________
(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, $785,398 in equity in earnings of joint ventures and $30,839
from investment of reserve funds in 1997, and $839,037 in equity in earnings
of joint ventures and $7,269 from investment of reserve funds in 1998. At
December 31, 1998, 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 $25,468 for 1994, $140,533 for 1995, $605,247 for 1996,
$877,869 for 1997, and $955,245 for 1998.
(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; $1,615,965 to class A Limited Partners,
$(882,816) to Class B Limited Partners and $0 to the General Partners for
1997; and $1,704,213 to Class A Limited Partners, $(949,879) to Class B
Limited Partners and $0 to the General Partners for 1998.
(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, 1998, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$1,364,217.
A-10
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- -------------- ------------- ------------ ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ 1,362,513 $ 1,204,018 $ 1,057,694 $ 402,428 N/A
Profit on Sale of Properties -- -- -- --
Less: Operating Expenses/(2)/ 87,092 95,201 114,854 122,264
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250
----------- ------------ ----------- -----------
Net Income GAAP Basis/(4)/ 1,269,171 $ 1,102,567 $ 936,590 273,914
=========== ============ =========== ===========
Taxable Income: Operations 1,683,192 $ 1,213,524 $ 1,001,974 404,348
=========== ============ =========== ===========
Cash Generated (Used By):
Operations (63,946) 7,909 623,268 204,790
Joint Ventures 2,293,504 1,229,282 279,984 20,287
----------- ------------ ----------- -----------
$ 2,229,558 $ 1,237,191 $ 903,252 225,077
Less Cash Distributions to Investors:
Operating Cash Flow 2,218,400 1,237,191 903,252 --
Return of Capital -- 183,315 2,443 --
Undistributed Cash Flow from Prior Year -- -- 225,077 --
---------- ------------ ----------- -----------
Operations $ 11,158 $ (183,315) $ (227,520) 225,077
Cash Generated (Deficiency) after Cash Distributions
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
----------- ------------ ----------- -----------
11,158 $ (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 1,850,859 10,675,811 7,931,566 6,618,273
----------- ------------ ----------- -----------
Cash Generated (Deficiency) after Cash Distributions
and Special Items $(1,839,701) $(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 91 73 46 28
- Operations Class B Units (212) (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 89 65 46 17
- Operations Class B Units (131) (95) (33) (3)
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 83 54 43 --
- Return of Capital Class A Units -- -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 83 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 67 42 33 --
- Return of Capital Class A Units 16 12 10 --
- Return of Capital Class B Units -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year 100%
Reported in the Table
</TABLE>
A-11
<PAGE>
_____________
(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, $1,034,907
in equity in earnings of joint ventures and $169,111 from investment of
reserve funds in 1997, and $1,346,367 in equity in earnings of joint
ventures and $16,146 from investment of reserve funds in 1998. At December
31, 1998, the leasing status was 99% 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, $841,666 for 1997, and
$1,157,355 for 1998.
(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;
$1,947,536 to Class A Limited Partners, $(844,969) to Class B Limited
Partners and $0 to the General Partners for 1997; and $2,431,246 to Class A
Limited Partners, $(1,162,075) to Class B Limited Partners and $0 to the
General Partners for 1998.
(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, 1998, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$989,966.
A-12
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- -------------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,561,456 $ 1,199,300 $ 406,891 N/A N/A
Profit on Sale of Properties -- -- --
Less: Operating Expenses/(2)/ 105,251 101,284 101,885
Depreciation and Amortization/(3)/ 6,250 6,250 6,250
----------- ------------ -----------
Net Income GAAP Basis/(4)/ $ 1,449,955 $ 1,091,766 $ 298,756
=========== ============ ===========
Taxable Income: Operations $ 1,906,011 $ 1,083,824 $ 304,552
=========== ============ ===========
Cash Generated (Used By):
Operations $ 80,147 $ 501,390 $ 151,150
Joint Ventures 2,125,489 527,390 --
----------- ------------ -----------
$ 2,205,636 $ 1,028,780 $ 151,150
Less Cash Distributions to Investors:
Operating Cash Flow 2,188,189 $ 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 $ 17,447 $ (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
----------- ------------ -----------
17,447 $ (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 9,455,554 13,427,158 6,544,019
----------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(9,438,107) $(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 88 53 28
- Operations Class B Units (218) (77) (11)
Capital Gain (Loss) -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 85 46 26
- Operations Class B Units (123) (47) (48)
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 73 36 13
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 73 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 61 29 10
- Return of Capital Class A Units 12 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>
A-13
<PAGE>
_____________
(1) Includes $23,007 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, and
$1,481,869 in equity in earnings of joint ventures and $79,587 from
investment of reserve funds in 1998. At December 31, 1998, the leasing
status was 99% 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, $469,126 for 1997, and $1,143,407 for
1998.
(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; $1,564,778 to Class A Limited Partners, $(472,806) to
Class B Limited Partners and $(206) to the General Partners for 1997; and
$2,597,938 to Class A Limited Partners, $(1,147,983) to Class B Limited
Partners and $0 to the General Partners for 1998.
(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, 1998, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$609,724.
A-14
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,204,597 $ 372,507 N/A N/A N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 99,034 88,232
Depreciation and Amortization/(3)/ 55,234 6,250
----------- -----------
Net Income GAAP Basis/(4)/ $ 1,050,329 $ 278,025
=========== ===========
Taxable Income: Operations $ 1,277,016 $ 382,543
=========== ===========
Cash Generated (Used By):
Operations 300,019 $ 200,668
Joint Ventures 886,846 --
----------- -----------
1,186,865 $ 200,668
Less Cash Distributions to Investors:
Operating Cash Flow 1,186,865 --
Return of Capital 19,510 --
Undistributed Cash Flow From Prior Year Operations 200,668 --
----------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (220,178) $ 200,668
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- --
Increase in Limited Partner Contributions -- 27,128,912
----------- -----------
$ (220,178) $27,329,580
Use of Funds:
Sales Commissions and Offering Expenses 300,725 3,737,363
Return of Original Limited Partner's Investment -- 100
Property Acquisitions and Deferred Project Costs 17,613,067 5,188,485
----------- -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $18,133,970 $18,403,632
=========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 85 28
- Operations Class B Units (123) (9)
Capital Gain (Loss) -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 78 35
- Operations Class B Units (64) 0
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 66 --
- Return of Capital Class A Units -- --
- Return of Capital Class B Units -- --
Source (on Cash Basis)
- Operations Class A Units 56 --
- Return of Capital Class A Units 10 --
- Operations Class B Units -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 48 --
- Return of Capital Class A Units 18 --
- Return of Capital Class B Units -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in 100%
the Table
</TABLE>
A-15
<PAGE>
________________
(1) Includes $(10,035) in equity in earnings of joint ventures and $382,542 from
investment of reserve funds in 1997, and $869,555 in equity in earnings of
joint ventures, $120,000 in rental income and $215,042 from investment of
reserve funds in 1998. At December 31, 1998, the leasing status was 99%
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, and $674,986 for 1998.
(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, and $1,779,191 to Class A Limited Partners, $(728,524) to
Class B Limited Partners and $(338) to General Partners for 1998.
(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, 1998, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$388,585.
A-16
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND XI, L.P.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ 262,729 N/A N/A N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 113,184
Depreciation and Amortization/(3)/ 6,250
-----------
Net Income GAAP Basis/(4)/ $ 143,295
===========
Taxable Income: Operations $ 177,692
===========
Cash Generated (Used By):
Operations (50,858)
Joint Ventures 102,662
-----------
51,804
Less Cash Distributions to Investors:
Operating Cash Flow 51,804
Return of Capital 48,070
Undistributed Cash Flow From Prior Year Operations --
-----------
Cash Generated (Deficiency) after Cash Distributions (48,070)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions --
Increase in Limited Partner Contributions 16,532,801
-----------
16,484,731
Use of Funds:
Sales Commissions and Offering Expenses 1,779,661
Return of Original Limited Partner's Investment --
Property Acquisitions and Deferred Project Costs 5,412,870
-----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ 9,292,200
===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 50
- Operations Class B Units (77)
Capital Gain (Loss) --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 18
- Operations Class B Units (17)
Capital Gain (Loss) --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 14
- Return of Capital Class A Units --
- Return of Capital Class B Units --
Source (on Cash Basis)
- Operations Class A Units 7
- Return of Capital Class A Units 7
- Operations Class B Units --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 11
- Return of Capital Class A Units 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>
A-17
<PAGE>
________________
(1) Includes $142,163 in equity in earnings of joint ventures and $120,566 from
investment of reserve funds in 1998. At December 31, 1998, the leasing
status was 99% 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 $105,458 for 1998.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $254,862 to Class A Limited
Partners, $(111,067) to Class B Limited Partners and $(500) to General
Partners for 1998.
(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, 1998, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled $24,621.
A-18
<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 ("Shares") of
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 of 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 or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
B-2
<PAGE>
(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;
(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 MAINE, MASSACHUSETTS, MINNESOTA, MISSOURI
AND NEBRASKA RESIDENTS ONLY
In no event may a subscription for Shares be accepted until at least five
business days after the date the subscriber receives the Prospectus. Residents
of the States of Maine, Massachusetts, Minnesota, Missouri and Nebraska 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.
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 designating the
officer(s) of the corporation authorized to sign on behalf of the
corporation and (2) a certified copy of the Board's resolution authorizing
the investment.
9. IRA AND IRA ROLLOVERS: Requires signature of authorized signer (e.g., an
officer) of the bank, trust company, or other fiduciary. The address of
the trustee must be provided in order for the trustee to receive checks and
other pertinent information regarding the investment.
10. KEOGH (HR 10): Same rules as those applicable to IRAs.
11. UNIFORM GIFT TO MINORS ACT (UGMA) or UNIFORM TRANSFERS TO MINORS ACT
(UTMA): The required signature is that of the custodian, not of the parent
(unless the parent has been designated as the custodian). Only one child
is permitted in each investment under UGMA or UTMA. In addition, designate
the state under which the gift is being made.
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INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO WELLS REAL ESTATE INVESTMENT TRUST, INC. SUBSCRIPTION AGREEMENT
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INVESTOR PLEASE FOLLOW THESE INSTRUCTIONS CAREFULLY. FAILURE TO DO SO MAY RESULT IN THE REJECTION OF YOUR SUBSCRIPTION.
INSTRUCTIONS ALL INFORMATION ON THE SUBSCRIPTION AGREEMENT SIGNATURE PAGE SHOULD BE COMPLETED AS FOLLOWS:
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<S> <C>
1. INVESTMENT a. GENERAL: 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." Investors who have
satisfied the minimum purchase requirements in Wells Real Estate Fund I, Wells Real Estate Fund II,
Wells Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells
Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII, L.P., Wells
Real Estate Fund VIII, L.P., Wells Real Estate Fund IX, L.P., Wells Real Estate Fund X, L.P., Wells
Real Estate Fund XI, L.P. or Wells Real Estate Fund XII, L.P. or in any other public real estate
program may invest as little as $25 (2.5 Shares) except for residents of Maine, Minnesota, Nebraska or
Washington. 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.
b. DEFERRED COMMISSION OPTION: Please check the box if you have agreed with your Broker-Dealer to elect
the Deferred Commission Option, as described in the Prospectus, as supplemented to date. By electing
the Deferred Commission Option, you are required to pay only $9.40 per Share purchased upon
subscription. For the next six years following the year of subscription, you will have a 1% sales
commission ($.10 per Share) deducted from and paid out of dividends or other cash distributions
otherwise distributable to you. Election of the Deferred Commission Option shall authorize the Company
to withhold such amounts from dividends or other cash distributions otherwise payable to you.
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B-5
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2. ADDITIONAL INVESTMENTS Please check if you plan to make one or more additional investments in the Company. All additional
investments must be in 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 investment sin 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.
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3. TYPE OF OWNERSHIP Please check the appropriate box to indicate the type of entity or type of individuals subscribing.
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4. REGISTRATION Please enter the exact name in which the Shares are to be held. For joint tenants with right of
NAME AND ADDRESS survivorship or tenants in common, include the names of both investors. In the case of partnerships or
corporations, include the name of an individual to whom correspondence will be addressed. Trusts
should include the name of the trustee. All investors must complete the space provided for taxpayer
identification number or social security number. By signing in Section 6, the investor is certifying
that this number is correct. Enter the mailing address and telephone numbers of the registered owner
of this investment. In the case of a Qualified Plan or trust, this will be the address of the trustee.
Indicate the birthdate and occupation of the registered owner unless the registered owner is a
partnership, corporation or trust.
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5. INVESTOR NAME Complete this Section only if the investor's name and address is different from the registration name
AND ADDRESS 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.
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6. SUBSCRIBER Please separately initial each representation made by the investor where indicated. Except in the case
SIGNATURES 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.
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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 and to have the option in
the future to invest net cash from operations in limited partnerships sponsored by the Advisor or its
affiliates which have substantially identical investment objectives as 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 Agreement
or in the prospectus and subscription agreement of any future limited partnerships sponsored by the
Advisor or its affiliates. The investor acknowledges that the Broker-Dealer named in the Subscription
Agreement Signature Page may receive a commission not to exceed 7% of any reinvested distributions.
b. DISTRIBUTION ADDRESS: If cash distributions are to be sent to an address other than that provided in
Section 4 (i.e., a bank, brokerage firm or savings and loan, etc.), please provide the name, account
number and address.
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8. BROKER-DEALER This Section is to be completed by the Registered Representative. Please complete all BROKER-DEALER
information contained in Section 8 including suitability certification. SIGNATURE PAGE MUST BE SIGNED BY AN
AUTHORIZED REPRESENTATIVE.
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</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-7
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SEE PRECEDING PAGE Special Instructions:
FOR INSTRUCTIONS
-------------------------------------------------------------
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
1. ===== INVESTMENT ==============================================================================================================
--------------------------------------------------------
MAKE INVESTMENT CHECK PAYABLE TO:
______________________ _______________________ NATIONSBANK, N.A.,
# of Shares Total $ Invested AS ESCROW AGENT
-------------------------------------------------------------
(# Shares x $10 = $ Invested) [_] Initial Investment (Minimum $1,000)
[_] Additional Investment (Minimum $25)
Minimum purchase $1,000 or 100 Shares State in which sale was made______________________
-------------------------------------------------------- -------------------------------------------------------------
Check the following box to elect the Deferred Commission Option: [_]
(This election must be agreed to by the Broker-Dealer listed below)
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 $25.]
3. ===== TYPE OF OWNERSHIP =======================================================================================================
[_] IRA (06) [_] Individual (01)
[_] Keogh (10) [_] Joint Tenants With Right of Survivorship (02)
[_] Qualified Pension Plan (11) [_] Community Property (03)
[_] Qualified Profit Sharing Plan (12) [_] Tenants in Common (04)
[_] Other Trust _______________________________________ [_] Custodian: A Custodian for __________________ under
For the Benefit of ________________________________ the Uniform Gift to Minors Act or the Uniform
Transfers to Minors Act of the State of
[_] Company (15) _______________ (08)
[_] 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 [_] PhD [_] DDS [_] Other ______________
-------------------------------------------------------------
Taxpayer Identification Number
[_][_]-[_][_][_][_][_][_][_]
-------------------------------------------------------------
Social Security Number
[_][_][_]-[_][_]-[_][_][_][_]
-------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Street Address
or P.O. Box
-------------------------------------------------------------------------------------------------
City State Zip Code
---------------------------------- -------------- ---------------------------
---------------------------------- ------------------------------------------------
Home Business
Telephone No. ( ) Telephone No. ( )
---------------------------------- ------------------------------------------------
---------------------------------- ------------------------------------------------
Birthdate Occupation
---------------------------------- ------------------------------------------------
5. ===== INVESTOR NAME AND ADDRESS =============================================================================================
(COMPLETE ONLY IF DIFFERENT FROM REGISTRATION NAME AND ADDRESS)
[_] Mr [_] Mrs [_] Ms [_] MD [_] PhD [_] DDS [_] Other _________________
Name Social Security Number
---------------------------------------------------------------
[_][_][_]-[_][_]-[_][_][_][_]
---------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Street Address
or P.O. Box
-------------------------------------------------------------------------------------------------
City State Zip Code
---------------------------------- -------------- ---------------------------
---------------------------------- ------------------------------------------------
Home Business
Telephone No. ( ) Telephone No. ( )
---------------------------------- ------------------------------------------------
---------------------------------- ------------------------------------------------
Birthdate Occupation
---------------------------------- ------------------------------------------------
=================================================================================================================================
(REVERSE SIDE MUST BE COMPLETED)
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6. ===== SUBSCRIBER SIGNATURES ===================================================================================================
Please separately initial each of the representations below. Except in the case of fiduciary accounts, you may not grant
any person a power of attorney to make such representations on your behalf. In order to induce the Company to accept this
subscription, I hereby represent and warrant to you as follows:
(REVERSE SIDE MUST BE COMPLETED)
<S> <C> <C>
(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 Initials and had during
the last tax year or estimate that I will have during the
Initials current tax year a minimum of $45,000 annual gross
income, or that I meet the higher suitability requirements
imposed by my state of primary residence as set forth in the
Prospectus under "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 of 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 by the Company in connection with
my investment in the Company. Under penalties of perjury, by signing this Signature Page, I hereby certify that (a) I have
provided herein my correct Taxpayer Identification Number, and (b) I am not subject to back-up withholding as a result of a
failure to report all interest or dividends, or the Internal Revenue Service has notified me that I am no longer subject to
back-up withholding.
------------------------------------------ ---------------------------------------- ----------------------
------------------------------------------ ---------------------------------------- ----------------------
Signature of Investor or Trustee Signature of Joint Owner, if applicable Date
(MUST BE SIGNED BY TRUSTEE(S) IF IRA, KEOGH OR QUALIFIED PLAN.)
7. ===== DISTRIBUTIONS ======================================================================================================
7a. Check the following box to participate in the Distribution Reinvestment Plan: [_]
7b. Complete the following section only to direct distributions to a party other than registered owner:
---------------------------------------------------------------------------------------------
Name
---------------------------------------------------------------------------------------------
Account Number
---------------------------------------------------------------------------------------------
Street Address or P.O. Box
---------------------------------------------------------------------------------------------
City State Zip Code
--------------------------------------------- ------- ------------------
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 to:
WELLS INVESTMENT SECURITIES, INC.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
800-448-1010 or 770-449-7800
Overnight address: Mailing address:
3885 Holcomb Bridge Road P.O. Box 926040
Norcross, Georgia 30092 Norcross, Georgia 30092-9209
FOR COMPANY USE ONLY:
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ACCEPTANCE BY COMPANY Amount __________________________ Date _______________________________
Received and Subscription Accepted: Check No. _______________________ Certificate No. _______________________
By: ________________________________ Wells Real Estate Investment Trust, Inc.
____________________________________ ____________________________________________ ____________________________
Broker-Dealer # Registered Representative # Account #
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</TABLE>
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 8 DATED JUNE 15, 1999 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, Supplement
No. 2 dated June 30, 1998, Supplement No. 3 dated August 12, 1998, Supplement
No. 6 dated January 15, 1999 and Supplement No. 7 dated April 15, 1999
(collectively, the "Prospectus"). Supplement No. 6 included the information in
and superseded Supplement No. 4 dated November 1, 1998 and Supplement No. 5
dated December 14, 1998. 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 in Wells Real
Estate Investment Trust, Inc. (the "Company");
(ii) Revisions to the "Plan of Distribution" section of the Prospectus;
(iii) The acquisition of an interest in an industrial building in
Greenville County, South Carolina;
(iv) Revisions to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of the Prospectus; and
(v) Audited financial statements relating to the EYBL CarTex Building and
unaudited pro forma financial statements of the Company.
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 May 31, 1999, the Company had raised a total of $70,839,115 in
offering proceeds (7,083,912 shares).
Plan of Distribution
The information contained on page 74 in the "PLAN OF DISTRIBUTION" section
of the Prospectus is revised as of the date of this Supplement by the deletion
of the third full paragraph on that page and the insertion of the following in
lieu thereof:
Executive officers and directors of the Company, as well as officers and
employees of the Advisor or other Affiliates, may purchase Shares offered
in this Offering at a discount. The purchase price for such Shares shall be
$9.05 per Share reflecting the amount of selling commissions and dealer
manager fees that will not be payable in connection with such sales. The
net proceeds to the Company will not be affected by such sales of Shares at
a discount. The Advisor and its Affiliates shall be expected to hold Shares
purchased as shareholders for investment and not with a view
<PAGE>
towards distribution. In addition, Shares purchased by the Advisor or its
Affiliates shall not be entitled to vote on any matter presented to the
shareholders for a vote.
The information contained on page 77 in the "PLAN OF DISTRIBUTION" section
of the Prospectus, as previously amended by Supplement No. 1 and Supplement No.
7 to 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 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 six 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 the period of six years
following subscription, $0.10 per Share will be deducted on an annual basis
from dividends or other cash distributions otherwise payable to the
Shareholders and used by the Company to pay deferred commission
obligations. 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 dividends or other cash distributions otherwise payable to
such Shareholder and used by the Company to satisfy commission obligations.
The foregoing commission amounts may be adjusted with approval of the
Dealer Manager by application of the volume discount provisions previously
described on page 75 of the Prospectus.
Shareholders electing the Deferred Commission Option who are subject to
federal income taxation will incur tax liability for dividends or other
cash distributions otherwise payable to them with respect to their Shares
even though such dividends or other cash distributions will be withheld
from such Shareholders and will instead be paid to third parties to satisfy
commission obligations.
Investors who wish to elect the Deferred Commission Option should make
the election on their Subscription Agreement Signature Page. Election of
the Deferred Commission Option shall authorize the Company to withhold
dividends or other cash distributions otherwise payable to such Shareholder
for the purpose of paying commissions due under the Deferred Commission
Option; provided, however, that in no event may the Company withhold in
excess of $0.60 per Share in the aggregate under the Deferred Commission
Option. Such dividends or cash distributions otherwise payable to
Shareholders may be pledged by the Company, the Dealer Manager, the Advisor
or their Affiliates to secure one or more loans, the proceeds of which
would be used to satisfy sales commission obligations.
In the event that Listing of the Shares occurs or is reasonably
anticipated to occur at any time prior to the satisfaction of the Company's
remaining commission obligations, the remaining commissions due under the
Deferred Commission Option may be accelerated by the Company. In such
event, the Company shall provide notice of such acceleration to
Shareholders who have elected the Deferred Commission Option. The amount of
the remaining commissions due shall be deducted and paid by the Company out
of dividends or other cash distributions otherwise payable to such
Shareholders
2
<PAGE>
during the time period prior to Listing; provided that, in no event may the
Company withhold in excess of $0.60 per Share in the aggregate. To the
extent that the distributions during such time period are insufficient to
satisfy the remaining commissions due, the obligation of the Company and
its Shareholders to make any further payments of deferred commissions under
the Deferred Commission Option shall terminate, and participating broker-
dealers will not be entitled to receive any further portion of their
deferred commissions following Listing of the Company's shares.
The EYBL CarTex Building
Purchase of the EYBL CarTex Building. On May 18, 1999, Wells Real Estate, LLC
- -------------------------------------
SC I ("Wells LLC"), a Georgia limited liability company wholly owned by The
Wells Fund XIREIT Joint Venture (the "Joint Venture"), acquired an industrial
building located in Fountain Inn, South Carolina (the "EYBL CarTex Building").
The Joint Venture is a joint venture partnership between Wells Operating
Partnership, L.P., the operating partnership of the Company, and Wells Real
Estate Fund XI, L.P. ("Wells Fund XI"), a Georgia limited partnership affiliated
with the Company. The Joint Venture was formed on May 1, 1999 for the purpose of
acquiring, owning, leasing, operating and managing real properties. Wells LLC
was formed by the Joint Venture solely for the purpose of acquiring, owning and
operating the EYBL CarTex Building.
Wells LLC purchased the EYBL CarTex Building from Liberty Property Limited
Partnership, a Pennsylvania limited partnership (the "Seller"), pursuant to an
Agreement of Sale and Purchase (the "Contract") with the Seller. The original
purchaser under the Contract was Wells Capital, Inc., the Advisor of the
Company. Wells Capital, Inc. assigned its rights under the Contract to Wells LLC
at closing. The Seller is not in any way affiliated with the Company or the
Advisor.
The purchase price for the EYBL CarTex Building was $5,085,000. Wells LLC
also incurred additional acquisition expenses in connection with the purchase of
the EYBL CarTex Building, including attorneys' fees, recording fees and other
closing costs, of approximately $37,000.
Wells OP contributed $3,592,000 to the Joint Venture and holds an equity
percentage interest in the Joint Venture of approximately 70.1% for its share of
the purchase of the EYBL CarTex Building. Wells Fund XI contributed $1,530,000
to the Joint Venture and holds an equity percentage interest in the Joint
Venture of approximately 29.9% for its share of the purchase. All income, loss,
profit, net cash flow, resale gain and sale proceeds of the Joint Venture are
allocated and distributed between Wells OP and Wells Fund XI based upon their
respective capital contributions to the Joint Venture.
Description of the Building and the Site. The EYBL CarTex Building is an
- -----------------------------------------
industrial building consisting of a total of 169,510 square feet comprised of
approximately 140,580 square feet of manufacturing space, 25,300 square feet of
two-story office space and 3,360 square feet of cafeteria/training space. An
addition to the EYBL CarTex Building was constructed in 1989, which consisted of
an additional 64,000 square feet of warehouse space located in the manufacturing
portion of the building. The building is constructed of concrete tilt-up panels
and has an interior height of 28 feet. The construction of each portion of the
building is very similar, utilizing slabs-on-grade, CMU foundation walls at the
truck docks, structural tilt-up insulated concrete panels and structural steel
columns on concrete footings. Four dock-high doors with
3
<PAGE>
hydraulic dock levelers are provided along the south side of the building. The
exterior of the office area is primarily made of a brick veneer.
All roof and mezzanine floor structures are constructed of steel trusses,
beams and girders, with metal decking. Each portion of the building is protected
by a single-ply mechanically-fastened membrane roof system, which was
manufactured by J.P. Stevens. The manufacturer of the roof recently reviewed the
application and issued a ten-year warranty.
The property was developed in the early 1980s on a site of approximately
11.94 acres. The site is located at 111 SouthChase Boulevard in the SouthChase
Industrial Park, which is located adjacent to I-385 in southwest Greenville. The
site has easy access to I-85. The current configuration of the parking lot
allows for approximately 252 spaces for vehicles, which has proven adequate for
the current tenant. The landscaping at the facility is in good condition and is
consistent with the quality level of the entire complex.
An independent appraisal of the EYBL CarTex Building was prepared by CB
Richard Ellis, real estate appraisers, as of April 27, 1999. The appraisers
estimated the market value of the land and the leased fee interest subject to
the Lease (described below) to be $5,250,000, in cash or terms equivalent to
cash. This value estimate was based upon a number of assumptions, including that
the EYBL CarTex Building will continue operating at a stabilized level with EYBL
CarTex occupying 100% of the rentable area. The value estimate set forth in the
appraisal is not necessarily an accurate reflection of the fair market value of
the property.
Prior to closing, the Joint Venture also obtained an environmental report
prepared by Law Engineering and Environmental Testing, Inc., evidencing that the
environmental condition of the land and the EYBL CarTex Building was
satisfactory.
Greenville County is the hub of the metropolitan statistical area ("MSA")
which also includes Spartanburg, Anderson, Pickens and Cherokee Counties. During
the period from 1990 to 1998, Greenville County's labor force has grown by
approximately 12%. During that same time period, the unemployment rate in
Greenville County and the surrounding MSA has decreased significantly.
Within the last two decades, the economic base has diversified from the
once dominant textile industry toward other types of industries. During that
time period, several corporations, including Michelin, BMW Manufacturing
Corporation, Umbra Apparel and Boldwater Paper Products, have moved their North
American or national headquarters into the area. The largest and most
significant of these was the decision in 1992 by BMW Manufacturing Corporation
to construct a $600 million facility near Spartanburg. As of April 27, 1999,
this facility employed over 2,000 people. BMW's announcement led to the
relocation of several auto parts manufacturers into the region, as well as other
supportive industries. The result of the recent corporate relocations and the
marketing efforts of local authorities as been a substantial flow of capital
into the area, elevating metropolitan Greenville to the second highest MSA in
the nation in terms of capital investment.
The Lease. The entire 169,510 rentable square feet of the EYBL CarTex Building
- ---------
is currently leased to EYBL CarTex, Inc., a South Carolina corporation ("EYBL
CarTex"), pursuant to an Agreement of Lease dated February 13, 1998, as amended
by First Amendment to Agreement of Lease dated July 24, 1998 and Second
Amendment to Agreement of Lease dated November 4, 1998 (the "Lease"). The Lease
was assigned to Wells LLC at the closing with the result that
4
<PAGE>
Wells LLC is now the landlord under the Lease.
EYBL CarTex produces automotive textiles for BMW, as well as for Mercedes,
GM Bali, VW Mexico and Golf A4, and is 100% owned by EYBL International, AG,
Krems/Austria. This company, which was founded in 1868, had 2,000 employees at
the end of 1998 and sales in 1998 of $260 million. EYBL International is the
world's largest producer of circular knit textile products and loop pile plushes
for the automotive industry. It has plants in Austria, Germany, Hungary,
Slovakia, Brazil and the U.S. (the EYBL CarTex Building). Recent financial
information for EYBL International is as follows:
($ U.S. millions*) 1998 1997 1996
------ ------ ------
Sales $264.4 $200.4 $168.3
Net Income $ 9.4 $ 5.4 $ 2.1
Net Worth $ 49.7 $ 17.2 $ 12.3
* Based upon the 4/8/99 conversion rate of 12.7 schillings to 1.0 U.S. $
In North America, EYBL CarTex supplies customers in the U.S. and Mexico.
The capacity of this plant was raised in 1998 as a result of the contract with
VW Mexico and will consist of 16 circular knitting machines as of March 1999.
EYBL CarTex does not produce separate financial statements.
The initial term of the Lease is ten years, which commenced on March 1,
1998, and expires in February 2008. EYBL CarTex has the right to extend the
Lease for two additional five year periods of time. Each extension option must
be exercised by giving notice to the landlord at least 12 months prior to the
expiration date of the then-current lease term.
The base rent payable under the Lease for the remainder of the lease term
is as follows:
- -------------------------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
---------- ----------- ------------
2 $508,530.00 $42,377.50
3 $508,530.00 $42,377.50
4 $508,530.00 $42,377.50
5 $550,907.50 $45,908.95
6 $550,907.50 $45,908.95
7 $593,285.00 $49,440.42
8 $593,285.00 $49,440.42
9 $610,236.00 $50,853.00
10 $610,236.00 $50,853.00
- -------------------------------------------------------------------------------
The monthly base rent payable for each extended term of the Lease will be
equal to the fair market rent as submitted by the landlord. If the tenant does
not agree to the proposed rent by the landlord for the extension term, the
tenant may require that the fair market rent be determined by three appraisers,
one of which will be selected by the tenant, one selected by the landlord and
one selected by the first two appraisers.
5
<PAGE>
Under the Lease, EYBL CarTex is required to pay as additional rent all real
estate taxes, special assessments, utilities, taxes, insurance and other
operating costs with respect to the EYBL CarTex Building during the term of the
Lease. In addition, EYBL CarTex is responsible for all routine maintenance and
repairs to the EYBL CarTex Building. Wells LLC, as landlord, is responsible for
maintenance of the footings and foundations and the structural steel columns and
girders associated with the building.
Under the Lease, EYBL CarTex has an option to purchase the EYBL CarTex
Building at the expiration of the initial lease term by giving notice to Wells
LLC by March 1, 2007. Within 30 days after the landlord receives notice of the
tenant's intent to exercise its purchase option, the landlord is required to
submit a proposed purchase price for the EYBL CarTex Building based upon its
good faith estimate of the fair market value of the building. If the tenant does
not agree to the proposed purchase price, the tenant may require that the
purchase price be established by three appraisers, one selected by the tenant,
one selected by the landlord and one selected by the first two appraisers. In no
event, however, will the purchase price under the purchase option be less than
$5,500,000.
Pursuant to a Lease Commission Agreement dated February 12, 1998, between
the Seller and The McNamara Company, Inc., Wells LLC is required to pay annual
brokerage commissions of $13,787 to The McNamara Company, Inc., an unaffiliated
real estate brokerage which procured the Lease.
Property Management Fees. Wells Management Company, Inc. ("Wells Management"),
- ------------------------
an Affiliate of the Company and the Advisor, has been retained to manage and
lease the EYBL CarTex Building. Wells LLC will pay management and leasing fees
to Wells Management in the amount of 4.5% of gross revenues from the EYBL CarTex
Building on a monthly basis.
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 May 31, 1999, the Company had raised a total of $70,839,115 in
offering proceeds (7,083,912 Shares), and had paid $2,479,369 in
acquisition and advisory fees and acquisition expenses and $8,854,889 in
selling commissions and organizational and offering expenses. As of May 31,
1999, the Company had invested $48,070,328 in properties and was holding
net offering proceeds of $11,434,529 available for investment in additional
properties.
Financial Statements and Exhibits.
The Statements of Revenues over Certain Operating Expenses of the EYBL
CarTex Building for the year ended December 31, 1998, included in this
Supplement in Appendix F, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included in reliance upon the authority of said firm as experts in giving said
report. The Statements of Revenues over Certain Operating Expenses of the EYBL
CarTex Building for the three months ended March 31, 1999, and the pro forma
financial
6
<PAGE>
information for Wells Real Estate Investment Trust, Inc. as of December 31, 1998
and for the three months ended March 31, 1999 have not been audited.
7
<PAGE>
APPENDIX F
INDEX TO FINANCIAL STATEMENTS
Page
----
EYBL CarTex Building
Audited Financial Statements
Report of Independent Public Accountants F-1
Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998 (Audited)
and for the three months ended March 31, 1999 (Unaudited) F-2
Notes to Statements of Revenues Over Certain
Operating Expenses for the year ended December
31, 1998 (Audited) and for the three months ended
March 31, 1999 (Unaudited) F-3
Wells Real Estate Investment Trust, Inc.
Unaudited Pro Forma Financial Statements
Summary of Unaudited Pro Forma Financial Statements F-5
Pro Forma Balance Sheet as of March 31, 1999 F-6
Pro Forma Income Statement for the period ending
December 31, 1998 F-7
Pro Forma Income Statement for the period ending
March 31, 1999 F-8
8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the EYBL CARTEX BUILDING for the year ended December 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 certain 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 certain 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 EYBL
CarTex building after acquisition by the Wells Fund XI REIT Joint Venture (a
joint venture between the Wells Operating Partnership, L.P. [on behalf of Wells
Real Estate Investment Trust, Inc.] and Wells Real Estate Fund XI, L.P.). The
accompanying statement of revenues over certain 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
EYBL CarTex Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the EYBL CarTex Building for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
- -----------------------
Atlanta, Georgia
May 21, 1999
F-1
<PAGE>
EYBL CARTEX BUILDING
STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999
1998 1999
---- ----
(Unaudited)
RENTAL REVENUES $213,330 $63,990
OPERATING EXPENSES, NET OF REIMBURSEMENTS 14,343 0
-------- -------
REVENUES OVER CERTAIN OPERATING EXPENSES $198,987 $63,990
======== =======
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
EYBL CARTEX BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
The EYBL CarTex Building is an industrial building consisting of a total of
169,510 square feet. On May 18, 1999, Wells Real Estate, LLC - SC I ("Wells
LLC"), a Georgia limited liability company wholly owned by the Wells
Fund XI-REIT Joint Venture (the "Joint Venture"), acquired an industrial
building located in Fountain Inn, unincorporated Greenville County, South
Carolina (the "EYBL CarTex Building"). Wells LLC purchased the EYBL CarTex
Building from Liberty Property Trust, a Pennsylvania limited partnership.
The Joint Venture is a Georgia joint venture between Wells Real Estate Fund
XI, L.P. ("Wells Fund XI"), a Georgia limited partnership, and Wells
Operating Partnership, L.P. ("Wells OP"), a Delaware limited partnership
formed to acquire, own, lease, operate, and manage real properties on behalf
of Wells Real Estate Investment Trust, Inc. The Joint Venture was formed on
May 1, 1999 for the purpose of the acquisition, ownership, development,
leasing, operations, sale, and management of real properties.
The purchase price for the EYBL CarTex Building was $5,085,000. Wells LLC
also incurred additional acquisition expenses in connection with the
purchase of the EYBL CarTex Building, including attorneys' fees, recording
fees, and other closing costs of $36,828. Wells Fund XI contributed
$1,530,000 to the Joint Venture and holds an equity percentage interest in
the Joint Venture of 29.87% for its share of the purchase of the EYBL CarTex
Building. Wells OP contributed $3,591,828 to the Joint Venture and holds an
equity percentage interest in the Joint Venture of 70.13% for its share of
the purchase of the EYBL CarTex Building. All income, loss, profit, net cash
flow, resale gain, and sale proceeds of the Joint Venture are allocated and
distributed between Wells Fund XI and Wells OP based on their respective
capital contributions to the Joint Venture.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
F-3
<PAGE>
2. BASIS OF ACCOUNTING
The accompanying statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statements exclude certain historical expenses, such as depreciation and
management fees, not comparable to the operations of the EYBL CarTex
Building after acquisition by the Joint Venture.
F-4
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet as of March 31, 1999 and the pro
forma statements of income for the year ended December 31, 1998 and the three
months ended March 31, 1999 have been prepared to give effect to the acquisition
of the EYBL CarTex Building by the Wells XI-REIT Joint Venture (a joint venture
between the Wells Operating Partnership and Wells Real Estate Fund XI, L.P.) as
if the acquisition occurred as of March 31, 1999 with respect to the balance
sheet and on January 1, 1998 with respect to the statements of income. Wells
Operating Partnership, L.P. is a Delaware limited partnership that was organized
to own and operate properties on behalf of the Wells Real Estate Investment
Trust, Inc. Wells Real Estate Investment Trust, Inc. is the general partner of
the Wells Operating Partnership, L.P.
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.
F-5
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
BALANCE SHEET
MARCH 31, 1999
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
Wells Real
Estate Pro
Investment Pro Forma Forma
Trust, Inc. Adjustments Total
----------- ----------- -----
<S> <C> <C> <C>
REAL ESTATE, AT COST:
Land $ 6,787,902 $ 0 $ 6,787,902
Building and improvements, less accumulated depreciation of $286,242 in 1999 33,058,522 0 33,058,522
----------- ----------- -----------
Total real estate 39,846,424 0 39,846,424
INVESTMENTS IN JOINT VENTURES 11,494,134 3,740,428 (b) 15,234,562
DUE TO AFFILIATES 267,279 0 267,279
CASH AND CASH EQUIVALENTS 7,864,546 (3,591,828)(a) 4,272,718
DEFERRED PROJECT COSTS 375,126 (148,600)(c) 226,526
DEFERRED OFFERING COSTS 294,037 0 294,037
PREPAID EXPENSES AND OTHER ASSETS 746,736 0 746,736
----------- ----------- -----------
Total assets $60,888,282 $ 0 $60,888,282
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE $ 578,328 $ 0 $ 578,328
NOTES PAYABLE 9,650,000 0 9,650,000
DUE TO AFFILIATES 348,342 0 348,342
DIVIDENDS PAYABLE 628,182 0 628,182
MINORITY INTEREST OF UNIT HOLD IN OPERATING PARTNERSHIP 200,000 0 200,000
----------- ----------- -----------
Total liabilities 11,404,852 0 11,404,852
----------- ----------- -----------
COMMON SHARES, $0.01 par value; 16,500,000 shares authorized, 5,702,329 shares issued
and outstanding at March 31, 1999 57,023 0 57,023
ADDITIONAL PAID-IN CAPITAL 48,698,935 0 48,698,935
RETAINED EARNINGS 727,472 0 727,472
----------- ----------- -----------
Total shareholders' equity 49,483,430 0 49,483,430
----------- ----------- -----------
Total liabilities and shareholders' equity $60,888,282 $ 0 $60,888,282
=========== =========== ===========
</TABLE>
- --------------
(a) Reflects Wells Real Estate Investment Trust's portion of the purchase price
related to the EYBL CarTex Building.
(b) Reflects Wells Real Estate Investment Trust's contribution to the Wells
XI-REIT Joint Venture.
(c) Reflects deferred project costs contributed to the Wells XI-REIT Joint
Venture.
F-6
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
STATEMENT OF INCOME
FOR THE PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
Wells Real
Estate Pro
Investment Pro Forma Forma
Trust, Inc. Adjustment Total
------------- -------------- -------------
<S> <C> <C> <C>
REVENUES:
Rental income $ 20,994 $ 0 $ 20,994
Equity in income (loss) of joint ventures 263,315 (6,204)(a) 257,111
Interest income 110,869 0 110,869
-------- ------- --------
395,178 (6,204) 388,974
-------- ------- --------
EXPENSES:
Operating costs, net of reimbursements 11,033 0 11,033
General and administrative 29,943 0 29,943
Legal and accounting 19,552 0 19,552
Computer costs 616 0 616
-------- ------- --------
61,144 0 61,144
-------- ------- --------
NET (LOSS) INCOME $334,034 $(6,204) $327,830
======== ======= ========
EARNING PER SHARE (BASIC AND
DILUTED) $ 0.40 $ (0.01) $ 0.39
======== ======= ========
</TABLE>
- ----------------
(a) Reflects Wells Real Estate Investment Trust's equity in loss of the Wells
XI-REIT Joint Venture.
F-7
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
STATEMENT OF INCOME
FOR THE PERIOD ENDING MARCH 31, 1999
<TABLE>
<CAPTION>
Wells Real
Estate Pro
Investment Pro Forma Forma
Trust, Inc. Adjustment Total
-------------- ----------- ----------
<S> <C> <C> <C>
REVENUES:
Rental income $726,183 $ 0 $726,183
Equity in income of joint ven tures 192,723 7,596(a) 200,319
Interest income 69,094 0 69,094
-------- ------ --------
988,000 7,596 995,596
-------- ------ --------
EXPENSES:
Operating costs, net of reimbursements 204,115 0 204,115
Management and leasing fees 44,692 0 44,692
Depreciation 286,242 0 286,242
Administrative costs 29,710 0 29,710
Legal and accounting 27,100 0 27,100
Computer costs 2,703 0 2,703
-------- ------ --------
594,562 0 594,562
-------- ------ --------
NET (LOSS) INCOME $393,438 $7,596 $401,034
======== ====== ========
EARNING PER SHARE (BASIC AND DILUTED) $ 0.10 $ 0.00 $ 0.10
======== ====== ========
</TABLE>
- --------------
(a) Reflects Wells Real Estate Investment Trust's equity in income of the
Wells XI-REIT Joint Venture.
F-8
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 10 DATED OCTOBER 10, 1999 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, Supplement
No. 2 dated June 30, 1998, Supplement No. 3 dated August 12, 1998, Supplement
No. 6 dated January 15, 1999, Supplement No. 7 dated April 15, 1999 and
Supplement No. 8 dated June 15, 1999 (collectively, the "Prospectus").
Supplement No. 6 included the information in and superseded Supplement No. 4
dated November 1, 1998 and Supplement No. 5 dated December 14, 1998. This
Supplement includes the information in and supersedes Supplement No. 9 dated
September 1, 1999. 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 in Wells Real
Estate Investment Trust, Inc. (the "Company");
(ii) Revisions to the "Management" section of the Prospectus;
(iii) Revisions to "The Advisor and the Advisory Agreement" section of
the Prospectus;
(iv) Revisions to the "Distribution Policy" section of the Prospectus;
(v) The Joint Venture Partnership Agreement entered into among Wells
Operating Partnership, L.P. ("Wells OP"), Wells Real Estate Fund XI, L.P.
("Wells Fund XI") and Wells Real Estate Fund XII, L.P. ("Wells Fund XII");
(vi) The acquisition of an interest in an office building in Johnson
County, Kansas (the "Sprint Building");
(vii) The acquisition of land in Richmond, Virginia by Wells OP and the
approximately 100,000 square foot office building to be developed thereon (the
"ABB Richmond Project")
(viii) The acquisition of an interest in a manufacturing and office
building in Chester County, Pennsylvania (the "Johnson Matthey Building");
(ix) The status of the Matsushita Project;
(x) The acquisition of an office, assembly and manufacturing building
in DuPage County, Illinois (the "Videojet Building");
(xi) The acquisition of an interest in an office building in Lee County,
Florida (the "Gartner Building");
(xii) Revisions to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of the Prospectus; and
1
<PAGE>
(xiii) Financial statements relating to the Sprint Building, the Johnson
Matthey Building, the Videojet Building, the Gartner Building and unaudited pro
forma financial statements of the Company.
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 October 4, 1999, the Company had raised a total of $108,997,320
in offering proceeds (10,899,732 Shares).
Management
Directors and Executive Officers
Effective July 30, 1999, Brian M. Conlon resigned as an executive officer
and director of the Company, and as Vice President of Wells Real Estate Funds,
Inc., Wells Capital, Inc. (the "Advisor"), Wells Investment Securities, Inc.
(the "Dealer Manager") and Wells Development Corporation. On July 30, 1999, the
Board of Directors of the Company elected Douglas P. Williams, age 49, as
successor Executive Vice President, Secretary and Treasurer of the Company.
Douglas P. Williams, who was elected as Executive Vice President, Secretary
and Treasurer of the Company on July 30, 1999, previously served as Vice
President, Controller of OneSource, Inc., a leading supplier of janitorial and
landscape services, from 1996 to 1999 where he was responsible for corporate-
wide accounting activities and financial analysis. Mr. Williams was employed by
ECC International Inc. ("ECC"), a supplier to the paper industry and to the
paint, rubber and plastic industries, from 1982 to 1995. While at ECC, Mr.
Williams served in a number of key accounting positions, including Corporate
Accounting Manager, U.S. Operations, Division Controller, Americas Region and
Corporate Controller, America/Pacific Division. Prior to joining ECC and for
one year after leaving ECC, Mr. Williams was employed by Lithonia Lighting, a
manufacturer of lighting fixtures, as a Cost and General Accounting Manager and
Director of Planning and Control. Mr. Williams started his professional career
as an auditor for KPMG Peat Marwick LLP.
Mr. Williams is a member of the American Institute of Certified Public
Accountants and the Georgia Society of Certified Public Accountants. Mr.
Williams received a bachelor of arts degree from Dartmouth College and a Masters
of Business Administration degree from the Amos Tuck School of Graduate Business
Administration at Dartmouth College.
The Advisor and the Advisory Agreement
The Advisor
As set forth above, Brian M. Conlon resigned as an executive officer of the
Advisor effective as of July 30, 1999. The Board of Directors of the Advisor
elected Douglas P. Williams, age 49, and Stephen G. Franklin, age 52, as
successor Senior Vice Presidents of the Advisor effective July 30, 1999. In
addition, Mr. Williams was elected as successor Assistant Secretary of the
Advisor. The background of Douglas P. Williams is described above.
2
<PAGE>
Stephen G. Franklin, Ph.D. most recently served as President of Global
Access Learning, an international executive education and management development
firm. From 1997 to 1999, Dr. Franklin served as President, Chief Academic
Officer and Director of EduTrek International, a publicly traded provider of
international post-secondary education that owns the American InterContinental
University, with campuses in Atlanta, Ft. Lauderdale, Los Angeles, Washington,
D.C., London and Dubai. While at EduTrek, he was instrumental in developing the
Masters and Bachelors of Information Technology, International MBA and Adult
Evening BBA programs. Prior to joining EduTrek, Dr. Franklin was Associate Dean
of the Goizueta Business School at Emory University and a former tenured
Associate Professor of Business Administration. He served on the founding
Executive MBA faculty, and has taught graduate, undergraduate and executive
courses in Management and Organizational Behavior, Human Resources Management
and Entrepreneurship. He is also co-founder and Director of the Center for
Healthcare Leadership in the Emory University School of Medicine. Dr. Franklin
was a frequent guest lecturer at universities throughout North America, Europe
and South Africa.
In 1984, Dr. Franklin took a sabbatical from Emory University and became
Executive Vice President and a principal shareholder of Financial Service
Corporation ("FSC"), an independent financial planning broker-dealer. Dr.
Franklin and the other shareholders of FSC later sold their interests in FSC to
Mutual of New York Life Insurance Company.
Distribution Policy
The information contained on page 45 in the "Distribution Policy" section
of the Prospectus is revised as of the date of this Supplement by the deletion
of the second paragraph of that section and the insertion of the following
paragraph in lieu thereof:
Dividends will be paid on a quarterly basis regardless of the
frequency with which distributions are declared. Dividends will be paid to
investors who are stockholders as of the record dates selected by the
directors. The Company calculates quarterly dividends based upon daily
record and dividend declaration dates with the result that investors will
be entitled to be paid dividends immediately upon their purchase of shares.
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.
The Wells Fund XI - Fund XII - REIT Joint Venture
On May 1, 1999, Wells OP and Wells Fund XI entered into a Joint Venture
Partnership Agreement (the "Joint Venture Agreement") for the purpose of
acquiring, owning, leasing, operating and managing real properties. On June 21,
1999, the Joint Venture Agreement was amended to admit Wells Real Estate Fund
XII, L.P. ("Wells Fund XII") as a joint venture partner. The joint venture
partnership is known as The Wells Fund XI - Fund XII - REIT Joint Venture (the
"XI-XII-REIT Joint Venture"). As of October 1, 1999, Wells OP had made total
capital contributions to the XI-XII-REIT Joint Venture of $17,634,796 and held
an equity percentage interest in the joint venture of approximately
3
<PAGE>
56.77%; Wells Fund XI had made total capital contributions to the XI-XII-REIT
Joint Venture of $8,131,351 and held an equity percentage interest in the joint
venture of approximately 26.17%; and Wells Fund XII had made total capital
contributions to the XI-XII-REIT Joint Venture of $5,300,000 and held an equity
percentage interest in the joint venture of approximately 17.06%. All income,
loss, profit, net cash flow, resale gain and sale proceeds of the XI-XII-REIT
Joint Venture are allocated and distributed between Wells OP, Wells Fund XI and
Wells Fund XII based upon their respective capital contributions to the joint
venture.
Wells OP is acting as the initial Administrative Venturer of the XI-XII-
REIT Joint Venture and, as such, is responsible for establishing policies and
operating procedures with respect to the business and affairs of the joint
venture. However, approval of Wells Fund XI and Wells Fund XII will be required
for any major decision or any action which materially affects such joint venture
or its real properties.
The Sprint Building
Purchase of the Sprint Building. On July 2, 1999, the XI-XII-REIT Joint Venture
- -------------------------------
acquired a three-story office building containing approximately 68,900 rentable
square feet located in Leawood, Johnson County, Kansas (the "Sprint Building")
from Bridge Information Systems America, Inc. ("Bridge"), pursuant to that
certain Agreement for the Purchase and Sale of Property between Bridge and Wells
Capital, Inc., the Advisor. Bridge is not in any way affiliated with the
Company or its Advisor.
The rights under the agreement were assigned by Wells Capital, Inc, the
original purchaser under the agreement, to the XI-XII-REIT Joint Venture at
closing. The purchase price paid for the Sprint Building was $9,500,000. The
joint venture also incurred additional acquisition expenses in connection with
the purchase of the Sprint Building, including attorneys' fees, recording fees
and other closing costs, of approximately $46,210.
Wells OP contributed $5,546,210, Wells Fund XI contributed $3,000,000 and
Wells Fund XII contributed $1,000,000 to the XI-XII-REIT Joint Venture for their
respective shares of the acquisition costs for the Sprint Building.
Description of the Building and the Site. The Sprint Building is a three-story
- ----------------------------------------
office building containing approximately 68,900 rentable square feet. The
Sprint Building, which was completed in 1992, is a steel frame structure with a
pre-cast concrete panel exterior.
An independent appraisal of the Sprint Building was prepared by CB Richard
Ellis, Inc., real estate appraisers, as of June 14, 1999, pursuant to which the
market value of the land and the leased fee interest subject to the Sprint lease
(described below) was estimated to be $10,100,000, in cash or terms equivalent
to cash. This value estimate was based upon a number of assumptions, including
that the Sprint Building will continue operating at a stabilized level with
Sprint Communications Company L.P. ("Sprint") occupying 100% of the rentable
area, and is not necessarily an accurate reflection of the fair market value of
the property. The XI-XII-REIT Joint Venture also obtained an environmental
report prior to closing evidencing that the environmental condition of the land
and the Sprint Building were satisfactory.
Location of the Sprint Building. The Sprint Building is located approximately
- -------------------------------
three miles south of the Kansas City Central Business District within the city
limits of Leawood and is adjacent to the Leawood Country Club near the affluent
Overland Park suburb of Kansas City. The location is within walking
4
<PAGE>
distance to Ward Parkway Mall and offers convenient access to downtown Kansas
City and I-435, the interstate loop around Kansas City. Hewlett Packard and John
Deere are among the corporations located within the immediate vicinity of the
Sprint Building.
The site is a 7.12 acre tract of land located in Leawood, Johnson County,
Kansas. The majority of the neighborhood consists of older single and multiple
family residential properties built in the late 1930s and 1940s. There are hotel
and office buildings sparsely located throughout the area. Commercial
development is located east, south and west of the site with park land to the
north.
Kansas City is situated within 250 miles of both the geographic and
population centers of the United States. The ten county Kansas City metropolitan
area covers more than 5,000 square miles and includes more than 100
municipalities located in two states.
The metropolitan Kansas City area is a production and service center for
the midwest. With a General Motors and a Ford assembly plant located within the
area, Kansas City is the nation's third largest producer of automobiles. The
area is also home to U.S. Sprint, Hallmark Cards, Marion Laboratories, Farmland
Industries, Interstate Bakeries and United Telecommunications. It is also one of
12 regional centers for the federal government, serving as a focus for many
Missouri and Kansas state agencies, public and private health and educational
services, and midwestern financial, insurance, and real estate interests.
The Lease. The entire 68,900 rentable square feet of the Sprint Building is
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currently under a net Lease Agreement with Sprint dated February 14, 1997. The
landlord's interest in the Sprint lease was assigned to the XI-XII-REIT Joint
Venture at the closing.
The initial term of the Sprint lease is ten years which commenced on May
19, 1997 and expires on May 18, 2007. Sprint has the right to extend the Sprint
lease for two additional five year periods of time. Each extension option must
be exercised by giving notice to the landlord at least 270 days, but no earlier
than 365 days, prior to the expiration date of the then current lease term.
The monthly base rent payable under the Sprint lease will be $83,254.17
($14.50 per square foot) through May 18, 2002 and $91,866.67 ($16.00 per square
foot) for the remainder of the lease term. The monthly base rent payable for
each extended term of the Sprint lease will be equal to 95% of the then "current
market rate" which is calculated as a full-service rental rate less anticipated
annual operating expenses on a rentable square foot basis charged for space of
comparable location, size and conditions in comparable office buildings in the
suburban south Kansas City, Missouri and south Johnson County, Kansas areas. If
the parties are unable to agree upon the "current market rate" within 30 days of
the date negotiations begin, the current market rate shall be determined by
three licensed real estate brokers, one of which will be selected by Sprint, one
of which will be selected by the joint venture and the final appraiser will be
selected by the two appraisers previously selected.
Under the Sprint lease, Sprint is required to pay as additional rent all
real estate taxes, special assessments, utilities, taxes, insurance and other
operating costs with respect to the Sprint Building during the term of the
lease. In addition, Sprint is responsible for all routine maintenance and
repairs including the interior mechanical and electrical systems, the HVAC
system, the parking lot and the landscaping to the Sprint Building. The XI-XII-
REIT Joint Venture, as landlord, is responsible for repair and replacement of
the exterior, roof, foundation and structure.
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The Sprint lease contains a termination option which may be exercised by
Sprint effective as of May 18, 2004 provided that Sprint has not exercised
either of its expansion options described below. Sprint must provide notice to
the XI-XII-REIT Joint Venture of its intent to exercise its termination option
on or before August 21, 2003. If Sprint exercises its termination option, it
will be required to pay the joint venture a termination payment equal to $6.53
per square foot, or $450,199.
Sprint also has an expansion option for an additional 20,000 square feet of
office space which may be exercised in two expansion phases. Sprint's expansion
rights involve building on unfinished ground level space that is currently used
as covered parking within the existing building footprint and shell. At each
exercise of an expansion option, the remaining lease term will be extended to be
a minimum of an additional five years from the date of the completion of such
expansion space.
Sprint must give written notice to the XI-XII-REIT Joint Venture of its
election to exercise each expansion option at least 270 days prior to the date
Sprint will require delivery of the expansion space.
If Sprint exercises either expansion option, the XI-XII-REIT Joint Venture
will be required to construct the expansion improvements in accordance with the
specific drawings and plans attached as an exhibit to the Sprint lease. The
joint venture will be required to fund the expansion improvements and to fund to
Sprint a tenant finish allowance of $10 per square foot for the expansion space.
The base rental per square foot for the expansion space shall be determined
by the XI-XII-REIT Joint Venture taking into consideration the value of the
joint venture's work related to such expansion space and the base rental rate
increase per square foot applicable at the end of year five of the lease term.
The expansion space base rental rate shall be presented to Sprint no later than
45 days after delivery to the joint venture of each expansion notice. In no
event shall such rental rate be greater than the base rental rate for the Sprint
Building as of the date of the expansion space commencement date.
Property Management Fees. Wells Management Company, Inc. ("Wells Management"),
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an affiliate of the Advisor, has been retained to manage and lease the Sprint
Building. The XI-XII-REIT Joint Venture will pay management and leasing fees to
Wells Management in the amount of 4.5% of gross revenues from the Sprint
Building.
The ABB Richmond Property
Purchase of the ABB Richmond Property. On July 22, 1999, Wells REIT, LLC - VA I
- -------------------------------------
("Wells LLC VA"), a limited liability company wholly owned by Wells OP,
purchased a 7.49 acre tract of land located in Midlothian, Chesterfield County,
Virginia (the "ABB Richmond Property") pursuant to that certain Purchase and
Sale Agreement and Escrow Agreement dated May 25, 1999 between Wells OP and
Idlewood Properties, Inc. ("Idlewood"). Wells OP, as original purchaser under
the agreement, assigned all of its rights in the agreement to Wells LLC VA. The
purchase price paid for the ABB Richmond Property was $936,250. In connection
with the closing of the acquisition of the ABB Richmond Property, Wells LLC VA
paid title insurance premiums and other miscellaneous closing costs of
approximately $10,000. Wells LLC VA incurred legal fees of approximately
$10,000 outside of the closing. Idlewood is not affiliated with the Company or
the Advisor.
Wells LLC VA entered into a Development Agreement with Adevco Corporation
(as described below) on June 28, 1999, for the construction of a four-story
brick office building containing approximately 100,000 rentable square feet to
be erected on the ABB Richmond Property (the "ABB Richmond Project"). Wells LLC
VA entered into an Office Lease with ABB Power Generation Inc.
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("ABB Power"), a Delaware corporation, pursuant to which ABB Power agreed to
lease approximately 80% of the ABB Richmond Project upon its completion.
Description of the ABB Richmond Project and the Site. The ABB Richmond Project
- ----------------------------------------------------
involves the construction of a four-story brick office building containing
102,000 gross square feet with on-grade parking for approximately 500 cars. The
ABB Richmond Property is currently zoned to permit the intended development and
operation of the ABB Richmond Project as a commercial office building and has
access to all utilities necessary for the development and operation of the ABB
Richmond Project, including water, electricity, sanitary sewer and telephone.
The site consists of a 7.49 acre tract of land located in the Waterford
Business Park in Southwest Richmond, Virginia. Waterford is a 250-acre office
park in the Clover Hill District of Chesterfield County, one of the fastest
growing counties in Virginia. The office park is located at the interchange of
I-288 and the Powhite Parkway with excellent access to I-95 and I-64.
Midlothian is located approximately nine miles southwest of the Richmond
central business district. The moderate cost of living, low taxes and strong
economic base, as well as the transportation networks and waterways, make
Richmond an attractive location for businesses.
An independent appraisal of the ABB Richmond Project was prepared by CB
Richard Ellis, Inc., real estate appraisers, as of June 21, 1999, pursuant to
which the market value of the land and the leased fee interest in the ABB
Richmond Project subject to the ABB Richmond lease (described below) was
estimated to be $11.6 million, in cash or terms equivalent to cash. This value
estimate was based upon a number of assumptions, including that the ABB Richmond
Project will be finished in accordance with plans and specifications, that total
development costs would not exceed $11.5 million and that the building will be
operated following completion at a stabilized level with ABB Power occupying 80%
of the building at a rental rate calculated based upon the $11.5 million
development budget. Wells OP obtained an environmental report prior to closing
of the ABB Richmond Property evidencing that the environmental condition of the
ABB Richmond Property is satisfactory.
The ABB Richmond Loan. In addition, Wells LLC VA has received a commitment to
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obtain a construction loan from SouthTrust Bank, N.A. in the maximum principal
amount of $9,280,000, the proceeds of which will be used to fund the development
and construction of the ABB Richmond Project (the "ABB Richmond Loan"). The ABB
Richmond Loan shall mature 30 months from the date of the loan closing. The
interest rate on the ABB Richmond Loan will be 225 basis points over the London
Inter Bank Offered Rate with a 1/2 point origination fee. Wells LLC VA shall
pay interest only for the first 18 months of the loan. A fixed principal
payment of $600,000 is required in the 19th month of the loan. The ABB Richmond
Loan will be secured by a pledge of the real estate, the ABB Richmond lease and
the $4,000,000 letter of credit issued by Unibank described below. Leo F.
Wells, III (an officer and director of the Company and the Advisor) will be a
guarantor of the ABB Richmond Loan.
Although management of Wells LLC VA currently anticipates obtaining the
ABB Richmond Loan from SouthTrust pursuant to the terms described above, Wells
LLC VA has not yet entered into a formal loan agreement. Therefore, there is
no guarantee that Wells LLC VA will obtain the ABB Richmond Loan under the
terms described above or that the loan obtained to fund the construction and
development of the ABB Richmond Project will materially differ from the terms
described above.
Development Agreement. On June 28, 1999, Wells LLC VA entered into a
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Development Agreement (the "Development Agreement") with ADEVCO Corporation, a
Georgia corporation (the
7
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"Developer"), as the exclusive development manager to supervise, manage and
coordinate the planning, design, construction and completion of the ABB Richmond
Project.
The Developer is an Atlanta based real estate development and management
company formed in 1990 which specializes in the development of office buildings.
The Developer has previously developed or is developing a total of seven office
buildings for Affiliates of the Advisor including the Matsushita Project in Lake
Forest, California. See Supplement No. 6 to the Prospectus for a description of
the Developer and projects previously developed by the Developer.
The primary responsibilities of the Developer under the Development
Agreement include:
. the supervision, coordination, administration and management of the
work, activities and performance of the architect under the
Architect's Agreement (as described below) and the contractor under
the Construction Contract (as described below);
. the implementation of a development budget setting forth an estimate
of all expenses and costs to be incurred with respect to the planning,
design, development and construction of the ABB Richmond Project;
. the review of all applications for disbursement made by or on behalf
of Wells LLC VA under the Architect's Agreement and the Construction
Contract;
. the supervision and management of tenant build-out at the ABB Richmond
Project; and
. the negotiation of contracts with, supervision of the performance of,
and review and verification of applications for payment of the fees,
charges and expenses of such design and engineering professionals,
consultants and suppliers as the Developer deems necessary for the
design and construction of the ABB Richmond Project in accordance with
the development budget.
The Developer will also perform other services typical of development
managers including, but not limited to, arranging for preliminary site plans,
surveys and engineering plans and drawings, overseeing the selection by the
Contractor of major subcontractors and reviewing all applicable building codes,
environmental, zoning and land use laws and other applicable local, state and
federal laws, regulations and ordinances concerning the development, use and
operation of the ABB Richmond Project or any portion thereof. The Developer is
required to advise Wells LLC VA on a weekly basis as to the status of the ABB
Richmond Project and submit to Wells LLC VA monthly reports with respect to the
progress of construction, including a breakdown of all costs and expenses under
the development budget. The Developer is required to obtain prior written
approval from Wells LLC VA before incurring and paying any costs which will
result in aggregate expenditures under any one category or line item in the
development budget exceeding the amount budgeted therefor. If the Developer
determines at any time that the development budget is not compatible with the
then prevailing status of the ABB Richmond Project and will not adequately
provide for the completion of the ABB Richmond Project, the Developer will
prepare and submit to Wells LLC VA for approval an appropriate revision of the
development budget.
In discharging its duties and responsibilities under the Development
Agreement, the Developer has full and complete authority and discretion to act
for and on behalf of Wells LLC VA. The Developer has agreed to indemnify Wells
LLC VA from any and all claims, demands, losses,
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<PAGE>
liabilities, actions, lawsuits, and other proceedings, judgments and awards, and
any costs and expenses arising out of the negligence, fraud or any willful act
or omission by the Developer. Wells LLC VA has agreed to indemnify the Developer
from and against any and all claims, demands, losses, liabilities, actions,
lawsuits and other proceedings, judgments and awards, and any costs and expenses
arising out of (1) any actions taken by the Developer within the scope of its
duties or authority, excluding negligence, fraud or willful acts of the
Developer, and (2) the negligence, fraud or any willful act or omission on the
part of Wells LLC VA and its members and their respective partners, officers,
directors and employees.
Wells LLC VA may elect to provide funds to the Developer so that the
Developer can pay Wells LLC VA's obligations with respect to the construction
and development of the ABB Richmond Project directly. All such funds of Wells
LLC VA which may be received by the Developer with respect to the development or
construction of the ABB Richmond Project will be deposited in a bank account
approved by Wells LLC VA. If at any time the funds contained in the bank
account of Wells LLC VA temporarily exceeds the immediate cash needs of the ABB
Richmond Project, the Developer may invest such excess funds in savings
accounts, certificates of deposit, United States Treasury obligations and
commercial paper as the Developer deems appropriate or as Wells LLC VA may
direct, provided that the form of any such investment is consistent with the
Developer's need to be able to liquidate any such investment to meet the cash
needs of the ABB Richmond Project. The Developer shall be reimbursed for all
advances, costs and expenses paid for and on behalf of Wells LLC VA. The
Developer will not be reimbursed, however, for its own administrative costs or
for costs relating to travel and lodging incurred by its employees and agents.
The Developer may be required to advance its own funds for the payment of any
costs or expenses incurred by or on behalf of Wells LLC VA in connection with
the development of the ABB Richmond Project if there are cost overruns in excess
of the contingency contained in the development budget.
As compensation for the services to be rendered by the Developer under the
Development Agreement, Wells LLC VA will pay a development fee of $150,000. The
development fee will be due and payable ratably (on the basis of the percentage
of construction completed) as the construction and development of the ABB
Richmond Project is completed. Wells LLC VA will also pay the Developer an "ABB
Work Fee" of $150,000 which will be payable in a lump sum at the completion of
the ABB Richmond Project. The ABB Work Fee is for services rendered by the
Developer with respect to the supervision and management of tenant build-out of
the premises leased by ABB Power pursuant to the ABB Power lease.
In the event that the Developer shall serve as the construction manager
with respect to any portion of the tenant improvements not initially leased by
ABB Power, the Developer will be paid a "Small Tenant Work Fee" equal to $2.00
multiplied by the number of square feet of rentable area not initially leased by
ABB Power. In addition, if the Developer procures a tenant for such space not
initially leased by ABB Power, the Developer shall be paid a "Small Tenant
Leasing Fee" equal to 5% of gross base rents paid by the tenant during the
initial term of the lease and any bargained for renewals of such lease.
It is anticipated that the aggregate of all costs and expenses to be
incurred by Wells LLC VA with respect to the acquisition of the ABB Richmond
Property, the planning, design, development, construction and completion of the
ABB Richmond Project, the build-out of tenant improvements under the ABB
Richmond lease and the contingency reserve will total approximately $11,559,347
comprised of the following expenditures:
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Construction Contract $5,549,527
Tenant Improvements - ABB Premises 2,047,112
Tenant Improvements - Additional Space 483,050
Land 937,500
Contractor's Bond 45,000
Work Fee 60,000
Architectural Fees & Expenses 235,134
Space Planning 80,000
Development Fee 150,000
ABB Work Fee 150,000
Survey and Engineering 78,500
Landscape Construction 150,000
Holdover Contingency 75,000
Construction Interest 350,000
Loan Commitment Fee 100,000
Commissions 600,639
Legal Fees 75,000
Contingency 298,233
Miscellaneous 94,652
Under the terms of the Development Agreement, the Developer has agreed
that, in the event that the total of all such costs and expenses (excluding
costs for closing costs, loan fees, construction interest, tenant improvements
and leasing commissions) exceeds $9,454,658 (except for changes agreed to by
Wells LLC VA and ABB Power), the amount of fees payable to the Developer shall
be reduced by the amount of any such excess.
In the event the Developer should for any reason cease to manage the
development of the ABB Richmond Project, Wells LLC VA would have to locate a
suitable successor development manager. No assurances can be given as to
whether a suitable successor development manager could be found, or what the
contractual terms or arrangement with any such successor would be.
Construction Contract. Wells LLC VA entered into a construction contract (the
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"Construction Contract") dated June 14, 1999 with the general contracting firm
of Bovis Construction Corp. (the "Contractor") for the construction of the ABB
Richmond Project. The Contractor, which was founded in London in 1885, now
ranks among the world's top 10 construction companies with projects in 36
countries. At any one time, the Contractor is engaged in approximately 500
projects.
The Construction Contract provides that Wells LLC VA shall pay the
Contractor $5,549,527 for the full and proper work detailed in the contract.
The Contractor commenced work on the ABB Richmond Project in June 1999.
Wells LLC VA will make monthly progress payments to the Contractor in an
amount of 90% of the portion of the contract price properly allocable to labor,
materials and equipment, less the aggregate of any previous payments made by
Wells LLC VA; provided, however, that when a total of $277,500 has been withheld
as retainage, no further retainage will be withheld from the monthly progress
payments. Wells LLC VA will pay the entire unpaid balance when the ABB Richmond
Project has been fully completed in accordance with the terms and conditions of
the Construction Contract. As a condition of final payment, the Contractor will
be required to execute and deliver a release of all claims and liens against
Wells LLC VA.
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<PAGE>
The Contractor is responsible to Wells LLC VA for the acts or omissions of
its subcontractors and suppliers of materials and of persons either directly or
indirectly employed by them. The Contractor agreed to indemnify Wells LLC VA
from and against all liability, claims, damages, losses, expenses and costs of
any kind or description arising out of or in connection with the performance of
the Construction Contract, provided that such liability, claim, damage, loss or
expense is caused in whole or in part by any action or omission of the
Contractor, any subcontractor or materialmen, anyone directly or indirectly
employed by any of them or anyone for whose acts any of them may be liable. The
Construction Contract also requires the Contractor to obtain and maintain, until
completion of the ABB Richmond Project, adequate insurance coverage relating to
the ABB Richmond Project, including insurance for workers' compensation,
personal injury and property damage.
The Contractor is required to work expeditiously and diligently to maintain
progress in accordance with the construction schedule and to achieve substantial
completion of the ABB Richmond Project within the contract time. The Contractor
is required to employ all such additional labor, services and supervision,
including such extra shifts and overtime, as may be necessary to maintain
progress in accordance with the construction schedule. It is anticipated that
the ABB Richmond Project will be completed within 315 days after work commences.
The performance of the Contractor is secured by a $1,000,000 letter of credit.
In addition, performance by the Contractor of the Construction Contract has been
personally guaranteed by David Kraxberger, a principal of the Developer.
Architect's Agreement. Smallwood, Reynolds, Stewart, Stewart & Associates, Inc.
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(the "Architect") is the architect for the ABB Richmond Project pursuant to the
Architect's Agreement dated May 18, 1999 entered into with Wells LLC VA. The
Architect, which was founded in 1979, is based in Atlanta, Georgia, has a staff
of over 200 persons, and specializes in programming, planning, architecture,
interior design, landscape architecture and construction administration. The
Architect has its principal office in Atlanta, Georgia and additional offices in
Tampa, Florida and Singapore, Malaysia. The Architect has designed a wide
variety of projects, with a total construction cost in excess of $2 billion,
including facilities for corporate office space, educational and athletic
facilities, retail space, manufacturing, warehouse and distribution facilities,
hotels and resorts, correctional institutions, and luxury residential units.
The Architect has performed architectural services with respect to various
projects for Affiliates of the Company and is currently performing such services
for the Matsushita Project. The Architect is not affiliated with the Company or
the Advisor.
The Architect's basic services under the Architect's Agreement include the
schematic design phase, the design development phase, the construction documents
phase, the bidding or negotiation phase and the construction phase. During the
schematic design phase, the Architect will prepare schematic design documents
consisting of drawings and other documents illustrating the scale and
relationship of the ABB Richmond Project components. The Architect will be paid
$35,190 for these services.
During the design development phase, the Architect will prepare design
development documents consisting of drawings and other documents to fix and
describe the size and character of the entire ABB Richmond Project as to
architectural, structural, mechanical, plumbing and fire protection and
electrical systems, materials and such other elements as may be appropriate.
The Architect will be paid $70,380 for these services.
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<PAGE>
During the construction documents phase, the Architect will prepare
construction documents consisting of drawings and specifications setting forth
in detail the requirements for the construction of the ABB Richmond Project.
The Architect will be paid $105,570 for these services.
During the bidding or negotiation phase, the Architect will assist Wells
LLC VA in obtaining bids or negotiated proposals and assist in awarding and
preparing contracts for construction.
During the construction phase, the Architect is to provide administration
of the Construction Contract and advise and consult with the Developer and Wells
LLC VA concerning various matters relating to the construction of the ABB
Richmond Project. The Architect is required to visit the ABB Richmond Project
site at intervals appropriate to the stage of construction and to become
generally familiar with the progress and quality of the work and to determine
if, in general, the work is proceeding in accordance with the contract schedule.
The Architect is required to keep Wells LLC VA informed of the progress and
quality of the work. The Architect is also required to determine the amounts
owing to the Contractor based on observations of the site and evaluations of the
Contractor's application for payment and shall issue certificates for payment in
amounts determined in accordance with the Construction Contract described above.
The Architect will also conduct inspections to determine the date of completion
of the ABB Richmond Project and shall issue a final certificate for payment.
The Architect will be paid $23,460 for these services.
The total amount of fees payable to the Architect under the Architect's
Agreement is $234,600. Payments are being paid to the Architect on a monthly
basis in proportion to the services performed within each phase of service. In
addition, the Architect and its employees and consultants are reimbursed for
expenses including, but not limited to, transportation in connection with the
ABB Richmond Project, living expenses in connection with out-of-town travel,
long distance communications and fees paid for securing approval of authorities
having jurisdiction over the ABB Richmond Project. It is estimated that the
total reimbursable expenses in connection with the development of the ABB
Richmond Project will be approximately $25,000.
ABB Richmond Lease. On June 1, 1999, Wells LLC VA entered into an Office Lease
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pursuant to which ABB Power agreed to lease 80,000 rentable square feet of the
ABB Richmond Project. While ABB Power is not legally obligated to do so,
management anticipates that ABB Power is likely to lease the remaining
approximately 20,000 rentable square feet which would result in ABB Power
renting 100% of the ABB Richmond Project.
ABB Power is a subsidiary of Asea Brown Boveri, Inc., a large multi-
national engineering and construction company headquartered in Switzerland. ABB
Power reported net income for the fiscal year ended December 31, 1998 of over
$1.3 billion on gross revenues of over $30.9 billion and a net worth of over
$6.0 billion.
The initial term of the ABB Richmond lease will be seven years to commence
on the later of April 1, 2000 or the earlier of (1) the date which is ten (10)
days after "Substantial Completion" (as defined in Exhibit D of the lease) or
the date ABB Power commences business in the premises. ABB Power has the right
to extend the lease for two additional five year periods of time. Each
extension option must be exercised by giving notice to the landlord at least 12
months prior to the expiration date of the then-current lease term.
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The ABB Richmond lease is credit enhanced by a letter of credit in the
amount of $4 million issued by Unibank, a large Danish bank with offices in New
York, for the account of Asea Brown Boveri, Inc., the parent company.
The monthly base rent payable under the ABB Richmond lease shall be as
follows:
Monthly Installment
Lease Year of Base Rent
---------- ------------
1 $79,666.67
2 $81,658.33
3 $83,699.79
4 $85,792.28
5 $87,937.09
6 $90,135.51
7 $92,388.90
The monthly base rent is based upon a projected total cost for the ABB
Richmond Project of $11,036,139. If the total project cost, as provided in the
work letter attached as an exhibit to the ABB Richmond lease, is more or less
than $11,036,139, then the monthly base rent shall be adjusted upward or
downward, as the case may be, by 10.54% of the difference.
The monthly base rent payable for each extended term of the ABB Richmond
lease will be equal to the "Market Rate" for new leases of office space in that
portion of the Richmond, Virginia market that is located south of the James
River and west of I-95 for space similar to the premises. In the event the
parties are unable to agree upon the Market Rate, then each party shall appoint
a real estate appraiser. If the appraisers are unable to agree upon the Market
Rate, they shall appoint a third appraiser and each shall make a determination
of the Market Rate. The appraisal that is farthest from the middle appraisal
shall be disregarded and the remaining two appraisals shall be averaged to
establish the Market Rate.
In addition to the monthly base rent, ABB Power is required to pay
additional rent equal to all "operating expenses" and "tenant taxes" during the
lease term. "Operating expenses" is defined to include all expenses, costs and
disbursements of every kind and nature, computed on the accrual basis, relating
to or incurred or paid in connection with the ownership, management, operation,
repair and maintenance of the ABB Richmond Project including but not limited to:
(i) costs of all supplies, tools equipment and materials used in the operation,
management and maintenance of the ABB Richmond Project, (ii) maintenance and
repairs of the project, (iii) trash and garbage removal and (iv) all accounting
and legal services in connection with maintenance, operation and repair of the
Project. "Tenant taxes" shall mean any taxes directly or indirectly imposed or
assessed upon Tenant's gross sales, business operations, machinery, equipment,
trade fixtures and other personal property or assets. ABB Power shall also be
responsible for the furnishing of all services and utilities to the premises,
including but not limited to, heating, ventilation and air conditioning,
electricity, water, telephone, janitorial and security services, window washing
and landscaping services.
Under the ABB Richmond lease, Wells LLC VA may not lease any space in the
building to anyone other than ABB Power prior to December 31, 1999. Beginning
on December 31, 1999 and ending on the last day of the third lease year, ABB
Power shall have a right of first refusal to the remaining approximately 20,000
square feet of rentable area. In the event that Wells LLC VA has
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<PAGE>
secured a potential tenant for any of such space, Wells LLC VA has agreed to
give ABB Power three days to provide written notice of its intent to exercise
its right to add such space to the leased premises. The base rent payable and
other charges and allowances shall be as set forth in the notice to ABB Power of
the proposed terms of the lease for the potential tenant of such space. If ABB
Power does not so exercise its right of first refusal within such three day
period, Wells LLC VA 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 Power's right of first refusal.
In addition, beginning on December 31, 1999 and ending on the last day of
the third lease year, ABB Power shall have the option to expand its leased
premises to include all or any portion of the remaining rentable area that has
not been leased to another tenant. The expansion space shall be leased to ABB
Power at the same rate per square foot as the remainder of the premises leased
by ABB Power.
ABB Power has a one-time option to terminate the ABB Richmond lease as to a
portion of the premises containing between 12,500 and 13,000 rentable square
feet as of the third anniversary of the rental commencement date. If ABB Power
elects to exercise this termination option, ABB Power is required to pay a
termination fee equal to eight times the sum of the next due installments of
rent plus the unamortized portions of the base improvement allowance, additional
allowance and broker commission, each being amortized in equal monthly
installments of principal and interest over the initial term of the lease at a
rate of ten percent (10%) per annum. ABB Power must give notice of its intent
to exercise such option to terminate at least seven months in advance of the
third anniversary; provided, however, that ABB Power may pay a penalty, as
stipulated in the lease, to provide less than seven months notice.
In the event that ABB Power exercises its termination option as of the
third anniversary of the rental commencement date, ABB Power has a one-time
option to terminate the ABB Richmond lease as to a portion of the premises
containing between 12,500 and 13,000 rentable square feet as of the fifth
anniversary of the rental commencement date. If ABB Power elects to exercise
this termination option, ABB Power is required to pay a termination fee equal to
six times the sum of the next due installments of rent plus the unamortized
portions of the base improvement allowance, additional allowance and broker
commission, each being amortized in equal monthly installments of principal and
interest over the initial term of the lease at a rate of ten percent (10%) per
annum. ABB Power must give notice of its intent to exercise such option to
terminate at least seven months in advance of the fifth anniversary; provided,
however, that ABB Power may pay a penalty, as stipulated in the lease, to
provide less than seven months notice.
In the event that ABB Power does not exercise its termination option as of
the third anniversary of the rental commencement date, ABB Power has a one-time
option to terminate the ABB Richmond lease as to a portion of the premises
containing between 24,500 and 25,500 rentable square feet as of the fifth
anniversary of the rental commencement date. If ABB Power elects to exercise
this termination option, ABB Power is required to pay a termination fee equal to
six times the sum of the next due installments of rent plus the unamortized
portions of the base improvement allowance, additional allowance and broker
commission, each being amortized in equal monthly installments of principal and
interest over the initial term of the lease at a rate of ten percent (10%) per
annum. ABB Power must give notice of its intent to exercise such option to
terminate at least nine months in advance of the fifth anniversary; provided,
however, that ABB Power may pay a penalty, as stipulated in the lease, to
provide less than seven months notice.
14
<PAGE>
Property Management Fees. Following construction and completion of the ABB
- ------------------------
Richmond Project, property management and leasing services will be performed by
Wells Management, an Affiliate of the Advisor. As compensation for its
services, Wells Management will receive fees equal to 4.5% of the gross revenues
for property management services and leasing services with respect to the ABB
Richmond Project. In addition, Wells Management will receive a one-time initial
lease-up fee relating to the ABB Richmond lease equal to the first month's rent
on the initial leases signed on the building which is estimated to be
approximately $100,000.
The Johnson Matthey Building
Purchase of the Johnson Matthey Building. On August 17, 1999, the XI-XII-REIT
- -----------------------------------------
Joint Venture acquired the Johnson Matthey Building from Alliance Commercial
Properties Ltd. ("Alliance") pursuant to an Agreement of Sale and Purchase.
Wells Capital, Inc., as original purchaser under the agreement, assigned its
rights under the agreement to the XI-XII-REIT Joint Venture at closing.
Alliance is not in any way affiliated with the Company or its Advisor.
The purchase price paid for the Johnson Matthey Building was $8,000,000.
The XI-XII-REIT Joint Venture also incurred additional acquisition expenses in
connection with the purchase of the Johnson Matthey Building, including
attorneys' fees, recording fees and other closing costs, of approximately
$50,000.
Wells OP contributed approximately $3,055,700, Wells Fund XI contributed
approximately $3,494,800 and Wells Fund XII contributed $1,500,000 to the XI-
XII-REIT Joint Venture for their respective shares of the acquisition costs for
the Johnson Matthey Building.
Description of the Building and the Site. The Johnson Matthey Building is a
- -----------------------------------------
130,000 square foot research and development, office and warehouse building that
was first constructed in 1973 as a multi-tenant facility. It was subsequently
converted into a single-tenant facility in 1998. The building is constructed of
a structural steel frame and is rectangular in shape with two rectangular cut-
outs at the front corners. The exterior is cinderblock, with brick on the lower
ten feet of the north, east and west walls. The south wall is all cinderblock.
The interior contains office space that comprises approximately 23% of the
rentable square feet of the Johnson Matthey Building.
The site consists of a 10.0 acre tract of land located at 434-436 Devon
Park Drive in Tredyffrin Township, Chester County, Pennsylvania. The site is
located along the Route 202 "high tech" corridor close to King of Prussia and is
considered a suburb of Philadelphia. The site is within five minutes of Route
422, the Pennsylvania Turnpike and Interstate 76.
An independent appraisal of the Johnson Matthey Building was prepared by CB
Richard Ellis, real estate appraisers, as of June 24, 1999. The appraisers
estimated the market value of the land and the leased fee interest subject to
the Johnson Matthey lease (described below) to be $8,000,000, in cash or terms
equivalent to cash. This value estimate was based upon a number of assumptions,
including that the Johnson Matthey Building will continue operating at a
stabilized level with Johnson Matthey, Inc. ("Johnson Matthey") occupying 100%
of the rentable area. The value estimate set forth in the appraisal is not
necessarily an accurate reflection of the fair market value of the property.
The XI-XII-REIT Joint Venture also obtained an environmental report
prepared by Dames & Moore evidencing that the environmental condition of the
land and the Johnson Matthey Building was satisfactory. Although the soil does
contain some traces of environmental groundwater contaminants
15
<PAGE>
approximately 60 feet below the surface, Dames & Moore, in a letter addressed to
Wells Capital, Inc. dated August 13, 1999, did not recommend any further
environmental investigation for the site. At the closing, the seller assigned
its rights to a $2,000,000 insurance policy to the XI-XII-REIT Joint Venture
relating to potential losses from environmental contamination. Management of the
Company is satisfied that the environmental condition of the site is
satisfactory and believes that the rights assigned under this insurance policy
protect the Company from potential liability exposure resulting from
environmental contamination.
The Johnson Matthey Lease. The entire 130,000 rentable square feet of the
- -------------------------
Johnson Matthey Building is currently leased to Johnson Matthey. The Johnson
Matthey lease was assigned to the XI-XII-REIT Joint Venture at the closing with
the result that the joint venture is now the landlord under the lease.
Johnson Matthey is a wholly owned subsidiary of Johnson Matthey, PLC of the
United Kingdom, a world leader in advanced materials technology. Johnson
Matthey, PLC applies the latest technology to add value to precious metals and
other specialized materials. Johnson Matthey, PLC is a publicly traded company
that is over 175 years old, has operations in 38 countries and employs 12,000
people.
Johnson Matthey is one of the parent company's primary operating companies
in the U.S. and includes the Catalytic Systems Division (the "CSD"). The CSD is
the world's leading supplier of catalytic converters for automotive exhaust
emission and air pollution control. In addition, Johnson Matthey is the largest
U.S. supplier of diesel catalytic converters, which enable customers to meet
constantly tightening regulatory requirements.
While Johnson Matthey does not publish financial statements, the following
financial information was verbally disclosed by Johnson Matthey relating to its
1998 performance in U.S. Dollars:
Sales: $ 1.1 Billion
Assets: $ 750 Million
Net Worth $ 120 Million
In addition, Johnson Matthey, PLC, the parent company of the tenant,
published the following financial data for 1998 converted to U.S. Dollars:
Sales: $ 5.0 Billion
Assets: $ 1.9 Billion
Net Worth: $ 857 Million
The current lease term expires in June 2007. Johnson Matthey has the right
to extend the lease for two additional three year periods of time. Each
extension option must be exercised by giving notice to the landlord at least 12
months prior to the expiration date of the then-current lease term.
The base rent payable under the Johnson Matthey lease for the remainder of
the lease term is as follows:
16
<PAGE>
- -------------------------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
---------- ----------- ------------
3 $789,750 $65,812.50
4 $809,250 $67,437.50
5 $828,750 $69,062.50
6 $854,750 $71,229.17
7 $874,250 $72,854.17
8 $897,000 $74,750.00
9 $916,500 $76,375.00
10 $939,250 $78,270.84
- -------------------------------------------------------------------------------
The monthly base rent payable for each extension term will be equal to the
fair market rent taking into consideration rental rates for comparable
industrial and research and development properties in the local market area. If
the parties cannot agree upon the fair market rent, the matter shall be
submitted to arbitration.
Under the lease, Johnson Matthey is required to pay as additional rent all
real estate taxes, special assessments, utilities, taxes, insurance and other
operating costs with respect to the Johnson Matthey Building during the term of
the lease. In addition, Johnson Matthey is responsible for all routine
maintenance and repairs to the Johnson Matthey Building. The XI-XII-REIT Joint
Venture, as landlord, is responsible for maintenance of the footings and
foundations and the structural steel columns and girders associated with the
building.
Johnson Matthey has a right of first refusal to purchase the Johnson
Matthey Building in the event that the XI-XII-REIT Joint Venture desires to sell
the building to an unrelated third-party. The XI-XII-REIT Joint Venture must
give Johnson Matthey written notice of its intent to sell the Johnson Matthey
Building, and Johnson Matthey will have ten days from the date of such notice to
provide written notice of its intent to purchase the building. If Johnson
Matthey exercises its right of first refusal, it must purchase the Johnson
Matthey Building on the same terms contained in the offer.
Property Management Fees. Wells Management, an Affiliate of the Advisor, has
- ------------------------
been retained to manage and lease the Johnson Matthey Building. The XI-XII-REIT
Joint Venture will pay management and leasing fees to Wells Management in the
amount of 4.5% of gross revenues from the Johnson Matthey Building on a monthly
basis.
The Videojet Building
Purchase of the Videojet Building. On September 10, 1999, Wells OP acquired an
- ---------------------------------
office, assembly and manufacturing building containing approximately 250,354
rentable square feet located in Wood Dale, DuPage County, Illinois (the
"Videojet Building"). Wells OP acquired the Videojet Building from Sun-Pla, A
California Limited Partnership ("Sun-Pla"), pursuant to that certain Agreement
of Purchase and Sale between Sun-Pla and Wells Capital, Inc. Sun-Pla is not in
any way affiliated with the Company or its Advisor.
The rights under the agreement were assigned by Wells Capital, Inc, the
original purchaser under the agreement, to Wells OP at closing. The original
purchase price for the Videojet Building was $33,100,000. Sun-Pla was subject
to a loan prepayment penalty to its lender in connection with the sale of the
Videojet Building to Wells OP. Since the prepayment penalty was less than the
parties had
17
<PAGE>
anticipated, the purchase price was adjusted downward by $469,060 resulting in
an adjusted purchase price of $32,630,940. Since the parties believe that the
lender made an error in calculating the prepayment penalty and as a condition to
receiving the benefit of the full purchase price adjustment of $469,060, Wells
OP agreed to assume an obligation of up to $183,000 in the event that the lender
requests retribution. In addition, Wells OP paid brokerage commissions of
$500,000 at closing. Wells OP incurred acquisition expenses in connection with
the purchase of the Videojet Building, including attorneys fees, appraisers
fees, environmental consultants fees and other closing costs, of approximately
$27,925.
The $33,158,865 required to close the Videojet acquisition consisted of
$26,158,865 in cash funded from a capital contribution by the Company and
$7,000,000 in loan proceeds obtained from SouthTrust Bank, N.A. pursuant to the
revolving credit facility (the "SouthTrust Loan") originally extended to Wells
OP in connection with the acquisition of the PriceWaterhouseCoopers Building in
Tampa, Florida (the "PWC Building").
Description of the SouthTrust Loan. On December 31, 1998, Wells OP purchased
- ----------------------------------
the PWC Building subject to the SouthTrust Loan which, at that time, had an
outstanding principal balance of $14,132,538. Wells OP has since used proceeds
from the sale of shares of common stock by the Registrant from its public
offering to pay off the entire principal balance of this loan. Subsequently,
Wells OP borrowed $7,000,000 pursuant to the SouthTrust Loan in order to
partially finance the acquisition and development of the Matsushita Project,
which is still under construction.
The SouthTrust Loan consists of a revolving credit facility whereby
SouthTrust has agreed to loan up to $15,200,000 to Wells OP. The SouthTrust Loan
requires monthly payments of interest only and matures on December 31, 2000. The
interest rate on the SouthTrust Loan is a variable rate per annum equal to the
London InterBank Offered Rate for a thirty day period plus 200 basis points. The
current interest rate under the SouthTrust Loan is 7.44%. The SouthTrust Loan is
secured by a first mortgage against the PWC Building.
Following the funding of the additional $7,000,000 in loan proceeds
required to close the Videojet acquisition, the current outstanding balance of
the SouthTrust Loan is $14,000,000.
Description of the Building and the Site. The Videojet Building is a two story
- ----------------------------------------
corporate headquarters facility with 128,247 square feet of office space and
122,107 square feet of assembly and distribution space. The Videojet Building,
which was completed in 1991, has tilt-up concrete panels throughout with bands
of insulated glass surrounding the office portion of the building.
An independent appraisal of the Videojet Building was prepared by Appraisal
Research Counselors, Ltd., real estate appraisers, as of August 16, 1999,
pursuant to which the market value of the land and the leased fee interest
subject to the Videojet lease (described below) was estimated to be $33,600,000,
in cash or terms equivalent to cash. This value estimate was based upon a
number of assumptions, including that the Videojet Building will continue
operating at a stabilized level with Videojet Systems International, Inc.
("Videojet") occupying 100% of the rentable area, and is not necessarily an
accurate reflection of the fair market value of the property or the net proceeds
which would result from a sale of this property. Wells OP also obtained an
environmental report prior to closing evidencing that the environmental
condition of the land and the Videojet Building were satisfactory.
18
<PAGE>
The Videojet Building is located at 1500 Mittel Boulevard in the
Chancellory Business Park in Wood Dale, Illinois. The Chancellory Business Park
consists of good quality office, manufacturing and warehouse buildings mostly
occupied by national tenants such as Sony, Mitsubishi, NEC Minolta and United
Airlines. The site is a 15.3 acre tract of land that is adjacent to the western
entrance to O'Hare International Airport. The site is also situated very
convenient to most of Chicago's major interstates, including the Elgin/O'Hare
Expressway which, when finished, will extend along Thorndale Road adjacent to
the main entrance to the Chancellory Business Park.
Wood Dale is a small suburb with a population of greater than 12,000
located northwest of the City of Chicago and directly west of O'Hare
International Airport. Since the City of Chicago is bordered on the East by Lake
Michigan, some have described Wood Dale as the true center of Chicago. Wood Dale
has a long-term positive outlook due to its superior location.
The Lease. The entire 250,354 rentable square feet of the Videojet Building is
- ---------
currently under a net lease agreement with Videojet dated May 31, 1991. The
landlord's interest in the Videojet lease was assigned to Wells OP at the
closing.
Videojet is the world's leading producer of state-of-the-art industrial ink
jet marking and coding products. Videojet manufactures and distributes
industrial ink jet printers, digital imaging systems, laser coding systems, inks
and fluids to customers worldwide. The Videojet lease is guaranteed by GEC
Incorporated, a Delaware corporation which is a wholly-owned subsidiary of
General Electric Company, p.l.c., a publicly traded United Kingdom corporation
that ranks among the largest electronic system and equipment manufacturers in
the world.
The initial term of the Videojet lease is twenty years which commenced in
November 1991 and expires in November 2011. Videojet has the right to extend
the Videojet lease for one additional five year period of time. The extension
option must be exercised by giving notice to the landlord at least 365 days
prior to the expiration date of the current lease term.
The base rent payable for the remainder of the lease term is as follows:
---------------------------------------------------------------------------
Lease Year Yearly Base Rent Monthly Base Rent
---------------------------------------------------------------------------
2000-2001 $2,838,952 $236,579.33
---------------------------------------------------------------------------
2002-2011 $3,376,746 $281,395.50
---------------------------------------------------------------------------
Extension Term $4,667,439 $388,953.25
---------------------------------------------------------------------------
Under its lease, Videojet is responsible for repair and maintenance of the
roof, walls, structure and foundation, landscaping and the heating,
ventilating, air conditioning, mechanical, electrical, plumbing and other
systems and all other operating costs, including, but not limited to, real
estate taxes, special assessments, utilities and insurance.
The Gartner Building
Purchase of the Gartner Building. On September 20, 1999, the XI-XII-REIT Joint
- --------------------------------
Venture acquired a two story office building with approximately 62,400 rentable
square feet located at 12600 Gateway Blvd. in Fort Myers, Lee County, Florida
(the "Gartner Building") from Hogan Triad Ft. Myers I, Ltd., a Florida limited
partnership ("Hogan"), pursuant to that certain Agreement of Purchase and Sale
of
19
<PAGE>
Property between Hogan and Wells Capital, Inc. Hogan is not in any way
affiliated with the Company or its Advisor.
The rights under the agreement were assigned by Wells Capital, Inc, the
original purchaser under the agreement, to the XI-XII-REIT Joint Venture at
closing. The purchase price for the Gartner Building was $8,320,000. The XI-
XII-REIT Joint Venture also incurred additional acquisition expenses in
connection with the purchase of the Gartner Building, including attorneys' fees,
recording fees and other closing costs, of approximately $27,600.
Wells OP contributed approximately $5,441,050, Wells Fund XI contributed
approximately $106,550 and Wells Fund XII contributed $2,800,000 to the XI-XII-
REIT Joint Venture for their respective shares of the acquisition costs for the
Gartner Building.
Description of the Building and the Site. As set forth above, the Gartner
- ----------------------------------------
Building is a two story office building containing approximately 62,400 rentable
square feet. The Gartner Building, which was completed in 1998, is a reinforced
concrete structure with curtained glass.
An independent appraisal of the Gartner Building was prepared by CB Richard
Ellis, Inc., real estate appraisers, as of September 1, 1999, pursuant to which
the market value of the land and the leased fee interest subject to the Gartner
lease (described below) was estimated to be $8,350,000, in cash or terms
equivalent to cash. This value estimate was based upon a number of assumptions,
including that the Gartner Building will continue operating at a stabilized
level with Gartner Group, Inc. ("Gartner") occupying 100% of the rentable area,
and is not necessarily an accurate reflection of the fair market value of the
property or the net proceeds which would result from an immediate sale of this
property. The XI-XII-REIT Joint Venture also obtained an environmental report
prior to closing evidencing that the environmental condition of the land and the
Gartner Building were satisfactory.
The Gartner Building is located on a 4.9 acre tract of land within the
Gateway development at 12600 Gateway Boulevard in Fort Myers, Florida. Gateway
is a mixed use development with over 3,000 acres planned for residential
purposes and over 800 acres planned for commercial purposes. Sony Electronics
and Ford Motor Credit Company are two of the commercial tenants in this
development.
The recent growth of the Fort Meyers area is primarily due to the opening
of Interstate 75 in the eastern portion of the metro area and the relatively new
Southwest Florida Regional Airport, which is located just south of Gateway and
is easily accessible by a two lane road. Another major expansion to the local
economy is the new Florida Gulf Coast University, which is part of the State of
Florida University system. The enrollment at this university is expected to
increase to between 10,000 and 15,000 in the next few years.
The Lease. The entire 62,400 rentable square feet of the Gartner Building is
- ---------
currently under a net lease agreement with Gartner dated July 30, 1997. The
landlord's interest in the Gartner lease was assigned to the XI-XII-REIT Joint
Venture at the closing.
The Gartner Building will be occupied by Gartner's Financial Services
Division. Gartner, which was founded in 1979, is the world's leading independent
provider of research and analysis related to information and technology
solutions. Gartner serves as a consultant to business clients for their
information technology purchasing decisions. Gartner has over 80 locations
worldwide and over 12,000
20
<PAGE>
clients. Gartner, which is headquartered in Stamford, Connecticut, had net
income of over $98 million and a net worth of over $530 million for its fiscal
year ended September 30, 1998.
The initial term of the Gartner lease is ten years which commenced on
February 1, 1998 and expires on January 31, 2008. Gartner has the right to
extend the lease for two additional five year periods of time. Each extension
option must be exercised by giving at least one year's notice to the landlord
prior to the expiration date of the then current lease term.
The base rent payable for the remainder of the lease term is as follows:
--------------------------------------------------------------------
Lease Year Yearly Base Rent Monthly Base Rent
--------------------------------------------------------------------
2/1999-1/2000 $642,798 $53,566.50
--------------------------------------------------------------------
2/2000-1/2001 $790,642 $65,886.83
--------------------------------------------------------------------
2/2001-1/2002 $810,408 $67,534.00
--------------------------------------------------------------------
2/2002-1/2003 $830,668 $69,222.35
--------------------------------------------------------------------
2/2003-1/2004 $851,435 $70,952.89
--------------------------------------------------------------------
2/2004-1/2005 $872,721 $72,726.74
--------------------------------------------------------------------
2/2005-1/2006 $894,539 $74,544.92
--------------------------------------------------------------------
2/2006-1/2007 $916,902 $76,408.54
--------------------------------------------------------------------
2/2007-1/2008 $939,825 $78,318.71
--------------------------------------------------------------------
The monthly base rent payable for each extended term of the Lease will be equal
to the lesser of (i) the prior rate increased by 2.5%, or (ii) 95% of the then
current market rate which is calculated as a full-service rental rate less
anticipated annual operating expenses on a rentable square foot basis charged
for space of comparable location, size and conditions in comparable office
buildings in the Fort Myers area.
Under the Gartner lease, Gartner is required to pay as additional rent all
real estate taxes, special assessments, utilities, taxes, insurance and other
operating costs with respect to the Gartner Building during the term of the
lease. In addition, Gartner is responsible for all routine maintenance and
repairs to the Gartner Building. The XI-XII-REIT Joint Venture, as landlord, is
responsible for repair and replacement of the roof, structure and paved parking
areas.
Gartner also has two expansion options for additional buildings under the
Gartner lease. The two option plans are described in the lease as the "Small
Option Building" and the "Large Option Building".
The "Small Option Building" expansion option allows Gartner the ability to
expand into a separate, free standing facility on the property containing
between 30,000 and 32,000 rentable square feet to be constructed by the XI-XII-
REIT Joint Venture. Gartner may exercise its expansion right for the Small
Option Building by providing notice in writing to the joint venture on or before
February 15, 2002. In the event that Gartner exercises its expansion option,
the parties shall enter into a separate lease within 30 days of such notice by
Gartner with a guaranteed ten year lease term and yearly base rent to be
determined by mutual agreement of the parties.
The "Large Option Building" expansion option allows Gartner the ability to
expand into a separate, free standing facility on the property containing
between 60,000 and 75,000 rentable square feet to be constructed by the XI-XII-
REIT Joint Venture. Gartner may exercise its expansion right for
21
<PAGE>
the Small Option Building by providing notice in writing to the joint venture on
or before February 15, 2002. In the event that Gartner exercises its expansion
option, the parties shall enter into a separate lease within 30 days of such
notice by Gartner with a guaranteed ten year lease term and yearly base rent to
be determined by mutual agreement of the parties.
Property Management Fees. Wells Management, an Affiliate of the Advisor, has
- ------------------------
been retained to manage and lease the Gartner Building. The XI-XII-REIT Joint
Venture will pay management and leasing fees to Wells Management in the amount
of 4.5% of gross revenues from the Gartner Building.
The Status of the Matsushita Project
As of October 1, 1999, Wells OP had spent in excess of $9,500,000 towards
the construction of the approximately 130,000 square foot office building on the
Matsushita Property in Lake Forest, California. The Matsushita Project is
estimated to be approximately 51% complete and is expected to be completed in
January 2000. It is anticipated that the aggregate of all costs and expenses to
be incurred by Wells OP with respect to the acquisition and construction of the
Matsushita Project will total approximately $18,400,000.
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 October 4, 1999, the Company had raised a total of $108,997,320 in
offering proceeds (10,899,732 Shares), and had paid $3,814,906 in
acquisition and advisory fees and acquisition expenses and $13,624,665 in
selling commissions and organizational and offering expenses. As of October
4, 1999, the Company had invested $89,658,197 in properties and was holding
net offering proceeds of $1,899,552 available for investment in additional
properties.
Financial Statements and Exhibits.
The Statements of Revenues over Certain Operating Expenses of the Sprint
Building, the Johnson Matthey Building, the Videojet Building and the Gartner
Building for the year ended December 31, 1998, included in this Supplement as
Appendix F, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included in reliance upon the authority of said firm as experts in giving said
reports. The Statements of Revenues over Certain Operating Expenses of the
Sprint Building for the three months ended March 31, 1999 and the Johnson
Matthey Building, the Videojet Building and the Gartner Building for the six
months ended June 30, 1999, and the pro forma financial information for Wells
Real Estate Investment Trust, Inc. as of June 30, 1999, and for the year ended
December 31, 1998 and for the six months ended June 30, 1999, have not been
audited.
22
<PAGE>
APPENDIX F
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Sprint Building
Audited Financial Statements
Report of Independent Public Accountants F-1
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 1998 (Audited) and for the
three months ended March 31, 1999 (Unaudited) F-2
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998 (Audited)
and for the three months ended March 31, 1999 (Unaudited) F-3
Johnson Matthey Building
Audited Financial Statements
Report of Independent Public Accountants F-5
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 1998 (Audited) and for the
six months ended June 30, 1999 (Unaudited) F-6
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998 (Audited)
and for the six month period ended June 30, 1999 (Unaudited) F-7
Videojet Building
Audited Financial Statements
Report of Independent Public Accountants F-9
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 1998 (Audited) and for the
six months ended June 30, 1999 (Unaudited) F-10
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998 (Audited)
and for the six month period ended June 30, 1999 (Unaudited) F-11
Gartner Building
Audited Financial Statements
Report of Independent Public Accountants F-13
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 1998 (Audited) and for the
six months ended June 30, 1999 (Unaudited) F-14
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998 (Audited)
and for the six month period ended June 30, 1999 (Unaudited) F-15
Wells Real Estate Investment Trust, Inc.
Unaudited Pro Forma Financial Statements
Summary of Unaudited Pro Forma Financial Statements F-17
Pro Forma Balance Sheet as of June 30, 1999 F-18
Pro Forma Income Statement for the year ending December 31, 1998 F-20
Pro Forma Income Statement for the six month period ending
June 30, 1999 F-21
</TABLE>
23
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc. and
Wells Real Estate Fund XII, L.P.
We have audited the accompanying statement of revenues over certain operating
expenses for the SPRINT BUILDING for the year ended December 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 certain 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 certain 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 Sprint
Building after acquisition by the Wells Fund XI-Fund XII-REIT Joint Venture (a
joint venture between the Wells Operating Partnership, L.P. [on behalf of Wells
Real Estate Investment Trust, Inc.], Wells Real Estate Fund XI, L.P., and Wells
Real Estate Fund XII, L.P.). The accompanying statement of revenues over
certain 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 Sprint Building's revenues and
expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Sprint Building for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
July 12, 1999
F-1
<PAGE>
SPRINT BUILDING
STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
1998 1999
(Unaudited)
---------- -----------
<S> <C> <C>
RENTAL REVENUES $1,050,725 $262,681
OPERATING EXPENSES, net of reimbursements 19,410 2,250
---------- -----------
REVENUES OVER CERTAIN OPERATING EXPENSES $1,031,315 $260,431
---------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
SPRINT BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On July 2, 1999, the Wells Fund XI-XII-REIT Joint Venture (the "Joint
Venture") acquired a three-story office building with approximately 68,900
rentable square feet located in Leawood, Johnson County, Kansas (the
"Sprint Building"). The Joint Venture is a joint venture partnership
between Wells Real Estate Fund XI, L.P. ("Wells Fund XI"), Wells Real
Estate Fund XII, L.P. ("Wells Fund XII"), and Wells Operating Partnership,
L.P. ("Wells OP"), a Delaware limited partnership formed to acquire, own,
lease, operate and manage real properties on behalf of Wells Real Estate
Investment Trust, Inc. (the "Wells REIT"). Wells Fund XI contributed
$3,000,000, Wells Fund XII contributed $1,000,000 and Wells OP contributed
$5,546,210 to the Joint Venture for their respective share of the purchase
of the Sprint Building.
The entire 68,900 rentable square feet of the Sprint Building is currently
under a net lease agreement dated February 14, 1997 (the "Lease") with
Sprint. The Lease was assigned to the Joint Venture at the closing. The
initial term of the Lease is ten years which commenced on May 19, 1997 and
expires on May 18, 2007. Sprint has the right to extend the Lease for 2
additional five-year periods. Each extension option must be exercised by
giving notice to the landlord at least 270 days, but no earlier than 365
days, prior to the expiration date of the then current lease term. The
monthly base rent payable under the Lease will be $83,254.17 through May
18, 2002 and $91,866.67 for the remainder of the Lease term. The monthly
base rent payable for each extended term of the Lease will be equal to 95%
of the then current market rate which is calculated as a full-service
rental rate less anticipated annual operating expenses on a rentable square
foot basis charged for space of comparable location, size, and conditions
in comparable office buildings in the suburban south Kansas City, Missouri
and south Johnson County, Kansas areas.
Under the Lease, Sprint is required to pay as additional rent all real
estate taxes, special assessments, utilities, taxes, insurance, and other
operating costs with respect to the Sprint Building during the term of the
Lease. In addition, Sprint is responsible for all routine maintenance and
repairs including interior mechanical and electrical, HVAC, parking lot,
and landscaping to the Sprint Building. The
F-3
<PAGE>
Joint Venture, as landlord, is responsible for repair and replacement of
the exterior, roof, foundation, and structure.
The Lease contains a termination option which may be exercised by Sprint
effective as of May 18, 2004 provided Sprint has not exercised its
expansion option, as described below. The early termination requires nine
months' notice and a termination payment to the Joint Venture equal to
$6.53 per square foot, or $450,199. Sprint also has an expansion option
for an additional 20,000 square feet of office space which may be exercised
in two phases, which involves building on unfinished ground level space
that is currently used as covered parking within the existing building
footprint and shell. At each exercise of an expansion option, the
remaining lease term will be extended to be a minimum of an additional five
years from the date of the completion of such expansion.
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 statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statements exclude certain historical expenses, such as depreciation and
management fees, not comparable to the operations of the Sprint Building
after acquisition by the Joint Venture.
F-4
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.,
Wells Real Estate Fund XI, L.P.,
and Wells Real Estate Fund XII, L.P.:
We have audited the accompanying statement of revenues over certain operating
expenses for the JOHNSON MATTHEY BUILDING for the year ended December 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 certain 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 certain 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 Johnson
Matthey Building after acquisition by the Wells Fund XI-Fund XII-REIT Joint
Venture (a joint venture between the Wells Operating Partnership, L.P. [on
behalf of Wells Real Estate Investment Trust, Inc.], Wells Real Estate Fund XI,
L.P., and Wells Real Estate Fund XII, L.P.). The accompanying statement of
revenues over certain 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 Johnson
Matthey Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Johnson Matthey Building for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen
Atlanta, Georgia
August 30, 1999
F-5
<PAGE>
JOHNSON MATTHEY BUILDING
STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
1998 1999
---------- ----------
(Unaudited)
<S> <C> <C>
RENTAL REVENUES $745,935 $424,724
OPERATING EXPENSES, net of reimbursements 100,314 59,398
---------- ----------
REVENUES OVER CERTAIN OPERATING EXPENSES $645,621 $365,326
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
JOHNSON MATTHEY BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On August 17, 1999, the Wells Fund XI-Fund XII-REIT Joint Venture (the
"Joint Venture") acquired an office building with approximately 130,000
rentable square feet located in Tredyffrin Township, Chester County,
Pennsylvania (the "Johnson Matthey Building"). The Joint Venture is a
joint venture partnership between Wells Real Estate Fund XI, L.P. ("Wells
Fund XI"), Wells Real Estate Fund XII, L.P. ("Wells Fund XII"), and Wells
Operating Partnership, L.P. ("Wells OP"), a Delaware limited partnership
formed to acquire, own, lease, operate, and manage real properties on
behalf of Wells Real Estate Investment Trust, Inc. (the "Wells REIT").
Wells Fund XI contributed $3,494,797, Wells Fund XII contributed
$1,500,000, and Wells OP contributed $3,055,694 to the Joint Venture for
their respective share of the purchase of the Johnson Matthey Building.
The entire 133,000 rentable square feet of the Johnson Matthey Building is
currently under a net lease agreement (the "Lease") with Johnson Matthey.
The Lease was assigned to the Joint Venture at the closing. The initial
term of the Lease is ten years, which commenced on July 1, 1997 and expires
on June 30, 2007. Johnson Matthey has the right to extend the Lease for
two additional three-year periods. Each extension option must be exercised
by giving notice to the landlord at least 12 months prior to the expiration
date of the then current lease term. The monthly base rent payable for
each extended term of the Lease will be equal to the fair market rent
taking into consideration rental rates for comparable industrial and
research and development properties in the local market area.
Under the Lease, Johnson Matthey is required to pay as additional rent all
real estate taxes, special assessments, utilities, taxes, insurance, and
other operating costs with respect to the Johnson Matthey Building during
the term of the Lease. In addition, Johnson Matthey is responsible for all
routine maintenance and repairs including interior mechanical and
electrical, HVAC, parking lot, and landscaping to the Johnson Matthey
Building. The Joint Venture, as landlord, is responsible for repair and
replacement of the exterior, roof, foundation, and structure.
F-7
<PAGE>
The Lease contains a purchase option, which may be exercised by Johnson
Matthey in the event that the Joint Venture desires to sell the building to
an unrelated third party. The Joint Venture must give Johnson Matthey
written notice of its intent to sell the Johnson Matthey Building, and
Johnson Matthey will have ten days from the date of such notice to provide
written notice of its intent to purchase the building. If Johnson Matthey
exercises the purchase option, it must purchase the Johnson Matthey
Building on the same terms contained in the offer.
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 statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statements exclude certain historical expenses, such as depreciation, not
comparable to the operations of the Johnson Matthey Building after
acquisition by the Joint Venture.
F-8
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the VIDEOJET BUILDING for the year ended December 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 certain 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 certain 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 Videojet
Building after acquisition by the Wells Operating Partnership, L.P. (on behalf
of Wells Real Estate Investment Trust, Inc.). The accompanying statement of
revenues over certain 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 Videojet
Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Videojet Building for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
September 17, 1999
F-9
<PAGE>
VIDEOJET BUILDING
STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(Unaudited)
<S> <C> <C>
RENTAL REVENUES $2,995,806 $1,497,903
OPERATING EXPENSES, net of reimbursements 0 0
------------ -----------
REVENUES OVER CERTAIN OPERATING EXPENSES
$2,995,806 $1,497,903
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
VIDEOJET BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On September 10, 1999, the Wells Operating Partnership L.P. ("Wells OP"), a
Delaware Limited Partnership formed to acquire, own, lease, operate, and
manage real properties on behalf of the Wells Real Estate Investment Trust,
Inc., acquired a two-story corporate office building with a single story
assembly and manufacturing space containing approximately 250,354 rentable
square feet located in Wood Dale, DuPage County, Illinois (the "Videojet
Building"). The purchase price of the Videojet Building was $33,158,865
which includes acquisition related expenses and $500,000 in selling
commissions paid by Wells OP. Wells OP paid $26,130,940 in cash and
obtained $7,000,000 in loan proceeds from a line of credit held by
SouthTrust Bank, N.A. Additional acquisition fees of $27,925 were incurred
related to attorneys' fees, environmental consultants fees, appraisers
fees, and other costs.
The entire 250,354 rentable square feet of the Videojet Building is
currently under a net lease agreement dated November 1991 (the "Lease")
with Videojet Systems International, Inc. ("Videojet"). The Lease was
assigned to Wells OP at the closing. The initial term of the Lease is 20
years which commenced in November 1991 and expires in November 2011.
Videojet has the right to extend the Lease for one additional five-year
period. The extension option must be exercised by giving notice to the
landlord at least 365 days prior to the expiration date of the then current
lease term. The monthly base rent payable under the Lease is $236,579
through November 2001 and will be $281,396 for the remainder of the lease
term. The monthly base rent payable for the extended term of the Lease will
be $388,953, should Videojet choose to extend the lease.
Under the Lease, Videojet is required to pay as additional rent all real
estate taxes, special assessments, utilities, taxes, insurance, and other
operating costs associated with the Videojet Building during the term of
the Lease. In addition, Videojet is responsible for repair and maintenance
of the roof, walls, structure and foundation, landscaping and the heating,
ventilating, air conditioning, mechanical, electrical, plumbing, and other
systems.
F-11
<PAGE>
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 statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statements exclude certain historical expenses, such as depreciation,
interest, and management fees, not comparable to the operations of the
Videojet Building after acquisition by Wells OP.
F-12
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.,
and Wells Real Estate Fund XII, L.P.:
We have audited the accompanying statement of revenues over certain operating
expenses for the GARTNER BUILDING for the year ended December 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 certain 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 certain 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 Gartner
Building after acquisition by the Wells Fund XI-Fund XII-REIT Joint Venture (a
joint venture between the Wells Operating Partnership, L.P. [on behalf of Wells
Real Estate Investment Trust, Inc.], Wells Real Estate Fund XI, L.P., and Wells
Real Estate Fund XII, L.P.). The accompanying statement of revenues over
certain 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 Gartner Building's revenues and
expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Gartner Building for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
September 24, 1999
F-13
<PAGE>
GARTNER BUILDING
STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
1998 1999
---------- -----------
(Unaudited)
<S> <C> <C>
RENTAL REVENUES $738,074 $402,590
OPERATING EXPENSES, net of reimbursements 8,505 75
---------- -----------
REVENUES OVER CERTAIN OPERATING EXPENSES $729,569 $402,515
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-14
<PAGE>
GARTNER BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On September 20, 1999, the Wells Fund XI-Fund XII-REIT Joint Venture (the
"Joint Venture") acquired a two story office building with approximately
62,400 rentable square feet located in Fort Myers, Lee County, Florida (the
"Gartner Building").
The Joint Venture is a partnership between Wells Real Estate Fund XII, L.P.
("Wells Fund XII"), Wells Real Estate Fund XI, L.P. ("Wells Fund XI"), and
Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited
partnership formed to acquire, own, lease, operate, and manage real
properties on behalf of Wells Real Estate Investment Trust, Inc.
The purchase price for the Gartner Building was $8,320,000. The Joint
Venture also incurred additional acquisition expenses in connection with
the purchase of the Gartner Building, including attorneys' fees, recording
fees and other closing costs, of $27,600.
The Wells Fund XII contributed $2,800,000, Wells Fund XI contributed
$106,550, and Wells OP contributed $5,441,050 to the Joint Venture for
their respective share of the acquisition costs for the Gartner Building.
The entire 62,400 rentable square feet of the Gartner Building is currently
under a net lease agreement with Gartner dated July 30, 1997 (the "Lease").
The Lease was assigned to the Joint Venture at the closing.
The initial term of the Lease is ten years which commenced on February 1,
1998 and expires on January 31, 2008. Gartner has the right to extend the
Lease for two additional five year periods of time. Each extension option
must be exercised by giving at least one year's notice to the landlord
prior to the expiration date of the then current lease term.
Under the Lease, Gartner is required to pay as additional rent all real
estate taxes, special assessments, utilities, taxes, insurance, and other
operating costs with respect to the Gartner Building during the term of the
Lease. In addition, Gartner
F-15
<PAGE>
is responsible for all routine maintenance and repairs to the Gartner
Building. The Joint Venture, as landlord, is responsible for repair and
replacement of the roof, structure, and paved parking areas.
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 statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statements exclude certain historical expenses, such as depreciation and
management and leasing fees, not comparable to the operations of the
Gartner Building after acquisition by the Joint Venture.
F-16
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet as of June 30, 1999 has been
prepared to give effect to the acquisition of the Sprint Building, Johnson
Matthey Building, and Gartner Building by the Wells Fund XI-Fund XII-REIT Joint
Venture (a joint venture between the Wells Operating Partnership, L.P., Wells
Real Estate Fund XI, L.P., and Wells Real Estate Fund XII, L.P.) as if each
acquisition occurred as of June 30, 1999. The following unaudited pro forma
statements of income have been prepared to give effect to the acquisition of the
Sprint Building, Johnson Matthey Building, and Gartner Building by the Wells
Fund XI-Fund XII-REIT Joint Venture as if each acquisition occurred on January
1, 1998.
The following unaudited pro forma balance sheet as of June 30, 1999 has been
prepared to give effect to the acquisition of the Videojet Building by the Wells
Operating Partnership, L.P. as if the acquisition occurred as of June 30, 1999.
The following unaudited pro forma statements of income have been prepared to
give effect to the acquisition of the Videojet Building by the Wells Operating
Partnership, L.P. as if the acquisition occurred on January 1, 1998.
Wells Operating Partnership, L.P. is a Delaware limited partnership that was
organized to own and operate properties on behalf of the Wells Real Estate
Investment Trust, Inc. Wells Real Estate Investment Trust, Inc. is the general
partner of the Wells Operating Partnership, L.P.
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.
F-17
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
JUNE 30, 1999
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
Wells Real
Estate Pro Forma Adjustments
--------------------------------------------
Investment Johnson
Trust, Inc. Sprint Matthey Gartner
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
REAL ESTATE, at cost:
Land $ 6,787,902 $ 0 $ 0 $ 0
Building and improvements, less accumulated
depreciation of $612,243 34,483,001 0 0 0
------------ ----------- ----------- ---------
Total real estate 41,270,903 0 0 0
INVESTMENTS IN JOINT VENTURES 15,143,866 5,777,321 (a) 3,183,025 (a) 5,667,779 (a)
DUE TO AFFILIATES 297,953 0 0 0
CASH AND CASH EQUIVALENTS 19,449,957 (5,546,210)(b) (3,055,694)(b) (5,441,050)(b)
DEFERRED PROJECT COSTS 949,252 (231,111)(c) (127,331)(c) (226,729)(c)
DEFERRED OFFERING COSTS 529,524 0 0 0
PREPAID EXPENSES AND OTHER ASSETS 1,594,178 0 0 0
------------ ----------- ----------- ---------
Total assets $ 79,235,633 $ 0 $ 0 $ 0
============ =========== =========== =========
<CAPTION>
Pro
Forma
Videojet Total
------------ ------------
<C> <C>
REAL ESTATE, at cost:
Land $ 5,208,335(b)(d) $ 11,996,237
Building and improvements, less accumulated
depreciation of $612,243 29,332,160(b)(d) 63,815,161
----------- ------------
Total real estate 34,540,495 75,811,398
INVESTMENTS IN JOINT VENTURES 0 29,771,991
DUE TO AFFILIATES 0 297,953
CASH AND CASH EQUIVALENTS (5,407,003)(b) 0
DEFERRED PROJECT COSTS (364,081)(d) 0
DEFERRED OFFERING COSTS 0 529,524
PREPAID EXPENSES AND OTHER ASSETS 0 1,594,178
----------- ------------
Total assets $28,769,411 $108,005,044
=========== ============
</TABLE>
F-18
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Wells Real
Estate Pro Forma Adjustments Pro
------------------------------------------------------
Investment Johnson Forma
Trust, Inc. Sprint Matthey Gartner Videojet Total
----------- ------------ ----------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ACCOUNTS PAYABLE $ 321,444 $ 0 $ 0 $ 0 $ 0 $ 321,444
NOTES PAYABLE 9,918,935 0 0 0 7,000,000(b) 16,918,935
DUE TO AFFILIATES 614,274 0 0 0 20,751,862(b)(e) 22,383,685
1,017,549(d)(e)
DIVIDENDS PAYABLE 1,119,829 0 0 0 0 1,119,829
MINORITY INTEREST OF UNIT HOLDER IN
OPERATING PARTNERSHIP 200,000 0 0 0 0 200,000
----------- ------------ ----------- ------------- -------------- ------------
Total liabilities 12,174,482 0 0 0 28,769,411 40,943,893
----------- ------------ ----------- ------------- -------------- ------------
COMMON SHARES, $.01 par value;
40,000,000 shares authorized,
7,770,581 shares issued and
outstanding 77,706 0 0 0 0 77,706
ADDITIONAL PAID-IN CAPITAL 65,653,998 0 0 0 0 65,653,998
RETAINED EARNINGS 1,329,447 0 0 0 0 1,329,447
----------- ------------ ----------- ------------- -------------- ------------
Total shareholders' equity 67,061,151 0 0 0 0 67,061,151
----------- ------------ ----------- ------------- -------------- ------------
Total liabilities and shareholders'
equity
$79,235,633 $ 0 $ 0 $ 0 $28,769,411 $108,005,044
=========== ============ =========== ============= ============== ============
</TABLE>
(a) Reflects Wells Real Estate Investment Trust Inc.'s contribution to the
Wells Fund XI-Fund XII-REIT Joint Venture.
(b) Reflects Wells Real Estate Investment Trust Inc.'s portion of the purchase
price.
(c) Reflects deferred project costs contributed to the Wells Fund XI-Fund XII-
REIT Joint Venture based on approximately 4.1% of the purchase price.
(d) Reflects deferred project costs allocated to the Videojet Building based on
approximately 4.1% of the purchase price.
(e) These pro forma financial statements are as of June 30, 1999 but the actual
acquisition of the Videojet Building was subsequent to thereto; prior to
the acquisition of the Videojet Building, accordingly, the due to affiliate
was satisfied at that time.
F-19
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDING DECEMBER 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Wells Real
Estate Pro Forma Adjustments Pro
--------------------------------------------------
Investment Johnson Forma
Trust, Inc. Sprint Matthey Gartner Videojet Total
----------- ----------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental income $ 20,994 $ 0 $ 0 $ 0 $2,995,806(b) $3,016,800
Equity in income of joint ventures 263,315 372,320(a) 223,708(a) 258,285(a) 0 1,117,628
Interest income 110,869 0 0 0 0 110,869
-------- ----------- ----------- ----------- ------------- ----------
395,178 372,320 223,708 258,285 2,995,806 4,245,297
-------- ----------- ----------- ----------- ------------- ----------
EXPENSES:
Operating costs, net of reimbursements 11,033 0 0 0 0 11,033
Depreciation 0 0 0 0 1,173,286(c) 1,173,286
Interest 0 0 0 0 520,625(d) 520,625
General and administrative 29,943 0 0 0 0 29,943
Legal and accounting 19,552 0 0 0 0 19,552
Computer costs 616 0 0 0 0 616
-------- ----------- ----------- ----------- ------------- ----------
61,144 0 0 0 1,693,911 1,755,055
-------- ----------- ----------- ----------- ------------- ----------
NET INCOME $334,034 $372,320 $223,708 $258,285 $1,301,895 $2,490,242
======== =========== =========== =========== ============= ==========
HISTORICAL EARNINGS PER SHARE (BASIC AND
DILUTED) $ 0.40
========
PRO FORMA EARNINGS PER SHARE (BASIC AND
DILUTED) $ 0.24(e)
==========
</TABLE>
(a) Reflects Wells Real Estate Investment Trust Inc.'s equity in income of the
Wells Fund XI-Fund XII-REIT Joint Venture. The pro forma adjustments result
from rental revenues less operating expenses, management and leasing fees,
and depreciation.
(b) Rental income recognized on a straight-line basis.
(c) Depreciation expense using the straight-line method and a 25-year life.
(d) Interest expense on the $7,000,000 note payable which bears interest at
7.4375%.
(e) As of the latest property acquisition date, September 20, 1999, Wells Real
Estate Investment Trust, Inc. had 10,588,947 shares of common stock
outstanding; the pro forma earnings per share amount is as if these shares
were outstanding for the year ending December 31, 1998.
F-20
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE SIX-MONTH PERIOD ENDING JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Wells Real
Estate Pro Forma Adjustments Pro
--------------------------------------------------
Investment Johnson Forma
Trust, Inc. Sprint Matthey Gartner Videojet Total
----------- ----------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental income $1,579,014 $ 0 $ 0 $ 0 $1,497,903(b) $3,076,917
Equity in income of joint ventures 398,178 173,969(a) 124,807(a) 133,568(a) 0 830,522
Interest income 215,746 0 0 0 0 215,746
---------- ----------- ----------- ----------- ------------- ----------
2,192,938 173,969 124,807 133,568 1,497,903 4,123,185
---------- ----------- ----------- ----------- ------------- ----------
EXPENSES:
Operating costs, net of reimbursements 370,744 0 0 0 0 370,744
Management and leasing fees 82,085 0 0 0 0 82,085
Depreciation 612,243 0 0 0 586,643(c) 1,198,886
Interest 0 0 0 0 260,313(d) 260,313
Administrative costs 69,940 0 0 0 0 69,940
Legal and accounting 56,450 0 0 0 0 56,450
Computer costs 6,063 0 0 0 0 6,063
---------- ----------- ----------- ----------- ------------- ----------
1,197,525 0 0 0 846,956 2,044,481
---------- ----------- ----------- ----------- ------------- ----------
NET INCOME $ 995,413 $173,969 $124,807 $133,568 $ 650,947 $2,078,704
========== =========== =========== =========== ============= ==========
HISTORICAL EARNINGS PER SHARE BASIC AND
DILUTED) $ 0.19
==========
PRO FORMA EARNINGS PER SHARE (BASIC AND
DILUTED) $ 0.20
==========
</TABLE>
(a) Reflects Wells Real Estate Investment Trust, Inc.'s equity in income of the
Wells Fund XI-Fund XII-REIT Joint Venture. The pro forma adjustments result
from rental revenues less operating expenses, management and leasing fees,
and depreciation.
(b) Rental income recognized on a straight-line basis.
(c) Depreciation expense using the straight-line method and a 25-year life.
(d) Interest expense on the $7,000,000 note payable which bears interest at
7.4375%.
(e) As of the latest property acquisition date, September 30, 1999, Wells Real
Estate Investment Trust, Inc. had 10,588,947 shares of common stock
outstanding; the pro forma earnings per share amount is as if these shares
were outstanding for the six-month period ending June 30, 1999.
F-21
<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 unaudited pro forma 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 Financial Statements
(1) Summary of Unaudited Pro Forma Financial
Statements,
(2) Pro Forma Balance Sheet as of March 31, 1998,
II-1
<PAGE>
(3) Pro Forma Statement of Loss for the year ended
December 31, 1997, and
(4) Pro Forma Statement of Income for the three months
ended March 31, 1998.
The following financial statements relating to the
acquisition of the Iomega Building by the IX-X-XI-REIT Joint
Venture are filed as part of this Registration Statement and
included in Supplement No. 3 to the Prospectus:
Statement of Revenues Over Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1997
(Audited) and for the six months ended June 30,
1998 (Unaudited), and
(3) Notes to Statement of Revenues Over Certain
Operating Expenses for the year ended December 31,
1997 (Audited) and for the six months ended June
30, 1998 (Unaudited).
The following financial statements relating to the
acquisition of the Cort Furniture Building by the Cort Joint
Venture are filed as part of this Registration Statement and
included in Supplement No. 3 to the Prospectus:
Statement of Revenues Over Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1997
(Audited) and for the six months ended June 30,
1998 (Unaudited), and
(3) Notes to Statement of Revenues Over Certain
Operating Expenses for the year ended December 31,
1997 (Audited) and for the six months ended June
30, 1998 (Unaudited).
The following financial statements relating to the
acquisition of the Fairchild Building by the Fremont Joint
Venture are filed as part of this Registration Statement and
included in Supplement No. 3 to the Prospectus:
Statement of Revenues Over Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1997
(Audited) and for the six months ended June 30,
1998 (Unaudited), and
(3) Notes to Statement of Revenues Over Certain
Operating Expenses for the year ended December 31,
1997 (Audited) and for the six months ended June
30, 1998 (Unaudited).
The following unaudited pro forma financial statements of
Wells Real Estate Investment Trust, Inc. are filed as part
of this Registration Statement and are included in
Supplement No. 3 to the Prospectus:
Unaudited Pro Forma Financial Statements
(1) Summary of Unaudited Pro Forma Financial
Statements,
(2) Pro Forma Balance Sheet as of June 30, 1998,
(3) Pro Forma Statement of Income (Loss) for the year
ended December 31, 1997, and
(4) Pro Forma Statement of Income for the six months
ended June 30, 1998.
II-2
<PAGE>
The following unaudited pro forma financial statements of
Wells Real Estate Investment Trust, Inc. are filed as part
of this Registration Statement and are included in
Supplement No. 6 to the Prospectus:
Unaudited Pro Forma Financial Statements
(1) Summary of Unaudited Pro Forma Balance Sheet, and
(2) Pro Forma Balance Sheet as of September 30, 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. 7
to the Prospectus:
Audited Financial Statements
(1) Report of Independent Public Accountants,
(2) Consolidated Balance Sheets as of December 31,
1998 and December 31, 1997,
(3) Consolidated Statement of Income for the year
ended December 31, 1998,
(4) Consolidated Statement of Shareholders' Equity for
the year ended December 31, 1998,
(5) Consolidated Statement of Cash Flows for the year
ended December 31, 1998, and
(6) Notes to Consolidated Financial Statements.
The following financial statements relating to the
acquisition of the Vanguard Cellular Building by Wells
Operating Partnership, L.P. are filed as part of this
Registration Statement and included in Supplement No. 7 to
the Prospectus:
Statement of Revenues Over Certain Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating
Expenses for the period from Inception (November
16, 1998) to December 31, 1998, and
(3) Notes to Statement of Revenues Over Certain
Operating Expenses for the period from Inception
(November 16, 1998) to December 31, 1998.
The following unaudited pro forma financial statements of
Wells Real Estate Investment Trust, Inc. are filed as part
of this Registration Statement and are included in
Supplement No. 7 to the Prospectus:
Unaudited Pro Forma Financial Statements
(1) Summary of Unaudited Pro Forma Financial
Statements,
(2) Pro Forma Balance Sheet as of December 31, 1998,
(3) Pro Forma Statement of Income for the year ended
December 31, 1998.
The following financial statements relating to the
acquisition of the EYBL CarTex Building by Wells Real
Estate, LLC - SC I are filed as part of this Registration
Statement and included in Supplement No. 8 to the
Prospectus:
Statement of Revenues Over Certain Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998
(Audited) and for the three months ended March 31,
1999 (Unaudited), and
II-3
<PAGE>
(3) Notes to Statement of Revenues Over Certain
Operating Expenses for the year ended December 31,
1998 (Audited) and for the three months ended
March 31, 1999 (Unaudited).
The following unaudited pro forma financial statements of Wells
Real Estate Investment Trust, Inc. are filed as part of this
Registration Statement and are included in Supplement No. 8 to
the Prospectus:
Unaudited Pro Forma Financial Statements
(1) Summary of Unaudited Pro Forma Financial
Statements,
(2) Pro Forma Balance Sheet as of March 31, 1999,
(3) Pro Forma Statement of Income for the year ended
December 31, 1998,
(4) Pro Forma Statement of Income for the period
ending March 31, 1999.
The following financial statements relating to the acquisition of
the Sprint Building by the XI-XII-REIT Joint Venture are filed as
part of this Registration Statement and are included in
Supplement No. 10 to the Prospectus:
Statement of Revenues Over Certain Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998
(Audited) and for the three months ended March 31,
1999 (Unaudited), and
(3) Notes to Statements of Revenues Over Certain
Operating Expenses for the year ended December 31,
1998 (Audited) and for the three months ended
March 31, 1999 (Unaudited).
The following financial statements relating to the acquisition of
the Johnson Matthey Building by the XI-XII-REIT Joint Venture are
filed as part of this Registration Statement and are included in
Supplement No. 10 to the Prospectus:
Statement of Revenues Over Certain Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998
(Audited) and for the six months ended June 30,
1999 (Unaudited), and
(3) Notes to Statements of Revenues Over Certain
Operating Expenses for the year ended December 31,
1998 (Audited) and for the six months ended June
30, 1999 (Unaudited).
The following financial statements relating to the acquisition of
the Videojet Building by Wells OP are filed as part of this
Registration Statement and are included in Supplement No. 10 to
the Prospectus:
Statement of Revenues Over Certain Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998
(Audited) and for the six months ended June 30,
1999 (Unaudited), and
(3) Notes to Statements of Revenues Over Certain
Operating Expenses for the year ended December 31,
1998 (Audited) and for the six months ended June
30, 1999 (Unaudited).
II-4
<PAGE>
The following financial statements relating to the acquisition
of the Gartner Building by the XI-XII-REIT Joint Venture are
filed as part of this Registration Statement and are included
in Supplement No. 10 to the Prospectus:
Statement of Revenues Over Certain Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998
(Audited) and for the six months ended June 30,
1999 (Unaudited), and
(3) Notes to Statements of Revenues Over Certain
Operating Expenses for the year ended December 31,
1998 (Audited) and for the six months ended June
30, 1999 (Unaudited).
The following unaudited pro forma financial statements of
Wells Real Estate Investment Trust, Inc. are filed as part of
this Registration Statement and are included in Supplement No.
10 to the Prospectus:
Unaudited Pro Forma Financial Statements
(1) Summary of Unaudited Pro Forma Financial
Statements,
(2) Pro Forma Balance Sheet as of June 30, 1999,
(3) Pro Forma Statement of Income for the year ending
December 31, 1998, and
(4) Pro Forma Statement of Income for the period
ending June 30, 1999.
(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)
3.2(a) Amendment No. 1 to 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)
II-5
<PAGE>
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
(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(b) Advisory Agreement dated January 30, 1999 (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)
10.4 Amended and Restated Joint Venture Agreement of The Fund IX, Fund
X, Fund XI and REIT Joint Venture (the "IX-X-XI-REIT Joint
Venture") dated June 11, 1998 (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)
10.5 Lease Agreement for the ABB Building dated December 10, 1996
between the IX-X-XI-REIT 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. (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)
10.7 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
(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)
10.8 Agreement for the Purchase and Sale of Real Property relating to
the Lucent Building dated May 30, 1997 between Wells Development
Corporation and the IX-X-XI-REIT 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 IX-X-XI-REIT Joint
Venture (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)
10.9 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 )
II-6
<PAGE>
10.10 Net Lease Agreement for the Lucent Building dated May 30, 1997 between
the IX-X-XI-REIT 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 IX-X-XI-REIT Joint Venture (as
successor in interest by assignment) and Lucent Technologies, 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)
10.11 Purchase and Sale Agreement relating to the Iomega Building dated
February 4, 1998 between the IX-X-XI-REIT Joint Venture and SCI
Development Services Incorporated (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)
10.12 Lease Agreement for the Iomega Building dated April 9, 1996 between
the IX-X-XI-REIT Joint Venture (as successor in interest by
assignment) and Iomega Corporation (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)
10.13 Agreement for the Purchase and Sale of Property relating to the
Fairchild Building dated June 8, 1998 between the Fremont Joint
Venture (as successor in interest by assignment) and Rose Ventures V,
Inc., Thomas G. Haury and Carleen S. Haury (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)
10.14 Restatement of and First Amendment to Agreement for the Purchase and
Sale of Property relating to the Fairchild Building dated July 1, 1998
between the Fremont Joint Venture (as successor in interest by
assignment) and Rose Ventures V, Inc., Thomas G. Haury and Carleen S.
Haury (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)
10.15 Promissory Note for $5,960,000 from the Fremont Joint Venture to
NationsBank, N.A. relating to the Fairchild Building dated July 16,
1998 (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)
10.16 Deed of Trust securing the Fairchild Building dated July 16, 1998
between the Fremont Joint Venture and NationsBank, N.A. (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)
10.17 Joint Venture Agreement of Wells/Fremont Associates (the "Fremont
Joint Venture") dated July 15, 1998 between Wells Development
Corporation and 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)
10.18 Joint Venture Agreement of Fund X and Fund XI Associates (the "Fund X-
XI Joint Venture") dated July 15, 1998 between the Registrant and
Wells Real Estate Fund X, 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)
II-7
<PAGE>
10.19 Agreement for the Purchase and Sale of Joint Venture Interest relating
to the Fremont Joint Venture dated July 17, 1998 between Wells
Development Corporation and the Fund X-XI Joint Venture (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)
10.20 Lease Agreement for the Fairchild Building dated September 19, 1997
between the Fremont Joint Venture (as successor in interest by
assignment) and Fairchild Technologies USA, 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)
10.21 Purchase and Sale Agreement and Joint Escrow Instructions relating to
the Cort Furniture Building dated June 12, 1998 between the Cort Joint
Venture (as successor in interest by assignment) and Spencer Fountain
Valley Holdings, 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)
10.22 First Amendment to Purchase and Sale Agreement and Joint Escrow
Instructions relating to the Cort Furniture Building dated July 16,
1998 between the Cort Joint Venture (as successor in interest by
assignment) and Spencer Fountain Valley Holdings, 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)
10.23 Promissory Note for $4,875,000 from the Cort Joint Venture to
NationsBank, N.A. relating to the Cort Furniture Building dated July
30, 1998 (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)
10.24 Deed of Trust securing the Cort Furniture Building dated July 30, 1998
between the Fremont Joint Venture and NationsBank, N.A. (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)
10.25 Joint Venture Agreement of Wells/Orange County Associates (the "Cort
Joint Venture") dated July 27, 1998 between Wells Development
Corporation and 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)
10.26 Agreement for the Purchase and Sale of Joint Venture Interest relating
to the Cort Joint Venture dated July 30, 1998 between Wells
Development Corporation and the Fund X-XI Joint Venture (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)
10.27 Real Estate Option Agreement for the purchase of Lot #11 dated April
22, 1998 between The Development Corporation of Knox County and Wells
Development Corporation (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)
10.28 Real Estate Option Agreement for the purchase of Lot #10 dated June
21, 1998 between The Development Corporation of Knox County and Wells
Development Corporation (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)
10.29 Amendment to Real Estate Option Agreements (Lots 10 and 11) dated
September 8, 1998 between The Development Corporation of Knox County
and Wells Development Corporation (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)
II-8
<PAGE>
10.30 Second Amendment to Real Estate Option Agreements (Lots 10 and 11)
dated October 7, 1998 between The Development Corporation of Knox
County and Wells Development Corporation (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)
10.31 Agreement for the Purchase and Sale of Property for an undivided
interest in the Associates Property dated September 15, 1998 between
Wells Development Corporation and 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)
10.32 Development Agreement for the Associates Building dated September 15,
1998 between Wells Development Corporation and ADEVCO Corporation
(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)
10.33 Guaranty of Development Agreement for the Associates Building dated
September 15, 1998 by David M. Kraxberger (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)
10.34 Owner-Contractor Agreement for the construction of the Associates
Building dated September 10, 1998 between Wells Development
Corporation and Integra Construction, 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)
10.35 Temporary Lease Agreement for remainder of the ABB Building dated
September 10, 1998 between the IX-X-XI-REIT Joint Venture and
Associates Housing Finance, LLC (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)
10.36 Lease Agreement for the Associates Building dated September 10, 1998
between Wells Development Corporation and Associates Housing Finance,
LLC (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)
10.37 Amended and Restated Purchase Agreement relating to the PWC Building
dated December 4, 1998 between Carter Sunforest, L.P. and 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)
10.38 Assignment and Assumption Agreement relating to the PWC Building dated
December 4, 1998 between TriNet Corporate Realty Trust, Inc. and 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)
10.39 Amended and Restated Loan Agreement dated December 31, 1998 between
Wells Operating Partnership, L.P. and SouthTrust Bank, National
Association (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)
10.40 Amended and Restated Promissory Note for $15,500,000 from Carter
Sunforest, L.P. to SouthTrust Bank, National Association dated
December 31, 1998 (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)
II-9
<PAGE>
10.41 Amendment No. 1 to Mortgage and Security Agreement and other Loan
Documents securing the PWC Building dated December 31, 1998 between
Carter Sunforest, L.P. and SouthTrust Bank, National Association
(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)
10.42 Lease for the PWC Building dated March 30, 1998 between Wells
Operating Partnership, L.P. (as successor in interest by assignment)
and Price Waterhouse LLP (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)
10.43 Amended and Restated Warrant Purchase Agreement dated December 31,
1998 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)
10.44 Agreement for the Purchase and Sale of Property for the Vanguard
Cellular Building dated November 30, 1998 between Walsh Higgins No.
33, L.P. and 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)
10.45 Promissory Note for $6,425,000 from Wells Operating Partnership, L.P.
to NationsBank, N.A. dated February 4, 1999 (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)
10.46 Open-End Mortgage, Assignment of Leases and Rents, Security Agreement
and Financing Statement from Wells Operating Partnership, L.P. to
NationsBank, N.A. dated February 4, 1999 (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)
10.47 Build-To-Suit Office Lease Agreement for the Vanguard Cellular
Building dated September 26, 1997 between Wells Operating Partnership,
L.P. (as successor in interest by assignment) and Pennsylvania
Cellular Telephone Corp. (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)
10.47(a) Amendment No. 1 to Build-To-Suit Office Lease Agreement for the
Vanguard Cellular Building dated September 15, 1998 between Wells
Operating Partnership, L.P. (as successor in interest by assignment)
and Pennsylvania Cellular Telephone Corp. (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)
10.47(b) Amendment No. 2 to Build-To-Suit Office Lease Agreement for the
Vanguard Cellular Building dated January 18, 1999 between Wells
Operating Partnership, L.P. (as successor in interest by assignment)
and Pennsylvania Cellular Telephone Corp. (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)
10.48 Build-To-Suit Office Lease Agreement Guaranty Payment and Performance
for the Vanguard Cellular Building dated September 26, 1997 by
Vanguard Cellular Financial Corp. (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)
II-10
<PAGE>
10.49 Purchase and Sale Agreement and Joint Escrow Instructions for the
Matsushita Property dated February 17, 1999 between Wells Operating
Partnership, L.P. and MSGW California I, LLC (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)
10.50 Development Agreement for the Matsushita Project dated March 31, 1999
between Wells Operating Partnership, L.P. and ADEVCO Corporation
(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)
10.51 Office Lease for the Matsushita Project dated February 18, 1999
between Wells Operating Partnership, L.P. and Matsushita Avionics
Systems Corporation (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)
10.52 Guaranty of Lease for the Matsushita Project by Matsushita Electric
Corporation of America dated February 18, 1999 (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)
10.53 Rental Income Guaranty Agreement relating to the Bake Parkway Building
dated February 18, 1999 between Wells Operating Partnership, L.P. and
Fund VIII and Fund IX Associates (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)
10.54 Agreement of Sale and Purchase for the EYBL CarTex Building between
Wells Real Estate, LLC -SC I (as successor in interest by assignment)
and Liberty Property Limited Partnership (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)
10.55 Agreement of Sale and Purchase for the Sprint Building dated May 24,
1999 between the Wells Fund XI - Fund XII - REIT Joint Venture (as
successor in interest by assignment) and Bridge Information Systems
America, Inc. (previously filed as Exhibit 10.5 and incorporated by
reference to Post-Effective amendment No. 1 to the Registration
Statement of Wells Real Estate Fund XII, L.P., Commission File No. 33-
66657, filed on September 1, 1999)
10.56 Agreement of Sale and Purchase for the Johnson Matthey Building dated
June 14, 1999 between the Wells Fund XI - Fund XII - REIT Joint
Venture (as successor in interest by assignment) and Alliance
Commercial Properties, Ltd. (previously filed as Exhibit 10.6 and
incorporated by reference to Post-Effective amendment No. 1 to the
Registration Statement of Wells Real Estate Fund XII, L.P., Commission
File No. 33-66657, filed on September 1, 1999)
10.57 Fifth Amendment to Lease for the Johnson Matthew Building dated March
5, 1998 between the Wells Fund XI - Fund XII - REIT Joint Venture (as
successor in interest by assignment) and Johnson Matthew, Inc.
(previously filed as Exhibit 10.7 and incorporated by reference to
Post-Effective amendment No. 1 to the Registration Statement of Wells
Real Estate Fund XII, L.P., Commission File No. 33-66657, filed on
September 1, 1999)
10.58 Agreement for the Purchase and Sale of Real Property for the ABB
Richmond Property dated May 25, 1999 betweem Wells Operating
Partnership, L.P. and Idlewood Properties, Inc.
10.59 Development Agreement for the ABB Richmond Project dated June 28, 1999
between Wells REIT, LLC - VA I and ADEVCO Corporation
10.60 Owner-Contractor Agreement for the ABB Richmond Project dated June 14,
1999 between Wells REIT, LLC - VA I and Bovis Construction Corp.
II-11
<PAGE>
10.61 Lease Agreement for the ABB Richmond Project dated June 1, 1999
between Wells REIT, LLC -VA I and ABB Power Generation Inc.
10.62 Agreement of Purchase and Sale for the Videojet Building dated August
26, 1999 between Wells OP (as successor in interest by assignment) and
Sun-Pla, a California Limited Partnership
10.63 Agreement of Purchase and Sale for the Garner Building dated August
20, 1999 between the Wells Fund XI - Fund XII - REIT Joint Venture (as
successor in interest by assignment) and Hogan Triad Ft Myers I, Ltd.
10.64 Lease Agreement for the Gartner Building dated July 30, 1997 between
The Wells Fund XI - Fund XII - REIT Joint Venture (as successor in
interest by assignment) and Gartner Group, 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-12
<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. 7 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 5th day of October, 1999.
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. 7 to Registration Statement has been signed below on
October 5th, 1999 by the following persons in the capacities indicated.
/s/ Leo F. Wells, III President and Director
- ----------------------------------
Leo F. Wells, III (Principal Executive Officer)
/s/ Douglas P. Williams Executive Vice President
- ----------------------------------
Douglas P. Williams (Principal Financial and
Accounting Officer)
/s/ John L. Bell * Director
- ----------------------------------
John L. Bell
/s/ Richard W. Carpenter * Director
- ----------------------------------
Richard W. Carpenter
/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/ Walter W. Sessoms * Director
- ----------------------------------
Walter W. Sessoms
/s/ Neil H. Strickland * Director
- ----------------------------------
Neil H. Strickland
* By Leo F. Wells, III, as Attorney-in-fact, pursuant to Power of Attorney
dated August 19, 1998 and included as Exhibit 24.1 herein.
II-13
<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)
3.2(a) Amendment No. 1 to 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
(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(b) Advisory Agreement dated January 30, 1999 (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)
10.4 Amended and Restated Joint Venture Agreement of The Fund IX, Fund
X, Fund XI and REIT Joint Venture (the "IX-X-XI-REIT Joint
Venture") dated June 11, 1998 (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)
<PAGE>
10.5 Lease Agreement for the ABB Building dated December 10, 1996
between the IX-X-XI-REIT 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. (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)
10.7 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
(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)
10.8 Agreement for the Purchase and Sale of Real Property relating to
the Lucent Building dated May 30, 1997 between Wells Development
Corporation and the IX-X-XI-REIT 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 IX-X-XI-REIT Joint
Venture (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)
10.9 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 IX-X-XI-REIT 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 IX-X-XI-REIT Joint Venture (as
successor in interest by assignment) and Lucent Technologies, 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)
10.11 Purchase and Sale Agreement relating to the Iomega Building dated
February 4, 1998 between the IX-X-XI-REIT Joint Venture and SCI
Development Services Incorporated (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)
10.12 Lease Agreement for the Iomega Building dated April 9, 1996
between the IX-X-XI-REIT Joint Venture (as successor in interest
by assignment) and Iomega Corporation (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)
<PAGE>
10.13 Agreement for the Purchase and Sale of Property relating to the
Fairchild Building dated June 8, 1998 between the Fremont Joint
Venture (as successor in interest by assignment) and Rose Ventures
V, Inc., Thomas G. Haury and Carleen S. Haury (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)
10.14 Restatement of and First Amendment to Agreement for the Purchase
and Sale of Property relating to the Fairchild Building dated July
1, 1998 between the Fremont Joint Venture (as successor in
interest by assignment) and Rose Ventures V, Inc., Thomas G. Haury
and Carleen S. Haury (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)
10.15 Promissory Note for $5,960,000 from the Fremont Joint Venture to
NationsBank, N.A. relating to the Fairchild Building dated July
16, 1998 (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)
10.16 Deed of Trust securing the Fairchild Building dated July 16, 1998
between the Fremont Joint Venture and NationsBank, N.A.
(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)
10.17 Joint Venture Agreement of Wells/Fremont Associates (the "Fremont
Joint Venture") dated July 15, 1998 between Wells Development
Corporation and 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)
10.18 Joint Venture Agreement of Fund X and Fund XI Associates (the
"Fund X-XI Joint Venture") dated July 15, 1998 between the
Registrant and Wells Real Estate Fund X, 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)
10.19 Agreement for the Purchase and Sale of Joint Venture Interest
relating to the Fremont Joint Venture dated July 17, 1998 between
Wells Development Corporation and the Fund X-XI Joint Venture
(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)
10.20 Lease Agreement for the Fairchild Building dated September 19,
1997 between the Fremont Joint Venture (as successor in interest
by assignment) and Fairchild Technologies USA, 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)
10.21 Purchase and Sale Agreement and Joint Escrow Instructions relating
to the Cort Furniture Building dated June 12, 1998 between the
Cort Joint Venture (as successor in interest by assignment) and
Spencer Fountain Valley Holdings, 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)
10.22 First Amendment to Purchase and Sale Agreement and Joint Escrow
Instructions relating to the Cort Furniture Building dated July
16, 1998 between the Cort Joint Venture (as successor in interest
by assignment) and Spencer Fountain Valley Holdings, 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)
10.23 Promissory Note for $4,875,000 from the Cort Joint Venture to
NationsBank, N.A. relating to the Cort Furniture Building dated
July 30, 1998 (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)
<PAGE>
10.24 Deed of Trust securing the Cort Furniture Building dated July 30,
1998 between the Fremont Joint Venture and NationsBank, N.A.
(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)
10.25 Joint Venture Agreement of Wells/Orange County Associates (the
"Cort Joint Venture") dated July 27, 1998 between Wells
Development Corporation and 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)
10.26 Agreement for the Purchase and Sale of Joint Venture Interest
relating to the Cort Joint Venture dated July 30, 1998 between
Wells Development Corporation and the Fund X-XI Joint Venture
(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)
10.27 Real Estate Option Agreement for the purchase of Lot #11 dated
April 22, 1998 between The Development Corporation of Knox County
and Wells Development Corporation (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)
10.28 Real Estate Option Agreement for the purchase of Lot #10 dated
June 21, 1998 between The Development Corporation of Knox County
and Wells Development Corporation (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)
10.29 Amendment to Real Estate Option Agreements (Lots 10 and 11) dated
September 8, 1998 between The Development Corporation of Knox
County and Wells Development Corporation (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)
10.30 Second Amendment to Real Estate Option Agreements (Lots 10 and 11)
dated October 7, 1998 between The Development Corporation of Knox
County and Wells Development Corporation (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)
10.31 Agreement for the Purchase and Sale of Property for an undivided
interest in the Associates Property dated September 15, 1998
between Wells Development Corporation and 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)
10.32 Development Agreement for the Associates Building dated September
15, 1998 between Wells Development Corporation and ADEVCO
Corporation (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)
10.33 Guaranty of Development Agreement for the Associates Building
dated September 15, 1998 by David M. Kraxberger (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)
10.34 Owner-Contractor Agreement for the construction of the Associates
Building dated September 10, 1998 between Wells Development
Corporation and Integra Construction, 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)
10.35 Temporary Lease Agreement for remainder of the ABB Building dated
September 10, 1998 between the IX-X-XI-REIT Joint Venture and
Associates Housing Finance, LLC (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)
<PAGE>
10.36 Lease Agreement for the Associates Building dated September 10,
1998 between Wells Development Corporation and Associates Housing
Finance, LLC (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)
10.37 Amended and Restated Purchase Agreement relating to the PWC
Building dated December 4, 1998 between Carter Sunforest, L.P. and
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)
10.38 Assignment and Assumption Agreement relating to the PWC Building
dated December 4, 1998 between TriNet Corporate Realty Trust, Inc.
and 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)
10.39 Amended and Restated Loan Agreement dated December 31, 1998
between Wells Operating Partnership, L.P. and SouthTrust Bank,
National Association (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)
10.40 Amended and Restated Promissory Note for $15,500,000 from Carter
Sunforest, L.P. to SouthTrust Bank, National Association dated
December 31, 1998 (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)
10.41 Amendment No. 1 to Mortgage and Security Agreement and other Loan
Documents securing the PWC Building dated December 31, 1998
between Carter Sunforest, L.P. and SouthTrust Bank, National
Association (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)
10.42 Lease for the PWC Building dated March 30, 1998 between Wells
Operating Partnership, L.P. (as successor in interest by
assignment) and Price Waterhouse LLP (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)
10.43 Amended and Restated Warrant Purchase Agreement dated December 31,
1998 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)
10.44 Agreement for the Purchase and Sale of Property for the Vanguard
Cellular Building dated November 30, 1998 between Walsh Higgins
No. 33, L.P. and 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)
10.45 Promissory Note for $6,425,000 from Wells Operating Partnership,
L.P. to NationsBank, N.A. dated February 4, 1999 (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)
10.46 Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Financing Statement from Wells Operating
Partnership, L.P. to NationsBank, N.A. dated February 4, 1999
(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)
<PAGE>
10.47 Build-To-Suit Office Lease Agreement for the Vanguard Cellular
Building dated September 26, 1997 between Wells Operating
Partnership, L.P. (as successor in interest by assignment) and
Pennsylvania Cellular Telephone Corp. (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)
10.47(a) Amendment No. 1 to Build-To-Suit Office Lease Agreement for the
Vanguard Cellular Building dated September 15, 1998 between Wells
Operating Partnership, L.P. (as successor in interest by
assignment) and Pennsylvania Cellular Telephone Corp. (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)
10.47(b) Amendment No. 2 to Build-To-Suit Office Lease Agreement for the
Vanguard Cellular Building dated January 18, 1999 between Wells
Operating Partnership, L.P. (as successor in interest by
assignment) and Pennsylvania Cellular Telephone Corp. (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)
10.48 Build-To-Suit Office Lease Agreement Guaranty Payment and
Performance for the Vanguard Cellular Building dated September 26,
1997 by Vanguard Cellular Financial Corp. (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)
10.49 Purchase and Sale Agreement and Joint Escrow Instructions for the
Matsushita Property dated February 17, 1999 between Wells
Operating Partnership, L.P. and MSGW California I, LLC (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)
10.50 Development Agreement for the Matsushita Project dated March 31,
1999 between Wells Operating Partnership, L.P. and ADEVCO
Corporation (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)
10.51 Office Lease for the Matsushita Project dated February 18, 1999
between Wells Operating Partnership, L.P. and Matsushita Avionics
Systems Corporation (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)
10.52 Guaranty of Lease for the Matsushita Project by Matsushita
Electric Corporation of America dated February 18, 1999
(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)
10.53 Rental Income Guaranty Agreement relating to the Bake Parkway
Building dated February 18, 1999 between Wells Operating
Partnership, L.P. and Fund VIII and Fund IX Associates (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)
10.54 Agreement of Sale and Purchase for the EYBL CarTex Building
between Wells Real Estate, LLC -SC I (as successor in interest by
assignment) and Liberty Property Limited Partnership (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)
10.55 Agreement of Sale and Purchase for the Sprint Building dated May
24, 1999 between the Wells Fund XI - Fund XII - REIT Joint Venture
(as successor in interest by assignment) and Bridge Information
Systems America, Inc. (previously filed as Exhibit 10.5 and
incorporated by reference to Post-Effective amendment No. 1 to the
Registration Statement of Wells Real Estate Fund XII, L.P.,
Commission File No. 33-66657, filed on September 1, 1999)
<PAGE>
10.56 Agreement of Sale and Purchase for the Johnson Matthey Building
dated June 14, 1999 between the Wells Fund XI - Fund XII - REIT
Joint Venture (as successor in interest by assignment) and
Alliance Commercial Properties, Ltd. (previously filed as Exhibit
10.6 and incorporated by reference to Post-Effective amendment No.
1 to the Registration Statement of Wells Real Estate Fund XII,
L.P., Commission File No. 33-66657, filed on September 1, 1999)
10.57 Fifth Amendment to Lease for the Johnson Matthew Building dated
March 5, 1998 between the Wells Fund XI - Fund XII - REIT Joint
Venture (as successor in interest by assignment) and Johnson
Matthew, Inc. (previously filed as Exhibit 10.7 and incorporated
by reference to Post-Effective amendment No. 1 to the Registration
Statement of Wells Real Estate Fund XII, L.P., Commission File No.
33-66657, filed on September 1, 1999)
10.58 Agreement for the Purchase and Sale of Real Property for the ABB
Richmond Property dated May 25, 1999 betweem Wells Operating
Partnership, L.P. and Idlewood Properties, Inc., filed herewith
10.59 Development Agreement for the ABB Richmond Project dated June 28,
1999 between Wells REIT, LLC - VA I and ADEVCO Corporation, filed
herewith
10.60 Owner-Contractor Agreement for the ABB Richmond Project dated June
14, 1999 between Wells REIT, LLC - VA I and Bovis Construction
Corp., filed herewith
10.61 Lease Agreement for the ABB Richmond Project dated June 1, 1999
between Wells REIT, LLC -VA I and ABB Power Generation Inc., filed
herewith
10.62 Agreement of Purchase and Sale for the Videojet Building dated
August 26, 1999 between Wells OP (as successor in interest by
assignment) and Sun-Pla, a California Limited Partnership, filed
herewith
10.63 Agreement of Purchase and Sale for the Garner Building dated
August 20, 1999 between the Wells Fund XI - Fund XII - REIT Joint
Venture (as successor in interest by assignment) and Hogan Triad
Ft Myers I, Ltd., filed herewith
10.64 Lease Agreement for the Gartner Building dated July 30, 1997
between The Wells Fund XI - Fund XII - REIT Joint Venture (as
successor in interest by assignment) and Gartner Group, 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 10.58
AGREEMENT FOR THE PURCHASE AND SALE OF REAL PROPERTY
BETWEEN
IDLEWOOD PROPERTIES, INC.,
A WHOLLY OWNED SUBSIDIARY OF
TREDEGAR INDUSTRIES, INC.
AS SELLER
And
WELLS OPERATING PARTNERSHIP, L.P.
AS PURCHASER
<PAGE>
AGREEMENT FOR THE PURCHASE AND SALE OF REAL PROPERTY
----------------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. Agreement to Buy and Sell.................................. 1
2. Earnest Money.............................................. 1
3. Purchase Price............................................. 2
4. Tests and Engineering...................................... 2
5. Title to Property.......................................... 3
6. Closing and Closing Date................................... 4
7. Expenses and Prorations.................................... 5
8. Warranties and Representation of Seller.................... 6
9. Covenants and Agreements of Seller......................... 7
10. Conditions of Purchase..................................... 7
11. Defaults................................................... 8
12. Right of First Refusal..................................... 9
13. Assignment................................................. 9
14. Possession of Property..................................... 9
15. Condemnation............................................... 9
16. Broker's Commission........................................ 10
17. Notices.................................................... 10
18. General Provisions......................................... 11
19. Day for Performance........................................ 11
20. Survival of Provisions..................................... 11
21. Severability............................................... 11
22. Terms of Offer............................................. 12
23. Water Drainage and Retention............................... 12
</TABLE>
EXHIBIT "A" DESCRIPTION OF PROPERTY
- -----------
EXHIBIT "B" DESCRIPTION OF ADJOINING PROPERTY
- -----------
EXHIBIT "C" ESCROW AGREEMENT
- -----------
EXHIBIT "D" COPY OF SELLER'S TITLE INSURANCE POLICY
- -----------
EXHIBIT "E" LIST OF CONTRACTUAL OBLIGATIONS TO BE ASSUMED
- -----------
-i-
<PAGE>
AGREEMENT FOR THE PURCHASE
AND SALE OF REAL PROPERTY
-------------------------
THIS AGREEMENT FOR THE PURCHASE AND SALE OF REAL PROPERTY (this
"Agreement") is made and entered into this 25/th/ day of May, 1999 by and
between IDLEWOOD PROPERTIES, INC., a Virginia corporation and wholly owned
subsidiary of Tredegar Industries, Inc., whose address is 1100 Boulders Parkway,
Richmond, Virginia 23225 (herein referred to as "Seller"), and WELLS OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership, whose address is 3885 Holcomb
Bridge Road, Norcross, Georgia 30092, Attn: Mr. Michael Berndt (herein referred
to as "Purchaser").
W I T N E S S E T H :
-------------------
WHEREAS, Seller now owns and desires to sell to Purchaser and Purchaser
desires to acquire from Seller certain real property more particularly
hereinafter described upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements herein set forth, and for other good and valuable
consideration, 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.
-------------------------
Upon the terms and conditions set forth in this Agreement, Purchaser agrees
to buy from Seller and Seller agrees to sell to Purchaser that certain real
property lying and being in Chesterfield County, Virginia, and being more
particularly shown and highlighted on Exhibit "A" attached hereto and by
-----------
reference made a part hereof (hereinafter referred to as the "Land"), together
with all rights, privileges, and easements appurtenant to the Land and
improvements, including all water rights (including storm and surface water
drainage and discharge rights), mineral rights, development rights, air 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
(the Land and the easements and interests described in this Paragraph 1 being
hereinafter referred to collectively as the "Property").
2. Earnest Money.
-------------
Within three (3) business days following the effective date of this
Agreement, Purchaser shall deliver to Chicago Title Insurance Company (the
"Title Company") the sum of Five Thousand and No/100 Dollars ($5,000.00) (the
"Initial Earnest Money"), which Initial Earnest Money shall be deposited by
Title Company into an interest-bearing account and shall be held and disbursed
by Title Company pursuant to a written Escrow Agreement in the form attached
hereto as Exhibit "C" and by reference made a part hereof. Unless this Agreement
----------
is terminated by Purchaser pursuant to Paragraph 10 hereof, Purchaser shall
deliver a check to Title Company
<PAGE>
in the amount Twenty Thousand and no/100 Dollars ($20,000.00) (said amount being
herein referred to as the "Additional Earnest Money") on or before the date
which is three (3) days after the expiration of the Inspection Period (as
hereinafter defined). If Purchaser fails to pay such Additional Earnest Money on
or before the date which is three (3) days after the expiration of the
Inspection Period (as hereinafter defined), Purchaser shall be deemed to have
terminated this Agreement under Paragraph 10 hereof and Title Company shall
promptly disburse the Earnest Money (as hereinafter defined) in accordance with
Paragraph 10 hereof, and this Agreement shall automatically terminate, and
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. For
purposes of this Agreement, the term "Earnest Money" shall mean whatever sums
have been delivered to Title Company as Earnest Money hereunder, including the
Initial Earnest Money and the Additional Earnest Money, if any. If Closing (as
hereinafter defined) occurs, the Earnest Money shall be paid by Title Company to
Seller at Closing and shall be applied as a credit to the Purchase Price (as
hereinafter defined). All interest and other income from time to time earned on
the Earnest Money shall be deemed a part of the Earnest Money for all purposes
of this Agreement. Except as otherwise expressly provided herein, the Earnest
Money shall be paid to Seller as liquidated damages in accordance with Paragraph
11 hereof in the event Purchaser fails to purchase the Property in accordance
with the terms of this Agreement.
3. Purchase Price.
--------------
Subject to adjustments and credits as otherwise specified in this
Agreement, the purchase price (the "Purchase Price") Purchaser shall pay to
Seller, in consideration of the conveyance of the Property to Purchaser, shall
be ONE HUNDRED TWENTY-FIVE THOUSAND AND NO/100 ($125,000.00) multiplied by the
number of acres, to the nearest one-hundredth of an acre, contained in the Land.
The number of acres contained in the Land for the purposes of calculating the
Purchase Price shall be as specified on the Survey (as hereinafter defined) and
reasonably acceptable to Seller or as otherwise agreed in writing by Seller and
Purchaser pursuant to Paragraph 5 of this Agreement. The Purchase Price shall be
paid by Purchaser to Seller at the Closing (as hereinafter defined) by cashier's
check or by wire transfer of immediately available funds to an account
designated by Seller.
4. Tests and Engineering.
---------------------
Purchaser shall at all times before Closing have the privilege of going
upon the Property with its agents or engineers as needed to inspect, examine,
survey and otherwise do whatever Purchaser deems necessary in the engineering
and planning for development of the Property; provided, however, that
Purchaser's activities on the Property between the expiration of the Inspection
Period and Closing shall be limited to engineering and planning in connection
with Purchaser's proposed development of the Property and not studies to
determine the feasibility of purchasing or developing the Property; and
provided, further, that Purchaser shall have no right to begin any clearing of
the Property or otherwise begin development of the Property until after Closing
has occurred. Said privilege shall include the right, at Purchaser's sole
expense, to make soil tests, borings, percolation tests and other tests to
obtain other information necessary to determine surface, subsurface,
environmental and topographic conditions. Furthermore, Seller hereby agrees to
cooperate fully with Purchaser's inspection of the Property under this Paragraph
2
<PAGE>
4 or under Paragraph 10 of the Agreement, including without limitation,
providing Purchaser with copies of Seller's owner's title insurance policy,
surveys, zoning materials, environmental reports, soil tests, borings,
percolation tests and other tests used by Seller, if any, to obtain information
necessary to determine surface, subsurface, environmental and topographic
conditions on the Property; provided, however, that Seller shall not be required
-------- -------
to incur any out of pocket expense or other liability due to such cooperation
and Seller makes no representation or warranty as to whether such reports or
tests are accurate or complete. Purchaser hereby indemnifies and agrees to hold
Seller harmless from and against any claims, damages, losses, costs and expenses
(including reasonable attorneys' fees and related costs and expenses) incurred
by Seller as a result of persons or firms entering the Property on Purchaser's
behalf pursuant to the privilege granted under this Paragraph 4, and such
indemnity obligation shall survive any termination of this Agreement.
5. Title to Property.
-----------------
Attached hereto as Exhibit "D" and by reference made a part hereof is a
-----------
true and correct copy of the owner's policy of title insurance issued to Seller
upon the acquisition of the Land by Seller (the "Seller's Owner's Policy").
Seller makes no representation or warranty as to the completeness or accuracy of
the information contained in the Seller's Owner's Policy. Purchaser shall have
until the expiration of the Inspection Period during which to examine title to
the Property and to cause a current and accurate survey (the "Survey") of the
Property to be made at the expense of Purchaser and to advise Seller in writing
of any defects or objections affecting the title to the Property or the use
thereof by Purchaser disclosed by such title examination and/or Survey. The
Survey shall be made by a surveyor duly licensed to perform such services within
the Commonwealth of Virginia ("Purchaser's Surveyor") and shall show by metes
and bounds the perimetrical boundaries of the Land, shall specify the acreage
contained within the Land to the nearest one-hundredth of an acre, and shall be
certified to both Purchaser and Seller. Purchaser shall deliver three (3) prints
of the Survey to Seller. In the event that Seller objects in writing to the
acreage of the Land specified in the Survey within ten (10) days after receipt
by Seller of the aforesaid three prints of the Survey, and Seller and Purchaser
do not agree in writing upon such acreage (for purposes of calculating the
Purchase Price) within five (5) days after Purchaser receives such written
objection, then Seller shall request that another duly licensed surveyor,
reasonably acceptable to Seller ("Confirming Surveyor") to calculate such
acreage at Seller's expense. In the event such acreage, as calculated by
Confirming Surveyor, is greater than the acreage as calculated by Purchaser's
Surveyor, Seller and Purchaser shall cause the surveyors to act reasonably and
in good faith to agree upon the acreage of the Land. The legal description to be
set forth in the special warranty deed of Seller referred to in Paragraph 6
hereof shall be based upon and shall conform to the metes and bounds description
of the perimetrical boundaries of the Land shown on the Survey. From time to
time, Purchaser may update the effective date of such title examination or
Survey and give notice to Seller of all defects or objections appearing
subsequent to the effective date of its previous title examination or Survey, as
the case may be. Such matters as are disclosed by Purchaser's title examination
and/or Survey and not objected to in writing by Purchaser are herein referred to
as the "Permitted Exceptions".
Seller shall have until the date of Closing to cure such defects and
objections to title set forth in Purchaser's notice(s). In the event Seller
fails, refuses or elects not to cure any defects
3
<PAGE>
and objections on or before the Closing, then, at the option of Purchaser, (a)
Purchaser may terminate this Agreement, in which event the Earnest Money shall
be immediately refunded to Purchaser, and this Agreement shall be deemed of no
further force and effect and Purchaser and Seller shall have no further rights,
obligations or liabilities hereunder, (b) if any such defect or objection arose
by, through or under Seller which arose or was placed on the Property in the
period between the date hereof and the Closing or is a mortgage, deed of trust,
mechanics lien or other such monetary lien or encumbrance which Seller placed or
caused or permitted to be placed against the Property after Seller's acquisition
of the Property and is capable of being cured by the payment of a liquidated
amount, Purchaser may cure such defect or objection, in which event the Purchase
Price payable pursuant to Paragraph 3 hereof shall be reduced by an amount equal
to the actual cost and expense incurred by Purchaser in connection with the
curing of such defect or objection, (b) Purchaser may accept title to the
Property subject to such defects and objections, or (d) any combination of items
(b) and (c). In the event Purchaser elects to cure any such defects and
objections pursuant to item (b) hereof, Purchaser at its option, upon giving
notice to Seller, may extend the date of Closing until the date which is ten
(10) days after the curing of such defects or objections or sixty (60) days from
and after the last date set forth in Paragraph 6 for Closing (as extended under
any other provision of this Agreement), whichever shall first occur. If any
defect or objection shall not have been cured within such period, Purchaser may
exercise its option under either item (a) or (c) hereof. The legal description
contained in the deed from Seller to Purchaser shall be a metes and bounds
description of the Land drawn from the Survey, to be prepared by Purchaser at
its expense.
6. Closing and Closing Date.
------------------------
Subject to satisfaction of Purchaser's conditions precedent set forth in
this Agreement, the consummation of the sale by Seller and the purchase by
Purchaser of the Property (herein referred to as the "Closing") shall be held on
or before the date which is not greater than sixty (60) days after the
expiration of the Inspection Period (as hereinafter defined) (subject to
extension as provided in Paragraph 10 hereof) at such specific place, time and
date as shall be designated by Purchaser in a written notice to Seller not less
than three (3) business days prior to the date of Closing. In the event
Purchaser fails to give written notice of the specific place, time and date for
Closing, the Closing shall occur at the local office of the Title Company,
5775-C Peachtree Dunwoody Road, Suite 200, Atlanta, Georgia, at two o'clock p.m.
on the last date for Closing pursuant to this Agreement (as the same may be
extended in writing pursuant to this Agreement). At Closing, Seller shall
execute and deliver to Purchaser (a) a Special Warranty Deed conveying fee
simple marketable record title to the Property to Purchaser, which conveyance
shall be made expressly subject to the documents and instruments listed as
special exceptions on Schedule B of Exhibit "D" attached hereto and on Exhibit
----------- -------
"E" attached hereto if and to the extent such documents and instruments relate
- ---
to the Property and to all other easements, agreements, covenants and
restrictions that are duly recorded among the land records of Chesterfield
County, Virginia, after the effective date of the Seller's Owner's Policy and
prior to date hereof and that affect the Property or any portion thereof, (b) an
Affidavit of Seller which has as its subject matter averments that, with respect
to the Property, there are no rights or claims of parties in possession not
shown by the public records and that there are no liens, or rights to a lien,
for services, labor or materials furnished and/or imposed by law and not shown
by the public records, (c) an Affidavit of Seller stating that Seller is not a
"foreign person", as that term
4
<PAGE>
is defined in 7 C.F.R. Section 781.2 of the Rules and Regulations promulgated
under the Agricultural Foreign Investment Disclosure Act of 1978 and is not
required to file any reports under said Act and its supporting rules and
regulations, and further stating that Seller is not a "foreign person", as that
term is defined in Section 1445 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder, and otherwise in form and
content sufficient to eliminate Purchaser's withholding obligations under said
Section 1445 with respect to the sale and purchase of the Property, (d) such
information as is required for Purchaser to file IRS Form 1099-S, and (e) any
and all other documents deemed reasonably necessary by Purchaser, Seller, or
other governmental requirement to consummate the transaction contemplated herein
in accordance with the terms of this Agreement.
7. Expenses and Prorations.
-----------------------
All real property ad valorem taxes applicable to the Land shall be prorated
as of the date of Closing between Seller and Purchaser, said proration to be
based upon the most recently available tax rate and valuation with respect to
the Land; provided, however, that upon the issuance of the tax bills for such
-------- -------
taxes for the year of Closing, Purchaser and Seller shall promptly make such
adjustments as may be necessary to insure that the actual amount of such taxes
for the year of Closing shall be prorated between Purchaser and Seller as of the
date of Closing. Likewise, all annual assessments under any private restrictive
covenants applicable to the Land shall be prorated as of the date of Closing
between Seller and Purchaser. Any assessments under any private restrictive
covenants which are due and payable prior to the date of Closing shall be paid
by Seller on or before the date they are due. Seller shall cooperate with
Purchaser in obtaining appropriate estoppel certificates under such private
restrictive covenants. Seller shall, at the Closing, pay the grantor's tax
(under Va. Code (S) 58.1-802), and state and local taxes due and payable in
connection with the recording of the deed from Seller to Purchaser and Seller's
attorneys' fees and expenses. Purchaser shall, at Closing, pay the recording tax
(under Va. Code (S) 58.1-801 and 58.1-814), the per page recording costs, all
title examination fees and the cost of the owner's title insurance premium for
the policy insuring Purchaser, and Purchaser's attorneys' fees and expenses. If,
at Closing, any special assessment or assessments for improvements shall be or
shall have been made against the Property, or any portion or portions thereof,
or is payable prior to or at Closing, all unpaid installments of any such
assessment (including those which are to become due and payable after Closing)
shall be deemed due and payable prior to Closing and shall not be apportioned
between Seller and Purchaser and shall be paid and discharged by Seller.
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 (whether in the nature of
a "roll-back" tax or otherwise), any additional tax payment for the Property
required to be paid with respect to the year of Closing shall be prorated
between Purchaser and Seller and any such additional tax payment for the
Property for any year prior to the year of Closing shall be paid by Seller.
5
<PAGE>
8. Warranties and Representation of Seller.
---------------------------------------
To induce Purchaser to enter into this Agreement and to purchase the
Property as herein provided, Seller does hereby state the following as of the
date of this Agreement:
(a) To Seller's actual knowledge, there are no actions, suits or
proceedings of any kind or nature whatsoever, legal or equitable, pending or
threatened against Seller or the Property, or any portion or portions thereof,
or relating to or arising out of the ownership of the Property, in any court or
before or by any federal, state, county or municipal department, commission,
board, bureau or agency or other governmental instrumentality, including,
without limitation, any condemnation or eminent domain proceedings.
(b) No person, firm, corporation or other legal entity whatsoever has
any right or option whatsoever to acquire the Property or any portion or
portions thereof or any interest or interests therein.
(c) Seller has no actual knowledge, and has not received any written
notice, that the Property or any portion or portions thereof is or will be
subject to or affected by any special assessments, whether or not presently a
lien thereon.
(d) Seller has no actual knowledge, and has not received any written
notice, that Seller is in violation or breach of any ordinance, code, law, rule,
requirement or regulation applicable to the Property.
(e) Seller has no actual knowledge, and has not received any written
notice, that Seller has used or operated the Property in any manner for the
storage use, treatment, manufacture or disposal of any Hazardous Substances
(hereinafter defined) or that the Property has been used or operated for the
storage, use, treatment, manufacture or disposal of any Hazardous Substances.
For purposes hereof, the term "Hazardous Substances" shall mean and refer to any
"hazardous waste" or "hazardous substance," as such terms arc set forth in,
under or pursuant to the Environmental Laws and Regulations (as hereinafter
defined), oil or petroleum products or their derivatives, polychlorinated
biphenyls, asbestos, radioactive materials or waste, and any other toxic,
ignitable, reactive, corrosive, explosive, contaminating or polluting materials
which are now or in the future subject to governmental regulation.
"Environmental Laws and Regulations" shall mean any federal, state or local laws
now or hereafter in effect relating to pollution or protection of the
environment or emissions, discharges, spills, releases or threatened releases of
any Hazardous Substance into the environment (including without limitation
indoor air, ambient air, surface water, ground water or land), including without
limitation, the Resource Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901 et
seq, as amended, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), 42 U.S.C. (S)(S) 9601 et seq, as amended, the
Hazardous Materials Transportation Act, 49 U.S.C. (S)(S) 1801 et seq, as
amended, the Clean Water Act, 33 U.S.C. (S)(S) 1251 et seq, as amended, the
Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq, as amended, the Toxic Substance
Control Act, 15 U.S.C. (S)(S) 2601 et seq. as amended, and any rules and
regulations now or hereafter promulgated under any of such acts.
6
<PAGE>
(f) Seller has no actual knowledge that the Property has been used for
or as a cemetery or landfill.
(g) Seller has no actual knowledge, nor has it received written
notice, of any actions, suits, proceedings or proposals of any kind or nature
whatsoever pending or being considered relating to any proposed changes to the
highways, roadways and/or access ways adjoining or adjacent to the Property,
including, without limitation, the widening thereof, construction of
acceleration/deceleration lanes, changes in or additions to existing or approved
curb cuts, proposed or pending installation or removal of traffic lights or any
other changes or proposed changes in traffic patterns or management of traffic
flow thereover.
(h) The Land has been, or prior to Closing will be, properly
subdivided in accordance with all applicable laws and shall constitute a
separate parcel of land for tax assessment and state or local subdivision
regulation purposes.
(i) Seller has no actual knowledge, nor has it received written
notice, that the Land has been classified under any designation authorized by
law to obtain a special low ad valorem tax rate or to receive a reduction,
abatement or deferment of ad valorem taxes which, in such case, will result in
additional catch-up or roll-back ad valorem taxes in the future in order to
recover the amounts previously reduced, abated or deferred.
(j) Any and all actions, if any, required by Seller to authorize the
execution and delivery of this Agreement and the consummation of the transaction
contemplated herein have heretofore been taken, and this Agreement shall
constitute a valid and binding agreement, enforceable against Seller in
accordance with the terms hereof.
The obligations of Purchaser under this Agreement are subject to and
conditioned upon the foregoing statements by Seller continuing to be true and
correct in all material respects as of the date of Closing.
9. Covenants and Agreements of Seller.
----------------------------------
Seller hereby covenants and agrees that, from and after the date hereof and
until the date of Closing, Seller shall not, without the prior written consent
of Purchaser, materially change or alter the physical condition of the Property,
remove any trees, or grant or otherwise create or consent to the creation of any
easement, restriction, lien, assessment or encumbrance affecting the Property or
any portion or portions thereof, or pursue or consent to the pursuit of any
rezoning of the Property or any portion or portions thereof.
10. Conditions of Purchase.
----------------------
The obligations of Purchaser under this Agreement are subject to and
conditioned upon the determination by Purchaser, in its sole discretion and
judgment and prior to the expiration of the Inspection Period, that the Property
is satisfactory for the use and purposes intended by Purchaser, which includes a
determination, prior to the expiration of the Inspection Period, that the
necessary utilities are in place in accordance with Section 24 hereof. In the
event such condition to Purchaser's obligations has been satisfied or waived,
Purchaser shall give prior
7
<PAGE>
written notice to Seller, not later than the date that is ninety (90) days after
the effective date of this Agreement (such ninety (90) day period being herein
referred to as the "Inspection Period"), that Purchaser has completed its due
diligence with respect to the Property and agrees to accept the Property in its
"AS IS, WHERE IS" condition and without representation or warranty except as
expressly set forth in this Agreement. If Seller fails to actually receive the
aforesaid notice prior to the expiration of the Inspection Period, or if
Purchaser advises Seller in writing prior to the expiration of the Inspection
Period, this Agreement shall be null and void and of no further force or effect
(except for the obligations that expressly survive the termination of this
Agreement has herein provided) and the Earnest Money shall be returned to
Purchaser. Upon any termination of this Agreement by Purchaser as provided in
this Paragraph 10, Purchaser shall provide Seller with copies of any and all
written reports and studies prepared by third parties in connection with
Purchaser's investigation of the Property (without warranty as to whether same
are accurate or complete).
11. Defaults.
--------
In the event Seller fails to comply with or perform any of the covenants,
agreements and obligations to be performed by Seller under the terms and
provisions of this Agreement, or in the event Seller's warranties and
representations set forth in this Agreement are untrue or misleading, at
Purchaser's option: (i) Purchaser shall be entitled to an immediate refund of
all Earnest Money and to thereafter exercise any and all rights and remedies
available to Purchaser at law or in equity including, without limitation,
specific performance; or (ii) Purchaser shall be entitled, upon giving written
notice to Seller as herein provided, to terminate this Agreement. Upon any such
termination, all Earnest Money shall be immediately returned to Purchaser and
this Agreement and, except as herein provided, all rights and obligations
created hereunder shall be deemed of no further force or effect. Seller hereby
acknowledges and agrees that Purchaser plans to enter into a lease in reliance
upon this Agreement and Seller's compliance herewith. Thus, in the event Seller
fails to deliver the documents it is obligated under Paragraphs 6, 12 and 23 to
deliver to Purchaser, Purchaser shall be entitled to recover its actual damages
incurred as a result of such failure by Seller, including damages in connection
with Purchaser's proposed lease of the Property to a third party; provided,
however, that in no event shall any such claim for actual damages exceed the sum
of Twenty-Five Thousand and No/100 Dollars ($25,000.00).
In the event Purchaser fails to purchase the Property in accordance with
the terms of this Agreement, Seller's sole and exclusive remedy for any such
default shall be to terminate this Agreement and to receive the Earnest Money
and retain the Earnest Money as full liquidated damages for such default, the
parties hereto acknowledging that it is impossible to more precisely estimate
the damages to be suffered by Seller upon Purchaser's default. Upon any such
termination, all rights and obligations created hereby shall terminate and be of
no further force or effect whatsoever, except for such obligations which
expressly survive the termination of this Agreement as herein provided.
In the event that either of Seller or Purchaser is required to employ an
attorney to enforce or defend, in a court of competent jurisdiction, any of such
party's rights or remedies hereunder, the attorneys' fees and expenses incurred
in connection therewith by the prevailing party shall be paid by the
non-prevailing party.
8
<PAGE>
12. Right of First Refusal.
----------------------
Seller hereby agrees that, for a period of three years following the date
of the Closing, if it desires to enter into a contract or lease for all or any
portion of that certain tract of land adjacent to the Property and lying and
being in Chesterfield County, Virginia, more particularly shown or described on
Exhibit "B" attached hereto and by this reference incorporated herein (the
- -----------
"Adjacent Property") (whether solicited or unsolicited), it shall first offer
the Adjacent Property (or applicable portion thereof) (the "Offered Adjacent
Property") for sale or lease to Purchaser on such terms by delivering to
Purchaser in writing a copy of the applicable purchase agreement or lease (the
"Offer"). Purchaser shall have ten (10) business days from the date it receives
such purchase agreement or lease from Seller to elect to purchase or lease
(whichever is applicable) the Offered Adjacent Property on the terms set forth
in the Offer.
If Purchaser does not elect to purchase or lease (whichever is applicable)
the Offered Adjacent Property or fails to make any election at all during such
ten (10) business day period, then Seller shall have the right to sell or lease
(whichever is applicable) the Offered Adjacent Property to another party upon
the terms set forth in the purchase agreement or lease delivered to Purchaser
and, upon the consummation of such sale or lease, the right of first refusal in
this Paragraph 12 shall automatically terminate. If Purchaser elects to purchase
or lease (whichever is applicable) the Offered Adjacent Property within such ten
(10) business day period, it must provide written notice to Seller of such
election on or prior to the expiration of such ten (10) business day period.
The parties hereto agree to execute and deliver such additional documents
and perform such additional acts as may be necessary or appropriate to
effectuate, carry out and perform all of the terms, provisions and conditions of
the right of first refusal in this Paragraph 12.
13. Assignment.
----------
Seller hereby agrees that any time prior to the Closing, Purchaser may
sell, transfer, or assign any or all of its rights under this Agreement to Wells
Capital, Inc. or to any partnership having Purchaser or Wells Capital, Inc. as a
direct or indirect general partner thereof, or to any limited liability company
having Purchaser or Wells Capital, Inc. as a member thereof; provided that the
net worth of any such assignee is not less than the net worth of ADEVCO
Corporation on the date of this Agreement. Purchaser agrees that it will remain
primarily obligated for its obligations under this Agreement notwithstanding any
assignment (permitted or otherwise) of this Agreement.
14. Possession of Property.
----------------------
Seller shall deliver to Purchaser full and exclusive possession of the
Property on the date of Closing.
15. Condemnation.
------------
In the event the Property or any portion or portions thereof shall be taken
or condemned by any governmental authority or other entity prior to the date of
Closing, or in the event Purchaser receives notice of a proposed taking prior to
the date of Closing, Purchaser shall have
9
<PAGE>
the option of either (a) terminating this Agreement by giving written notice
thereof to Seller, whereupon all Earnest Money shall be immediately refunded to
Purchaser and this Agreement and all rights and obligations created hereunder
shall be of no further force or effect, or (b) requiring Seller to convey the
remaining portion of the Property to Purchaser pursuant to the terms and
provisions hereof (with the Purchase Price being determined with regard to the
remaining portion of the Property). Seller and Purchaser hereby further agree
that Purchaser shall have the right to participate in all negotiations with any
such governmental authority relating to the Property.
16. Broker's Commission.
-------------------
Purchaser and Seller acknowledge that Morton G. Thalhimer Inc.
("Thalhimer") and Adevco Realty Group, LLC ("Adevco") acted as brokers in
connection with the sale of the Property. Purchaser shall and does hereby
indemnify and hold harmless Seller from and against any claim 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, including any claim asserted by Adevco, but excluding any claim by
Thalhimer. Likewise, Seller shall and does hereby indemnify and hold harmless
Purchaser from and against any claim 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, including any claim by
Thalhimer, but excluding any claim by Adevco. The indemnity obligations of
Seller and Purchaser under this Paragraph 16 shall survive any termination of
this Agreement. Seller shall be solely responsible for any commission payable to
Thalhimer in connection with the sale of the Property to Purchaser pursuant to a
separate agreement between Seller and Thalhimer, and Purchaser shall be solely
responsible for any commission payable to Adevco in connection with the purchase
of the Property by Purchaser pursuant to a separate agreement between Purchaser
and Adevco.
17. Notices.
-------
Every notice, approval, consent, or other communication authorized or
required by this Agreement shall not be effective unless the same shall be in
writing and delivered (i) in person, (ii) by courier, (iii) by reputable
overnight courier guaranteeing next day delivery, (iv) if sent on a business day
during the business hours of 9:00 a.m until 5:00 p.m. E.S.T., via telecopier
with a copy to follow by reputable overnight courier guaranteeing next day
delivery, (v) sent postage prepaid by United States registered or certified
mail, return receipt requested, directed to the other party at its address
hereinabove first mentioned, or such other address as either party may designate
by notice given from time to time in accordance with this Paragraph. Such
notices or other communications shall be effective (i) in the case of personal
delivery or courier delivery, on the date of delivery to the party to whom such
notice is addressed as evidenced by a written receipt signed on behalf of such
party, (ii) if by overnight courier, one (1) day after the deposit thereof with
all delivery charges prepaid, (iii) if by telecopier, on the date of
transmission, provided that such telecopier transmission is sent on a business
day, during the hours stated above, and provided that a confirmation sheet is
received and a copy of the notice is simultaneously delivered by reputable
overnight courier (with all charges prepaid) for receipt on the next succeeding
business day, and (iv) in the case of registered or certified mail, the earlier
of
10
<PAGE>
the date receipt is acknowledged on the return receipt for such notice or five
(5) business days after the date of posting by the United States Post Office.
18. 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 any of the parties hereto unless
such amendment is in writing and executed by both Seller and Purchaser. The
provisions of this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, administrators, executors,
personal representatives, successors and assigns. Time is of the essence of this
Agreement with respect to each and every obligation of Seller and Purchaser
hereunder. This Agreement and all amendments hereto shall be governed by and
construed under the laws of the state in which the Property is located. 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. All personal pronouns used in this Agreement, whether used
in the masculine, feminine or neuter gender, shall include all genders, the
singular shall include the plural and vice versa. 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. Seller and
Purchaser do hereby covenant and agree that such documents as may be legally
necessary or otherwise appropriate to carry out the terms of this Agreement
shall be executed and delivered by each party at the Closing.
19. Day for Performance.
-------------------
Wherever herein there is a day or time period established for performance
and such day or the expiration of such time period is a Saturday, Sunday or
holiday, then such time for performance shall be automatically extended to the
next business day.
20. Survival of Provisions.
----------------------
All covenants, warranties and agreements set forth in this Agreement shall
survive the Closing of the transaction contemplated hereby and 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.
21. 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
11
<PAGE>
such provision to other persons or circumstances shall not be affected thereby
but rather shall be enforced to the greatest extent permitted by law.
22. Terms of Offer.
--------------
For purposes of the calculations of any time periods set forth in this
Agreement, the effective date of this Agreement shall be deemed to be the date
upon which this Agreement has been fully executed by Seller and Purchaser and
initialed, if applicable, and each of Seller and Purchaser has received a fully
executed counterpart hereof.
23. Water Drainage and Retention.
----------------------------
Seller is the owner of that certain real property adjacent to the Land upon
which there currently is located a lake or pond (the "Existing Lake"). Seller
and Purchaser acknowledge that it is Purchaser's desire and intention to drain
storm and surface water from the Land, as developed (the "Developed Land'), into
the Existing Lake and to utilize the Existing Lake for the retention of such
storm and surface water from the Developed Land. Unless the Land already has the
benefit of a permanent easement to utilize the Existing Lake for the drainage,
retention, and discharge of surface water from the Developed Land. Seller will
grant and convey to Purchaser at Closing a non-exclusive, permanent easement
over and across the real property upon which the Existing Lake is located to
enable Purchaser to utilize the Existing Lake for the drainage, retention and
discharge of storm and surface water generated from the Developed Land (the
"Drainage Easement"). The Drainage Easement will be created pursuant to an
easement agreement in form and substance reasonably satisfactory to Seller and
Purchaser (the "Easement Agreement") that contains, inter alia, an indemnity by
----- ----
Purchaser of Seller for any loss, damage, cost or expense (including reasonable
attorneys' fees and related legal expenses) incurred by Seller and arising out
of any personal injury or property damage caused by Purchaser's use of the
Drainage Easement. In the Easement Agreement, Purchaser will agree to comply
with all applicable laws and other requirements regarding, and take all
commercially reasonable steps to minimize, soil erosion and sedimentation into
the Existing Lake. In the Easement Agreement, Seller will agree that Seller will
not permit the utilization of the Existing Lake for the retention of storm and
surface water from other real property to such an extent that the use of the
Existing Lake for the retention of storm and surface water from the Developed
Land is adversely affected or impaired. Seller agrees that Seller will use
commercially reasonable efforts in good faith, at all times prior to and after
Closing, at Seller's expense, to obtain the necessary governmental permits and
approvals for the utilization of the Existing Lake for the drainage, retention
and discharge of storm and surface water from the Developed Land, and to
establish the Existing Lake as the phosphorous removal "best management
practice" water retention device for the Developed Land, in accordance with the
Chesapeake Bay Preservation Act as adopted in Chesterfield County. The covenant
of Seller set forth in the preceding sentence shall survive the Closing.
12
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this Agreement under seal
on the day, month and year first written above.
"PURCHASER"
WELLS OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By: Wells Real Estate Investment Trust, Inc., a
Maryland corporation, general partner
By: /s/ Leo F. Wells, III
--------------------------------------
Its: President
--------------------------------------
(CORPORATE SEAL)
"SELLER"
IDLEWOOD PROPERTIES, INC.,
a Virginia corporation
By: /s/ [ILLEGIBLE]
--------------------------------------
Its: Vice President
--------------------------------------
13
<PAGE>
EXHIBIT "A"
-----------
DESCRIPTION OF PROPERTY
[TO BE PROVIDED BY PURCHASER]
A-1
<PAGE>
EXHIBIT A
[PLAN APPEARS HERE]
<PAGE>
EXHIBIT "B"
-----------
ADJOINING PROPERTY
[TO BE PROVIDED BY PURCHASER]
B-1
<PAGE>
EXHIBIT B
[PLAN APPEARS HERE]
<PAGE>
EXHIBIT 10.59
DEVELOPMENT AGREEMENT
BETWEEN
WELLS REIT, LLC - VA I
Owner
AND
ADEVCO CORPORATION,
Manager
June 28, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - DEFINITIONS................................................. 1
ARTICLE 2 - ENGAGEMENT OF THE MANAGER................................... 4
2.1 Engagement..................................................... 4
2.2 Relationship................................................... 4
ARTICLE 3 - TERM OF AGREEMENT........................................... 5
ARTICLE 4 - RESPONSIBILITIES OF THE MANAGER............................. 5
4.1 General Responsibility......................................... 5
4.2 Development Functions.......................................... 5
4.3 Completion..................................................... 9
4.4 Employees...................................................... 9
4.5 Manager's Costs................................................ 9
ARTICLE 5 - DEVELOPMENT BUDGET.......................................... 10
5.1 Implementation of Development Budget........................... 10
5.2 Revision of Development Budget................................. 10
5.3 Emergencies.................................................... 10
5.4 Reduction in Fees.............................................. 11
ARTICLE 6 - AUTHORITY OF THE MANAGER.................................... 12
6.1 General Authority.............................................. 12
6.2 Execution of Documents and Agreements.......................... 12
ARTICLE 7 - ACCOUNTING AND REPORTS...................................... 13
7.1 Books of Account............................................... 13
7.2 Monthly Reports................................................ 13
7.3 Construction Draw Reports...................................... 14
7.4 Annual Development and Financial Statements.................... 14
7.5 Examination of Books and Records............................... 14
ARTICLE 8 - BANKING..................................................... 15
8.1 Separate Accounts.............................................. 15
8.2 The Owner's Duty to Provide Funds.............................. 15
8.3 Investment of Owner's Funds.................................... 15
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 9 - STANDARD OF CARE; LIABILITY; INDEMNITY; CONFIDENTIALITY..... 15
9.1 Standard of Care; Manager's Liability.......................... 16
9.2 Indemnity of Owner............................................. 16
9.3 Indemnity of Manager........................................... 16
9.4 Survival of Indemnities........................................ 16
9.5 No Obligation to Third Parties................................. 16
9.6 Nature of the Manager's Duties and Responsibilities............ 16
9.7 Ownership of Information and Materials......................... 17
ARTICLE 10 - INSURANCE.................................................. 17
10.1 Insurance Requirements......................................... 17
10.2 Owner's Insurance Primary Coverage............................. 17
10.3 Waiver of Subrogation.......................................... 17
ARTICLE 11 - COMPENSATION OF THE MANAGER................................ 18
11.1 Fees - General................................................. 18
11.2 Development Fee................................................ 18
11.3 ABB Work Fee................................................... 18
11.4 Small Tenant Work Fee.......................................... 18
11.5 Small Tenant Leasing Fee....................................... 18
11.6 Disbursements to the Manager................................... 18
ARTICLE 12 - MANAGER AS LEASING AGENT................................... 19
12.1 Nonexclusive Engagement........................................ 19
12.2 Manager's Leasing Duties....................................... 19
12.3 Small Tenant Leasing Fee....................................... 19
ARTICLE 13 - REIMBURSEMENT OF ADVANCES, COSTS AND EXPENSES.............. 21
13.1 Reimbursement of Advances...................................... 21
13.2 Reimbursement of Costs and Expenses............................ 21
ARTICLE 14 - DEFAULT AND TERMINATION.................................... 21
14.1 Default by Manager............................................. 22
14.2 Additional Terminating Event................................... 22
14.3 Default by Owner............................................... 23
14.4 Obligation for Fees Upon Termination........................... 23
14.5 Actions Upon Termination....................................... 23
ARTICLE 15 - OTHER ACTIVITIES OF THE MANAGER............................ 23
ARTICLE 16 - NATURE OF AGREEMENT........................................ 24
ARTICLE 17 - GENERAL PROVISIONS......................................... 24
17.1 Notices........................................................ 24
17.2 Modifications.................................................. 25
17.3 Binding Effect................................................. 25
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
17.4 Duplicate Originals............................................ 25
17.5 Construction................................................... 25
17.6 Entire Agreement............................................... 25
17.7 Assignment..................................................... 25
17.8 Authorized Representatives..................................... 25
17.9 Terminology.................................................... 26
17.10 Time of Essence............................................... 26
</TABLE>
Exhibits:
- --------
Exhibit "A" Description or Site Plan of Land
Exhibit "B" Development Budget
Exhibit "C" Insurance Requirements
Exhibit "D" Reimbursable Expenditures Relating to Project
Exhibit "E" Form of Estoppel Certificate
iii
<PAGE>
DEVELOPMENT AGREEMENT
---------------------
THIS AGREEMENT, made and entered into this 28/th/ day of June, 1999, by and
between WELLS REIT, LLC - VA I, a Georgia limited liability company (hereinafter
referred to as the "Owner"), and ADEVCO CORPORATION, a Georgia corporation
(hereinafter referred to as the "Manager").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Owner owns or has the contractual right to acquire a certain
parcel of land located in Chesterfield County, Virginia, on which the Owner
proposes to develop and construct an office building with related parking,
landscaping and other site work pursuant to plans and specifications prepared
and to be prepared by Smallwood, Reynolds, Stewart, Stewart & Associates, Inc.;
and
WHEREAS, the Owner desires to engage the Manager as an independent
contractor, upon the terms and conditions set forth herein, to supervise and to
manage the development and construction of such building and other improvements
and to lease vacant space in such building; and
WHEREAS, the Manager desires to perform such services for the Owner in
consideration of the compensation set forth herein.
NOW, THEREFORE, for and in consideration of the premises, the sum of Ten
Dollars ($10.00) in hand paid by each party to the other, and the mutual
promises, obligations and agreements contained herein, the Owner and the
Manager, intending to be, and being, legally bound, do hereby agree as follows:
ARTICLE 1
---------
DEFINITIONS
-----------
For purposes of this Agreement, each of the following terms shall, when
used herein with an initial capital letter, have the meaning hereinbelow set
forth.
ABB Power. The term "ABB Power" means ABB Power Generation Inc., a Delaware
---------
corporation.
ABB Lease. The term "ABB Lease" means the Lease between Owner and ABB Power
---------
dated June 1, 1999.
ABB Work Fee. The term "ABB Work Fee" means the fee to be paid to the
------------
Manager by the Owner as provided in Section 11.3 hereof.
<PAGE>
Agreement. The term "Agreement" means this Development Agreement, together
---------
with all amendments hereto and all exhibits attached hereto.
Architect. The term "Architect" means the architectural firm of Smallwood,
---------
Reynolds, Stewart, Stewart & Associates, Inc., and any other firm employed by
the Owner as an architect with respect to the Project.
Architect's Agreement. The term "Architect's Agreement" means the
---------------------
agreement(s) between the Owner and the Architect under which the Architect has
been or shall be engaged to prepare architectural designs, plans, drawings and
specifications for the Project and to render other services in connection with
the design and construction of the Project. The Architect's Agreement is
incorporated herein by this reference.
Building. The term "Building" means a first-class, multiple tenant four-
--------
story office building, containing approximately 102,232 gross square feet and
99,322 net rentable square feet, which the Owner intends to develop and
construct upon the Land.
Completion Date. The term "Completion Date" means the first day on which
---------------
all of the following have occurred: (i) the construction and equipping of the
Project has been completed in accordance with Architect's plans and
specifications (inclusive of landscaping plans, to the extent that landscaping
can feasibly be installed due to the season), as evidenced by a certificate to
such effect from the Architect, (ii) the Tenant Improvements for the space in
the Building to be occupied by ABB Power have been completed in accordance with
the working drawings and specifications for such space, as evidenced by a
certificate to such effect from the Architect, (iii) permanent certificates of
occupancy or their equivalent have been issued by the appropriate governmental
authority with respect to the base building and with respect to the space in the
Building to be occupied by ABB Power, (iv) the term of the ABB Lease has
commenced, (v) ABB Power has executed and delivered the ABB Lease, and (vi) ABB
Power has executed and delivered to the "Landlord" under the ABB Lease an
estoppel certificate substantially in the form attached hereto as Exhibit "E"
----------
and by reference made a part hereof.
Construction Agreement. The term "Construction Agreement" means,
----------------------
collectively, the construction contract between the Owner and the Contractor
with respect to the Project and such other construction or employment agreements
as may be hereafter entered into by the Owner and a general contractor or
special purpose contractor with respect to the performance of work or the
providing of services to the Project. The Construction Agreement is incorporated
herein by this reference.
Contractor. The term "Contractor" means, collectively, Bovis Construction
----------
Corp. and all other firms employed by the Owner as a general contractor or as a
special purpose contractor with respect to the Project; and singly any such
general or special purpose contractor.
Development Budget. The term "Development Budget" means the budget, a copy
------------------
of which is attached hereto and made a part hereof as Exhibit "B", which sets
-----------
forth the Manager's best estimate of all expenses to be incurred with respect to
the acquisition of the Land, the
-2-
<PAGE>
planning, design, development, construction and completion of the Project, and
the Tenant Improvements for ABB Power.
Development Fee. The term "Development Fee" means the fee to be paid to the
---------------
Manager by the Owner as provided in Section 11.2 hereof.
Development Functions. The term "Development Functions" means those
---------------------
functions of the Manager set forth in Section 4.2 of this Agreement.
Development Period. The term "Development Period" means the period
------------------
commencing on the date of this Agreement and terminating on the date which is
three (3) months after the Completion Date.
Event of Default. The term "Event of Default" means any one or more of the
----------------
events described in Section 14.1 of this Agreement.
Kraxberger. The term "Kraxberger" means David M. Kraxberger, an individual
----------
residing in Cobb County, Georgia.
Land. The term "Land" means that certain parcel of land located in
----
Chesterfield County, Virginia, as more particularly shown or described on
Exhibit "A" attached hereto and by this reference made a part hereof.
- ----------
Manager. The term "Manager" means Adevco Corporation, a Georgia
-------
corporation.
Monthly Report. The term "Monthly Report" means the report to be prepared
--------------
by the Manager and submitted to the Owner on a monthly basis as provided in
Section 7.2 hereof.
Owner. The term "Owner" means Wells REIT, LLC - VA I, a Georgia limited
-----
liability company.
Project. The term "Project" means the Land, the Building, and the Site
-------
Improvements, collectively.
Site Improvements. The term "Site Improvements" means the surface level
-----------------
parking facilities, sufficient to accommodate approximately 495 automobiles, any
and all on and off-site road improvements, walkways, complete utilities and
drainage systems, landscaping work, exterior lighting, ground-mounted signs and
other site improvements which the Owner intends to develop and construct upon
the Land.
Small Tenant Leasing Fee. The term "Small Tenant Leasing Fee" means the fee
------------------------
to be paid to the Manager by the Owner as provided in Sections 11.5 and 12.3
hereof.
Small Tenant Work Fee. The term "Small Tenant Work Fee" means the fee to be
---------------------
paid to the Manager by the Owner as provided in Section 11.3 hereof.
-3-
<PAGE>
Speculative Space. The term "Speculative Space" means the rentable area of
-----------------
the Building which is not initially leased by ABB Power.
Tenant Improvements. The term "Tenant Improvements" means all improvements
-------------------
constructed on or within the Project for use or operation by tenants under or
pursuant to written leases or occupancy agreements, including without limitation
the "Layout Work" (as defined in the ABB Lease) for ABB Power and other tenant
improvements required to be installed or constructed by the "Landlord" under the
ABB Lease.
Tenant Improvements Completion Date. The term "Tenant Improvements
-----------------------------------
Completion Date" means with respect to the Tenant Improvements for each tenant
of the Project, the first day in which the Tenant Improvements in such tenant's
space have been completed in accordance with the plans and specifications for
such Tenant Improvements, all necessary certificates of occupancy or their
equivalent have been issued by the applicable governmental authority with
respect to such space, and such tenant has accepted its premises (whether or not
it has taken possession of its space) as evidenced by a customary estoppel
certificate executed by such tenant.
ARTICLE 2
---------
ENGAGEMENT OF THE MANAGER
-------------------------
2.1 Engagement. The Owner hereby engages the Manager as the exclusive
----------
development manager of the Project to supervise, to manage, and to coordinate
the planning, design, construction, and completion of the Project, all in
accordance with the terms, conditions and limitations herein set forth. The
Manager hereby accepts such engagement and hereby agrees to diligently use its
best efforts in the performance of its duties and the Development Functions
hereunder, which performance in all respects and at all times shall be carried
out to the same extent and with the same degree of care and quality as the
Manager would exercise in the conduct of its own affairs if the Manager were the
owner of the Project. The Manager agrees to apply prudent and reasonable
business practices in the performance of its duties hereunder.
2.2 Relationship. With respect to the Owner, the Manager shall at all
-----------
times be an independent contractor. No provision hereof shall be construed to
constitute the Manager or any of its officers or employees as an employee or
employees of the Owner nor shall any provision of this Agreement be construed as
creating a partnership or joint venture between the Manager and the Owner.
Neither the Owner nor the Manager shall have the power to bind the other party
except pursuant to the terms of this Agreement. The Manager acknowledges and
agrees that it shall act as a fiduciary hereunder with respect to the Owner and
that, with respect to all of the services to be rendered by the Manager to the
Owner pursuant to this Agreement, the Manager shall have the duty to act at all
times in the best interests of the Owner in rendering such services. In the
event the Owner disapproves of any of the general policies and procedures of the
Manager with respect to the Project and shall have so notified the Manager, the
Manager shall conform its general policies and procedures with respect to the
Project to those requested by the Owner insofar as such policies may be
consistent with the terms and provisions of this Agreement.
-4-
<PAGE>
ARTICLE 3
---------
TERM OF AGREEMENT
-----------------
The engagement of the Manager hereunder shall commence on the date on which
this Agreement is executed and shall end on the date which is three (3) months
from and after the Completion Date; provided, however, if any remedial work to
be performed by the Contractor following the completion of the Project has not
been completed or if the Manager has commenced and is diligently prosecuting,
but has not completed, any Tenant Improvements, the term of this Agreement shall
be extended until the date on which any remedial work required to be performed
by the Contractor following completion of the Project shall be so performed and
accepted by the Owner, or until the completion of such Tenant Improvements, as
the case may be.
ARTICLE 4
---------
RESPONSIBILITIES OF THE MANAGER
-------------------------------
4.1 General Responsibility. The Manager's general responsibility
----------------------
hereunder as the Owner's development manager shall be to manage, to supervise,
and to coordinate the planning, design, construction, and completion of the
Project.
4.2 Development Functions. In discharging its general responsibility
---------------------
hereunder, the Manager shall perform and discharge the following specific
responsibilities with respect to the Project (herein collectively referred to as
the "Development Functions"):
4.2.1 The Manager shall negotiate and submit to the Owner, for the
Owner's approval and execution, the Architect's Agreement and the
Construction Agreement.
4.2.2 The Manager, in the name of, and on behalf of, the Owner,
shall maintain and continue the engagement of Smallwood, Reynolds, Stewart,
Stewart & Associates, Inc., as the Architect, and Bovis Construction Corp.,
as a Contractor, for the compensation and on the terms provided for in the
Architect's Agreement and the Construction Agreement, respectively; and the
Manager shall supervise, administer and coordinate the performance of all
work done by the Architect and the Contractor. The Manager shall negotiate,
on terms consistent with and within the limitations of the Development
Budget, and submit to the Owner for the Owner's approval, contracts with
such other design and engineering professionals and consultants as the
Manager deems appropriate for the design and construction of the Project.
Subject to the provisions of Section 5.2 hereof, the employment of such
other design and engineering professionals on terms not consistent with and
within the limitations of the Development Budget shall be only at the
direction of the Owner.
4.2.3 The Manager shall coordinate the acquisition by the Owner of
the Land.
4.2.4 The Manager shall implement the Development Budget as provided
herein.
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4.2.5 In implementing the Development Budget and in otherwise
discharging its duties and responsibilities hereunder, the Manager shall
negotiate with, and submit to the Owner (for execution by the Owner)
contracts with, supervise the performance of, and review and approve or
disapprove applications for payment of the fees, charges, and expenses of,
such architects, engineers, planners, designers, consultants, general
contractors, subcontractors, vendors, and other design and construction
professionals, consultants, and suppliers as the Manager deems necessary or
appropriate to develop the Project in accordance with and subject to the
limitations of the Development Budget. Such fees, charges and expenses
shall be borne by the Owner as contemplated in the Development Budget.
Subject to the provisions of Section 5.2 hereof, the employment,
supervision and payment of such additional architects, engineers, planners,
designers, consultants, general contractors, subcontractors, vendors, and
other design and construction professionals, consultants, and suppliers on
terms not consistent with or within the limitations of the Development
Budget shall be only at the direction of the Owner.
4.2.6 The Manager shall arrange for a preliminary site plan to be
prepared showing the location within the Land of the Building and the Site
Improvements and shall submit such site plan to the Owner for approval by
the Owner. The cost of such site plan shall be borne by the Owner as
contemplated in the Development Budget.
4.2.7 The Manager shall arrange to be prepared such survey and
engineering plans and drawings as are from time to time requested by the
Owner. The costs of such survey and engineering plans shall be borne by the
Owner as contemplated in the Development Budget.
4.2.8 The Manager shall administer and oversee the selection by the
Contractor of major subcontractors and others as appropriate for
construction of the Project and review bids for acceptability from
subcontractors.
4.2.9 The Manager shall review all applicable building codes,
environmental, zoning and land use laws and other applicable local, state
and federal laws, regulations and ordinances concerning the development,
use and operation of the Project or any portion thereof. The Manager shall
make application for and seek to obtain and keep in full force and effect
all necessary governmental approvals and permits, and shall endeavor to
perform such acts as shall be reasonably necessary to effect compliance by
the Owner with all laws, rules, ordinances, statutes, and regulations of
any governmental authority applicable to the Project. Upon receipt of the
Owner's approval, the Manager shall seek to obtain any permits, variances
or rezoning of the Land or any portion thereof, as are necessary or
appropriate to cause the Project to be in compliance with all such codes,
laws, regulations and ordinances. All costs required to be paid to third
parties in order to obtain such permits, variances or rezonings shall be
borne by the Owner as contemplated in the Development Budget.
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<PAGE>
4.2.10 The Manager shall review all applicable private restrictions,
covenants and easement agreements concerning the development, use and
operation of the Project or any portion thereof. The Manager shall endeavor
to perform such acts as shall be reasonably necessary to effect compliance
by the Owner with all such restrictions, covenants and easements.
4.2.11 The Manager shall negotiate and submit to the Owner for the
Owner's approval all contracts for, or otherwise arrange for the delivery
of, and pay all charges imposed on the Owner for, all utilities required
for the development, construction, and operation of the Project, including,
without limitation, water, electricity, telephone, storm sewer, and
sanitary sewer services.
4.2.12 The Manager shall coordinate the services of such accountants
and attorneys as may be engaged by the Owner upon such terms as may be
approved by the Owner and utilize such accounting and disbursement systems
as may be determined by the Owner.
4.2.13 The Manager shall review and make recommendations to the Owner
regarding the Owner's insurance program so that the Owner shall obtain and
keep in force, at the Owner's expense as contemplated in the Development
Budget, such policies of insurance, including, but not limited to, public
liability, all-risk, and builder's risk, in such amounts and with such
carriers as shall be prudent with respect to the Project.
4.2.14 The Manager shall maintain complete and accurate records
reflecting the progress of the Manager's implementation of the Development
Budget, which records shall include all contracts, purchase orders,
disbursement requests, bids, and proposals of contractors, suppliers, and
vendors, and such other records, plans and information as the Owner may
from time to time request or as the Manager shall deem appropriate to
maintain in discharging its duties and responsibilities hereunder.
4.2.15 The Manager shall inspect the Project at regular intervals so
as to be kept informed as to the stage of development and the condition of
the Project.
4.2.16 Upon the Owner's prior written authorization, the Manager
shall execute for and on behalf of, and in the name of, the Owner any
applications, requests and other documents which the Manager deems
necessary or appropriate for execution by the Owner in connection with the
development or construction of the Project.
4.2.17 The Manager shall examine the contents of all applications for
payments submitted under the Architect's Agreement or any Construction
Agreement, verify the contents of such applications and prepare, execute
and deliver, or cause to be prepared, executed and delivered such
certificates and other documents as may be required by such Agreements and
shall review and approve all disbursements made by or on behalf of the
Owner under the Architect's Agreement and under any Construction Agreement,
all in accordance with the Development Budget as it may from time to time
be revised pursuant to Section 5.2 hereof. The Manager shall process all
such applications for payments and
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any other invoices and charges as expeditiously as possible to avoid all
penalties and any excess interest and to take advantage, wherever possible
and desirable, of vendor discounts. The Manager shall also make
recommendations to the Owner with respect to modifications, clarifications
and change orders necessary or desirable under any Construction Agreement;
and the Manager shall also review and recommend for approval or disapproval
by the Owner, as appropriate, change orders under any Construction
Agreement, all in accordance with the Development Budget as it may from
time to time be revised pursuant to Section 5.2 hereof.
4.2.18 The Manager shall prepare all construction loan draw requests
in form and content sufficient to permit the Owner's lender, if any, to
approve or disapprove such requests.
4.2.19 The Manager shall coordinate, review, administer, manage and
oversee the work, activities and performance of the Architect under the
Architect's Agreement and of the Contractor under the Construction
Agreement. Such activities by the Manager shall include, without
limitation, reviewing, monitoring and coordinating all construction
scheduling to ensure the orderly process of construction and completion
thereof in the manner and within the time periods required by the ABB
Lease, and reviewing and verifying all payment requests from the Architect
and the Contractor. The Manager shall serve as the Owner's representative
in all discussions, negotiations, and dealings with the Architect, the
Contractor and ABB Power. The Manager shall periodically (but no less often
than weekly) advise the Owner of the status of the Project and of the
performance by the Architect and by the Contractor of their respective
duties and obligations with respect to the Project. The Manager shall also
assist and advise the Owner with respect to the performance and enforcement
by the Owner of its duties and rights under the Architect's Agreement, the
Construction Agreement and the ABB Lease. The Manager shall coordinate with
the Architect and the Contractor an orderly and expeditious transition from
the construction stage of the Project to the operating and leasing stage of
the Project and, in connection therewith, the Manager shall expedite and
supervise the completion of any remedial work that may be required to be
performed by the Contractor following the completion of the Project.
4.2.20 The Manager shall cooperate with the Owner's inspecting
engineer, if any, engaged for the purpose of reviewing the status of the
work.
4.2.21 The Manager shall purchase, to the extent the same are not
provided under the Construction Agreement, all supplies, materials, and
equipment required in connection with the development of the Project, and
the cost of same shall be borne by the Owner as contemplated in the
Development Budget.
4.2.22 The Manager shall coordinate, review, administer, manage and
oversee the work and activities relating to, and the performance of, the
Tenant Improvements to be constructed and installed by the "Landlord" under
the ABB Lease, and at the request of the Owner, the Manager shall
coordinate, review, administer, manage and oversee the work and activities
relating to, and the performance of, any Tenant Improvements to be
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constructed and installed by the "Landlord" under any other lease of
Speculative Space which is entered into during the Development Period.
4.2.23 The Manager shall deliver to the Owner the originals of all
permits, licenses, guaranties, warranties, bills of sale and other
contracts, agreements, change orders or commitments obtained or received by
the Manager for the account or benefit of the Owner, it being understood
that the Owner, upon the Owner's approval thereof, will execute all such
contracts, agreements, change orders and documents, and that the Manager
will not, under any circumstances, execute contracts, agreements, change
orders or documents on behalf of the Owner except as specifically provided
otherwise in this Agreement or as otherwise expressly authorized in writing
by the Owner.
4.2.24 The Manager shall perform and discharge all other obligations
of the Manager under this Agreement.
4.3 Completion. The Manager hereby agrees to diligently use its best
----------
efforts and shall devote sufficient time and personnel to cause the development
of the Project to be completed in compliance with the time parameters
established therefor under the ABB Lease, and in accordance with the Development
Budget as it may from time to time be revised pursuant to Section 5.2 hereof.
4.4 Employees. The Manager shall have in its employ at all times a
---------
sufficient number of capable employees to enable the Manager to perform its
duties hereunder. All persons, other than independent contractors, employed by
the Manager in the performance of its responsibilities hereunder shall be
exclusively controlled by and shall be the employees of the Manager and not of
the Owner, and the Owner shall have no liability, responsibility or authority
with respect thereto. The Manager agrees that the Manager shall cause Kraxberger
to be personally involved in the performance of the Development Functions and
the other obligations and undertakings of the Manager hereunder.
4.5 Manager's Costs. Notwithstanding anything contained in any other
---------------
provision of this Agreement to the contrary, the following costs and expenses
shall be borne solely by the Manager and shall not be borne by the Owner:
(a) Cost of gross salary and wages, payroll taxes, insurance,
workers' compensation and other benefits of Kraxberger and any other
employees of the Manager;
(b) Cost of forms, papers, ledgers and other supplies and
equipment used in the Manager's office;
(c) Cost of electronic data processing or computer services, or
any pro rata charge for data processing or computer services provided by
computer service companies, which the Manager may elect to incur in the
performance of the Development Functions;
(d) Cost of office equipment acquired by the Manager to enable it
to perform its duties hereunder;
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(e) Cost of advances made to employees of the Manager and cost of
travel and lodging by the Manager's employees and agents, including
Kraxberger; and
(f) Cost attributable to losses, including any legal fees relating
thereto, arising from negligence, fraud or willful act or omission on the
part of the Manager or any of the Manager's officers, directors, employees
or agents, except to the extent such costs are to be borne by the Owner
pursuant to Section 9.3 hereof.
ARTICLE 5
---------
DEVELOPMENT BUDGET
------------------
5.1 Implementation of Development Budget. The Owner hereby approves the
------------------------------------
Development Budget and the Manager is hereby authorized and directed to
implement the Development Budget pursuant to this Agreement. The Manager may,
without the need for any further approval whatsoever by the Owner, make any
expenditures and incur any obligations provided for in the Development Budget,
as it may be revised from time to time as provided herein. The Manager shall use
prudence and diligence and shall employ its best efforts to ensure that the
actual costs incurred for each category or line item of expense as set forth in
the Development Budget shall not exceed such category or line item in the
Development Budget. The Manager shall advise the Owner promptly if it appears
that costs in any category or line item specified in the Development Budget will
exceed the amount budgeted therefor. All expenses shall be charged to the proper
category or line item in the Development Budget, and no expenses may be
classified or reclassified for the purpose of avoiding an excess in the budgeted
amount of a category or line item without the Owner's prior written approval.
The Manager shall secure the Owner's prior written approval before incurring and
paying any cost which will result in aggregate expenditures under any one
category or line item in the Development Budget exceeding the amount budgeted
therefor.
5.2 Revision of Development Budget. If the Manager at any time determines
------------------------------
that the Development Budget is not compatible with the then-prevailing status of
the Project and does not adequately provide for the completion of the Project,
the Manager shall promptly prepare and submit to the Owner an appropriate
revision of the Development Budget. Any such revision shall require the approval
of the Owner; provided, however, that any such revision shall be considered
approved on the fourteenth (14th) day following its delivery to the Owner,
unless the Owner shall, within such fourteen (14) day period, notify the Manager
in writing of its disapproval of the proposed revision and specify in such
notice the items to which it objects. In the event of any such objection, the
Manager and the Owner shall consult and endeavor to reconcile their differences.
5.3 Emergencies. Notwithstanding any limitations herein provided, the
-----------
Manager may spend funds or incur expenses on behalf of the Owner in
circumstances which the Manager reasonably and in good faith believes constitute
an emergency requiring prompt action to avert, or reduce the risk of, damage to
persons or property. The Manager shall, in any case, notify the
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Owner as soon as practicable of the existence of such emergency and of the
action taken by the Manager with respect thereto.
5.4 Reduction in Fees. In the event that the total of all costs and
-----------------
expenses actually incurred by the Owner with respect to the acquisition of the
Land and the planning, design, development, construction and completion of the
Project, the Tenant Improvements for ABB Power under the ABB Lease (including
costs in all categories or line items specified in the Development Budget, but
expressly excluding costs for the specific line items marked with a double
asterisk in the Development Budget, and net of amounts reimbursed to the Owner
by ABB Power with respect to Tenant Improvements for such tenant) shall exceed
$9,454,658, the amount of the fees payable to the Manager under Sections 11.2
through 11.5 hereof shall be reduced by the amount of such excess, with any
reductions to be applied to such fees in the following order of priority:
(a) first, to unpaid portions of the Development Fee until the
remaining Development Fee is reduced to zero;
(b) then to unpaid portions of the ABB Work Fee until the
remaining ABB Work Fee is reduced to zero;
(c) then to any portion of the Development Fee and the ABB Work
Fee which has theretofore been paid to the Manager until all such fees have
been reduced to zero, and the Manager hereby agrees to reimburse to the
Owner an amount of such fees theretofore paid to the Manager as shall equal
the amount of such reduction;
(d) then to unpaid portions of the Small Tenant Work Fee until the
remaining Small Tenant Work Fee is reduced to zero;
(e) then to the unpaid portions of the Small Tenant Leasing Fee
until the remaining Small Tenant Leasing Fee is reduced to zero; and
(f) then to any portion of the Small Tenant Work Fee and Small
Tenant Leasing Fee which has theretofore been paid to the Manager until all
such fees have been reduced to zero, and the Manager hereby agrees to
reimburse to the Owner an amount of such fees theretofore paid to the
Manager as shall equal the amount of such reduction.
The aforesaid reductions in the fees payable to the Manager under Sections 11.2
through 11.5 hereof shall be effected regardless of whether or not appropriate
revisions of the Development Budget are approved by the Owner and regardless of
whether or not any increases in costs and expenses incurred by the Owner with
respect to the acquisition of the Land or the planning, design, development,
construction and completion of the Project and the Tenant Improvements for ABB
Power are approved by the Owner; provided, however, in the event such costs and
-------- -------
expenses shall increase as a result of a change by the Owner in the scope of the
work comprising the Project of the election by ABB Power to receive any portion
of the additional allowances covered in items 33 and 34 of the Development
Budget, the incremental costs due to the change in the scope of the work or due
to the election by ABB Power to receive such additional
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allowance shall not cause a reduction in the fees payable to the Manager under
Sections 11.2 through 11.5 hereof. The Owner shall not be obligated to accept or
agree to changes in the scope of the work comprising the Project in order to
reduce the costs and expenses with respect thereto. The Owner and the Manager
agree that appropriate reductions in the fees payable to the Manager (and
reimbursements thereof to the Owner, if applicable) shall be effected as and
when it is reasonably determined by the Owner that the costs and expenses under
any category or line item in the Development Budget shall exceed the amount
originally budgeted therefor or that costs and expenses will be incurred that
are not originally budgeted under the Development Budget; provided, however, the
Owner and the Manager shall make reasonable allocations of the "contingency"
category or line item in the Development Budget to other categories or line
items prior to effecting a reduction in the fees payable to the Manager, so long
as a reasonable reserve is maintained in the "contingency" category or line item
to cover future contingencies. Promptly following the Completion Date, the Owner
and the Manager shall make any final adjustments and payments between them to
give effect to the agreements set forth in this Section 5.4.
ARTICLE 6
---------
AUTHORITY OF THE MANAGER
------------------------
6.1 General Authority. The Manager shall have, and is hereby granted by
-----------------
the Owner, full and complete power, authority, and discretion to act for, and in
the name, place, and stead of, the Owner in carrying out and discharging the
responsibilities and obligations of the Manager under this Agreement (including,
without limitation, all of the responsibilities imposed upon the Manager under
Article 4 hereof); provided, however, that the Manager shall have no right or
authority, express or implied, to commit or otherwise obligate the Owner in any
manner whatsoever except to the extent specifically provided herein or
specifically authorized in writing by the Owner.
6.2 Execution of Documents and Agreements. Only when specifically
-------------------------------------
authorized by the Owner in a writing to the Manager, the Manager may, at the
Manager's election, execute any documents, agreements, or other instruments on
behalf of the Owner as follows, it being acknowledged that the Manager shall be
entitled to the indemnification by the Owner for any obligations or liabilities
thereunder and shall not thereby incur any liability or obligation to any third
party thereunder:
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WELLS REIT, LLC - VA I,
a Georgia limited liability company
By: Adevco Corporation, a Georgia
corporation, as Manager
By: _____________________________
Title: __________________________
(CORPORATE SEAL)
ARTICLE 7
---------
ACCOUNTING AND REPORTS
----------------------
7.1 Books of Account. The Manager shall maintain or cause to be
----------------
maintained true and accurate books of account reflecting the planning, design,
construction, and completion of the Project. All entries to such books of
account shall be supported by sufficient documentation to permit the Owner and
its auditors to ascertain that said entries are properly and accurately
recorded. Such books of account shall be located at the Manager's principal
metropolitan Atlanta, Georgia office and shall be maintained in accordance with
the Manager's present cash method of accounting, unless otherwise directed or
approved by the Owner. The Manager shall ensure such control over accounting and
financial transactions as is reasonably required to protect the Owner's assets
from theft, error or fraudulent activity on the part of the Manager, the
Manager's employees or agents.
7.2 Monthly Reports. Promptly following the end of each calendar month,
---------------
the Manager shall prepare a report with respect to the Project (hereinafter
referred to as the "Monthly Report") and shall cause the same to be delivered to
the Owner and the Owner's inspecting engineer, if any. Each Monthly Report shall
be subdivided into categories specified in the Development Budget and shall
contain the following information respecting the Project:
(a) The draw request for the month covered by the Monthly Report,
including:
(i) each draw request letter;
(ii) each certificate of the Architect;
(iii) each application and certificate for payment of the
Contractor; and
(iv) any other invoices covered in the draw request.
(b) The costs incurred under the Construction Contract as of the
date of the Monthly Report.
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(c) All costs incurred but not paid as of the date of such Monthly
Report.
(d) A comparison of the amount of actual costs incurred as of the
date of the Monthly Report to the budgeted costs as of such date, shown on
a line-item basis using the same categories or line items set forth in the
Development Budget.
(e) Photographs of the Project depicting the current status of
construction.
(f) A report with respect to the progress of construction,
including information as to whether the commencement, milestone and
completion dates in the ABB Lease are being achieved. The Manager shall
identify in such report potential variances between the completion dates
required in the ABB Lease and the probable completion dates and shall make
recommendations as to adjustments necessary to meet the required completion
dates.
The Manager shall furnish the Owner with a certificate from Kraxberger in
respect of each such Monthly Report certifying that such Monthly Report is
accurate, true and complete in all respects.
7.3 Construction Draw Reports. The Manager shall cause to be delivered to
-------------------------
the Owner, at the Owner's expense, promptly after they are prepared, copies of
each construction draw request under any construction loan obtained by the Owner
with respect to the Project.
7.4 Annual Development and Financial Statements. Within thirty (30) days
-------------------------------------------
after the end of each fiscal year of the Owner during the term of this
Agreement, the Manager shall cause to be prepared and delivered to the Owner, at
the Owner's expense, a report which is a summary of the previous Monthly Reports
for such fiscal year which have been tendered to the Owner pursuant to Section
7.2 hereof. In addition, within sixty (60) days after the end of each fiscal
year of the Owner during the term of this Agreement, the Manager shall cause to
be prepared and delivered to the Owner, at the Owner's expense, unaudited
financial statements reflecting all receipts and disbursements collected,
received, or made by the Manager with respect to the development and the
construction of the Project for such fiscal year. The Manager shall also cause
to be prepared and delivered to the Owner such other reports and information
with respect to the development and construction of the Project for each fiscal
year as the Owner shall reasonably request.
7.5 Examination of Books and Records. The Owner, at its expense, shall
--------------------------------
have the right at all reasonable times during normal business hours and upon at
least twenty-four (24) hours advance notice, to audit, to examine, and to make
copies of or extracts from the books of account and records maintained by the
Manager with respect to the Project. If the Owner shall notify the Manager of
either weaknesses in internal control or errors in record keeping, the Manager
shall correct such weaknesses and errors as soon as possible after they are
disclosed to the Manager. The Manager shall notify the Owner in writing of the
actions taken to correct such weaknesses and errors.
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ARTICLE 8
---------
BANKING
-------
8.1 Separate Accounts. It is contemplated that the Owner will make
-----------------
disbursements with respect to the development and construction of the Project
directly to the Architect and the Contractor. Nevertheless, all disbursements
and other funds of the Owner which may be received by the Manager hereunder with
respect to the development or construction of the Project shall be deposited by
the Manager and held in such bank account or accounts maintained by the Manager
in such bank or banks with federal deposit insurance protection as may be
selected by the Manager and approved by the Owner. All such funds shall be and
shall remain the property of the Owner and shall be disbursed by the Manager in
payment of the obligations of the Owner incurred in connection with the
development and construction of the Project, or, subject to the provisions of
Section 8.2 below, shall be disbursed to the Owner at the Owner's request.
Except as hereinafter provided, the Manager shall not commingle the Owner's
funds with the funds of any other person.
8.2 The Owner's Duty to Provide Funds. The Owner agrees that the Owner
---------------------------------
will pay all current obligations of the Owner in accordance with the Development
Budget, including all obligations of the Owner to the Manager hereunder.
Alternatively, at the Owner's option, the Owner may elect to provide funds to
the Manager so that the Manager can pay all such obligations of the Owner
(excluding obligations to the Manager, it being understood and agreed that such
obligations to the Manager shall be paid directly by the Owner to the Manager).
If the Owner elects to cause the Manager to make payment of such obligations,
the Owner hereby agrees that, by making deposits to (following notice as
provided below), or by refraining from withdrawing funds from, the bank account
or accounts maintained by the Manager pursuant to Section 8.1 above, the Owner
shall, during the term of this Agreement, maintain sufficient funds in such bank
account or accounts to enable the Manager to pay all current obligations of the
Owner in accordance with the Development Budget, excluding the obligations of
the Owner to the Manager hereunder. Accordingly, the Owner shall, within ten
(10) days of its receipt of any written request from the Manager for additional
funds (which request must specify the amount of such funds requested and the
purposes for which they are to be used), deposit in such bank account or
accounts such additional funds as the Owner shall consider appropriate with
respect to such request by the Manager.
8.3 Investment of Owner's Funds. If at any time there are in the bank
---------------------------
account or accounts established pursuant to Section 8.1 above, funds of the
Owner, from whatever sources, temporarily exceeding the immediate cash needs of
the Project, the Manager may (and at the discretion of the Owner shall) invest
such excess funds in such savings accounts, certificates of deposit, United
States Treasury obligations, commercial paper, and the like, as the Manager
shall deem appropriate or as the Owner shall direct, provided that the form of
any such investment shall be consistent with the Manager's need to be able to
liquidate any such investment to meet the cash needs of the Project from time to
time.
ARTICLE 9
---------
STANDARD OF CARE; LIABILITY;
----------------------------
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INDEMNITY; CONFIDENTIALITY
--------------------------
9.1 Standard of Care; Manager's Liability. The Manager shall have no
-------------------------------------
liability to the Owner for any errors of judgment, or any mistakes of fact or of
law, made in a good faith effort to perform and carry out the Manager's
responsibilities under this Agreement, unless the Manager has failed to exercise
that degree of care and skill which a reasonable and diligent businessman in the
Manager's profession would exercise in transactions of a similar nature for his
own account, provided, of course, that sufficient funds are made available by
the Owner for the performance of the Manager's responsibilities.
9.2 Indemnity of Owner. The Manager hereby agrees to indemnify, defend
------------------
and hold harmless the Owner and its partners and their respective officers,
directors and employees, from and against any and all claims, demands, losses,
liabilities, actions, lawsuits and other proceedings, judgments and awards, and
costs and expenses (including without limitation reasonable attorneys' fees and
court costs incurred in connection with the enforcement of this indemnity or
otherwise), arising out of the negligence, fraud or any willful act or omission
of the Manager, or any of its officers, directors, agents or employees, in
connection with this Agreement or the Manager's services or work hereunder,
whether within or beyond the scope of its duties or authority hereunder.
9.3 Indemnity of Manager. The Owner hereby agrees to indemnify, defend
--------------------
and hold harmless the Manager, its officers, directors and employees, from and
against any and all claims, demands, losses, liabilities, actions, lawsuits and
other proceedings, judgments and awards, and costs and expenses (including
without limitation reasonable attorney's fees and court costs incurred in
connection with the enforcement of this indemnity or otherwise), arising out of
(i) any action taken by the Manager within the scope of its duties or authority
hereunder, excluding only such of the foregoing as result from the negligence,
fraud or willful act of the Manager, its officers, directors, agents and
employees, and (ii) the negligence, fraud or any willful act or omission of the
Owner and its partners and their respective officers, directors and employees.
9.4 Survival of Indemnities. The provisions of Sections 9.2 and 9.3
-----------------------
hereof shall survive the completion of the Manager's services hereunder or any
earlier termination of this Agreement.
9.5 No Obligation to Third Parties. None of the responsibilities and
------------------------------
obligations of the Manager under this Agreement shall in any way or in any
manner be deemed to create any liability of the Manager to, or any rights in,
any person or entity other than the Owner.
9.6 Nature of the Manager's Duties and Responsibilities. The Owner hereby
---------------------------------------------------
acknowledges that the Manager's duties and responsibilities hereunder with
respect to the development and construction of the Project consist only in
managing, supervising, and coordinating the planning, design, construction and
completion of the Project and the performance of the other Development Functions
in accordance with the terms of this Agreement; that the Manager is not itself
preparing any architectural or engineering plans, designs, or specifications or
performing any construction required for the development or completion of the
Project; that the Manager is not a guarantor or insurer of any work to be
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performed by any other party in connection with the planning, design,
construction, and completion of the Project; and that the Manager is not
responsible for, and will not be liable for, any work, act, omission,
negligence, gross negligence, or intentional misconduct of any other party
employed by the Owner or performing work for the Owner in connection with the
Project.
9.7 Ownership of Information and Materials. The Owner shall have the
--------------------------------------
right to use, without further compensation to the Manager, all written data and
information generated by or for the Manager in connection with the Project or
supplied to the Manager by the Owner or the Owner's contractors or agents, and
all drawings, plans, books, records, contracts, agreements and all other
documents and writings in its possession relating to its services or the
Project. Such data and information shall at all times be the property of the
Owner. The Manager agrees, for itself and all persons retained or employed by
the Manager in performing its services, to hold in confidence and not to use or
disclose to others any confidential or proprietary information of the Owner
which is heretofore or hereafter disclosed to the Manager or any such persons
and which is designated by the Owner as confidential and proprietary, including
but not limited to any proprietary or confidential data, information, plans,
programs, plants, processes, equipment, costs, operations, tenants or customers
which may come within the knowledge of the Manager or any such persons in the
performance of, or as a result of, its services, except where (i) the Owner
specifically authorizes the Manager to disclose any of the foregoing to others
or such disclosure reasonably results from the performance of the Manager's
duties hereunder, or (ii) such written data or information shall have
theretofore been made publicly available by parties other than the Manager or
any such persons. Nothing contained in this Section 9.7 shall be deemed to limit
or restrict the provisions of Article 15 hereof or of the rights of the Manager
thereunder.
ARTICLE 10
----------
INSURANCE
---------
10.1 Insurance Requirements. Throughout the term of this Agreement,
----------------------
insurance with respect to the Project shall be carried and maintained in force
in accordance with the provisions contained in Exhibit "C", attached hereto and
----------
incorporated herein by this reference, with the premiums and other costs and
expenses for such required insurance to be borne as provided in Exhibit "C".
-----------
10.2 Owner's Insurance Primary Coverage. As between any insurance carried
----------------------------------
by the Owner pursuant to this Article 10 and any insurance carried by the
Manager, the Owner's insurance shall for all purposes be considered the primary
coverage, and no claim shall be made under or with respect to any insurance
maintained by the Manager except in the event that the Owner's entire insurance
is exhausted (without regard to whether the actual amount of the Owner's
insurance exceeds the amounts specified in this Article 10).
10.3 Waiver of Subrogation. Each insurance policy maintained by the Owner
---------------------
or by the Manager with respect to the Project shall contain a waiver of
subrogation clause, so that no insurer shall have any claim over or against the
Owner or the Manager, as the case may be, by way of subrogation or otherwise,
with respect to any claims which are insured under any such policy.
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<PAGE>
ARTICLE 11
----------
COMPENSATION OF THE MANAGER
---------------------------
11.1 Fees - General. As compensation for the services rendered and to be
--------------
rendered by the Manager under this Agreement, the Owner shall pay the Manager
the Development Fee, the ABB Work Fee, the Small Tenant Work Fee, and the Small
Tenant Leasing Fee, all in accordance with and subject to the terms and
provisions of Sections 11.2, 11.3, 11.4 and 11.5 hereof, respectively, and all
such fees shall be subject to reduction as provided in Section 5.4 hereof.
11.2 Development Fee. The Owner shall pay the Manager, as the Development
---------------
Fee for the Project, the sum of One Hundred Fifty Thousand and No/100 Dollars
($150,000.00). The Development Fee shall be due and payable ratably (on the
basis of the percentage of construction completed) as the construction and
development of the Project are completed. The Development Fee shall be paid in
monthly installments commencing with the month following the month during which
the on-site development work with respect to the Project shall commence. The
remaining balance of the Development Fee shall be due and payable upon the
Completion Date.
11.3 ABB Work Fee. The Owner shall pay the Manager, as the ABB Work Fee,
------------
the sum of One Hundred Fifty Thousand and No/100 Dollars ($150,000.00). The ABB
Work Fee shall be due and payable in one lump sum upon the Completion Date.
11.4 Small Tenant Work Fee. In the event the Manager shall serve as the
---------------------
construction manager with respect to any portion of the Tenant Improvements to
be constructed by the Owner for any tenant of the Speculative Space, the Owner
shall pay the Manager, as the Small Tenant Work Fee, an amount equal to Two and
No/100 Dollars ($2.00) multiplied by the number of square feet of rentable area
in the Speculative Space which are built-out for such tenant. The Small Tenant
Work Fee with respect to the Tenant Improvements for each such tenant shall be
due and payable in one lump sum on the Tenant Improvements Completion Date for
such Tenant Improvements.
11.5 Small Tenant Leasing Fee. The Owner shall pay to the Manager the
------------------------
Small Tenant Leasing Fee in accordance with and subject to the terms and
conditions of Section 12.3 hereof.
11.6 Disbursements to the Manager. The Manager may not disburse to itself
----------------------------
any amounts due under this Article 11 from the bank account or accounts
maintained by the Manager pursuant to Article 8 hereof, it being understood and
agreed that the amounts due and payable to the Manager under this Article 11
shall be paid directly by the Owner to the Manager.
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<PAGE>
ARTICLE 12
----------
MANAGER AS LEASING AGENT
------------------------
12.1 Nonexclusive Engagement. Subject to the terms, conditions and
-----------------------
limitations hereinafter set forth, the Owner does hereby appoint the Manager as
the Owner's non-exclusive agent to offer for lease the Speculative Space. The
term of such appointment shall commence on the date of this Agreement and shall
expire on the earlier to occur of (i) the Completion Date or (ii) February 1,
2000. In the event the Owner shall desire for any reason to engage a real estate
broker or agent as the Owner's exclusive agent for the leasing of the
Speculative Space, the Owner shall have the right to terminate the appointment
of the Manager hereunder by written notice to the Manager, which termination
shall be effective immediately upon the giving of such notice. The Manager
hereby accepts its nonexclusive appointment hereunder.
12.2 Manager's Leasing Duties. The Manager agrees to perform the following
------------------------
duties:
(a) To list and offer the Speculative Space for lease in a
commercially prudent manner. The Manager shall not be obligated to expend
its own funds for the advertisement of such Speculative Space.
(b) To actively cooperate with other qualified brokers in leasing
the Speculative Space.
(c) To negotiate for the rental to desirable tenants, without
unlawful discrimination, of all available Speculative Space at rental rates
set forth in a schedule of rental rates and other business terms approved
by the Owner from time to time and which are not inconsistent with
applicable restrictions set forth in other leases of space in the Project,
including the ABB Lease.
(d) To keep the Owner advised of the status of negotiations with
prospective tenants, inquiries and offers received from brokers and others.
(e) To use its reasonable efforts to lease the Speculative Space
to desirable tenants.
12.3 Small Tenant Leasing Fee.
------------------------
(a) With respect to each lease of Speculative Space (including
without limitation a lease of the Speculative Space by ABB Power) which is
procured by the Manager and which is either entered into during the term of
the non-exclusive agency for which provision is made in Section 12.1 hereof
or otherwise qualifies for a commission pursuant to Section 12.3(b) below,
the Owner shall pay to the Manager, as the Small Tenant Leasing Fee with
respect to such lease, and as full and complete compensation for all
leasing services provided by the Manager in connection with such lease, an
amount equal to five percent (5%) of all gross base rents (excluding
escalations in operating costs) actually paid by the tenant during each
month of the initial term of such tenant's lease, plus, if such lease
grants to the tenant an option to extend or renew the term of the
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<PAGE>
lease and the tenant exercises such option, an amount equal to five percent
(5%) of all gross base rents (excluding escalations in operating costs)
actually paid by the tenant during each month of the extended term of such
tenant's lease. Notwithstanding the foregoing to the contrary, the Owner's
obligation to pay the aforesaid Small Tenant Leasing Fee equal to five
percent (5%) of the gross base rent collected from a tenant shall cease and
terminate on the date which is ten (10) years after the commencement date
of the applicable lease, even if the term of the applicable lease is
extended beyond such ten (10) year period pursuant to an option granted to
the tenant in such lease. The Owner and the Manager agree to consider the
possible cash-out of the commission obligation under this Section 12.3 with
respect to any such lease qualifying for a commission hereunder, but the
Owner and the Manager shall not be obligated to agree to any such cash-out
arrangement.
(b) Within twenty (20) calendar days after the expiration or
earlier termination of this non-exclusive agency arrangement, the Manager
shall furnish the Owner with a written list of prospects, if any, with whom
the Manager can demonstrate to the reasonable satisfaction of the Owner
that it has been, within ninety (90) days of such expiration or
termination, holding substantive negotiations for a lease relating to the
Speculative Space. If, within one hundred twenty (120) calendar days after
the expiration or termination date, such space is leased to any one of the
listed prospects or active negotiations for such space are continued
between a listed prospect and the Owner and successfully concluded within
one hundred eighty (180) calendar days after the expiration or termination
date, the Manager shall be considered the procuring broker hereunder for
such space and shall be entitled to receive from the Owner a Small Tenant
Leasing Fee as if such transaction occurred prior to such termination or
expiration date. If the Manager shall fail to furnish such a written list,
the Owner shall not be liable for any commission, expenses or other
compensation hereunder in the event of a lease to any such prospect.
Further, if for any reason other than intentional suspension of
negotiations to avoid payment of a Small Tenant Leasing Fee hereunder,
active negotiations between the Owner and the listed prospect end within
one hundred eighty (180) calendar days after the termination or expiration
date of this Agreement, and at such time no agreement has been reached or
is contemplated respecting such space, negotiations between the Owner and
the prospect shall be considered abandoned and the Owner shall not be
liable for any commission, expenses or other compensation hereunder, even
if a lease with such prospect is thereafter consummated.
(c) Notwithstanding anything contained herein to the contrary,
there shall be no commission or fee due, earned or payable at any time to
the Manager for any Speculative Space in the Project rented or leased to
ABB Power or any affiliate thereof, unless the Manager is entitled to a
commission under Section 12.3(a) or (b) above. The Manager expressly
acknowledges and agrees that it shall not be entitled to a commission or
fee in the event ABB Power shall exercise any right of first refusal or
expansion option set forth in the ABB Lease. Also notwithstanding anything
contained herein to the contrary, there shall be no commission or fee due,
earned or payable to the Manager with respect to any lease which is
procured by the Owner or any third party, and not by the Manager, even if
such lease is procured during the term of the appointment hereunder, it
-20-
<PAGE>
being understood and agreed that the Manager's appointment hereunder is
only on a non-exclusive basis.
(d) In the event an outside real estate broker is involved in a
lease transaction for which the Owner is obligated to pay the Manager a
Small Tenant Leasing Fee under Section 12.3 hereof, the Small Tenant
Leasing Fee payable by the Owner to the Manager under Section 12.3 above
shall be shared by the Manager and such outside real estate broker(s) in a
manner agreed upon by the Manager and such outside real estate broker(s),
and the Manager shall indemnify and hold the Owner harmless from any loss,
costs, damage and expenses, including reasonable attorney's fees, arising
from any claims by any such outside real estate broker for a fee,
commission or compensation arising out of such lease, so long as the Owner
shall pay the Small Tenant Leasing Fee payable by the Owner under Section
12.3 above. The foregoing indemnity shall be inapplicable to any claim by
an outside real estate broker that the Owner has agreed with such outside
real estate broker to pay a commission to it other than as specifically
agreed upon between the Manager and such outside real estate broker.
(e) A tenant shall be considered procured, and the Small Tenant
Leasing Fee shall be considered earned, due and payable hereunder, only
when that tenant has paid (which shall include checks of the tenant having
cleared all accounts) to the "Landlord" the first month's base rent,
excluding all free rent periods. The Small Tenant Leasing Fee shall be paid
by the Owner to the Manager only if, as and when such base rent is received
by the Owner.
ARTICLE 13
----------
REIMBURSEMENT OF ADVANCES, COSTS AND EXPENSES
---------------------------------------------
13.1 Reimbursement of Advances. The Manager shall not be required to
-------------------------
advance any of its own funds for the payment of any costs and expenses incurred
by or on behalf of the Owner in connection with the Project, but if the Manager
advances its own funds in payment of any of such costs and expenses, the Owner,
subject to the provisions of Sections 4.5, 5.2 and 11.6 hereof, shall promptly
reimburse the Manager or, in lieu thereof, the Manager may reimburse itself from
the bank account or accounts maintained by the Manager pursuant to Article 8
hereof.
13.2 Reimbursement of Costs and Expenses. Promptly after execution of this
-----------------------------------
Agreement, the Owner shall reimburse the Manager for all costs and expenses set
forth on Exhibit "D" attached hereto and by this reference made a part hereof,
all of which costs and expenses the Manager hereby represents and warrants were
incurred and paid by the Manager prior to the date hereof (or will be paid by
the Manager in due course) in connection with the Project and are authorized and
bona fide expenditures under the Development Budget.
ARTICLE 14
----------
DEFAULT AND TERMINATION
-----------------------
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<PAGE>
14.1 Default by Manager. Upon the happening of any Event of Default (as
------------------
hereinafter defined), the Owner shall have the absolute unconditional right to
terminate this Agreement by giving written notice of such termination to the
Manager. Any one or more of the following events shall constitute an "Event of
Default" by the Manager under this Agreement:
(a) If the Manager shall fail to observe, perform or comply in any
material respect with any term, covenant, agreement or condition of this
Agreement which is to be observed, performed or complied with by the
Manager under the provisions of this Agreement, and such failure shall
continue uncured for ten (10) days after the giving of written notice
thereof by the Owner to the Manager specifying the nature of such failure,
unless such failure can be cured but is not susceptible of being cured
within said ten (10) day period, in which event such a failure shall not
constitute an Event of Default if the Manager commences curative action
within said ten (10) day period, and thereafter prosecutes such action to
completion with all due diligence and dispatch;
(b) If the Manager or Kraxberger shall make a general assignment
for the benefit of creditors;
(c) If any petition shall be filed against the Manager or
Kraxberger in any court, whether or not pursuant to any statute of the
United States or of any State, in any bankruptcy, reorganization,
dissolution, liquidation, composition, extension, arrangement or insolvency
proceedings, and such proceedings shall not be dismissed within sixty (60)
days after the institution of the same, or if any such petition shall be so
filed by the Manager or Kraxberger;
(d) If, in any proceeding, a receiver, trustee or liquidator be
appointed for all or a substantial portion of the property and assets of
the Manager or Kraxberger, and such receiver, trustee or liquidator shall
not be discharged within ninety (90) days after such appointment;
(e) If the Manager shall assign this Agreement or any of its
rights or obligations hereunder, without the prior written consent of the
Owner; and
(f) If the Manager shall intentionally or willfully fail to
perform any of its duties or obligations hereunder, or if the Manager shall
misappropriate any funds of the Owner in the possession or control of the
Manager or shall otherwise commit an act of fraud against the Owner (except
that if such misappropriation of funds or fraud by the taking is committed
by an employee of the Manager other than Kraxberger, such event may be
cured by the Manager if the Manager makes prompt restitution to the Owner
and discharges such employee).
14.2 Additional Terminating Event. The Owner shall have the right to
----------------------------
terminate this Agreement upon written notice to the Manager in the event
Kraxberger shall die, become permanently or temporarily disabled or shall cease
for reasons beyond his control to be actively involved in performing, on behalf
of the Manager, the Development Functions and the other obligations and
undertakings of the Manager hereunder. The Owner shall also have the right to
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<PAGE>
terminate this Agreement upon written notice to the Manager in the event the
Owner shall elect for any reason whatsoever not to acquire the Land.
14.3 Default by Owner. If the Owner fails to comply with or perform in any
----------------
material respect any of the terms and provisions to be complied with or any of
the obligations to be performed by the Owner under this Agreement, and such
failure continues uncured for a period of fifteen (15) days after written notice
to the Owner specifying the nature of such default (or, in the case of a non-
monetary default, such longer period of time as may be needed in the exercise by
the Owner of due diligence to effect a cure of any such non-monetary default),
then the Manager shall have the right, in addition to all other rights and
remedies available to the Manager at law and in equity (including without
limitation the right to pursue an action for specific performance), at its
option, to terminate this Agreement by giving written notice thereof to the
Owner, in which event the Owner shall immediately pay to the Manager, in cash,
the sums payable to the Manager upon termination as provided in Section 14.4
hereof, and upon the payment of such amounts, subject to Sections 9.2, 9.3, 9.7,
12.3(d) and 14.5 hereof, the Owner and the Manager shall have no further rights,
duties, liabilities or obligations whatsoever under this Agreement.
14.4 Obligation for Fees Upon Termination. Upon any termination of this
------------------------------------
Agreement, the Owner shall pay to the Manager all amounts due and payable to the
Manager as of the date of termination pursuant to the terms of this Agreement
(including, without limitation, any accrued but unpaid installments of the
Development Fee) less, if this Agreement terminates as a result of an Event of
Default, an amount equal to the damages incurred or suffered (or to be incurred
or suffered) by the Owner as a result of such Event of Default. Upon the payment
of all such amounts payable under this Section, subject to Sections 9.2, 9.3,
9.7, 12.3(d) and 14.5 hereof, the Owner and the Manager shall have no further
rights, duties, liabilities or obligations whatsoever under this Agreement.
14.5 Actions Upon Termination. Upon any termination of this Agreement, the
------------------------
Manager shall promptly (a) account for and deliver to the Owner any monies of
the Owner held by the Manager, including funds in the bank account or accounts
maintained by the Manager pursuant to Article 8 hereof and any funds due the
Owner under this Agreement but received after such termination, and (b) deliver
to the Owner or to such other person as the Owner shall designate in writing,
all materials, supplies, equipment, keys, contracts, documents and books and
records pertaining to this Agreement or the development of the Project. The
Manager shall also furnish all such information, take all such other action and
shall cooperate with the Owner as the Owner shall reasonably require in order to
effectuate an orderly and systematic termination of the Manager's duties and
activities hereunder. This Section 14.5 of this Agreement shall survive any
termination of this Agreement.
ARTICLE 15
----------
OTHER ACTIVITIES OF THE MANAGER
-------------------------------
The Owner hereby acknowledges that the Manager is engaged in the ownership,
development, leasing, sale, and management of commercial properties other than
the Project and
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<PAGE>
the Owner hereby agrees that the Manager shall in no way be restricted from, or
have any liability to account to the Owner with respect to, such activities,
notwithstanding that such activities may compete with, or be enhanced by, the
Manager's activities under this Agreement or the Owner's ownership of the
Project.
ARTICLE 16
----------
NATURE OF AGREEMENT
-------------------
The rights and duties granted to and assumed by the Manager hereunder are
those of an independent contractor only. Nothing contained herein shall be so
construed as to constitute the relationship created under this Agreement between
the Manager and the Owner as a mutual agency, a partnership, or a joint venture.
ARTICLE 17
----------
GENERAL PROVISIONS
------------------
17.1 Notices. Whenever any notice, consent, approval, demand or request
-------
required or permitted under this Agreement, such notice, consent, approval,
demand or request shall be in writing and shall be delivered by hand or sent by
registered or certified mail, return receipt requested, to the addresses set out
below or to such other addresses as are specified by written notice given in
accordance herewith, or sent via facsimile transmission to the facsimile numbers
set out below or to such other facsimile numbers as are specified by written
notice given in accordance herewith:
Owner: Wells REIT, LLC - VA I
c/o Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Fax: (770) 840-7224
Attention: Mr. Michael C. Berndt
with a copy to: Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
Fax: (404) 962-6577
Attention: Mr. John W. Griffin
Manager:. Adevco Corporation
3867 Holcomb Bridge Road, Suite 800
Norcross, Georgia 30092
Fax: (770) 441-7611
Attention: Mr. David M. Kraxberger
-24-
<PAGE>
All notices, consents, approvals, demands or requests delivered by hand
shall be deemed given upon the date so delivered; those given by mailing as
hereinabove provided shall be deemed given on the date on which such notice,
demand, or request is so deposited in the United States Mail; those given by
facsimile transmission shall be deemed given on the first business day following
the date shown on sender's copy thereof showing the proper "answerback" code for
the facsimile transmission number to which the notice is sent. Nonetheless, the
time period, if any, in which a response to any notice, demand, or request must
be given shall commence to run from the date of receipt of the notice, demand,
or request by the addressee thereof. Any notice, demand, or request not received
because of changed address of which no notice was given as hereinabove provided
or because of refusal to accept delivery shall be deemed received by the party
to whom addressed on the date of hand delivery or on the third calendar day
following deposit in the United States Mail, as the case may be.
17.2 Modifications. Neither any change or modification of this Agreement
-------------
nor any waiver of any term or condition hereof shall be valid or binding on the
parties hereto, unless such change, modification, or waiver shall be in writing
and signed by the party to be bound thereby.
17.3 Binding Effect. This Agreement shall inure to the benefit of and
--------------
shall be binding upon the parties hereto, their successors, transferees, and
permitted assigns.
17.4 Duplicate Originals. For the convenience of the parties hereto, any
-------------------
number of counterparts hereof may be executed, each such counterpart shall be
deemed to be an original instrument, and all of such counterparts shall together
be deemed one and the same instrument.
17.5 Construction. This Agreement shall be interpreted, constructed, and
------------
enforced in accordance with the laws of the State of Georgia. The titles of the
articles and sections herein have been inserted as a matter of convenience of
reference only and shall not control or affect the meaning or construction of
any of the terms or provisions herein. The parties agree that they have both
participated equally in the negotiation and preparation of this Agreement and no
court construing this Agreement or the rights of the parties hereunder shall be
prejudiced toward either party by reason of the rule of construction that a
document is to be construed more strictly against the party or parties who
prepared the same.
17.6 Entire Agreement. This Agreement is intended by the parties hereto to
----------------
be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof
notwithstanding any representation or statement to the contrary heretofore made.
17.7 Assignment. This Agreement shall not be assigned by the Manager
----------
without the prior written consent of the Owner, and any such assignment by the
Manager without the prior written consent of the Owner shall be null, void and
of no force and effect and shall be an Event of Default hereunder.
17.8 Authorized Representatives. Any consent, approval, authorization, or
--------------------------
other action required or permitted to be given or taken under this Agreement by
the Manager or the Owner, as the case may be, shall be given or taken by the
authorized representative of each. For purposes
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<PAGE>
of this Agreement, (a) the authorized representative of the Manager shall be
David M. Kraxberger; (b) the authorized representative of the Owner shall be Leo
F. Wells, III, Michael C. Berndt or Mike Watson. Any party hereto may from time
to time designate other or replacement authorized representatives by written
notice from its authorized representative to the other parties hereto. The
written statements and representations of any authorized representative of the
Manager or the Owner shall for the purposes of this Agreement be binding upon
such party for whom the authorized representative purports to act, and the other
parties hereto shall have no obligation or duty whatsoever to inquire into the
authority of any such representative to take any action which he proposes to
take, regardless of whether such representative actually has the authority to
take any such action; and the Manager and the Owner shall be entitled to rely
upon any direction, authorization, consent, approval, or disapproval given by
any authorized representative of the Manager or the Owner, as the case may be,
in connection with any matter arising out of or in connection with this
Agreement or the Project.
17.9 Terminology. All personal pronouns used in this Agreement, whether
-----------
used in the masculine, feminine, or neuter gender, shall include all other
genders; and all terms used herein in the singular shall include the plural, and
vice versa.
17.10 Time of Essence. Time is of the essence of this Agreement.
---------------
IN WITNESS WHEREOF, the parties hereto have executed and sealed this
Agreement as of the day, month and year first above written.
"MANAGER":
-------
ADEVCO CORPORATION,
a Georgia corporation
By: /s/ David M. Kraxberger
-----------------------
Title: President
---------------------
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<PAGE>
"OWNER"
-----
WELLS REIT, LLC - VA I,
a Georgia limited liability company
By: Wells Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By: Wells Real Estate Investment Trust, Inc.,
a Maryland corporation, general partner
By: /s/ Leo F. Wells, III
------------------------
Name: Leo F. Wells, III
----------------------
Title: President
---------------------
-27-
<PAGE>
EXHIBIT "A"
-----------
DESCRIPTION OR SITE PLAN OF LAND
<PAGE>
LEGAL DESCRIPTION
All that certain piece of parcel of land lying in the Clover Hill District of
Chesterfield County, Virginia and being more particularly described as:
Beginning at the intersection of the extended east right-of-way line of
Coolfield Road and the extended northwest right-of-way line of Waterford Lake
Drive;
Thence in a northeasterly direction along said northwest right-of-way line
of Waterford Lake Drive 825.15(Degrees) to a Rod Found, said point being the
true and actual point of beginning (P.O.B.);
Thence departing said right-of-way N 54'48"18(Degrees) W 348.94(Degrees) to
a Rod Found;
Thence N 19'01"52(Degrees) E 68.51(Degrees) to a Rod Found;
Thence N 66'51"53(Degrees) W 270.00(Degrees) to a Rod Set (said Rod being
located at the start of a series of tie lines described below);
Thence continuing N 66'51"53(Degrees) W 10(Degrees)+/- to the edge of water
at normal pool elevation of 240.00 feet on Chesterfield County vertical ? of
a storm water retention pond, said edge of water at normal pool elevation
being the actual boundary;
Thence along said edge of the water at normal pool elevation in a
northeasterly direction 500+/- to a point;
Thence leaving said edge of water S 73'48"26(Degrees) 7(Degrees)+/- to the
end of said series of tie lines (said tie lines having the following bearings
and distances from start to end: N 19'74"26(Degrees) E 104.34(Degrees) to a
point, N 09"17(Degrees) 16(Degrees) W 131.41(Degrees) to a point, N
61'04"16(Degrees) E 121.16(Degrees) to a point, N 11'36"48(Degrees) E
155.12(Degrees) to the end of said tie lines at a Rod Set);
Thence continuing S 73'48"26(Degrees) E 560.00(Degrees) to a Rod Set on
said northwestern right-of-way line of Waterford Lake Drive;
Thence along the arc of a non-tangent curve to the left having a Radius of
1069.81', a Delta of 15'00"11(Degrees), a Length of 280.13' and a Chord
of S 17'14"08(Degrees) W and 279.33' and along said right-of-way line to a Rod
Set;
Thence S 09'44"02(Degrees) W 218.36' along said right-of-way line to a Rod
Set;
Thence along a curve to the right having a Radius of 602.42', a Delta of
17?21?44?, a Length of 182.55' and a Chord of S 18'24"56(Degrees) W 181.85' and
along said right-of-way line to the point of beginning (P.O.B.) and containing
7.49+/- acres of land.
<PAGE>
EXHIBIT "B"
-----------
DEVELOPMENT BUDGET
<PAGE>
EXHIBIT "C"
-----------
INSURANCE REQUIREMENTS
This exhibit is attached to and made part of the Development Agreement between
WELLS REIT, LLC - VA I, as Owner, and ADEVCO CORPORATION, as Manager, dated
___________ ___, 1999.
A. Owner's Insurance Requirements.
------------------------------
Throughout the term of this Agreement the Owner shall carry or cause to be
carried and maintain in force insurance described in paragraphs 1 through 3
below. The cost of such policies shall be at the sole cost and expense of the
Owner.
1. Builder's Risk.
--------------
An "All Risk" builder's risk policy including coverage for collapse,
flood, earthquake and installation risks written on a completed value
basis in an amount not less than total replacement value of the
Project under construction (less the value of such portions of the
Project as are uninsurable under the policy, i.e., site preparation,
abrading, paving, parking lots, etc., excepting, however, foundations
and other undersurface installations subject to collapse or damage by
other insured perils). Such policy will also include coverage for soft
costs including interest expense and loss of rents. Deductible per
loss shall be determined by the Owner.
2. Commercial General Liability and Automobile Liability.
-----------------------------------------------------
This policy (or policies) shall be written at a total limit of no less
than $5,000,000 per occurrence and $5,000,000 Aggregate and will
include the following extension of coverage:
a. Broad Form CGL endorsement;
b. X, C and U coverage;
c. Blanket Contractual with exclusions pertaining to completed
operations, explosion, collapse and underground hazards deleted.
3. Boiler and Machinery.
--------------------
If the Boiler and Machinery equipment is put in service prior to the
expiration of the builder's risk policy and prior to certification of
building completion the Manager shall notify the Owner so that the
Owner may exercise its option to purchase Boiler and Machinery
coverage if needed.
B. Manager's Insurance Requirements for policies covering Manager.
--------------------------------------------------------------
<PAGE>
During the term of this Agreement if the Manager shall have employees
in addition to Kraxberger, the Manager agrees to carry and maintain in
force, at the Manager's sole cost and expense, Worker's Compensation
and Employer's Liability. Such policy shall be endorsed to waive
subrogation against the Owner.
C. Insurance Requirements for Architects and Engineers.
---------------------------------------------------
The Manager shall require any architect or engineering firm employed
by the Owner to carry Professional Liability Insurance in an amount
not less than $500,000 per occurrence.
D. Insurance Requirements for All Contractors and Third Party Services.
-------------------------------------------------------------------
Every contractor and all parties furnishing service to the Owner
and/or the Manager must provide the Manager prior to commencing work,
evidence of the following minimum insurance requirements. In no way do
these minimum requirements limit the liability assumed elsewhere in
this Development Agreement:
1. Worker's Compensation and Employers Liability.
---------------------------------------------
2. Commercial General Liability.
----------------------------
a. Commercial General Liability form, including
Premises/Operations, Elevators and Escalators, Independent
Contractors, Products - Completed Operations, Personal
Injury, (exclusions A and C deleted), Broad Form Property
Damage (including Completed Operations), and afford coverage
for the X, C and U Hazards.
b. Contractual Liability: Blanket basis insuring the liability
assumed under this Development Agreement (coverage must be
endorsed so that all exclusions relating to watercraft,
railroad property, products and completed operations and
explosion, collapse and underground hazards are deleted).
c. Limits of Liability: Bodily Injury $500,000 each occurrence,
$500,000 aggregate; Property Damage $100,000 each
occurrence, $100,000 aggregate.
-2-
<PAGE>
3. Comprehensive Automobile Liability.
----------------------------------
a. Comprehensive Automobile Liability form, including all
Owned, Non-Owned and Hired Vehicles.
b. Limits of Liability: Bodily Injury $250,000 each person,
$500,000 each occurrence; Property damage $100,000 each
occurrence.
4. Umbrella Liability.
------------------
Such insurance provide coverage with limits of not less than
$1,000,000 per occurrence/$1,000,000 aggregate, in excess of
the underlying coverages listed in 1, 2 and 3 above.
5. Additional Requirements.
-----------------------
a. The Contractor shall require the same minimum insurance
requirements, as listed above, of all subcontractors, and
these subcontractors shall also comply with the additional
requirements listed below.
b. All insurance coverages required as herein set forth, shall
be at the sole cost and expense of contractor,
subcontractor, or those providing third party services, and
deductibles shall be assumed by, for the account of, and at
their sole risk.
c. Except where prohibited by law, all insurance policies shall
contain provisions that the insurance companies waive the
rights of recovery or subrogation against the Owner and the
Manager, their agents, servants, invitees, employees,
tenants, affiliated companies, contractors, subcontractors,
and their insurers.
E. Miscellaneous.
-------------
1. Accident Reports.
----------------
The Manager shall be completely responsible for reporting to the
appropriate insurance carriers and/or their agents all accidents
involving injury to employees of any contractor, any member of the
public or property damages, provided that the Manager receives a
report from the Contractor regarding such accident or otherwise
becomes aware of such accident.
-3-
<PAGE>
EXHIBIT "D"
-----------
REIMBURSABLE EXPENDITURES RELATING TO PROJECT
<PAGE>
<TABLE>
<CAPTION>
ABB Richmond Version: 6/10/99
Budget Print date: 6/16/99
Budget
Land Acres 7,5000 Building RS: 99,322
Land SF 326,700
------------------------------------------------------------- -------------------------------------- ---------------------
80,000 19,322
Line Item Budget $/SF Notes Base Cost Spec. Space Total
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Land Cost 937,500 $ 9.44 $125,000 per acre 937,500 937,500
-----------------------------------------------------------------------------------------------------------------------------
**2 Appraisal 6,000 $ 0.06 6,000 6,000
-----------------------------------------------------------------------------------------------------------------------------
**3 Legal Fees 75,000 $ 0.76 75,000 75,000
-----------------------------------------------------------------------------------------------------------------------------
4 Survey Cost 5,000 $ 0.05 5,000 5,000
-----------------------------------------------------------------------------------------------------------------------------
5 Testing Soil 4,000 $ 0.04 4,000 4,000
-----------------------------------------------------------------------------------------------------------------------------
6 Environment Report 2,500 $ 0.03 2,500 2,500
-----------------------------------------------------------------------------------------------------------------------------
7 Civil Engineering 22,500 $ 0.23 22,500 22,500
-----------------------------------------------------------------------------------------------------------------------------
8 Concrete Inspecting 20,000 $ 0.20 20,000 20,000
-----------------------------------------------------------------------------------------------------------------------------
9 Arch. Base Contract 235,134 $ 2.37 235,134 235,134
-----------------------------------------------------------------------------------------------------------------------------
10 Space Planning 80,000 $ 0.81 80,000 80,000
-----------------------------------------------------------------------------------------------------------------------------
11 Landscape 6,652 $ 0.07 6,652 6,652
-----------------------------------------------------------------------------------------------------------------------------
12 Engineering Reimbursables 6,000 $ 0.06 6,000 6,000
-----------------------------------------------------------------------------------------------------------------------------
13 AIA Reimbursables 25,000 $ 0.25 25,000 25,000
-----------------------------------------------------------------------------------------------------------------------------
**14 Loan Commitment Fee 100,000 $ 1.01 100,000 100,000
-----------------------------------------------------------------------------------------------------------------------------
**15 Construction Interest 350,000 $ 3.52 350,000 350,000
-----------------------------------------------------------------------------------------------------------------------------
16 Development Fee 300,000 $ 3.02 300,000 300,000
-----------------------------------------------------------------------------------------------------------------------------
17 Signage 25,000 $ 0.25 25,000 25,000
-----------------------------------------------------------------------------------------------------------------------------
18 Security Allowance 25,000 $ 0.25 25,000 25,000
-----------------------------------------------------------------------------------------------------------------------------
19 Landscape Construction 150,000 $ 1.51 150,000 150,000
-----------------------------------------------------------------------------------------------------------------------------
20 Contractors Bond 45,000 $ 0.45 45,000 45,000
-----------------------------------------------------------------------------------------------------------------------------
21 Work Fee 60,000 $ 0.60 60,000 60,000
-----------------------------------------------------------------------------------------------------------------------------
22 Holdover Contingency 75,000 $ 0.76 75,000 75,000
-----------------------------------------------------------------------------------------------------------------------------
23 Signs: Temp 3,000 $ 0.03 3,000 3,000
-----------------------------------------------------------------------------------------------------------------------------
**24 Brochures 5,000 $ 0.05 5,000 5,000
-----------------------------------------------------------------------------------------------------------------------------
**25 Rendering 2,000 $ 0.02 2,000 2,000
-----------------------------------------------------------------------------------------------------------------------------
26 Travel 10,000 $ 0.10 10,000 10,000
-----------------------------------------------------------------------------------------------------------------------------
**27 Photography 3,000 $ 0.03 3,000 3,000
-----------------------------------------------------------------------------------------------------------------------------
28 Misc. 2,500 $ 0.03 2,500 2,500
-----------------------------------------------------------------------------------------------------------------------------
**29 Leasing Commissions 600,639 $ 6.05 600,639 600,639
-----------------------------------------------------------------------------------------------------------------------------
30 Contingency 298,233 $ 3.00 225,000 225,000
-----------------------------------------------------------------------------------------------------------------------------
31 Office Tower 5,549,527 $ 55.87 5,622,760 5,622,760
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
32 ABB Base T.J. 1,567,112 $ 15.78 $19.59 on SF of 80,000 1,567,112 1,567,112
-----------------------------------------------------------------------------------------------------------------------------
**33 ABB First Level Additional Allowance 320,000 $ 3.22 $ 4.00 on SF of 80,000 320,000 320,000
-----------------------------------------------------------------------------------------------------------------------------
**34 ABB Second Level Additional Allowance 160,000 $ 1.61 $ 2.00 on SF of 80,000 160,000 160,000
-----------------------------------------------------------------------------------------------------------------------------
**35 Spec TI and Commissions 483,050 $ 4.86 $25.00 on SF of 19,322 483,050 483,050 483,050
-----------------------------------------------------------------------------------------------------------------------------
36 $ 0.00 0
-----------------------------------------------------------------------------------------------------------------------------
37 Other 0 $ 0.00 0 0
-----------------------------------------------------------------------------------------------------------------------------
38 Total Project Cost 11,559,347 $116.38 11,076,297 483,050 11,559,347
=============================================================================================================================
Unallocated 0.00 320,000 1st Level Added T.I.
160,000 2nd Level Added T.I.
----------
10,596,297 Developer Budget
==========
</TABLE>
Page 2
<PAGE>
EXHIBIT "E"
-----------
ESTOPPEL CERTIFICATE
KNOW ALL MEN, that ABB Power Generation Inc. ("ABB Power") is a tenant in a
certain office building located at ___________________________, Chesterfield
County, Virginia pursuant to the terms set forth in that certain Lease dated
_____________, 1999, as amended and supplemented (hereinafter collectively
called the "Lease") with Wells REIT LLC - VA I ("Landlord") and does hereby
certify and acknowledge to Landlord as follows:
1. As of the date hereof, ABB Power has commenced to pay Base Rental (as
defined in the Lease) and Tenant's Additional Rental (as defined in the Lease)
due under the Lease and is not in default in the respect thereof under the
Lease.
2. As of the date hereof, ABB Power is in possession of the Demised
Premises (as defined in the Lease) and has accepted the same, including the work
of Landlord performed therein, and ABB Power has no knowledge of any default of
Landlord in the performance and observation of the covenants, conditions and
agreements contained in the Lease on Landlord's part to be kept, observed and
performed.
3. As of the date hereof, there exist no setoffs made by ABB Power or
defenses that ABB Power may claim to the enforcement of the agreements, terms,
covenants or conditions of the Lease.
4. The Lease is a valid and binding obligation by and between ABB Power
and Landlord.
5. The term of the Lease commenced as of __________, _____ and shall
expire, unless extended or sooner terminated in accordance with the terms of the
Lease, on _______________.
6. The Lease, except as amended by and supplemented by
__________________________________________, has not been further amended or
modified in any respect and, as of the date hereof, is in full force and effect
and enforceable in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, ABB Power has caused this instrument to be executed as
of this ____ day of __________, ____.
ABB Power Generation Inc.,
a Delaware corporation
WITNESS: By:_______________________________
Title:____________________________
_________________________
-2-
<PAGE>
GUARANTY
In consideration of the sum of Ten and No/100 Dollars ($10.00) and other
good and valuable consideration paid or delivered to DAVID M. KRAXBERGER
("Guarantor"), the receipt and sufficiency whereof are hereby acknowledged by
Guarantor, and for the purpose of seeking to induce and as an inducement for the
execution and delivery by WELLS REIT LLC - VA I, a Georgia limited partnership
("Owner"), of that certain Development Agreement (the "Agreement") with ADEVCO
CORPORATION, a Georgia corporation ("Manager"), of even date herewith, Guarantor
does hereby guarantee to Owner the full and prompt payment of all sums and
amounts payable by Manager under the Agreement, and hereby further guarantees
the full and timely performance and observance of all the covenants, terms,
conditions and agreements therein provided to be performed and observed by
Manager; and Guarantor hereby covenants and agrees to and with Owner that if
default shall at any time be made by Manager in the payment of any sums or
amounts payable by Manager under the Agreement, or if Manager should default in
the performance and observance of any of the terms, covenants and conditions
contained in the Agreement, Guarantor shall and will forthwith pay such sums and
amounts, and shall and will forthwith faithfully perform and fulfill all of such
terms, covenants and conditions and will forthwith pay to Owner all damages that
may arise in consequence of any default by Manager under the Agreement,
including, without limitation, all reasonable attorneys' fees and disbursements
incurred by Owner or caused by any such default or the enforcement of this
Guaranty.
This Guaranty is an unconditional guaranty of payment (and not of
collection) and of performance. The liability of Guarantor is coextensive with
that of Manager and also joint and several and this Guaranty shall be
enforceable against Guarantor without the necessity of any suit or proceeding on
Owner's part of any kind or nature whatsoever against Manager and without the
necessity of any notice of non-payment, non-performance or non-observance or of
any notice of acceptance of this Guaranty or of any other notice or demand to
which Guarantor might otherwise be entitled, all of which Guarantor hereby
expressly waives. Guarantor hereby expressly agrees that the validity of this
Guaranty and the obligations of Guarantor hereunder shall in no way be
terminated, affected, diminished or impaired by reason of (a) the assertion or
the failure to assert by Owner against Manager of any of the rights or remedies
reserved by Owner pursuant to the terms, covenants and conditions of the
Agreement, or (b) any non-liability of Manager under the Agreement due to
insolvency, discharge in bankruptcy or any other defense of a similar nature.
This Guaranty shall be a continuing guaranty, and the liability of
Guarantor hereunder shall in no way be affected, released or diminished by
reason of (a) any assignment, renewal, modification, amendment or extension of
the Agreement, or (b) any modification or waiver of or change in any of the
terms, covenants and conditions of the Agreement by Owner and Manager, or (c)
any extension of time that may be granted by Owner to Manager, or (d) any
consent, release, indulgence or other action, inaction or omission under or in
respect of the Agreement, or (e) any dealings or transactions or matter or thing
occurring between Owner and Manager, or (f) any bankruptcy, insolvency,
reorganization, liquidation, arrangement, assignment for the benefit
<PAGE>
EXHIBIT 10.60
OWNER-CONTRACTOR AGREEMENT
for
ABB POWER SYSTEMS
WELLS REIT, LLC - VAI
("Owner")
and
BEERS CONSTRUCTION CORP.
("Contractor")
<PAGE>
OWNER-CONTRACTOR AGREEMENT
--------------------------
ARTICLE 1 - THE WORK....................................................... 2
ARTICLE 2 - THE PROJECT.................................................... 2
ARTICLE 3 - THE CONTRACT DOCUMENTS......................................... 2
3.1 Contract Documents............................................... 2
ARTICLE 4 - TIME OF COMMENCEMENT AND SUBSTANTIAL COMPLETION................ 3
4.1 Date of Commencement............................................. 3
4.2 Contract Time.................................................... 3
4.3 Adjustment for Changes........................................... 3
4.4 Substantial Completion........................................... 3
4.5. Final Completion................................................. 3
ARTICLE 5 - CHANGE ORDERS.................................................. 3
5.1 Right to Make Changes............................................ 3
5.2. Fee.............................................................. 4
ARTICLE 6 - CONTRACT SUM................................................... 4
6.1 Contract Sum..................................................... 4
ARTICLE 7 - PAYMENTS....................................................... 4
7.1 Process Payments................................................. 4
7.2 Semifinal Payment................................................ 5
7.3 Final Payment.................................................... 5
7.4 Payment of Subcontractors........................................ 5
7.5 Payment Requests and Related Form................................ 5
ARTICLE 8 - PERFORMANCE AND PAYMENT BONDS.................................. 5
ARTICLE 9 - MISCELLANEOUS PROVISIONS....................................... 6
9.1 Notices.......................................................... 6
9.2 Owner's Liability................................................ 6
9.3 Owner's and Contractor's Representatives......................... 6
9.4 Definitions...................................................... 6
9.5 Examination of Documents......................................... 6
9.6 Construction Loan................................................ 7
(1)
<PAGE>
OWNER-CONTRACTOR AGREEMENT
--------------------------
THIS AGREEMENT is made on the 14th day of June, 1999:
Regarding:
---------
"PROJECT": ABB Power Systems
Chesterfield County, Virginia
Between:
-------
"OWNER": Wells REIT, LLC - VA I
Address: 3885 Holcomb Bridge Road
Norcross, GA 30092
Telephone No.: (770) 449-7800
And:
---
"CONTRACTOR": Bovis Construction Corp.
Address: 7000 Central Parkway, Suite 1400
Atlanta, Georgia 30328
Telephone No.: (770) 481-9380
Designed By:
-----------
"ARCHITECT": Smallwood, Reynolds, Stewart, Stewart & Associates, Inc.
Address: One Piedmont Center
Suite 303
3565 Piedmont Road
Atlanta, Georgia 30305
Telephone No: (404) 233-5453
The Owner and the Contractor hereby agree as follows: FOR VALUABLE
CONSIDERATION, the sufficiency of which is hereby acknowledged, the parties
promise,
1
<PAGE>
covenant and agree that the Owner shall engage and compensate Contractor and the
Contractor shall perform the Work relative to the Project all as hereinafter set
forth.
ARTICLE 1
---------
THE WORK
--------
The Contractor shall perform all Work required by the Contract documents
relative to the Project set forth above within the Contract Time stipulated
therein and in complete accordance with and fulfillment of the provisions, terms
and conditions thereof.
ARTICLE 2
---------
THE PROJECT
-----------
The Project is identified above shall consist of the total construction
required under the Contract Documents upon the real property identified by the
legal description attached as Exhibit "D-1" (the "site").
-------------
ARTICLE 3
---------
THE CONTRACT DOCUMENTS
----------------------
3.1 Contract Documents. The Contract Documents relative to this
------------------
Agreement Package above consist of the following Exhibits:
(a) This Owner-Contractor Agreement
(b) The General Conditions of the Contract for Construction
(hereinafter referred to as the "General Conditions")
(c) Payment Request Form
(d) Waiver of Lien Form
(e) Contractor's Affidavit Form
(f) Final Waiver of Lien Form
(g) Summary of Lump Sum Price
(h) Clarifications and Description of Work
2
<PAGE>
(i) Construction Schedule Prepared by Bovis Construction Corp.
dated June 10, 1999, and as updated and agreed to by the
Owner upon completion of Drawings.
(j) The Drawings
(k) The Specifications
These all collectively form the Contract, and are all as fully a part of the
Contract as if attached to this Agreement as repeated herein.
ARTICLE 4
---------
TIME OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
-----------------------------------------------
4.1 Date of Commencement. The Contractor shall commence the Work no
--------------------
later than June 21, 1999 ("Notice to Proceed").
4.2 Contract Time. The Contractor shall perform the Work as required
-------------
in the Contract Documents to achieve Substantial Completion of the entire Work
on or before three hundred fifteen (315) calendar days after the Date of
Commencement.
4.3 Adjustment for Changes. The Contract Time may be extended only
----------------------
for those causes expressly stipulated herein and elsewhere in the Contract
Documents and only strictly in accordance with the procedures and requirements
set forth therein.
4.4 Substantial Completion. The Date of Substantial Completion shall
----------------------
be as defined in the Contract Documents.
4.5. Final Completion. In no event shall the Work be considered
----------------
complete for purposes of final payment until the following have occurred: (a)
all construction items required by the Contract Documents have been fully
completed and approved, (b) a final certificate of payment issued by the
Architect as provided in the General Conditions.
ARTICLE 5
CHANGE ORDERS
-------------
5.1 Right to Make Changes. Owner may make modifications in the Work
---------------------
in accordance with the General Conditions and appropriate adjustments in
Contract Time and Contract Sum shall be made in compliance therewith.
3
<PAGE>
5.2. Fee. The fee earned by Contractor and any Subcontractor (as
---
defined in the General Conditions) for performing any additional work under a
Change Order performed on a "cost" plus "fee" basis shall be determined on the
following basis:
(a) The fee earned by any Subcontractor for performing such
additional work shall be 10% of the Cost of the Work (as defined in the
General Conditions) incurred by such Subcontractor to perform such work.
(b) The fee earned by Contractor for additional work performed by
Subcontractors shall be 5% of the Cost of the Work incurred by Contractor
to have such work performed.
(c) The fee earned by Contractor for additional work performed by
its own forces shall be 10% of the Cost of the Work incurred by Contractor
to perform such work.
ARTICLE 6
CONTRACT SUM
------------
6.1 Contract Sum. The Owner shall pay the Contractor the Sum of Five
------------
Million Five Hundred Forty-Nine Thousand Five Hundred Twenty Seven and No/100
($5,549,527.00) Dollars for the full and proper performance of the Work
hereunder, subject to Modification only and strictly in accordance with this
Agreement and as otherwise provided by the Contract Documents.
ARTICLE 7
PAYMENTS
--------
Based upon Applications for Payment submitted to the Owner and
Architect by the Contractor and Certificates for Payment issued by the
Architect, all in accordance with the requirements of the Contract Documents the
Owner shall make payments on account of the Contract Sum to the Contractor as
provided in the Contract Documents as follows:
7.1 Process Payments. The Owner shall make progress payments based
----------------
upon duly certified Applications for Payment for each period ending on the
20/th/ day of each month, not later than the 10/th/ day of the following month.
Such progress payments shall be in the amount of Ninety (90%) Percent of the
portion of the Contract Sum properly allocable to labor, materials and equipment
incorporated in the Work and properly allocable to materials and equipment
suitably stored, insured and protected at the site or, at Owner's discretion, at
some other location agreed upon in writing and approved by the Owner, for the
period covered by the Application for
4
<PAGE>
Payment, less the aggregate of previous payments made by the Owner. When
$277,500.00 has been withheld as retainage no further retainage will be held
from progress payments.
7.2 Semifinal Payment. At the Date of Substantial Completion of the
-----------------
Work and submission of Semifinal Application for Payment all as provided in the
Contract Documents, the Owner shall within thirty (30) days after receipt of
such Application and other appropriate documentation and Certification by
Architect be required by the Contract Documents to make semifinal payment to the
Contractor of the certified amount owing of all unpaid balance of the Contract
Sum, as adjusted, for work completed, except for the amount of any continued
retention as provided by the Contract Documents determined necessary to protect
Owner's remaining interests until final completion.
7.3 Final Payment. Final Payment constituting the entire unpaid
-------------
balance of the Contract Sum, as appropriately adjusted under the Contract
Documents, shall be paid by the Owner to the Contractor when the Work has been
finally completed, the Contract fully performed, the Architect has issued a
Final Certificate for Payment which approves the Final Application for Payment,
and the Contractor has provided all necessary submittals and documents required
by and otherwise fulfilled all other requirements set forth in the Contract
Documents. Such application shall be submitted on or before the 25/th/ day of
the month in which completion occurs and payment shall be due and payable on or
before the 10/th/ day of the next month or after Owner's receipt of the Final
Certificate of Payment, whichever is the later.
7.4 Payment of Subcontractors. No later than seven (7) days after
-------------------------
receipt of payment by Contractor, Contractor shall make payments to its
subcontractors and suppliers reflecting appropriate retainage in the same
proportion as withheld by Owner and, to the extent to their interest therein for
amounts owing for labor, materials and services provided and for which payment
is so made by Owner.
7.5 Payment Requests and Related Form. Owner provides as Exhibits C
---------------------------------
through F the forms to be employed in appropriate circumstances in connection
with payment applications. Owner reserves the right upon reasonable advance
written notice to Contractors to modify or substitute any of all of these forms.
ARTICLE 8
PERFORMANCE AND PAYMENT BONDS
-----------------------------
8.1 The Contractor may be required to furnish Performance and Payment
Bonds, each in an amount at least equal to the Contract Sum, as defined herein,
as security for the faithful performance and payment of all of the Contractor's
obligations under the Contract Documents. Such Bonds shall be as required by
the Contract Documents and shall be delivered to the Owner no later than five
(5) days after the date requested. The cost of said Bonds would be payable by
Owner.
5
<PAGE>
ARTICLE 9
MISCELLANEOUS PROVISIONS
------------------------
9.1 Notices. The proper addresses for giving Notices under this
-------
Agreement are:
To Owner: Wells REIT, LLC - VA I
3885 Holcomb Bridge Road
Norcross, GA 30092
To Contractor: Bovis Construction Corp.
7000 Central Parkway, Suite 1400
Atlanta, Georgia 30328
To Architect: Smallwood, Reynolds, Stewart, Stewart & Associates
One Piedmont Center, Suite 303
3565 Piedmont Road
Atlanta, Georgia 30305
9.2 Owner's Liability. The liability of the Owner hereunder shall be
-----------------
limited to its interest in the Project and the Property. No other property of
the Owner (or of any Partner or Venturer in Owner if Owner is a partnership or
joint venture) shall be subject to seizure or any other claim of any nature
whatsoever to satisfy any of Owner's obligations arising from this Agreement.
Neither Leo F. Wells, III, nor any other person or entity who may at any time be
a member, partner, or joint venturer in any partnership or joint venture which
may be the Owner, shall have any liability for any of the obligations of the
Owner arising from this Agreement.
9.3 Owner's and Contractor's Representatives. Owner hereby appoints
----------------------------------------
Michael C. Berndt or his designee as the Owner's representative for all purposes
under this Contract. Contractor hereby appoints Steve Smilie or his designee
under this Contract. Either party may change his representative by written
notice to the other. Either representative may appoint a designee for either
general or limited purposes upon written notice to the other representative. If
such appointment is for less than all purposes, the notice shall set forth the
limited nature of the appointment.
9.4 Definitions. Terms used in this Agreement which are defined in
-----------
the Contract Documents shall have the meanings designated in the Contract
Documents.
9.5 Examination of Documents. The Contractor affirms, by signature
------------------------
to this Contract, that he has carefully examined all Contract Documents, and
further agrees that he will not plead unfamiliarity with any of the Contract
Documents in connection with any dispute which may arise under the Contract
Documents.
6
<PAGE>
9.6 Construction Loan. The parties acknowledge that the Owner has or
-----------------
will obtain financing for the construction of the Project from a third-party
lender ("Lender"). The Contractor agrees that it will cooperate with the Owner
and Lender for the purpose of facilitating the Owner's financing of the Project,
and shall execute any and all documents, notices, agreements, or forms which are
required under the Contract Documents or the Owner or Lender may reasonably
require in order for the Owner to obtain financing for the Project.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as a Contract under seal, as
of the date set forth on the first page hereof.
OWNER:
WELLS REIT, LLC - VA I, a Georgia limited
liability company
By: WELLS OPERATING PARTNERSHIP, L.P., a
Delaware limited partnership,
its sole member
By: Wells Real Estate Investment
Trust, Inc., a Maryland
corporation, general partner
By: /s/ Leo F. Wells
----------------------------
Name: Leo F. Wells III
-------------------------
Title: President
------------------------
CONTRACTOR:
BOVIS CONSTRUCTION CORP.,
a Florida corporation
By: /s/ Stephen D. Smile
-------------------------------------
Name: Stephen D. Smile
-----------------------------------
Title: Vice President
----------------------------------
7
<PAGE>
EXHIBIT "B"
-----------
GENERAL CONDITIONS
OF THE
CONSTRUCTION CONTRACT
<PAGE>
GENERAL CONDITIONS OF THE
CONSTRUCTION CONTRACT
ARTICLE 1.
THE CONTRACT DOCUMENTS
1.1 DEFINITIONS
1.1.1 The Contract Documents consist of the Owner-Contractor Agreement, the
------------------
Conditions of the Contract (General, Supplementary and Other Conditions),
the Drawings, the Specifications, and all Addenda issued prior to and all
Modifications which have been approved in writing by the Owner and issued
after execution of the Contract. A Modification is (1) a written
amendment to the Owner-Contractor Agreement signed by both parties, (2) a
Change Order, (3) a written interpretation issued by the Architect
pursuant to Subparagraph 2.2.7, or (4) a written order for a minor change
in the Work issued by the Architect pursuant to Subparagraph 12.3. The
Contract Documents do not include bidding or proposal documents such as
the advertisement or invitation for bid or proposal, instructions to
bidders, sample forms, the Contractor's bid or proposals or portions of
Addenda relating to any of these, or any other documents, unless
specifically enumerated in the Owner-Contractor Agreement.
1.1.2 The Contract Documents form the Contract for Construction, which
-------------------------
represents the entire and integrated agreement between the parties hereto
and supersedes all prior negotiations, representations, or agreements,
either written or oral. The Contract may be amended or modified only by a
Modification as defined in Subparagraph 1.1.1. The Contract Documents
shall not be construed to create any contractual relationship between the
Owner or the Architect and any Subcontractor or Sub-subcontractor,
supplier, or vendor of the Contractor.
1.1.3 The Work comprises the completed construction required by the Contract
----
Documents and includes all labor necessary to produce such construction,
all materials, fabrications, assemblies, and equipment incorporated or to
be incorporated in such construction, and all materials, equipment,
tools, construction means, utilities, facilities, transportation,
appliances, supervision and services necessary to achieve total
completion of the Project, including such materials and equipment which
may be consumed or used but not actually incorporated in such
construction.
1.1.4 The Project is the total construction of which the Work performed under
-------
the Contract Documents may be the whole or a part.
1.1.5 The Site is the real property upon which the Project is situated.
----
<PAGE>
1.2 EXECUTION, CORRELATION AND INTENT
1.2.1 The Contract Documents shall be signed in not less than triplicate by the
Owner and Contractor. If either the Owner or the Contractor or both do
not sign the Conditions of the Contract, Drawings, Specifications, or any
of the other Contract Documents, the Architect, with approval of the
Owner, shall identify such Documents.
1.2.2 By executing the Owner-Contractor Agreement, the Contractor represents
and acknowledges that:
(a) He has carefully reviewed the Contract Documents for errors,
discrepancies, ambiguities and omissions;
(b) He has visited the site and familiarized himself with its physical
conditions and the local conditions under which the Work is to be
performed; and
(c) He has reviewed carefully all surveys, records and data regarding
the site and its physical conditions as have been made available by
Owner or Architect or were otherwise reasonably accessible and
available to him; and
(d) He has correlated his observations with the requirements of the
Contract Documents.
1.2.3 The intent of the Contract Documents is to include all items necessary
for the proper execution and completion of the Work. The Contract
Documents are complementary, and what is required by any one shall be
binding as if required by all. The Contractor shall be obligated to
perform Work required by any Contract Document as fully as though
required by all of them. Words and abbreviations which have well know
technical or trade meanings are used in the Contract Documents in
accordance with such recognized meanings. Without limiting the duty of
the Contractor regarding review of the Contract Documents, in the event
of a conflict or discrepancy among the various Contract Documents, the
Document shall be given precedence in the following order (in descending
order or precedence):
Provisions of the Owner-Contractor Agreement
Modifications
Change Orders
Addenda
Special Conditions
Supplementary Conditions
General Conditions
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Specifications
Drawings - (large scale Drawings over small-scale)
(figures over scaled measurements)
(schedules over other information on Drawings)
1.2.4 The organization of the Specifications into divisions, sections and
articles, and the arrangement of Drawings shall not control the
Contractor in dividing the Work among subcontractors or in establishing
the extent of the Work to be performed by any trade.
1.2.5 If any errors, discrepancies, ambiguities or omissions are found at any
time in the Contract Documents, the Contractor shall notify the Owner and
Architect in writing before beginning the Work involved. The Architect,
with Owner's approval, will make corrections, interpretations or
clarifications promptly, basing his decisions on what is reasonably
inferable from and consistent with the intent of the Contract Documents.
1.2.6 All pertaining statutes, ordinances, laws, rules, codes, regulations,
standards, and lawful orders of public authorities having jurisdiction of
the Work of this Contract are hereby incorporated (in their form as
effective on the date of execution of the Owner-Contractor Agreement)
into the Contract Documents as if repeated in full herein and are
intended wherever reference is made in either the singular or plural to
Code or Building Code, except as otherwise specified. Contractor shall be
responsible for such Code compliance with regard to his Work on the
Project.
1.2.7 Cross references and citations of Sections and Subsections in this
Document are for the convenience of the Contractor, the Owner, and the
Architect, and are not intended to be plenary or exhaustive nor are they
intended to be considered in interpreting the Contract or any other part
of the Contract Documents.
1.3 OWNERSHIP AND USE OF DOCUMENTS
1.3.1 All Drawings, Specifications and revisions thereto and copies thereof are
and shall remain the property of Owner and shall be returned to Owner
upon completion of the Project.
ARTICLE 2.
THE ARCHITECT
2.1 DEFINITION
2.1.1 The Architect is the person lawfully licensed to practice architecture,
or an entity lawfully practicing architecture, identified as such in the
Owner-Contractor Agreement, and is referred to throughout the Contract
Documents as if singular in number and masculine in gender. The term
Architect means the Architect or his authorized representative.
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2.2 ADMINISTRATION OF THE CONTRACT
2.2.1 The Architect will provide administration of the Contract as hereinafter
described.
2.2.2 The Architect will be the Owner's representative during construction and
until final payment is made. The Owner's instructions to the Contractor
shall be provided to the Contractor in writing either directly, with copy
to Architect, or through the Architect. The Architect will have authority
to act on behalf of the Owner only to the extent provided in the Contract
Documents.
2.2.3 The Architect will visit the site at intervals appropriate to the stage
of construction and as required by the Owner to familiarize himself
generally with the progress and quality of the Work to determine in
general if the Work is proceeding in accordance with the Contract
Documents. On the basis of his on-site observations as an Architect, he
will keep the Owner informed of the progress of the Work, and will
endeavor to guard the Owner against defects and deficiencies in the Work
of the Contractor.
2.2.4 The Architect will not be responsible for and will not have control or
charge of construction means, methods, techniques, sequences or
procedures, or for safety precautions and programs in connection with the
Work. The Architect will not be responsible for or have control or charge
over the acts or omissions of the Contractor, Subcontractors, or any of
their agents or employees, or any other persons performing any of the
Work. The failure of the Architect to discover or to call to Owner's
attention any defects and deficiencies in the Work of the Contractor
shall not excuse or otherwise relieve Contractor of its obligations to
Owner under the Owner-Contractor Agreement.
2.2.5 The Architect and the Owner shall at all times have access to the Work
wherever it is in preparation and progress. The Contractor shall provide
facilities for such access so the Architect may perform his functions
under the Contract Documents and the Owner may observe such.
2.2.6 The Architect will be the interpreter of the requirements of the Contract
Documents and of the performance thereunder by the Contractor.
2.2.7 Subject to Subparagraph 2.2.9, the Architect will render interpretations
necessary for the proper execution of progress of the Work, with
reasonable promptness and in accordance with any time limit agreed upon.
2.2.8 Claims, disputes and other matters in question between the Contractor and
the Owner relating to the execution or progress of the Work or the
interpretation of the Contract Documents shall be referred initially to
the Architect for decisions, which he will render in writing to Owner and
Contractor within a reasonable time.
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2.2.9 All interpretations and decisions of the Architect shall be consistent
with the intent of and reasonably inferable from the Contract Documents
and will be in writing or in the form of drawings.
2.2.10 Both the Owner, with Architect's concurrence, and the Architect
independently will have authority to reject Work which does not conform
to the Contract Documents. Whenever, in Architect's opinion, he considers
it necessary or advisable for the implementation of the intent of the
Contract Documents, he will have authority to require special inspection
or testing of the Work in accordance with Subparagraph 4.18.2 whether or
not such Work be then fabricated, installed or completed. However,
neither the Architect's nor Owner's authority to act under this
Subparagraph 2.2.10 nor any decision made by them in good faith either to
exercise or not to exercise such authority, shall give rise to any
liability, duty or responsibility of the Architect or Owner to the
Contractor, any Subcontractor, any of their agents or employees, or any
other person performing any of the Work, except as provided in
Subparagraph 4.18.2.
2.2.11 The Architect will review and approve or take other appropriate action
upon Contractor's submittals such as Shop Drawings, Product Data and
Samples, but only for conformance with the design concept of the Work,
and with the information given in the Contract Documents and applicable
laws, rules and regulations. Such actions shall be taken with reasonable
promptness so as to cause no delay in the Work.
2.2.12 The Architect will prepare Change Orders in accordance with Article 12,
and will have authority to order minor changes in the Work as provided in
Subparagraph 12.3.
2.2.13 Based upon observations at the site and upon an evaluation of the
Contractor's Application(s) for Payment, in consultation with the Owner,
the Architect shall determine the amount owing to the Contractor,
pursuant to the terms of the Owner-Contractor Agreement. The Architect
shall issue Certificate(s) for Payment to the Owner in such amounts.
2.2.14 The Architect will conduct inspections to determine the Date of
Substantial Completion and the date of Final Completion and issue such
Certificates regarding completion in accordance with Subparagraphs 9.1.4
and 9.4.4 and will receive and review written warranties and related
documents required by the Contract Documents and assembled by the
Contractor, and will issue a final Certificate for Payment upon
compliance by Contractor with the requirements of the Contract Documents.
2.2.15 The duties, responsibilities and limitations of authority of the
Architect as the Owner's representative during construction as set forth
in the Contract Documents will not be modified or extended without the
written consent of the Owner and the Architect.
2.2.16 In case of the termination of the employment of the Architect, the Owner
may appoint another Architect in which event he shall become the
Architect under the Contract Documents.
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ARTICLE 3.
THE OWNER
3.1 DEFINITION
3.1.1 The Owner is the person or entity identified as such in the Owner-
Contractor Agreement and is referred to throughout the Contract Documents
as if singular in number and masculine in gender. The term Owner means
the Owner or his authorized representative.
3.2 OWNER'S RESPONSIBILITIES
3.2.1 The Owner shall furnish or provide reasonable access to all surveys in
its possession describing the physical characteristics and utility
locations for the Site, subject, however, to the provisions of
Subparagraph 4.19. Such survey(s) shall establish the property lines and
permanent bench marks. The Owner shall provide the Contractor with a
legal description of the Site including any known legal limitations or
restrictions.
3.2.2 Except as provided expressly in the Owner-Contractor Agreement, the Owner
shall secure and pay for necessary permits, approvals, assessments and
charges required for the actual use or occupancy of permanent structures
or permanent changes in existing structures.
3.2.3 Information or services under the Owner's control shall be furnished by
the Owner upon Contractor's request with reasonable promptness to avoid
delay in the orderly progress of the Work.
3.2.4 The Contractor will be furnished free of charge three (3) sets of
Contract Documents. Any revised Drawings, Specifications or other
Contract Documents issued after execution of the Agreement shall be
furnished as necessary for proper performance of the Work. All other sets
requested by the Contractor shall be at Contractor's expense.
3.2.5 The foregoing are in addition to the other duties and responsibilities of
the Owner enumerated herein.
3.2.6 The Owner, its consultants and the Architect shall all times have access
to the Work whenever it is in preparation or progress. The Contractor
shall provide safe facilities for such access.
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3.3 OWNER'S REPRESENTATIVES
3.3.1 The Owner may provide, on a full-time or part-time basis, such
construction consultants as it shall deem necessary or appropriate to
preserve and protect its interests. Upon receipt of written notice from
Owner designating such consultant(s), Contractor shall afford them all
rights of access and inspection as are permitted to the Owner and to its
Architect. However, no action or inaction on the part of any such
consultants shall be deemed an acceptance by the Owner of any defective
Work or of any work which does not strictly conform to the Contract
Documents unless specifically approved by Owner in writing.
3.3.2 Owner shall provide a representative authorized to act for it under the
Contract Documents. Such representative shall be expressly stipulated (as
the designated "Owner's Representative") in the Owner-Contractor
Agreement or by subsequent written designation by Owner.
3.3.3 No observation of the Owner, its consultants or its Architect and no
inspections, tests or approvals by them shall relieve the Contractor from
obligation to perform the Work in strict conformity with the Contract
Documents unless specifically approved by Owner in writing.
ARTICLE 4.
THE CONTRACTOR
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4.1 DEFINITION
4.1.1 The Contractor is the person or entity identified as such in the Owner-
Contractor Agreement Documents and is referred to throughout the Contract
Documents as if singular in number and masculine in gender. The term
Contractor means the Contractor or his authorized representative.
4.2 STANDARD OF PERFORMANCE
4.2.1 The Contractor recognizes the relationship of trust and confidence
established between him and the Owner by this Agreement and covenants
with the Owner to furnish the highest and best skill, attention, judgment
and cooperation in performance of the Work as measured against the
prevailing industry standards of construction contractors on comparable
projects. The Contractor agrees to cooperate fully with the Owner's
representatives and consultants and with the Architect, to provide a high
and efficient level of business administration, management, coordination
and superintendance of the Work.
4.3 REVIEW AND IMPLEMENTATION OF CONTRACT DOCUMENTS
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4.3.1 Before submitting his bid or proposal to the Owner, and continuously
after the execution of the Contract, the Contractor shall carefully study
and compare the Contract Documents and shall at once report to the
Architect and the Owner any error, ambiguity, inconsistency or omission
that may be discovered, including any requirement which may be contrary
to any law, ordinance, rule, regulation, or order of any public agency or
authority, enacted as of the date of the Owner-Contractor Agreement,
bearing on the performance of the Work including any building codes and
drainage and sanitary requirements. By submitting his proposal or bid for
the Contract and the Work under it, the Contractor agrees that the
Contract Documents appear accurate, consistent, and complete insofar as
can be then reasonably determined. Contractor agrees that the Contract
Sum includes the cost of all materials, equipment and labor and
everything else which will be required to comply with such ordinances,
requirements, laws, rules and regulations enacted as of the date of the
Agreement.
4.3.2 The Contractor shall not proceed with any portion of the Work affected by
any error, ambiguity, inconsistency or omission upon its discovery until
further direction or instruction by the Architect. If the Contractor has
promptly upon discovery reported in writing any error, ambiguity,
inconsistency or omission, and has promptly stopped the affected Work
until instructed and otherwise followed the instructions of the Owner or
Architect, the Contractor shall not be liable to the Owner for any damage
or delay resulting from any such errors, ambiguities, inconsistencies or
omissions in the Contract Documents.
4.3.3 However, no allowance for additional compensation or extension of time
for completion shall be permitted by the Contractor based on claims of
defects, errors, omissions, ambiguities or inconsistencies in the
Contract Documents to the extent that they were discoverable upon
exercise of reasonable diligence by the Contractor and such discovery
(and prompt notice) would have avoided or reduced their impact on the
Work.
4.3.4 The Contractor shall perform no portion of the Work at any time without
Contract Documents authorizing and describing such portion of the Work
or, where required, approved Shop Drawings, Product Data or Samples for
such portion of the Work.
4.4 SUPERVISION AND CONSTRUCTION PROCEDURES
4.4.1 The Contractor shall supervise and direct the Work, using his best skill,
attention and judgment. He shall be solely responsible for all
construction means, methods, techniques, sequences and procedures and for
coordinating all portions of the Work under the Contract. All Work
performed hereunder shall be in a skillful and workmanlike manner.
4.4.2 The Contractor shall at all times during regular work days maintain an
adequate management and supervisory staff of competent persons, and an
adequate and competent supply of workmen and material necessary to carry
out the Work and agrees further to
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complete the Work in an expeditious and efficient manner consistent with
the best interest of the Owner.
4.4.3 The Contractor shall not be relieved of his obligations to perform the
Work in accordance with the Contract Documents either by the activities
or duties of the Owner, his consultants, or the Architect in his
administration of the Contract, or by inspections, tests or approvals
required or performed by persons other than the Contractor.
4.4.4 The Contractor's Project Superintendent and necessary assistants and
staff shall devote full-time attention to this Project and shall maintain
an office on the Property. Such personnel shall direct, coordinate and
supervise all work under this Agreement and shall inspect all materials
delivered to the Project.
4.4.5 The Contractor's Project Manager and Project Superintendent shall be
designated to Owner in writing prior to commencement of Work. Contractor
shall not change such designations thereafter without prior written
notice to Owner and Owner's consent, unless the designated person ceases
to be employed by Contractor. The Owner may, by written notice to
Contractor, object to any person or persons designated by Contractor,
originally or subsequently, as Project Manager or Superintendent, whom
Owner deems objectionable within its reasonable discretion. Upon such
notice of objection, Contractor shall promptly submit an alternative
designation reasonably acceptable to the Owner.
4.5 LABOR AND MATERIALS
4.5.1 Unless otherwise provided in the Contract Documents, the Contractor shall
provide and pay for all labor, materials, fabrications, assemblies,
equipment, tools, construction equipment and machinery, water, heat,
utilities, transportation, and all other facilities and services
necessary for the proper execution and completion of the Work, whether
temporary or permanent and whether or not incorporated or to be
incorporated in the Work.
4.5.2 The Contractor shall at all times enforce strict discipline and good
order among his employees and subcontractor shall require his
subcontractors to do the same.
4.5.3 All Work shall be executed in neat, skillful, workmanlike manner in
accordance with best recognized trade practices. Only competent and
skilled workmen who satisfactorily perform their duties shall be employed
on the Work. When requested by Owner, Contractor shall discharge and
shall not reemploy on the Work any person who is deemed by Owner as
unfit, unskilled, disorderly, dangerous, insubordinate, incompetent, or
otherwise objectionable.
4.5.4 Contractor shall timely place orders for sufficient quantities of
material (including equipment, fabrications and assemblies) from
reputable suppliers and strictly in accordance and subject to
requirements of the Contract Documents. Contractor shall provide Owner
promptly with complete copies of all such orders.
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4.5.5 No substitutions or variations from the Contract Documents shall be
permitted in the Work itself or any materials (including equipment,
fabrications or assemblies) comprising it, without the express prior
written authorization of such substitution or variation by Architect or
Owner.
4.5.6 Contractor will acknowledge receipt of materials and equipment purchased
for Owner for installation under the Contract Documents and will provide
storage and protection for such materials and equipment.
4.5.7 Upon delivery of all materials (including fabrications, assemblies and
equipment), Contractor shall ascertain whether or not they comply with
contract requirements and shall reject all nonconforming materials and
have all nonconforming materials removed immediately from the project
site. All materials delivered to the job site shall be so stored and
handled as to preclude inclusion of any foreign substances or any
discoloration or adulteration thereof and to prevent any damage thereto
which might reduce its effectiveness as part of the Work.
4.5.8 Unless otherwise specifically indicated, where trade or brand names
appear in the Specifications they are used to indicate standards of
quality. However, this is intended to be an open specification (except as
otherwise designated), accessible to any reputable manufacturer whose
product is deemed by the Architect as equal to that named or described
and meets the quality, performance and other requirements of Contract
Documents. The Owner, however, shall have the right to approve products
submitted as being equal to those specified and his decision shall be
final and conclusive.
4.5.9 Should the Contractor desire to substitute another item of material or
equipment for one specified, he shall make such request for substitution
in writing to Architect, stating any credit or extra involved and shall
provide all required supporting data and samples to justify his request.
However, such substitution shall not be made without express written
authorization by Architect, based upon his determination that the item
proposed is equal to the one specified. Further, even if so authorized,
the Contractor shall be responsible for its correct function and
operation and its accommodation into spaces allotted. In the event of a
misfit, or change in Work being required in work of any or all trades, on
account of acceptance of a substitution offered by the Contractor, the
Contractor alone shall bear the costs for extra work to make changes
arising as a result of the use of the substitute, including the cost of
such architectural or engineering analysis and drawing changes as may be
required.
4.5.10 Whenever required in the opinion of the Owner or the Architect or
required by the Specifications for the proper determination of the
qualities of the materials to be furnished under the Contract Documents,
or to be used in the Work, the Contractor shall furnish test specimens or
samples of same, the costs of which shall be paid as provided in
Paragraph 4.18 of the General Conditions.
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4.6 WARRANTY
4.6.1 The Contractor warrants to the Owner and the Architect that all materials
and equipment furnished under this Contract will be new unless otherwise
specified, and that all Work (including all materials and equipment) will
be of the specified quality, free from faults and defects and in
conformance with the Contract Documents. All Work not conforming to these
requirements, including substitutions not properly approved and
authorized, may be considered defective. If required by the Architect,
the Contractor shall furnish satisfactory evidence as to the kind and
quality of materials and equipment. This warranty is not limited by any
other provision of the Contract Documents. The Warranties set forth in
this paragraph and elsewhere in the Contract Documents shall survive
final acceptance of the Work.
4.6.2 Without limiting the responsibility or liability of the Contractor under
the Contract, all warranties and attendant rights given by manufacturers
on materials or equipment incorporated in the Work are hereby assigned by
the Contractor to the Owner. If requested, the Contractor shall execute
formal assignments of said manufacturers' warranties to the Owner. The
Contractor shall not obtain any materials or equipment under warranties
which do not run directly to the benefit of the Owner and all such
warranties shall be directly enforceable by the Owner.
4.6.3 The foregoing warranties, and those contained elsewhere in the Contract
Documents or implied by law shall be deemed cumulative and not
alternative or exclusive. No one or more of them shall be deemed to alter
or limit any other or any other remedy or right under the Contract
Documents or the law.
4.7 TAXES
4.7.1 Unless otherwise provided in the Contract Documents, the Contractor shall
pay all sales, retail, occupational, service, excise, old age benefit and
unemployment compensation taxes, consumer, use and other similar taxes as
well as any other taxes or duties on the material, equipment and labor
for the Work or portions thereof provided by the Contractor which are
legally enacted by any municipal, county, federal or state authorities or
department or agency thereof at the time of execution of the Owner-
Contractor Agreement, whether or not yet effective.
4.7.2 All records maintained by the Contractor pertaining to such taxes and
levies and payment thereof shall be made available to the Owner at
reasonable times for inspection, audit and copying.
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4.8 PERMITS, FEES AND NOTICES
4.8.1 Except as provided in Subparagraph 3.2.2, the Contractor shall secure and
pay for building permits, and all other permits, approvals, assessments,
charges, governmental fees and licenses necessary for the construction
and proper execution and the completion of the Work, which are legally
required as of the date of the Owner-Contractor Agreement.
4.8.2 The Contractor shall give all notices and comply with all applicable
laws, ordinances, building codes, rules, regulations and lawful orders of
any public authority bearing on the performance of the Work. If the
Contractor observes that any of the Contract Documents are at variance
therewith in any respect, he shall promptly notify the Architect and the
Owner in writing of such non-compliance.
4.8.3 If the Contractor performs any Work knowing it to be contrary to such
laws, ordinances, rules or regulations, and without such notice to the
Architect and Owner, he shall assume full responsibility therefor and
shall bear all costs attributable thereto.
4.9 DOCUMENTS AND SAMPLES AT THE SITE
4.9.1 The Contractor shall maintain at the site for the Owner and Architect one
copy of all Drawings, Specifications, Addenda, approved Shop Drawings,
Product Data and Samples, Change Orders and other Modifications in good
order. These shall be available to the Owner and Architect.
4.9.2 In addition to the foregoing, Contractor shall maintain at the Project
site records of all contracts and documents which arise out of the
Contract Documents or the construction of the Project, including, without
limitation, the following: subcontracts; materials and equipment orders;
governmental, commercial and technical standards and specifications;
routine Project correspondence; job meeting minutes, memoranda and notes;
and any other related documents and revisions thereto. During progress of
the Work and prior to final payment, Contractor shall deliver to Owner
duplicates of any such documents that may be requested by Owner or as may
be required by the technical trade specifications or other Contract
Documents.
4.9.3 Contractor shall maintain at the Project site a current marked set of
working drawing prints and specifications showing as built conditions,
configurations and locations, in order to facilitate the preparation of
as-built drawings.
4.9.4 Contractor shall maintain cost accounting records with respect to the
Cost of the Work on a cash basis in accordance with generally accepted
accounting principles.
4.9.5 From time to time and at any time after the execution of the Agreement
and after five (5) days' advance written notice to Contractor, Owner
shall have access to and the right to examine and audit any pertinent
books, documents, papers and records of Contractor
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involving transactions related to the Contract Documents. At the end of
the Project construction, Contractor, if requested by Owner, shall turn
over such records, or copies thereof, to the custody of Owner, and Owner
may preserve such records for such further period of time as Owner may
elect.
4.10 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES
4.10.1 Shop Drawings are drawings, diagrams, schedules and other data specially
prepared for the Work by the Contractor or any subcontractor,
manufacturer, supplier or distributor to illustrate some portion or the
Work.
4.10.2 Product Data are illustrations, standard schedules, performance charges,
instructions, brochures, diagrams and other information furnished by the
Contractor to illustrate a material, product or system for some portion
of the Work.
4.10.3 Samples are physical examples in the size, shape, finish and quantity
required by the specifications which illustrate materials, equipment or
workmanship and establish standards by which the Work will be judged.
Samples furnished under this Subparagraph are not to be confused with
full size on-the-site "Mock-Ups" called for in some specification
sections. At the option of Owner or Architect, Samples will be subject to
testing, and in such event such additional Samples as may be necessary
shall be supplied by Contractor at no additional cost.
4.10.4 The Contractor shall prepare, review, approve and submit with reasonable
promptness and in such orderly sequence and time as to cause no delay in
the Work or in the work of the Owner or any separate contractor, all Shop
Drawings, Product Data and Samples required by the Contract Documents.
4.10.5 The following provisions shall be applicable to the preparation and
submission of Shop Drawings and Product Data (as applicable):
(a) Shop Drawings shall be prepared in accordance with the following
minimum requirements:
(i) Sheets shall be numbered consecutively.
(ii) Shop Drawings shall indicate all working and erection
dimensions.
(iii) Shop Drawings shall show arrangements and sectional views.
(iv) Shop Drawings shall indicate anchoring and fastening details,
including information for making connections to other work. Contractor
shall furnish installation instructions to be followed in the field to
achieve manufacturer's designed and planned intentions.
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(b) The form of Shop Drawings shall be as follows:
(i) Up to 8-1/2" x 14" in size may be either prints on opaque
paper, or reproducible sepia transparency.
(ii) Submissions larger than above shall be reproducible sepia
transparency.
(c) The following number of copies shall be submitted:
(i) Opaque submissions shall be in duplicate.
(ii) Sepia transparency submissions shall include one reproducible
and two prints.
4.10.6 Contractor shall be responsible for the following review and submittal
procedures:
(a) Contractor shall review, approve and stamp with its approval before
submission all Samples, Shop Drawings and Product Data specified by the
Contract Documents or subsequently by Architect as covered by
Modifications. Shop Drawings, Product Data and Samples shall be submitted
only by Contractor. By approving and submitting Shop Drawings and
Samples, Contractor thereby represents that it has determined and
verified all field measurements, field construction criteria, materials,
catalog numbers and similar data and that it has checked and coordinated
each Shop Drawing, Product Data and Sample with the requirements of the
Contract Documents. At the time of submission Contractor shall inform
Architect in writing of any deviations in the Shop Drawings, Product Data
or Samples from the requirements of the Contract Documents.
(b) Contractor shall be responsible for the following verifications for
all items furnished to work with existing job conditions:
(i) Dimensions shall be checked against field measurements.
(ii) Items specified to have mechanical utilities shall be
coordinated with services as to location and character.
(iii) Items specified to have electric service shall be coordinated
with services as to volts, phase, hurtz, feeders and ampere protection at
panel.
(c) Contractor shall date each Sample, Product Data and Shop Drawing
submittal and indicate the name of the Project, description or name of
equipment, material, and product and identify by specification section
where it is specified, and indicate location where it is to be used in
the Work.
(d) Contractor shall accompany each Sample, Product Data and Shop Drawing
submitted to Architect with a transmittal letter, in duplicate with a
copy being mailed to
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Owner containing project name, Contractor's name, number of samples, data
or drawings, titles and other pertinent data. The transmittal letter
shall outline deviations, if any, in Samples, Product Data or Shop
Drawings from requirements of Contract Documents.
(e) Submissions made without Contractor's approval indicated thereon will
be returned for compliance with this requirements before being reviewed
by Architect.
(f) Contractor is responsible for obtaining and distributing drawings
after as well as before final approval to all subcontractors who are
concerned with coordination of the Work.
4.10.7 No portion of the Work requiring submission of a Shop Drawing, Project
Data or Sample shall be commenced until the submittal has been approved
by the Architect. All such portions of the Work shall be in accordance
with submittals approved by the Architect. Owner shall not be responsible
for the cost of any purchases which are not in accord with Shop Drawings
approved by the Architect.
4.10.8 The following provisions shall be applicable to Architect's review of
Samples, Product Data and Shop Drawings:
(a) Architect's acceptance is only for conformance with the design
concept of the Project and with information in Contract Documents.
Approval of a separate item does not constitute approval of an assembly
in which the item functions.
(b) Review of Shop Drawings, Product Data and Samples by Architect shall
not relieve Contractor of responsibility for deviations and/or omissions
from the Contract Documents, unless Contractor has in writing called
attention to such deviations and/or omissions at the time of submission
of the Shop Drawings, Data and Samples, nor shall it relieve Contractor
of the responsibility for errors and/or omissions of any kind in Shop
Drawings, Data and Samples, unless such deviations, changes and/or
omissions are duly reviewed as such and noted by specific reference on
the Shop Drawing, Data or the Sample. When Contractor does call such
deviations and/or omissions to the attention of Architect, Contractor
shall state in its letter whether or not such deviations, changes and/or
omissions involve any change in cost. If no such change is mentioned, it
shall be assumed that no change in cost is involved for making the
change, deviation and/or omission. Letters fully describing any
deviation, change and/or omission, together with the reasons therefor and
the statement of the amount of cost change, shall be submitted in
duplicate by Contractor to Owner and Architect together with the affected
drawings and specifications.
(c) Where only one Sample is called for, approval will be by letter only;
where two or more Samples are called for, one Sample will be returned
with Architect's approval stamp and signature or initials.
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(d) One set of approved Shop Drawings and Product Data will be returned,
including an opaque print or a sepia, when a sepia is submitted, with
Architect's approval stamp and signature or initials.
(e) Samples not complying with Contract Documents will be returned noted
"Not Approved", with a general description of corrections and changes
required noted thereon or in the transmittal. One set of Product Data or
Shop Drawings not complying with the Contract Documents, including a set
of opaque print or marked up sepias when sepias are submitted, will be
returned noted "Not Approved" and with a general description of
corrections and changes required indicated thereon.
(f) Contractor shall make corrections and changes in unapproved Samples,
Product Data and Shop Drawings and shall resubmit such Samples, Product
Data and Shop Drawings in the same manner as specified above, until
Architect's approval is obtained. In the transmittal letter accompanying
Samples, Product Data and Shop Drawings being resubmitted, Contractor
shall direct specific attention to revisions, if any, other than
corrections requested by Architect on previous resubmissions. Any such
resubmittal processes, however, necessitated by deficient prior
submittals requiring correction shall not be justification for extension
of the Contract Time or increase in the Contract Sum.
4.11 USE OF SITE
4.11.1 The Contractor shall confine operations at the site to areas permitted by
law, ordinances, permits and the Contract Documents. The Contractor shall
not unreasonably encumber the site with any materials or equipment, and
shall maintain the site in a neat, orderly manner. Contractor, all
Subcontractors and suppliers and anyone directly or indirectly employed
by or associated with any of them, shall confine their ingress and egress
to the Project site to areas approved in advance by Owner and shall not
use or permit any such persons to use any other ingress or egress to or
from the Project site. Contractor shall assume full responsibility for
any damage to any such land or area, or to the Owner or occupant thereof
or of any land or areas contiguous thereto, resulting from the
performance of the Work.
4.11.2 Contractor shall take measures to control the blowing or spreading of
dust, smoke, dirt, mud and refuse from its Work to avoid nuisance and
inconvenience to others whether on or off the site. These measures shall
be in compliance with, without being limited to, all applicable laws, and
shall be subject to the Architect approval. Contractor shall furnish all
necessary labor and materials such as water, approved chemicals and
equipment.
4.11.3 Contractor shall be responsible for the removal or drainage of all water
interfering with the proper prosecution of his Work. It shall at all
times assure such drainage shall not be a nuisance or inconvenience to
Owner, other separate contractors or their work, or the occupants or
users of any other public or private area on or off the site. This
paragraph supplements, and does not supersede, any drainage or dewatering
called for elsewhere in the Contract Documents.
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4.11.4 Contractor agrees (a) to perform its Work on the Project (and to have the
Subcontractors and other parties so perform their work) so as not to
interfere with or disrupt the business operations of Owner and (b) upon
the request of Owner to immediately take all steps necessary to permit
Owner's business operations to continue without interference or
disruption.
4.12 CUTTING AND PATCHING WORK
4.12.1 The Contractor shall be responsible for all cutting, fitting or patching
that may be required to complete the Work or to make its several parts
fit together properly.
4.12.2 The Contractor shall not damage or endanger any portion of the Work or
the work of the Owner or any separate contractors by cutting, patching or
otherwise altering any work, or by excavation. The Contractor shall not
cut or otherwise alter the work of the Owner or any separate contractor
except with the written consent of the Owner and of such separate
contractor.
4.12.3 Patching of all finishes shall match any existing work to meet
Architect's approval.
4.13 CLEANING UP
4.13.1 The Contractor at all times shall keep the Project and site free from
accumulation of waste materials or rubbish caused by his operations. As
the Work is performed, he shall remove all his waste materials and
rubbish from and about the Project and the Property, and at the
completion of the Work he shall remove, as well, all of his tools,
construction equipment, machinery and surplus materials, the title to
which has not been vested in Owner pursuant to the Contract Documents. He
shall replace any broken glass, remove stains, spots, marks and dirt from
painted decorated work, clean hardware, remove paint spots and smears
from all surfaces, clean fixtures and wash all concrete masonry and tile
and clean all glass.
4.13.2 If the Contractor fails to satisfy the obligations set forth in
Subparagraph 4.13.1, the Owner may do so and the cost thereof shall be
charged to the Contractor.
4.14 COMMUNICATIONS
4.14.1 The Contractor shall forward all communications directly to the
Architect, with a copy to the Owner, unless otherwise specifically
directed in writing by the Owner.
4.15 ROYALTIES AND PATENTS
4.15.1 The Contractor shall pay all royalties and license fees. He shall defend
all suits or claims for infringement of any patent rights and shall save
the Owner harmless from loss on account thereof. However, the Owner shall
be responsible for all such loss when a
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particular design, process, or the product of a particular manufacturer
or manufacturers is specified; provided, that if the Contractor knew or
reasonably should have known, that the design, process, or product
specification is an infringement of a patent, he shall promptly notify
the Owner and Architect in writing of such knowledge, otherwise he shall
be responsible for such loss as may result from his failure to give
prompt notice.
4.16 INDEMNIFICATION
4.16.1 In consideration of the execution of the Owner-Contractor Agreement, and
receipt acknowledged by Contractor of Ten and No/100 ($10.00) Dollars and
other good and valuable consideration from Owner to Contractor as payment
for the promises given in this Paragraph, the Contractor, to the fullest
extent permitted by law, shall indemnify and hold harmless the Owner,
their agents, employees, successors, and assigns from and against all
liability, claims, damages, losses, expenses and costs of any kind or
description (including, but not limited to, court costs and attorney's
fees and other related costs and expenses, losses and damages, and any
claim, damage, loss or expense attributable to bodily injury, sickness,
disease or death, or to injury to or destruction of tangible property,
including the loss of use resulting (therefrom) arising out of or in
connection with the performance of the Work (including failure to comply
with terms of the Contract Documents or other breach or default) provided
that such liability, claim, damage, loss or expense is caused in whole or
in part by any act or omission of the Contractor, any subcontractor or
materialman, anyone directly or indirectly employed by any of them or
anyone for whose acts any of them may be liable. Such obligation shall
not be construed to negate, abridge, or otherwise reduce any other right
or obligation of indemnity which would otherwise exist as to any party or
person described in this Paragraph.
4.16.2 Contractor agrees that if any law or equity action is brought against
Owner and/or their agents or employees because of any of the foregoing
matters, whether or not any other party defendant shall be joined in the
action, Contractor shall, at its own expense, settle or defend such
action, paying all costs, expenses and attorneys' fees incurred and
paying any judgment that may be rendered therein against either Owner, or
their agents and employees or any or all of the foregoing parties, and,
except to the extent that any damage or expense is incurred as the result
of the act or omission which is the negligence of Owner or Architect, as
the case may be, neither Owner nor Architect shall be required to make
any contribution whatsoever to the payment of any such judgment or
settlement.
4.16.3 In any and all claims against the Owner or the Architect or any of their
agents or employees by any employee of the Contractor, any subcontractor,
anyone directly or indirectly employed by any of them or anyone for whose
acts any of them may be liable, the indemnification obligation under this
Paragraph shall not be limited in any way by any limitation on the amount
or type of damages, compensation or benefits payable by or for the
Contractor or any Subcontractor under Worker's or Workmen's Compensation
Act, disability benefit acts or other employee benefit acts.
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4.16.4 As an additional and independent covenant of the Contract Documents,
Contractor shall procure, as additional protection to Owner, an
independent indemnification and hold harmless agreement from each
Subcontractor, providing for the protection set forth in Paragraphs
4.16.1 and 4.16.2.
4.17 LAYOUT
4.17.1 Contractor shall be responsible for the accuracy of the Project lines and
levels. Contractor shall compare carefully the levels shown on the
drawings with existing levels and shall call Architect's and Owner's
attention to any discrepancies before proceeding with the Work. The Work
shall be erected square, plumb, level, true and line and grade, in the
exact plane and to the correct elevation and/or sloped to drain as
indicated and/or as necessary to drain.
4.17.2 The Contractor shall maintain in his employ a competent, qualified and
experienced engineer to perform layout work. Unless otherwise expressly
agreed in writing or stated in the Contract Documents, a registered civil
engineer shall be engaged by Contractor to establish several initial base
lines for the Project for control and reference.
4.18 TESTS
4.18.1 If the Contract Documents, laws, ordinances, rules, regulations or orders
of any public agency or authority having jurisdiction require any portion
of the Work to be inspected, tested or approved, the Contractor shall
give the Architect and the Owner at least 24 hours notice (to the extent
that Contractor has such advance notice) of its readiness so the
Architect and Owner may observe such inspecting, testing or approval.
Unless otherwise specifically provided in the Contract Documents, the
Contractor shall bear all costs of such inspections, tests or approvals.
4.18.2 If the Architect or Owner determines that any Work requires special
inspection, testing, or approval which subparagraph 4.18.1 does not
include, the Owner or the Architect may instruct the Contractor to order
such special inspection, testing or approval, and the Contractor shall
give notice as provided in subparagraph 4.18.1. If such special
inspection or testing reveals a failure of the Work to comply with the
requirements of the Contract Documents (including any laws, ordinances,
rules, regulations or orders of any public agency or authority having
jurisdiction) the Contractor shall bear all costs thereof, including
compensation for the Architect's additional services made necessary by
such failure; otherwise the Owner shall bear such costs, and an
appropriate Change Order shall be issued.
4.18.3 Required certificates of inspection, testing or approval shall be secured
by the Contractor and promptly delivered by him to the Architect.
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4.19 SITE AND RELATED PHYSICAL CONDITIONS AFFECTING THE WORK
4.19.1 Before submitting his bid or proposal, the Contractor shall be
responsible for having taken all steps reasonably necessary to evaluate
and ascertain the nature and location of the Work, nature of the site and
all physical characteristics and conditions relative to it, and the
general and local conditions which can affect the Work or the costs or
duration thereof. This shall include but not be limited to Contractor's
careful inspection and examination of the site and examination of all
surveys, records and information relating to it in the Contract Documents
or otherwise provided by the Owner for inspection by the Contractor. Upon
reasonable advance notice to Owner, the Contractor may undertake himself,
at his own expense, such other physical testing or sampling of the site
as he shall deem necessary to fully inform himself of its physical
conditions and characteristics.
4.19.2 Failure by the Contractor to fully acquaint himself with such conditions
which may affect the Work, including but not limited to conditions
relating to transportation, handling, and storage of materials, weather,
topographic and/or other physical conditions, availability of labor,
water, roads or power, applicable laws, ordinances or regulations, and
the character and availability of equipment and facilities needed prior
to and during the prosecution of the Work, shall not relieve the
Contractor of his responsibilities under the Contract Documents and shall
not constitute a basis for an adjustment of Contract Time or Contract Sum
under any circumstances.
4.19.3 The Owner assumes no responsibility for any understanding or
representations concerning such conditions or characteristics made by any
of his agents or representatives or by Architect prior to the execution
of the Owner-Contractor Agreement unless such understanding or
representations are expressly stated in the Contract Documents.
4.19.4 The Owner shall provide Contractor reasonable access to such information,
surveys, data and records regarding subsurface and other physical site
characteristics and conditions which may have been made by Architect or
Owner or are otherwise in their possession. These records are made
available to Contractor for his information; however, other than as
expressly provided on the Contract Documents, there is no express or
implied warranty or guarantee whosoever as to the accuracy of any of the
information records nor any interpretation contained therein. Contractor
expressly recognizes this limitation and stipulates that his opinions and
interpretations regarding the character and condition of the site upon
which the Work is to be constructed is founded only upon information and
representations specifically made in the Contract Documents and otherwise
upon his independent observations, examination and evaluation.
4.20 FOUNDATION SURVEY
4.20.1 After completion of the foundation and before any part thereof has been
covered, Contractor shall promptly notify Owner and Architect of such
completion to permit the Owner, at his sole election, to cause to be
performed, a survey of the foundation to determine its actual physical
location in relation to all boundary lines and servitudes.
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4.21 START-UP
4.21.1 Contractor shall be responsible for start-up of all systems and equipment
included in the Work and has included in the Contract Sum sufficient
allowances to cover contingencies which may arise in connection with the
start-up of individual systems, equipment and the total facility. Full
compliance with each manufacturer's specifications and instructions shall
be observed. Equipment which has been specified to be furnished with
manufacturer's supervision of start-up shall be placed in operation only
under the supervision of manufacturer's representative.
ARTICLE 5.
SUBCONTRACTORS
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5.1 DEFINITION
5.1.1 A subcontractor is a person or entity who has a direct contract with the
Contractor to perform any of the Work. The term Subcontractor is referred
to throughout the Contract Documents as if singular in number and
masculine in gender and means a subcontractor or his authorized
representative. The term Subcontractor does not include any separate
contractor of the Owner or his subcontractors.
5.1.2 A Sub-subcontractor is a person or entity who has a direct or indirect
contract with a Subcontractor to perform any of the Work. The term Sub-
subcontractor is referred to throughout the Contract Documents as if
singular in number and masculine in gender and means a Sub-subcontractor
or an authorized representative thereof.
5.2 AWARD OF SUBCONTRACTORS AND OTHER CONTRACTS
5.2.1 As soon as practicable after award of the Contract and prior to entering
into any Sub- contracts, the Contractor shall furnish to the Owner and
the Architect in writing the names of the persons or entities (including
those who are to furnish materials or equipment fabricated to a special
design) proposed for each of the principal portions of the Work or as
otherwise expressly requested by Architect. Such listing shall include
sufficient identifying information and description of qualifications so
as to permit a reasonable evaluation of such persons or entities. The
Architect will promptly reply to the Contractor in writing stating
whether or not the Owner or the Architect, after due investigation, has
reasonable objection to any such proposed person or entity. Failure of
the Owner or Architect to reply promptly shall constitute notice of no
reasonable objection.
5.2.2 The Contractor shall not contract with any such proposed person or entity
to whom the Owner or the Architect has made reasonable objection under
the provisions of
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Subparagraph 5.2.1 The Contractor shall not be required to contract with
anyone to whom he has a reasonable objection.
5.2.3 If the Owner or the Architect has and timely asserts reasonable objection
to any such proposed person or entity, the Contractor shall submit a
substitute to whom the Owner or the Architect has no reasonable
objection, and the Contract Sum shall be increased or decreased by the
difference in cost occasioned by such substitution and an appropriate
Change Order shall be issued; however, no increase in the Contract Sum
shall be allowed for any such substitution unless the Contractor has
acted promptly and responsively in submitting names as required by
Subparagraph 5.2.1.
5.2.4 The Contractor shall make no substitution for any Subcontractor, person
or entity previously selected if the Owner or Architect makes reasonable
objection to such substitution.
5.3 SUBCONTRACTOR RELATIONS
5.3.1 The Contractor shall not be discharged from any obligations to Owner
hereunder as a result of any subcontract. The Contractor shall be as
fully responsible to the Owner for the acts and omissions of its
Subcontractors and its suppliers of materials and of persons either
directly or indirectly employed by them as it is for the acts and
omissions of persons directly employed by it. The responsibility of the
Contractor for its Sub-contractors and suppliers shall not be diminished
by the right of the Owner to approve Subcontractors and suppliers or that
the Owner may have exercised or not exercised that right or by any other
right of the Owner relating to Subcontractors or suppliers. Nothing
contained in the Contract Document shall relieve the Contractor of the
responsibility for his Subcontractors or create any contractual relation
between any Subcontractor or material supplier and the Owner.
5.3.2 Subcontracts and agreements for the acquisition of materials and
equipment shall be in an appropriate written form acceptable to the
Owner. The Contractor shall include in all such subcontracts and
agreements the pertinent terms and conditions of this Contract to the
fullest extent applicable and require that all work be performed in
accordance therewith. Further, such subcontracts or agreement shall
contain provisions which:
(a) Bind such Subcontractor or Supplier to the Contractor by the terms of
the Contract Documents and to assume toward the Contractor all the
obligations and responsibilities, which the Contractor by those
Documents, assumes toward the Owner, with respect to the work of the
Subcontractor or supplier;
(b) Preserve and protect the rights of Owner under the Contract Documents
with respect to the work to be performed under the subcontract so that
the subcontracting thereof will not prejudice such rights;
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(c) Bind such Subcontractor or Supplier to give to the Owner written
notice of any default under the subcontract or supply agreement on the
part of the Contractor and not to take any action in respect of the
default unless it remains uncured 30 days after the notice is given; and
to accept payment or performance under the subcontract by the Owner in
lieu of payment or performance by the Contractor, although the Owner
shall not be obligated to undertake the Contractor's payment obligations
thereunder.
(d) Require that all claims for additional cost or other damage and
extensions of time, with respect to subcontracted portions of the Work
shall be submitted to Contractor in sufficient time and manner so that
Contractor may comply in the manner provided in the Contract Documents
for like claims by Contractor upon Owner should Contractor elect to pass
such claims through to Owner;
(e) Require that such Subcontractor or supplier look only to the
Contractor and not to Owner or Owner's Lender for the performance of any
or all obligations owed the Subcontractor or supplier.
(f) Require that such Subcontractor or supplier waive and subordinate any
lien, or claim or right of lien against the Project or the land upon
which it is situated as required by Article 14 hereof;
(g) Contain a provision indemnifying Owner in accordance with Paragraph
4.16 hereof.
(h) Waive all rights Owner, Architect, Contractor and Subcontractor may
have against one another for damages caused by fire or other peril
covered by property insurance described in Subparagraph 11.3.6 hereof,
except such rights as they may have to the proceeds of such insurance.
(i) Permit assignment to Owner and assumption of all rights and
obligations thereunder, at Owner's sole election, upon written notice, in
the event of any termination of the Owner-Contractor Agreement.
(j) Require the Subcontractor to enter into similar agreements with his
Sub-subcontractors.
5.3.3 All subcontracts shall be entered by Contractor and copies of all
subcontracts greater than Fifty Thousand ($50,000.00) Dollars shall be
furnished to Owner.
5.3.4 The Contractor and all Subcontractors shall comply with all applicable
licensing laws for contractors prevailing within the state in which the
Project is located.
5.3.5 The Contractor shall make available to each proposed Subcontractor, prior
to the execution of the Subcontract, copies of those of the Contract
Documents to which the Subcontractor will be bound by this Paragraph 5.3,
and necessary to inform them fully of
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the requirements of the Contract Documents which pertain to or which
might otherwise affect their work. Each Subcontractor shall similarly
make copies of such Documents available to his Sub-subcontractors.
5.3.6 The Contractor shall have no financial interest in the payments made
under any subcontract or any contract for materials, labor, services,
equipment or appliances.
ARTICLE 6.
WORK BY OWNER, TENANT, AND SEPARATE CONTRACTORS
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6.1 OWNER'S RIGHT TO PERFORM WORK AND TO AWARD SEPARATE CONTRACTS
6.1.1 The Owner reserves the right to perform any work related to the Project
with his own forces, and to award separate contracts in connection with
any other portions of the Project or other work on the site under these
or similar Conditions of the Contract. The Owner specifically reserves
the right to have the forces of any tenant or its separate contractors
enter upon the Project for the purpose of constructing or installing
furniture, fixtures and equipment for the Project ("Tenant-Owner
Improvements"), with respect to any portions of the Work that have
reached such a stage of completion as to permit the construction and
installation of Tenant-Owner Improvements. Such use and occupancy by the
Owner, its tenants or their separate contractors shall not modify any
part of the Contract Documents or be construed as constituting
Substantial Completion or acceptance of any part of the Work. However,
the Owner, his tenants, or their respective separate contractors, agents,
or employees shall be responsible for any damage caused by them to the
Work so occupied by them. If the Contractor claims that delay or
additional cost (other than as compensable under Subparagraph 6.1.3) is
involved because of such action by the Owner, he shall make such claim as
provided elsewhere in the Contract Documents.
6.1.2 The Contractor shall afford the Owner, his Tenants and either of their
respective separate contractors reasonable opportunity for the
introduction and storage of their material and equipment and the
execution of their work, and shall connect and coordinate his Work with
theirs as required by the Contract Documents. The Contractor agrees to
permit the use and sharing of use of those facilities necessary for the
rapid completion of their work, including without limitation, the
Contractor's utilities, hoists, elevators, scaffolding and other
equipment at Contractor's actual costs incurred and, if requested by the
Owner, the Contractor shall provide a separate entrance. Such use and
sharing of Contractor's facilities shall not extend the Contract Time.
6.1.3 The Contractor shall be reimbursed for actual costs or expenses
reasonably incurred by the Contractor as a result of such construction,
use or occupancy. To the extent possible, before such costs or expenses
are incurred, the Contractor will provide the Owner or his
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applicable tenant with a lump sum or unit prices as the Owner may request
to cover such costs or expenses.
6.1.4 The Owner will provide for the coordination of the Work of his own forces
and of each separate Contractor with the Work of the Contractor.
6.2 MUTUAL RESPONSIBILITY
6.2.1 If any part of the Contractor's Work depends for proper execution or
results upon the work of the Owner or any separate contractor, the
Contractor shall, prior to proceeding with the Work, promptly report to
the Architect and Owner any apparent discrepancies or defects in such
other work that render it unsuitable for such proper execution and
results. Failure of the Contractor to so report shall constitute an
acceptance of the Owner's or separate contractor's work as fit and proper
to receive his Work.
6.2.2 Any costs caused by defective or ill-timed work shall be borne by the
party responsible therefor.
6.2.3 Should the Contractor wrongfully cause damage to the Work or property of
the Owner, any tenant of the Owner or to other work on the site, the
Contractor shall promptly remedy such damage or Owner, at his option, may
cause such damage to be remedied at the expense of Contractor.
6.2.4 Should the Contractor wrongfully cause damage to the work or property of
any tenant of Owner or separate contractor, the Contractor shall upon due
notice promptly attempt to settle with such other party (or otherwise
resolves the dispute). If such separate party sues or initiates
proceedings against the Owner on account of any damage alleged to have
been caused by the Contractor, the Owner shall notify in writing the
Contractor who shall defend such proceedings at the Contractor's expense,
and if any judgment or award against the Owner arises therefrom, the
Contractor shall pay or satisfy it and shall reimburse the Owner for all
attorney's fees and court costs which the Owner may have incurred.
6.3 OWNER'S RIGHT TO CLEAN UP
6.3.1 If a dispute arises between the Contractor and separate contractors as to
their responsibility for cleaning up as required by the General
Conditions of either such contract, the Owner may upon three (3) days
prior written notice clean up and charge the cost thereof to the
contractor responsible therefor as the Architect shall determine.
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ARTICLE 7.
TIME FOR COMPLETION
-------------------
7.1 DEFINITIONS
7.1.1 The Contract Time is the period of time after the Date of Commencement of
the Work allotted in the Owner-Contractor Agreement in which to achieve
Substantial Completion of the Work, as may be adjusted by Change Order.
The Contract Time shall commence on the Date of Commencement of Work.
7.1.2 The Date of Commencement of the Work is the date established in a notice
to proceed.
7.1.3 The Date of Substantial Completion of the Work or designated portion
thereof is the date certified by the Architect pursuant to Paragraph 9.1.
7.1.4 The Construction Schedule shall be the schedule of activities derived by
the Contractor pursuant to Paragraph 7.5 hereof showing their sequences,
durations and interrelationships and establishing the Contractor's plans
for accomplishing Substantial Completion within the Contract Time.
7.1.5 The term "day" as used in the Contract Documents shall mean calendar day
unless otherwise specifically designated.
7.2 PROGRESS AND COMPLETION
7.2.1 Time is of the essence in the performance of the Work by or on behalf of
the Contractor including particularly, but without limitation, any times
or durations for commencement, prosecution and completion of the Work.
7.2.2 The Contractor shall begin Work on the Date of Commencement. The
Contractor shall thereafter prosecute the Work expeditiously and
diligently at such a rate to maintain progress in accordance with the
Construction Schedule and achieve Substantial Completion within the
Contract Time. The Contractor shall employ all such additional labor,
services and supervision including such extra shifts and overtime as may
be necessary to maintain progress in accordance with the Construction
Schedule and achieve Substantial Completion within the Contract Time, all
without an increase in the Contract Sum unless expressly authorized by
the Contract Documents.
7.2.3 In executing the Owner-Contractor Agreement, the Contractor represents
that the Contract Time (as may be adjusted under the Contract Documents)
for construction and completion of the Work is reasonable, taking into
consideration the type of construction planned and the site conditions,
climatic conditions and industrial conditions (including, without
limitation, labor conditions) prevailing in the area of the Project.
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7.2.4 Should the Project or any portion thereof not be completed in accordance
with the Construction Schedule or within the Contract Time (as adjusted
under the terms of the Contract Documents), Owner shall have the right
but not the obligation to occupy any portion of the Project not so
completed. In such event, Contractor shall not be entitled to any extra
compensation on account of said occupancy by Owner or by Owner's normal
full use of the Project nor shall Contractor interfere in any way with
said use of the Project, or be relieved of any of its responsibilities
under the Contract Documents, including, without limitation, Contractor's
obligation to complete the Project in accordance with the Construction
Schedule. Occupancy by Owner hereunder shall be subject to the
requirements of Subparagraph 11.3.9 with regard to property insurance.
7.3 DELAYS AND EXTENSIONS OF TIME
7.3.1 Except as otherwise specifically provided hereinafter and under Paragraph
12.1 (Changes in the Work), the Contractor shall not be entitled to an
increase in the Contract Sum or payment or compensation of any kind from
the Owner for direct, indirect, consequential, impact or other costs,
expenses or damages, including but not limited to costs of acceleration
or inefficiency, arising because of delay, disruption, interference or
hindrance from any cause whatsoever, whether such delay, disruption,
interference or hindrance be reasonable or unreasonable, foreseeable or
unforeseeable, or avoidable or unavoidable; provided, however, that this
provision shall not preclude recovery of damages by the Contractor for
hindrances or delays due solely to fraud or bad faith on the part of the
Owner or its agents. Otherwise, the Contractor shall be entitled only to
extensions of the Contract Time as the sole and exclusive remedy for such
resulting delay, in accordance with and to the extent specifically
provided in the Contract Documents.
7.3.2 The Contract Time shall be adjusted only as appropriate for Changes in
the Work (pursuant to Paragraph 12.1), Concealed Conditions entitling
contractor to such adjustment (pursuant to Paragraph 12.2), Suspension of
Work (pursuant to Paragraph 19.2), Stopping of Work (pursuant to
Paragraph 16.1), and excusable delays (pursuant to Subparagraph 7.3.4)
and for no other reason. In the event the Contractor requests an
extension of the Contract Time based upon a particular occurrence, he
shall furnish such justification and supporting evidence as the Architect
may deem necessary for a determination as to whether and to what extent
the Contractor is entitled to an extension of time under the provisions
of the Contract. After receipt of such justification and supporting
evidence as is timely submitted, the Architect shall make a determination
extending the Contract Time only to the extent that such occurrence shall
actually have caused extension of the Project duration. The Contractor
acknowledges and agrees that actual delays in activities which, according
to the Construction Schedule, do not affect activities critical to
completion within the Contract Time will not be the basis for an
extension of the Contract Time.
7.3.3 If the Architect finds that the Contractor is entitled to any extension
of the Contract Time, he shall advise the Contractor and Owner in writing
thereof. Appropriate adjustment
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reflecting such increase in the Contract Time and any resultant changes
in activities affected shall then be made to the Construction Schedule. A
Change Order shall be then duly issued under Article 12 effectuating
these adjustments and extending the Contract Time.
7.3.4 Subject to other provisions of the Contract Documents, the Contractor may
be entitled to an extension of the Contract Time (but no increase in the
Contract Sum) for delays arising from the following unforeseeable causes
but only to the extent that they were beyond the control and without the
fault or negligence of the Contractor or his Subcontractors or suppliers
as follows:
1. Labor disputes and strikes including those affecting
transportation.
2. Acts of God, such as tornado, fire, hurricane, blizzard,
earthquake, typhoon or flood or similar unavoidable casualties
that cause damage to completed Work or stored materials or
otherwise cause delay.
3. Abnormal adverse weather not reasonably anticipatable; however,
the Contract Time will not be extended due to normal seasonal
weather variations.
4. Acts of the public enemy, and unanticipated acts of the state,
federal or local government in its sovereign capacity.
5. Acts of another separate contractor in the performance of a
contract with the Owner relating to the Project.
6. Any act or neglect of the Owner or the Architect or any of their
agents or employees.
7.3.5 No extension of Contract Time shall be granted if, in the exercise of
reasonable prudence, Contractor, or anyone for whom the Contractor is
responsible, could have avoided the delay in the progress of the Work.
Delays otherwise allowable shall be reduced by the amount of time that
Contractor or anyone for whom the Contractor is responsible, in the
exercise of reasonable prudence, could have avoided, reduced or made up
such delays in the course of the performance of subsequent portions of
the Work, provided that Contractor shall not be obligated to incur
additional cost to make up excusable delays. In the case of impending
delay resulting from any act or neglect of Owner or Architect, which was
or should reasonably have been foreseen by Contractor, such prudence
shall include prompt notice thereof to Owner and Architect.
7.3.6 Other than pursuant to Paragraph 12.1, no claims for extension of
Contract Time for delay, disruption, interference or hindrance of the
Work hereunder or any portion thereof shall be valid unless a notice of
claim is filed with the Owner and the Architect within ten (10) days of
the first instance of such delay, disruption, interference or hindrance
and, in
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addition, unless a written statement of the claim as hereinafter
described is filed with the Owner and the Architect within twenty (20)
days of such first instance; otherwise all such claims are waived by the
Contractor. In the case of a continuous cause of delay, only one written
claim is necessary.
7.3.6.1 Such notice of claim must clearly identify the instance of
delay, disruption, interference or hindrance and an estimate of
the probable effect of such delay on the progress of the Work.
7.3.6.2 Such statement of the claim must provide all information
required by the scheduling requirements of the Contract
Documents and further provide the following specific
information:
1. Nature of the delay;
2. Date (or anticipated date) of commencement of delay;
3. Activities on the Construction Schedule affected by the
delay, and/or new activities created by the delay, and
their relationship with existing activities;
4. Identification of person(s) or organization(s) or
event(s) responsible for the delay;
5. Anticipated extent of delay;
6. Recommended action to avoid or minimize the delay.
7.3.6.3 The Architect shall receive and process such claims for
extensions of time in accordance with the procedures set forth
in Paragraph 7.3 except that any Change Order issued shall only
amend the Contract Time.
7.3.6.4 The failure of the Contractor to file any claims for extension
of time within the time limits prescribed herein and in the form
and manner required hereby shall be deemed a material prejudice
to the interests of the Owner and shall constitute an absolute
waiver of the claim and the right to file or thereafter
prosecute the same.
7.3.7 To the extent that Contractor is entitled to any increase in contract sum
for delay, disruption, interference or hindrance under this Paragraph
7.3, an absolute condition precedent to such entitlement shall be strict
compliance with all requirements and procedures for entitlement to an
extension of time hereunder.
7.3.8 The Contractor shall keep the Owner and Architect constantly advised to
all factors which may affect the Contractor's progress toward Substantial
Completion time of the Work within the Contract Time.
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7.4 OWNER'S RIGHT TO ACCELERATE
7.4.1 The Owner shall have the right to require, by Change Order issued under
Article 12, that completion of all or any portion of the Work be
accelerated to an earlier time. In the case of such acceleration, the
Contractor shall require his forces and Subcontractors to work such
overtime hours and take such other measures as reasonably necessary to
accomplish the acceleration. The Owner's obligation on account of such
acceleration shall be to reimburse the Contractor for any increase on his
cost of such acceleration. The Contractor shall keep accurate records of
such overtime hours and other premium or acceleration costs and excuses
resulting from such acceleration. Such reimbursement shall include
overhead and profit of the Contractor and his Subcontractor. This
subparagraph shall have no application to overtime work which the
Contractor is required to perform because of his failure to meet the
Construction Schedule, or, without limitation, because of any other fault
of the Contractor.
7.5 THE CONSTRUCTION SCHEDULE
7.5.1 The Contractor, immediately after being awarded the Contract, shall be
responsible for deriving a Construction Schedule (as more particularly
prescribed in the Supplementary Conditions), which shall fully describe
the intended method of accomplishing all the various work and related
activities necessary to completion of the entire Project hereunder. Such
Construction Schedule shall demonstrate an expeditious, practicable and
reasonable plan for accomplishing Substantial Completion of the Work
within the Contract Time and Final Completion of the Project.
7.5.2 The Construction Schedule shall take fully into account accomplishment of
such interim milestones or requirements of Owner for completion of
portions of the Work at times earlier than the full Contract Time. Such
milestones and requirements, if any, shall be as prescribed in the
Supplementary Conditions.
7.5.3 A preliminary Construction Schedule shall be prepared and submitted to
Owner and to Architect in final proposed form, in the format prescribed
in the Supplementary Conditions, no later than ten (10) days after the
date of the Owner-Contractor Agreement or the Date of Commencement of
Work, whichever is earlier. This preliminary Construction Schedule should
incorporate the input of major subcontractors, fabricators, and suppliers
of materials or equipment which are not readily available for delivery to
the Project. In submitting this preliminary Construction Schedule,
Contractor warrants and represents that in his opinion and that of his
major subcontractors, fabricators and suppliers, it presents a reasonable
and workable plan and sequence for timely performance of all Work and
further constitutes their intended plan and sequence for its
accomplishment.
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7.5.4 The Contractor shall be entitled to no payment under this Owner-
Contractor Agreement unless and until the Contractor has so submitted the
preliminary Construction Schedule in required format.
7.5.5 The Owner and Architect shall review this preliminary Construction
Schedule as initially submitted; however, such review shall be only to
determine its compliance with Contract requirements regarding Substantial
Completion, final completion and any specified interim completion
milestones or requirements. Such review shall not require an independent
evaluation or determination by Owner or Architect of the workability,
feasibility or reasonableness of the Contractor's proposed Construction
Schedule.
7.5.6 Within ten (10) days after submission of the preliminary Construction
Schedule under Subparagraph 7.5.3 above, the Owner, Architect and
Contractor shall jointly meet to review the preliminary Construction
Schedule at the Contractor's Project office and at a time established by
written notice from Architect. Within ten (10) days thereafter,
Contractor shall submit a revised Construction Schedule incorporating any
changes deemed necessary by the Contractor or directed by Owner or
Architect. This revised Construction Schedule shall thereafter be deemed
the Construction Schedule for the Project.
7.5.7 Thereafter, the Construction Schedule shall be revised and updated in
such manner and frequency as specified in the Supplementary Conditions.
7.5.8 The Construction Schedule shall be revised appropriately to reflect
accurately any adjustment extending the Contract Time allowed by
Architect including revision to the durations, sequences and
interrelationships of activities affected by the occurrences permitting
such adjustment.
7.5.9 The Contractor shall keep the Owner, the Architect and all of his
Subcontractors and material suppliers fully and completely informed at
all times of the content of the Construction Schedule, other schedules
and all other scheduling information applicable to or which may affect
the Work of all Subcontractors and material suppliers. This information
shall in all cases be furnished to the Subcontractors and material
suppliers in sufficient time to allow them to adjust their plans so as to
meet all required performance dates relative to their portions of the
Work.
7.5.10 To the extent that any provisions of this Paragraph 7.5 are at variance
with the scheduling requirements specified in the Supplementary
Conditions, the latter shall govern.
7.5.11 The Owner and the Architect shall be entitled to rely fully on the
content of the Construction Schedule (as it may be revised) in planning
and scheduling performance of their obligations under the Contract
Documents or of interrelated work by their own forces or separate
contractors.
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ARTICLE 8.
PAYMENTS TO CONTRACTOR
----------------------
8.1 CONTRACT SUM
8.1.1 The Contract Sum is as stated in the Owner-Contractor Agreement,
including adjustment thereto as authorized by the Contract Documents.
Such Contract Sum (or the portion thereof authorized by the Owner-
Contractor Agreement) shall represent the total amount payable by the
Owner to the Contractor for performance of the Work under the Contract
Documents.
8.2 SCHEDULE OF VALUES
8.2.1 Before the first Application for Payment and as a strict condition
precedent to payment under Article 8, the Contractor shall submit to the
Architect a Schedule of Values allocated to the various portions of the
Work aggregating and dividing the Total Contract Sum so as to facilitate
determination of progress and progress payment. The Schedule of Values
shall be prepared in such form and supported by such data to substantiate
its accuracy as the Architect may require. The Schedule of Values shall
be in a format consistent with that to be used on the Application for
Payment forms and shall segregate each major work item and each
subcontracted item on a single line, with item numbers corresponding (if
practicable) with specifications section numbers. Further, it shall
provide a preliminary schedule of the Contractor's anticipated monthly
Progress Payments. This Schedule, unless objected to by the Architect,
shall be used only as a basis for the Contractor's Applications for
Payment.
8.3 APPLICATIONS FOR PAYMENT
8.3.1 At least fifteen (15) days before the date for each progress payment
established in the Owner-Contractor Agreement, the Contractor shall
submit to the Architect an itemized Application for Payment duly sworn
and notarized on such form as required by Owner and based on the
previously approved Schedule of Values. It shall be supported by such
data information and documentation substantiating the Contractor's right
to payment as the Owner or the Architect may require, and reflecting
retainage, if any, as provided elsewhere in the Owner-Contractor
Agreement. To the extent of any delay in submission of any Application
for Payment in duly authorized form, any specified date for progress
payment shall be extended commensurately.
8.3.2 If approved in writing in advance by Owner, payments will be made on
account of materials or equipment not incorporated in the Work but
delivered and suitably stored at the site and suitably stored at some
other location approved by Owner in writing. Payments for materials or
equipment stored on or of the site shall be further conditioned upon
submission by the Contractor of bills of sale or such other evidence or
procedures satisfactory to the Owner to establish the Owner's title to
such materials or equipment or
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otherwise protect the Owner's interest, including applicable insurance
and transportation to the site for those materials and equipment stored
off the site.
8.4 CERTIFICATES FOR PAYMENT
8.4.1 The Architect will promptly review such Application and, within seven
days after the receipt of the Contractor's Application for Payment,
either issue a Certificate for Payment to the Owner, with a copy to the
Contractor, for such amount as the Architect determines is properly due,
or notify the Contractor in writing his reasons for withholding a
Certificate as provided in Subparagraph 8.6.1.
8.4.2 The issuance of a Certificate for Payment will constitute a
representation by the Architect to the Owner, based on his observations
at the site as provided in Subparagraph 2.2.3 and the certified data
comprising the Application for Payment, that the Work has progressed to
the point indicated and that it therefore appears the Contractor is
entitled to payment in the amount certified.
8.5 PROGRESS PAYMENTS
8.5.1 After the Architect has issued a Certificate for Payment and provided the
Contractor has complied with all requirements of Subparagraph 8.5.2 and
otherwise is not in default under the Contract Documents, the Owner shall
make payment in the amounts and manner and within the time provided in
the Contract Documents.
8.5.2 As a condition precedent to payment, Contractor shall submit on a monthly
basis at or prior to the time of receipt of each payment its duly
executed waiver of all rights and claims of lien on the Work or the
Project Site for the period for which payment is made, in the form
provided by Owner. Contractor shall also submit on a monthly basis at the
time of receipt of each monthly payment a similar waiver for labor and
materials furnished during the period for which the previous Application
for Payment was made in the form provided by Owner and executed by each
of the Subcontractors who performed services for that previous period and
paid receipts from suppliers and materialmen who provided equipment or
material in that previous period.
8.5.3 The Contractor shall promptly pay each Subcontractor (including suppliers
not previously paid), upon receipt of payment from the Owner, out of the
amount paid to the Contractor on account of such Subcontractor's Work,
the amount to which said Subcontractor is entitled, reflecting the
percentage actually retained, if any, from payments to the Contractor on
account of such Subcontractor's Work. The Contractor shall, by an
appropriate agreement with each Subcontractor, require each Subcontractor
to make payments to his Subcontractors in similar manner. Until such
payment is actually made, Contractor shall be considered to hold such
funds as a fiduciary in trust for the benefit of such subcontractors.
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8.5.4 The Architect may, on request and at his discretion, furnish to any
Subcontractor, if practicable, information regarding the percentage of
completion or the amounts applied for by the Contractor and the action
taken thereon by the Architect on account of Work done by such
Subcontractor.
8.5.5 Neither the Owner nor the Architect shall have any obligation to pay or
to see to the payment of any moneys to any Subcontractor or supplier,
except as may otherwise be required by law. However, if the Contractor
fails to pay any Subcontractor or supplier amounts due them, the Owner
shall upon seven (7) days written notice to Contractor, have the right to
make payments out of any unpaid portion of the Contract Sum to such
parties as Owner may deem reasonably necessary to protect its interests
and those of Owner's Lender. Any such payments so made by the Owner shall
be considered as having been paid to Contractor.
8.5.6 No certificate for a progress payment, nor any progress payment, nor any
partial or entire use or occupancy of the Project by the Owner, shall
constitute an acceptance of any Work or performance not in accordance
with the Contract Documents. Any determination or certification of the
Architect shall be made for the limited purpose of making monthly
Progress Payments and shall not relieve the Contractor of full
responsibility for all defective materials and workmanship and for its
failure strictly to follow the Contract Documents, notwithstanding the
Owner or the Architect may have observed the default or failure.
8.6 PAYMENTS WITHHELD
8.6.1 The Architect may decline to certify payment and may withhold his
certificate in whole or in part, to the extent necessary reasonably to
protect the Owner, if, in his opinion, he is unable to make
representations to the Owner as to the accuracy of the facts and
estimates contained in the Contractor's Application for Payment. If the
Architect is unable to make such representations to the Owner and to
certify payment in the amount of the Application, he will notify the
Contractor as provided in Subparagraph 8.4.1. If the Contractor and the
Architect cannot agree on a revised amount, the Architect will promptly
issue a Certificate for Payment for the amount for which he is able to
make such representations to the Owner. The Architect may also decline to
certify payment or, because of subsequently discovered evidence or
subsequent observations, he may nullify or modify the whole or any part
of any certificate for Payment previously issued, to such extent as may
be necessary in his opinion to protect the Owner from loss because of:
1. Defective or nonconforming Work not remedied;
2. Third party claims filed or reasonable evidence indicating
probable filing of such claims;
3. Failure of the Contractor to make payments properly to
Subcontractors or suppliers for labor, materials or equipment;
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4. Reasonable evidence that the Work cannot be completed for the
unpaid balance of the Contract Sum;
5. Damage to the Owner or another contractor;
6. Reasonable evidence that the Work will not be completed with the
Contract Time; or
7. Unsatisfactory prosecution of the Work in accordance with the
Contract Documents.
8.6.2 When the above grounds in Subparagraph 8.6.1 are removed, payment shall
be made for amounts withheld because of them.
8.6.3 In the event that Architect should decline to certify or nullify a prior
certification regarding any portion of an Application for Payment
submitted by Contractor, the Owner shall pay only such amount as
certified by Architect as justifiably due Contractor. Any overpayments to
Contractor shall, unless otherwise credited or adjusted, be repaid to
Owner upon demand.
8.6.4 The Architect and the Owner shall have the right to contact
subcontractors and suppliers directly to ascertain (1) what amounts, if
any, are due to them from Contractor, and (2) the projected costs of
completing the remaining portion of their Work, and (3) the scope, amount
and substance of any claims and disputes between them and Contractor.
8.7 SEMIFINAL PAYMENT UPON SUBSTANTIAL COMPLETION
8.7.1 Upon Substantial Completion of the Work or designated portion thereof (as
established pursuant to Paragraph 9.1), the Contractor shall submit a
Semifinal Application for Payment.
8.7.2 Subject to the more specific provisions elsewhere in the Contract
Documents, the Semifinal Application for Payment shall provide for
continued retention by Owner of at least an amount equal to twice the
reasonably estimated cost or expense necessary to accomplish the
following:
(a) Completion of all uncompleted work items;
(b) Remedy of any uncorrected work not in accordance with the Contract
Documents;
(c) Satisfy any and all unresolved claims or liens filed or asserted (or
reasonably anticipated filing or assertion) against Owner, its Lender,
the Project or any of the Work by any person or entity providing labor,
materials, equipment or services through or on behalf of the Contractor;
and
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(d) Compensating Owner and its separate contractors for any unresolved
claims of damage or injury caused by Contractor, or anyone for whom it
shall be held responsible under the Contract Documents, which have been
asserted or are reasonably anticipated (including claims arising out of
Contractor's breach or default hereunder).
8.7.3 The Contractor's Application for Semifinal payment shall provide an
estimated amount for the continued retainage set forth in Subparagraph
8.7.2 which Architect and Owner shall review and adjust as they deem
necessary to reasonably protect the Owner's remaining interests.
Architect shall then certify such application, as adjusted, for payment
of any balance owing for Work performed over such adjusted retainage.
8.7.4 Upon final adjustment and certification by Architect of such Semifinal
Application for Payment, Owner shall issue payment in accordance with the
amount certified provided Contractor shall have first provided the
following:
(a) An Affidavit that all indebtedness of Contractor connected with Work
has been paid in full with the exception of amounts specifically listed
in the Semifinal Application and certification as unresolved or unpaid;
(b) Waivers of all rights and claims of lien as described in Subparagraph
8.5.2;
(c) Other waivers, releases or data required by Owner or Architect
establishing such payment or satisfaction; and
(d) Consent of surety, if any.
8.8 FINAL COMPLETION AND FINAL PAYMENT
8.8.1 Upon or prior to issuance of a written notice (under Subparagraph 9.4) by
the Architect to the Owner and the Contractor that the Work has reached
final completion, Contractor shall submit his final Application for
Payment to Architect.
8.8.2 Such final Application for Payment shall include as a separate attachment
a final adjustment of accounts reflecting any and all appropriate final
accounting and adjustments of the contract balances and Contract Sum
including but not limited to:
(a) Cost of the Work (if the Owner-Contractor Agreement provides for
reimbursement of "cost").
(b) Additions and deductions resulting from the following:
(1) All Change Orders (and Change Order "cost" if appropriate under
the Contract Documents).
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(2) Allowances.
(3) Unit Prices.
(4) Deductions or Adjustments for defective or uncompleted work.
(5) Bonuses, as applicable.
(6) Deductions for liquidated or other damages.
(7) Savings and other adjustments (as appropriate under the Contract
Documents).
(c) Total Contract Sum, as adjusted.
(d) Previous payments.
(e) Final Payment due to the Contractor.
8.8.3 As conditions precedent to final payment under the Contract Documents,
Contractor shall:
(a) execute and furnish a release of all claims and liens (except as
previously made in writing and identified as unsettled at the time of the
final Application for Payment) against Owner, its Lender, the Project and
the land upon which the Project is situated arising under or by virtue of
the Contract Documents, including in the event of any termination as
permitted by the Contract Documents, claims or liens arising under or by
virtue of such termination;
(b) furnish written final releases and waivers of all rights to claim or
file liens properly executed by any and all Subcontractors, vendors or
others furnishing work, labor, materials, machinery or fixtures for the
performance of Work;
(c) furnish appropriate affidavits and other such other data in such form
designated by Owner as may be reasonably requested by Owner to establish
payment or satisfaction and of all payrolls, material bills, and other
indebtedness connected with the Work for which the Owner, its lender or
its property might in any way be responsible; and
(d) furnish a consent of surety, if any, to final payment.
If any Subcontractor or Supplier refuses to furnish a release or waiver
required by the Owner, the Contractor may furnish a bond satisfactory to
the Owner to indemnify him against any such lien. If any such lien
remains unsatisfied after all payments are made, the Contractor shall
refund to the Owner all moneys that the latter may be compelled to pay in
discharging such lien, including all costs and reasonable attorneys'
fees.
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8.8.4 Upon his review and approval of such application the Architect shall
prepare a final Change Order reflecting approved adjustments to the
Contract Sum not previously made by Change Orders.
8.8.5 Upon such final adjustment and issuance of any change order so required
and upon his review and approval of the final Application for Payment,
reflecting such adjustments, the Architect shall promptly issue a final
Certificate for Payment stating that to the best of his knowledge,
information and belief, and on the basis of his observations and
inspections, the Work has been completed in accordance with the terms and
conditions of the Contract Documents and that the entire balance found to
be due the Contractor and noted in said final Certificate, is due and
payable. The Architect's final Certificate for Payment will constitute a
further representation that the conditions precedent to the Contractor's
being entitled to final payment as set forth in Subparagraph 8.8.3 have
been fulfilled.
8.8.6 Final payment shall be due and payable in the amount certified thirty
(30) days after Owner's receipt of such final Certificate of Payment.
8.9 WAIVER
8.9.1 Subject to Subparagraph 8.9.2, neither inspection by Owner or Architect,
or by any of their duly authorized representatives, nor any order,
measurement, notice or certificate by Owner; nor any order by Owner for
the payment of money; nor final payment hereunder; nor acceptance of any
work or any extension of time; nor any possession taken by Owner, shall
operate as a waiver of any provision of the Contract Documents or any
right of the Owner thereunder or of any right to damages under the
Contract Documents or under law. Any waiver by Owner of any breach of the
Contract Documents shall not be held to be a waiver of any other or
subsequent breach, and any waiver by Owner of any right to terminate the
Agreement shall not be held to be a waiver of any breach of the Contract
Documents, but Owner retains all of its rights to recover damages
therefor.
8.9.2 The making of final payment shall constitute a waiver of all claims by
the Owner except those arising from:
1. Unsettled liens.
2. Faulty or defective Work appearing after Substantial Completion.
3. Failure of the Work to comply with the requirements of the
Contract Documents.
4. Terms of any special warranties required by the Contract
Documents.
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5. Claims thereafter asserted by third parties against Owner, its
Lender or the Project arising out of or relative in any way to the
Work or the performance thereof by or on behalf of Contractor.
8.9.3 The acceptance of final payment shall constitute a waiver of all claims
by the Contractor except those previously made in writing and identified
by the Contractor as unsettled at the time of the final Application for
Payment.
ARTICLE 9.
COMPLETION
----------
9.1 SUBSTANTIAL COMPLETION
9.1.1 The Date of Substantial Completion of the Work or designated portion
thereof acceptable to Owner is the date certified by the Architect when
construction is sufficiently complete, in accordance with the Contract
Documents, so that the Owner (or its tenant(s)) can occupy or utilize the
Work or such designated portion thereof for the use for which it is
intended with all of the installations, parts and systems relating
thereto and required by the Work hereunder functional, accessible,
operable and usable by the Owner for their full and unimpeded intended
usage. Such completion shall include, as applicable, all certificates of
occupancy or other permits or authorizations by governmental agencies
having jurisdiction thereof, necessary to permit such usage. Only minor
or incidental corrective work under punch lists and final cleaning (if
required) beyond cleaning needed for the Owner's full use may remain for
Final Completion.
9.1.2 When the Contractor considers the Work to be substantially complete, he
shall submit to the Owner and Architect written notice that the Work, or
such designated portion thereof, is substantially complete, along with a
list of items to be completed or corrected. The failure to include any
items on such list does not alter the responsibility of the Contractor to
complete all Work in accordance with the Contract Documents. Within a
reasonable time after receipt of notice, the Architect shall make an
inspection to determine the status of completion.
9.1.3 Should the Architect determine that the Work has not reached substantial
completion, the Architect shall promptly notify the Owner and Contractor
in writing of his determination and the reasons therefor. The Contractor
shall promptly remedy deficiencies and complete all incomplete work and
thereafter send another written notice of substantial completion to the
Owner and Architect who shall within a reasonable time thereafter
reinspect the Work.
9.1.4 When the Architect determines that the Work or such designated portion is
substantially complete, the Architect will prepare a Certificate of
Substantial Completion on AIA Form G704, or such other form as the Owner
shall stipulate, accompanied by the Contractor's list of items to be
completed or corrected, as verified and amended by the Architect. The
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issuance of such certificate shall establish the Date of Substantial
Completion thereof. Such certificate shall further state the
responsibilities of the Owner and Contractor for security, maintenance,
heat, utilities, damage to the Work and insurance, and shall set forth
the time period within which the Contractor shall remedy or complete
items listed above.
9.1.5 Warranties required by the Contract Documents shall commence on the Date
of Substantial Completion of the Work or designated portion thereof,
unless otherwise provided in the Certificate of Substantial Completion.
9.1.6 If the appropriate governmental agencies refuse to issue a Certificate of
Occupancy or other necessary permits for reasons other than fault of the
Contractor, including without limitation deficiencies in the Contract
Documents, the requirement of such Certificate will be deemed to be
waived, unless the Contractor knew or should have known of such
deficiencies and failed to call it timely to the attention of the Owner
and the Architect. The Contractor, at the Owner's option, shall
thereafter perform the Work necessary to obtain such Certificate with an
adjustment to the Contract Sum necessary to obtain such Certificate which
shall be effected by Change Order.
9.2 COMPLETION AND CLOSEOUT SUBMITTALS
9.2.1 As soon as practicable, but in no event later than twenty (20) days after
the Date of Substantial Completion, the Contractor shall:
1. Fully complete all remaining items and correct all deficient
items, whether or not listed on the Certificate of Substantial
Completion;
2. Organize, prepare and submit to Owner through Architect all
Closeout Submittal Information (as defined in Paragraph 9.3);
3. To the extent not previously accomplished for Substantial
Completion, complete the start-up of all systems and equipment
and provide the Owner's designated personnel with instructions by
Contractor (or its supplier, subcontractor or manufacturer) in
care, use, cleaning, maintenance and operation procedures for
each item; and
4. To the extent not previously accomplished, complete all cleaning
and disposal operations required by governing codes, ordinances,
regulations, anti-pollution requirements and Contract Documents.
The entire Work (buildings and grounds) shall be cleaned as
specified by Architect and as required for Owner's intended use.
9.3 CONTRACTOR'S CLOSEOUT SUBMITTAL
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9.3.1 As a necessary part of completion of the Work under the Contract
Documents, the Contractor shall assemble and submit to Owner through
Architect the following material and documentation:
1. Except as otherwise provided by the Contract Documents, all
certificates and approvals of any governmental agency with authority over
the Project or the Work required for the full, unrestricted use and
occupancy thereof by Owner for its intended purpose, including
specifically, but without limitation:
(a) Certificate(s) of Occupancy.
(b) Certificates of inspection for such systems and installations (as
applicable) as:
(1) elevators, moving stairs and walks, (2) mechanical systems, (3)
plumbing systems, (4) fire protection, and (5) electrical systems.
2. One record set of all the following project documentation:
(a) Project Manual (Specifications).
(b) Project Drawings.
(c) Addenda.
(d) Change Orders and Modifications to Contract.
(e) Owner's and Architect's Field Orders or written instructions,
sketches, etc.
(f) Approved Shop Drawings, Product Data and Samples.
(g) Testing laboratory reports.
(h) All Construction samples and product samples.
3. One record set of "as built" drawings, legibly marked concurrently
with the construction process including but not limited to, the
following:
(a) Depths of various elements of foundation in relation to finish
first floor datum;
(b) Horizontal and vertical locations of underground utilities and
appurtenances, referenced to permanent surface improvements;
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(c) Location of internal utilities and appurtenances concealed in
construction, referenced to visible and accessible features of
structure(s);
(d) Field Changes of dimensions and details;
(e) Changes made by Field Orders, or Change Orders and not shown on
Contract Drawings (as amended); and
(f) Details not on original Contract Drawings.
4. One record set of "as built" specifications legibly marked so as to
indicate the manufacturer, trade name, catalog number, and supplier of
each product and item of equipment actually installed.
5. One record set of schematic diagrams covering installations of all
electrical, mechanical and pneumatic controls.
6. Three duplicate sets, each separately bound and indexed in vinyl
covered three ring binders, of operating instructions and maintenance
recommendations for all Work, including, without limitation, a printed
parts list for all items which might be subject to replacement. These
instructions shall set forth all of the information necessary for
Owner to operate and make full and efficient use of all equipment and
systems comprising the Work, and perform such maintenance and
servicing as would ordinarily be done by Owner or its personnel. They
shall be neatly typewritten in simple, non-technical language when
possible, with sufficient diagrams and explanation where necessary to
be readily understandable by average laymen.
7. All keys and key schedules.
8. All spare parts, maintenance materials and any materials or equipment
for which Contractor had been paid but which was not actually
incorporated into Work.
9. The originals of all Warranties, Guaranties, Bonds, or Certificates of
Compliance required by the Contract Documents, relative to the Work or
its component parts, equipment and systems, including those given by
Contractor, Subcontractors and material manufacturers or suppliers.
These shall be prepared in a vinyl covered three ring binder and
indexed in order of and in accordance with corresponding specification
sections or other contract requirements. All such warranties,
guarantees and certificates, if not issued directly to Owner, shall by
their terms by assignable to Owner and shall be accompanied by duly
executed documentation effecting such transfer and assignment.
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9.4 FINAL COMPLETION
9.4.1 When the Contractor considers the Work is fully complete and ready for
final inspection, the Contractor shall certify in writing to the Owner
and Architect that:
(a) Contract Documents have been reviewed by the Contractor.
(b) All work has been carefully inspected by the Contractor for
compliance with the Contract Documents.
(c) All work has been completed in accordance with Contract Documents.
(d) Equipment and systems have been cleaned, tested and started up in
accordance with the Contract Documents and are operational.
(e) All Closeout Submittals required by Paragraph 9.3 have been properly
made.
(f) Work is fully completed and ready for final inspection.
9.4.2 The Architect and the Owner shall make an inspection to verify the status
of completion within a reasonable time after receipt of the Contractor's
certification required by Paragraph 9.4.1.
9.4.3 If the Owner and the Architect determine that any of the Work is
incomplete or defective, the Architect shall promptly notify the
Contractor, in writing, of such incomplete or defective Work, itemizing
and describing such remaining items with reasonable particularity. The
Contractor shall immediately complete all items and remedy all stated
deficiencies, after which the Contractor shall send another written
certification to the Owner and the Architect that the Work is fully
complete. The Architect shall promptly reinspect the Work.
9.4.4 When the Owner and Architect determine that the entire work has been
fully and properly completed in accordance with the Contract Documents,
the Architect shall give written notice of final completion to the Owner
and the Contractor.
ARTICLE 10.
PROTECTION OF PERSONS AND PROPERTY
10.1 SAFETY PRECAUTIONS AND PROGRAMS
10.1.1 The Contractor shall be responsible for initiating, maintaining, and
supervising all safety precautions and programs in connection with the
Work.
10.2 SAFETY OF PERSONS AND PROPERTY
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10.2.1 The Contractor shall take all reasonable precautions for the safety of,
and shall provide all reasonable protection to prevent damage, injury or
loss to:
1. All employees and subcontractors and subcontractors and their
employees of the Project or performing the Work and all other
persons who may be affected thereby;
2. All the Work and all materials and equipment to be incorporated
therein, whether in storage on or off the site, under the care,
custody or control of the Contractor or any of his
Subcontractors or sub-subcontractors; and
3. Other property at the site or adjacent thereto, including trees,
shrubs, lawns, walks, pavements, relocation or replacement in
the course of construction.
10.2.2 The Contractor shall give all notices and comply with all applicable
laws, ordinances , rules regulations and lawful orders of any public
authority bearing on the safety of persons or property or their
protection from damage, injury or loss. Specifically but without
limitation, Contractor and all of his Subcontractors shall thoroughly
familiarize themselves with all requirements of Public Law 91-956 enacted
by Congress, December 29, 1970, cited as the "Occupational Safety and
Health Act of 1970", and all amendments thereto, commonly referred to as
OSHA, and it shall be the responsibility of the Contractor to fully
enforce and comply with all of the provisions of this Act.
10.2.3 The Contractor shall erect and maintain, as required by existing
conditions and progress of the Work, all reasonable safeguards for safety
and protection, including posting danger signs and other warnings against
hazards, promulgating safety regulations and notifying owners and users
of adjacent utilities.
10.2.4 When the use or storage of explosives or other hazardous materials or
equipment is necessary for the execution of the Work, the Contractor
shall exercise the utmost care and shall carry on such activities under
the supervision of properly qualified personnel.
10.2.5 The Contractor shall promptly remedy all damage or loss to any property
referred to in this Paragraph 10.2 caused in whole or in part by the
Contractor, any Subcontractor, any Sub-subcontractor, or anyone directly
or indirectly employed by any of them, or by anyone for whose acts any of
them may be liable and for which the Contractor is responsible under
Paragraph 10.2.1, except damage or loss attributable solely to the
negligent acts or omissions of the Owner or Architect or anyone directly
or indirectly employed by either of them, or by anyone for whose acts
either of them may be liable. The foregoing obligations of the Contractor
are in addition to his obligations under Paragraph 4.1.6.
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10.2.6 The Contractor shall designate a responsible member of his organization
at the site whose duty shall be the prevention of accidents. This person
shall be the Contractor's superintendent unless otherwise designated by
the Contractor in writing to the Owner and the Architect.
10.2.7 The Contractor shall not load or permit any part of the Work to be loaded
so as to endanger its safety.
10.3 EMERGENCIES
10.3.1 In any emergency affecting the safety of persons or property, the
Contractor shall act at his discretion to prevent threatened damage,
injury or loss.
ARTICLE 11.
INSURANCE
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11.1 CONTRACTOR'S LIABILITY INSURANCE
11.1.1 Before commencing the Work, Contractor shall have in effect and maintain,
until completion and final acceptance of the Work, all insurance required
under this Paragraph 11.1. Such insurance shall name Owner as an
additional insured and shall be carried with companies duly qualified to
do business in the State in which the Project is located and acceptable
to Owner, the Contractor shall furnish to Owner copies of Certificates of
Insurance of all such policies. Such certificates shall bear the
endorsement that they are not to be cancelled, changed or permitted to
lapse until thirty (30) days after Owner has received written notice as
evidenced by return receipt of registered or certified mail, and it is
agreed further that as to lapsing such notice will not be valid if mailed
more than thirty-five (35) days prior to the proposed expiration date of
the policy. Such notice must be sent to Owner as indicated elsewhere in
the General Conditions and be clearly labeled on outside of the envelope
"INSURANCE CANCELLATION". Contractor shall require each Subcontractor to
provide coverage adequate to protect Subcontractor and its employees.
Upon request, Contractor shall deliver Contractor's and/or any
Subcontractor's insurance policies to Owner for review. If the terms of
coverage of such policies are unacceptable to Owner, Contractor and/or
Subcontractor shall revise its coverage or obtain additional coverage as
reasonably requested by Owner. Owner's approval of Contractor's and any
Subcontractor's insurance shall not relieve or limit their liability
under the Contract Documents. In the event of the failure of Contractor
to furnish and maintain such insurance, then Owner shall have the right,
but not the obligation, to take out and maintain such insurance for and
in the name of Contractor and Contractor shall pay the cost thereof and
furnish all necessary information to permit Owner to take out and
maintain such insurance for the account of Contractor. Contractor shall
not allow any Subcontractor to commence work on its subcontract until all
such insurance required of Subcontractor has been obtained.
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11.1.2 Contractor shall purchase and maintain such insurance as will protect it
from claims set forth below which may arise out of or result from
Contractor's operations under the Contract Documents, whether such
operations be by Contractor or by any Subcontractor or by anyone directly
or indirectly employed by any of them, or by anyone for whose acts any of
them may be liable:
(a) Claims under Workers' or Workmen's Compensation, disability benefit
and other similar employee benefit acts;
(b) Claims for damages because of bodily injury, occupational sickness or
disease, or death of his employees;
(c) Claims for damages because of bodily injury, sickness or disease, or
death of any person other than its employees;
(d) Claims for damages insured by usual personal injury liability
coverage which are sustained (i) by any person as a result of an offense
directly or indirectly related to the employment of such person by
Contractor, or (ii) by any other person;
(e) Claims for damages, other than to the Work itself, because of injury
to or destruction of tangible property, including loss of use resulting
therefrom; and
(f) Claims for damages because of bodily injury or death of any person or
property damages arising out of the ownership, maintenance or use of any
motor vehicle.
11.1.3 The liability insurance required by this Paragraph 11.1 shall be on a
comprehensive basis including:
(a) Premises - Operations (including X-C-U);
(b) Independent contractor's protection;
(c) Products and completed operations, which must be maintained for one
(1) year commencing with the issuance of the final Certificate of
Payment;
(d) Contractual, including specified provision for the Contractor's
obligations under Subparagraph 4.16;
(e) Owned, non-owned and hired motor vehicles; and
(f) Broad form coverage for property damage.
11.1.4 The insurance required in this Paragraph 11.1 shall be in not less than
the following amounts:
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(a) Workers' Compensation:
(i) Workers' or Workmen's Compensation - maximum permitted by
statute, unlimited, if permitted;
(ii) Employer's liability -- $100,000.
(b) Commercial General Liability:
Bodily injury and property damage having a combined single limit of
$5,000,000 and including the following coverage:
(i) Personal Injury;
(ii) Independent contractors;
(iii) Products and completed operations, which must be maintained for
one (1) year commencing with the issuance of the final certificate of
payment;
(iv) Contractual liability;
(v) Umbrella liability coverage in the amount of $10,000,000.
(c) Automobile Liability:
(i) Bodily injury and death -- $5,000,000/$100,000;
(ii) Property damage -- $500,000.
11.2 OWNER'S LIABILITY INSURANCE
11.2.1 Owner shall be responsible for purchasing and maintaining its own
liability insurance and, at its option, may purchase and maintain such
insurance as will protect it against claims which may arise from
operations under the Contract Documents.
11.3 PROPERTY INSURANCE
11.3.1 Unless otherwise provided, Contractor shall purchase and maintain
property insurance upon the entire Work and the Project site in the full
amount of the Contract Sum, as adjusted pursuant to the terms of the
Contract Documents. This insurance shall include the interests of Owner,
Contractor, Subcontractors and Sub-subcontractors in the Work and shall
insure against the perils of fire and extended coverage and shall include
"all risk" insurance for physical loss or damage. If the insurance which
Contractor will maintain contains deductibles, whichever party that has
experienced the loss shall pay the deductibles for any loss which is
subject to said deductibles and as a result is not
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recoverable from an insurance carrier. Such certificates shall bear the
endorsement that they are not to lapse until thirty (30) days after Owner
and Lender have received written notice as evidenced by return receipt of
registered or certified mail.
11.3.2 Any loss insured under Subparagraph 11.3.1 and 11.3.2 is to be adjusted
with Contractor and made payable to Contractor as trustee for the
insureds, as their interests may appear, subject to the requirements of
any applicable mortgagee clause and of Subparagraph 11.3.8. Contractor
shall pay each Subcontractor a just and equitable share of any insurance
monies received by Contractor, and by appropriate agreement, written
where legally required for validity, shall require each Subcontractor to
make payments to its subcontractors in similar manner.
11.3.3 Contractor shall file a Certificate of Insurance describing Contractor's
insurance coverage provided for hereunder with Owner before an exposure
to loss may occur.
11.3.4 If Owner requests in writing that insurance for risks other than those
described in Subparagraphs 11.3.1 and 11.3.2 be included in the property
insurance policy, Contractor shall, if possible, include such insurance,
and the cost thereof shall be charged to Owner by appropriate Change
Order.
11.3.5 Owner, Contractor, and all Subcontractors waive all rights against (a)
each other and Subcontractors, sub-subcontractors, agents and employees
each of the other, and (b) Architect and separate contractors, if any,
and their subcontractors, sub-subcontractors, agents and employees, for
damages caused by fire or other perils to the extent covered by insurance
obtained pursuant to this Paragraph 11.3 or any other property insurance
applicable to the Work, except such rights as they may have to the
proceeds of such insurance held by Owner as trustee. The foregoing waiver
afforded Architect, its agents and employees shall not extend to the
liability of Architect, its agents or employees arising out of (a) the
preparation or approval of maps, drawings, opinions, reports, surveys,
Change Orders, designs or specifications, or (b) the giving of or the
failure to give directions or instructions by Architect, its agents or
employees provided such giving or failure to give is the primary cause of
the injury or damage. Owner or Contractor, as appropriate, shall require
of Architect, separate contractors, Subcontractors and sub-subcontractors
by appropriate written agreements, similar waivers each in favor of all
other parties enumerated in this Subparagraph 11.3.6.
11.3.6 If, after such loss, no other special agreement is made, replacement of
damaged work shall be covered by an appropriate Change Order.
11.3.7 Contractor, as trustee, shall have power to adjust and settle any loss
with the insurers.
11.3.8 If Owner finds it necessary to occupy or use a portion or portions of the
Work prior to substantial completion thereof, such occupancy shall not
commence prior to a time to which the insurance company or companies
providing the property insurance have consented by endorsement to the
policy or policies. This insurance shall not be cancelled
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or lapsed on account of such partial occupancy. Consent of the insurance
company or companies to such occupancy or use shall not be unreasonably
withheld.
11.3.9 Nothing in this Paragraph however, shall alter the risk of loss,
excluding loss or damage resulting from faulty design, of all
improvements to be constructed and materials and equipment to be used in
the Work, which shall remain with and upon the Contractor until the Work
has been fully completed and accepted by way of issuance of final payment
to Contractor. Without limiting this liability, the Contractor shall be
entitled to use the proceeds of insurance obtained under this Paragraph
to effect repairs to and replacements of the Work in accordance with the
foregoing subparagraph.
11.4 LOSS OF USE INSURANCE
11.4.1 Owner, at its option, may purchase and maintain such insurance as will
insure it against loss of use of its property due to fire or other
hazards, however caused. Owner waives all rights of action against
Contractor for loss of use of Owner's property, including consequential
losses due or fire or other hazards, however caused, to the extent
covered by insurance under this Subparagraph 11.4.1.
11.5 WRAP-UP
11.5.1 In lieu of the insurance requirements set forth in Paragraphs 11.1.
through 11.3 hereof, Owner shall have the right to purchase "Wrap-Up"
insurance for the Project to protect the interest of Owner, Contractor,
any separate contractor and all Subcontractors. In such event, the
Contract Sum shall be reduced to reflect the total amount included
therein to compensate Contractor and all Subcontractors for the insurance
coverage which would have been required under Paragraph 11.1 hereof.
ARTICLE 12.
CHANGES IN THE WORK AND CLAIMS
12.1 CHANGE ORDERS
12.1.1 A Change Order is a written order to the Contractor signed by the Owner
and the Architect, issued after execution of the Contract, authorizing a
change in the Work or an adjustment in the Contract Sum or the Contract
Time. The Contract Sum and the Contract Time may be changed only by
Change Order. A Change Order signed by the Contractor indicates his
agreement therewith, including the adjustment in the Contract Sum or the
Contract Time; provided, however, that the Contractor shall be obligated
to proceed with any duly executed Change Order regardless of whether it
is signed by him or not.
12.1.2 The Owner, without invalidating the Contract, may order changes in the
Work within the general scope of the Contract consisting of additions,
deletions or other revisions, the
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Contract Sum and the Contract Time being adjusted accordingly. All such
changes in the Work shall be authorized by Change Order, and shall be
performed under the applicable conditions of the Contract Documents.
12.1.3 Upon issuance of a Change Order signed by Owner and Architect the
Contractor shall proceed promptly with the Changed Work notwithstanding
any disagreement regarding the resulting adjustments to the Contract Sum
or Contract Time. In such case, the Contract Sum and Contract Time shall
be adjusted unilaterally by the amounts shown in the Change Order,
subject to any reservation of rights regarding such dispute preserved by
written notice of claim by Contractor (pursuant to Paragraph 12.5) to
Owner and Architect prior to proceeding with the work in question.
12.1.4 The cost or credit to the Owner resulting from a change in the Work shall
be determined in one or more of the following ways:
(1) By mutual acceptance of a lump sum properly itemized and
supported by sufficient substantiating data to permit evaluation;
(2) By unit prices stated in the Contract Documents or subsequently
agreed upon;
(3) By cost to be determined in a manner agreed upon by the parties
and a mutually acceptable fixed or percentage fee; or
(4) By the method provided in Subparagraph 12.1.4.
(5) The cost or credit to the Owner resulting from a change in the
Work, or extra work, not covered by unit prices, shall be based on
the following percentages added to material and labor costs:
Percentage allowance to the Contractor for overhead (including Bond
Premiums), and profit for extra work performed by Contractor with his
own forces shall be ten (10%) percent. Percentage allowance to the
Contractor for overhead (including Bond Premiums) and profit for
extra work performed by the Contractor's Subcontractor and supervised
by the Contractor shall be five percent (5%).
12.1.5 If none of the methods set forth in Clauses 12.1.4(1), 12.1.4(2),
12.1.4(3) or 12.1.4(4) is agreed upon, the Contractor, provided he
receives a written order signed by the Owner, shall promptly proceed with
the Work involved. The cost of such Work shall then be determined by the
Architect on the basis of the reasonable expenditures and savings of
those performing the Work attributable to the change, including, in the
case of an increase in the Contract Sum, a reasonable allowance for
overhead and profit. In such case, and also under Subparagraphs 12.1.4(3)
and 12.1.4(4) above, the Contractor shall keep and present, in such form
as the Architect may prescribe, an itemized accounting together with
appropriate supporting data for inclusion in a Change Order. Unless
otherwise provided in the Contract Documents, cost shall be limited to
the following: cost of
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materials, including sales tax and cost of delivery; cost of labor,
including social security, old age and unemployment insurance, and fringe
benefits required by agreement or custom; workers' or workmen's
compensation insurance; bond premiums; rental value of equipment and
machinery; and the additional costs of supervision and field office
personnel directly attributable to the change. Pending final
determination of cost to the Owner, payments on account shall be made on
the Architect's Certificate for Payment. The amount of credit to be
allowed by the Contractor to the Owner for any deletion or change which
results in a net decrease in the Contract Sum will be the amount of the
actual net cost as confirmed by the Architect. When both additions and
credits covering related Work or substitutions are involved in any one
change, the allowance for overhead and profit shall be figured on the
basis of the net increase, if any, with respect to that change.
12.1.6 If unit prices are stated in the Contract Documents or subsequently
agreed upon, and if the quantities originally contemplated are so changed
in a proposed Change Order that application of the agreed unit prices to
the quantities of Work proposed will cause substantial inequity to the
Owner or the Contractor, the applicable unit prices shall be equitably
adjusted.
12.2 CONCEALED CONDITIONS
12.2.1 Should concealed conditions encountered in the performance of the Work
below the surface of the ground or should concealed or unknown conditions
in an existing structure be materially at variance with the conditions
indicated by the Contract Documents, or should unknown physical
conditions below the surface of the ground or should concealed or unknown
conditions in an existing structure of an unusual nature, differing
materially from those ordinarily encountered and generally recognized as
inherent in work of the character provided for in this Contract, be
encountered, the Contract Sum and Contract Time, as appropriate, shall be
equitably adjusted by Change Order upon written notice of claim written
by either Owner or Contractor made within ten (10) days after the first
observance of the conditions.
12.3 MINOR CHANGES IN THE WORK
12.3.1 The Architect, with the Owner's concurrence, will have authority to order
minor changes in the Work not involving an adjustment to the Contract Sum
or an extension of the Contract Time and not inconsistent with the intent
of the Contract Documents. Such changes shall be effected by written
order, and shall be binding on the Contractor. The Contractor shall carry
out such written orders promptly.
12.4 CHANGE ORDER REQUESTS AND PROPOSALS
12.4.1 Should Owner or Architect contemplate imposition of a change to the Work,
Architect may issue a Change Order Proposal Request to the Contractor to
indicate contemplated changes in the Work. Within ten (10) days from
receipt of such a Request, the Contractor
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shall submit to the Owner through the Architect, a Change Order Proposal
indicating his estimated price and its estimated effect, if any, on the
Contract Time for such changed work.
12.5 CLAIMS
12.5.1 Other than as provided in Paragraphs 12.1 and 12.2, the Contractor shall
not be entitled to any adjustment of Contract Sum or Contract Time except
in strict compliance with the procedures and under the circumstances
hereinafter set forth.
12.5.2 Should the Contractor contend that any other written or oral order (which
shall include direction, instruction, interpretation or determination)
from the Owner or Architect or other event or occurrence shall cause a
change in the work entitling Contractor to adjustment to the Contract Sum
or Contract Time, the Contractor shall:
1. Provide a written Notice of Claim to Owner and to Architect within
ten (10) days after the occurrence of the event upon which the claim is
based. Such Notice of Claim must clearly identify the order or event
which is relied upon and contain a clear statement of why it constitutes
a basis for adjustment.
2. Provide a written statement of claim to Owner and to Architect within
twenty (20) days after the occurrence of the event, which statement shall
include a clear, concise recital of the basis upon which the claim is
asserted, including a designation of the provision or provisions in the
Contract Documents on which the claim is based and the amount of time and
compensation claimed. All costs, expenses or damages and extensions of
time claimed as a result of this alleged change shall be described in
reasonable detail under the circumstances together with complete
supporting documentation.
3. To the extent that any adjustment to the Contract Time is sought, the
Contractor shall also fully comply with the requirements of Subparagraph
7.3.5.
12.5.3 Upon receiving a Statement of Claim, the Architect shall review any
timely claim submitted by the Contractor within a reasonable time. In
conducting this review, the Architect shall have the right to require the
Contractor to submit such additional or supporting documents, data and
other information as the Owner and/or Architect may require, and the
failure to submit such additional documents, data or other information
within fifteen (15) days following written request shall be deemed a
waiver of the claim. Upon completion of such review, the Architect, in
consultation with Owner, shall issue a Change Order amending the Contract
Sum or Contract Time or both as may be found proper. If the Contractor or
Owner disputes the determination made by the Architect as a condition
precedent to any further action to resolve such dispute, such party must
notify the other party and Architect in writing within five (5) days
following receipt of the decision of such dispute and permit Architect
fifteen (15) additional days to reconsider and, if it deems it
appropriate, modify its decision.
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12.5.4 The failure of the Contractor to assert any claim within the time limits
prescribed herein or in the form or manner precisely as required hereby
shall be deemed a material prejudice to the interests of the Owner and
shall constitute an absolute waiver of the claim and the right to file or
thereafter prosecute the same.
12.6 LIMITATION OF ENTITLEMENT
12.6.1 Except as provided in Paragraphs 12.1, 12.2 and 12.5, no order, statement
or conduct of the Owner or the Architect shall entitle the Contractor to
any adjustment hereunder of the Contract Sum or Contract Time. Nothing in
this Article shall excuse the Contractor from proceeding with the
Contract as changed. Nothing contained in this Article 12 shall operate
to limit or extinguish any right or defense of the Owner contained
elsewhere in the Contract Documents or available at law or in equity or
constitute a waiver by the Owner of any right or defense otherwise
available.
ARTICLE 13.
UNCOVERING OF WORK AND CORRECTION OF WORK
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13.1 UNCOVERING OF WORK
13.1.1 If any portion of the Work shall be covered contrary to the request of
the Owner or Architect or to requirements specifically expressed in the
Contract Documents, it must, if required in writing by the Owner or the
Architect, be uncovered for his observation and shall be removed and
replaced at the Contractor's expense.
13.1.2 If any other portion of the Work has been covered which the Owner or
Architect has not specifically requested to observe prior to being
covered, the Owner or Architect may request to see such Work and it shall
be uncovered by the Contractor. If such Work be found in accordance with
the Contract Documents, the cost of uncovering and replacement shall, by
appropriate Change Order, be charged to the Owner. If such Work should be
found not in accordance with the Contract Documents, the Contractor shall
pay such costs unless it be found that this condition was caused by the
Owner or a separate contractor in which event the Owner shall be
responsible for the payment of such costs.
13.2 CORRECTION OF WORK
13.2.1 The Contractor shall promptly correct all Work rejected by the Architect
or the Owner as defective or as failing to conform to the Contract
Documents whether observed before or after Substantial Completion and
whether or not fabricated, installed or completed. The Contractor shall
bear all costs of correcting and/or replacing all such rejected Work, and
including compensation of the Architect's additional services and all
other expenses incurred by Owner as a result of such correction including
the expense of repairing and/or replacing all other Work damaged or
destroyed by such replacement and re-execution.
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13.2.2 If it is determined that within one year after the date of Substantial
Completion of the Work or designated portion thereof or within one year
after acceptance by the Owner of designated equipment or within such
longer period of time as may be prescribed by law or by the terms of any
applicable special warranty required by the Contract Documents, any of
the Work is defective or not in accordance with the Contract Documents,
the Contractor shall correct it promptly after receipt of a written
notice from the Owner to do so unless the Owner has previously given the
Contractor a written specific acceptance of such condition. This
obligation shall survive termination or final completion of the Contract.
13.2.3 The Contractor shall remove from the Site all portions of the Work which
are defective or non-conforming and which have not been corrected unless
removal is waived by the Owner.
13.2.4 If the Contractor fails to correct defective or nonconforming Work within
the time period set forth in a written notice from the Owner to the
Contractor, the Owner, after written notice to the Surety, if any, may,
but shall not be required to, correct such defective or non-conforming
Work. All costs of such corrective action incurred by the Owner plus a
fee equal to ten (10%) percent of the costs of such Work incurred by the
Owner and all out-of-pocket expenses incurred by the Owner shall be
deducted from the balance of the Contract Sum due to the Contractor, or
if that is insufficient, the Contractor shall pay the difference to the
Owner upon demand.
13.2.5 If the Contractor does not proceed with the correction of such defective
or non-conforming Work within the time fixed by written notice from the
Owner to the Contractor, the Owner may remove such defective or non-
conforming Work and may store the material or equipment at the expense of
the Contractor. If the Contractor does not pay the costs of such removal
or storage within ten (10) days thereafter, the Owner may upon ten (10)
days additional written notice sell such Work at auction or at private
sale and shall account for the net proceeds thereof after deducting all
the costs that shall have been borne by the Contractor, including
compensation for the Architect's additional services made necessary
thereby and the Owner's out-of-pocket expenses together with a fee of ten
(10%) percent of such costs. If such proceeds of the sale do not cover
all costs which the Owner shall have borne, the difference shall be
charged to the Contractor and an appropriate Change Order shall be
issued. If the unpaid balance of the Contract Sum owing the Contractor is
not sufficient to cover such amount, the Contractor shall pay the
difference to the Owner upon demand.
13.2.6 The Contractor shall bear the cost of making good all work of the Owner
or separate contractors or damaged by such correction or removal.
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13.3 ACCEPTANCE OF DEFECTIVE OR NON-CONFORMING WORK
13.3.1 If the Owner prefers to accept defective or nonconforming Work, he may do
so instead of requiring its removal and correction, in which case a
Change Order will be issued to reflect a reduction in the Contract Sum in
an amount appropriate and equitable. Such adjustment shall be effective
whether or not final payment has been made.
13.4 NON-LIMITATION OF RIGHTS
13.4.1 Nothing contained in Article 13 shall be construed to establish a period
of limitation with respect to any other obligation which Contractor has
under the Contract Documents or under any separate warranty or guaranty
required thereby, including, without limitation, Paragraph 4.6 hereof, or
under law. The establishment of the time period of one year after date of
Substantial Completion or acceptance or such longer period of time as may
be prescribed by law or by the terms of any warranty or guaranty required
by the Contract Documents relates only to the specific obligation of
Contractor to correct the Work, and has no relationship to the time
within which its obligation to comply with the Contract Documents or
applicable provisions of law may be sought to be enforced, nor to the
time within which proceedings may be commenced to establish Contractor's
liability with respect to its obligations other than specifically to
correct the Work.
ARTICLE 14.
TITLE TO WORK AND LIENS
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14.1 UNENCUMBERED TITLE TO WORK
14.1.1 Contractor warrants and guarantees that title to all Work covered by any
Application for Payment, whether incorporated in the Project or not, will
pass to Owner free and clear of all liens, claims, security interests or
encumbrances upon the sooner of (i) the date such Work is incorporated
into the Project or (ii) the date Contractor receives payment for such
Work under Application for Payment; and that no Work covered by an
Application for Payment will have been acquired by Contractor or by any
other person performing the Work at the Project Site or furnishing
materials and equipment for the Project, subject to an agreement under
which an interest therein or an encumbrance thereon is retained by the
seller or otherwise imposed by Contractor or such other person.
14.2 LIEN RELINQUISHMENT AND REMOVAL
14.2.1 The Contractor shall fully and promptly pay and discharge any and all
commitments and claims and wholly protect and save harmless Owner and its
property against any and all demands and claims which may or could ripen
into liens or claims of lien on the Project or the property upon which it
is situated. Further, the Contractor shall not at any time suffer or
permit any lien, attachment, or other encumbrance under the laws of the
State in which the Project is situated or otherwise by any person or
persons whomsoever to
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remain on record against the Project or the property upon which it is
situated for any money due or any work done or materials furnished
relative to the Work or otherwise under the Contract Documents or by
reason of any other claim or demand against Contractor or any
Subcontractor. The Contractor shall impose similar contractual
requirements on its Subcontractors.
14.2.2 If Contractor fails to remove any mechanic's or other lien filed by
Contractor, its Subcontractors or materialmen, by satisfaction, bouncing
or otherwise, Owner may retain sufficient funds, out of any money due or
thereafter to become due to Contractor by Owner, to pay the same and to
pay all costs incurred by reason thereof, including reasonable attorneys'
fees and the cost of any lien bonds Owner may elect to obtain.
Additionally, without prejudice to any other rights or remedies and at
its sole election, Owner may pay said lien or liens and costs out of any
funds that are or that become due to Contractor and that are at any time
in the possession of the Owner.
14.3 SUBORDINATION OF RIGHTS
14.3.1 The Contractor agrees to subordinate, and agrees to have its
Subcontractors subordinate, any lien or claim or right of lien against
the Project and its real property which the Contractor and his
Subcontractors may now or hereafter have on account of construction
labor, services or materials provided under the Contract in connection
with the Work or otherwise for the Project, to any promissory note, loan
agreement, mortgage, deed to secure debt, or other instrument executed by
Owner which creates a first lien on the Project and the real property on
which it is located, including any extension, renewal, additional advance
or other modification thereof. The Contractor shall not, either in its
own right or through subrogation, assignment or otherwise, assert any
lien, privilege or claim which might prejudice or become superior to the
rights of the Lender under such first lien agreement granted by the
Owner. Contractor agrees further to execute any documentation reasonably
required by Owner or its Lender effectuating this subordination.
ARTICLE 15.
CONTRACTOR DEFAULT AND OWNER'S REMEDIES
---------------------------------------
15.1 EVENTS OF CONTRACTOR'S DEFAULT
15.1.1 An Event of Default shall occur if the Contractor shall:
(a) Fail or refuse to maintain progress of the Work in accordance
with the Contract Requirements and Construction Schedule (except to
the extent that an extension of time is allowed); or
(b) Fail to prosecute the Work or any of its components in
accordance with the Contract Documents; or
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(c) Make any material misrepresentation to the Owner (including but
not limited to misrepresentations in connection with any Application
for Payment); or
(d) Persistently or repeatedly refuse or fail to supply sufficient
properly skilled workmen or proper materials, to permit timely
prosecution of the Work; or
(e) Fail to make prompt payment to subcontractors, or for materials
or labor; or
(f) Disregard laws, ordinances, rules, regulations, or orders of any
public authority having jurisdiction; or
(g) Be adjudicated a bankrupt; or
(h) Make a general assignment for the benefit of his creditors; or
(i) Have a receiver appointed as a result of his insolvency; or
(j) Be declared in breach or default under any general Agreement of
Indemnity or other guaranty or indemnity agreement with a surety or
lender and such declaration not be revoked within ten (10) days
thereafter; or
(k) Otherwise commit a substantial violation of a provision of the
Contract Documents.
15.1.2 Upon the happening of an Event of Default by Contractor, the Owner may
elect to give the Contractor written notice thereof. The Contractor
thereafter shall cure the default as soon as possible and in any event
within seventy-two (72) hours from the giving of the notice of default.
15.2. OWNER'S REMEDIES FOR UNCURED CONTRACTOR DEFAULT
15.2.1 If the Contractor does not timely cure its default, as required by
Subparagraph 15.1.2 and upon 72 hours additional written notification to
Contractor and his surety, if any, the Owner may exercise any one or more
of the following rights and remedies:
1. Termination
-----------
(a) Owner may terminate all or any portion of this Contract and
take possession of the Work or portions thereof, including the
Contractor's materials, tools, equipment, construction
equipment, facilities, supplies, machinery and appliances used
or to be used in connection with the Project, whether on or off
the Project site, and to cause the remaining Work to be finished
by another contractor or contractors as may be
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deemed appropriate by the Owner. Such termination shall not
relieve the Contractor, his Surety, or any insurer of Contractor
of any liability or responsibility. Upon such termination and
written request by Owner, the Contractor shall assign its full
interests and rights to the Owner, in any or all of the
subcontracts and contracts with suppliers, or such part thereof
as the Owner may request, although the Owner shall not be
required to accept an assignment of, or otherwise perform under
any such contract. Owner shall be at liberty to negotiate with
and engage (for himself or for any other contractors that Owner
engaged to replace Contractor) any Subcontractors, suppliers, or
others that Contractor dealt with prior to termination.
(b) Upon termination of all or any portion of the Work, Owner
shall not be obligated to make any further payment for any
purpose thereafter until all of such Work shall have been
completed, and all subsequent costs necessary to complete the
Work (including or Architect's additional services necessitated
thereby) shall be paid for by Owner. If the cost to Owner for
completing such Work shall exceed the Contract Sum as adjusted
in accordance with the terms of the Contact Documents for the
Work or any portion thereof so terminated, such excess cost
shall be a rightful claim by Owner against Contractor and such
excess amount shall be immediately due and payable and shall be
paid by Contractor to Owner upon demand. If the cost to Owner
for completing such Work shall be less than the Contract Sum as
adjusted under the Contract Documents for the Work or any
portion thereof so terminated, Owner shall pay any amounts which
Contractor had earned with respect to such Work prior to Owner's
termination thereof; provided, however, that Owner shall in no
event pay an amount greater than the difference between the
Contract Sum for the Work or the portion thereof terminated
hereunder and the amount previously paid to Contractor.
(c) If only a portion of Work has been terminated by Owner,
Contractor agrees to perform the remainder of the Work in
conformity with the Contract Documents and in such a manner as
not to interfere with Owner or others in their performance and
completion of the portion of Work which was terminated.
(d) After the Work has been completed, the Contractor may
remove such materials, tools, plant equipment and appliances as
remain at the Property but the Owner shall not be liable for
anything that has been lost, stolen, destroyed, consumed, worn
or used.
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2. Withhold Money Due
------------------
The Owner may withhold an amount from any and all retainages and
Progress or other Payments then due or thereafter to become due
to the Contractor sufficient to cover the costs of curing such
default until the default has been corrected fully by the
Contractor or in the event same is contested by the Contractor.
3. Direct Additional Effort
------------------------
The Owner may direct the Contractor to furnish additional labor,
materials and equipment that, in the Owner's opinion, would be
sufficient to perform the Work and to expedite the delivery of
materials in order to complete the Work as required under the
Contract Documents. The additional labor, materials and
equipment shall be furnished without adjustment of the Contract
Sum by reason thereof.
4. Perform Work Without Termination
--------------------------------
The Owner may, without prejudice to any other rights or remedies
and without terminating this Agreement, and upon seventy-two
(72) hours prior written notice, perform the obligations in
respect of which the Contractor is in default (including without
limitation, obligations relating to the performance of the Work
and obligations relating to the payment of money) with its own
forces or by engaging other contractors. In such case an
appropriate Change Order shall be issued deducting from the
payments then or thereafter due the Contractor the cost of
correcting such deficiencies, including compensation for the
Architect's additional services and any attorney's fees, made
necessary by such default, neglect or failure. If the payments
then or thereafter due the Contractor are not sufficient to
cover such amount, the Contractor shall pay the difference to
the Owner upon demand.
5. Demand and Seek Specific Performance
------------------------------------
The Owner may demand that the Contractor specifically perform
the obligation in respect of which he is in default or the Owner
may seek a mandatory injunction requiring the Contractor to do
so or a prohibitory injunction restraining the Contractor from
acting contrary to this agreement or the Contract Documents,
including in each case a temporary injunction. The Owner may
obtain such injunctive relief without having to show irreparable
injury or the absence of an adequate remedy at law.
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15.3 OWNER'S REMEDIES FOR REPEATED DEFAULT
15.3.1 The Owner may exercise any one or more of the rights or remedies set
forth in Paragraph 15.2 above without first giving the Contractor or its
Surety a notice and opportunity to cure if: (a) on two or more prior
occasions the Owner shall have justifiably given the Contractor a notice
of default with respect to a similar or related default, or (b) the
Event of Default arises under bankruptcy or insolvency.
15.4 NONWAIVER OF DEFAULT REMEDIES
15.4.1 No election by Owner of or his failure to exercise any particular rights
or remedies set forth in Paragraph 15.2 and 15.3 shall operate as a
waiver of any other of such rights or remedies or prevent it from
exercising such rights or remedies, and the right of Owner to so act is
without the prejudice to its rights and without waiver of the
liabilities and obligations of Contractor or any Subcontractors, as the
case may be.
ARTICLE 16.
RIGHTS OF CONTRACTOR
--------------------
16.1 STOP WORK FOR NONPAYMENT OR SUSPENSION
16.1.1 If the entire Work should be suspended for a period of thirty (30) days
by order of Owner, or if Owner should fail to pay to Contractor within
fifteen (15) days after any payment becomes due and payable to
Contractor hereunder, through no act or fault of Contractor or any
Subcontractor or the agents or employees of either or any person
performing any of the Work under a contract with Contractor, then upon
seven (7) additional days' written notice to Owner and Architect,
Contractor may stop the Work until payment of the amount owing has been
received or the suspension order lifted.
16.1.2 The Contract Time shall be adjusted and the Contract Sum shall be
increased by the amount of the Contractor's reasonable duration and
costs of shutdown, delay and start-up, which shall be effected by
appropriate Change Order in accordance with Paragraph 12.1.
16.2 TERMINATION BY CONTRACTOR
16.2.1 If the Work is stopped for thirty (30) days by Contractor pursuant to
Paragraph 16.1, then upon seven (7) additional days' written notice to
the Owner and the Architect, the Contractor may terminate this
Agreement.
16.2.2 Upon such termination, the Contractor may recover from the Owner payment
for all Work executed and for any proven loss sustained upon any
materials, equipment, tools, construction equipment and machinery,
including reasonable profit but not any nondirect or consequential
damages.
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ARTICLE 17.
ASSIGNMENT
----------
17.1 ASSIGNMENT
17.1.1 The Contract Documents shall be binding upon the Owner and the
Contractor, their respective legal representatives, heirs, successors
and assigns. The Contractor shall not assign the whole or any part of
its obligations and undertakings under this Contract and shall not
assign any monies due or to become due hereunder without the prior
written consent of the Owner and the Lender. Any such assignment by the
Contractor of all or any part of the monies due or to become due the
Contractor under this Contract shall contain a provision to the effect
that the right of the assignee in and to any monies due or to become due
the Contractor hereunder shall be subject to the prior claims of all
persons, firms and corporations for services rendered or materials
supplies for the performance of the Work called for in this Contract and
to any and all claims of the Owner or of the Lender, or both, against
the Contractor in connection with the Contractor's performance under
this Contract and under the other Contract Documents. Any request by the
Contractor for the Owner to approve any assignment hereunder shall be
accompanied by a written statement for the Surety whereby the Surety
consents to the assignment and agrees that such assignment will not
affect the Surety's obligation under the Bond. No assignment by the
Contractor hereunder shall relieve the Contractor of any of its
obligations under this Contract or under the other Contract Documents.
The Contractor acknowledges that the Owner may assign its rights
hereunder to the Lender and the Contractor agrees to execute such
written documents to perfect such assignment.
ARTICLE 18.
DISPUTES
--------
18.1 OBLIGATION TO PROCEED AND PERFORM
18.1.1 In the event of any claim, dispute or matter in question (collectively
called a dispute), pending resolution of the dispute the Owner shall
make payments of undisputed amounts. If the Owner requires the
Contractor to proceed with the Work in a manner directed by the Owner
pending resolution of the dispute, the Contractor shall comply with the
requirement but reserving his rights to assert a request for an increase
in Contract Time or Contract Sum as may be applicable pursuant to
Article 12.
18.1.2 Contractor shall carry on the Work and adhere to the Project Schedule
during and notwithstanding all disputes or disagreements with Owner. No
Work shall be delayed or postponed pending resolution of any disputes or
disagreements, except as Contractor and Owner may otherwise agree in
writing.
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ARTICLE 19.
RIGHTS OF OWNER
---------------
19.1 CONDITIONS EXCUSING PERFORMANCE
19.1.1 The Owner shall not be responsible for any failure or inability of the
Owner to perform any of its obligations hereunder by reason of fire,
flood, strike or labor dispute (whether legal or illegal), embargo,
earthquake, work stoppages, acts of any government, acts of war,
sanctions by civil or military authorities, rebellion, civil commotion
or any other reason beyond the Owner's control, whether or not similar
to those listed, but does not include unavailability of funds.
19.2 OWNER'S RIGHT TO SUSPEND WORK
19.2.1 The Owner or the Architect may order the Contractor in writing to
suspend, delay or interrupt all or any part of the Work for such period
of time as he may determine to be appropriate for the convenience of the
Owner.
19.2.2 If the Performance of the Work is, for an unreasonable period of time,
suspended, delayed or interrupted by the Owner, an adjustment of the
Contract Sum shall be made for any increase in Contractor's costs of
performance (excluding profit) and of the Contract Time for any increase
in the time required for performance of the Work necessarily caused by
such unreasonable suspension, delay or interruption, and the Contract
modified in writing accordingly. However, no equitable adjustment shall
be made under this Subparagraph for any suspension pursuant to
Subparagraph 19.3.1, or for which an equitable adjustment is provided or
excluded under any other provision of the Contract Documents and no
adjustment shall be made to the extent that performance would have been
so suspended, delayed or interrupted by any other cause, including the
fault or negligence of the Contractor. No claim for an equitable
adjustment under this Subparagraph shall be allowed before the
Contractor shall have notified the Owner and the Architect in writing of
the act or failure to act involved and unless the claims for increased
costs or increased time required are asserted in writing to the Owner
and the Architect within ten (10) days after the termination of such
suspension, delay or interruption.
19.3 OWNER'S RIGHT TO STOP WORK
19.3.1 If the Contractor fails to correct defective Work as required by
Paragraph 13.2, or persistently fails to carry out the Work or supply
labor or materials in accordance with the Contract Documents, the Owner
may order in writing the Contractor to stop the Work, or any portion
thereof, until the cause for such order has been eliminated; however,
this right of the Owner to stop the Work shall not give rise to any duty
on the part of the Owner to exercise this right for the benefit of the
Contractor or any other person or entity.
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ARTICLE 20.
BONDS
-----
20.1 PERFORMANCE AND PAYMENT BONDS
20.1.1 Owner shall have the right to require Contractor to furnish Owner a
corporate surety performance bond and labor and material payment bond,
each in the amount of 100 percent of the Cost of the Work. The premiums
for these bonds will be paid by Owner. Owner shall have the right to
require Contractor to obtain corporate surety performance bonds and
labor and material payment bonds covering the work of any and
Subcontractors whose respective portion of the Work totals Seventy-Five
Thousand ($75,000.00) Dollars or more; provided that, if the
construction Lender requires such bonds from other Subcontractors,
Contractor will obtain such required bonds. The premiums for such bonds
will be paid by the Contractor. The bonds shall be executed by a surety
company authorized to engage in such business in the state in which the
Project is situated and approved by the Owner. The form of the bonds
shall be subject to the approval by Owner.
20.1.2 If the surety on any bond furnished by Contractor or any Subcontractor
is declared a bankrupt or becomes insolvent or its right to do business
is terminated in the state where the Project is located, Contractor
shall within ten (10) days thereafter substitute another bond and
Surety, both of which must be acceptable to Owner.
ARTICLE 21.
MISCELLANEOUS PROVISIONS
------------------------
21.1 GOVERNING LAW
21.1.1 The Contract shall be governed by the laws of the State of Georgia.
21.2 WRITTEN NOTICE
21.2.1 All applications for payment, notices, requests and other matters
required or permitted to be give hereunder shall be transmitted to the
addresses shown on the Owner-Contractor Agreement by letter, telex,
telegram, mailgram, cable or private commercial courier. Any party may
change the address for the giving of notices to it by giving due notice
of the new address to the other parties, provided that the address must
be a place in the United States of America where the mails and either
telexes, telegrams, mailgrams or cables are regularly received.
21.2.2 The notice shall be deemed given to the party when properly transmitted
to it at its address set forth in the Owner-Contractor Agreement.
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21.3 CLAIMS FOR DAMAGES
21.3.1 Should either party to the Contract suffer injury or damage to person or
property because of any act or omission of the other party or of any of
his employees, agents or others for whose acts he is legally liable,
claim shall be made in writing to such other party within a reasonable
time after the first observance of such injury or damage.
21.4 NO WAIVER
21.4.1 No action or failure to act or to require in any one or more instances
upon the strict performance of any one of more of the provisions of the
Contract Documents, or to exercise any right herein contained or
provided by law by the Owner, the Architect, or the Contractor shall
constitute a waiver or relinquishment of any right or duty afforded any
of them under the Contract, nor shall any such action of failure to act
constitute an approval of or acquiescence in any breach thereunder, nor
shall it be construed as a waiver of the right to subsequently demand
strict performance or exercise such rights, and the rights shall
continue unchanged and remain in full force and effect, except as may be
specifically agreed in writing.
21.5 RIGHTS AND REMEDIES
21.5.1 Except as set forth in Subparagraph 21.5.2, the duties and obligations
imposed by the Contract Documents and the rights and remedies available
thereunder shall be in addition to and not a limitation of any duties,
obligations, rights and remedies otherwise imposed or available by law.
21.5.2 The Contractor agrees that he can be compensated by money damages for
any breach of this Contract which may be committed by the Owner and
hereby agrees that no default, act, or omission of the Owner or the
Architect, (except for failure to make payments as specifically
addressed in Article 16) shall constitute a material breach of the
Contract entitling the Contractor to cancel or rescind the provisions of
this Contract or (unless the Owner shall so consent or direct in
writing) to suspend or abandon performance of all or any part of the
Work. The Contractor hereby waives any and all rights and remedies to
which he might otherwise be or become entitled, save only his right to
money damages.
21.6 SIGNS AND ADVERTISING
21.6.1 Contractor shall not place or maintain any advertising signs, bills or
posters, not shall he allow same to be placed in or about the site or
structure, except with the prior written consent of Owner.
21.7 ATTORNEY FEES
21.7.1 Should it be necessary for Owner, Lender or Contractor to employ an
attorney to enforce any part of the Contract or the Contract Documents,
then the party adjudged in breach or
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default shall pay the reasonable fee of such attorney and all other
cases related to such enforcement or defense.
21.8 AGREEMENT READ AND UNDERSTOOD
21.8.1 Each and every one of the Articles of the General Conditions and the
other Contract Documents has been read, examined, and the meaning of the
foregoing is fully understood by the Contractor.
21.9 COMPLETE AGREEMENT
21.9.1 There are no understandings between the parties to this Contractor other
than as set forth herein and in the other Contract Documents, and any
and all other verbal or written agreements or arrangements between the
parties hereto relative to any item or provision of this Contract or of
the other Contract Documents are hereby superseded and voided.
21.10 INTEREST
21.10.1 Payments due and unpaid under the Contract Documents shall bear interest
from the date payment is due at such rate as the parties may agree upon
in writing or, in the absence thereof, at the legal rate prevailing at
the place of the Project.
21.11 LABOR RELATIONS
21.11.1 Contractor shall use its best efforts to prevent and avoid labor
disputes and other labor problems which may affect the Work. Contractor
warrants and represents that it presently knows of no fact, the
existence of which might lead to a labor dispute which might affect the
Work.
21.11.2 In the event of any strike, picket, sympathy strike, work stoppage, or
other form of labor dispute at the Project whether directed at the
Contractor, other separate contractors, subcontractors, suppliers or
other persons, Contractor shall notwithstanding continue to perform its
Work required hereby without interruption or delay. In the event
Contractor fails to continue its Work without interruption or delay,
because of any of such events, the Owner, in addition to all other
rights it has in the Contract Documents and at law, may terminate the
Contract after giving Contractor seven (7) days written notice of its
intent to do so for reason of Contractor's failure to perform.
Additionally, if Contractor is party to one or more labor agreement,
Contractor shall take all reasonable action to avoid any Work stoppage,
and in the event of a Work stoppage, Contractor shall within twenty-four
(24) hours take all legal action permitted by such labor agreements or
by law in order to expedite resumption of Work on this Project.
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21.12 CONVENANT NOT TO SUE
21.12.1 Should the Owner elect to terminate the Agreement with the Contractor
for default as provided herein, then the Contractor covenants that he
will not file any suit or proceeding of any kind against the Owner by
reason thereof, until the Owner shall have either abandoned the Project
or completed the Contractor's Work as required under the Contract. If
the Contractor should breach this covenant not to sue, then Contractor
shall be liable to the Owner for all costs resulting to the Owner
therefrom including, without limitation, all attorney's fees expended by
the Owner in defending said suit or proceeding, unless a positive
determination is made therein that the Contractor's termination by the
Owner was motivated by fraud and bad faith and was without justification
of any kind.
21.13 UNENFORCEABILITY OF ANY CLAUSE
21.13.1 If any clause of this Contract is held as a matter of law to be
unenforceable or unconscionable, the remainder or the Contractor shall
be enforceable without such clause.
21.14 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
21.14.1 The representations and warranties made by the parties in the Contract
Documents and pursuant thereto shall survive the consummation of the
transaction contemplated therein and continue in full force and effect
without limitation.
21.15 NOT TO BENEFIT THIRD PARTIES
21.15.1 No provisions of this Contract shall in any way inure to the benefit of
any third party (including the public at large) so as to constitute such
person a third party beneficiary of this Contract or of any one or more
of the terms and conditions of this Contract or otherwise give rise to
any cause of action in any person not a party to the Owner-Contractor
Agreement, except as provided elsewhere in the Contract Documents.
21.16 TERMINATION OR SUSPENSION BY THE OWNER FOR CONVENIENCE
21.16.1 The Owner may, without cause, order the Contractor in writing to
suspend, delay or interrupt the Work in whole or in part for such period
of time as the Owner may determine.
21.16.2 An adjustment shall be made for increases in the cost of performance of
the Contract, including profit on the increased cost of performance,
caused by suspension, delay or interruption. No adjustment shall be made
to the extent:
1. That performance is, was or would have been so suspended, delayed
or interrupted by another cause for which the Contractor is
responsible; or
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2. That an equitable adjustment is made or denied under another
provision of this Contract.
21.16.3 Adjustments made in the cost of performance may have a mutually agreed
fixed or percentage fee.
21.16.4 The Owner may terminate this Contract without cause for the Owner's
convenience at any time before a Notice to Proceed is issued to the
Contractor shall be entitled to no compensation from the Owner.
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EXHIBIT "D"
-----------
WAIVER OF LIEN
The undersigned hereby forever waives and releases any and all types and
forms of contractors', mechanics', and materialmen's lien and other liens
(including, without limitation, any liens which might otherwise have been filed
pursuant to Virginia Codes) with respect to labor or services performed or
materials furnished to the _______________________________ on that certain
construction project (the "Project"), which is being constructed by Bovis
Construction Corp., a Florida corporation ("Contractor") under the
Owner-Contractor Agreement for ABB Power Systems- office building, Chesterfield
County, Virginia dated __________, 1999 between Contractor and Wells REIT,
LLC -VA I, a Georgia limited liability company, and the Land, as described in
the legal description attached hereto as Exhibit "D-1".
Should any claim of lien be filed on the real property records of any
county in the Commonwealth of Virginia by the Undersigned contrary to the terms
of this Waiver of Lien, it is hereby agreed by the undersigned that such claim
of lien shall be dissolved as a matter of record by the recordation of this
Waiver of Lien.
By execution of this Waiver of Lien, the undersigned hereby binds its
representatives, heirs and assigns or its successors and assigns, as the case
may be.
IN WITNESS WHEREOF, the undersigned has caused this Waiver of Lien to be
executed this _________ day of ________________, ______.
COMPANY NAME
Signed, sealed, and delivered By: _____________________________
in the presence of: Title: __________________________
______________________________
Unofficial Witness
______________________________
Notary Public
<PAGE>
EXHIBIT "E"
-----------
CONTRACTOR'S AFFIDAVIT
STATE OF GEORGIA
COUNTY OF
TO: Wells REIT, LLC - VA I
3885 Holcomb Bridge Road
Norcross, GA 30092
FROM: Bovis Construction Corp.
RE: Construction Agreement dated __________, 1999 between Wells REIT, LLC - VA
I, (the "Owner"), and Bovis Construction Corp. (the "Undersigned"), for
construction of ABB Power Systems office building, Chesterfield County,
Virginia (the "Contract").
KNOW ALL MEN BY THESE PRESENTS
1. The undersigned hereby certifies that all work required under the Contract
has been performed in accordance with the terms thereof, that all
materialmen, subcontractors, mechanics, and laborers have been paid and
satisfied in full in accordance with the terms of the Contract and that
there are no outstanding claims of any character arising out of the
performance of the Contract which have not been paid and satisfied in full.
2. The undersigned further certifies that to the best of his knowledge and
belief there are no unsatisfied claims for damages resulting from injury or
death to any employees, subcontractors, or the public at large, arising out
of the performance of the Contract, or any suit or claims for any other
damage of any kind, nature, or description which might constitute a lien on
the property of the Owner.
3. The undersigned makes this affidavit for the purpose of receiving final
payment in the amount of $ in full settlement of all claims
arising under or by virtue of the Contract and acceptance of such payment
is acknowledge as a release of the Owner from any and all claims arising
under or by virtue of the Contract.
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed and sealed this instrument
this _______ day of ____________________,_____.
BOVIS CONSTRUCTION CORP.
BY:___________________________
TITLE:________________________
Personally appeared before the undersigned,
_________________________, who, after
being duly sworn, deposes and says that the
facts stated in the above affidavit are true.
_____________________________________________
Notary Public
(NOTARIAL SEAL)
My Commission Expires:
_____________________________________________
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EXHIBIT "F"
-----------
FINAL WAIVER OF LIEN
STATE OF _______________________
COUNT OF _______________________
Personally appeared before the undersigned Notary Public _______________,
who, having being duly sworn, deposes and says that he is the (Owner, Partner,
or Office), of (Name of Company), a corporation organized and doing business
-----------------
under the laws of the State of ______________________, and has been duly
authorized by said corporation to make this affidavit,
[a PARTNERSHIP composed of __________________________________________
a SOLE TRADER doing business as _____________________________________
with principal place of business in the City of _____________ and has
personal knowledge of the facts hereinafter set forth.]
Affiant further swears that on the _________ day of ______, 19__, said
(Name of Company), entered into a current contract with Bovis Construction
- -----------------
Corp. to furnish all work specified by the Contract for work on the ABB Power
Systems office building located on Waterford Lake Drive, Chesterfield County,
Virginia, on that property further described in the legal description attached
hereto as Exhibit "D-1" (the "Property"), said Bovis Construction Corp. being
the General Contractor for the complete erection of said building.
Affiant furthers swears that all work contemplated to be performed under
this contract has been completed; that all materials and labor used in
connection therewith have been paid in full, and that there are no claims of any
nature outstanding that might become a lien or claim against the Property or any
obligation enforceable against Bovis Construction Corp. or any bond given by it
in connection with said work; that this Affidavit is given for the purpose of
assuring Wells REIT, LLC - VA I of the above facts and to induce it to make
payment to Bovis Construction Corp. in accordance with terms of said contract.
<PAGE>
Affiant further swears that employees have been paid in full at the
prevailing scale of wages for the class of work performed and for all services
rendered in connection with said contract.
SWORN TO AND SUBSCRIBED BEFORE
ME THIS ___________ DAY OF
_________________________, ___.
______________________________ ________________________________
(COMPANY OFFICIAL)
______________________________
NOTARY PUBLIC
(NOTARIAL SEAL)
My Commission expires:
______________________________
-4-
<PAGE>
EXHIBIT 10.61
LEASE AGREEMENT
by and between
WELLS REIT, LLC - VA I a limited liability company
("Landlord")
and
ABB POWER GENERATION INC.
("Tenant")
dated
June 1, 1999
for
Suite Number 400
containing
80,000 square feet of Rentable Floor Area
Term: Eighty Four (84) Months
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Certain Definitions.......................................... 1
2. Lease of Premises............................................ 2
3. Term......................................................... 3
4. Possession................................................... 3
5. Rental Payments.............................................. 3
6. Base Rental.................................................. 4
7. Additional Rental............................................ 4
8. Operating Expenses........................................... 5
9. Tenant Taxes; Rent Taxes..................................... 8
10. Payments..................................................... 8
11. Late Charges................................................. 8
12. Use Rules.................................................... 9
13. Alterations.................................................. 9
14. Repairs...................................................... 10
15. Landlord's Right of Entry.................................... 10
16. Insurance.................................................... 10
17. Waiver of Subrogation........................................ 11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
18. Default..................................................... 12
19. Waiver of Breach............................................ 15
20. Assignment and Subletting................................... 15
21. Destruction................................................. 16
22. Intentionally Omitted....................................... 17
23. Services by Landlord........................................ 17
24. Attorneys' Fees and Homestead............................... 17
25. Time........................................................ 17
26. Subordination, Attornment and Non-Disturbance............... 18
27. Estoppel Certificates....................................... 18
28. Cumulative Rights........................................... 19
29. Holding Over................................................ 19
30. Surrender of Premises....................................... 19
31. Notices..................................................... 20
32. Damage or Theft of Personal Property........................ 20
33. Eminent Domain.............................................. 20
34. Parties..................................................... 21
35. Indemnification............................................. 22
36. Force Majeure............................................... 22
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
37. Landlord's Liability........................................ 22
38. Landlord's Covenant of Quiet Enjoyment...................... 22
39. Letter of Credit............................................ 23
40. Hazardous Substances........................................ 27
41. Submission of Lease......................................... 27
42. Severability................................................ 27
43. Entire Agreement............................................ 27
44. Headings.................................................... 28
45. Broker...................................................... 28
46. Governing Law............................................... 28
47. Special Stipulations........................................ 28
48. Authority................................................... 28
</TABLE>
Rules and Regulations
Exhibit "A" - Legal Description
Exhibit "B" - Floor Plan
Exhibit "C" - Supplemental Notice
Exhibit "D" - Construction Obligations
Exhibit "D-1" - Plans and Specifications
Exhibit "D-2" - Coordination of Layout Work by Landlord
Exhibit "D-3" - Materials Standards
Exhibit "E" - Building Standard Services
Exhibit "E-1" - Janitorial Specifications
Exhibit "F" - Special Stipulations
Exhibit "G" - Refusal Space
Exhibit "H" - Estimate
iii
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT ("Lease"), is made and entered into this 1/st/ day of
June 1999 by and between Landlord and Tenant.
W I T N E S S E T H:
- - - - - - - - - -
1. Certain Definitions. For purposes of this Lease, the following terms
-------------------
shall have the meanings hereinafter ascribed thereto:
(a) Landlord: WELLS REIT, LLC - VA I
(b) Landlord's Address:
c/o Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
(c) Tenant: ABB POWER GENERATION INC.
(d) Tenant's Address:
Prior to the Rental Commencement Date:
5309 Commonwealth Centre Parkway
Midlothian, Virginia 23112
On and after the Rental Commencement Date:
Suite 400
____ Waterford Lake Drive
Midlothian, Virginia 23112
(e) Building Address:
____ Waterford Lake Drive
Midlothian, Virginia 23112
(f) Suite Number: 400
(g) Rentable Floor Area of the Demised Premises:
80,000 square feet (subject to the provisions of Article 1 and
the Special Stipulations attached to this Lease)
(h) Rentable Floor Area of the Building:
97,350 square feet
<PAGE>
(i) Lease Term: As set forth in Article 3.
(j) Base Rental Rate:
RATE PER SQUARE FOOT
OF RENTABLE FLOOR AREA
LEASE YEAR OF DEMISED PREMISES
---------- ------------------------
FIRST YEAR $11.95/sq. ft. (subject to
adjustment as set forth in Special
Stipulation 10 of this Lease).
SECOND YEAR AND
EACH LEASE YEAR THEREAFTER 102.5% of the Base Rental Rate for
the immediately preceding Lease
Year
(k) Rental Commencement Date: The later of (x) April 1, 2000, or (y)
the earlier of (I) the date which is ten (10) days after Substantial
Completion (as defined in Paragraph 1[i] of Exhibit "D" attached hereto) or
-----------
(II) the date upon which Tenant takes possession and occupies any portion
of the Demised Premises for business purposes.
(l) Construction Allowance for Demised Premises: $20.00 per square
foot of Rentable Floor Area of the Demised Premises as of December 31,
1999.
(m) Broker(s): Morton G. Thalhimer, Inc. and ADEVCO Realty Group,
LLC.
2. Lease of Premises. Landlord, in consideration of the covenants and
-----------------
agreements to be performed by Tenant, and upon the terms and conditions
hereinafter stated, does hereby rent and lease unto Tenant, and Tenant does
hereby rent and lease from Landlord, certain premises (the "Demised Premises")
in the building (hereinafter referred to as "Building") located or to be located
on that certain tract of land (the "Land") more particularly described on
Exhibit "A" attached hereto and by this reference made a part hereof, which
- -----------
Demised Premises comprise 80,000 square feet of Rentable Floor Area (subject to
the provisions of Article 1 and the Special Stipulations attached to this Lease)
and are outlined on the floor plans attached hereto as Exhibit "B" and by this
-----------
reference made a part hereof, with no easement for light, view or air included
in the Demised Premises or being granted hereunder. The "Project" is comprised
of the Building, the Land, the Building's parking facilities, any walkways,
covered walkways or other means of access to the Building and the Building's
parking facilities, all common areas, including any lobbies or plazas, and any
other improvements or landscaping on the Land. For purposes of this Lease,
"common areas" shall include any improvements, areas and facilities from time to
time made available by Landlord, in Landlord's sole discretion, and upon such
conditions as Landlord shall reasonably determine, for the non-exclusive, common
and joint use or benefit of Landlord, Tenant and other tenants, occupants and
users of the Project, and their respective employees, agents, subtenants,
concessionaires, licensees, customers and invitees, or any of them. The common
areas may include (not to be deemed a representation as to their availability),
but are not limited to, sidewalks, parking areas, access roads, driveways,
serviceways, tunnels, loading docks, and landscaped areas, together with all
hallways, lobbies, corridors, elevators, entrances and exits, restrooms,
stairways and other similar areas within the Building designated by Landlord,
from time to time, for the general use of all of the occupants of the Building.
For such period of time as Tenant has the right under this Lease to occupy the
Demised Premises, Tenant shall have the nonexclusive right to use the common
areas in common with Landlord, Tenant and other tenants, occupants and users of
the Project, and their respective employees, agents, subtenants,
concessionaires, licensees, customers and invitees. For purposes of this Lease,
the Rentable Floor Area of the Demised Premises shall be the Rentable Area of
the Demised Premises (and the Rentable Floor Area of the Building shall be the
Rentable Area of the Building from time to time) as defined and determined in
accordance with the
-2-
<PAGE>
American National Standard Method of Measuring Floor Area in Office Buildings,
ANSI/BOMA Z65.1-1996 published by the Building Owners and Managers Association
International and certified by Landlord's architect.
3. Term. The term of this Lease ("Lease Term") shall commence on the
----
date first hereinabove set forth, and, unless sooner terminated as provided in
this Lease, shall end on the expiration of the period designated in Article 1(i)
above, which period shall commence on the Rental Commencement Date, unless the
Rental Commencement Date shall be other than the first day of a calendar month,
in which event such period shall commence on the first day of the calendar month
following the month in which the Rental Commencement Date occurs. Promptly after
the Rental Commencement Date Landlord shall send to Tenant a Supplemental Notice
in the form of Exhibit "C" attached hereto and by this reference made a
-----------
part hereof, specifying the Rental Commencement Date, the date of expiration of
the Lease Term in accordance with Article 1(i) above and certain other matters
as therein set forth.
4. Possession. The obligations of Landlord and Tenant with respect to
----------
the Building and the initial leasehold improvements to the Demised Premises are
set forth in Exhibit "D" attached hereto and by this reference made a part
-----------
hereof. Within thirty (30) days after the Rental Commencement Date, Tenant shall
have the right to prepare and provide to Landlord a list of incomplete or
defective Punch List Items, all of which shall be promptly repaired and/or
completed by Landlord at its sole cost and expense, and, for a period of one (1)
year following the date Tenant takes possession of any portion of the Demised
Premises, Tenant shall have the right to notify Landlord of its discovery of
latent defects in the Demised Premises all of which shall be promptly repaired
and/or completed by Landlord at its sole cost and expense. Except for such Punch
List Items so specified by Tenant within said thirty (30) day period, and except
for such latent defects specified by Tenant within such one (1) year period, the
taking of possession by Tenant shall be deemed conclusively to establish that
Landlord's construction obligations with respect to the Demised Premises have
been completed in accordance with the plans and specifications approved by
Landlord and Tenant and that the Demised Premises, to the extent of Landlord's
construction obligations with respect thereto, are in good and satisfactory
condition.
5. Rental Payments.
---------------
(a) Commencing on the Rental Commencement Date, and continuing
thereafter throughout the Lease Term, Tenant hereby agrees to pay all Rent
due and payable under this Lease. As used in this Lease, the term "Rent"
shall mean the Base Rental, Tenant's Forecast Additional Rental, Tenant's
Additional Rental, and any other amounts that Tenant assumes or agrees to
pay under the provisions of this Lease that are owed to Landlord, including
without limitation any and all other sums that may become due by reason of
any default of Tenant or failure on Tenant's part to comply with the
agreements, terms, covenants and conditions of this Lease to be performed
by Tenant. Base Rental together with Tenant's Forecast Additional Rental
shall be due and payable in twelve (12) equal installments on the first day
of each calendar month, commencing on the Rental Commencement Date and
continuing thereafter throughout the Lease Term and any extensions or
renewals thereof, and Tenant hereby agrees to pay such Rent to Landlord at
Landlord's address as provided herein (or such other address as may be
designated by Landlord from time to time) monthly in advance. Tenant shall
pay all Rent and other sums of money as shall become due from and payable
by Tenant to Landlord under this Lease at the times and in the manner
provided in this Lease, without demand, set-off or counterclaim except as
expressly otherwise permitted by the terms of this Lease.
(b) If the Rental Commencement Date is other than the first day of a
calendar month or if this Lease terminates on other than the last day of a
calendar month, then the installments of Base Rental and Tenant's Forecast
Additional Rental for such month or months shall be prorated on a daily
basis and the installment or installments so prorated shall be paid in
advance. Also, if the Rental Commencement Date occurs on other than the
first day of a calendar year, or if this Lease expires or is terminated on
other than the last day of a calendar year, Tenant's Additional Rental
shall be prorated for
-3-
<PAGE>
such commencement or termination year, as the case may be, by multiplying
such Tenant's Additional Rental by a fraction, the numerator of which shall
be the number of days of the Lease Term (from and after the Rental
Commencement Date) during the commencement or expiration or termination
year, as the case may be, and the denominator of which shall be 365, and
the calculation described in Article 7 hereof shall be made as soon as
possible after the expiration or termination of this Lease, Landlord and
Tenant hereby agreeing that the provisions relating to said calculation
shall survive the expiration or termination of this Lease.
6. Base Rental. From and after the Rental Commencement Date Tenant shall
-----------
pay to Landlord a base annual rental (herein called "Base Rental") for each
Lease Year equal to the sum of (a) the Base Rental Rate set forth for such Lease
Year in Article 1(j) above multiplied by the Rentable Floor Area of the Demised
Premises set forth in Article 1(g) above, plus (b) the monthly payment, if any,
calculated pursuant to Special Stipulation 9 with respect to the Additional
Allowance. As used in this Lease, the term "Lease Year" shall mean the twelve
month period commencing on the Rental Commencement Date, and each successive
twelve month period thereafter during the Lease Term, except that if the Rental
Commencement Date is not on the first day of a calendar month, the first Lease
Year shall extend through the end of the twelfth month after the Rental
Commencement Date.
7. Additional Rental.
-----------------
(a) For purposes of this Lease, "Tenant's Forecast Additional Rental"
shall mean Landlord's reasonable estimate of Tenant's Additional Rental for
the coming calendar year or portion thereof. If at any time it reasonably
appears to Landlord that Tenant's Additional Rental for the current
calendar year will vary from Landlord's estimate by more than ten percent
(10%), Landlord shall have the right to revise, by notice to Tenant, its
estimate for such year, and subsequent payments by Tenant for such year
shall be based upon such revised estimate of Tenant's Additional Rental.
Failure to make a revision contemplated by the immediately preceding
sentence shall not prejudice Landlord's right to collect the full amount of
Tenant's Additional Rental. Prior to the Rental Commencement Date and
thereafter on or before November 1 of each calendar year during the Lease
Term, including any extensions thereof, Landlord shall present to Tenant a
statement of Tenant's Forecast Additional Rental for such calendar year;
provided, however, that if such statement is not given on or before
November 1 of any calendar year as aforesaid, Tenant shall continue to pay
during the next ensuing calendar year on the basis of the amount of
Tenant's Forecast Additional Rental payable during the calendar year just
ended until the month after such statement is delivered to Tenant. For
purposes of determining Tenant's Forecast Additional Rental the calendar
year within which the Rental Commencement Date occurs, the estimated
Operating Expenses for such calendar year shall be deemed to be $5.00 per
square foot multiplied by the number of square feet of Rentable Floor Area
of the Building.
(b) For purposes of this Lease, "Tenant's Additional Rental" shall
mean for each calendar year (or portion thereof) Tenant's Share of the
Operating Expenses (as defined below) for such calendar year (or portion
thereof). The "Tenant's Share" shall mean the fraction (which may be
expressed as a percentage) determined by dividing the number of square feet
of Rentable Floor Area of the Demised Premises by the number of square feet
of Rentable Floor Area of the Building. The Tenant's Share shall be a
adjusted to reflect any change in the Rentable Floor Area of the Demised
Premises or Rentable Floor Area of the Building. In the event the Building
is not fully occupied during any calendar year (or portion thereof), the
Operating Expenses which are variable in nature shall be adjusted for the
purposes of determining Tenant's Additional Rental to an amount that would
have been incurred by Landlord for such calendar year (or portion thereof)
if the Building had been fully occupied during such calendar year (or
portion thereof). Landlord agrees that only Operating Expenses which would
normally vary depending on the amount of space actually occupied in the
Building, such as costs of utilities, supplies and janitorial services,
shall be adjusted in this manner and that fixed expenses which are
unrelated to occupancy levels shall not be so adjusted.
-4-
<PAGE>
(c) Within ninety (90) days after the end of the calendar year in
which the Rental Commencement Date occurs and of each calendar year
thereafter during the Lease Term, or as soon thereafter as practicable,
Landlord shall provide Tenant a statement showing the Operating Expenses
for said calendar year and a statement prepared by Landlord showing any
adjustment to the Operating Expenses to reflect full occupancy of the
Building during such calendar year, and comparing Tenant's Forecast
Additional Rental with Tenant's Additional Rental. In the event Tenant's
Forecast Additional Rental exceeds Tenant's Additional Rental for said
calendar year, Landlord shall credit such amount against Rent next due
hereunder or, if the Lease Term has expired or is about to expire, refund
such excess to Tenant if Tenant is not in default under this Lease (in the
instance of a default such excess shall be held as additional security for
Tenant's performance, may be applied by Landlord to cure any such default,
and shall not be refunded until any such default is cured). In the event
that the Tenant's Additional Rental exceeds Tenant's Forecast Additional
Rental for said calendar year, Tenant shall pay Landlord, within thirty
(30) days of receipt of the statement, an amount equal to such difference.
The provisions of this Lease concerning the payment of Tenant's Additional
Rental shall survive the expiration or earlier termination of this Lease.
(d) Landlord's books and records pertaining to the calculation of
Operating Expenses for any calendar year within the Lease Term may be
audited by Tenant or its representatives at Tenant's expense, at any time
within twenty four (24) months after the end of each such calendar year;
provided that Tenant shall give Landlord not less than thirty (30) days'
prior written notice of any such audit. Prior to the commencement of such
audit, Tenant shall cause its authorized representative to agree in writing
for the benefit of Landlord that such representative will keep the results
of the audit confidential and that such representative will not disclose or
divulge the results of such audit except to Tenant and Landlord and except
in connection with any dispute between Landlord and Tenant relating to
Operating Expenses. Such audit shall be conducted during reasonable
business hours at Landlord's office where Landlord's books and records are
maintained. Tenant shall cause a written audit report to be prepared by its
authorized representative following any such audit and shall provide
Landlord with a copy of such report promptly after receipt thereof by
Tenant. If Landlord's calculation of Tenant's Additional Rental for the
audited calendar year was incorrect, then Tenant shall be entitled to a
prompt refund of any overpayment or Tenant shall promptly pay to Landlord
the amount of any underpayment, as the case may be. Should such an audit
indicate that the Operating Expenses (as adjusted as required under this
Lease) have been overstated by more than five percent (5%), then Landlord
shall be obligated to pay to Tenant the reasonable and substantiated cost
of such audit.
8. Operating Expenses.
------------------
(a) For the purposes of this Lease, "Operating Expenses" shall mean
all expenses, costs and disbursements (but not specific costs billed to
specific tenants of the Building) of every kind and nature, computed on the
accrual basis, relating to or incurred or paid in connection with the
ownership, management, operation, repair and maintenance of the Project,
including but not limited to, the following:
(1) wages, salaries and other costs of all on-site and off-site
employees engaged in the operation, management, maintenance or access
control of the Project, including taxes, insurance and benefits relating to
such employees, allocated based upon the time such employees are engaged
directly in providing such services;
(2) the cost of all supplies, tools, equipment and materials
used in the operation, management, maintenance and access control of the
Project;
(3) the cost of all utilities for the Project, including but not
limited to the cost of
-5-
<PAGE>
electricity, gas, water, sewer services and power for heating, lighting,
air conditioning and ventilating;
(4) the cost of all maintenance and service agreements for the
Project and the equipment therein, including but not limited to security
service, window cleaning, elevator maintenance, HVAC maintenance,
janitorial service, waste recycling service, landscaping maintenance and
customary landscaping replacement;
(5) the cost of repairs and general maintenance of the Project;
(6) amortization of the cost of acquisition and/or installation
of capital investment items (including security equipment and energy
management equipment), amortized over their respective useful lives, which
are installed for the purpose of reducing operating expenses, promoting
safety, complying with governmental requirements, or maintaining the first-
class nature of the Project;
(7) the cost of casualty, rental loss, liability and other
insurance applicable to the Project and Landlord's personal property used
in connection therewith;
(8) the cost of trash and garbage removal, vermin extermination,
and snow, ice and debris removal;
(9) the cost of legal and accounting services incurred by
Landlord in connection with the management, maintenance, operation and
repair of the Project, excluding the owner's or Landlord's general
accounting and fund accounting, such as partnership statements and tax
returns, and excluding services described in Article 8(b)(14) below;
(10) all taxes, assessments and governmental charges, whether or
not directly paid by Landlord, whether federal, state, county or municipal
and whether they be by taxing districts or authorities presently taxing the
Project or by others subsequently created or otherwise, and any other taxes
and assessments attributable to the Project or its operation (and the costs
of contesting any of the same), including without limitation assessments
under any declaration or private restrictive covenants applicable to the
Project or shared costs under any easement agreement with respect to the
operation, maintenance, repair and replacement of the storm water
facilities in Waterford, and business license taxes and fees, excluding,
however, taxes and assessments imposed on the personal property of the
tenants of the Project, federal and state taxes on income, death taxes,
franchise taxes, and any taxes (other than business license taxes and fees)
imposed or measured on or by the income of Landlord from the operation of
the Project; and it is agreed that Tenant will be responsible for ad
valorem taxes on its personal property; and
(11) a management fee in the amount of three and one half percent
(3.5%) of the gross rental income from the Project.
(b) For purposes of this Lease, and notwithstanding anything in any
other provision of this Lease to the contrary, "Operating Expenses" shall
not include the following:
(1) the cost of any special build-out work or service performed
for any tenant (including Tenant) at such tenant's cost;
(2) the cost of installing, operating and maintaining any
specialty service, such as a restaurant, cafeteria, retail store, sundry
shop, newsstand, or concession;
(3) the cost of correcting defects in construction;
-6-
<PAGE>
(4) compensation paid to officers and executives of Landlord and
employees above the grade of building superintendent;
(5) the cost of any items for which Landlord is reimbursed by
insurance (or which would have been reimbursed had Landlord maintained the
insurance required by this Lease to be maintained by Landlord),
condemnation or otherwise, except for costs reimbursed pursuant to
provisions similar to Articles 7 and 8 hereof;
(6) costs of alterations or additions made for the purpose of
complying with any laws, rules or ordinances in effect prior to the date of
this Lease;
(7) costs of all services rendered to other tenants not rendered
to the Tenant;
(8) insurance premiums to the extent increased as a result of
the activities of other tenants;
(9) the cost of any additions, changes, replacements and other
items which are made in order to prepare for a tenant's occupancy;
(10) the cost of repairs incurred by reason of fire or other
casualty;
(11) insurance premiums to the extent Landlord may be directly
reimbursed therefor, except for premiums reimbursed pursuant to provisions
similar to Articles 7 and 8 hereof;
(12) interest on debt or amortization payments on any mortgage or
deed of trust and rental under any ground lease or other underlying lease;
(13) any real estate brokerage commissions;
(14) any advertising expenses incurred in connection with the
marketing of any rentable space;
(15) rental payments for base building equipment such as HVAC
equipment and elevators;
(16) any expenses for repairs or maintenance which are covered by
warranties and service contracts, to the extent such maintenance and
repairs are made at no cost to Landlord (Landlord agrees to use good faith
efforts to enforce the no cost maintenance and repair provisions of such
construction warranties and service contracts);
(17) legal expenses arising out of the construction of the
improvements on the Land or the enforcement of the provisions of any lease
affecting the Land or Building, including without limitation this Lease;
(18) costs or amounts paid to parties affiliated with Landlord or
Landlord's managing agent to the extent such costs or amounts exceed the
fair market value of the services or materials provided;
(19) except as permitted under Article 8(a)(6), the costs of any
repairs, alterations, additions, changes, replacements, or renovations
which under generally accepted accounting practices are properly classified
as capital expenses;
-7-
<PAGE>
(20) the cost (including without limitation overtime) of Landlord
performing work that is expressly provided in this Lease to be borne by
Landlord at Landlord's sole cost without inclusion as an Operating Expense;
(21) any inheritance, gift, transfer, franchise, excise, net
income or profit taxes or capital levies imposed upon Landlord; provided,
however, that, if at any time during the Lease Term the methods of taxation
prevailing at the commencement of the Lease Term are altered so that in
lieu of or as a substitute for the whole or any part of the taxes now
levied, assessed or imposed, there shall be levied, assessed or imposed an
income or other tax of whatever nature, then the same shall be included in
the computation of Operating Expenses hereunder.
(22) provided and on the condition that Tenant timely pays all
sums due Landlord under this Lease, interest and penalties arising by
Landlord's failure to timely pay Operating Expenses; and
(23) charitable contributions.
Landlord agrees that so long as Tenant occupies at least fifty percent of the
Rentable Floor Area of the Building, and provided and on the condition that no
event of default has occurred under this Lease which has not been waived by
Landlord, Landlord will provide an on site combination day porter and
maintenance person for not less than six hours per day, Monday through Friday
(except Holidays, as defined on Exhibit "E" hereto). The costs associated with
-----------
such day porter and maintenance person shall be included within Operating
Expenses. Upon the written request of Tenant with respect to a specific service
contract, Landlord will competitively bid such service contract upon the
expiration of the existing contract. Landlord will review on an annual basis the
assessed valuation of the Land and Building, and where Landlord deems
appropriate, Landlord will appeal the assessed valuation of the Land and
Building.
9. Tenant Taxes; Rent Taxes. Tenant shall pay promptly when due all
------------------------
taxes directly or indirectly imposed or assessed upon Tenant's gross sales,
business operations, machinery, equipment, trade fixtures and other personal
property or assets, whether such taxes are assessed against Tenant, Landlord or
the Building. In the event that such taxes are imposed or assessed against
Landlord or the Building, Landlord shall furnish Tenant with all applicable tax
bills, public charges and other assessments or impositions and Tenant shall
forthwith pay the same either directly to the taxing authority or, at Landlord's
option, to Landlord. In addition, in the event there is imposed at any time a
tax upon and/or measured by the rental payable by Tenant under this Lease,
whether by way of a sales or use tax or otherwise, Tenant shall be responsible
for the payment of such tax and shall pay the same on or prior to the due date
thereof; provided, however, that the foregoing shall not include any
inheritance, estate, succession, transfer, gift or income tax imposed on or
payable by Landlord.
10. Payments. All payments of Rent and other payments to be made to
--------
Landlord shall be made on a timely basis and shall be payable to Landlord or as
Landlord may otherwise designate. All such payments shall be mailed or delivered
to Landlord's Address designated in Article 1(b) above or at such other place as
Landlord may designate from time to time in writing. If mailed, all payments
shall be mailed in sufficient time and with adequate postage thereon to be
received in Landlord's account by no later than the due date for such payment.
Tenant agrees to pay to Landlord Fifty Dollars ($50.00) for each check presented
to Landlord in payment of any obligation of Tenant which is not paid by the bank
on which it is drawn, together with interest from and after the due date for
such payment at the rate of eighteen percent (18%) per annum on the amount due.
11. Late Charges. Any Rent or other amounts payable to Landlord under
------------
this Lease, if not paid by the fifth day of the month for which such Rent is
due, or by the due date specified on any invoices from Landlord for any other
amounts payable hereunder, shall incur a late charge of Fifty Dollars ($50.00)
for Landlord's administrative expense in processing such delinquent payment and
in addition thereto shall bear
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<PAGE>
interest at the rate of eighteen percent (18%) per annum from and after the due
date for such payment. In no event shall the rate of interest payable on any
late payment exceed the legal limits for such interest enforceable under
applicable law.
12. Use Rules. The Demised Premises shall be used for executive, general
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administrative, office space and other similar purposes and no other purposes
and in accordance with all applicable laws, ordinances, rules and regulations of
governmental authorities, all private restrictive covenants applicable to the
Project, all nationally recognized industry standards applicable to such uses
and the Rules and Regulations attached hereto and made a part hereof. Tenant
covenants and agrees to abide by the Rules and Regulations in all respects as
now set forth and attached hereto or as hereafter promulgated by Landlord.
Landlord shall have the right at all times during the Lease Term to publish and
promulgate and thereafter enforce such rules and regulations or changes in the
existing Rules and Regulations as it may reasonably deem necessary to protect
the tenantability, safety, operation, and welfare of the Demised Premises and
the Project. Landlord shall enforce the Rules and Regulations in a
nondiscriminatory manner.
13. Alterations. Except for any initial improvement of the Demised
-----------
Premises pursuant to Exhibit "D", which shall be governed by the provisions of
-----------
said Exhibit "D", and except for "Permitted Alterations" (as hereinafter
-----------
defined), Tenant shall not make, suffer or permit to be made any alterations,
additions or improvements to or of the Demised Premises or any part thereof, or
attach any fixtures or equipment thereto, (collectively, an "Alteration")
without first obtaining Landlord's written consent, which consent shall not be
unreasonably withheld. Except for Tenant's trade fixtures and personal property
which are readily removable, all such alterations, additions and improvements
shall become Landlord's property at the expiration or earlier termination of the
Lease Term and shall remain on the Demised Premises without compensation to
Tenant unless Landlord elects by notice to Tenant at the time of granting
consent (or, with respect to Permitted Alterations, unless Landlord elects by
notice to Tenant within thirty days after Tenant's request for such election by
Landlord for the applicable Permitted Alterations; provided, however, that if
such request is not made by Tenant within 30 days after completion of the
applicable Permitted Alteration, Landlord may elect by notice to Tenant at any
time thereafter) to have Tenant remove such alterations, additions and
improvements, in which event, notwithstanding any contrary provisions respecting
such alterations, additions and improvements contained in Article 30 hereof,
Tenant shall promptly restore, at its sole cost and expense, the Demised
Premises to its condition prior to the installation of such alterations,
additions and improvements, normal wear and tear excepted. The following
alterations are referred to as "Permitted Alterations": any Alteration or
related series of Alterations if such Alteration or related series of
Alterations:
(i) are nonstructural;
(ii) do not cause any violation of and do not require any change in
any certificate of occupancy applicable to the Building;
(iii) do not cause any change in the outside appearance of the
Building, do not weaken or impair the structure of the Building and do
not materially reduce the value of the Demised Premises or the
Building or the Property;
(iii) do not affect the proper functioning of the Building equipment;
(iv) do not cost in excess of $50,000.00.
Tenant shall give Landlord prior notice of any Permitted Alteration, and upon
completion of any Permitted Alteration (other than decorations), Tenant shall
deliver to Landlord three (3) copies of the "as-built" plans for such Permitted
Alteration.
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<PAGE>
14. Repairs.
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(a) Landlord shall maintain in good order and repair, subject to
normal wear and tear and subject to casualty and condemnation, the Building
(including without limitation the roof, foundation, basement, structural
portions of interior and exterior structural walls, but excluding the
Demised Premises and other portions of the Building leased to other
tenants), the mechanical, electrical and plumbing systems within the
Building [exclusive of supplemental HVAC, mechanical, electrical or
plumbing installations made by Tenant (such as, but not limited to, Liebert
units and private restrooms), which shall be maintained by Tenant], the
Building parking facilities, the common areas and the landscaped areas.
Notwithstanding the foregoing obligation, the cost of any repairs or
maintenance to the foregoing necessitated by the intentional acts or
negligence of Tenant or its agents, contractors, employees, licensees,
subtenants or assigns, shall be borne solely by Tenant and shall be deemed
Rent hereunder and shall be reimbursed by Tenant to Landlord upon demand.
Except as expressly set forth above in this Article 14(a), Landlord shall
not be required to make any repairs or improvements to the Demised Premises
except for any initial improvements to the Demised Premises pursuant to the
provisions of Exhibit "D" and except structural repairs necessary for
-----------
safety and tenantability and except for the correction of punchlist items
and latent defects pursuant to the provisions of Article 4 hereof.
(b) Tenant covenants and agrees that it will take good care of the
Demised Premises and all alterations, additions and improvements thereto
and will keep and maintain the same in good condition and repair, except
for normal wear and tear, damage by fire or other casualty, and repairs
which are the responsibility of Landlord. Tenant shall promptly report, in
writing, to Landlord any defective or dangerous condition known to Tenant.
Except for Tenant's rights as set forth in Article 18(e), to the fullest
extent permitted by law, Tenant hereby waives all rights to make repairs at
the expense of Landlord or in lieu thereof to vacate the Demised Premises
as may be provided by any law, statute or ordinance now or hereafter in
effect. Landlord has no obligation and has made no promise to alter,
remodel, improve, repair, decorate or paint the Demised Premises or any
part thereof, except as specifically and expressly herein set forth.
15. Landlord's Right of Entry. Landlord shall retain duplicate keys to
-------------------------
all doors of the Demised Premises and Landlord and its agents, employees and
independent contractors shall have the right to enter the Demised Premises at
reasonable hours to inspect and examine same, to make repairs, additions,
alterations, and improvements, to exhibit the Demised Premises to mortgagees,
prospective mortgagees, purchasers or tenants, and to inspect the Demised
Premises to ascertain that Tenant is complying with all of its covenants and
obligations hereunder; provided, however, that Landlord shall, except in case of
emergency, have the right to enter only with the prior knowledge of Tenant and
such entry shall be during Tenant's normal business hours (unless Tenant
otherwise consents to entry during other hours, which consent Tenant agrees not
to unreasonably withhold or delay). Landlord shall be allowed to take into and
through the Demised Premises any and all materials that may be required to make
such repairs, additions, alterations or improvements. During such time as such
work is being carried on in or about the Demised Premises, the Rent provided
herein shall not abate, and Tenant waives any claim or cause of action against
Landlord for damages by reason of interruption of Tenant's business or loss of
profits therefrom because of the prosecution of any such work or any part
thereof; provided and on the condition that Landlord shall use all reasonable
and diligent efforts to minimize the disruption of Tenant's business and to
protect Tenant's property during such times.
16. Insurance.
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(a) Tenant shall either self insure or procure at its expense and
maintain throughout the Lease Term a policy or policies of all-risk
insurance insuring the full replacement cost of its furniture, equipment,
supplies, and other property owned, leased, held or possessed by it and
contained in the Demised Premises. Tenant shall also shall procure at its
expense and maintain throughout the Lease Term a policy or policies of
worker's compensation insurance as required by applicable law. Tenant shall
also procure at its expense and maintain throughout the Lease
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<PAGE>
Term a policy or policies of insurance, insuring Tenant, Landlord,
Landlord's managing agent and Landlord's mortgagee, if any, against any and
all liability for injury to or death of a person or persons and for damage
to property occasioned by or arising out of any construction work being
done by Tenant or Tenant's contractors on the Demised Premises, or arising
out of the condition, use, or occupancy of the Demised Premises, or in any
way occasioned by or arising out of the activities of Tenant, its agents,
contractors or employees in the Demised Premises, or other portions of the
Building or the Project, and of Tenant's guests and licensees while they
are in the Demised Premises, the limits of such policy or policies to be in
combined single limits for both damage to property and personal injury and
in amounts not less than Three Million Dollars ($3,000,000) for each
occurrence. Such insurance shall, in addition, extend to any liability of
Tenant arising out of the indemnities provided for in this Lease. All
insurance policies procured and maintained by Tenant pursuant to this
Article 16 shall name Landlord and any additional parties designated by
Landlord as additional insured, shall be carried with companies licensed to
do business in the Commonwealth of Virginia having a rating from Best's
Insurance Reports of not less than A-/X, and shall be non-cancelable and
not subject to material change except after at least twenty (20) days'
written notice to Landlord. Duly executed certificates of insurance with
respect to such policies shall be delivered to Landlord prior to the date
Tenant enters the Demised Premises for the installation of its
improvements, trade fixtures or furniture, and certificates evidencing
renewals of such policies shall be delivered to Landlord at least thirty
(30) days prior to the expiration of each respective policy term.
(b) Landlord shall procure at its expense (but with the expense to be
included in Operating Expenses as provided in Article 8[a] hereof) and
shall thereafter maintain throughout the Lease Term a policy or policies of
all-risk (including rent loss coverage) real and personal property
insurance with respect to the Building (including the leasehold
improvements to the Demised Premises), insuring against loss or damage by
fire and such other risks as are from time to time included in a standard
form of all-risk policy of insurance available in the Commonwealth of
Virginia. Said Building and improvements to the Demised Premises shall be
insured for the benefit of Landlord in an amount not less than the full
replacement costs thereof as determined from time to time by the insurance
company (and such insurance may provide for a reasonable deductible).
Landlord shall also procure at its expense (but with the expense to be
included in Operating Expenses as provided in Article 8[a] hereof) and
shall thereafter maintain throughout the Lease Term a policy or policies of
commercial general liability insurance insuring against the liability of
Landlord arising out of the maintenance, use and occupancy of the Project,
with limits of such policy or policies to be in combined single limits for
both damage to property and personal injury and in amounts not less than
Three Million Dollars ($3,000,000.00) for each occurrence. Such insurance
required herein shall be issued by an insurance company licensed to do
business in the Commonwealth of Virginia. Any insurance required to be
carried by Landlord hereunder may be carried under blanket policies
covering other properties of Landlord and/or its partners and/or their
respective related or affiliated corporations so long as such blanket
policies provide insurance at all times for the Project as required by this
Lease. Upon reasonable request from Tenant, Landlord will provide a
certificate of insurance evidencing the maintenance of the insurance
required herein.
17. Waiver of Subrogation. Landlord and Tenant shall each have included
---------------------
in all policies of fire, extended coverage, business interruption and loss of
rents insurance respectively obtained by them covering the Demised Premises, the
Building and contents therein, a waiver by the insurer of all right of
subrogation against the other in connection with any loss or damage thereby
insured against. Any additional premium for such waiver shall be paid by the
primary insured. To the full extent permitted by law, Landlord and Tenant each
waives all right of recovery against the other for, and agrees to release the
other from liability for, loss or damage to the extent such loss or damage is
covered by valid and collectible insurance in effect at the time of such loss or
damage or would be covered by the insurance required to be maintained under this
Lease by the
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<PAGE>
party seeking recovery.
18. Default.
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(a) The following events shall be deemed to be events of default by
Tenant under this Lease: (i) Tenant shall fail to pay any installment of
Rent or any other charge or assessment against Tenant pursuant to the terms
hereof within five (5) days after receipt by Tenant of notice in writing
from Landlord; provided, however, such notice and such grace period shall
be required to be provided by Landlord and shall be accorded Tenant if
necessary, only two times during any consecutive twelve month period of the
Lease Term, and in the event of default shall be deemed to have immediately
occurred upon the third failure by Tenant to make a timely payment as
aforesaid within any consecutive twelve (12) month period of the Lease
Term, it being intended by the parties hereto that such notice and such
grace period shall protect against infrequent unforeseen clerical errors
beyond the control of Tenant, and shall not protect against Tenant's lack
of diligence of planning in connection with its obligation to make timely
payment of rent and other amounts due hereunder; (ii) Tenant shall fail to
comply with any term, provision, covenant or warranty made under this Lease
by Tenant, other than the payment of the Rent or any other charge or
assessment payable by Tenant, and shall not cure such failure within thirty
(30) days after notice thereof to Tenant provided, however, in the case of
a failure or breach which is capable of being remedied by Tenant but which
cannot with due diligence be remedied by Tenant within a period of thirty
(30) days, if Tenant proceeds as promptly as may be reasonably possible
after the service of such notice and with all due diligence to remedy the
failure or breach and thereafter to prosecute the remedying of such failure
or breach with all due diligence, Tenant shall have an additional period of
time, not to exceed ninety (90) days (for a total of one hundred twenty
(120) days from the service of such notice), in which to effect such cure;
(iii) Tenant or any guarantor of this Lease shall make a general assignment
for the benefit of creditors, or shall admit in writing its inability to
pay its debts as they become due, or shall file a petition in bankruptcy,
or shall be adjudicated as bankrupt or insolvent, or shall file a petition
in any proceeding seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present
or future statute, law or regulation, or shall file an answer admitting or
fail timely to contest the material allegations of a petition filed against
it in any such proceeding; (iv) a proceeding is commenced against Tenant or
any guarantor of this Lease seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
any present or future statute, law or regulation, and such proceeding shall
not have been dismissed or discharged within sixty (60) days after the
commencement thereof; (v) a receiver or trustee shall be appointed for the
Demised Premises or for all or substantially all of the assets of Tenant or
of any guarantor of this Lease; (vi) Tenant shall fail to take possession
of the Demised Premises as provided in this Lease; (vii) Tenant shall do or
permit to be done anything which creates a lien upon the Demised Premises
or the Project and such lien is not removed or discharged by bond or
otherwise (or by the posting of such security with Landlord as Landlord
shall determine, in Landlord's sole discretion) within thirty (30) days
after the filing thereof; (viii) Tenant shall fail to return a properly
executed instrument to Landlord in accordance with the provisions of
Article 26 hereof within the time period provided for such return following
Landlord's request for same as provided in Article 26; (ix) Tenant shall
fail to return a properly executed estoppel certificate to Landlord in
accordance with the provisions of Article 27 hereof within the time period
provided for such return following Landlord's request for same as provided
in Article 27; or (x) Tenant shall fail, for any reason whatsoever, to
maintain the Original Letter of Credit or any Replacement Letter of Credit
(as those terms are defined in Article 39 hereof) in full force and effect
at all times during the Security Period (as that term is defined in Article
39 hereof).
(b) Upon the occurrence of any of the aforesaid events of default
[Landlord and Tenant acknowledging that certain events of default as
defined in Article 18(a) cannot occur without the written notice from
Landlord expressly provided for with respect to such events of default in
Article 18(a)], Landlord shall have the option to pursue any one or more of
the following remedies
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<PAGE>
without any notice or demand whatsoever: (i) terminate this Lease, in which
event Tenant shall immediately surrender the Demised Premises to Landlord
and if Tenant fails to do so, Landlord may without prejudice to any other
remedy which it may have for possession or arrearages in Rent, enter upon
and take possession of the Demised Premises and expel or remove Tenant and
any other person who may be occupying said Demised Premises or any part
thereof without being liable for prosecution or any claim of damages
therefor; Tenant hereby agreeing to pay to Landlord on demand the amount of
all loss and damage which Landlord may suffer by reason of such
termination, whether through inability to relet the Demised Premises on
satisfactory terms or otherwise; (ii) terminate Tenant's right of
possession (but not this Lease) and enter upon and take possession of the
Demised Premises and expel or remove Tenant and any other person who may be
occupying said Demised Premises or any part thereof, by entry,
dispossessory suit or otherwise, without thereby releasing Tenant from any
liability hereunder, without terminating this Lease, and without being
liable for prosecution or any claim of damages therefor and, if Landlord so
elects, make such alterations, redecorations and repairs as, in Landlord's
judgment, may be necessary to relet the Demised Premises, and Landlord may,
but shall be under no obligation to do so, relet the Demised Premises or
any portion thereof in Landlord's or Tenant's name, but for the account of
Tenant, for such term or terms (which may be for a term extending beyond
the Lease Term) and at such rental or rentals and upon such other terms as
Landlord may reasonably deem advisable, with or without advertisement, and
by private negotiations, and receive the rent therefor, Tenant hereby
agreeing to pay to Landlord the deficiency, if any, between all Rent
reserved hereunder and the total rental applicable to the Lease Term hereof
obtained by Landlord re-letting, and Tenant shall be liable for Landlord's
expenses in redecorating and restoring the Demised Premises and all costs
incident to such re-letting, including broker's commissions and lease
assumptions, and in no event shall Tenant be entitled to any rentals
received by Landlord in excess of the amounts due by Tenant hereunder; or
(iii) enter upon the Demised Premises without being liable for prosecution
or any claim of damages therefor, and do whatever Tenant is obligated to do
under the terms of this Lease; and Tenant agrees to reimburse Landlord on
demand for any expenses including, without limitation, reasonable
attorneys' fees which Landlord may incur in thus effecting compliance with
Tenant's obligations under this Lease and Tenant further agrees that
Landlord shall not be liable for any damages resulting to Tenant from such
action, , except for damage to property or injury to persons to the extent
caused by the gross negligence or willful misconduct of Landlord. If
Landlord shall reenter the Demised Premises and take possession from Tenant
without terminating this Lease, provided that Tenant has vacated the
Demised Premises and is not contesting Landlord's right to the possession
of the Demised Premises, Landlord will use reasonable efforts to relet the
Demised Premises and thereby mitigate the damages which Landlord shall
incur. Tenant hereby agrees that Landlord's agreement to use reasonable
efforts to relet the Demised Premises in order to mitigate Landlord's
damages shall not be deemed to impose upon Landlord any obligation to relet
the Demised Premises (i) for any purpose other than use permitted under
this Lease or (ii) to any tenant who is not financially capable of
performing the duties and obligations imposed upon Tenant under this Lease
with respect to the portion of the Demised Premises leased by such tenant,
or (iii) to prefer the Demised Premises over any other space available in
the Building. If this Lease is terminated by Landlord as a result of the
occurrence of an event of default, Landlord may declare to be due and
payable immediately, the present value (calculated with a discount factor
of eight percent [8%] per annum) of the difference between (x) the entire
amount of Rent and other charges and assessments which in Landlord's
reasonable determination would become due and payable during the remainder
of the Lease Term determined as though this Lease had not been terminated
(including, but not limited to, increases in Rent pursuant to this Lease),
and (y) the then fair market rental value of the Demised Premises for the
remainder of the Lease Term. Upon the acceleration of such amounts, Tenant
agrees to pay the same at once, together with all Rent and other charges
and assessments theretofore due, at Landlord's address as provided herein,
it being agreed that such payment shall not constitute a penalty or
forfeiture but shall constitute liquidated damages for Tenant's failure to
comply with the terms and provisions of this Lease (Landlord and Tenant
agreeing that Landlord's actual damages in such event are impossible to
ascertain and that the amount set forth above is a reasonable estimate
thereof).
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<PAGE>
(c) Pursuit of any of the foregoing remedies shall not preclude
pursuit of any other remedy herein provided or any other remedy provided by
law or at equity, nor shall pursuit of any remedy herein provided
constitute an election of remedies thereby excluding the later election of
an alternate remedy, or a forfeiture or waiver of any Rent or other charges
and assessments payable by Tenant and due to Landlord hereunder or of any
damages accruing to Landlord by reason of violation of any of the terms,
covenants, warranties and provisions herein contained. No reentry or
taking possession of the Demised Premises by Landlord or any other action
taken by or on behalf of Landlord shall be construed to be an acceptance of
a surrender of this Lease or an election by Landlord to terminate this
Lease unless written notice of such intention is given to Tenant.
Forbearance by Landlord to enforce one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to
constitute a waiver of such default. In determining the amount of loss or
damage which Landlord may suffer by reason of termination of this Lease or
the deficiency arising by reason of any reletting of the Demised Premises
by Landlord as above provided, allowance shall be made for the expense of
repossession. Tenant agrees to pay to Landlord all costs and expenses
incurred by Landlord in the enforcement of this Lease, including, without
limitation, the reasonable fees of Landlord's third party attorneys as
provided in Article 24 hereof.
(d) The abandonment or vacation of the Demised Premises shall not be
an event of default by Tenant under this Lease, but in the event Tenant
shall abandon or vacate the Demised Premises for more than ninety (90)
days, unless due to a casualty, condemnation or remodeling (which
remodeling is being diligently prosecuted), Landlord may, at any time while
such abandonment or vacation of the Demised Premises is continuing, notify
Tenant of Landlord's election to terminate this Lease, in which event this
Lease shall terminate on the date so selected by Landlord in Landlord's
written election to terminate this Lease, and on the date so set forth in
Landlord's written election, this Lease shall terminate and come to an end
as though the date selected by Landlord were the last day of the natural
expiration of the Lease Term; provided, however, that no such termination
shall affect or limit any obligations or liabilities of Tenant arising or
accruing under this Lease prior to the effective date of any such
termination; and provided further that Tenant may rescind Landlord's
election by (i) notifying Landlord in writing, within ten (10) days after
receipt of Landlord's written election to terminate this Lease, that Tenant
will reoccupy the Demised Premises for business purposes and (ii) in fact,
so reoccupying the Demised Premises for business purposes within sixty (60)
days thereafter.
(e) If Landlord shall default in the performance of any of its
obligations under this Lease in a way which materially affects the use or
tenantability of the Demised Premises (including but not limited to a
failure to cure Punch List Items or latent defects within the applicable
time periods set forth in Article 4 of this Lease), and such default shall
continue for thirty (30) days after notice from Tenant specifying
Landlord's default (except that if such default cannot be cured within said
thirty [30] day period, this period shall be extended for a reasonable
additional time, provided that Landlord commences to cure such default
within the thirty [30] day and proceeds diligently thereafter to effect
such cure and completes such cure as promptly as reasonably possible under
all the circumstances), Tenant may, without prejudice to any of its other
rights under this Lease, correct or cure such default by Landlord and
invoice Landlord the cost and expenses incurred by Tenant therefor, and
Landlord shall reimburse Tenant within thirty (30) days following receipt
of such invoice. If Landlord shall fail to reimburse Tenant for such cost
and expenses within such thirty (30) day period, Tenant shall have the
right to deduct such cost and expenses from Base Rental thereafter due
hereunder, provided, however, that in the event Landlord notifies Tenant
that it disputes the existence of any such default, during the pendency of
such dispute, Tenant may pay the amount in dispute to an independent escrow
agent of its choice to be held by the agent pending resolution of the
dispute. Tenant shall not be deemed to be in default hereunder by reason
of such payment until the dispute is resolved in favor of Landlord and
Tenant fails to cause the agent to pay the amount determined to be payable
to Landlord within ten (10) days after Tenant is notified of the
determination. Tenant and Landlord shall negotiate
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<PAGE>
in good faith to resolve the dispute by agreement.
19. Waiver of Breach. No waiver of any breach of the covenants,
----------------
warranties, agreements, provisions, or conditions contained in this Lease shall
be construed as a waiver of said covenant, warranty, provision, agreement or
condition or of any subsequent breach thereof, and if any breach shall occur and
afterwards be compromised, settled or adjusted, this Lease shall continue in
full force and effect as if no breach had occurred.
20. Assignment and Subletting. Tenant shall not, without the prior
-------------------------
written consent of Landlord, assign this Lease or any interest herein or in the
Demised Premises, or mortgage, pledge, encumber, hypothecate or otherwise
transfer or sublet the Demised Premises or any part thereof or permit the use of
the Demised Premises by any party other than Tenant. Consent to one or more
such transfers or subleases shall not destroy or waive this provision, and all
subsequent transfers and subleases shall likewise be made only upon obtaining
the prior written consent of Landlord. Without limiting the foregoing
prohibition, in no event shall Tenant assign this Lease or any interest herein,
whether directly, indirectly or by operating of law, or sublet the Demised
Premises or any part thereof or permit the use of the Demised Premises or any
part thereof by any party (i) if the proposed assignee or subtenant is a party
who would (or whose use would) detract from the character of the Building as a
first-class building, such as, without limitation, a dental, medical or
chiropractic office or a governmental office, (ii) if the proposed use of the
Demised Premises shall involve an occupancy rate of more than one (1) person per
160 square feet of Rentable Floor Area within the Demised Premises, (iii) if the
proposed assignment or subletting shall be to a governmental subdivision or
agency or any person or entity who enjoys diplomatic or sovereign immunity, (iv)
if Tenant is then occupying 50% or less of the Building, if such proposed
assignee or subtenant is an existing tenant of the Building, or (v) if such
proposed assignment, subletting or use would contravene any restrictive covenant
(including any exclusive use) granted to any other tenant of the Building.
Notwithstanding the foregoing prohibition, Tenant shall have the right, without
the consent of Landlord but with prior notice to Landlord, to assign this Lease
or sublet the entire Premises to an entity which is more than fifty percent
(50%) owned, directly or indirectly, by Tenant, or to an entity which directly
or indirectly owns more than fifty percent (50%) of Tenant, or to an entity
which is more than fifty percent (50%) owned, directly or indirectly, by an
entity which itself owns, directly or indirectly, more than fifty percent (50%)
of Tenant. No assignment of this Lease or subletting of the Demised Premises
shall relieve Tenant of any liability arising under this Lease; provided,
however, that if (1) this Lease is assigned, and (2) the assignee Tenant (a) has
a net worth equal to or greater than $12,000,000.00 determined in accordance
with generally accepted accounting principles determined as of the date of the
assignment and for the two (2) fiscal years of assignee immediately prior
thereto and evidence thereof reasonably satisfactory to Landlord is delivered to
Landlord within thirty (30) days following such assignment, (b) provides the
Letter of Credit required in accordance with Article 39 of this Lease, (c)
assumes in writing, in favor of Landlord, all obligations of Tenant first
arising under this Lease subsequent to such assignment, and (d) notifies
Landlord of such assignment within thirty (30) days after the effective date
thereof, including with such notice the written assumption identified in (c)
above, then, in such event, the assignor Tenant shall have no liability for the
obligations of Tenant first arising hereunder subsequent to such assignment.
Sublessees or transferees of the Demised Premises for the balance of the Lease
Term shall become directly liable to Landlord for all obligations of Tenant
hereunder, without relieving Tenant (or any guarantor of Tenant's obligations
hereunder) of any liability therefor, and Tenant shall remain obligated for all
liability to Landlord arising under this Lease during the entire remaining Lease
Term including any extensions thereof, whether or not authorized herein. If
Tenant is a partnership, a withdrawal or change, whether voluntary, involuntary
or by operation of law, of partners owning a controlling interest in the Tenant
shall be deemed a voluntary assignment of this Lease and subject to the
foregoing provisions. If Tenant is a corporation, any dissolution, merger,
consolidation or other reorganization of Tenant, or the sale or transfer of a
controlling interest in the capital stock of Tenant, shall be deemed a voluntary
assignment of this Lease and subject to the foregoing provisions. Landlord
hereby consents to (i) the assignment of this Lease to a joint venture (the
"Joint Venture") between Tenant and ALSTOM, and (ii) the subletting of portions
of the Demised Premises to business entities which control, are controlled by,
or are under common control with Tenant (or if and when the Lease is assigned to
the Joint
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<PAGE>
Venture, to business entitles which control, are controlled by, or are under
common control with ABB Power Generation Inc., ALSTOM or the Joint Venture),
provided and on the condition that at all times thereafter such business
entities control, are controlled by, or are under common control with Tenant,
ABB Power Generation Inc., ALSTOM or the Joint Venture, as the case may be.
Landlord may, as a prior condition to considering any request for consent to an
assignment or sublease (when Landlord's consent is required), require Tenant to
obtain and submit current financial statements of any proposed subtenant or
assignee. In the event Landlord consents to an assignment or sublease, Tenant
shall pay to Landlord a fee to cover Landlord's reasonable accounting costs plus
any legal fees incurred by Landlord as a result of the assignment or sublease.
Any consideration, in excess of the Rent and other charges and sums due and
payable by Tenant under this Lease, paid to Tenant by any assignee of this Lease
for its assignment, or by any sublessee under or in connection with its sublease
(when Landlord's consent is required), or otherwise paid to Tenant by another
party for use and occupancy of the Demised Premises or any portion thereof,
shall be retained by Tenant and Landlord shall have no right or claim thereto as
against Tenant. No assignment of this Lease consented to by Landlord shall be
effective unless and until Landlord shall receive an original assignment and
assumption agreement, in form and substance reasonably satisfactory to Landlord,
signed by Tenant and Tenant's proposed assignee, whereby the assignee assumes
due performance of this Lease to be done and performed for the balance of the
then remaining Lease Term of this Lease. No subletting of the Demised Premises,
or any part thereof, shall be effective unless and until there shall have been
delivered to Landlord an agreement, in form and substance reasonably
satisfactory to Landlord, signed by Tenant and the proposed sublessee, whereby
the sublessee acknowledges the right of Landlord to continue or terminate any
sublease, in Landlord's sole discretion, upon termination of this Lease, and
such sublessee agrees to recognize and attorn to Landlord in the event that
Landlord elects under such circumstances to continue such sublease.
21. Destruction.
-----------
(a) If the Demised Premises are damaged by fire or other casualty,
the same shall be repaired or rebuilt as speedily as practical under the
circumstances at the expense of the Landlord, unless this Lease is
terminated as provided in this Article 21, and during the period required
for restoration, a just and proportionate part of Base Rental, Operating
Expenses and Additional Rent shall be abated until the Demised Premises are
repaired or rebuilt.
(b) If the Demised Premises are damaged or destroyed by fire or other
casualty, Landlord shall give Tenant written notice (the "Repair Notice")
within thirty (30) days after the date of the casualty specifying
Landlord's reasonable estimate of the time period to complete the repairs
of such damage or destruction. If the Demised Premises are (i) damaged to
such an extent that repairs cannot, in Landlord's good faith judgment, be
completed within one hundred fifty (150) days after the date of the
casualty or (ii) damaged or destroyed as a result of a risk which is not
insured under standard fire insurance policies with extended coverage
endorsement, or (iii) damaged or destroyed during the last six (6) months
of the Lease Term, or if the Building is damaged in whole or in part
(whether or not the Demised Premises are damaged), to such an extent that
the Building cannot, in Landlord's judgment, be operated economically as an
integral unit, then and in any such event Landlord may at its option
terminate this Lease by notice in writing to the Tenant within sixty (60)
days after the date of such occurrence. If the Demised Premises are
damaged to such an extent that repairs cannot, in Landlord's good faith
judgment, be completed within one hundred fifty (150) days after the date
of the casualty or if the Demised Premises are substantially damaged during
the last six (6) months of the Lease Term, then in either such event Tenant
may elect to terminate this Lease by notice in writing to Landlord within
ten (10) days after the date of the Repair Notice. Unless Landlord or
Tenant elects to terminate this Lease as hereinabove provided, this Lease
will remain in full force and effect and Landlord shall repair such damage
at its expense to the extent required under this Article as expeditiously
as possible under the circumstances. If Landlord, subject to force
majeure and subject to delays caused by Tenant, does not restore the
Premises as required in this Article 21(b) within the time period herein
set forth, Tenant may terminate this Lease at any time thereafter [and Rent
shall be accounted for as of the date
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<PAGE>
of termination (as of the date of the fire or other casualty with respect
to the damaged portion)], prior to the date such restoration is
substantially completed, provided (i) Tenant gives Landlord not less than
thirty (30) days prior written notice, and (ii) Landlord does not complete
the restoration during such thirty (30) day period.
(c) If Landlord should elect or be obligated pursuant to subparagraph
(a) above to repair or rebuild because of any damage or destruction,
Landlord's obligation shall be limited to the original Building and the
leasehold improvements in the Demised Premises and shall not extend to any
furniture, equipment, supplies or other personal property owned or leased
by Tenant, its employees, contractors, invitees or licensees. If the cost
of performing such repairs exceeds the actual proceeds of insurance paid or
payable to Landlord (or which would have been payable to Landlord had
Landlord maintained the insurance required by this Lease to be maintained
by Landlord) on account of such casualty), or if Landlord's mortgagee or
the lessor under a ground or underlying lease shall require that any
insurance proceeds from a casualty loss be paid to it, Landlord may
terminate this Lease unless Tenant, within thirty (30) days after demand
therefor, deposits with Landlord a sum of money sufficient to pay the
difference between the cost of repair and the proceeds of the insurance
available to Landlord for such purpose. If Landlord should elect or be
obligated pursuant to subparagraph (a) above to repair or rebuild because
of any damage or destruction, Landlord shall make available to Tenant on an
"as-is" basis (and solely for the time period from the date of the casualty
to the date the repairs have been completed, whereupon the term with
respect to such temporary space shall be deemed to terminate) any vacant
space in the Building which is suitable and available for immediate
occupancy and is reasonably expected to remain so available until such time
as the repairs to the Demised Premises have been completed (and Landlord
shall have no obligation to perform or install tenant improvements or
otherwise finish such space), and Tenant shall pay Landlord the same Base
Rental and other charges with respect to such temporary space on a square
foot basis as Tenant would then be required under this Lease to pay with
respect to such temporary space were such space part of the Demised
Premises, and the terms and provisions of this Lease [excluding, however,
the construction obligations of Landlord and the obligations with respect
to the Construction Allowance, Additional Allowance, and reimbursement for
costs of Plans and Specifications] shall apply to such space as if such
space were part of the Demised Premises.
(d) In no event shall Landlord be liable for any loss or damage
sustained by Tenant by reason of casualties mentioned hereinabove or any
other accidental casualty.
22. Intentionally Omitted.
---------------------
23. Services by Landlord. Landlord shall provide the Building Standard
--------------------
Services described on Exhibit "E" attached hereto and by reference made a part
-----------
hereof.
24. Attorneys' Fees and Homestead. In the event Landlord or Tenant
-----------------------------
defaults in the performance of any of the terms, agreements or conditions
contained in this Lease and the non-defaulting party places the enforcement of
this Lease, or any part thereof, or the collection of any Rent due or to become
due hereunder, or recovery of the possession of the Demised Premises, in the
hands of an attorney, or files suit upon the same, and should such non-
defaulting party prevail in such suit, the defaulting party, to the extent
permitted by applicable law, agrees to pay the non-defaulting party all
reasonable attorney's fees actually incurred by the non-defaulting party.
Tenant waives all homestead rights and exemptions which it may have under any
law as against any obligation owing under this Lease, and assigns to Landlord
its homestead and exemptions to the extent necessary to secure payment and
performance of its covenants and agreements hereunder.
25. Time. Time is of the essence of this Lease and whenever a certain day
----
is stated for payment or performance of any obligation of Tenant or Landlord,
the same enters into and becomes a part of the consideration hereof.
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<PAGE>
26. Subordination, Attornment and Non-Disturbance.
---------------------------------------------
(a) Existing Security Deeds or Underlying Leases. Landlord represents
--------------------------------------------
and warrants to Tenant that (i) as of the date of this Lease, Landlord owns
or has a valid contract to acquire fee simple title to the Land, and (ii)
as of the later of the date of this Lease or the date Landlord acquires fee
simple title to the Land, the Land is (or will be) free and clear of any
mortgages, deeds to secure debt, deeds of trust or other such financing
instruments (each a "Security Deed") or any ground or underlying leases.
(b) Subordination. Tenant agrees that within ten (10) business days
-------------
after receipt of a written request from the Landlord, from the holder or
proposed holder of any Security Deed or from the lessor or proposed lessor
under any underlying lease, Tenant shall execute a subordination, non-
disturbance and attornment agreement ("non-disturbance agreement")
subordinating this Lease to the interest of such holder or lessor and their
respective heirs, successors and assigns. The holder of any such Security
Deed or the lessor under any such underlying lease shall agree in such
nondisturbance agreement that, so long as Tenant complies with all of the
terms and conditions of this Lease and is not in default hereunder beyond
the period of cure of such default as provided herein, such holder or
lessor or any person or entity acquiring the interest of the Landlord under
this Lease as a result of the enforcement of such Security Deed or lease or
deed in lieu thereof (the "Successor Landlord") shall not take any action
to disturb Tenant's possession of the Demised Premises during the remainder
of the Lease Term and any extension or renewal thereof and the Successor
Landlord shall recognize all of Tenant's rights under this Lease, despite
any foreclosure, lease termination or other action by such holder or
lessor, including, without limitation, the taking of possession of the
Demised Premises or any portion thereof by the Successor Landlord or the
exercise of any assignment of rents by the holder or lessor. In any such
non-disturbance agreement, Tenant shall agree to give the holder of the
Security Deed (or, in the case of an underlying lease, the lessor
thereunder) notice of defaults by Landlord hereunder (but only to the
address previously supplied to Tenant in writing) at the same time as such
notice is given to Landlord and time periods to cure such defaults which
are the same as those granted to Landlord hereunder (which time period
shall run from and after such notice is given to such holder or lessor),
and Tenant shall further agree that any Successor Landlord shall not be
personally liable for any accrued obligation of the former landlord, or for
any act or omission of the former landlord, whether prior to or after such
enforcement proceedings, nor be subject to any counterclaims which shall
have accrued to Tenant against the former landlord prior to the date upon
which such Successor Landlord shall become the owner of the Demised
Premises. Such non-disturbance agreement shall also provide for the
attornment by Tenant to the Successor Landlord and shall provide that such
Successor Landlord shall not be (a) subject to any offsets which the Tenant
might have against the former landlord (other than any payments made to
cure a default by Landlord); or (b) bound by any Base Rental or any other
payments (other than any payments made to cure a default by Landlord) which
the Tenant under this Lease might have paid for more than one (1) month in
advance to any former landlord under this Lease. Landlord will join in the
signing of the non-disturbance agreement, and such non-disturbance
agreement will be in the form suitable for recording in the deed records of
Chesterfield County, Virginia.
(c) Election by Mortgagee. If the holder of any Security Deed or any
---------------------
lessor under a ground or underlying lease elects to have this Lease
superior to its Security Deed or lease and signifies its election in the
instrument creating its lien or lease or by separate instrument recorded in
connection with or prior to a foreclosure, or in the foreclosure deed
itself, then this Lease shall be superior to such Security Deed or lease.
27. Estoppel Certificates. Within thirty (30) days after request therefor
---------------------
by Landlord, Tenant agrees to execute and deliver to Landlord in recordable form
an estoppel certificate addressed to Landlord, any
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<PAGE>
mortgagee or assignee of Landlord's interest in, or purchaser of, the Demised
Premises or the Building or any part thereof, certifying (if such be the case)
that this Lease is unmodified and is in full force and effect (and if there have
been modifications, that the same is in full force and effect as modified and
stating said modifications); that there are no defenses or offsets against the
enforcement thereof or stating those claimed by Tenant; and stating the date to
which Rent and other charges have been paid. Such certificate shall also include
such other information as may reasonably be required by such mortgagee, proposed
mortgagee, assignee, purchaser or Landlord. Any such certificate may be relied
upon by Landlord, any mortgagee, proposed mortgagee, assignee, purchaser and any
other party to whom such certificate is addressed.
28. Cumulative Rights. All rights, powers and privileges conferred
-----------------
hereunder upon the parties hereto shall be cumulative to, but not restrictive
of, or in lieu of those conferred by law.
29. Holding Over. If Tenant remains in possession after expiration or
------------
termination of the Lease Term with or without Landlord's written consent, Tenant
shall become a tenant-at-sufferance, and there shall be no renewal of this Lease
by operation of law. During the period of any such holding over, all provisions
of this Lease shall be and remain in effect except that the monthly rental shall
be determined as follows:
(a) if Tenant does not give affirmative written notice to Landlord at
least twelve (12) months prior to the expiration of the then current Lease Term
(the Holdover Term as hereinafter defined is not part of the Lease Term) that
Tenant will not renew or extend the Lease Term, then the monthly rental shall be
one hundred and fifty percent (150%) of the amount of Rent (including any
adjustments as provided herein) payable for the last full calendar month of the
Lease Term including renewals or extensions.
(b) if Tenant does give affirmative written notice to Landlord at least
twelve (12) months prior to the expiration of the then current Lease Term that
Tenant will not renew or extend the Lease Term, then Tenant, by written notice
to Landlord given no later than nine (9) months prior to the expiration of the
then current Lease Term may elect to hold over beyond the expiration of the
Lease Term for the period specified in such notice (the "Holdover Term");
provided however that the Holdover Term shall be not more than six (6) months.
If Tenant properly makes such election in accordance with the foregoing
provisions of this subparagraph (b), then for months 1 through 3 of the Holdover
Term, the monthly rental shall be one hundred ten percent (110%) of the amount
of Rent (including any adjustments as provided herein) payable for the last full
calendar month of the Lease Term including renewals or extensions and for months
4 through 6 of the Holdover Term, the monthly rental shall be one hundred
fifteen percent (115%) of the amount of Rent (including any adjustments as
provided herein) payable for the third month of the Holdover Term. After the
expiration of the Holdover Term, monthly rental shall be two hundred percent
(200%) of the amount of Rent (including any adjustments as provided herein)
payable for the last full calendar month of the Lease Term including renewals
and extensions.
The inclusion of the preceding provisions of this Section 29 in this Lease shall
not be construed as Landlord's consent for Tenant to hold over except as
expressly set forth in this Section 29.
30. Surrender of Premises. Upon the expiration or other termination of
---------------------
this Lease, Tenant shall quit and surrender to Landlord the Demised Premises and
every part thereof and all alterations, additions and improvements thereto,
broom clean and in good condition and state of repair, except only reasonable
wear and tear, damage by fire or other casualty, and repairs which are the
responsibility of Landlord. Tenant shall remove Tenant's trade fixtures and all
personalty and equipment not attached to the Demised Premises which it has
placed upon the Demised Premises, and Tenant shall repair all damage to the
Demised Premises, Building or Project caused by the removal of such property.
If Tenant shall fail or refuse to remove all of Tenant's effects, personalty and
equipment from the Demised Premises upon the expiration or termination of this
Lease for any cause whatsoever or upon the Tenant being dispossessed by process
of law or otherwise, such effects, personalty and equipment shall be deemed
conclusively to be abandoned and may be appropriated, sold, stored, destroyed or
otherwise disposed of by Landlord without obligation to account for them.
Tenant shall pay Landlord on demand any and all expenses incurred by Landlord in
the removal of such property, including,
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<PAGE>
without limitation, the cost of repairing any damage to the Building or Project
caused by the removal of such property and storage charges (if Landlord elects
to store such property). The covenants and conditions of this Article 30 shall
survive any expiration or termination of this Lease.
31. Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and may be delivered in person to either party or may be
sent by courier or by United States Mail, certified, return receipt requested,
postage prepaid. Any such notice shall be deemed received by the party to whom
it was sent (i) in the case of personal delivery or courier delivery, on the
date of delivery to such party, and (ii) in the case of certified mail, the date
receipt is acknowledged on the return receipt for such notice or, if delivery is
rejected or refused or the U.S. Postal Service is unable to deliver same because
of changed address of which no notice was given pursuant hereto, the first date
of such rejection, refusal or inability to deliver. All such notices shall be
addressed to Landlord or Tenant at their respective address set forth
hereinabove or at such other address as either party shall have theretofore
given to the other by notice as herein provided.
32. Damage or Theft of Personal Property. All personal property brought
------------------------------------
into Demised Premises by Tenant, or Tenant's employees or business visitors,
shall be at the risk of Tenant only, and Landlord shall not be liable for theft
thereof or any damage thereto occasioned by any act of co-tenants, occupants,
invitees or other users of the Building or any other person, unless such theft
or damage is the result of the act of Landlord or its employees and Landlord is
not relieved therefrom by Article 17 hereof. Unless caused by the negligence of
Landlord or its employees, Landlord shall not at any time be liable for damage
to any property in or upon the Demised Premises which results from power surges
or other deviations from the constancy of the electrical service or from gas,
smoke, water, rain, ice or snow which issues or leaks from or forms upon any
part of the Building or from the pipes or plumbing work of the same, or from any
other place whatsoever.
33. Eminent Domain.
--------------
(a) If all or part of the Demised Premises shall be taken for any
public or quasi-public use by virtue of the exercise of the power of
eminent domain or by private purchase in lieu thereof, this Lease shall
terminate as to the part so taken as of the date of taking, and, in the
case of a partial taking, either Landlord or Tenant shall have the right to
terminate this Lease as to the balance of the Demised Premises by written
notice to the other within thirty (30) days after such date; provided,
however, that a condition to the exercise by Tenant of such right to
terminate shall be either (i) that more than fifteen percent (15%) of the
Demised Premises was taken or (ii) that the portion of the Demised Premises
taken shall be of such extent and nature as substantially to handicap,
impede or impair Tenant's use of the balance of the Demised Premises. If
title to so much of the Building is taken that a reasonable amount of
reconstruction thereof will not in Landlord's sole discretion result in the
Building being a practical improvement and reasonably suitable for use for
the purpose for which it is designed, then this Lease shall terminate on
the date that the condemning authority actually takes possession of the
part so condemned or purchased.
(b) If this Lease is terminated under the provisions of this Article
33, Rent shall be apportioned and adjusted as of the date of termination.
Tenant shall have no claim against Landlord or against the condemning
authority for the value of any leasehold estate or for the value of the
unexpired Lease Term provided that the foregoing shall not preclude any
claim that Tenant may have against the condemning authority for the
unamortized cost of leasehold improvements, to the extent the same were
installed at Tenant's expense (and not with the proceeds of the
Construction Allowance), or for loss of business, moving expenses or other
consequential damages, in accordance with subparagraph (d) below.
(c) If there is a partial taking of the Building and this Lease is
not thereupon terminated under the provisions of this Article 33, then this
Lease shall remain in full force and effect, and Landlord shall, within a
reasonable time thereafter, repair or reconstruct the remaining portion of
the
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<PAGE>
Building to the extent necessary to make the same a complete architectural
unit; provided that in complying with its obligations hereunder Landlord
shall not be required to expend more than the net proceeds of the
condemnation award which are paid to Landlord.
(d) All compensation awarded or paid to Landlord upon a total or
partial taking of the Demised Premises or the Building shall belong to and
be the property of Landlord without any participation by Tenant. All
compensation awarded or paid to Landlord upon a temporary taking of all or
any portion of the Demised Premises with respect to which Tenant exercises
Tenant's right to terminate under Article 33(e) shall belong to and be the
property of Landlord without any participation by Tenant. Nothing herein
shall be construed to preclude Tenant from prosecuting any claim directly
against the condemning authority for loss of business, for damage to, and
cost of removal of, trade fixtures, furniture and other personal property
belonging to Tenant, and for the unamortized cost of leasehold improvements
to the extent same were installed at Tenant's expense (and not with the
proceeds of the Construction Allowance). In no event shall Tenant have or
assert a claim for the value of any unexpired term of this Lease. Subject
to the foregoing provisions of this subparagraph (d), Tenant hereby assigns
to Landlord any and all of its right, title and interest in or to any
compensation awarded or paid as a result of any such taking.
(e) Notwithstanding anything to the contrary contained in this
Article 33, if, during the Lease Term, the use or occupancy of any part of
the Building or the Demised Premises shall be taken or appropriated
temporarily for any public or quasi-public use under any governmental law,
ordinance, or regulations, or by right of eminent domain, this Lease shall
be and remain unaffected by such taking or appropriation and Tenant shall
continue to pay in full all Rent payable hereunder by Tenant during the
Lease Term; provided, however, that if Landlord reasonably estimates that
the temporary taking will continue for a period in excess of ninety (90)
days, Tenant shall have the right to terminate this Lease solely with
respect to the portion of the Demised Premises which is the subject of such
temporary taking by giving Landlord written notice of such termination
within fifteen (15) days after the date of such temporary taking. In the
event of any such temporary appropriation or taking with respect to which
Tenant does not exercise the right of termination set forth in the sentence
immediately preceding this sentence, Tenant shall be entitled to receive
that portion of any award which represents compensation for the loss of use
or occupancy of the Demised Premises during the Lease Term, and Landlord
shall be entitled to receive that portion of any award which represents the
cost of restoration and compensation for the loss of use or occupancy of
the Demised Premises after the end of the Lease Term. In the event of any
such temporary appropriation or taking with respect to which Tenant
exercises the right of termination set forth in the first sentence of this
Article 33(e), Landlord shall be entitled to receive that portion of any
award which represents compensation for the loss of use or occupancy of the
portion of the Demised Premises with respect to which such termination is
effective.
34. Parties. The term "Landlord", as used in this Lease, shall include
-------
Landlord and its assigns and successors. It is hereby covenanted and agreed by
Tenant that should Landlord's interest in the Demised Premises cease to exist
for any reason during the Lease Term, then notwithstanding the happening of such
event, this Lease nevertheless shall remain in full force and effect, and Tenant
hereby agrees to attorn to the then owner of the Demised Premises. The term
"Tenant" shall include Tenant and its heirs, legal representatives and
successors, and shall also include Tenant's assignees and sublessees, if this
Lease shall be validly assigned or the Demised Premises sublet for the balance
of the Lease Term or any renewals or extensions thereof. In addition, Landlord
and Tenant covenant and agree that Landlord's right to transfer or assign
Landlord's interest in and to the Demised Premises, or any part or parts
thereof, shall be unrestricted, and that, except as expressly otherwise provided
in the last sentence of Paragraph 37 of this Lease, in the event of any such
transfer or assignment by Landlord which includes the Demised Premises,
Landlord's obligations to Tenant thereafter arising hereunder shall cease and
terminate, and Tenant shall look only and solely to Landlord's assignee or
transferee for performance thereof.
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<PAGE>
35. Indemnification. Tenant hereby indemnifies Landlord from and agrees
---------------
to hold Landlord harmless against, any and all liability, loss, cost, damage or
expense, including, without limitation, court costs and reasonable attorney's
fees, imposed on Landlord by any person whomsoever, caused in whole or in part
by any negligent act or omission of Tenant, or any of its employees,
contractors, servants, agents, subtenants or assignees, or of Tenant's invitees
while such invitees are within the Demised Premises or the Building, or
otherwise occurring in connection with any default of Tenant hereunder except
for such matters as are caused by the gross negligence or willful misconduct of
Landlord, its employees, agents, contractors and subcontractors. Landlord
hereby indemnifies Tenant from and agrees to hold Tenant harmless against, any
and all liability, loss, cost, damage or expense, including, without limitation,
court costs and reasonable attorney's fees, imposed on Tenant by any person
whomsoever, caused in whole or in part by any negligent act or omission of
Landlord, or any of its employees, contractors, servants, agents, subtenants or
assignees, or of Landlord's invitees while such invitees are within the Demised
Premises or the Building, or otherwise occurring in connection with any default
of Landlord hereunder except for such matters as are caused by the gross
negligence or willful misconduct of Tenant, its employees, agents, contractors
and subcontractors. The provisions of this Article 35 shall survive any
termination of this Lease.
36. Force Majeure. In the event of strike, lockout, labor trouble, civil
-------------
commotion, act of God, or any other cause beyond a party's control (collectively
"force majeure") resulting in the Landlord's inability to supply the services or
perform the other obligations required of Landlord hereunder, then, except for
the express rights of termination granted to Tenant elsewhere in this Lease,
this Lease shall not terminate and Tenant's obligation to pay Rent and all other
charges and sums due and payable by Tenant shall not be affected or excused and
Landlord shall not be considered to be in default under this Lease. If, as a
result of force majeure, Tenant is delayed in performing any of its obligations
under this Lease, other than Tenant's obligation to pay Rent and all other
charges and sums payable by Tenant hereunder, Tenant's performance shall be
excused for a period equal to such delay and Tenant shall not during such period
be considered to be in default under this Lease with respect to the obligation,
performance of which has thus been delayed.
37. Landlord's Liability. Landlord shall have no personal liability with
--------------------
respect to any of the provisions of this Lease. If Landlord is in default with
respect to its obligations under this Lease, Tenant shall look for satisfaction
of Tenant's remedies, if any, solely to the equity of Landlord in and to the
Building and the Land described in Exhibit "A" hereto and to the proceeds of
-----------
Landlord's insurance policy or policies actually paid to Landlord and not
applied by Landlord by the applicable claim or to the restoration of the
Building as required by the terms of this Lease (unless same are not so applied
because such proceeds are required by the holder of a mortgage to be paid to it
to reduce the debt secured by such mortgage). It is expressly understood and
agreed that Landlord's liability under the terms of this Lease shall in no event
exceed the amount of its interest in and to said Land and Building and the
aforedescribed proceeds of insurance. In no event shall any partner of Landlord
nor any joint venturer in Landlord, nor any officer, director or shareholder of
Landlord or any such partner or joint venturer of Landlord be personally liable
with respect to any of the provisions of this Lease. The foregoing limitation
of liability and agreements set forth in this Section 37 shall be inapplicable
to the liability of Landlord for failure of Landlord to comply with the
provisions of Section 39(h) of this Lease; provided, however, that in the event
of the transfer or assignment of this Lease, the assignor Landlord shall only be
liable for the failure of the assignor Landlord to comply with the provisions of
Section 39(h) during the period of such assignor's ownership of the Landlord's
interest in this Lease, and the assignee Landlord shall only be liable for the
failure of the assignee Landlord to comply with the provisions of Section 39(h)
of this Lease during the period of such assignee's ownership of the Landlord's
interest in this Lease.
38. Landlord's Covenant of Quiet Enjoyment. Provided Tenant performs the
--------------------------------------
terms, conditions and covenants of this Lease, and subject to the terms and
provisions hereof, Landlord covenants and agrees to take all necessary steps to
secure and to maintain for the benefit of Tenant the quiet and peaceful
possession, occupancy and use of the Demised Premises, for the Lease Term,
without hindrance, claim or molestation by Landlord or any other person lawfully
claiming under Landlord.
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<PAGE>
39. Letter of Credit.
----------------
(a) As security for the performance by Tenant of its obligations
under this Lease, Tenant hereby covenants and agrees that it shall obtain
and maintain in full force and effect at all times during the time period
commencing on the date of execution of this Lease through the seventh (7th)
anniversary of the Rental Commencement Date (such period of time being
referred to herein as the "Security Period") an irrevocable stand-by letter
of credit or irrevocable stand-by replacement letter of credit subject to
and in accordance with the terms and conditions set forth below (such
letters of credit and replacement letters of credit required to be provided
hereunder being herein individually referred to as a "Letter of Credit" and
collectively as the "Letters of Credit"; the initial Letter of Credit in
the amount of $4,000,000 delivered hereunder and any replacement of such
initial Letter of Credit that has a term which includes any period of time
prior to the Rental Commencement Date is sometimes referred to herein as
the "Original Letter of Credit"; and any subsequent Letter of Credit issued
after the Rental Commencement Date is sometimes herein referred to as a
"Replacement Letter of Credit"). Landlord and Tenant acknowledge that in
lieu of issuing a replacement of the initial or any subsequent Letter of
Credit, the issuer of the then existing Letter of Credit may elect to amend
the then existing Letter of Credit to extend the maturity date thereof as
required hereunder and, if applicable, reduce the amount of the Letter of
Credit to the amount required to be maintained hereunder as of the date
such reduction is permitted hereunder (it being understood and agreed that
such amendment(s) shall be limited to such matters only), by issuing an
amendment to the then existing Letter of Credit, in which case the
"Original Letter of Credit" or the "Replacement Letter of Credit" shall be
deemed to be the then existing Letter of Credit, as so amended.
(b) Each Letter of Credit issued hereunder shall (i) be in the form
of an irrevocable credit; (ii) be issued by an "Approved Issuer" (as
hereinafter defined); (iii) name Landlord as the beneficiary and will state
that it is transferable by Landlord to the assigns of Landlord's interest
in this Lease upon notice from Landlord, the payment of the issuer's
transfer charges as set forth in the applicable Letter of Credit and
compliance with the issuer's customary requirements relating to such
transfers (each Letter of Credit shall expressly contain an acknowledgement
by the issuer that such Letter of Credit can be transferred by Landlord to
any holder of any mortgage on Landlord's interest in the Project to secure
such holder's mortgage); and (iv) specify that Landlord, as beneficiary,
may draw against the Letter of Credit, without documents other than the
sight draft and certification set forth below, at any time and from time to
time until the expiration thereof at one or more designated branches of the
issuing bank in Atlanta, Georgia, or at one or more designated bank
counters at designated offices of the issuing bank in either Atlanta,
Georgia, or New York City, New York, in a single drawing for the full
amount of such Letter of Credit, upon presentation of a sight draft and
written certification from Landlord, as beneficiary, that a "Drawing Event"
described in Article 39(l) of this Lease has occurred and is continuing
under this Lease and that Landlord has the right to draw against the Letter
of Credit for the sum set forth in the sight draft under the provisions of
this Article 39. "Approved Issuer" shall mean: (x) Svenska Handelsbanken
(or its successor) for so long as Svenska Handelsbanken (or its successor)
(A) shall maintain a banking office with banking counters in either or both
of Atlanta, Georgia, and New York City, New York, and (B) shall have and
maintain a Moody's Bank Credit Report Service rating of P-1 (or, if Moody's
subsequently uses a different scale, the rating which would be equivalent
to the current P-1, or if Moody's dissolves or otherwise becomes defunct,
the rating of another nationally recognized rating service which would be
equivalent to the current P-1); or (y) such other national banking
association which Tenant, in its discretion, may designate and which shall
be approved by Landlord in its reasonable discretion, provided and for so
long as such national banking association (A) shall maintain a banking
office with banking counters in either or both of Atlanta, Georgia, and New
York City, New York, and (B) shall have and maintain a Moody's Bank Credit
Report Service rating of P-1 (or, if Moody's subsequently uses a different
scale, the rating which would be equivalent to the current P-1, or if
Moody's dissolves or otherwise becomes defunct, the rating of another
nationally recognized rating service which would be equivalent to the
current P-1). The
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Original Letter of Credit shall have an initial expiration date of the
first anniversary of the date of this Lease, but Tenant shall maintain the
Original Letter of Credit in effect in accordance with the provisions of
Article 39(c) until at least ninety (90) days after the Rental Commencement
Date, the first Replacement Letter of Credit shall have an expiration date
of the first anniversary of the Rental Commencement Date, the second
Replacement Letter of Credit shall have an expiration date of the second
anniversary of the Rental Commencement Date, the third Replacement Letter
of Credit shall have an expiration date of the third anniversary of the
Rental Commencement Date, the fourth Replacement Letter of Credit shall
have an expiration date of the fourth anniversary of the Rental
Commencement Date, the fifth Replacement Letter of Credit shall have an
expiration date of the fifth anniversary of the Rental Commencement Date,
the sixth Replacement Letter of Credit shall have an expiration date of the
sixth anniversary of the Rental Commencement Date, and the seventh
Replacement Letter of Credit shall have an expiration date of the seventh
anniversary of the Rental Commencement Date. The Letters of Credit shall be
in the following amounts for the following time periods:
Amount of
Time Period Letter of Credit
----------- ----------------
Date of execution of this $ 4,000,000.00
-------------
Lease to 5/th/ anniversary of
Rental Commencement Date
5/th/ anniversary of Rental $ 2,000,000.00
-------------
Commencement Date to
7/th/ anniversary of Rental
Commencement Date
(c) The Original Letter of Credit shall have a term of approximately
one (1) year and shall be delivered to Landlord by Tenant simultaneously
with the execution of this Lease. Tenant shall maintain the Original
Letter of Credit in effect (either by replacement thereof or amendment
thereto) for a term which extends at least ninety (90) days after the
Rental Commencement Date (the ninetieth (90th) day preceding the expiration
of the Original Letter of Credit is herein defined as the "Replacement
Date" applicable to the Original Letter of Credit). Accordingly, at least
ninety (90) days prior to the expiration of the Original Letter of Credit,
Tenant shall cause the expiration date of the Original Letter of Credit to
be extended (either by issuance of a replacement of the then existing
Original Letter of Credit or an appropriate amendment thereto) to the end
that the Original Letter of Credit shall at all times by maintained in
effect by Tenant for a term which extends at least ninety (90) days after
the Rental Commencement Date. If the replacement of or amendment to the
then existing Original Letter of Credit is issued on or after the Rental
Commencement Date, such replacement Letter of Credit or amended Letter of
Credit, as the case may be, shall constitute the first Replacement Letter
of Credit, and such first Replacement Letter of Credit shall have an
expiration date of the first anniversary of the Rental Commencement Date.
At least ninety (90) days prior to each of the first, second, third,
fourth, fifth, and sixth anniversaries of the Rental Commencement Date (the
ninetieth (90th) day preceding each such anniversary being herein referred
to as a "Replacement Date"), a Replacement Letter of Credit replacing the
expiring Letter of Credit which must be effective (i.e., capable of being
drawn upon) on or before the expiration date of the expiring Letter of
Credit (the actual date of delivery of each Replacement Letter of Credit
being herein referred to as a "Letter Delivery Date") and shall expire on
the second (2nd) Rental Commencement Date anniversary following such Letter
Delivery Date, shall be delivered to Landlord by Tenant; it being
understood and agreed by Tenant that, notwithstanding any other term or
provision of this Article 39 [but subject to the terms of Article 39(f)], a
Letter of Credit in the applicable amount required pursuant to the schedule
above shall be outstanding and in full force and effect at all times during
the Security Period. Tenant's
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obligation to maintain a Letter of Credit hereunder shall cease and expire
on the seventh (7/th/) anniversary of the Rental Commencement Date.
(d) Upon receipt of any newly issued Letter of Credit (if same is a
newly issued Letter of Credit, as opposed to an amendment of the then
existing Letter of Credit), and provided that such newly issued Letter of
Credit becomes effective on or before the date of delivery thereof to
Landlord, Landlord shall deliver to Tenant (or, at the direction of Tenant,
the issuing bank) the expiring Letter of Credit in exchange for the newly
issued Letter of Credit. Upon receipt of any newly issued Letter of Credit
which becomes effective after the date of delivery thereof to Landlord,
Landlord shall deliver to Tenant (or, at Tenant's direction, the issuing
bank) the expiring Letter of Credit on the effective date of the newly
issued Letter of Credit (unless Landlord has drawn on such expiring Letter
of Credit in accordance with this Article 39), it being understood and
agreed that in such case the expiring Letter of Credit shall remain in full
force and effect until the effective date of the newly issued Letter of
Credit. Notwithstanding any other provision of this Article 39 to the
contrary, each Replacement Letter of Credit having an effective date prior
to the expiration date of the expiring Letter of Credit shall be in the
amount of the expiring Letter of Credit from the applicable Letter Delivery
Date until the next anniversary date of the Rental Commencement Date and
then shall automatically (by the terms of such Replacement Letter of
Credit) reduce to the applicable lower amount set forth on the schedule
above as of such anniversary date. All fees, premiums and other sums
charged by the issuing bank for each Letter of Credit shall be paid by
Tenant, and not Landlord.
(e) In the event that a Drawing Event occurs under this Lease, it is
understood and agreed that Landlord shall thereupon have the right, in its
discretion and at any time during the continuance of such Drawing Event, to
draw upon the full face amount of the then outstanding Letter of Credit.
(f) The failure by Tenant, for any reason whatsoever, to maintain the
Original Letter of Credit or any Replacement Letter of Credit in full force
and effect at all times during the Security Period shall constitute an
immediate Drawing Event and an immediate event of default hereunder (no
notice and right to cure period or grace period shall be a condition to
such failure constituting an event of default hereunder notwithstanding the
provisions of Article 18 of this Lease) and, in addition to (and not in
lieu of) all other rights and remedies available to Landlord under this
Lease or at law or in equity, Landlord shall have the right to sue Tenant
for specific performance of its obligation to deliver and maintain the
applicable Letter of Credit.
(g) It is understood and agreed that the Letters of Credit are
required to be issued hereunder as security for the performance of Tenant's
obligations under this Lease after the occurrence of a Drawing Event and,
notwithstanding any other term or provision of this Article 39 or elsewhere
in this Lease, such Letters of Credit and the receipt of the proceeds
therefrom are not intended by Landlord and Tenant to be, and shall not be
construed or deemed to be, liquidated damages or a cap, restriction or
limitation of any kind or sort on or with respect to any of Landlord's
rights and remedies under this Lease or at law or in equity by virtue of
the occurrence of a Drawing Event or of an event of default; it being
understood and agreed by Tenant that Landlord hereby expressly reserves all
rights and remedies against Tenant, including without limitation a suit or
suits for monetary damages, available to it under this Lease and at law or
in equity because of a Drawing Event or an event of default.
(h) Any proceeds received by Landlord from any Letter of Credit
(hereinafter called the "Proceeds") shall be applied by Landlord first
toward the performance of Tenant's obligations which Tenant has failed to
perform under this Lease, and the remainder, if any, shall be held by
Landlord, in such "Permitted Investments" (as hereinafter defined) as
Landlord shall determine, in Landlord's sole discretion, as additional
security for the faithful performance by Tenant throughout the Security
Period of all the terms and conditions of the Lease on the part of Tenant
to be performed. If all or any part of the Proceeds is or are so applied
by Landlord, then Tenant shall immediately upon demand from
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Landlord pay to Landlord an amount sufficient to return the Proceeds to an
amount equal to the amount set forth in Article 39(b) as the amount of the
Letter of Credit which was otherwise required to be maintained by Tenant at
such time. In no event shall Landlord be responsible or liable for any
decrease in the Proceeds invested in Permitted Investments. Any interest
earned on the Proceeds shall become part of the Proceeds. Permitted
Investments shall mean, collectively, (a) direct obligations of the United
States of America or of any agency or political subdivision thereof, or
obligations guaranteed as to principal and interest by the United States or
by any agency or political subdivision thereof, in any case maturing not
more than ninety (90) days from the date of acquisition thereof; (b)
certificates of deposit issued by any bank having capital, surplus and
undivided profits of at least U.S.$200,000,000 and a long-term unsecured
senior debt rating of at least "A" by Standard & Poor's and "A2" by
Moody's, in any case maturing not more than ninety (90) days from the date
of acquisition thereof; and (c) commercial paper rated "P-1" or better by
Moody's or "A-1" or better by Standard & Poor's, in any case maturing not
more than ninety (90) days from the date of acquisition thereof. If, on the
fifth (5/th/) anniversary of the Rental Commencement Date no event of
default then exists under this Lease and the Proceeds in Landlord's
possession in excess of the unreimbursed amounts incurred by or owed to
Landlord in connection with any default by Tenant under this Lease equal or
exceed $2,000,000.00, Landlord shall refund to Tenant the amount by which
the Proceeds in excess of such unreimbursed amounts equal or exceed
$2,000,000.00. If, on the seventh (7/th/) anniversary of the Rental
Commencement Date no event of default then exists under this Lease and
there are any Proceeds in Landlord's possession in excess of the
unreimbursed amounts incurred by or owed to Landlord in connection with any
default by Tenant under this Lease, Landlord shall refund to Tenant such
excess. If no event of default then exists under this Lease and Tenant
delivers to Landlord a Letter of Credit complying in all respects with the
terms of this Lease, in the amount of the Letter of Credit that would then
be required to be in effect had Landlord not drawn on the previous Letter
of Credit, then upon such delivery, Landlord shall refund to Tenant the
Proceeds then held by Landlord.
(i) Landlord shall have the right to apply all or any part of the
Proceeds toward the performance of Tenant's obligations which Tenant has
failed to perform under this Lease.
(j) In the event of a sale or transfer of Landlord's interest in the
Demised Premises or the Building or a lease by Landlord of the Building,
Landlord shall have the right to transfer the Proceeds to the purchaser or
lessee, as the case may be, and Landlord shall be relieved of all liability
to Tenant for the return of the Proceeds. The Tenant shall look solely to
the new owner or lessor for the return of the Proceeds. The Proceeds shall
not be mortgaged, assigned or encumbered by Tenant. In the event of a
permitted assignment or subletting under this Lease by Tenant, the Proceeds
shall be held by Landlord as a deposit made by the permitted assignee or
subtenant and the Landlord shall have no further liability with respect to
the return of the Proceeds to the original Tenant.
(k) Landlord shall keep the Proceeds in Permitted Investments
separate from its general accounts.
(l) "Drawing Event" shall mean any one or more of the following:
(i) an event of default under Article 18(a)(i) of this
Lease;
(ii) an event of default under Article 18(a)(ii) of this
Lease with respect to which Landlord performs Tenant's
unperformed obligation and incurs costs in connection with such
performance and Tenant fails to reimburse Landlord in full for
all such costs within ten (10) days after written notice from
Landlord to Tenant;
(iii) any event of default under Article 18(a)(iii), (iv),
(v), (vi) or (x);
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(iv) any other event of default under Article 18 with
respect to which Landlord has commenced or is simultaneously
commencing an action to terminate this Lease or terminate
Tenant's right to possession under Article 18(b)(i), Article
18(b)(ii), at law or in equity, and such action is not dismissed
within sixty (60) days after the filing thereof.
40. Hazardous Substances. Tenant hereby covenants and agrees that Tenant
--------------------
shall not cause or permit any "Hazardous Substances" (as hereinafter defined) to
be generated, placed, held, stored, used, located or disposed of at the Project
or any part thereof, except for Hazardous Substances as are commonly and legally
used or stored as a consequence of using the Demised Premises for general office
and administrative purposes (and, if permitted hereunder, medical treatment and
medical laboratory purposes), but only so long as the quantities thereof do not
pose a threat to public health or to the environment or would necessitate a
"response action", as that term is defined in CERCLA (as hereinafter defined),
and so long as Tenant strictly complies or causes compliance with all applicable
governmental rules and regulations concerning the use, storage, production,
transportation and disposal of such Hazardous Substances. For purposes of this
Article 40, "Hazardous Substances" shall mean and include those elements or
compounds which are contained in the list of Hazardous Substances adopted by the
United States Environmental Protection Agency (EPA) or in any list of toxic
pollutants designated by Congress or the EPA or which are defined as hazardous,
toxic, pollutant, infectious or radioactive by any other federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to or imposing liability (including, without limitation, strict
liability) or standards of conduct concerning, any hazardous, toxic or dangerous
waste, substance or material, as now or at any time hereinafter in effect
(collectively "Environmental Laws"). Tenant hereby agrees to indemnify Landlord
and hold Landlord harmless from and against any and all losses, liabilities,
including strict liability, damages, injuries, expenses, including reasonable
attorneys' fees, costs of settlement or judgment and claims of any and every
kind whatsoever paid, incurred or suffered by, or asserted against, Landlord by
any person, entity or governmental agency for, with respect to, or as a direct
or indirect result of, the presence in, or the escape, leakage, spillage,
discharge, emission or release from, the Demised Premises of any Hazardous
Substances (including, without limitation, any losses, liabilities, including
strict liability, damages, injuries, expenses, including reasonable attorneys'
fees, costs of any settlement or judgment or claims asserted or arising under
the Comprehensive Environmental Response, Compensation and Liability Act
["CERCLA"], any so-called federal, state or local "Superfund" or "Superlien"
laws or any other Environmental Law); provided, however, that the foregoing
indemnity is limited to matters arising solely from Tenant's violation of the
covenant contained in this Article. The obligations of Tenant under this
Article shall survive any expiration or termination of this Lease.
41. Submission of Lease. The submission of this Lease for examination
-------------------
does not constitute an offer to lease and this Lease shall be effective only
upon execution hereof by Landlord and Tenant.
42. Severability. If any clause or provision of the Lease is illegal,
------------
invalid or unenforceable under present or future laws, the remainder of this
Lease shall not be affected thereby, and in lieu of each clause or provision of
this Lease which is illegal, invalid or unenforceable, there shall be added as a
part of this Lease a clause or provision as nearly identical to the said clause
or provision as may be legal, valid and enforceable.
43. Entire Agreement. This Lease contains the entire agreement of the
----------------
parties and no representations, inducements, promises or agreements, oral or
otherwise, between the parties not embodied herein shall be of any force or
effect. No failure of Landlord to exercise any power given Landlord hereunder,
or to insist upon strict compliance by Tenant with any obligation of Tenant
hereunder, and no custom or practice of the parties at variance with the terms
hereof, shall constitute a waiver of Landlord's right to demand exact compliance
with the terms hereof. No failure of Tenant to exercise any power given Tenant
hereunder, or to insist upon strict compliance by Landlord with any obligation
of Landlord hereunder, and no custom or practice of the parties at variance with
the terms hereof, shall constitute a waiver of Tenant's right to demand exact
compliance with the terms hereof. This Lease may not be altered, waived,
amended or extended except
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by an instrument in writing signed by Landlord and Tenant. This Lease is not in
recordable form, and Tenant agrees not to record or cause to be recorded this
Lease or any short form or memorandum thereof.
44. Headings. The use of headings herein is solely for the convenience of
--------
indexing the various paragraphs hereof and shall in no event be considered in
construing or interpreting any provision of this Lease.
45. Broker. Tenant represents and warrants to Landlord that (except with
------
respect to any Broker[s] identified in Article 1[m] hereinabove) no broker,
agent, commission salesperson, or other person has represented Tenant in the
negotiations for and procurement of this Lease and of the Demised Premises and
that (except with respect to any Broker[s] identified in Article 1[m]
hereinabove) no commissions, fees, or compensation of any kind are due and
payable in connection herewith to any broker, agent, commission salesperson, or
other person as a result of any act or agreement of Tenant. Tenant agrees to
indemnify and hold Landlord harmless from all loss, liability, damage, claim,
judgment, cost or expense (including reasonable attorneys' fees and court costs)
suffered or incurred by Landlord as a result of a breach by Tenant of the
representation and warranty contained in the immediately preceding sentence or
as a result of Tenant's failure to pay commissions, fees, or compensation due to
any broker who represented Tenant, whether or not disclosed, or as a result of
any claim for any fee, commission or similar compensation with respect to this
Lease made by any broker, agent or finder (other than the Broker[s] identified
in Article 1[m] hereinabove) claiming to have dealt with Tenant. Tenant shall
cause any agent or broker representing Tenant to execute a lien waiver to and
for the benefit of Landlord, waiving any and all lien rights with respect to the
Building and Land which such agent or broker has or might have under Virginia
law. Landlord agrees to indemnify and hold Tenant harmless from all loss,
liability, damage, claim, judgement, cost or expense, (including reasonable
attorney's fees and court costs) suffered or incurred by Tenant as a result of
Landlord's failure to pay commissions, fees or compensation due to any broker
who represented Landlord, whether or not disclosed, with respect to this Lease,
including any Broker identified in Article 1(m).
46. Governing Law. The laws of the Commonwealth of Virginia shall govern
-------------
the validity, performance and enforcement of this Lease. Tenant hereby submits
to the non-exclusive personal jurisdiction in the Commonwealth of Virginia, the
courts thereof and the United States District Courts sitting therein, for the
enforcement of this Lease, and Tenant hereby waives any and all personal rights
under the law of any jurisdiction to object on any basis (including, without
limitation, inconvenience of forum) to jurisdiction or venue within the
Commonwealth of Virginia for the purpose of litigation to enforce this Lease.
47. Special Stipulations. The special stipulations attached hereto as
--------------------
Exhibit "F" are hereby incorporated herein by this reference as though fully set
- -----------
forth.
48. Authority. Each of the persons executing this Lease on behalf of
---------
Tenant does hereby personally represent and warrant that each person signing on
behalf of the corporation is an officer of the corporation and is authorized to
sign on behalf of the corporation. Tenant does hereby represent and warrant
that Tenant is a duly incorporated and validly existing corporation and is fully
authorized and qualified to do business in the Commonwealth of Virginia, that
the corporation has full right and authority to enter into this Lease, and that
each person signing on behalf of the corporation is an officer of the
corporation and is authorized to sign on behalf of the corporation. Upon the
request of Landlord, Tenant shall deliver to Landlord documentation satisfactory
to Landlord evidencing Tenant's compliance with this Article, and Tenant agrees
to promptly execute all necessary and reasonable applications or documents as
reasonably requested by Landlord, required by the jurisdiction in which the
Demised Premises is located, to permit the issuance of necessary permits and
certificates for Tenant's use and occupancy of the Demised Premises. Each of
the persons executing this Lease on behalf of Landlord does hereby personally
represent and warrant that each person signing on behalf of the corporate
general partner of the general partner of Landlord is an officer of such
corporation and is authorized to sign on behalf of such corporation as general
partner of the general partner of Landlord. Landlord does hereby represent and
warrant that Landlord is a duly formed and validly existing limited partnership
and is fully authorized and qualified to do business in the Commonwealth of
Virginia, that
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<PAGE>
the limited partnership has full right and authority to enter into this Lease,
and that each person signing on behalf of the of the corporate general partner
of the general partner of Landlord is an officer of such corporation and is
authorized to sign on behalf of such corporation as general partner of the
general partner of Landlord.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the day, month and year first above written.
WELLS REIT, LLC - VA I,
a Georgia limited liability company
By: Wells Operating Partnership, L.P., a
Delaware limited partnership, sole member
By: Wells Real Estate Investment Trust,
Inc., a Maryland corporation, General
Partner
By: Wells Capital, Inc., a Georgia
corporation, General Partner
By: /s/ Leo F. Wells
-------------------------
Leo F. Wells, III,
President
[CORPORATE SEAL]
[Signatures continued on following page]
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<PAGE>
[Signatures continued from previous page]
"TENANT":
ABB POWER GENERATION INC., a Delaware corporation
By: /s/ [ILLEGIBLE]^^
------------------------------
Its: President
------------------------------
Attest: /s/ [ILLEGIBLE]^^
------------------------------
Its: Secretary
------------------------------
(CORPORATE SEAL)
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<PAGE>
RULES AND REGULATIONS
1. No sign, picture, advertisement or notice visible from the exterior of the
Demised Premises shall be installed, affixed, inscribed, painted or
otherwise displayed by Tenant on any part of the Demised Premises or the
Building unless the same is first approved by Landlord. Any such sign,
picture, advertisement or notice approved by Landlord shall be painted or
installed for Tenant at Tenant's cost by Landlord or by a party approved by
Landlord. No awnings, curtains, blinds, shades or screens shall be attached
to or hung in, or used in connection with any window or door of the Demised
Premises without the prior consent of the Landlord, including approval by
the Landlord of the quality, type, design, color and manner of attachment.
2. Tenant agrees that its use of electrical current shall never exceed the
capacity of existing feeders, risers or wiring installation provided as
Building Standard Services (see Exhibit "H").
-----------
3. The Demised Premises shall not be used for storage of merchandise held for
sale to the general public. Tenant shall not do or permit to be done in or
about the Demised Premises or Building anything which shall increase the
rate of insurance on said Building or obstruct or interfere with the rights
of other lessees of Landlord or annoy them in any way, including, but not
limited to, using any musical instrument, making loud or unseemly noises,
or singing, etc. The Demised Premises shall not be used for sleeping or
lodging. No cooking or related activities shall be done or permitted by
Tenant in the Demised Premises except with permission of Landlord. Tenant
will be permitted to use for its own employees within the Demised Premises
small Underwriter's Laboratory approved microwave ovens and Underwriters'
Laboratory approved equipment for brewing coffee, tea, hot chocolate and
similar beverages, provided that such use is in accordance with all
applicable federal, state, county and city laws, codes, ordinances, rules
and regulations, and provided that such use shall not result in the
emission of odors from the Demised Premises into the other areas of the
Building. No vending machines of any kind will be installed, permitted or
used on any part of the Demised Premises without the prior consent of
Landlord, provided, however, that Landlord will not unreasonably withhold,
condition or delay such consent with respect to vending machines installed
in the Demised Premises solely for the use of Tenant's employees. No part
of said Building or Demised Premises shall be used for gambling, immoral or
other unlawful purposes. No intoxicating beverage shall be sold in said
Building or Demised Premises without prior written consent of the Landlord.
No area outside of the Demised Premises shall be used for storage purposes
at any time.
4. No birds or animals of any kind shall be brought into the Building (other
than trained seeing-eye dogs required to be used by the visually impaired).
No bicycles, motorcycles or other motorized vehicles shall be brought into
the Building.
5. The sidewalks, entrances, passages, corridors, halls, elevators, and
stairways in the Building shall not be obstructed by Tenant or used for any
purposes other than those for which same were intended as ingress and
egress. No windows, floors or skylights that reflect or admit light into
the Building shall be covered or obstructed by Tenant. Toilets, wash
basins and sinks shall not be used for any purpose other than those for
which they were constructed, and no sweeping, rubbish, or other obstructing
or improper substances shall be thrown therein. Any damage resulting to
them, or to heating apparatus, from misuse by Tenant or its employees,
shall be borne by Tenant.
6. No additional lock, latch or bolt of any kind shall be placed upon any door
nor shall any changes be made in existing locks without written consent of
Landlord and Tenant shall in each such case furnish Landlord with a key for
any such lock. At the termination of the Lease, Tenant shall return to
Landlord all keys furnished to Tenant by Landlord, or otherwise procured by
Tenant, and in the event of loss of
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<PAGE>
any keys so furnished, Tenant shall pay to Landlord the cost thereof.
7. Landlord shall have the right to prescribe the weight, position and manner
of installation of heavy articles such as safes, machines and other
equipment brought into the Building. No safes, furniture, boxes, large
parcels or other kind of freight shall be taken to or from the Demised
Premises or allowed in any elevator, hall or corridor except at times
allowed by Landlord. In no event shall any weight be placed upon any floor
by Tenant so as to exceed the design conditions of the floors at the
applicable locations.
8. Tenant shall not cause or permit any gases, liquids or odors to be produced
upon or permeate from the Demised Premises, and, except in the case of
normal and customary medical supplies, no flammable, combustible or
explosive fluid, chemical or substance shall be brought into the Building.
9. Landlord may implement an electronic cipher lock access security system to
control access during times other than the Building Operating Hours.
Landlord shall not be liable for excluding any person from the Building
during such other times, or for admission of any person to the Building at
any time, or for damages or loss for theft resulting therefrom to any
person, including Tenant.
10. Unless agreed to in writing by Landlord, Tenant shall not employ any person
other than Landlord's contractors for the purpose of cleaning and taking
care of the Demised Premises. Cleaning service will not be furnished on
nights with respect to rooms occupied after 6:30 p.m., unless, by agreement
in writing, service is extended to a later hour for specifically designated
rooms. Landlord shall not be responsible for any loss, theft, mysterious
disappearance of or damage to, any property, however occurring.
11. No connection shall be made to the electric wires or gas or electric
fixtures, without the consent in writing on each occasion of Landlord. All
glass, locks and trimmings in or upon the doors and windows of the Demised
Premises shall be kept whole and in good repair. Tenant shall not injure,
overload or deface the Building, the woodwork or the walls of the Demised
Premises, nor permit upon the Demised Premises any noisome, noxious, noisy
or offensive business.
12. Any wiring for telephone service must be approved by Landlord, and no
boring or cutting for wiring shall be done unless approved by Landlord or
its representatives, as stated.
13. Tenant and its employees and invitees shall observe and obey all parking
and traffic regulations as imposed by Landlord. All vehicles shall be
parked only in areas designated for vehicle parking by Landlord.
14. Canvassing, peddling, soliciting and distribution of handbills or any other
written materials in the Building are prohibited, and Tenant shall
cooperate to prevent the same.
15. Landlord shall have the right to change the street address of the Building,
provided that Landlord shall give Tenant not less than 180 days' prior
notice of the change, unless the change is required by governmental
authority. If Tenant occupies 50% or less of the Rentable Floor Area of
the Building, Landlord shall have the right to change the name of the
Building.
16. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular lessee, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of any other
lessee, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the other lessees of the Building.
17. These Rules and Regulations are supplemental to, and shall not be construed
to in any way modify or
<PAGE>
amend, in whole or in part, the terms, covenants, agreements and conditions
of any lease of any premises in the Building.
18. Landlord reserves the right upon fifteen (15) days' prior written notice to
Tenant to make such other and reasonable Rules and Regulations as in its
judgment may from time to time be needed for the safety, care and
cleanliness of the Building and the Land, and for the preservation of good
order therein.
-3-
<PAGE>
EXHIBIT "A"
-----------
LEGAL DESCRIPTION
<PAGE>
EXHIBIT "B"
-----------
FLOOR PLAN
All of the Second, Third and Fourth Floors and such portion of the First Floor
as is marked on the accompanying floor plans.
35
<PAGE>
EXHIBIT "C"
-----------
SUPPLEMENTAL NOTICE
Re: Lease dated as of _________, 1999, by and between _______________, as
Landlord, and ___________________________, as Tenant.
Dear Sirs:
Pursuant to Article 3 of the captioned Lease, please be advised as follows:
1. The Rental Commencement Date is the _____ day of _____________, 1999,
and the expiration date of the Lease Term is the _____ day of _____________,
20___, subject however to the terms and provisions of the Lease.
2. The Rentable Floor Area of the Demised Premises is ____________ square
feet.
3. Terms denoted herein by initial capitalization shall have the meanings
ascribed thereto in the Lease.
"LANDLORD":
WELLS REIT, LLC - VA I,
a Georgia limited liability company
By: Wells Operating Partnership, L.P.,
a Delaware limited partnership,
sole member
By: Wells Real Estate Investment
Trust, Inc., a Maryland
corporation, General Partner
By: Wells Capital, Inc., a
Georgia corporation,
General Partner
By: /s/ Leo F. Wells, III
--------------------------
Leo F. Wells, III,
President
[CORPORATE SEAL]
36
<PAGE>
EXHIBIT "D"
-----------
CONSTRUCTION OBLIGATIONS
1. DEFINITIONS.
-----------
(a) Base Building Plans. The term "Base Building Plans" shall mean
-------------------
the plans and specifications developed by Landlord's architects and engineers
and used to build the Building to achieve the Base Building Condition (as
hereinafter defined). The Base Building Plans shall be evolutionary of and
consistent with the preliminary plans identified on Exhibit "D-1" attached
---
hereto and by reference made a part hereof.
(b) Base Building Condition. The term "Base Building Condition"
-----------------------
shall mean the condition when the following improvements have been completed,
constructed, and, except for Base Building Ceiling Systems, are installed and
are operational:
(1) Exterior walls and glass windows and frames installed. Building
perimeters will be fully finished as relates to water proofing, caulking,
glazing and metal finishing.
(2) Unfinished interior of exterior walls on each floor of the Demised
Premises (with wallboard portion of exterior walls taped and finished ready
for surface treatment).
(3) Concrete slab (level to 1/4" in 10') broom cleaned. Finished surfaces
to be ready to receive carpet, ceramic tile, resilient tile, wood parquet
or stone flooring.
(4) Men's and ladies' bathroom facilities, with Building Standard doors,
lighting fixtures, and finishes located on each floor of the Building on
which any portions of the Demised Premises are located.
(5) One (1) Building Standard drinking fountain for each floor of the
Building.
(6) Fire valve cabinets and/or fire extinguisher cabinets (including all
hoses, extinguishers and the like) as required by codes for open floor
occupancy, installed in stairways or core. Sprinklers and smoke and fire
detection system installed.
(7) Building fire stairs installed, finished and painted, with surrounding
walls installed and with Building Standard doors for such stairwells
installed.
(8) Building core installed, with walls installed, taped, sanded and
floated.
(9) Building Standard electrical and telephone distribution rooms and
janitorial closets constructed in accordance with the Base Building Plans,
together with doors for such rooms and closets installed, and including
telephone and data main service entry conduit and vertical sleeves and
duplex outlets in electrical and telephone/data closets.
(10) Building Standard electrical panels in the core electrical closet on
each floor (ready for Tenant's electrical connections) sufficient to supply
the quantities of electrical power described in the Building Standard
Services set forth in Exhibit "E" of this Lease.
-----------
(11) Base Building air conditioning system, including diffusers and
returns, capable of maintaining (i) 76 degrees F.D.B. at 50% R.H. +/- 5%
automatic control in summer based on the local 2-1/2%
37
<PAGE>
outdoor design condition as specified in the "ASHRAE Handbook of
Fundamentals" and (ii) 72 degrees F.D.B. at 30% R.H. minimum in winter
based on the local 97.5 outdoor design condition as specified in the latest
edition of "ASHRAE Handbook of Fundamentals". Air conditioning design basis
is 7.0 watts per rentable square foot lighting and power load, based upon
an occupancy rate of one (1) person per 100 rentable square feet and
venetian blinds drawn with slats tilted against the sun at not less than 45
degrees from horizontal.
(12) Building Standard air handling unit(s) installed in the mechanical
room on each floor. HVAC main trunk duct work from the fan room to the core
walls installed, HVAC ducts and VAV boxes, together with VAV boxes and PIUs
for upstream ductwork interior zones and VAV boxes for upstream ductwork
perimeter zones, installed.
(13) One (1) sanitary sewer and vent location per floor in the core area
for Tenant's connection in accordance with the Base Building Plans.
(14) One (1) domestic cold water supply connection per floor located in
the core area in accordance with the Base Building Plans, together with wet
columns, for future plumbing on each wing of each floor.
(15) Building Standard sprinkler risers and main loop installed on each
floor of the Building, together with Building Standard sprinkler heads
(semi recessed chrome pendants) installed in accordance with Landlord's
standard grid pattern.
(16) All gypboard cladding around the core, all columns and perimeter
sills.
(17) Building Standard blinds for all exterior window openings.
(18) The parking facilities, driveways, and all entrances and exits are
complete so as to allow beneficial use thereof.
(19) All general exhaust requirements completed in accordance with the
Base Building Plans.
(20) All exterior landscaping and plaza work, except for landscaping not
yet completed due to seasonal conditions.
(21) Building Standard 2x4, 3 tube, recessed deep cell parabolic
fluorescent fixtures, with one (1) fixture per 85 usable square feet.
(22) Building Standard blinds installed on all exterior windows.
(23) Complete finish of Building lobby, including security access,
elevators and building direction signs. Complete finish of monument sign at
street entrance and all common areas within the Building, including
elevator lobbies and common corridors.
(24) Full DCC Controls, including Energy Management and lighting controls.
(25) All thermostats.
(26) Identification signage for mechanical and electrical closets,
stairwells, toilet rooms and mechanical and electrical components.
38
<PAGE>
(27) Loading dock.
(28) Full height demising walls between tenant space and public corridors
finished and painted.
(29) Keypad access at front and rear doors.
(30) All light fixtures, exit light fixtures and emergency circuits
installed in the common areas of the Building and Project. The installation
of those exit light fixtures, exit signs and emergency circuits which would
be required on each floor if each floor had no interior partitions.
(31) Building Standard ceiling grid and ceiling tile for the Demised
Premises.
(32) Building Standard Doors at 8' 0' with welded frames and ADA compliant
hardware installed in all mechanical rooms, electrical rooms, telephone
rooms, restrooms, janitors closets and similar architectural openings, as
required.
(33) In addition to the foregoing, Base Building Condition includes such
construction and installations to the core of the Building, the exterior of
the Building, the shell of the Building, the common areas of the Building
and Project, and the non-tenant rentable areas as are necessary for the
issuance of a Certificate of Occupancy for the Building.
Except where installation (or "installed") is expressly specified in the
foregoing provisions of this Paragraph 1(b), Base Building Condition does not
include the installation in the Demised Premises of the ceiling grid and ceiling
tile or the installation in the ceiling of the HVAC, lighting, and electrical
systems (the ceiling grid and ceiling tile and the ceiling HVAC, lighting and
electrical systems are collectively referred to as the "Base Building Ceiling
Systems") set forth above as part of Base Building Condition. Landlord shall
provide at Landlord's cost, but not install, the Base Building Ceiling Systems,
and the costs incurred by or on behalf of Tenant to install the Base Building
Ceiling Systems in the ceiling shall be included within the costs of the Layout
Work for purposes of paying the Construction Allowance and Tenant's obligation
to pay costs of the Layout Work in excess of the Construction Allowance.
(c) Base Building Work. The term "Base Building Work" shall mean the work
required to complete the improvements on the Land to Base Building Condition.
(d) Building Standard. The term "Building Standard" shall mean the
standard of all material, finishes and workmanship established by Landlord for
the Building. All such materials, finishes and workmanship shall be consistent
with the first-class nature of the Project, and consistent with the standards
set forth on Exhibit "D-3" attached hereto, and in accordance with all
applicable codes, regulations, and statutes.
(e) Plans and Specifications. The term "Plans and Specifications" shall
------------------------
mean the working drawings and specifications for the construction of the Layout
Work in the Demised Premises, which working drawings and specifications will be
prepared as set forth below. The Plans and Specifications shall include, without
limitation, complete, detailed architectural drawings and specifications for
Tenant's partition layout, reflected ceiling and other installations, and
complete mechanical and electrical plans and specifications for installation of
supplemental air conditioning systems, fire protection and electrical systems.
Tenant, at Tenant's sole cost and expense (subject to the reimbursement
obligation of Landlord hereinafter set forth), shall cause the proposed Plans
and Specifications to be prepared by Tenant's architect and/or designer. All
such proposed Plans and Specifications are expressly subject to Landlord's
approval and shall comply with all applicable laws, rules and regulations.
Tenant covenants and agrees to cause the proposed Plans and Specifications to be
delivered to Landlord on or before October 15, 1999, and, upon approval by
Landlord, Landlord will cause said plans to be filed, at Tenant's sole cost and
expense, with the appropriate governmental agencies in such form
39
<PAGE>
(building notice, alteration or other form) as Landlord may direct. In the event
of any disapproval by Landlord of the proposed Plans and Specifications, Tenant
shall, within fifteen (15) days, have the same revised and resubmitted to
Landlord for Landlord's approval. The proposed Plans and Specifications which
have been approved by Landlord are referred to as the Plans and Specifications.
Within thirty (30) days after the date upon which the Plans and Specifications
were approved by Landlord, Tenant shall submit to Landlord a detailed statement
including paid invoices showing the amounts paid by Tenant for the preparation
of the Plans and Specifications, and Landlord shall pay to Tenant the amounts
shown by such statement, but in no event shall Landlord be obligated to pay
Tenant an amount in excess of $1.00 multiplied by the Rentable Floor Area of the
Demised Premises (the "Design Allowance").
(f) Tenant's Architect. The term "Tenant's Architect" shall mean Ai,
------------------
or such other architect as may be designated by Tenant and approved by Landlord
for the design of the Layout Work and the preparation of plans and
specifications therefor.
(g) Plan Delivery Date. The term "Plan Delivery Date" shall mean
------------------
October 15, 1999.
(h) Layout Work. The term "Layout Work" shall mean all job plant,
-----------
labor, equipment, materials, and appurtenances necessary to fully complete the
construction, finishing, and installation of all of the leasehold improvements
to the portion of the Demised Premises to be initially built-out as shown on the
Plans and Specifications, including without limitation, the following:
(1) HVAC supply diffusers, perimeter diffusing system, perimeter gypboard
soffit, thermostats (labor to install only) and controls throughout the
Demised Premises and all connections to the Base Building systems.
(2) Labor to install the Base Building Ceiling System in the Demised
Premises.
(3) Electrical and telephone:
(i) All light switches.
(ii) All electrical outlets and all conduit and wiring throughout
the Demised Premises for electrical power, including connections to
the Building Standard electrical panels in the core of the Building.
(iii) All telephone outlets, conduit and wiring throughout the
Demised Premises and any necessary connections in the Building core.
(iv) All conduit and wiring for lights throughout the Demised
Premises and connections to Building Standard electrical panels in the
core of the Building, and any increase to the number of Building
Standard panelboards.
(v) Any provision for supplying power to the Demised Premises
beyond the amount required under the Building Standard Services or
circuiting at less than 8 outlets per 15 AMP circuit, including
necessary metering to measure excess electrical usage.
(vi) All exit light fixtures, exit signs and emergency circuits,
except that Base Building Work shall include those fixtures, signs and
circuits which would be required on each floor if each floor had no
interior partitions.
(4) All plumbing work for facilities such as toilets and sinks in the
Demised Premises in addition
40
<PAGE>
to the plumbing work, toilets, sinks and related facilities provided in
Base Building Work.
(5) All partitions including finish, and the finish to the inside of the
Building's perimeter walls.
(6) All doors, frames and hardware not included in the Base Building Work.
(7) All floor finish including base.
(8) Any modification to or deviation from the sprinkler system to be
provided by Landlord as part of the Base Building Condition.
(9) Any special construction as shown on the Plans and Specifications
approved by the Landlord.
(10) Tenant's identification sign(s).
(11) Tenant's communication and telephone equipment and installation
thereof.
The Layout Work comprises the completed construction and installation
required to fully complete the leasehold improvements required by or shown
on the Plans and Specifications (including any amendments, additions, or
changes to said Plans and Specifications) and includes all labor and
services necessary to timely and fully produce such construction and
installation, and all materials and equipment incorporated, or to be
incorporated, in such construction or installation (including any labor,
materials, or services furnished pursuant to any change orders or in
accordance with any other changes, modifications, or additions to
construction). The Layout Work shall be performed by Landlord's contractors
as provided in Paragraph 5 below.
(i) Substantial Completion. The term "Substantial Completion" shall
----------------------
mean the earlier of (i) the date when all of the Base Building Work and Layout
Work shall have been completed, except for Punch List Items, or (ii) the date
when the Base Building Work and Layout Work would have been so completed to such
an extent but for delays caused by Tenant.
(j) Punch List Items. The term "Punch List Items" shall mean details
----------------
of construction, decoration and mechanical adjustment which, in the aggregate,
are minor in character and do not interfere with Tenant's use or enjoyment of
the Demised Premises.
2. BASE BUILDING WORK.
------------------
Landlord agrees to pursue the Base Building Work with due diligence and
continuity so as to cause Substantial Completion to occur as soon as practicable
under the circumstances, with a goal of achieving Substantial Completion on or
before April 1, 2000 (subject to force majeure and subject to delays caused by
Tenant).
3. PLANS AND SPECIFICATIONS.
------------------------
Tenant shall cause the Plans and Specifications to be prepared by
Tenant's Architect and delivered to Landlord on or before the Plan Delivery
Date.
4. CONSTRUCTION ALLOWANCE.
----------------------
Tenant shall be responsible for the payment of all costs of the Layout
Work to the extent such costs exceed the Construction Allowance provided by
Landlord. Landlord will provide the Construction
41
<PAGE>
Allowance described in Article 1(l) of this Lease, and Tenant shall receive a
credit for the Construction Allowance as provided in Paragraph 5(c) below.
5. PERFORMANCE OF LAYOUT WORK BY LANDLORD'S CONTRACTORS. The performance
----------------------------------------------------
of the Layout Work shall be governed by this Paragraph 5.
(a) Performance by Landlord. Landlord shall, through Landlord's
-----------------------
contractors, construct and install the Layout Work in a first-class manner
in accordance with first-class construction standards. Tenant shall pay
Landlord or Landlord's designee, as part of the cost of the Layout Work, a
fee in the amount of $64,000.00 for Landlord's coordination and management
of the construction and installation of the Layout Work. Landlord shall be
obligated diligently to manage and coordinate the construction and
installation of the Layout Work so that the Layout Work shall be
substantially completed on a reasonable construction schedule, unless
completion of the Layout Work is prevented by reason of delays caused by
Tenant. Landlord shall cause its general contractor to obtain bids for the
major portions of the Layout Work (e.g., HVAC and electrical) from
reputable, bondable and qualified subcontractors selected by such general
contractor and approved by Tenant and Tenant's Architect (Tenant agrees
that such approval shall not be unreasonably withheld, conditioned or
delayed). With respect to such contracts to which the sentence immediately
preceding this sentence applies, notwithstanding that the general
contractor shall be entitled to accept whichever bid the general contractor
determines, there shall be included in the costs of the Layout Work for
purposes of this Exhibit "D" only the costs which would have been incurred
if the general contractor had chosen the lowest bid complying with all of
the bid requirements from one of the qualified subcontractors.
(b) Coordination Services. Tenant acknowledges that Landlord will not
---------------------
act a general contractor for the Layout Work, and the manner in which
Landlord will coordinate and supervise the construction of the Layout Work
is described on Exhibit "D-2" attached hereto.
(c) Payment of Costs of Layout Work. Tenant shall be responsible for
-------------------------------
all costs of the Layout Work in accordance with the Plans and
Specifications, to the extent such costs exceed the Construction Allowance.
Periodically after commencement of construction of the Layout Work, but not
more frequently than monthly, Landlord shall submit to Tenant a billing for
that portion of the costs of the Layout Work payable to the date of such
billing. There shall be a credit against Tenant's obligation under each
billing for the Construction Allowance, which credit shall be the lesser of
(x) the product of (i) the quotient of the Construction Allowance divided
by the total estimated cost of the Layout Work, times (ii) the amount of
the billing in question, and (y) the unpaid Construction Allowance. Final
adjustment of the credit for such Construction Allowance shall be made in
connection with the final payment by Tenant to Landlord of the costs of
such Layout Work. Tenant's failure to promptly pay any such billing within
ten (10) days after receipt of such billing shall be deemed authorization
for Landlord to instruct the contractor constructing and installing the
Layout Work to stop work until such payment is made, together with any
accrued interest and late fees attributable thereto. The payments due by
Tenant to Landlord for costs of the Layout Work shall be deemed Additional
Rental under this Lease. In the event that upon final completion of the
Layout Work, there remains any unused Construction Allowance, then, at the
option of Tenant, to be exercised by written notice to Landlord on or
before the date sixty (60) days after the Rental Commencement Date, either
(a) the unused Construction Allowance shall be credited dollar for dollar
against Base Rental payments as they come due, or (b) Tenant shall submit
to Landlord, on or before the date sixty (60) days after the Rental
Commencement Date, a detailed statement including paid invoices showing the
amounts paid by Tenant for relocation expenses (unreimbursed under, and not
the subject of a reimbursement request under, Special Stipulation 9 of this
Lease) or systems furniture installed in the Demised Premises, and Landlord
shall pay to Tenant the amounts shown by such statement (and not previously
paid by Landlord to Tenant), but in no event shall the aggregate of all
such payments by Landlord to Tenant exceed the unused Construction
Allowance.
42
<PAGE>
6. CONSENT OF LANDLORD.
-------------------
Any approval or consent by Landlord of any of Tenant's plans,
specifications, or other items to be submitted by Tenant to and/or reviewed by
Landlord pursuant to this Exhibit "D" shall be deemed to be strictly limited to
an acknowledgement of approval or consent by Landlord thereto and such approval
or consent shall not constitute an assumption by Landlord of any responsibility
for the accuracy, sufficiency or feasibility of any plans, specifications or
other such items and shall not imply any representation, acknowledgement or
warranty by Landlord that the design is safe, feasible or structurally sound or
will comply with any legal or governmental requirements. Landlord's approval or
consent shall be deemed to have been withheld unreasonably if it was withheld
for any reason other than (i) non-compliance of Tenant's Plans and
Specifications with governmental requirements, (ii) Tenant's Plans and
Specifications will materially, adversely affect the structure or systems of the
Building or the first class nature of the Project, (iii) the work required by
such Tenant's Plans and Specifications would cause a delay in the completion of
the Base Building Work, or (iv) Landlord's reasonable objections to the
appearance of the improvements which will be visible from the exterior of the
Building.
43
<PAGE>
EXHIBIT "D-1"
-------------
PLANS AND SPECIFICATIONS
44
<PAGE>
EXHIBIT "D-2"
-------------
COORDINATION OF LAYOUT WORK BY LANDLORD
Landlord will provide the following services:
1. Meet with Tenant and Tenant's Architect to determine Tenant's work
requirements, design package and plans, which include, but are not
limited to:
(a) Floor Plan
(b) Reflected Ceiling Plans
(c) Architectural Details
(d) Electrical
(e) Mechanical/Plumbing
2. Review the architectural and engineering plans, drawings, and
specifications, and advise and make recommendations to Tenant and
Tenant's Architect with respect to such factors as construction
feasibility, possible economies, availability of materials and labor,
time requirements for procurement and construction, and projected
costs. Assist in the coordination of all sections of the drawings and
specifications, without, however, assuming any of Tenant's Architect's
responsibilities for design.
3. Consult with, advise, assist and make recommendations to Tenant and
Tenant's Architect on all aspects of planning for the construction of
Tenant improvements.
4. Make recommendations to Tenant and Tenant's Architect regarding the
division of work in the Plans and Specifications to facilitate the
awarding of trade contracts, taking into consideration such factors as
time of performance, availability of labor, overlapping trade
jurisdictions, provisions for temporary facilities, etc.
5. Review Plans and Specifications with Tenant's Architect to eliminate
areas of conflict and overlapping in the work to be performed by the
various trade contractors.
6. Recommend for purchase and expedite the procurement of long-lead items
to insure their delivery by the required dates.
7. After receiving final construction drawings, proceed to secure
competitive bids, as follows:
(a) Evaluate all bidders as to their acceptability prior to being
asked to bid each job and advise Tenant of this evaluation.
(b) Invite a minimum of three (3) competitive bids from each of the
following trades:
(1) Architectural Work - including partitions, doors, hardware,
carpentry work (excluding fine millwork), painting, wall
covering, ceiling, sprinkler, plumbing, general condition,
etc.
(2) Fine Millwork
(3) All Electrical
(4) All Mechanical
(5) All Floor Coverings
45
<PAGE>
(6) All other trades designated by Tenant or Tenant's Architect
as requiring competitive bids.
(c) Issue complete copies of all construction drawings, with all
specifications necessary for the contractor to give a detailed
statement of cost to complete the project.
(d) Deviation from the three bid procedure may be taken at Tenant's
request.
8. Establish a construction schedule for Tenant's review and reasonable
approval, which approval Tenant shall be deemed to have given if
Tenant does not notify Landlord of any objections within five (5)
business days of Tenant's receipt thereof from Landlord. Closely
monitor the schedule during the construction phase and be responsible
for providing all parties with periodic reports as to the status of
the work with respect to the construction schedule.
9. Coordinate the work of all trades as well as the architects and
engineers, including without limitation relocation of sprinkler heads
and relocation of HVAC supply and returns. (Landlord in this instance
is providing services normally provided by a general contractor).
10. Provide a competent project manager to coordinate and provide general
direction of the work and the trade contractors.
11. Establish on-site organization, lines of authority, and procedures for
coordination among Tenant, Tenant's Architect, consultants, and
engineers, Tenant's contractors and subcontractors, Landlord's project
contractor and subcontractors, and Landlord's architect, consultants,
and engineers with respect to the Layout Work and implement such
procedures.
12. In cooperation with Tenant's Architect, establish and implement
procedures to be followed for expediting and processing all shop
drawings, catalogs, and other papers and drawings.
13. Establish effective programs relating to safety, job site records,
labor relations, EEO, and progress reports.
14. Continually review all construction work to ensure quality of work and
contractual terms, and coordinate with Tenant any changes necessary
and/or requested after construction starts.
15. Review and process all applications for payment by trade contractors
and material suppliers.
16. Make recommendations for and process requests for changes in the work
and maintain records of change orders.
17. Prepare a final punchlist after inspection of the Demised Premises in
conjunction with Tenant's Architect and Tenant.
18. Supervise completion of all punchlist items.
Tenant understands that Landlord may not directly employ personnel to carry
out its duties as required above and may perform its duties through a contractor
or developer selected by Landlord, but there will not be any additional cost or
fee to be paid by Tenant.
46
<PAGE>
EXHIBIT "D-3"
-------------
MATERIALS STANDARDS
Building Lobby: hard surface finished flooring (e.g., porcelain pavers);
polished stainless steel elevator doors and frames;
2500 lb, 125 fpm elevators; drywall ceilings and wall
sconce lighting; drywall columns and reveals; painted or
stained wood base; and fabric wall panels.
Tenant Office Areas: 2' x 2' 5/8" reveal edge tile at 9'0" AFF; 15/16" ceiling
grid 2' x 2' module; 2 x 4 three tube deep cell parabolic
fluorescent lights with electronic ballast and T8 lamps;
elevator doors and frames at each floor factory primed
steel, center opening.
Toilet Rooms: wet walls to have full height 4" x 4" ceramic tiles of
manufacturer standard colors, borders and field; other walls to
be water resistant gypboard with vinyl wall covering; floors of
2" x 2" unglazed ceramic tile; toilet partitions and privacy
screens with factory plastic laminate; full width mirror over
solid surface lavatory tops with recessed stainless accessories.
HVAC: Trane, Carrier, or equal.
Elevators: 2 x 3500 lb hydraulic passenger elevators; 1 x 4500 lb freight
elevator; Dover or equal.
Miscellaneous: Window blinds, horizontal 1" mini style; full height doors and
welded frames for Base Building doors.
47
<PAGE>
EXHIBIT "E"
-----------
BUILDING STANDARD SERVICES
Landlord shall furnish the following services to Tenant during the Lease
Term (the "Building Standard Services"):
(a) Common-use restrooms (with cold and tempered domestic water) and
toilets at the locations provided for in the Base Building Plans.
(b) Subject to curtailment as required by governmental laws, rules or
mandatory regulations and subject to the design conditions set forth in
paragraph 1(b)(11) of Exhibit "D" attached hereto, central heat and air
-----------
conditioning in season, at such temperatures and in such amounts as are in
keeping with the standards of Class "A" suburban multi-tenant office buildings
comparable to the Building in the metropolitan Richmond, Virginia area. Such
heating and air conditioning shall be furnished between 7:00 a.m. and 6:00 p.m.
on weekdays (from Monday through Friday, inclusive) and between 8:00 a.m. and
1:00 p.m. on Saturdays, all exclusive of Holidays, as defined below (the
"Building Operating Hours").
Upon one (1) day's prior notice by Tenant given during Building Operating
Hours, Landlord will furnish such air conditioning and heating at other times
(that is, other than the times specified above), in which case Tenant shall
reimburse Landlord for all costs of such heating and air conditioning during
days and times other than the Building Operating Hours. Any sums due hereunder
from Tenant shall be paid by Tenant to Landlord together with the installment of
Base Rental which is due next following receipt by Tenant of a billing from
Landlord for such sums.
(c) Electric lighting service for all public areas and special service
areas of the Building in the manner and to the extent reasonably deemed by
Landlord to be in keeping with the standards of Class "A" suburban multi-tenant
office buildings comparable to the Building in the metropolitan Richmond,
Virginia area.
(d) Janitor service shall be provided five (5) days per week, exclusive of
Holidays (as hereinbelow defined), in a manner that Landlord reasonably deems to
be consistent with the standards of Class "A" suburban multi-tenant office
buildings comparable to the Building in the metropolitan Richmond, Virginia
area, and in accordance with the standards set forth on Exhibit "E-1" attached
-------------
hereto. In the event any special cleaning services are required for special non-
office space (and which are not required for office space), any incremental cost
of providing such special cleaning services shall be borne solely by Tenant, and
shall be paid by Tenant to Landlord as additional rent.
(e) Sufficient electrical capacity to operate lights, typewriters,
calculating machines, photocopying machines, personal computers and other
machines of the same low voltage electrical consumption.
Should Tenant's total rated electrical design load exceed 7.0 watts per
rentable square foot lighting and power load, or if Tenant's electrical design
requires low voltage or high voltage circuits in excess of Tenant's share of the
Building Standard circuits, Landlord will (at Tenant's expense) install such
additional circuits and associated high voltage panels and/or additional low
voltage panels with associated transformers (which additional circuits, panels
and transformers shall be hereinafter referred to as the "Additional Electrical
Equipment"). If the Additional Electrical Equipment is installed because
Tenant's low or high voltage rated electrical design load exceeds the applicable
Building Standard rated electrical design load, then a meter shall also be added
(at Tenant's expense) to measure the electricity used through the Additional
Electrical Equipment.
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The design and installation of any Additional Electrical Equipment (or any
related meter) required by Tenant shall be subject to the prior approval of
Landlord (which approval shall not be unreasonably withheld). All expenses
incurred by Landlord in connection with the review and approval of any
Additional Electrical Equipment shall also be reimbursed to Landlord by Tenant.
Tenant shall also pay on demand the actual metered cost of electricity consumed
through the Additional Electrical Equipment (if applicable), plus any actual
accounting expenses incurred by Landlord in connection with the metering
thereof.
If any of Tenant's electrical equipment requires conditioned air in excess
of Building Standard air conditioning, the same shall be installed by Landlord
(on Tenant's behalf), and Tenant shall pay all design, installation, metering
and operating costs relating thereto.
If Tenant requires that certain areas within Tenant's Demised Premises must
operate in excess of the normal Building Operating Hours (as hereinabove
defined), the electrical service to such areas shall be separately circuited and
metered (at Tenant's expense) such that Tenant shall be billed the costs
associated with electricity consumed during hours other than Building Operating
Hours.
(f) All Building Standard fluorescent bulb replacement in all areas and
all incandescent bulb replacement in public areas, toilet and restroom areas,
and stairwells.
To the extent the services described above require electricity and water
supplied by public utilities, Landlord's covenants thereunder shall only impose
on Landlord the obligation to use its reasonable efforts to cause the applicable
public utilities to furnish same. Except for deliberate and willful acts of
Landlord, failure by Landlord to furnish the services described herein, or any
cessation thereof, shall not render Landlord liable for damages to either person
or property, nor be construed as an eviction of Tenant, nor work an abatement of
rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof.
In addition to the foregoing, should any of the equipment or machinery, for any
cause, fail to operate, or function properly, Tenant shall have no claim for
rebate of rent or damages on account of an interruption in service occasioned
thereby or resulting therefrom; provided, however, Landlord agrees to use
reasonable efforts to promptly repair said equipment or machinery and to restore
said services during normal business hours.
The following dates shall constitute "Holidays" as that term is used in
this Lease: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas, and any other holiday generally recognized as such
by landlords of office space in the Richmond, Virginia office market, as
determined by Landlord in good faith. If in the case of any specific holiday
mentioned in the preceding sentence, a different day shall be observed than the
respective day mentioned, then that day which constitutes the day observed by
national banks in Richmond, Virginia on account of said holiday shall constitute
the Holiday under this Lease.
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EXHIBIT "F"
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Special Stipulations
1. EXTENSION OPTIONS.
(a) Tenant is hereby granted options to extend the Lease Term for two (2)
successive additional periods of three (3) years each (each such additional
period being herein referred to as an "Extended Term") by giving written notice
of such extension to Landlord at least twelve (12) months prior to the
expiration of the initial Lease Term or the then current Extended Term, as the
case may be. Tenant shall have the right to exercise these options to extend
provided that on the date of such exercise no default or event of default under
this Lease then exists. Each Extended Term shall be upon all of the same terms,
covenants and conditions of this Lease then applicable except that the Base
Rental Rate during the Extended Terms shall be the "Market Rate" (as hereinafter
defined), and except that after the exercise of the option for the first
Extended Term, Tenant shall have only one (1) option to extend, and after the
exercise of the option for the second Extended Term, Tenant shall have no
further options to extend the Lease Term. The term "Lease Term" as used in this
Lease shall mean the initial Lease Term and any Extended Term which may become
effective. For purposes of this Special Stipulation, "Market Rate" shall mean
the annual effective rental rate per square foot of rentable floor area then
being charged by landlords under new leases of office space in that portion of
the metropolitan Richmond, Virginia market that is located south of the James
------------------
River and west of I-95 for space similar to the Demised Premises in a building
of comparable quality and with comparable parking and other amenities. In
determining the Market Rate, Landlord and Tenant (and any appraisers, if
applicable) shall take into account the fact that Tenant shall pay Tenant's
share of the Operating Expenses. Also, in determining the Market Rental Rate,
Landlord and Tenant (and any appraisers, if applicable) shall compare actual
rental rates only (after making appropriate adjustments resulting from the
foregoing facts) and shall take into consideration any discounts, allowances,
free rent, remodeling credits, construction allowances and other concessions and
inducements granted by other landlords.
(b) Tenant may not assign the options to extend under Special Stipulation
1(a) to any subtenant of the Demised Premises or any assignee of this Lease
other than the Joint Venture or an "Affiliate" (as hereinafter defined), nor may
any such subtenant or assignee other than an Affiliate or the Joint Venture
exercise the options to extend. "Affiliate" shall mean an entity which is more
than fifty percent (50%) owned, directly or indirectly, by Tenant, or an entity
which directly or indirectly owns more than fifty percent (50%) of Tenant, or an
entity which is more than fifty percent (50%) owned, directly or indirectly, by
an entity which itself owns, directly or indirectly, more than fifty percent
(50%) of Tenant.
(c) In the event Landlord and Tenant are unable to agree on the Market
Rate for the Demised Premises on or before the first day of the applicable
Extended Term, then, within ten (10) days after that date, each party shall
appoint and employ, at its cost, a real estate appraiser [who shall be a member
of the American Institute of Real Estate Appraisers (MAI) or be a Counselor of
Real Estate (a member of the American Society of Real Estate Counsellors) and
who shall have at least ten (10) years of full-time commercial appraisal
experience in the Richmond area and who is not affiliated with either party
hereto] to appraise and establish the Market Rate for the Demised Premises. The
two appraisers, thus appointed, shall meet promptly and attempt to agree on such
rate. In the event one party fails to appoint an appraiser, the other designated
appraiser shall independently determine the Market Rate for the Demised Premises
in accordance herewith. If they are unable to agree within twenty (20) days
after the last of them has been appointed, they shall attempt to agree upon and
designate a third appraiser meeting the qualifications set forth above within
ten (10) days after the last date on which the two appraisers were given to
agree. If they are unable to agree on the third appraiser, either of the
parties, after giving five (5) days notice to the other, may apply to the
presiding judge of the __________ Court of Chesterfield County, Virginia, for
the selection of a third appraiser meeting the qualifications stated above. Each
of the parties shall bear one-half of the cost of the appointment of the third
appraiser, and each of the
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appraisers shall make a determination of Market Rate for the Demised Premises.
The appraisal that is farthest from the middle appraisal shall be disregarded
and the remaining two appraisals shall be averaged in order to establish such
rate; provided, however, if the low appraisal and/or the high appraisal are
equidistant from the middle appraisal, all three appraisals shall be averaged.
After the Market Rate for the Demised Premises has been established, the
appraisers shall immediately notify the parties in writing and such Market Rate
for the Demised Premises shall be binding upon the parties for the applicable
Extended Term. In the event the Market Rate for the Demised Premises has not
been finally determined by the appraisers prior to the first day of the Extended
Term, Tenant shall pay Base Rental at the rate in effect immediately prior to
the first day of the Extended Term, with appropriate adjustment to be made
within thirty (30) days following conclusion of the determination of Market
Rate.
2. REFUSAL RIGHT
Prior to December 31, 1999, Landlord will not lease any space in the Building
other than to Tenant. "Refusal Period" shall mean the period beginning on
December 31, 1999, and ending on the last day of the third Lease Year. Provided
and on the condition that there is no uncured default of Tenant then existing,
Tenant shall have, during the Refusal Period, a right of refusal (the "Refusal
Right"), subject to and upon the terms and conditions set forth below, to all
remaining rentable space in the Building (other than the Demised Premises) and
designated on Exhibit "G" attached hereto and by reference made a part hereof
-----------
(the "Refusal Space"). "Refusal Space" does not include any space leased by
Tenant pursuant to Special Stipulation 8. Prior to entering into a lease with
any other party of any of the Refusal Space, Landlord shall notify Tenant that
it intends to enter into such lease and the economic terms of such proposed
lease (a "Refusal Notice"). Tenant shall have the right to exercise its Refusal
Right to add the space identified in the Refusal Notice to the Demised Premises
[with such space subject to all the terms and conditions of this Lease,
provided, however, that with respect to such Refusal Space the Base Rental and
other charges, and any allowances (such as but not limited to tenant improvement
allowance, redecoration allowance, furniture allowance, and plan preparation
allowance), shall be solely as set forth in the Refusal Notice (provided,
however, that if the remaining initial Term of this Lease is less than 84 months
at the Rental Commencement Date for such Refusal Space, then all such allowances
shall be multiplied by a fraction, the numerator of which is the number of whole
months remaining in the initial Term of this Lease at the Rental Commencement
Date for such Refusal Space, and the denominator of which is 84)], by giving
notice thereof to Landlord (the "Exercise Notice") within three (3) business
days after the date Tenant receives the Refusal Notice. If Tenant does not so
exercise its Refusal Right within such three (3) business day period, Landlord
shall have the right to lease the Refusal Space identified in the Refusal Notice
free and clear of any further rights of Tenant under this Special Stipulation 2,
except that, after the expiration of any such lease to another party (or if no
such lease is executed within 150 days after the expiration of such three
business day period, then upon the 151st day after the expiration of such three
business day period), such Refusal Space will again become subject to Tenant's
Refusal Right in accordance with the provisions of this Special Stipulation 2;
further provided, that if the effective annual base rental under such proposed
lease is decreased by more than $0.25 per square foot of Rentable Floor Area, or
if the improvement allowance under such proposed lease is increased by more than
$1.00 per square foot of Rentable Floor Area, then, prior to entering into such
proposed lease, Landlord must give a new Refusal Notice with respect thereto. In
the event Tenant exercises its Refusal Right with respect to any Refusal Space,
and the applicable Refusal Notice provides for Landlord to initially construct
the tenant improvements in such Refusal Space, Landlord and Tenant shall proceed
with diligence and continuity to prepare such Refusal Space for Tenant's
occupancy in accordance with the provisions of this Lease applicable to the
initial construction of the Demised Premises, except that the Construction
Allowance per usable square foot of such Refusal Space shall be as set forth in
the applicable Refusal Notice. In the event Tenant exercises a Refusal Right, as
of the date (the "Rental Commencement Date for the applicable Refusal Space")
which, unless otherwise agreed to, is the earlier to occur of (i) the date upon
which Tenant occupies such Refusal Space for the conduct of Tenant's business
(for purposes hereof, Tenant shall not be deemed to be
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occupying such Refusal Space for the conduct of its business merely by moving
furniture and equipment into such Refusal Space), or (ii) or (ii) the date seven
days after the date upon which Landlord tenders such Refusal Space to Tenant
after substantial completion of construction of such Refusal Space substantially
in accordance with the provisions of this Special Stipulation 2 [provided,
however, that if Landlord is delayed in substantially completing such Refusal
Space as a result of delays due to force majeure (as defined in Article 36 of
this Lease), then the date set forth in item (ii) above shall be the date upon
which, but for such delays, Landlord would have tendered such Refusal Space to
Tenant after substantial completion of construction of such Refusal Space
substantially in accordance with the provisions of this Special Stipulation 2],
or (iii) in the event that the applicable Refusal Notice provides that Tenant is
to construct or cause to be constructed the tenant improvements in such Refusal
Space, the date seven days (or such longer period as is specified in the
applicable Refusal Notice) after the date upon which Landlord tenders such
Refusal Space to Tenant for commencement of construction of the tenant
improvements, the Base Rental and other charges payable hereunder shall be
increased based upon the terms set forth in the applicable Refusal Notice and
the number of square feet of Rentable Floor Area added to the Demised Premises,
and the Demised Premises shall be deemed to include such Refusal Space for the
term applicable thereto as set forth in the applicable Refusal Notice. Such
Refusal Space shall be deemed to be substantially completed upon the occurrence
of all of the following: (I) issuance by the appropriate governmental
authorities of a Certificate of Occupancy for such Refusal Space, and (II)
issuance of a certificate of substantial completion by Landlord's architect in
favor of both Landlord and Tenant certifying that the only remaining items of
incomplete or defective work are items which are typically considered to be
"punch-list" work in connection with comparable construction projects in the
metropolitan Richmond, Virginia, area, and (III) delivery to Tenant of copies of
such certificates referenced in (I) and (II) above. During the course of
construction of the improvements in such Refusal Space to be constructed
pursuant to this Special Stipulation 2, Landlord shall update Tenant during
weekly construction meetings on the status of construction, the anticipated
completion date, and any delays in such construction. In the event Tenant
exercises a Refusal Right during any extension of the Lease Term pursuant to
this Special Stipulation 2, as of the date Landlord gives possession of the
Refusal Space to Tenant, the Base Rental and other charges payable hereunder
shall be increased based upon the number of square feet of Rentable Floor Area
of Refusal Space added to the Demised Premises, and the Demised Premises shall
be deemed to include the Refusal Space. Within ten (10) days after the addition
of any Refusal Space to the Demised Premises, Landlord and Tenant shall enter
into an amendment evidencing the addition, but the failure or refusal of Tenant
to enter into an amendment shall not impair or negate the exercise of the option
or relieve Tenant of any of its obligations with respect to the Refusal Space
added to the Demised Premises.
3. PARKING
(a) The Building shall have a minimum of 495 parking spaces in the parking
area adjacent to the Building. Landlord will provide to Tenant, without charge,
unassigned parking in the parking area adjacent to the Building for the Lease
Term; provided, however, that the total parking available for Tenant without
charge shall be five (5) spaces per one thousand (1000) square feet of Rentable
Floor Area contained in the Demised Premises.
(b) Landlord may make, modify and enforce (by ticketing, towing or
otherwise) reasonable rules and regulations relating to the parking of vehicles
in the parking areas, and Tenant agrees to abide by any such rules and
regulations. Tenant's failure to abide by any such rules and regulations after
written notice by Landlord to Tenant and expiration of any applicable cure
period, if any, shall constitute a default by Tenant under this Lease.
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4. BUILDING SIGN
So long as Tenant shall occupy forty percent (40%) or more of the Rentable
Floor Area of the Building, Tenant shall have the right to design and designate
the location of one (1) monument-type sign naming the Building. Landlord shall
bear $5,000 of the cost and Tenant any excess cost of purchasing and installing
any monument-type sign. The cost of maintaining, repairing or replacing said
monument-type sign shall be included within Operating Expenses. The monument-
type sign shall be subject to the prior approval of Landlord as to size,
materials and method of lighting and attachment, which approval shall not be
unreasonably withheld. Tenant acknowledges that such sign must also comply
with, and shall be installed only if permitted by, applicable laws and
regulations of governmental authorities, and private restrictive covenants
applicable to the Project. Tenant agrees that Tenant will not unreasonably
withhold its consent to the placement of up to two (2) additional names of
tenants on the monument-type sign. Tenant shall have the right, at Tenant's
sole cost and expense, subject to applicable laws and regulations of
governmental authorities, and private restrictive covenants applicable to the
Project, and subject to the approval by Landlord, which approval shall not be
unreasonably withheld, to install signs on the exterior of the Building [in the
event and for so long as Tenant occupies fifty percent (50%) or more of the
Rentable Floor Area of the Building, Tenant's signs shall be the only signs on
the exterior of the Building (other than directional signs and signs required by
laws, orders, ordinances, rules and regulations)]; all such signs installed by
Tenant shall be maintained by Tenant at Tenant's sole cost and expense. If
Tenant occupies more than 50% of the Rentable Floor Area of the Building, Tenant
shall have the right to name the Building; provided, however, that if Tenant
changes the name of the Building, Tenant will pay all costs associated with
changing the name (including but not limited to all costs and expenses of
changing the name on the Building and on any signs), and shall give Landlord not
less than 180 days' prior notice of the change. The initial name of the
Building shall be "ABB Centre at Waterford".
5. COMMUNICATIONS
(a) Subject to the terms and conditions as described below, Tenant shall
have the right, at Tenant's sole cost and expense, to place on the roof of the
Building a satellite antenna module (the "Antenna") and related hardware and
cabling connected to the Demised Premises. Tenant shall not be charged any rent
or other fees by Landlord in connection with the placement of the Antenna on the
roof. The right of Tenant to install the Antenna is expressly conditioned upon
the Antenna and related hardware and cabling not damaging or interfering with
Landlord's roof warranty, communication devices or building systems or any
antennas and related hardware and cabling which other tenants of the Building
have installed or may install on the roof and Tenant hereby covenants and agrees
that the Antenna and related hardware and cabling will not so interfere.
(b) Tenant shall furnish detailed plans and specifications for the Antenna
and related hardware and cabling to Landlord for Landlord's consent, which
consent shall not be unreasonably withheld or delayed, provided Landlord may
condition its consent by requiring that the Antenna be installed in the least
conspicuous of all acceptable locations on which the Antenna might be located
and that all components and elements thereof (except the terminal devices and
structures) be concealed from view from within and without the Building. Upon
the giving of such consent, the Antenna and related hardware and cabling shall
be installed and maintained, at Tenant's sole cost and expense, by a contractor
selected by Tenant and approved by Landlord, such approval not to be
unreasonably withheld or delayed. In the installation of the Antenna and
related hardware and cabling, Tenant shall comply with all applicable laws,
codes, ordinances and building and zoning rules and regulations and keep the
Demised Premises and Building free and clear from liens arising from or related
to Tenant's installation. Tenant shall consult with Landlord's roofing
contractor to ensure that neither the integrity of the roof of the Building, nor
Landlord's roof warranty, shall be negatively affected by the placement and
installation of the Antenna and the walkway referred to in Special Stipulation
5(d) hereof. Tenant shall be entitled to use such portions of the Building as
may be reasonably necessary for the installation, operation and maintenance of
the Antenna and related hardware and cabling, and Tenant shall have reasonable
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access to such portions of the Building at all times throughout the Lease Term
for such purposes; provided however, that except for the roof of the Building,
any cables, conduits or other physical connections between the Antenna and the
Demised Premises shall be concealed underground or within permanent walls,
floors, columns and ceilings of the Building and in the shafts of the Building
provided for such installations, not damaging the appearance of the Building or
reducing the usable or rentable space of the Building, and provided further,
that except for the roof and Demised Premises, any installation or maintenance
work performed by Tenant or at Tenant's direction shall be performed without
unreasonably interfering with Landlord's or any other tenant's use of the
Building, and upon completion of such installation and maintenance (initially
and from time to time) Tenant shall restore such portions of the Building to a
condition reasonably comparable to that existing prior to such installation or
maintenance. In addition, Tenant shall paint and maintain the Antenna in the
color designated by Landlord.
(c) Tenant shall be responsible for procuring and paying for all
certificates, licenses, permits or approvals (including but not limited to
approvals under or pursuant to private restrictive covenants applicable to the
Project) which may be required for the installation, operation, use and
maintenance of the Antenna and related hardware and cabling, and Landlord shall
cooperate with Tenant, at Tenant's sole cost and expense, in procuring such
licenses or permits, to the extent required by applicable law and private
restrictive covenants applicable to the Project. Upon receiving a written
request by Landlord, Tenant shall provide Landlord with documentation that
Tenant has obtained all such certificates, licenses, permits and approvals.
Landlord makes no warranties whatsoever as to the permissibility of the Antenna
or systems under applicable laws or private restrictive covenants applicable to
the Project. The Antenna and related hardware and cabling shall be installed,
operated and maintained by Tenant, at Tenant's sole cost and expense, in such a
manner as not to constitute a nuisance, or unreasonably interfere with the
operations of other tenants of the Building or with the normal use of the area
surrounding the Building by occupants thereof.
(d) Tenant shall be responsible for installing and maintaining a walkway
system to the Antenna in order to protect the roof of the Building. Tenant
shall furnish plans and specifications for such walkway to Landlord for
Landlord's consent, which consent shall not be unreasonably withheld or delayed.
(e) Upon termination or expiration of the Lease, Tenant shall, at Tenant's
sole cost and expense, remove the Antenna and related hardware and cabling
installed by it pursuant to this First Amendment and shall repair and restore
the Building to a condition comparable to that existing prior to such
installation, normal wear and tear excepted.
(f) Landlord reserves the right to relocate the Antenna and related
hardware and cabling at Landlord's sole expense, provided such relocation, in
the reasonable opinion of Tenant, shall have no material adverse impact on the
same.
(g) Tenant hereby indemnifies Landlord and agrees to hold Landlord
harmless from and against any and all claims, liability, judgments, damages,
cost and expenses (including reasonable attorney's fees) related to, resulting
from, arising out of or caused by the installation, maintenance, operation or
removal of the Antenna and related hardware and cabling. In addition, Tenant
shall maintain in full force and effect throughout the Lease Term public
liability, property damage, fire and extended coverage insurance in an amount
sufficient to fully protect the Antenna and related hardware and cabling from
fire or other loss or damage, as well as contractual insurance in an amount
sufficient to fully protect Landlord from any loss or damage resulting from,
arising out of or caused by the installation, maintenance, operation or removal
of the Antenna and related hardware and cabling or by the exercise of Tenant's
rights under this Special Stipulation 5.
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6. LAND ACQUISITION
The parties acknowledge that Landlord has entered into an agreement for the
purchase of the Land, and the obligations of the parties hereto are conditioned
upon the acquisition of the Land by Landlord on or before July 1, 1999. In the
event the Land is not acquired by Landlord on or before July 1, 1999, Tenant may
elect by notice given on or before July 15, 1999, to terminate this Lease.
Landlord shall furnish to Tenant within thirty (30) days following acquisition
of the Land by Landlord a title insurance policy showing good and marketable
title to the Land to be vested in Landlord, and not subject to any restrictions
which would prevent the Demised Premises from being used for business offices.
In the event such title policy does not show fee simple title vested in Landlord
or reflects exceptions which would interfere with the use of the Demised
Premises for business offices, and Tenant gives Landlord written notice (the
"Objection Notice") of such restrictions or failure to show fee simple title
within ten (10) days after Landlord furnished Tenant with such title policy, and
Landlord is unable to cure such matters within thirty (30) days after the
Objection Notice, Tenant shall have the option exercised by written notice (the
"Termination Notice") given on or before the date forty (40) days after the
Objection Notice of terminating this Lease effective as of the date five (5)
days after the date of the Termination Notice.
7. CONTRACTION OPTIONS
(a) Tenant is hereby granted a one time option to terminate this Lease as
of the third anniversary of the Rental Commencement Date as to a portion of the
Demised Premises (the "Year 3 Contraction Space") containing not less than
twelve thousand five hundred square feet of Rentable Floor Area and not more
than thirteen thousand square feet of Rentable Floor Area. The Year 3
Contraction Space must be a currently leased portion of the Demised Premises as
the same existed on December 31, 1999, and must be contiguous space located on a
single floor providing close elevator access. In order to exercise such option
to terminate as to the Year 3 Contraction Space, Tenant must give written notice
to Landlord of the exercise by Tenant of such option to terminate at least seven
(7) months in advance of the third anniversary of the Rental Commencement Date
(and the Lease Term as to the Year 3 Contraction Space shall be deemed to end on
such third anniversary of the Rental Commencement Date); provided, however, that
Tenant may give such written notice to Landlord less than seven months prior to
the third anniversary of the Rental Commencement Date so long as Tenant includes
with such notice payment to Landlord in good funds of an amount (the "Year 3
Notice Penalty"), in addition to and not in lieu of Base Rental and other sums
due under this Lease, equal to (x) the sum of the next due installments of Base
Rental, Tenant's Forecast Additional Rental and Additional Allowance multiplied
by (y) seven reduced by the number of months (to the next lowest whole month) in
advance of the third anniversary Tenant gave Landlord the written notice of
Tenant's exercise of Tenant's option to terminate as to the Year 3 Contraction
Space (failure to include such amount in good funds shall render the purported
notice ineffective), and such notice shall also constitute the agreement by
Tenant to pay to Landlord, in immediately available funds, on or before the date
thirty (30) days prior to the third anniversary of the Rental Commencement Date,
in addition to and not in lieu of any Rent payable under this Lease an amount
equal to the Year 3 Contraction Payment (as hereinafter defined). All Rent for
the Year 3 Contraction Space shall be accounted for as of the termination date.
Tenant shall have the right to exercise this option to terminate provided that
on the date of such exercise no default and no event of default then exists. In
the event Tenant gives such notice of termination, Tenant shall deliver to
Landlord, on or before the date thirty (30) days prior to the third anniversary
of the Rental Commencement Date, a termination fee (which shall be in addition
to and not in lieu of any Rent payable under this Lease with respect to the Year
3 Contraction Space through the end of the Lease Term as shortened by Tenant's
election of such option to terminate and in addition to and not in lieu of any
Rent payable under this Lease through the end of the Lease Term with respect to
the remainder of the Demised Premises) in an amount equal to the "Year 3
Contract Payment" determined as follows: (A) an amount equal to eight times the
sum of the next due installments of Base Rental, Tenant's Forecast Additional
Rental and Additional Allowance Rent, plus (B) the unamortized portions (as of
the end of the 44th month
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following the Rental Commencement Date) of the Base Improvement Allowance,
Additional Allowance and broker commission, each being amortized in equal
monthly installments of principal and interest over the Initial Term at a rate
of ten percent (10%) per annum. If Tenant fails to pay the Year 3 Contraction
Payment on or before the date thirty days prior to the third anniversary of the
Rental Commencement Date, the Lease shall not be terminated as to the Year 3
Contraction Space, and Landlord shall be entitled to retain any Year 3 Notice
Penalty paid by Tenant.
(b) In the event the Lease was terminated with respect to the Year 3
Contraction Space as provided in (a) above, Tenant is hereby granted a one time
option to terminate this Lease as of the fifth anniversary of the Rental
Commencement Date as to a portion of the Demised Premises (the "Year 5
Contraction Space") containing not less than twelve thousand five hundred square
feet of Rentable Floor Area and not more than thirteen thousand square feet of
Rentable Floor Area. The Year 5 Contraction Space must be a currently leased
portion of the Demised Premises as the same existed on December 31, 1999, and
must be contiguous space located on a single floor providing close elevator
access. In order to exercise such option to terminate as to the Year 5
Contraction Space, Tenant must give written notice to Landlord of the exercise
by Tenant of such option to terminate at least seven (7) months in advance of
the fifth anniversary of the Rental Commencement Date (and the Lease Term as to
the Year 5 Contraction Space shall be deemed to end on such fifth anniversary of
the Rental Commencement Date; provided, however, that Tenant may give such
written notice to Landlord less than seven months prior to the fifth anniversary
of the Rental Commencement Date so long as Tenant includes with such notice
payment to Landlord in good funds of an amount (the "Year 5 Notice Penalty"), in
addition to and not in lieu of Base Rental and other sums due under this Lease,
equal to (x) the sum of the next due installments of Base Rental, Tenant's
Forecast Additional Rental and Additional Allowance multiplied by (y) seven
reduced by the number of months (to the next lowest whole month) in advance of
the fifth anniversary Tenant gave Landlord the written notice of Tenant's
exercise of Tenant's option to terminate as to the Year 5 Contraction Space
(failure to include such amount in good funds shall render the purported notice
ineffective), and such notice shall also constitute the agreement by Tenant to
pay to Landlord, in immediately available funds, on or before the date thirty
(30) days prior to the fifth anniversary of the Rental Commencement Date, in
addition to and not in lieu of any Rent payable under this Lease an amount equal
to the Year 5 Contraction Payment (as hereinafter defined). All Rent for the
Year 5 Contraction Space shall be accounted for as of the termination date.
Tenant shall have the right to exercise this option to terminate provided that
on the date of such exercise no default and no event of default then exists. In
the event Tenant gives such notice of termination, Tenant shall deliver to
Landlord, on or before the date thirty (30) days prior to the fifth anniversary
of the Rental Commencement Date, a termination fee (which shall be in addition
to and not in lieu of any Rent payable under this Lease with respect to the Year
5 Contraction Space through the end of the Lease Term as shortened by Tenant's
election of such option to terminate and in addition to and not in lieu of any
Rent payable under this Lease through the end of the Lease Term with respect to
the remainder of the Demised Premises) in an amount equal to the "Year 5
Contraction Payment" determined as follows: (A) an amount equal to six times the
sum of the next due installments of Base Rental, Tenant's Forecast Additional
Rental and Additional Allowance, plus (B) the unamortized portions (as of the
end of the 66th month following the Rental Commencement Date) of the Base
Improvement Allowance, Additional Allowance and broker commission, each being
amortized in equal monthly installments of principal and interest over the
Initial Term at a rate of ten percent (10%) per annum. If Tenant fails to pay
the Year 5 Contraction Payment on or before the date thirty days prior to the
fifth anniversary of the Rental Commencement Date, the Lease shall not be
terminated as to the Year 5 Contraction Space, and Landlord shall be entitled to
retain any Year 5 Notice Penalty paid by Tenant.
(c) In the event Tenant does not exercise the right to terminate the Lease
with respect to the Year 3 Contraction Space as provided in (a) above, Tenant is
hereby granted a one time option to terminate this Lease as of the fifth
anniversary of the Rental Commencement Date as to a portion of the Demised
Premises (the "Year 5 Termination Space") containing not less than twenty four
thousand five hundred square feet of Rentable Floor Area and not more than
twenty five thousand five hundred square feet of Rentable Floor Area.
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The Year 5 Termination Space must be a currently leased portion of the Demised
Premises as the same existed on December 31, 1999, may be on multiple floors,
but all space on a single floor must be contiguous space containing a minimum of
8,000 square feet of Rentable Floor Area providing close elevator access. In
order to exercise such option to terminate as to the Year 5 Termination Space,
Tenant must give written notice to Landlord of the exercise by Tenant of such
option to terminate at least nine (9) months in advance of the fifth anniversary
of the Rental Commencement Date (and the Lease Term as to the Year 5 Termination
Space shall be deemed to end on such fifth anniversary of the Rental
Commencement Date; provided, however, that Tenant may give such written notice
to Landlord less than nine months prior to the fifth anniversary of the Rental
Commencement Date so long as Tenant includes with such notice payment to
Landlord in good funds of an amount (the "Year 5 Notice Penalty"), in addition
to and not in lieu of Base Rental and other sums due under this Lease, equal to
(x) the sum of the next due installments of Base Rental, Tenant's Forecast
Additional Rental and Additional Allowance multiplied by (y) nine reduced by the
number of months (to the next lowest whole month) in advance of the fifth
anniversary Tenant gave Landlord the written notice of Tenant's exercise of
Tenant's option to terminate as to the Year 5 Termination Space (failure to
include such amount in good funds shall render the purported notice
ineffective), and such notice shall also constitute the agreement by Tenant to
pay to Landlord, in immediately available funds, on or before the date thirty
(30) days prior to the fifth anniversary of the Rental Commencement Date, in
addition to and not in lieu of any Rent payable under this Lease an amount equal
to the Year 5 Termination Payment (as hereinafter defined). All Rent for the
Year 5 Termination Space shall be accounted for as of the termination date.
Tenant shall have the right to exercise this option to terminate provided that
on the date of such exercise no default and no event of default then exists. In
the event Tenant gives such notice of termination, Tenant shall deliver to
Landlord, on or before the date thirty (30) days prior to the fifth anniversary
of the Rental Commencement Date, a termination fee (which shall be in addition
to and not in lieu of any Rent payable under this Lease with respect to the Year
5 Termination Space through the end of the Lease Term as shortened by Tenant's
election of such option to terminate and in addition to and not in lieu of any
Rent payable under this Lease through the end of the Lease Term with respect to
the remainder of the Demised Premises) in an amount equal to the "Year 5
Termination Payment" determined as follows: (A) an amount equal to six times the
sum of the next due installments of Base Rental, Tenant's Forecast Additional
Rental and Additional Allowance, plus (B) the unamortized portions (as of the
end of the 66th month following the Rental Commencement Date) of the Base
Improvement Allowance, Additional Allowance and broker commission, each being
amortized in equal monthly installments of principal and interest over the
Initial Term at a rate of ten percent (10%) per annum. If Tenant fails to pay
the Year 5 Termination Payment on or before the date thirty days prior to the
fifth anniversary of the Rental Commencement Date, the Lease shall not be
terminated as to the Year 5 Termination Space, and Landlord shall be entitled to
retain any Year 5 Notice Penalty paid by Tenant.
8. EXPANSION
Provided and on the condition that there is no uncured default of Tenant
then existing, Tenant shall have, during the period commencing on the date of
this Lease and ending on the expiration of the Refusal Period, the option from
time to time and at any time on or before the expiration of the Refusal Period
to expand the Demised Premises by written notice to Landlord (the "Expansion
Notice") on or before the expiration of the Refusal Period. The space added to
the Demised Premises ("Expansion Space") shall be all or any portion of the
Refusal Space which has not previously been added to the Demised Premises
pursuant to this Special Stipulation 8 or pursuant to Special Stipulation 2;
provided, however, that the portion of the Refusal Space not leased by Tenant
(and not leased to others as permitted by Special Stipulation 2) must constitute
a commercially reasonable leaseable unit as determined by Landlord's architect;
and further provided, however, that the Expansion Space must not include any
space with respect to which Landlord has given Landlord's Notice (as defined in
Special Stipulation 2). The Expansion Notice must identify the applicable
Expansion Space. Tenant shall pay Base Rental for the Expansion Space,
commencing on the Rental Commencement
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Date for the applicable Expansion Space, at the same rate per square foot of
Rentable Floor Area applicable to the remainder of the Demised Premises,
escalated annually at the same time and at the same percentages that such rate
is escalated for the remainder of the Demised Premises. With respect to the
Expansion Space, Tenant shall be obligated to pay Tenant's Forecast Additional
Rental and Tenant's Additional Rental on the same basis as Tenant is obligated
to make such payments with respect to the remainder of the Demised Premises.
Accordingly, as of the Rental Commencement Date for the applicable Expansion
Space, the applicable Expansion Space shall be added to the Demised Premises for
all purposes in determining Tenant's Forecast Additional Rental and Tenant's
Additional Rental. The Construction Allowance and Additional Allowance shall
apply to each such Expansion Space; provided, however, that if the remaining
initial Term of this Lease is less than 84 months at the Rental Commencement
Date for such Expansion Space, then such allowances shall be multiplied by a
fraction, the numerator of which is the number of whole months remaining in the
initial Term of this Lease at the Rental Commencement Date for such Expansion
Space, and the denominator of which is 84. The "Rental Commencement Date for the
applicable Expansion Space" shall mean, unless otherwise agreed to, the earlier
to occur of (i) the date upon which Tenant occupies such Expansion Space for the
conduct of Tenant's business (for purposes hereof, Tenant shall not be deemed to
be occupying such Expansion Space for the conduct of its business merely by
moving furniture and equipment into such Expansion Space), or (ii) the date one
hundred twenty (120) days after the date of the applicable Expansion Notice
[unless the date of such Expansion Notice is prior to December 31, 1999, in
which event the date under this item (ii) shall be the Rental Commencement Date
for the Demised Premises].
9. ADDITIONAL ALLOWANCE: FURNITURE, TELEPHONE, COMPUTER CABLING AND RELOCATION
Upon written request of Tenant made on or before the date thirty (30) days
after the Rental Commencement Date, Landlord shall make available to Tenant an
amount equal to $6.00 multiplied by the Rentable Floor Area of the Demised
Premises (the "Additional Allowance") as of December 31, 1999, to be used solely
for (a) relocation expenses incurred by Tenant in connection with moving into
the Demised Premises (and unreimbursed under, and not the subject of a
reimbursement request under, Paragraph 5 of Exhibit "D" to this Lease), (b) the
-----------
purchase by Tenant of telephone and computer cabling, and modular furniture
installed in the Demised Premises, and (c) the costs of Layout Work in excess of
the Construction Allowance. In the event that Tenant elects to use all or any
portion of the Additional Allowance: (a) on or before the date sixty (60) days
from the Rental Commencement Date, Tenant shall submit to Landlord a detailed
statement including paid invoices showing the amounts paid by Tenant for (a)
relocation expenses incurred by Tenant in connection with moving into the
Demised Premises (and unreimbursed under, and not the subject of a reimbursement
request under, Paragraph 5 of Exhibit "D" to this Lease), (b) the purchase by
-----------
Tenant of telephone and computer cabling, and modular furniture installed in the
Demised Premises, and (c) the costs of Layout Work in excess of the Construction
Allowance, and Landlord shall pay to Tenant the amounts shown by such statement
(and not previously paid by Landlord to Tenant), but in no event shall the
aggregate of all such payments by Landlord to Tenant exceed the Additional
Allowance; and (b) Tenant shall pay to Landlord, in good funds, in monthly
installments on the first of each month, an amount equal to the sum of (x)
$0.0166 multiplied by the First Level Additional Allowance plus (y) $0.0175
multiplied by the Second Level Additional Allowance, and such installments shall
be paid at the same time as installments of Base Rental pursuant to Article 6 of
the Lease (but no commission shall be owed or due or payable to Brokers on
account thereof). "First Level Additional Allowance" shall mean the amount of
the Additional Allowance actually paid by Landlord to Tenant, not in excess of
an amount equal to $4.00 multiplied by the Rentable Floor Area of the Demised
Premises. "Second Level Additional Allowance" shall mean the amount of the
Additional Allowance in excess of the First Level Additional Allowance actually
paid by Landlord to Tenant. Landlord shall at all times have a valid first lien
upon all of the telephone and computer cabling, and modular furniture with
respect to which Tenant has purchased with or received reimbursement from the
Additional Allowance to secure payment of Rent and other sums and charges due
hereunder from Tenant to Landlord and to secure the
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performance by Tenant of each and all of the covenants, warranties, agreements
and conditions hereof. Said telephone and computer cabling, and modular
furniture shall not be removed from the Demised Premises without the consent of
Landlord until all arrearage in Rent and other charges as well as any and all
other sums of money due hereunder shall first have been paid and discharged and
until this Lease and all of the covenants, conditions, agreements and provisions
hereof have been fully performed by Tenant. Tenant shall from time to time
execute any financing statements and other instruments necessary to perfect the
security interest granted herein. The lien herein granted may be foreclosed in
the manner and form provided by law for the foreclosure of security instruments
or chattel mortgages, or in any other manner provided by law. This Lease is
intended as and constitutes a security agreement within the meaning of the
Uniform Commercial Code of the State of Virginia.
10. BASE RENTAL ADJUSTMENT
Landlord and Tenant acknowledge and agree that the $11.95 per square foot of
Rentable Floor Area Base Rental Rate is based on a Project Cost of
$11,036,139.00 (the "Estimate"), a copy of which is attached hereto as Exhibit
-------
"H" and by reference made a part hereof. To the extent that the actual Project
- ---
Cost is less than the Estimate, then the Base Rent Rate for the First Lease Year
as set forth in Section shall be adjusted as of the Rent Commencement Date to an
amount equal the Project Cost multiplied by .1054 and divided by the number of
square feet of Rentable Floor Area of the Building. To the extent that the
actual Project Cost is greater than the Estimate by virtue of either or both of
the following (a) development decisions made, or consent to in writing, by
Tenant (such as, but not limited to, making the Building exterior granite, or
installing a third elevator), or (b) unknown conditions as of the date of the
Estimate (such as but not limited to rock under the surface of the Land or off-
site improvements required by Chesterfield County or other governmental entity),
then the Base Rent Rate for the First Lease Year as set forth in Section shall
be adjusted as of the Rent Commencement Date to an amount equal the Project Cost
multiplied by .1054 and divided by the number of square feet of Rentable Floor
Area of the Building. "Project Cost" shall mean all the actual costs incurred
by Landlord, in good faith, directly related to the acquisition of the Land and
the design, engineering and construction of the Building (including but not
limited to the Construction Allowance, the Design Allowance, real estate
commissions, the sum of $75,000.00 for holdover costs as defined in Special
Stipulation 11, and the sum of $437,000.00 for allowances and commissions for
the Building other than the initial Demised Premises consisting of 80,000 square
feet of Rentable Area; such $437,000.00 figure is based on allowances of $20.00
per square foot of Rentable Area, a 6% brokerage commission, and the assumption
that the Rentable Floor Area of the Building is 97,000 square feet, if the
Rentable Floor Area of the Building is less than or greater than 97,000 square
feet, the $437,000.00 figure and the Estimate shall be adjusted accordingly).
Notwithstanding the foregoing, the following costs are specifically excluded
from Project Cost: the Additional Allowance, costs attributable to actual delays
in Substantial Completion of the Base Building Work caused by Landlord (except
to the extent caused by Tenant's failure to perform its obligations as and when
required), holdover costs in excess of $75,000.00 and allowances and commissions
in excess of $437,000.00 (as adjusted as set forth above) for the Building other
than the initial Demised Premises consisting of 80,000 square feet of Rentable
Area.
11. HOLDOVER COSTS
If the Demised Premises are not Substantially Complete on or before February 28,
2000, Landlord shall pay Tenant all holdover costs payable by Tenant under
Tenant's current lease at 5309 Commonwealth Centre Parkway (the "Existing
Lease") in excess of the rent and other sums which would have been due
thereunder had the Existing Lease continued in effect after February 28, 2000,
on the same terms and conditions (including without limitation rent) in effect
immediately prior to February 28, 2000, for the period from March 1, 2000, to
the date the Demised Premises are Substantially Complete. In no event shall
"holdover costs" include consequential damages or lost business opportunities.
Tenant agrees to use reasonable efforts to minimize the
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holdover costs. In the event the holdover costs paid by Landlord are less than
$75,000.00, then the amount equal to $75,000.00 reduced by such holdover costs
is called the "Holdover Surplus" and at Tenant's option, the Holdover Surplus
shall be applied toward (a) the purchase by Tenant of telephone and computer
cabling, and modular furniture installed in the Demised Premises (to the extent
in excess of the Additional Allowance applied thereto), or (b) the costs of
Layout Work in excess of the sum of the Construction Allowance and the
Additional Allowance applied thereto.
12. CONSEQUENTIAL DAMAGES
Neither Landlord, its agents, servants, employees, any other holder of any deed
to secure debt or mortgage nor the lessor under any superior lease shall be
liable to Tenant, or to Tenant's employees, agents, invitees, licensees,
contractors or visitors, or to any other person, for any consequential damages
of any nature. Neither Tenant, its agents, servants, employees, any other
holder of any deed to secure debt or mortgage nor the lessor under any superior
lease shall be liable to Landlord, or to Landlord's employees, agents, invitees,
licensees, contractors or visitors, or to any other person, for any
consequential damages of any nature.
13. ACCESS
Tenant shall be permitted reasonable access to the Demised Premises as soon as
the Layout Work shall, in Landlord's reasonable opinion, be sufficiently
completed to permit commencement of Tenant's installation of telephone and
computer cabling, modular furniture, fixtures, furnishings and equipment without
undue interference with the completion of the Layout Work and in any event on or
before the date approximately thirty days prior to the date of Substantial
Completion, subject to extension on a day-for-day basis for delays caused by
Tenant. The foregoing license for Tenant to enter the Demised Premises prior to
Substantial Completion is conditioned upon Tenant's contractors and their
laborers working in harmony with, and not materially interfering with, the
Layout Work. Landlord shall not be liable for any injury, loss or damage
occurring to Tenant's installations, as aforesaid, unless such damage is caused
by the gross negligence or willful misconduct of Landlord, its agents, employees
or contractors.
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EXHIBIT "G"
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Refusal Space
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Exhibit 10.62
AGREEMENT OF PURCHASE AND SALE
------------------------------
THIS AGREEMENT is made as of the 26/th/ day of August, 1999 (the "Effective
---------
Date"), by and between WELLS CAPITAL, INC., a Georgia corporation,
- ----
having an address of 3885 Holcomb Bridge Road, Norcross, Georgia 30092
(hereinafter called "Buyer") and SUN-PLA, A CALIFORNIA LIMITED PARTNERSHIP,
-----
having an address at c/o U.S. Realty Advisors, LLC, 1370 Avenue of the Americas,
29th Floor, New York, New York 10019 (hereinafter called "Seller").
------
RECITALS
--------
WHEREAS, Seller is the owner of that certain real property described on
Exhibit A attached hereto, together with all rights, privileges, appurtenances,
- ---------
easements, licenses and other interests appurtenant thereto (such land and
interests are referred to herein collectively as the "Real Property"); and
-------------
WHEREAS, (i) certain buildings and site improvements have been constructed
within the Real Property (which together with all machinery, equipment and other
fixtures attached thereto owned by Seller, if any, are hereinafter collectively
referred to as the "Improvements"), (ii) certain personal property (the
------------
"Personal Property"), if any, is owned by Seller relating to the Real Property
-----------------
and used in the operations of the Real Property, and (iii) certain intangible
property (the "Intangible Property"), if any, is owned by Seller and used in
-------------------
connection with the Real Property or Personal Property (the Real Property,
together with the Improvements, Personal Property and Intangible Property are
sometimes collectively referred to as the "Premises"); and
--------
WHEREAS, the Premises are leased to Videojet Systems International, Inc., a
Delaware corporation ("Videojet") pursuant to the terms of that certain Amended
--------
and Restated Lease Agreement dated May 31, 1991 between Chicago Industrial 1990
II Limited Partnership, as landlord, and A.B. Dick Company ("ABD"), as tenant,
---
as amended and/or assigned by (i) Second Amendment to Lease by and between ABD
and Seller dated June 30, 1994, (ii) letter dated August 9, 1991 from Sun Life
Insurance Company of America to ABD and response letter dated August 21, 1991
from ABD to Sun Life Insurance Company of America, (iii) Lease Clarification
Agreement between Chicago Industrial 1990 II Limited Partnership and ABD, and
(iv) Assignment and Assumption Agreement dated as of October 31, 1997 among
Seller, ABD and Videojet (collectively, the "Lease"); and
-----
WHEREAS, Seller desires to sell and Buyer desires to buy the Property, as
hereinafter defined, for the price and other considerations and upon the terms
and conditions hereinafter set forth.
AGREEMENT
---------
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained, and respectively expressing the intention to be
legally bound hereby, covenant and agree as follows:
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1. Sale. Subject to the terms and provisions of this Agreement,
----
Seller agrees to sell and convey to Buyer, and Buyer agrees to purchase and take
from Seller, all of Seller's right, title and interest in and to the following
(herein, the "Property"), free and clear of all liens and encumbrances, except
--------
Permitted Exceptions (as hereinafter defined):
A. The Premises; and
B. Seller's interest in the Lease and any other intangible property
owned by Seller and associated with the Real Property, including, without
limitation, that certain Guaranty dated October 31, 1997 relating to the Lease
(the "Guaranty") executed by GEC Incorporated ("Guarantor").
-------- ---------
2. Deposit; Purchase Price.
-----------------------
A. Concurrently with Buyer's execution of this Agreement, Buyer
shall deposit $500,000.00 (the "Deposit") with First American Title Insurance
-------
Company at 228 East 45/th/ Street, New York, New York 10017-3303 (the "Escrow
------
Agent") by wire transfer of immediately available funds. The Deposit shall be
- -----
held and disbursed by the Escrow Agent in accordance with the terms of this
Agreement.
B. The purchase price for the Property is equal to $33,100,000.00,
subject to adjustment as set forth in this paragraph (the "Purchase Price").
--------------
Buyer acknowledges that the Note, as hereafter defined, provides for a
prepayment premium in the event that the Note is prepaid, and Buyer acknowledges
receipt of a copy of the provision in the Note outlining the amount of the
prepayment premium. Buyer acknowledges that the Premises are currently
encumbered by a loan (the "Existing Loan") from Providian Life and Health
-------------
Insurance Company ("Providian"), which Existing Loan is evidenced by a
---------
Promissory Note dated as of December 17, 1991 (the "Note") in the amount
----
$15,000,000, and secured by a Mortgage Assignment of Rents and Security
Agreement dated December 17, 1991 and recorded on December 20, 1991 as Document
No. R91-171525 (the "Mortgage"). At the Closing, Seller shall cause the
--------
principal, interest and prepayment premium (subject to Buyer"s obligation to pay
portions thereof pursuant to this Paragraph 2.B) due under the Existing Loan and
any other fees or expenses required to be paid to Providian under the Existing
Loan to be paid in full upon receipt of the purchase price hereunder.
Notwithstanding the foregoing provisions, if the prepayment premium is more than
$2,000,000.00, Buyer shall be obligated to pay, as an addition to the Purchase
Price, that portion of the prepayment premium which is in excess of
$2,000,000.00. If the prepayment premium is less than $2,000,000.00, the
Purchase Price shall be reduced by the amount by which the prepayment premium is
less than $2,000,000.00. The Purchase Price shall be paid by Buyer as follows:
(i) Buyer shall pay a portion of the Purchase Price by causing the
Escrow Agent to apply all of the Deposit against the Purchase Price if and when
Closing occurs; and
(ii) Buyer shall pay the balance of the Purchase Price by wire
transfer of immediately available funds through the Federal Reserve System. Any
closing prorations and
2
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adjustments provided for herein (the "Adjustments") shall increase or decrease
-----------
(as the case may be) the cash portion of the Purchase Price to be paid pursuant
to this Paragraph (ii).
3. Delivery of Documents; Loan Documents.
-------------------------------------
A. Buyer acknowledges receipt of copies of the following documents:
(i) The Lease;
(ii) The Guaranty;
(iii) The Note and the Mortgage;
(iv) a commitment for title insurance for the Property with an
effective date of February 12, 1999 issued by First American Title Insurance
Company (the "Commitment"), together with copies of the documents referenced in
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Schedule B thereof;
(v) a survey of the Property dated August 14, 1998 prepared by
Jacob & Hefner Associates, P.C. (the "Survey");
------
(vi) the title insurance policy issued by Lawyers Title
Insurance Corporation on December 20, 1991;
(vii) an environmental report dated June 5, 1991 prepared by
Environmental Risk Consultants, Inc.;
(viii) a building inspection report dated May 31, 1991 prepared
by Eugene and Max Fuhrer, Architects and Engineers;
(ix) a soils report dated June 8, 1990 prepared by Testing
Service Corporation; and
(x) Confidentiality Agreement dated October ___, 1997 by and
between Sun-Pla, a California limited partnership and GEC Incorporated.
In addition, during the Diligence Period, as hereafter defined, Seller shall
promptly, and in any event within five (5) business days after receipt of
Buyer"s written request, deliver such other documents relating to the Property
which Buyer may reasonably request, provided that the same are in Seller's
possession or control.
4. Title Insurance and Survey. Seller hereby agrees to deliver to
--------------------------
Buyer, no later than five (5) business days after the Effective Date, an update
to the Commitment (the "Updated Commitment") issued by First American Title
------------------
Insurance Company (the "Title Company") together with clear and legible copies
-------------
of all documents referred to therein and not previously provided to
3
<PAGE>
Buyer (the "Remaining Title Documents"). The Updated Commitment shall be in the
-------------------------
amount of the Purchase Price, and shall commit the Title Company to issue its
1992 ALTA Owner's Policy (with extended coverage, including lien protection, but
not including lien protection for the Tenant Exceptions, as hereinafter
defined), insuring fee simple to the Premises in Buyer subject only to (i)
current non-delinquent general real property taxes, and (ii) the matters set
forth in Schedule B of the Commitment, other than the Mortgage (the "Existing
--------
Exceptions"), and (iii) the Lease and liens for real estate taxes and other
- ----------
liens and encumbrances which under the terms of the Lease Videojet is obligated
to cause to be paid or released (such liens being referred to herein as the
"Tenant Exceptions"). If Buyer shall desire to obtain any endorsements in
-----------------
connection with the Updated Commitment, Buyer shall be entitled to request the
same from the Title Company, at Buyer"s expense. Seller shall deliver to Buyer,
no later than five (5) business days after the Effective Date, an ALTA survey of
the Premises prepared by a licensed surveyor in the state of Illinois (the
"Updated Survey"). The Updated Survey shall be dated within six (6) months prior
--------------
to the Effective Date and certified to Title Company, Buyer and any other entity
reasonably required by Buyer, prepared in accordance with the 1997 minimum
detail and classification ALTA/ASCM land title standards, including all Items of
Table A thereof reasonably required by Buyer. In the event that any exceptions
to title appear in the Updated Commitment other than the Existing Exceptions,
the Lease and the Tenant Exceptions which are objectionable to Buyer (it being
specifically understood that Buyer shall not be allowed to object to the
Existing Exceptions, the Lease and the Tenant Exceptions), Buyer shall give
written notice thereof to Seller no later than five (5) days after receipt of
the Updated Commitment and the Updated Survey. If Seller elects, in its sole
discretion, to cause the objectionable exceptions to be deleted, Seller shall
have until expiration of the Diligence Period to delete such objectionable
exceptions or encroachments or to cause the Title Company to insure over the
same. If Seller attempts to remove the objectionable exceptions, and is unable
to delete such exceptions or encroachments or to cause the Title Company to
insure over the same, in a manner reasonable acceptable to Buyer, Seller shall
be entitled to postpone the Closing Date for a period not to exceed sixty (60)
days in order to cure such objections. If Seller is unable or unwilling to
delete such exceptions or encroachments, Buyer may, either (i) waive its prior
disapprovals of those matters which Seller is unable or unwilling to eliminate,
in which event such disapproved matters shall be deemed approved, or (ii)
terminate this Agreement, in which event the Deposit shall be returned to Buyer
and thereafter this Agreement and the rights and obligations of the parties
hereunder shall terminate except as otherwise expressly provided herein. If
Buyer does not give notice of any objection during the initial five (5) day
review period set forth above or in the event that Buyer does not terminate this
Agreement pursuant to the previous sentence if Seller does not remove the
objectionable exceptions, all exceptions set forth in the Commitment and all
encroachments (including the Existing Exceptions, the Lease and the Tenant
Exceptions) shall be deemed to be Permitted Exceptions (defined below). As used
herein, "Permitted Exceptions" shall mean the Existing Exceptions, the Lease and
--------------------
the Tenant Exceptions and any other exceptions on the Commitment and matters on
the Survey which Buyer approves in writing or is deemed to have approved in
accordance with the terms and provisions of this Paragraph 4. At Closing, Seller
shall obtain and deliver to Buyer such assurances as Buyer may reasonably
request that the Title Company is irrevocably committed and prepared to issue
its ALTA owner's policy in accordance with the foregoing requirements, subject
to the Permitted Exceptions (the "Title Policy"). Seller shall pay the base
------------
title insurance premiums required to obtain any owner"s title insurance policy
issued in connection with the Premises. Buyer shall pay for all costs for any
lender"s title insurance and for
4
<PAGE>
any endorsements requested by Buyer or its lender. Seller shall pay the cost of
any Updated Survey. Time is of the essence with respect to the time periods set
forth in this paragraph.
5. Inspection by Buyer.
-------------------
A. Subject to the provisions of this paragraph and subject to the
terms and provisions of the Lease, from and after the Effective Date, Buyer and
its agents and employees shall be entitled to enter upon the Property for the
purpose of making inspections thereof and may conduct such tests, studies,
investigations and observations and compile such information as Buyer may deem
appropriate concerning the physical conditions, legal compliance, surveys, title
reviews and examinations Buyer may desire of the Property and Buyer"s intended
use thereof ("Feasibility Studies"). All Feasibility Studies shall be performed
-------------------
at Buyer"s sole cost and expense. It is understood and agreed that Buyer shall
have no obligation to perform any Feasibility Studies. Notwithstanding the
foregoing, Buyer may only inspect the Property in the presence of an agent of
Seller, at Seller"s election, which Seller agrees to provide upon at least two
(2) business days" prior written notice. Buyer acknowledges that any
inspections shall be subject to the rights of Videojet under the Lease, and that
such inspections may be conducted only in accordance with the terms of the
Lease. Buyer shall not have any direct contact with Videojet or Guarantor or
any of their agents without the physical or telephonic presence of Seller or one
of Seller's agents, including without limitation U.S. Realty Advisors, LLC, and
shall not discuss any proposed modifications of the Lease or Guaranty with any
party. Notwithstanding the foregoing, Buyer shall be allowed to contact
Videojet"s facilities manager to discuss the condition of the Property and to
arrange a visit of the Property. Buyer shall also be allowed to contact
Seller"s lender to discuss the prepayment premium calculation. Buyer agrees
that a violation by Buyer of the agreement by Buyer not to contact Videojet,
Guarantor or their agents without the physical or telephonic presence of Seller
or one of Seller's agents, and not to discuss any modifications of the Lease or
Guaranty, will cause substantial damage to Seller, and that the amount of such
damage is difficult to determine. Buyer and Seller agree that if Buyer shall
violate such agreement, Buyer shall be in default hereunder, and in such event
Seller may terminate this Agreement as its sole remedy, in which event the
Deposit shall be returned to Buyer. Buyer acknowledges that Videojet and/or
Guarantor will require the execution of a Confidentiality Agreement in
connection with the delivery of certain financial information to Buyer, and
Buyer agrees to execute such agreement.
B. Buyer shall pay when due all fees and expenses incurred in the
performance of any such inspections, tests or observations and shall indemnify,
defend, and save Seller and Videojet harmless from any loss from mechanic's
liens, claims for nonpayment of such charges or for damages arising out of the
acts or omissions of Buyer or its agents in performing such inspections, tests,
or observations. The provisions of the previous sentence shall survive the
termination of this Agreement. Buyer's obligation to purchase the Property
pursuant to the terms of this Agreement is specifically conditioned upon Buyer's
approval of the Property, in Buyer"s discretion. At any time on or prior to
September 9, 1999, (the "Diligence Period"), if Buyer determines that the
----------------
Property is not acceptable, Buyer shall give notice to Seller of Buyer's
election to terminate this Agreement. If Buyer does not give notice of
termination prior to expiration of the Diligence Period, Buyer shall be deemed
to have waived such right to terminate this Agreement (time being of the essence
with respect to such notice and time periods). In the event of termination
within the Diligence Period for
5
<PAGE>
the reasons outlined in this paragraph, this Agreement shall be of no further
force and effect (except as otherwise expressly provided herein) and the Deposit
shall be returned to Buyer.
6. Closing. The closing of the transaction contemplated hereby (the
-------
"Closing") shall take place (either in person or by the delivery of the required
-------
closing documents) at the office of the Title Company in New York on September
16, 1999, or such earlier or later date as may be agreed to by Buyer and Seller
(the "Closing Date"). If Seller is unable to timely obtain the estoppels
------------
required under this Agreement, Seller may extend the Closing Date for a period
required to obtain such estoppels, not to exceed thirty (30) days, by written
notice to Buyer, which notice must be given no later than one (1) day prior to
the scheduled Closing Date. However, Buyer may waive the requirement of such
estoppels, in which event the Closing Date shall not be so extended. Also, the
Closing Date may be extended as otherwise provided in this Agreement.
7. Representations of Seller.
-------------------------
A. Seller, to induce Buyer to enter into this Agreement and to
purchase the Property, represents and warrants to Buyer that the following
matters are true as of the date hereof:
(i) Seller has full power and authority to execute this
Agreement and to consummate the transaction contemplated hereby, and this
Agreement has been duly executed and delivered by Seller, and this Agreement
constitutes the valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms (subject to applicable bankruptcy and other
insolvency laws and subject to the general principles of equity);
(ii) The person signing this Agreement on behalf of Seller
has been duly authorized to sign and deliver this Agreement on behalf of Seller;
(iii) There is no litigation, proceeding or action pending,
or to Seller"s knowledge threatened, against Seller, which would adversely
affect Seller"s ability to consummate the transaction contemplated by this
Agreement or, to Seller"s knowledge, would adversely affect the Property;
(iv) Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will constitute a violation
of or be in conflict with or constitute a default, or give rise to a claim or
lien against the Property under any term or provision of any agreement, security
instrument or lease to which Seller is a party, or require the consent under any
such agreement or of any person;
(v) There are no attachments, executions or assignments
for the benefit of creditors, or voluntary or involuntary proceeding in
bankruptcy pending, or to Seller"s knowledge threatened, against Seller;
(vi) Seller is not a foreign person, as such term is
defined in Section 7701(a) of the Internal Revenue Code of 1986, as amended;
6
<PAGE>
(vii) To Seller"s knowledge, there is no pending or threatened
condemnation of all or any part of the Property;
(viii) Any permission, approval, joinder or consent by third
parties required in order for Seller to consummate its obligations under this
Agreement has been received;
(ix) Seller has delivered to Buyer correct and complete copies
of the Lease and the Guaranty;
(x) There are no service, maintenance or other contracts
(other than the Permitted Exceptions) applicable to the Premises to which Seller
is a party for which Buyer will become liable upon acquisition of the Property;
(xi) There are no agreements with Seller to pay any commissions
with respect to the Lease, which agreements would be binding on the Buyer upon
acquisition of the Property;
(xii) There is no written agreement between Seller and Videojet,
except as contained in the Lease or the other documents delivered to Buyer
pursuant to the provisions of this Agreement;
(xiii) To Seller"s knowledge, it has not received written notice
from any governmental authority that the current operation and use of the
Premises violate (A) any statutes, laws, regulations, rules, ordinances,
permits, requirements or orders or decrees of any kind whatsoever now in effect
(including zoning, use or building statutes, laws or ordinances and
environmental protection laws, rules or regulations) or (B) any building permits
or any conditions, easements, rights-of-way, agreements of record, urban renewal
plans, parking agreements, covenants, restrictions of record or any other
agreement affecting the Premises;
(xiv) To Seller"s knowledge, Seller has not received any written
notice or demand from any third party `to the effect that any Hazardous
Substance (as defined below) has been released on the Premises in violation of
applicable law. As used in this Agreement, "Hazardous Substance" shall mean and
include all hazardous or toxic substances, wastes or materials, any pollutants
or contaminants (including asbestos, PCBs, petroleum products and by-products
and raw materials which include hazardous constituents) or materials which are
included under or regulated by any local, state or federal law, rule or
regulation pertaining to environmental regulation, contamination, clean-up or
disclosure, including the Comprehensive Environmental Response, Compensation and
Liability Act or 1986, the Resource Conservation and Recovery Act and the Toxic
Substances Control Act, as any of the foregoing have been previously amended;
(xv) To Seller"s knowledge, Seller has not given or received
any written notice(s) of default under the Lease or the Guaranty which have not
been cured; and
(xvi) To Seller"s knowledge, the statement of Net Cash Flow set
forth on Exhibit F hereof is true and correct.
---------
7
<PAGE>
B. Buyer's sole remedies with respect to a violation of a
representation contained in Paragraph 7.A above shall be (i) prior to the
Closing, to terminate this Agreement and obtain return of the Deposit, or (ii)
after the Closing, only to obtain actual damages resulting from Seller's
misrepresentation or other default by Seller, and in no event after the Closing
shall Buyer be allowed to obtain rescission, consequential damages or any other
equitable remedy.
C. The representations and warranties contained in this Paragraph 7
shall survive the Closing for a period of one (1) year after the Closing.
D. As used in this Agreement, the phrase "to Seller's knowledge" or
"knowledge of Seller" means the actual knowledge of David M. Ledy, Jack Genende
and Jonathan Molin, without inquiry or investigation, other than a review of
Seller's records.
E. Buyer acknowledges that, except as specifically set forth above
or elsewhere in this Agreement, neither Seller nor anyone acting for or on
behalf of Seller has made any warranty or promise to Buyer concerning any matter
whatsoever, including, without limitation, the following: the physical aspects
and condition of the Property (including the existence or nonexistence of any
hazardous materials); the feasibility, desirability, or convertibility of the
Property into any particular use, or the projected market for, income from or
expenses of the Property; or any other matter relating to the Property. Buyer
acknowledges that, in entering into this Agreement, Buyer has not relied on any
representation, statement, or warranty of Seller, or anyone acting for or on
behalf of Seller, other than as expressly contained in this Agreement. Buyer
acknowledges that it is purchasing the Property in an "AS IS" condition and
state of repair, except as otherwise specifically provided in this Agreement.
Buyer hereby waives, and Seller hereby disclaims, all warranties of any type or
kind whatsoever with respect to the Property (except as contained in this
Agreement), express or implied, including, by way of description, but not
limitation, those of fitness for a particular purpose, tenantability,
habitability, and use. Buyer specifically acknowledges that, as between Buyer
and Seller, Buyer is assuming all risk and responsibility for the existence of
hazardous materials on the Premises, and Buyer hereby releases Seller from any
and all liability relating to any such hazardous materials (except for any
liability which may arise as a result of a violation of the representation
contained in Paragraph 7.A(xiv)). Without limiting the foregoing, Buyer
acknowledges that Seller has no obligations to complete or repair, and, except
as specifically set forth herein, Seller makes no representation regarding the
status of, any improvements relating to the Premises, either off-site or on-
site.
8. Covenants of Seller. Seller covenants and agrees as follows:
-------------------
A. to perform all of its obligations, if any, under the Lease, the
Note or the Mortgage and other documents binding on Seller and relating to the
Property (the "Underlying Documents") (except to the extent that a default
--------------------
arises solely from a default by Videojet under the Lease) arising prior to the
Closing; subject to any grace or cure periods set forth therein;
B. so long as Buyer is not in default hereunder, not to modify,
extend, renew or terminate any of the Underlying Documents without prior written
approval of Buyer, which approval shall not be unreasonably withheld or delayed;
8
<PAGE>
C. except as may be required by the Underlying Documents and so long
as Buyer is not in default hereunder, not to enter or grant, as the case may be,
or record, any agreement, mortgage, deed of trust, lien, encumbrance,
restriction, easement or other document which would encumber the Property (or
any portion thereof), or amend or otherwise modify any Permitted Exception
without the consent of Buyer, which consent shall not be unreasonably withheld
or delayed; and
D. to enforce the Lease in Seller"s usual manner.
9. Representations of Buyer. Buyer, to induce Seller to enter into
------------------------
this Agreement and to sell the Property, represents to Seller that the following
matters are true as of the date hereof and shall be true as of the Closing Date:
A. Buyer has full power and authority to execute this Agreement and
to consummate the transaction contemplated hereby, and this Agreement has been
duly executed and delivered by Buyer, and this Agreement constitutes the valid
and binding obligation of Buyer, enforceable against Buyer in accordance with
its terms (subject to applicable bankruptcy and other insolvency laws and
subject to the general principles of equity);
B. The person signing this Agreement on behalf of Buyer has been
duly authorized to sign and deliver this Agreement on behalf of Buyer;
C. There is no litigation, proceeding or action pending, or to
Buyer"s knowledge, threatened against Buyer, which would adversely affect
Buyer"s ability to consummate the transaction contemplated by this Agreement;
D. Neither the execution of this Agreement nor the consummation of
the transactions contemplated hereby will constitute a violation of or be in
conflict with or constitute a default, or give rise to a claim or lien against
the Property under any term or provision of any agreement, security instrument
or lease to which Buyer is a party, or require the consent under any such
agreement or of any person.
10. Conditions to the Obligations of Buyer. The obligation of Buyer under
--------------------------------------
this Agreement to purchase the Property from Seller is subject to the
satisfaction of each of the conditions set forth below (any one or more of which
may be waived in whole or in part by Buyer at or prior to the Closing). The
failure of any of the following conditions by Seller shall not constitute a
default by Seller and Buyer"s sole remedy in the event of any such failure by
Seller (provided Buyer does not waive such failure) shall be to terminate this
Agreement and obtain a refund of the Deposit:
A. The representations and warranties of Seller set forth in this
Agreement shall be true and correct as of the date of this Agreement and as of
Closing in all material respects (except that if the representation contained in
Paragraph 7.A(vii) becomes untrue prior to Closing, the provisions of Paragraph
14 shall control).
9
<PAGE>
B. Seller shall have delivered all of the documents required in
Paragraph 12.A of this Agreement and shall have otherwise complied with all
conditions required by this Agreement.
C. Seller shall have obtained a signed estoppel certificate from
Videojet in the form of Exhibit B which is attached hereto and made a part
---------
hereof, and from Guarantor in the form of Exhibit H which is attached hereto and
---------
made a part hereof subject only to changes which do not materially and adversely
alter the same (it being understood, however, that if Videojet refuses to
include items 6 or 7 in such estoppel or if Videojet states that item 10 is
untrue, or if Guarantor refuses to issue its estoppel, Buyer shall be obligated
to accept such estoppels as satisfaction of the condition contained in this
paragraph).
11. Conditions to the Obligations of Seller. The obligation of Seller
---------------------------------------
under this Agreement to sell the Property to Buyer is subject to the
satisfaction of each of the following conditions (any one or more of which may
be waived in whole or in part by Seller at or prior to the Closing):
A. The representations of Buyer set forth in this Agreement shall be
true and correct as of the date of this Agreement in all material respects.
B. Buyer shall have delivered all of the documents and other items
described in Paragraph 13 of this Agreement, shall have paid the Purchase Price
and shall have otherwise performed all of its material covenants and obligations
and complied with all material conditions required by this Agreement.
12. Provisions with Respect to Closing.
----------------------------------
A. At the Closing, Seller shall deliver to Buyer the following:
(i) a special warranty deed for the Property duly executed by
Seller substantially in the form of Exhibit C attached hereto, in proper form
---------
for recording (the "Deed");
----
(ii) a general assignment and bill of sale for the Property duly
executed by Seller in the form of Exhibit D attached hereto;
---------
(iii) an assignment and assumption of Lease duly executed by
Seller in the form of Exhibit E attached hereto, in proper form for recording
---------
(the "Assignment and Assumption of Lease");
-----------------------------------
(iv) a certificate of non-foreign status duly executed by
Seller;
(v) a letter executed by Seller to Videojet under the Lease
advising Videojet of the name and address of Buyer, where and how to make future
rent payments, and the transfer of the security deposit, if any (the "Letter to
---------
Tenant");
- ------
10
<PAGE>
(vi) a written confirmation executed by Seller that the
representations of Seller contained in Paragraph 7.A remain true and correct as
of the Closing Date (it being understood that, notwithstanding any contrary
provision hereof, Buyer's sole remedy for the inability or failure of Seller to
deliver such certificate shall be for Buyer to terminate this Agreement and
obtain return of the Deposit, other than Paragraph 7A(vii), for which Paragraph
14 shall control);
(vii) the estoppel certificate described in Paragraph 10.C
above;
(viii) evidence of the authority of the person or persons
executing documents on behalf of Seller;
(ix) a certificate issued by the Illinois Department of Revenue
stating that no assessed, but unpaid, tax, penalties or interest are due in
connection with the sale of the Premises to Buyer under Section 9.02(d) of the
Illinois Income Tax Act;
(x) affidavit to the Title Company, in the forms attached as
Exhibit G; and
- ---------
(xi) such other documents as are contemplated under the terms
of this Agreement or as required by law.
B. At the Closing, Buyer shall deliver to Seller the following, in
form reasonably acceptable to Seller:
(i) the Purchase Price in the manner set forth in Paragraph 2.
(ii) the Assignment and Assumption of Lease duly executed by
Buyer;
(iii) the Letter to Tenant;
(iv) evidence of the authority of the person or persons
executing documents on behalf of Buyer; and
(v) such other documents as are contemplated under the terms
of this Agreement or as required by law.
C. To Seller's knowledge (based on the reports or letters received
by Seller upon its purchase of the Property), the Illinois Responsible Property
Transfer Act, 765 ILCS 90/1 et seq. ("RPTA") does not require that Seller
----
deliver to Buyer Environmental Disclosure Documents for Transfer of Real
Property with respect to the Premises (the "Disclosure Documents"). In the event
--------------------
that Buyer's due diligence uncovers information that triggers such requirement,
Buyer shall so notify Seller and Seller shall complete and deliver the required
Disclosure Document to Buyer at the Closing. Buyer hereby waives (i) its right
under RPTA to receive the Disclosure Documents 30 days before the Closing, and
(ii) any right under RPTA to void the transaction contemplated by this Agreement
based upon matters that may be disclosed in the Disclosure Documents. Buyer
11
<PAGE>
understands and acknowledges that the purpose and intent of such disclosure
statements is to ensure that the parties involved in certain real estate
transactions are made aware of any existing environmental liabilities associated
with the ownership of the subject property, as well as its past use and
environmental status.
13. Prorations and Credits.
----------------------
A. All costs relating to the Property are paid by Videojet pursuant to
the terms of the Lease. Therefore, no prorations shall be made between Seller
and Buyer with respect to real estate taxes and other costs relating to the
Property. Net Rent (as defined in the Lease) paid or payable by Videojet under
the Lease shall be adjusted and prorated on an if, as and when collected basis.
Net Rent is to be adjusted and prorated between Seller and Buyer as of 11:59
P.M. on the day preceding the day of Closing, based upon equal monthly rent
payments.
Buyer and Seller agree to treat all Net Rent received from Videojet
which is in arrears as of the Closing as applicable first to Net Rent which was
owed by Videojet for the month in which the Closing occurs, and such amount
shall be prorated between Seller and Buyer pursuant to the terms of this
subsection 13.A. In the event that there remains any unpaid Net Rent for a
period before the month in which the Closing occurs, all payments received shall
be applied to sums owed to Buyer before any part thereof shall be treated as
belonging to Seller. If either party shall receive any payment which belongs to
the other party pursuant to the provisions of this subsection 13.A, the
receiving party shall hold the same for the benefit of the party entitled to
such payment and shall pay the same to such party within fifteen (15) days of
such receipt.
B. Each of Seller and Buyer shall pay their own attorneys' fees
incurred in connection with this Agreement. All transfer taxes imposed on or in
connection with this transaction, one-half of any escrow or closing fees charged
by the Title Company, the base premium of the owner's title insurance policy,
and the entire cost of the survey shall be paid by Seller. All prepayment fees
and other fees, expenses and costs imposed on or in connection with the
prepayment of the Existing Loan shall be paid as set forth in Paragraph 2.B. All
other costs of closing, including appraisals, any reports ordered by Buyer, all
mortgagee's title insurance premiums, title insurance endorsements, one-half of
the escrow or closing fees and other costs of closing payable in connection with
the transfer of the Premises to Buyer shall be paid by Buyer.
14. Casualty Loss; Eminent Domain.
-----------------------------
A. Except as hereafter provided, in the event that any portion of the
Premises is destroyed or damaged as a result of fire or any other casualty
whatsoever, Seller shall provide prompt written notice thereof to Buyer at such
time as Seller receives actual knowledge of such casualty, and if the amount of
damage exceeds $100,000, Buyer shall have ten (10) business days from the
receipt of such notice of casualty to elect to terminate this Agreement and
obtain return of the Deposit by written notice delivered to Seller during such
ten-day period. If necessary, the Closing Date shall be extended during such
ten-day period in order to allow Buyer to make its decision regarding the
casualty. In the event that Buyer fails to timely exercise its right of
termination, Buyer shall be deemed to have elected to proceed to purchase the
Property without reduction of the Purchase Price.
12
<PAGE>
In such event, any amount payable to the lessor under the Lease shall be paid to
Buyer if Buyer purchases the Property.
B. Except as hereafter provided, in the event that any portion of the
Premises is subject to a condemnation, Seller shall provide prompt notice
thereof to Buyer at such time as Seller receives actual knowledge of such
condemnation, and Buyer shall have ten (10) business days from the receipt of
such notice of condemnation to elect to terminate this Agreement and obtain
return of the Deposit by written notice delivered to Seller during such ten-day
period. If necessary, the Closing Date shall be extended during such ten-day
period in order to allow Buyer to make its decision regarding the condemnation.
In the event that Buyer fails to time exercise its right of termination, Buyer
shall be deemed to have elected to proceed to purchase the Property without
reduction of the Purchase Price. In such event, any amount payable to the lessor
under the Lease shall be paid to Buyer if Buyer purchases the Property.
15. Brokerage. Seller and Buyer each represent and warrant to each other
---------
that it has not dealt with any broker or other intermediary in connection with
or relating to the sale and purchase which is the subject of this Agreement,
except that Buyer has retained The Kemper Corporation and Gold Rock Capital, as
its brokers, and Buyer shall be responsible for the payment of any fees with
respect to such brokers pursuant to separate agreement between Buyer and such
brokers. Each party hereby agrees to indemnify, defend and hold the other party
harmless from and against any and all claims, loss or damage relating to or
arising out of any breach of the foregoing representations regarding brokers.
16. Further Assurances. Buyer and Seller shall each execute and deliver to
------------------
the other such documents and instruments and take such further actions as may be
reasonably necessary or required to consummate the transactions contemplated by
this Agreement.
17. Entire Agreement. This is the entire agreement between the parties and
----------------
there are no other terms, obligations, covenants, representations, statements or
conditions, oral or otherwise, of any kind whatsoever. Any agreement hereafter
made shall be ineffective to change, modify, discharge or effect an abandonment
of this Agreement in whole or in part unless such agreement is in writing and
signed by the party against whom enforcement of the change, modification,
discharge or abandonment is sought.
18. Survival. Except as otherwise provided herein, all agreements,
--------
warranties and representations contained herein shall survive Closing, and shall
not be deemed to have merged into the deed.
19. Notices. All notices, requests and other communications under this
-------
Agreement shall be in writing and shall be sent by certified or registered mail,
return receipt requested, or by overnight courier, or by facsimile delivery
(confirmed received by the addressee) or may be personally delivered to the
following addresses:
13
<PAGE>
If intended for Seller:
Sun-Pla
1 SunAmerica Plaza
Century City
Los Angeles, California 90067
Attention: Alan Nussenblatt
Fax: (310) 772-6030
With a copy to:
BROWNSTEIN HYATT FARBER & STRICKLAND, P.C.
410 Seventeenth Street, 22/nd/ Floor
Denver, CO 80202
Attn: Ronald B. Merrill, Esq.
Fax: (303) 623-1956
With a copy to:
U.S. REALTY ADVISORS, LLC
1370 Avenue of the Americas, Suite 2900
New York, New York 10019
Attention: David M. Ledy
Fax: (212) 581-4950
If intended for Buyer:
Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Attention: Michael C. Berndt
Fax: (770) 840-7224
With a copy to:
O'Callaghan & Stumm, LLP
127 Peachtree Street NE, Suite 1330
Atlanta, Georgia 30303
Attention: W. L. O'Callaghan, Esq.
Fax: (404) 522-3080
or such other address of which Seller or Buyer shall have given notice as herein
provided. All such notices, requests and other communications shall be deemed to
have been sufficiently given for all purposes hereof on the date of receipt.
Notices may be signed by the attorneys for the party on whose behalf the notice
is sent.
14
<PAGE>
20. Remedies.
--------
(a) Except as otherwise provided in this Agreement where Buyer's sole
remedy is limited to the return of the Deposit, if Seller shall be in default of
Seller's obligations under this Agreement prior to the Closing, Buyer shall be
entitled to either terminate this Agreement and obtain return of the Deposit or
to obtain specific performance, but not damages. After the Closing, Buyer shall
be entitled to such remedies as are allowed at law or in equity, except that
Buyer shall not be entitled to rescission or to consequential damages.
(b) Except with respect to any indemnity provisions contained in this
Agreement and except with respect to defaults occurring after the Closing (for
which Seller shall be entitled to obtain damages and other appropriate
remedies), if Buyer shall be in default pursuant to the provisions hereof prior
to Closing, Seller's sole remedy shall be to terminate this Agreement and retain
the Deposit as liquidated damages. The parties hereby confirm their agreement
that the amount of paid liquidated damages is fair and reasonable under the
circumstances and conditions surrounding this Agreement. After the Closing,
Seller shall be entitled to such remedies as are allowed at law or in equity,
except that Seller shall not be entitled to rescission or to consequential
damages.
21. Attorney's Fees. Each of the parties will pay its own attorney's,
---------------
advisor's and accountant's fees. Notwithstanding the above, a party defaulting
under this Agreement will pay the reasonable attorney's fees and court costs
incurred by the nondefaulting party to enforce its rights regarding the default,
provided that the nondefaulting party is successful in its cause of action.
22. Miscellaneous.
-------------
A. The captions in this Agreement are inserted for convenience of
reference only and in no way define, describe or limit the scope of intent of
this Agreement or any of the provisions hereof.
B. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective heirs, executors, administrators,
legal representatives, and permitted successors and assigns.
C. This Agreement shall be governed by and shall be construed and
interpreted in accordance with the laws of the State of Illinois.
D. The parties hereto acknowledge that the transfer of the Property
must be reported to the Internal Revenue Service as required by Section 6045(e)
of the Internal Revenue Code of 1986, as amended (the "Code"), unless Section
----
6045(e) provides an exemption to such reporting requirement. Accordingly, on or
before the Closing Date, Seller, Buyer and the Title Company shall enter into a
written "designation agreement" as defined in and in accordance with Regulation
---------------------
Section 1.6045-4 of the Code, which designation agreement shall designate the
Title Company as the "real estate reporting person" responsible for reporting
the respective transfers to the Internal Revenue Service.
15
<PAGE>
E. In the event that any provision of this Agreement shall be
unenforceable in whole or in part, the provision shall be limited to the extent
necessary to render it valid, or shall be excised from this Agreement, as
circumstances require, and this Agreement shall be construed as if the provision
had been incorporated herein as so limited, or as if the provision had not been
included herein, as the case may be.
F. This Agreement constitutes the complete agreement between the
parties and supersedes any prior oral or written agreements between the parties
regarding the Agreement. There are no verbal agreements that change this
Agreement and no waiver of any of its terms will be effective unless in writing
executed by the parties to this Agreement.
G. No provision of this Agreement shall be construed by any court or
other judicial authority against Seller or Buyer by reason of any such party
being deemed to have drafted or structured such provision.
H. Buyer shall not assign its rights under this Agreement without the
prior written consent of Seller, provided that Buyer may assign this Agreement
without Seller's consent to any "Affiliate." The term "Affiliate" shall mean any
---------
entity (including, without limitation, any corporation, partnership, limited
liability corporation or partnership, joint venture, subsidiary, trust, or real
estate investment trust) which controls, is controlled by, or is under common
control with Buyer. If this Agreement shall be assigned to an Affiliate, then
Buyer, prior to Closing and for informational purposes only, shall furnish
Seller with a copy of a fully-executed assignment agreement which shall contain
an assumption by the assignee of Buyer's obligations hereunder. Notwithstanding
any assignment to an Affiliate, Buyer shall remain obligated under the terms of
this Agreement. For purposes of this subsection I, the term "control" or
"controls," and terms of similar import, shall mean the ownership of an interest
in any entity or the holding of any right or power sufficient to direct,
dictate, or otherwise substantially influence management, policy, direction, or
decisions.
I. The provisions of this Agreement and of the documents to be
executed and delivered at Closing are and will be for the benefit of Seller and
Buyer only and are not for the benefit of any third party, and accordingly, no
third party shall have the right to enforce the provisions of this Agreement or
of the documents to be executed and delivered at Closing.
J. Each party hereby waives, irrevocably and unconditionally, trial by
jury in any action brought on, under or by virtue of or relating in any way to
this Agreement or any of the documents executed in connection herewith, the
property, or any claims, defenses, rights of set-off or other actions pertaining
hereto or to any of the foregoing.
K. This Agreement may be executed in more than one counterpart, each
of which shall be deemed an original and all of which, when taken together,
shall constitute one and the same instrument.
M. The delivery of this Agreement is not intended to constitute a
complete statement of, or a legally binding or enforceable offer, agreement or
commitment on the part of,
16
<PAGE>
Seller or Buyer with respect to the matters set forth herein. The delivery of
this Agreement is not intended to legally bind the parties to consummate the
transactions contemplated hereby nor to create any liability or obligation on
behalf of the parties. The consummation of this Agreement is subject in all
respects to the full and valid execution and delivery of the Agreement,
satisfactory to each of the parties in its sole discretion.
23. Escrow.
------
A. The Deposit shall be held in escrow by the Escrow Agent deposited
in an interest-bearing account, with interest to be paid to Buyer, and disbursed
in accordance with the terms of this Agreement. The parties acknowledge that the
Deposit deposited with the Escrow Agent, may be ultimately disbursed by the
Escrow Agent: (i) to Buyer, in the event Buyer terminates this Agreement
pursuant to any right of termination contained herein, or in the event of a
default hereunder by Seller; (ii) to Seller, in the event of a default by Buyer
under this Agreement or if specifically required hereunder; or (iii) as a credit
toward the Purchase Price for the Property, in the event the transaction
contemplated herein is consummated. In the event the Buyer or Seller makes a
demand for disbursement of the Deposit and interest under the conditions
described in (i) or (ii) above, the party making such demand shall give written
notice thereof to the Escrow Agent and the other party in the manner specified
herein. Escrow Agent shall disburse the Deposit and interest thereon to the
party making such demand unless contrary instructions are received from the
other party within ten (10) business days of its receipt of the original notice.
In the event such contrary instructions are received, Escrow Agent may, at its
option, continue to hold the Deposit and interest thereon until such time as the
Buyer and Seller resolve their dispute and issue joint written instructions
relative to the disbursement of the Deposit, or deposit said Deposit and
interest thereon with a court of competent jurisdiction and thereupon be
relieved from all further obligations with respect to such Deposit. Further,
Buyer and Seller agree that if the Escrow Agent exercises its option to
interplead the Deposit into court, any and all costs to the Escrow Agent in so
doing shall be assessed against the non-prevailing party in such litigation. In
the event the Buyer and Seller desire the Deposit be disbursed pursuant to (iii)
above, Buyer and Seller shall issue joint written instructions to Escrow Agent
specifying the manner in which the funds are to be transferred, and any other
information reasonably requested by Escrow Agent.
B. The parties acknowledge and agree that the functions of Escrow
Agent under this Agreement are as a stakeholder only. Escrow Agent shall have no
liability to either party for its actions or inaction hereunder (regardless of
whether such action or inaction constitutes negligence) unless such action was
taken in, or such inaction resulted from, bad faith. In no event, however, shall
Escrow Agent have any liability hereunder for any amount in excess of the
Deposit. In no event shall the Escrow Agent be responsible for obtaining any
given rate of interest with respect to the Deposit. Escrow Agent shall not be
bound by any modification of this Agreement or of any agreement incorporated by
reference herein, unless there shall have been delivered to Escrow Agent a
written modification signed by both Seller and Buyer. No such modification
shall, without the consent of Escrow Agent, modify any of the provisions of this
Agreement relating to the rights, obligations or duties of Escrow Agent.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SELLER:
------
SUN-PLA, A CALIFORNIA LIMITED
PARTNERSHIP
By: Sun-Pla, Inc., a California corporation,
General Partner
By:
Title:
BUYER:
-----
WELLS CAPITAL, INC., a Georgia corporation
By: /s/ Leo F. Wells, III
------------------------------------------
Title: President
18
<PAGE>
EXHIBITS
- --------
Exhibit A - Legal Description of the Property
Exhibit B - Form of Tenant Estoppel
Exhibit C - Form of Limited Warranty Deed
Exhibit D - Form of Bill of Sale
Exhibit E - Form of Assignment and Assumption of Lease
Exhibit F - Statement of Net Cash Flow
Exhibit G - Title Company Affidavits
Exhibit H - Form of Guarantor Estoppel
19
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
-----------------------------
1
<PAGE>
EXHIBIT 10.63
AGREEMENT OF PURCHASE AND SALE
BETWEEN THE WELLS FUND XI - FUND XII - REIT JOINT VENTURE
AND
HOGAN TRIAD FT. MYERS I, LTD.
<PAGE>
AGREEMENT OF PURCHASE AND SALE
------------------------------
THIS AGREEMENT OF PURCHASE AND SALE is made as of this 20th day of August,
1999 between HOGAN TRIAD FT. MYERS I, LTD., a Florida limited partnership,
having an address of c/o Mr. James E. Bobbitt, MAI, The Hogan Group, 101 E.
Kennedy Boulevard, Suite 4000, Tampa, Florida 33602, (Telecopy Number (813) 222-
0505) ("Seller") and WELLS CAPITAL, INC., a Georgia corporation, having an
address at 3885 Holcomb Bridge Road, Atlanta, Georgia 30092, or its permitted
assigns hereunder (Telecopy Number (770) 840-7224) ("Purchaser").
R E C I T A L S:
---------------
A. Seller is the owner of the Premises (as hereinafter defined) located
at 12600 Gateway Boulevard, Lee County, Ft. Myers, Florida.
B. Purchaser is desirous of purchasing from Seller the Premises and
Seller is desirous of selling same to Purchaser upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency are hereby acknowledged by Purchaser and Seller, the
parties hereto, each intending to be legally bound, do hereby covenant and agree
as follows:
1. Recitals. All of the recitals set forth above are true and accurate
--------
and are incorporated herein by reference.
2. Definitions. In addition to the terms defined elsewhere in this
-----------
Agreement, as used herein and in the Exhibits annexed hereto, the following
terms shall have the following meanings, unless otherwise defined herein:
Agreement. This Agreement of Purchase and Sale and any written
---------
amendments or modifications hereof duly executed by all of the parties
hereto.
Business Day. Any day of the year in which commercial banks are not
------------
required or authorized to close in Atlanta, Georgia.
Effective Date. The date on which Seller and Purchaser have executed
--------------
this Agreement, as evidenced by the day and year first above written.
<PAGE>
Inspection Materials. Existing Leases, soils, engineering, structural
--------------------
and other reports relating to the current condition of the Premises,
environmental audits and the results of any other studies, tests,
investigations and inspections as well as any surveys, operating reports,
title insurance policies, "Contracts" (as hereinafter defined) and other
materials in the possession of Seller respecting the Premises, including,
without limitation, those materials listed on Exhibit B attached hereto and
---------
made a part hereof, such materials having been delivered by Seller to
Purchaser on or prior to the Effective Date.
Lease. That certain Lease Agreement by and between Seller, as
-----
landlord, and Tenant, as tenant, having an effective date of July 30, 1997.
Personal Property. As such term is defined in Section 3 hereof.
-----------------
Premises. As such term is defined in Section 3 hereof.
--------
Purchaser's Representatives. Collectively, Purchaser's employees,
---------------------------
agents, directors, members, officers, affiliates, partners, brokers or
other representatives, including, without limitation, contractors,
engineers, appraisers, attorneys, accountants, consultants, financial
advisors, investors and lenders.
Seller. As such term has been defined at the outset hereof
------
Seller's Representatives. Collectively, Seller's employees, agent,
------------------------
directors, members, officers, affiliates, partners, brokers or other
representatives, including, without limitation, contractors, engineers,
appraisers, attorneys, accountants, consultants, financial advisors,
investors and lenders.
Surviving Obligations. Collectively: (i) any indemnities and any
---------------------
other obligations under this Agreement on the part of Purchaser or Seller
which are specifically stated to survive the termination of this Agreement,
and (ii) those costs, expenses, and payments specifically stated herein to
be the responsibility of Purchaser or Seller, respectively, it being the
intention of the parties that the parties shall nonetheless be and remain
liable for their respective obligations under (i) and (ii) notwithstanding
the termination of this Agreement for any reason.
Tenant. Gartner Group, Inc.
------
3. Sale and Purchase of Property. Seller agrees to sell and convey to
-----------------------------
Purchaser, and Purchaser agrees to purchase from Seller, at the price and upon
the terms, provisions and conditions set forth in this Agreement, that certain
tract or parcel of land located in Lee County, Ft. Myers, Florida, as more
particularly described in Exhibit "A" attached hereto and made a part hereof
(the "Land"), together with (i) all buildings and other improvements situated on
----
the Land (collectively, the "Improvements"), (ii) all oil, gas and mineral
------------
rights of Seller, if any, in and to the Land, (iii) all right, title and
interest of Seller in and to all easements, rights of way, reservations,
privileges,
2
<PAGE>
appurtenances, and other estates pertaining to the Land or the Improvements,
(iv) all right, title and interest of Seller, if any, in and to the fixtures,
machinery, equipment. supplies and other articles of personal property attached
or appurtenant to the Land or the Improvements, (collectively, the "Personal
--------
Property"), (v) all right, title and interest of Seller, if any, in and to all
- --------
intangible assets relating to the Improvements, including, without limitation,
any warranties or guaranties relating to the Improvements and the trade name(s)
of the Improvements, (vi) all right, title and interest of Seller, if any, in
and to all strips and gores, all alleys adjoining the Land to the center line
thereof, and all right, title and interest of Seller, if any, in and to any
award made or to be made in lieu thereof and in and to any unpaid award for any
taking by condemnation or any damages to the Land or the Improvements by reason
of a change of grade of any street, road or avenue, and (vii) all right, title
and interest of Seller in and to the Lease (the Land, the Improvements and all
of the foregoing items listed in clauses (i)-(vii) above being hereinafter
sometimes collectively referred to as the "Premises"). Anything contained in
--------
this Paragraph 3 to the contrary notwithstanding and provided that Purchaser
enters into a separate Development Agreement with The Hogan Group on or before
the end of the Inspection Period, wherein The Hogan Group shall construct the
building pursuant to terms and conditions satisfactory to Purchaser and The
Hogan Group. Seller is also selling or conveying to Purchaser, and Purchaser is
also purchasing or receiving from Seller, Seller's right, title and interest in
and to (A) that certain Short Form Option Agreement dated July 31, 1997 and
recorded in O.R. Book 2851, Page 3789 of the Public Records of Lee County,
Florida ("Option on Option Property 1"); (B) that certain Short Form Option
---------------------------
Agreement dated July 31, 1997 and recorded in O.R. Book 2851, Page 3795 of the
Public Records of Lee County, Florida ("Option on Option Property 2"); and (C)
---------------------------
the real property identified in the Option on Option Property 1, and the Option
on Option Property 2.
4. Purchase Price and Method of Payment of Purchase Price.
-------------------------------------------------------
(a) Subject to adjustment in accordance with the terms and conditions
of Section 6 hereof, the purchase price for the Premises is EIGHT MILLION
THREE HUNDRED TWENTY THOUSAND AND NO/100 DOLLARS ($8,320,000.00) ("Purchase
--------
Price").
-----
The Purchase Price shall be paid as follows:
(i) Deposit: On or before the close of business on August 25,
-------
1999, Purchaser shall deliver to Chicago Title Insurance Company
("Escrow Agent"), in immediately available funds, the sum of FIVE
------------
HUNDRED THOUSAND AND NO/ 100 DOLLARS ($500,000.00) (the "Deposit.")
-------
(ii) At the option of Purchaser, at "Closing" (as hereinafter
defined) the Deposit shall be either (a) refunded by Escrow Agent to
Purchaser, or (b) credited to the Purchase Price. If credited to the
Purchase Price, the balance of the Purchase Price, after giving credit
to Purchaser for the Deposit and any interest earned thereon, and
after calculating the adjustments and prorations to be made in
accordance with Section 6 hereof, shall be paid by Purchaser at
Closing by wire transfer of immediately available funds.
3
<PAGE>
The Deposit shall be held by Escrow Agent and deposited in an interest-
bearing money market account under Purchaser's Federal Tax I.D. No. 58-
2368836 for the benefit of the party entitled to the Deposit. Any interest
earned on the Deposit shall be for the benefit of Purchaser.
5. Inspection.
----------
(a) During the term of this Agreement, Purchaser and Purchaser's
Representatives shall, subject to the rights of parties in possession, have
full access during reasonable business hours to examine and inspect the
Premises. Purchaser and/or Purchaser's Representatives may make surveys,
perform soil tests, environmental audits, engineering tests, and other
investigations and tests as Purchaser in its reasonable discretion deems
advisable (collectively, the "Inspection") and Seller grants to Purchaser
----------
and Purchaser's Representatives a non-exclusive license for such
Inspection, subject to the terms and conditions set forth herein. Seller
and its agents, employees or designated representatives shall have the
right to accompany Purchaser and Purchaser's Representatives during any
inspections, testing or other activity performed at the Premises in
accordance with the terms and conditions of this Section 5. Purchaser
and/or Purchaser's Representatives shall have the right to interview,
communicate with or otherwise contact the Tenant prior to Closing;
provided, however, Seller and/or Seller's Representatives shall have the
opportunity to accompany Purchaser or Purchaser's Representatives in each
such instance. Seller's unavailability to accompany Purchaser or
Purchaser's Representatives in such tenant contact shall not hinder or
delay Purchaser's due diligence activities hereunder. Anything contained to
the contrary in this Paragraph 5(a) notwithstanding, Purchaser shall not
perform any destructive or intrusive testing of the Premises without first
obtaining the prior consent of Seller, which consent shall not be
unreasonably withheld, conditioned, or delayed.
(b) The Inspection and all other due diligence activities shall be
conducted by Purchaser at Purchaser's sole cost and expense.
(c) Purchaser agrees to maintain or cause to be maintained, at
Purchaser's expense, (i) a policy of comprehensive general public liability
insurance, with a broad form contractual liability endorsement covering all
indemnification obligations of Purchaser under Section 5(d) hereof, with a
combined single limit of not less than $1,000,000 per occurrence for bodily
injury and property damage, insuring Purchaser and Purchaser's
Representatives who perform actual work on the Premises on Purchaser's
behalf against any injuries or damages to persons or property that may
result from or are related to Purchaser's and/or Purchaser's
Representatives entry upon the Premises.
(d) Purchaser shall indemnify Seller and hold Seller harmless from
and against any and all claims, demands, causes of action, losses, damages,
liabilities, costs and expenses (including, without limitation, reasonable
attorneys' fees and disbursements actually incurred) for property damage or
loss or injury to persons or property, suffered or incurred by Seller
4
<PAGE>
and arising out of or in connection with Purchaser's and/or Purchaser's
Representatives' entry upon the Premises in the exercise of its rights
under this Section 5, except Purchaser shall not indemnify Seller to the
extent any such loss, damage, liability, cost or expense was caused by (i)
the negligence or willful misconduct of Seller, (ii) a pre-existing
condition at the Premises, or (iii) the discovery of, or the non-negligent
accidental or inadvertent release of, any "Hazardous Materials" (as
hereinafter defined) resulting from Purchaser's inspection (unless the
Hazardous Materials are brought onto the Premises by Purchaser or
Purchaser's Representatives).
(e) If prior to 5:00 p.m., E.D.T., on September 22, 1999 (the
"Termination Date"; the period commencing on the Effective Date and
----------------
expiring at 5:00 p.m., E.D.T., on the Termination Date being herein
referred to as the "Inspection Period"), Purchaser determines to terminate
-----------------
under the terms of this Agreement, Purchaser shall notify Seller and Escrow
Agent in writing in accordance with the provisions of Section 33 herein on
or before the Termination Date of its decision to terminate under the terms
of this Agreement (the "Notice of Termination"). If Seller and Escrow Agent
---------------------
have not received the Notice of Termination from Purchaser prior to the
Termination Date, Purchaser shall be deemed to have agreed to continue this
Agreement under the terms of this Section 5. Upon receipt of the Notice of
Termination, Escrow Agent shall refund the Deposit and any interest earned
thereon to Purchaser, less One Hundred and No/100 Dollars ($100.00), which
shall be paid to Seller as consideration for entering into this Agreement
and granting to Purchaser the Inspection Period, at which time this
Agreement shall be deemed to be terminated and all parties hereto shall be
relieved of further liability hereunder to the other parties, except for
the Surviving Obligations. If Seller and Escrow Agent receive the Notice of
Continuation prior to the Termination Date, the Deposit shall be non-
refundable to Purchaser except as provided in Sections 7(e), 9, 12 and 13
hereof.
(f) In addition, at or prior to 5:00 p.m., E.D.T., on the Termination
Date, Purchaser shall notify Seller as to which of the Contracts, if any,
set forth on Exhibit F hereof, Purchaser elects to assume.
---------
(g) The provisions of Section 5(d) and the Surviving Obligations
shall survive the Closing or the sooner termination of this Agreement.
(h) 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
such audit.
5
<PAGE>
6. Adjustments to Purchase Price, Prorations and Apportionments.
------------------------------------------------------------
(a) Except as otherwise set forth below, the following shall be
prorated and apportioned between Seller and Purchaser as of midnight of the
day preceding the Closing Date:
(i) real estate taxes for the year of Closing, but if the
Closing occurs before the then current year's tax is fixed, then taxes
will be prorated based upon the prior year's tax; any tax prorations
based on the prior year's taxes, at the request of either Seller or
Purchaser, shall be subsequently readjusted upon the receipt of the
actual tax bills for the year in which Closing takes place for the
Premises;
(ii) base rents, prepaid rents and "Additional Rents" (as
hereinafter defined) and other amounts payable by the Tenant, if, as
and when received;
(iii) charges and payments under transferable Contracts or
permitted renewals or replacements thereof Purchaser has elected to
assume;
(iv) utilities, including, without limitation, water, sewer,
telephone, electricity and gas, on the basis of current meter
readings;
(v) personal property taxes, if any, with respect to the
Personal Property being transferred and assigned to Purchaser
hereunder, on the basis of the fiscal year for which assessed; and
(vi) Seller's share, if any, of all revenues from the operation
of the Premises other than base rents and Additional Rents (including,
without limitation, parking charges, telephone booth and vending
machine revenues), if, as and when received.
(b) If on the Closing Date the Tenant is in arrears in the payment of
percentage rent or rent or Additional Rent (hereinafter defined) or has not
paid the rent payable by it for the month in which the Closing occurs
(whether or not it is in arrears for such month on the Closing Date), any
rents received by Purchaser or Seller from such Tenant after the Closing
shall be applied to amounts due and payable by such Tenant during the
following periods in the following order of priority: (A) first, to each
post Closing month for which such Tenant is in arrears as of the date of
receipt of such rent, and if rents or any portion thereof received by
Seller or Purchaser after the Closing are due and payable to the other
party by reason of this allocation, the appropriate sum, less a
proportionate share of any reasonable attorneys' fees and costs and
expenses actually expended in connection with the collection thereof, shall
be promptly paid to the other party, (B) second, to the month in which the
Closing occurred, prorated accordingly between Seller and Purchaser, and
(C) third, to each pre-Closing month for which such Tenant is in arrears as
of the Closing Date. If the Tenant is required to pay escalation charges
for real estate taxes, parking charges, operating expenses and maintenance
escalation rents or charges, cost of living increases or other charges of a
similar nature
6
<PAGE>
(collectively, "Additional Rents"), Seller shall pay to Purchaser at
----------------
closing the amount of Additional Rents collected by the Landlord beginning
on January 1, 1999 through the date of Closing (together with any
delinquent Additional Rents) which have not previously been applied by the
Landlord to satisfy the actual charges for which the Additional Rents are
designed to compensate. Upon any year-end reconciliation of Additional
Rents actually paid by the Tenant for the year during which the Closing
occurs and Additional Rents actually owed, Seller and Purchaser hereby
agree to make any post-Closing adjustment which may be required on account
of such year-end reconciliation. Notwithstanding the foregoing or anything
to the contrary contained herein, Seller shall have no right to demand
payment of and to collect rent and Additional Rent arrearages owed to
Seller by the Tenant following the Closing Date. The provisions of this
Section 6 shall survive the Closing.
(c)
(i) Seller shall pay, or will have paid, all special
assessments and liens for public improvements or similar liens which
are, as of the Closing Date, certified liens and Purchaser shall
assume payment of all special assessments and liens or " public
improvements or similar liens which are, as of the Closing Date,
pending lien; unless such special assessments are payable in
installments in which case Seller shall be responsible for all
installments accruing prior to the Closing Date and Purchaser shall be
responsible for all of the installments accruing on or after the
Closing Date.
(ii) On or before the Closing, Seller shall pay in full all
leasing commissions due to leasing or other agents for the current
remaining term of each Existing Lease, including renewal terms and
expansions of the Existing Leases which are exercised after the
Effective Date and prior to the Closing Date.
(d) At Closing, Seller shall pay to Purchaser the aggregate amount of
all security deposits paid by the Tenant under the Lease and Purchaser
shall thereafter assume all of Seller's obligations with respect to the
security deposits so credited, including the obligation to refund such
security deposits to the Tenant in accordance with the terms of the Lease.
(e) Deposits with telephone and other utility companies, and any
other persons or entities who supply goods or services in connection with
the Premises if same are assigned to Purchaser at Closing, will be credited
in their entirety to Seller.
7. Closing.
-------
(a) Closing Date and Place. The closing hereunder (the "Closing")
---------------------- -------
shall be held at the offices of Hill, Ward & Henderson, P.A., Tampa,
Florida not later than 2:00 p.m., E.D.T., on the date occurring five (5)
business days after the end of the Inspection Period ("Closing Date").
------------
7
<PAGE>
(b) Seller's Documents. At or prior to the Closing, Seller shall
------------------
execute, acknowledge and/or deliver, as applicable, the following items to
Purchaser (collectively, the "Seller's Documents"):
------------------
(i) a special or limited warranty deed (the "Deed") in the form
----
of Exhibit C attached hereto and made a part hereof in recordable form
---------
which shall be effective to vest in Purchaser insurable and marketable
fee simple title to the Premises, subject only to the "Permitted
Encumbrances" (as hereinafter defined);
(ii) the Assignment and Assumption of Lease and Security Deposit
in the form of Exhibit D attached hereto and made a part hereof (the
---------
"Lease Assignment"), assigning all of Seller's right, title and
----------------
interest in and to the Lease and the security deposits thereunder;
(iii) Assignment and Assumption of Contracts and Licenses in the
form of Exhibit E attached hereto and made a part hereof (the
---------
"Contracts Assignment"), assigning to the extent assignable or
--------------------
transferable, all of Seller's right, title and interest, if any, in
and to (x) all of the licenses, permits, certificates, approvals,
authorizations and variances issued for or with respect to the
Premises by any governmental or quasi-governmental authority
(collectively, the "Licenses"), and (y) all purchase orders, equipment
leases, advertising agreements, franchise agreements, license
agreements and service contracts relating to the operation of the
Premises and set forth on Exhibit F attached hereto and made a part
hereof which Purchaser shall request prior to the end of the
Inspection Period that Seller assign to Purchaser at Closing
(collectively the "Contracts");
---------
(iv) a Bill of Sale in the form of Exhibit G attached hereto and
---------
made a part hereof ("Bill of Sale") conveying, transferring and
------------
selling to Purchaser all right, title and interest of Seller in and to
the Personal Property;
(v) notice to the Tenant in the form of Exhibit H attached
---------
hereto and made a part hereof advising the Tenant of the sale of the
Premises to Purchaser and directing that rents and other payments
thereafter be sent to Purchaser or as Purchaser may direct;
(vi) executed counterpart of the Lease and any amendments,
guarantees and other documents relating thereto, together with a
certificate of Seller certifying that the delivered Lease is a true,
correct and complete copy of the Lease;
(vii) a rent roll (the "Rent Roll") regarding the tenancy of the
---------
Tenant, certified by Seller to be true, correct and complete in all
material respects as of the Closing Date;
8
<PAGE>
(viii) to the extent not already located at the Premises, keys
to all entrance doors to, and equipment and utility rooms located in,
the Premises;
(ix) executed counterparts of all Contracts and all warranties
in connection therewith which are in effect on the Closing Date and
which are being assigned by Seller to Purchaser under the terms of the
Assignment;
(x) to the extent in Seller's possession and not already
located at the Premises, originals and/or copies of all Licenses;
(xi) a "FIRPTA" affidavit attesting to facts pertaining to
Seller's name, address, tax identification number and non-foreign
status as required by Section 1445 of the Internal Revenue Code and
regulations;
(xii) an affidavit in the form of Exhibit I attached hereto and
---------
made a part hereof (the "Affidavit") stating that there have been no
---------
improvements to the Premises for the ninety (90) day period
immediately preceding the Closing Date (other than work done by or on
behalf of the Purchaser) or, if there have been any such improvements
(other than work done by or on behalf of the Purchaser), that all
lienors in connection with said improvements have been or will be paid
in full when due; that there are no persons or entities in possession
of all or any portion of the Premises except Seller and the Tenant
pursuant to the Lease; and that there are no unrecorded easements or
agreements known to Seller affecting title to or relating to the
Premises, except as otherwise set forth in the affidavit;
(xiii) a certificate, in form and substance satisfactory to
counsel for Purchaser, to the effect that the representations and
warranties of Seller in this Agreement are true and correct on and as
of the Closing Date;
(xiv) a closing statement (the "Closing Statement") reflecting
-----------------
all credits, prorations, apportionments and adjustments contemplated
hereunder;
(xv) tenant estoppel letter in the form of Exhibit J attached
---------
hereto and made a part hereof (the "Tenant Estoppel") from the Tenant
---------------
in accordance with the terms of Section 7(e) herein;
(xvi) any documents reasonably required to be obtained by
Chicago Title Insurance Company (the "Title Company"), in its capacity
-------------
as the issuer of the "Title Commitment" (as hereinafter defined), in
connection with the Closing, including, without limitation, Schedule
B, Section I requirements of the Title Commitment, that are within the
purview of Seller's responsibilities hereunder, or otherwise to comply
with any state or federal law;
(xvii) evidence in form and substance reasonably satisfactory to
Purchaser that Seller has the power and authority to execute and enter
into this Agreement and
9
<PAGE>
to consummate the purchase and sale of the Premises, and that any and
all actions required to authorize and approve the execution of and
entry into this Agreement by Seller, the performance by Seller of all
of Seller's duties and obligations under this Agreement, and the
execution and delivery by Seller of all documents and other items to
be executed and delivered to Purchaser at Closing have been
accomplished; and
(xviii) all other documents Seller is required to deliver
pursuant to the provisions of this Agreement or to consummate the
transactions contemplated hereunder.
(c) Purchaser's Documents. At or prior to Closing, Purchaser shall
---------------------
execute, acknowledge and/or deliver, as applicable, the following items to
Seller (collectively, the "Purchaser's Documents"):
---------------------
(i) the Purchase Price in accordance with Section 4 hereof,
(ii) the Closing Statement;
(iii) the Lease Assignment;
(iv) the Contracts Assignment; and
(v) all other documents Purchaser is required to deliver
pursuant to the provisions of this Agreement or to consummate the
transactions contemplated hereunder.
(d) Closing Expenses. At Closing, Seller shall pay all documentary
----------------
stamp, transfer and recordation taxes required to be paid as to the Deed,
all costs regarding the satisfaction and discharge of any liens or
encumbrances required to be discharged to deliver marketable title to
Purchaser, the brokerage commissions due Broker in accordance with Section
26 herein, the premium for issuance of the "Title Policy" (as hereinafter
defined) and Seller's attorneys' fees. Purchaser shall pay the cost of the
"Survey" (as hereinafter defined, all costs of the Inspection and other due
diligence activities of Purchaser, and Purchaser's attorneys' fees. Seller
and Purchaser shall share equally any escrow fees related to this Agreement
and the cost to record the Deed.
(e) Conditions Precedent to Closing. Purchaser's obligation to close
-------------------------------
hereunder is subject to the satisfaction of the following conditions:
(i) the representations and warranties of Seller contained
herein shall be true and correct in all material respects as of the
Closing Date;
10
<PAGE>
(ii) Seller shall have performed all of the obligations and
covenants undertaken by Seller in this Agreement to be performed by
Seller at or prior to Closing;
(iii) Seller shall have delivered to Purchaser the Seller's
Documents;
(iv) no change shall have occurred, without Purchaser's written
consent, in the state of title matters disclosed in the Title
Commitment and the Survey, and no material and adverse change shall
have occurred in any of the other matters pursuant to Section 5
hereof-,
(v) the Improvements (including, but not limited to, the
mechanical systems, plumbing, electrical, wiring, appliances, fixture,
heating, air conditioning and ventilating equipment, elevators,
boilers, equipment, roofs, structural members and furnaces) shall be
at Closing in substantially the same condition as at the expiration of
the Inspection Period, except for normal wear and tear and such damage
from casualty or condemnation that is accepted under Section 13
hereof,
(vi) there shall not be pending at Closing with any
governmental body or agency an application, ordinance or similar
matter that would effect a material adverse change in the zoning of
the Premises; and
(vii) Seller shall have provided Purchaser with the Tenant
Estoppel from the Tenant, such Tenant Estoppel to be dated no earlier
than fifteen (15) days prior to Closing and delivered to Purchaser no
later than five (5) business days prior to Closing; provided that if
Seller shall be unsuccessful in obtaining the Tenant Estoppel as set
forth above, or if the Tenant Estoppel contains or discloses
information which is materially different (and less favorable to the
landlord) from the applicable information set forth in the form of the
Tenant Estoppel attached hereto and made a part hereof as Exhibit J,
then, Purchaser's sole option shall be to either (a) waive the
delivery of the Tenant Estoppel and proceed with the Closing, without
any abatement or other adjustment in the Purchase Price, or (b)
terminate this Agreement in which event the Deposit and all interest
accrued thereon shall be returned by Escrow Agent to Purchaser and
each of the parties hereto shall be relieved of all further
obligations hereunder, except for the Surviving Obligations-.
(viii) The Premises, including all tenant improvements required
under the lease with Tenant, shall not have any material defects and
shall be unconditionally certified for occupancy by all governmental
authorities, and
8. Operation of the Premises Prior to the Closing Date. Between the
---------------------------------------------------
Effective Date and the Closing Date, Seller shall have the right to continue to
operate and maintain the Premises in the usual and ordinary course of business
consistent with past practices. In connection therewith:
11
<PAGE>
(a) Seller shall not modify, extend or renew the Lease or enter into
any new lease without Purchaser's prior consent in each instance, and
Seller shall not consent to or permit any assignment of the Lease by Tenant
or any subletting by Tenant.
(b) Seller may not cancel, terminate, Modify, renew or permit the
expiration or termination of any existing Contract or enter into any new
Contract unless Seller obtains Purchaser's prior consent in each instance.
(c) Seller shall keep in full force and effect all of the existing
insurance policies respecting the Premises or policies providing similar
coverage to the existing insurance policies.
(d) Seller will cause the Premises to be maintained and operated in
accordance with all governmental requirements and will keep the
improvements and the equipment forming a part of the Premises in operating
condition, causing all necessary repairs to be promptly made. Seller will
not cause or permit any addition, alteration or removal of any
improvements, fixtures or equipment forming a part of the Premises.
(e) Seller will perform and discharge each and every obligation or
undertaking of Seller under the Lease and the Contracts.
9. Condition of Title.
------------------
(a) Seller will obtain, at Seller's expense, and provide to Purchaser
a copy of a title insurance commitment issued by Chicago Title Insurance
Company (the "Title Commitment") agreeing to issue to Purchaser, upon
----------------
recording of the Deed, a standard ALTA owner's title insurance policy (ALTA
Form B-1992) with coverage over any mechanic's, materialman's and
subcontractor's liens and with the following endorsements: survey and
contiguity (the "Title Policy") in an amount equal to the Purchase Price,
------------
subject only to taxes for the year of Closing and subsequent years, and the
"Permitted Encumbrances" (as hereinafter defined). The cost of the Title
Policy shall be borne in accordance with the terms of Section 7(d) hereof
(b) If the Title Commitment or any update thereto shall disclose the
existence of any liens, encumbrances or other defects or exceptions
(collectively, the "New Title Matters"), then Purchaser shall give Seller
-----------------
written notice (i) as to matters disclosed in the Title Commitment, by the
end of the Inspection Period, and (ii) as to matters disclosed in any such
update to the Title Commitment, within five (5) days after Purchaser's
receipt of such update (each, a "Purchaser's Title Notice"), specifying any
------------------------
New Title Matters which Purchaser finds objectionable ("Objections"), if
----------
any, Purchaser hereby waives any right Purchaser may have to raise as an
objection to title or as a ground for Purchaser's refusal to close this
transaction, any New Title Matters which Purchaser does not list as an
Objection in a timely delivered Purchaser's Title Notice, such New Title
Matters thereafter being deemed to be "Permitted Encumbrances." Seller
----------------------
shall notify Purchaser within three (3) calendar days of receipt of
Purchaser's Title Notice as to whether Seller intends to remedy any
12
<PAGE>
or all of Purchaser's Objections, in which event Seller shall have up to
the Closing Date to cure such Objections. If Seller has not notified
Purchaser within such three (3) calendar day period of its intent or if
Seller elects not to cure all of the Objections, Purchaser shall have the
right: (1) to terminate this Agreement by giving written notice thereof to
Seller and receive the return of the Deposit, neither party hereto
thereafter having any further rights or obligations hereunder, except for
the Surviving Obligations; or (ii) to waive the Objections and consummate
the purchase of the Premises, without any abatement or reduction of the
Purchase. Price, subject to the Objections; or (iii) if any Objection is
based upon a deed to secure debt, deed of trust, mortgage, judgment, lien
or other liquidated monetary claim, to satisfy the Objection after
deducting from the Purchase Price the cost of satisfying the Objection; or
(iv) if any Objection is of the type described in clause (iii) above, and
cannot be satisfied out of the proceeds due Seller at Closing pursuant to
clause (iii) above, or is an Objection that arises after the Effective Date
by reason of the action of Seller, to exercise such rights and remedies as
may be provided for in Section 12 hereof in the event of a breach or
default by Seller.
(c) Seller has provided to Purchaser a current survey of the Premises
(the "Survey") as part of the Inspection Materials. The cost of any update
------
or revisions to the Survey shall be borne by Purchaser. Purchaser shall
notify Seller, in the Purchaser's Title Notice, as to matters disclosed on
the Survey which Purchaser finds objectionable, and such objections shall
be deemed Objections and dealt with as such in accordance with the
provisions of Section 9(b) hereof.
10. Representations, Warranties and Covenants.
------------------------------------------
Seller represents, warrants to, and covenants with Purchaser as
follows (and for purposes of this Paragraph 10, "Seller's knowledge" shall be
limited to the actual knowledge of Bill Knight or Jim Bobbitt or Michael Hogan):
(a) Seller is a duly formed and validly existing limited partnership
organized under the laws of the State of Florida, and is qualified to
conduct business therein on the Effective Date and on the Closing Date;
(b) Seller has the full legal right, power and authority to execute
and deliver this Agreement and all of Seller's Documents, to consummate the
transactions contemplated hereby, and to perform its obligations hereunder
and under all of Seller's Documents;
(c) This Agreement and Seller's Documents do not and will not
contravene any provision of the limited partnership agreement of Seller,
any judgment, order, decree, writ or injunction issued against Seller, or
any provision of any laws applicable to Seller. The consummation of the
transactions contemplated hereby will not result in a breach or constitute
a default or event of default by Seller under any agreement to which Seller
or any of its assets are subject or bound and will not result in a
violation of any laws applicable to Seller;
13
<PAGE>
(d) To Seller's knowledge, (1) Seller has not received any written
notices of (a) any claims against the Premises, (b) any violation of any
laws, ordinances or other governmental regulations applicable to the
Premises, or (c) any pending or threatened condemnation proceedings
respecting any portion of the Premises; (2) to the extent that any
improvements have been made to the Premises or any work performed with
respect to the Premises, all lienors in connection with said improvements
or work have been or will be paid in full when due; (3) Seller has provided
or made available to Purchaser all Inspection Materials within the
possession of Seller-, and (4) Seller has not falsified any of the
Inspection Materials provided to or made available to Purchaser;,
(e) There are no leases, tenancies or other rights of occupancy or
use for any portion of the Premises other than the Lease;
(f) The copy of the Lease delivered by Seller to Purchaser as part of
the Inspection Materials is complete and an accurate copy thereof, and
there are no amendments or modifications thereto not disclosed in writing
by Seller to Purchaser; to the best knowledge of Seller, the Lease is in
full force and effect, and there are no written or oral promises,
understandings or commitments between Seller and the Tenant under the Lease
other than as set forth in the copy of the Lease delivered by Seller to
Purchaser as part of the Inspection Materials;
(g) The list of Contracts attached hereto and made a part hereof as
Exhibit F is a true and correct list of all Contracts;
(h) The list of Personal Property attached hereto and made a part
hereof as Exhibit L is a true and correct list of all Personal Property
--------
attached or appurtenant to the Land and Improvements;
(i) To the best of Seller's knowledge: the Premises, and all portions
thereof, are in good working order and condition, and there are no
structural, mechanical or other physical defects in the Premises, or any
portion thereof-, the Premises are not constructed, occupied, used or
operated in violation of any zoning, building, health, environmental or
other laws, codes, ordinances, regulations, orders or requirements of any
city, county, state or other governmental authority having jurisdiction
thereof, or any private restrictive covenants affecting the Premises; and
all certificates, licenses, permits, authorizations, consents and approvals
required by any such governmental authority for the continued use,
occupancy and operation of the Premises have been obtained, or paid for,
and are free of restrictions;
(j) To the best knowledge of Seller, all utilities (including,
without limitation, water, storm and sanitary sewer, electricity, gas and
telephone) are available on the Premises through private easements or
properly dedicated public easements in capacities sufficient to serve and
operate the Premises;
14
<PAGE>
(k) Seller shall promptly notify Purchaser in writing if the Premises
or any portion thereof hereafter becomes subject to any condemnation action
or if Seller learns that a condemnation action is threatened or
contemplated;
(l) To the best knowledge of Seller, Seller has received no written
notice of any pending improvement liens or assessments affecting the
Premises from any governmental authority having jurisdiction over the
Premises;
(m) Seller has not received any notice of termination or default under
the Lease, and to the best of Seller's knowledge, there is no existing or
uncured default, or any claim of default by either Seller or the Tenant
under the Lease; Tenant under the Lease has not asserted to Seller and, to
the best of Seller's knowledge, does not have any defenses, setoffs or
counterclaims with respect to its tenancy or its obligations to pay base
rent, Additional Rent and other charges pursuant to the Lease;
(n) As of the Effective Date, the Tenant under the Lease (a) is not
entitled to receive any rent concession in connection with its tenancy, (b)
is not entitled to any special work (not yet performed) or consideration
(not yet given) in connection with its tenancy, and (c) does not have any
deed, option or other evidence of any right or interest in or to the
Premises except for the Tenant's tenancy evidenced by the Lease;
(o) To the best knowledge of Seller, Seller has not generated,
disposed of, released or found any "Hazardous Materials" (as hereinafter
defined) on the Premises, and Seller has no knowledge of the existence of
any areas for the generation, storage or disposal of any Hazardous
Materials on the Premises; Seller has received no written notice that any
municipality or any governmental or quasi-governmental authority has
determined that there are any violations of environmental statutes,
ordinances or regulations affecting the Premises, and Seller has no
knowledge of any such violations; in the event Seller receives notice of
any such Hazardous Materials on the Premises or any such violation
affecting the Premises prior to the Closing, Seller agrees to promptly
notify Purchaser thereof;, and
(p) To the best of Seller's knowledge, there are no storage tanks
located on the Premises, either above or below ground; and Seller has no
knowledge that the Premises have been previously used as a landfill or as a
dump for garbage or refuse by Seller or any other party. The term
"Hazardous Materials" shall mean (a) any "hazardous waste" as defined by
--------------------
the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901
et seq., as amended from time to time, and regulations promulgated
------
thereunder; (b) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.
Section 9601 et seq.,as amended from time to time, and regulations
------
promulgated thereunder (including petroleum-based products as described
therein); (c) other petroleum and petroleum-based products; (d) asbestos in
any quantity or form which would be subjected to regulation under any
applicable environmental statutes, ordinances or regulations affecting the
Premises; (e) polychlorinated biphenyls; (f) any substance, the presence of
which on the Premises is prohibited by any environmental statute,
15
<PAGE>
ordinance or regulation affecting the Premises; and (g) any other substance
which, by any environmental statute, ordinance or regulation affecting the
Premises, requires special handling in its collection, storage, treatment
or disposal.
(q) Seller has taken all necessary and appropriate steps to assure
that all building systems and material computer applications will recognize
correctly and perform date sensitive functions involving certain dates
prior to and after December 31, 1999.
(r) Seller will use commercially reasonable efforts to have the
authors of environmental reports and appraisals to issue reliance letters
in favor of Purchaser.
Although the foregoing warranties and representations of Seller are made
for the sole benefit of Purchaser, they may be waived by Purchaser, in whole or
in part, by written waiver delivered to Seller. The representations and
warranties of Seller set forth in this Agreement shall be true, accurate and
correct in all respects upon the execution of this Agreement, shall be deemed to
be repeated on and as of the Closing Date (except as they relate only to an
earlier date) and shall survive the Closing for a period of one (1) year from
the Closing Date.
11. Remedies Upon Default of Purchaser.
-----------------------------------
If Purchaser fails to perform any of its obligations under this
Agreement, or is in default hereunder, and such default continues for five (5)
days after notice of such failure from Seller is given to Purchaser, Seller may
terminate this Agreement by notice to Purchaser. If Seller elects to terminate
this Agreement after default, then this Agreement shall be terminated and Escrow
Agent shall pay to Seller the Deposit as full and agreed upon liquidated
damages, consideration for the execution of this Agreement and in full
settlement of all claims whereupon the parties hereto shall be relieved of all
obligations hereunder, except for the Surviving Obligations, it being agreed
that the actual damages suffered by Seller shall be impossible to ascertain and
the payment of the Deposit and all interest earned thereon (plus the Surviving
Obligations) shall be the sole liability of Purchaser by reason of any default
hereunder. Except as set forth in the immediately preceding sentence, Seller
hereby expressly waives, relinquishes and releases any other right or remedy
available to it at law, in equity or otherwise by reason of Purchaser's default
hereunder or Purchaser's failure or refusal to perform its obligations
hereunder.
12 Remedies on Default of Seller.
------------------------------
If Seller fails to close the transaction contemplated by this
Agreement for any reason other than Purchaser's default, and such failure
continues for five (5) days after notice of such failure from Purchaser is given
to Seller, the Deposit, and any interest earned thereon, shall be paid to
Purchaser by Escrow Agent immediately upon request by Purchaser, and Purchaser
may elect to either (i) terminate this Agreement, whereupon each of the parties
shall be relieved of all further liability to the other hereunder, except for
the Surviving Obligations, (11) sue Seller for specific performance of this
Agreement, or (iii) sue Seller to collect actual monetary damages in an amount
not to exceed $100,000.00.
16
<PAGE>
13 Risk of Loss; Eminent Domain.
-----------------------------
(a) If, prior to the Closing, all or any material portion of the
Premises are damaged by fire, vandalism, acts of God or other casualty or
cause, Seller shall promptly give Purchaser written notice of any such
damage, together with Seller's estimate of the cost and period of repair
and restoration. In any such event, Purchaser shall have the option of (i)
taking the Premises at the Closing as-is together with the insurance
proceeds or the right to receive the same and a credit against the Purchase
Price for any deductible, or (ii) terminating this Agreement by delivering
notice of its decision to Seller on or before the Closing. If pursuant to
this Section 13(a), Purchaser elects to take the Premises as-is, together
with the insurance proceeds or the right to receive the same, Seller agrees
to permit Purchaser to participate in any loss adjustment negotiations,
legal actions and agreements with the insurance company, and to assign to
Purchaser at the Closing its rights to such insurance proceeds and will not
settle any insurance claims or legal actions relating thereto without
Purchaser's prior written consent.
(b) If, prior to Closing, all or any material portion of the Premises
is taken by eminent domain (or is the subject of a pending or contemplated
taking which has not been consummated), Seller shall notify Purchaser of
such fact and Purchaser shall have the option to terminate this Agreement
upon written notice to Seller given on or before the Closing. If this
Agreement is so terminated, the provisions of Section 13(c) shall apply. If
Purchaser does not elect to so terminate this Agreement, Purchaser shall
proceed to Closing as provided in this Agreement without abatement of or
adjustment to the Purchase Price and, at Closing, Seller shall assign and
turn over all compensation and damages awarded or the right to receive same
with respect to such taking, condemnation or eminent domain.
(c) If this Agreement is terminated pursuant to this Section 13, the
Deposit and all interest earned thereon shall be delivered by Escrow Agent
to Purchaser, and the parties hereto shall be released from all further
obligations and liabilities hereunder, except for the Surviving
Obligations.
(d) For purposes of this Paragraph 13, a "material portion of the
Premises" shall mean five percent (5%) or more of the rentable square feet
of the Premises, or a portion which allows the Tenant under the Lease to
terminate the Lease.
14 Attorneys' Fees.
----------------
In the event either party hereto shall default in the performance of
any of the terms and conditions of this Agreement, the prevailing party shall be
entitled to recover all costs, charges and expenses of enforcement, including
reasonable attorneys' and paralegal fees actually incurred, which reasonable
fees shall include attorneys' and paralegal fees actually incurred in any trial
or appellate proceedings.
17
<PAGE>
15 Binding Effect.
---------------
This Agreement shall be binding upon, shall inure to the benefit of,
and shall be enforceable by, the parties hereto and their respective heirs,
personal representatives, successors and permitted assigns.
16 Governing Law.
--------------
This Agreement shall be governed by and construed under and in
accordance with the laws of the State of Florida.
17 Time of Essence.
----------------
Time shall be deemed of the essence with respect to consummating the
transactions contemplated under this Agreement on the Closing Date and with
respect to all other obligations of Purchaser and Seller hereunder.
18 Counterparts.
-------------
This Agreement may be executed in one or more counterparts each of
which shall be deemed an original but all of which shall constitute one and the
same Agreement.
19 Waiver.
-------
Except as otherwise provided herein, the failure of Seller or
Purchaser to insist upon or enforce any of their respective rights hereunder
shall not constitute a waiver thereof.
20 Construction.
-------------
Each party hereto acknowledges that all parties hereto have
participated equally in the drafting of this Agreement and that accordingly, no
court construing this Agreement shall construe it more stringently against one
party than the other.
21 Insertion of Corrections or Modifications.
-----------------------------------------
Typewritten or handwritten provisions inserted in this Agreement or in
the exhibits hereto (and initialed by the parties) shall control all printed
provisions in conflict therewith.
22 Captions.
---------
The captions used herein have been included for convenience of
reference only and shall not be deemed to vary the content of this Agreement or
limit the provisions or scope of any section or paragraph hereof.
23 Pronouns.
---------
18
<PAGE>
All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, neuter, singular, or plural as the identity of the
person or entity may require.
24 Severability.
-------------
Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but in the event that any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
25 Broker.
-------
Purchaser and Seller represent and warrant to each other that Mr.
James Bobbitt and The Hogan Group and First Fidelity Investments Corporation
(hereinafter collectively referred to as "Broker") are the sole brokers with
whom either has dealt in connection with the Premises and the transactions
described herein. Seller shall be liable for all brokerage commissions or other
compensation due to Broker arising out of the transaction contemplated in this
Agreement, which compensation shall be paid pursuant to a separate agreement
between Seller and Broker. Each party hereto agrees to indemnify, defend and
hold the other harmless from and against any and all claims, causes of action,
losses, costs, expenses, damages or liabilities, including reasonable attorneys'
fees and disbursements actually incurred, which the other may sustain, incur or
be exposed to, by reason of any claim or claims by any broker, finder or other
person, except Broker, for fees, commissions or other compensation arising out
of the transactions contemplated in this Agreement if such claim or claims are
based in whole or in part on dealings, discussions or agreements with the
indemnifying party; provided, however, that Purchaser shall not indemnify Seller
against any claims of Broker. The obligations and representations contained in
this Section 25 shall survive the termination of this Agreement and the Closing.
26 Assignment.
----------
This Agreement may be assigned by Purchaser without the prior written
consent of Seller and any such assignment shall relieve Purchaser of liability
for the performance of Purchaser's duties and obligations under this Agreement
to the extent of such assignment.
27 Merger.
-------
All prior statements, understandings, letters of intent,
representations and agreements between the parties, oral or written, are
superseded by and merged in this Agreement, which alone fully and completely
expresses the agreement between Seller and Purchaser in connection with this
transaction and which is entered into after full investigation, neither party
relying upon any statement, understanding, representation or agreement made by
the other not embodied in this Agreement.
28 Exhibits.
---------
19
<PAGE>
All of the Exhibits annexed hereto are incorporated herein by
reference and form a part of this Agreement.
29 Use of the Word "Herein".
-------------------------
Use of the words "herein," "hereof," "hereunder" and any other words
of similar import refer to this Agreement as a whole and not to any particular
article, section or other paragraph of this Agreement unless specifically noted
otherwise in this Agreement.
20
<PAGE>
30 Date of Performance.
--------------------
If the date of the performance of any term, provision or condition of
this Agreement shall happen to fall on a Saturday, Sunday or other non-Business
Day, the date for the performance of such term, provision or condition shall be
extended to the next succeeding Business Day immediately thereafter occurring.
31 Third Parties.
--------------
This Agreement shall not be deemed to confer in favor of any third
parties any rights whatsoever as third-party beneficiaries, the parties hereto
intending by the provisions hereof to confer no such benefits or status.
32 Property Information and Confidentiality.
-----------------------------------------
(a) Purchaser and Seller, for the benefit of each other, hereby agree
that between the Effective Date and the Closing Date they will not release
or cause or permit to be released any press notices, publicity (oral or
written) or advertising promotion relating to, or otherwise announce or
disclose or cause or permit to be announced or disclosed, in any manner
whatsoever, the terms, conditions or substance of this Agreement or the
transactions contemplated herein, without first obtaining the written
consent of the other party hereto. It is understood that the foregoing
shall not preclude either party from discussing the substance or any
relevant details of the transactions contemplated in this Agreement with
any of its attorneys, accountants, professional consultants or potential
lenders, as the case may be, or prevent either party hereto from complying
with any laws applicable to such party, including, without limitation,
governmental regulatory, disclosure, tax and reporting requirements.
(b) Purchaser and Seller shall indemnify and hold the other and
Seller's Affiliates and Purchaser's Representatives harmless from and
against any and all claims, demands, causes of action, losses, damages,
liabilities, costs and expenses (including, without limitation, reasonable
attorneys' fees and disbursements actually incurred) suffered or incurred
by the indemnified party and arising out of or in connection with a breach
by Purchaser or Purchaser's Representatives or Seller or Seller's
Affiliates, as the case may be, of the provisions of this Section 32. The
indemnification obligations contained in this Section 32(b) shall survive
the Closing or the earlier termination of this Agreement.
(c) Seller agrees to use its reasonable good faith efforts to have
Broker sign the form of Confidentiality Agreement (the "Confidentiality
---------------
Agreement") attached to and made a part hereof as Exhibit L.
---------
33 Notices.
--------
All notices, elections, consents, approvals, demands, objections,
requests or other communications which Seller or Purchaser may be required or
desire to give pursuant to, under or
21
<PAGE>
by virtue of this Agreement (collectively, "Notices") must be in writing in the
English language and sent by (a) first class U.S. certified mail, return receipt
requested, with postage prepaid, or (b) telecopier (with receipt confirmed), or
(c) express mail or courtier (next day delivery), addressed to the respective
party at the address for each first set forth above. Seller or Purchaser may
designate another addressee or change its address for notices and other
communications hereunder by a notice given to the other in the manner provided
in this Section 33. A notice or other communication shall be deemed to have been
properly sent and given when delivered in compliance with the provisions of this
Section. If sent by certified mail, a Notice shall be deemed received on the
third (3') Business Day following the date it is deposited in the U.S. Mail. If
sent by express mail, courier or personal delivery, a Notice shall be deemed
received on the date it is received by the other party. If sent by telecopy, a
Notice shall be deemed received when transmission is received by the addressee
with electronic or telephonic confirmation, provided that such transmission is
complete prior to 5:30 p.m., E.D.T., on a Business Day, and if after such time
or on a non-Business Day, said Notice shall be effective as of the next Business
Day.
34 No Modification.
----------------
No term or provision of this Agreement may be changed or waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
35 Rights of Escrow Agent.
-----------------------
If there is any dispute as to whether the Escrow Agent is obligated to
deliver any monies and/or documents which it now or hereafter holds, including,
without limitation, the Deposits (collectively, the "Escrowed Property" or as to
-----------------
whom any Escrowed Property are to be delivered, the Escrow Agent shall not be
obligated to make any delivery, but, in such event, may hold same until receipt
by the Escrow Agent of an authorization, in writing, signed by all of the
parties having an interest in such dispute directing the disposition of same;
or, in the absence of such authorization, the Escrow Agent may hold any Escrowed
Property until the final determination of the rights of the parties in an
appropriate proceeding. Within three (3) Business Days after receipt by the
Escrow Agent of a copy of a final judgment or order of a court of competent
jurisdiction, certified by the clerk of such court or other appropriate
official, the Escrowed Property shall be delivered as set forth in such judgment
or order. A judgment or order under this Agreement shall not be deemed to be
final until the time within which to take an appeal therefrom has expired and no
appeal has been taken, or until the entry of a judgment or order from which no
appeal may be taken. If such written authorization is not given or proceeding
for such determination is not begun and diligently continued, the Escrow Agent
shall have the right to bring an appropriate action or proceeding for leave to
deposit the Escrowed Property in court, pending such determination. In the event
that the Escrow Agent places any Escrowed Property in the registry of the
governing court in and for the County of Lee, Ft. Myers, Florida, and files an
action of, interpleader, naming the parties hereto, the Escrow Agent shall be
released and relieved from any and all further obligation and liability
hereunder or in connection herewith. If, without gross negligence on the part of
Escrow Agent, the Escrow Agent shall become a party to any controversy or
litigation with respect to the Escrowed Property or any
22
<PAGE>
other matter respecting this Agreement, Seller and Purchaser shall jointly and
severally hold Escrow Agent harmless from any damages or losses incurred by
Escrow Agent by reason of or in connection with such controversy or litigation.
The provisions of this Section 35 shall survive the Closing or termination of
this Agreement.
IN WITNESS WHEREOF, Seller and Purchaser have caused these presents to be
executed and delivered under seal on the date first above written.
SELLER:
-------
HOGAN TRIAD FT. MYERS I, LTD.,
a Florida limited partnership
By: Triad Properties Holdings-Florida, L.L.C, a
Florida limited liability company, its
general partner
By: /s/ William R. Stroud
-------------------------------
Name: William R. Stroud
------------------------
Title:
-----------------------
PURCHASER:
----------
WELLS CAPITAL, INC.,
a Georgia corporation
By: /s/ Leo F. Wells, III
------------------------------------
Name: Leo F. Wells, III
---------------------------
Title: President
--------------------------
23
<PAGE>
ACCEPTANCE BY ESCROW AGENT
The undersigned hereby accepts the duties of Escrow Agent under that
certain Agreement for Purchase and Sale between HOGAN TRIAD FT. MYERS I, LTD.,
as Seller, and WELLS REAL ESTATE FUNDS as Purchaser, dated Aug 20, 1999,
relating to the property located in Lee County, Ft. Myers, Florida, as more
particularly described in said Agreement, subject to and in accordance with all
the terms and conditions thereof, and hereby agrees to notify Seller upon its
receipt of Earnest Money from Purchaser in accordance with the terms of Section
4(a) of said Agreement.
Dated: Aug 24, 1999
CHICAGO TITLE INSURANCE COMPANY
By: /s/ James E. Short
------------------------------------
Its Duly Authorized Representative
<PAGE>
LIST OF EXHIBITS
Exhibit A Land Description
Exhibit B Inspection Materials
Exhibit C Special or Limited Warranty Deed
Exhibit D Assignment and Assumption of Leases and Security Deposits
Exhibit E Assignment and Assumption of Contracts and Licenses
Exhibit F Contracts
Exhibit G Bill of Sale
Exhibit H Notice Letter to Tenants
Exhibit I Owner's Affidavit
Exhibit J Tenant Estoppel Letter
Exhibit K Personal Property
Exhibit L Confidentiality Agreement
<PAGE>
EXHIBIT B
---------
Inspection Materials
Those items, which follow, have been or will be delivered to Purchaser by TMW
Real Estate Group:
1. Accepted Letter of Intent,
2. A current title commitment and copies of all title exception documents
contained therein,
3. Current Survey (three copies),
4. Schedule of Leases, amendments, assignments, subleases,
5. Complete executed copy of the Leases together with all exhibits, amendments
and addendum,
6. Copies of each tenant's insurance certificates,
7. Schedule of outstanding leasing commissions,
8. Schedule of other income and rates charged for each service,
9. Copy of current year and next year operating budget,
10. Current and last year's operating statements,
11. Current and last twelve (12) month's tenant lease delinquency and
receivable aging reports,
12. Current and last three (3) year's tax bills,
13. Copies of all service contracts,
14. Current Level 1 Environmental Report,
15. Two (2) complete sets of plans and specifications (civil, architectural,
structural, mechanical and electrical),
16. Copies of geotechnical report and construction testing reports,
17. Schedule of capital inventory including chillers, boilers, roof, etc.
(size, age and type),
18. Copies of all equipment, roof and other warranties still in effect,
19. Current ADA Survey,
20. Copies of all Certificates of Occupancy,
21. Inventory of all personal property,
22. Copy of all third party appraisals completed within past three (3) years,
<PAGE>
EXHIBIT D
---------
STATE OF FLORIDA
COUNTY OF LEE
ASSIGNMENT AND ASSUMPTION OF LEASES AND SECURITY DEPOSITS
---------------------------------------------------------
THIS ASSIGNMENT AND ASSUMPTION OF LEASES AND SECURITY DEPOSITS (the
"Assignment") is made and entered into as of the __ day of ____________, 1999,
by and between HOGAN TRIAD FT. MYERS I, LTD., a limited partnership (the
"Assignor"), and WELLS CAPITAL, INC., a Georgia corporation (the "Assignee").
W I T N E S S E T H:
--------------------
WHEREAS, contemporaneously with the execution hereof, Assignor has conveyed
to Assignee that certain tract or parcel of land lying in Lee County, Ft. Myers,
Florida, more particularly described in Exhibit "A" attached hereto and by
-----------
reference incorporated herein (the "Property"); and
WHEREAS, in order to induce Assignee to accept the Property, Assignee
desires that Assignor transfer and assign to Assignee all of Assignor's right,
title and interest in and to any and all leases encumbering the Property,
including, without limitation, those certain lease agreements set forth in
Exhibit "B" attached hereto and by reference incorporated herein (the "Leases"),
any and all guaranties relating to the Leases and any and all security deposits
held in connection with the Leases.
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) in hand paid to Assignor by Assignee, the Property and other
good and valuable consideration, the receipt, adequacy and sufficiency of which
are hereby acknowledged by Assignor and Assignee, Assignor and Assignee hereby
transfer, assign, covenant and agree as follows:
1. Assignor hereby unconditionally and absolutely assigns, transfers, sets
over and conveys to Assignee, free and clear of all liens, claims and
encumbrances, except as set forth in Exhibit "C" attached hereto and by
--------
reference incorporated herein, all of Assignor's right, title and interest 'in
the Leases, and any and all other agreements affecting the Property and
providing for the payment of money for the use of the Property or any part
thereof, and any and all receivables of any kind and description with respect to
the Property accruing on or subsequent to the date of this Assignment,
including, without limitation, all rentals, security deposits, and
reimbursements for operating costs and expenses which are hereafter due and
payable under the Leases.
2. Assignor hereby represents and warrants to Assignee that (i) Assignor
is the owner and holder of the Leases, (ii) Assignor has not transferred or
assigned its interest in the Leases to any third party, and (iii) there has been
no modification or amendment of the Leases which are not set forth on Exhibit
"B" hereof.
<PAGE>
3. Assignee, by its acceptance hereof, assumes Assignor's rights, duties
and obligations under the Leases arising from and after the date hereof.
4. Assignor does hereby agree to defend, indemnify and hold Assignee
harmless from and against any and all causes, claims, damages, losses,
liabilities, costs, expenses and fees (including, but not limited to, reasonable
attorneys' fees) incurred or suffered by Assignee as a result of Assignor's
failure to perform, at any time prior to the date hereof during which Assignor
owned the Premises, any and all of Assignor's obligations as landlord under the
Leases (except for those obligations of Landlord set forth in Section 10.1(a) of
the Lease for which Landlord has been reimbursed). Assignee does hereby agree
to defend, indemnify and hold Assignor harmless from and against any and all
causes, claims, damages, losses, liabilities, costs, expenses and fees
(including, but not limited to, reasonable attorneys' fees) incurred or suffered
by Assignor as a result of Assignee's failure to perform, at any time including
and after the date hereof, any and all of Assignee's obligations as landlord
under the Leases.
5. This Assignment shall be construed and enforced in accordance with the
laws of the State of Florida.
6. This Assignment may be executed in one or more counterparts and the
signature of any party to any counterpart may be appended to any other
counterpart, all of which counterparts when taken together shall constitute one
Assignment.
7. This Assignment shall inure to the benefit of and be binding upon
Assignor and Assignee, their respective legal representatives, successors,
successors- in-title, transfers and assigns.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be
properly executed and delivered as of the day and year first above written.
ASSIGNOR
- --------
HOGAN TRIAD FT. MYERS I, LTD., a Florida limited partnership
By:________________________________________
Name:_________________________________
Title:________________________________
ASSIGNEE
- --------
WELLS CAPITAL, INC., a Georgia corporation
By:________________________________________
Name:_________________________________
<PAGE>
Title:________________________________
[CORPORATE SEAL]
EXHIBIT E
---------
STATE OF FLORIDA
COUNTY OF LEE
ASSIGNMENT AND ASSUMPTION OF LICENSES AND CONTRACTS
---------------------------------------------------
THIS ASSIGNMENT (the "Assignment") is made and entered into as of the _____ day
of ____________ 1999, by and between HOGAN TRIAD FT. MYERS I, LTD, a limited
partnership, (hereinafter referred to as "Assignor"), and WELLS CAPITAL, INC., a
Georgia corporation (hereinafter referred to as "Assignee").
WITNESSETH:
-----------
WHEREAS, contemporaneously with the execution and delivery hereof, Assignor
has sold and conveyed to Assignee all that tract or parcel of land more
particularly described in Exhibit A attached hereto and incorporated herein by
--------
reference, together with all improvements thereon and all rights, easements and
appurtenances thereto (hereinafter collectively referred to as the "Property');
and
WHEREAS, in connection with such conveyance of the Property, Assignor and
Assignee have agreed that to the extent assignable or transferable, Assignor
shall transfer and assign to Assignee all right, title and interest of Assignor
in and to: (i) all licenses, permits, certificates, approvals, authorizations
and variances issued for or with respect to the Property by any governmental or
quasi-governmental authority (hereinafter collectively referred to as the
"Licenses"); (ii) all purchase orders, equipment leases, advertising agreements,
franchise agreements, license agreements and service contracts relating to the
operation of the Property set forth on Exhibit B attached hereto and
incorporated herein by reference (hereinafter referred to as the "Contracts");
(iii) any tradenames relating to the Property; (iv) all guaranties and
warranties, express or implied, heretofore given with respect to the Property,
any improvements located thereon, or any fixtures, equipment, personal property
or supplies used in connection with the operation of the Property, or given with
respect to the performance, quality of workmanship or quality of materials
rendered or supplied in connection with the construction, installation or sale
thereof, including specifically, without limitation, all such guaranties and
warranties given or made with respect to the improvements located on the
Property; (v) all as-built plans, specifications, working drawings and surveys
of or relating to the Property; (vi) all utility accounts made or opened by
Assignor in connection with utility services to the Property, to the extent the
same are assignable, and excluding any utility escrow deposits made by Assignor;
(vii) all telephone numbers and exchanges pertaining to the Property to the
extent the same are assignable; and (viii) all termite inspection reports,
bonds, warranties or guaranties, express or implied, heretofore given or made
with respect to any or all of
<PAGE>
the improvements located on the Property, certifying that said improvements are
free from dry rot or from infestation or damage by termites.
WHEREAS, Assignor and Assignee have further agreed that Assignee shall
expressly assume all of the obligations of Assignor accruing under the Licenses
and Contracts from and after the date of this Assignment;
NOW THEREFORE, for and in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by each party hereto, Assignor and Assignee hereby
agree as follows:
1. Transfer and Assignment. Assignor hereby sells, transfers and assigns
-------------------------
to Assignee, its successors and assigns, all right, title and interest of
Assignor in, to and under the Licenses and Contracts.
2. Representations and Warranties. Assignor hereby represents and warrants
--------------------
to Assignee that (i) Assignor is the owner and holder of the Licenses and
Contracts, and (ii) Assignor has not transferred or assigned its interest in the
Licenses and Contracts to any third party.
3. Assumption of Obligations. Assignee hereby assumes and agrees to
---------------------------
observe and perform all of the obligations and duties of Assignor under each of
the Licenses and Contracts accruing from and after, or relating to periods from
and after, but not before, the date of this Assignment.
4. Governing Law. This Assignment shall be construed and enforced in
---------------
accordance with and governed by the laws of the State of Florida.
5. Binding Effect. This Assignment shall bind and inure to the benefit of
----------------
the parties hereto and their respective heirs, executors, personal
representatives, successors and assigns.
6. Counterparts. This Assignment may be executed in one or more
--------------
counterparts and the signature of any party to any counterpart may be appended
to any other counterpart, and all of which counterparts when taken together
shall constitute one Assignment.
[Signatures Appear on Following Page]
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be
executed and sealed the day and year first above written.
ASSIGNOR
- --------
HOGAN TRIAD FT. MYERS I, LTD.,
a Florida limited partnership
By:______________________________________
Name:_______________________________
Title:______________________________
ASSIGNEE
- --------
WELLS CAPITAL, INC., a Georgia corporation
By:______________________________________
Name:_______________________________
Title:______________________________
[CORPORATE SEAL]
<PAGE>
EXHIBIT G
---------
BILL OF SALE
STATE OF FLORIDA
COUNTY OF LEE
For and in consideration of Ten Dollars ($10.00) in hand paid by WELLS
CAPITAL, INC., a Georgia corporation ("Purchaser") to HOGAN TRIAD FT. MYERS I,
LTD., a Florida limited partnership ("Seller"), and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller does hereby grant, bargain, sell, assign and release unto Purchaser any
and all fixtures, furniture machinery, equipment, supplies and other articles of
personal property, owned by Seller and attached to, located on, or appurtenant
to certain property located in Lee County, Ft. Myers, Florida and being more
particularly described on Exhibit "A" attached hereto and by this reference made
a part hereof ("Property") and used in conjunction with said Property or any
improvements lying thereon ("Personal Property").
Seller hereby represents and warrants that it owns good, marketable and
merchantable title in and to the Personal Property; that the Personal Property
is subject to no mortgage, lien, conditional sales agreement, encumbrance or
charge; and that there are no outstanding bills or creditors whatsoever in
regard to the Personal Property.
TO HAVE AND TO HOLD the Personal Property unto said Purchaser, its legal
representatives, successors, successors- in-title, and assigns, to Purchaser's
only proper use, benefit and behoof, forever; and Seller does covenant and agree
to and with Purchaser that Seller will warrant and forever defend title to the
Personal Property against all lawful claims whatsoever.
IN WITNESS WHEREOF, Seller has caused this instrument to be executed under
seal as of the __ day of _______________,1999.
<PAGE>
EXHIBIT H
---------
TO BE TYPED ON SELLER'S LETTERHEAD
c/o Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Certified Mail, Return Receipt Requested
- ----------------------------------------
[Tenant Name and Address]
Re: Transfer of Ownership of ________________ (the "Property")
Dear Tenant:
Please be advised that as of the date hereof ownership of the Property has
been transferred to WELLS CAPITAL, INC. Hereafter, all rental payments and other
amounts, notices and requests regarding tenancy should be forwarded to:
[INSERT SELLER SIGNATURE BLOCK]
36
<PAGE>
EXHIBIT I
---------
OWNER'S AFFIDAVIT
- -----------------
STATE OF FLORIDA
COUNTY OF LEE
Personally appeared before me the undersigned deponent, who first being
duly sworn according to law by the undersigned attesting officer, deposes and
says on oath as follows:
THAT the deponent is ____________________, the ___________________ of Hogan
Triad Ft. Myers I, Ltd., a Florida limited partnership (the "Company"), the sole
owner of that certain parcel of land (the "Property") more particularly
described on Exhibit "A" attached hereto and incorporated herein by reference,
and as such is familiar with the matters set forth herein and is authorized to
make this affidavit on behalf of the Company; and
THAT the Company has the right to convey fee simple title to the Property,
that there are no unpaid or unsatisfied security deeds, mortgages, claims of
lien, special assessments for sewer, water main or street improvements,
delinquent water or sanitary bills, or other special assessments of any nature
or taxes which would constitute a lien against the property and that the
Property, except for those matters listed on Exhibit "B", which is attached
--------
hereto and is incorporated herein by this reference, is free and clear of any
encumbrances or any security deeds, mortgages, restrictions, easements, claims
of easements, encroachments, ways or rights of use, whether existing of record
or otherwise, that could in any way affect the title to the Property, or
constitute a lien thereon, except for those matters listed on Exhibit "B", which
------------
is attached hereto and incorporated herein by this reference.
THAT there is no outstanding indebtedness for equipment, appliances or
other fixtures attached to the Property.
THAT the lines and comers of the Property are clearly marked, and that
there are no disputes concerning the location of the lines and comers; and
THAT there are no pending suits, proceedings, judgments, bankruptcies,
liens or executions against the deponent, either in the county where the
Property is located or in any other county in the State of Georgia or elsewhere
which could affect title to the Property; and
THAT no improvements or repairs have been made on the Property by or at the
instance of the Company during the ninety-five (95) days immediately preceding
this date, and that there are no outstanding bills incurred by the Company for
labor or materials used in making improvements or repairs on the Property, or
for services of architects, surveyors, or engineers incurred in connection
therewith; and
THAT the Company has been in open notorious, adverse and peaceful
possession of the Property and that the undersigned deponent knows of no adverse
claim to this title to the Property; and
<PAGE>
THAT there are no persons or other parties in possession of the Property
nor do any persons or parties have any right or claim to possession of the
Property extending beyond the date of this Affidavit except for the rights of
those tenants, as tenants only, under the leases set forth on Exhibit C attached
hereto and incorporated herein by this reference.
THAT no broker's services have been engaged with regard to the management,
sale, purchase, lease, option or other conveyance of any interest in the subject
commercial real estate which have not been paid and no notice of any lien for
any such services has been received;
THAT the Company is making this affidavit with the knowledge that it will
be relied upon by WELLS CAPITAL, INC. in purchasing the Property and by
_____________ Title Insurance Company in insuring title to the Property.
(SEAL)
Sworn to and subscribed before me this __ day of 1999:
Notary Public
<PAGE>
EXHIBIT J
---------
Tenant Estoppel Certificate
- ---------------------------
[Insert Date] --
WELLS CAPITAL, INC.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Attention: Mr. Michael C. Berndt
Re: The Gartner Building, Ft. Myers, Florida
Gentlemen:
The undersigned is the tenant under that certain lease dated ________________
[list all amendments and modifications] (the "Lease") between the undersigned
("Tenant"), as tenant, and Hogan Triad Ft. Myers I, Ltd. ("Landlord"), as
landlord, which Lease is for approximately __________ square feet of space on
the floor(s) of the Property (the "Leased Premises").
The undersigned hereby certifies to WELLS CAPITAL, INC., its successors and
assigns (individually and collectively, "WELLS"), with the understanding that
WELLS will rely on the contents hereof, as follows (please complete the blanks
with specific and descriptive information; the failure of Tenant to complete a
blank area means that there was nothing to insert in the blank area):
1. that Tenant is in full, actual, and complete possession of the Leased
Premises; that all improvements and other "Landlord's Work" required under the
Lease, if any, has been satisfactorily completed (including any repair or
maintenance work requested by the undersigned in the last ninety (90) days, and
the Landlord is not required to contribute or pay any money with respect to any
improvements to the Leased Premises'.
2. that the Lease term commenced on February 1, 1998 and the Base Rent
currently is equal to $53,566.50 per month, increasing to $65,886.83 per month
on February 1, 2000 and increasing on each February 1 thereafter in accordance
with the terms of the Lease, and Tenant is obligated to pay additional rent,
operating expenses, taxes, insurance, utilities and repairs as provided in the
Lease;
3. that the security deposit given to Landlord pursuant to the terms and
conditions of the Lease is $_________
<PAGE>
4. that no default by the Tenant presently exists under the Lease, and no
event has occurred and no conditions exist which, with the passing of time or
giving of notice or both, would constitute a default under the Lease by the
Landlord (provided, however, with respect to Landlord, this information is given
to the best knowledge and belief of Tenant) or Tenant thereunder and that,
accordingly, the., Lease is in good standing and there are no offsets,
counterclaims, or defenses with respect to any rent or other payments due under
the Lease;
5. that the Lease term commenced; that the Lease commencement date was
February 1, 1998, and, subject to any renewal or extension rights identified in
paragraph 9 below, the Lease will terminate on January 31, 2008.
6. that, except as noted at the outset hereof, there are no amendments,
addenda, modifications, or other agreements (whether oral or written) affecting
the Lease;
7. that Tenant has not paid rent for more than the current month during which
this letter is given;
8. that there are no assignments or subleases or other transfers entered into
by Tenant with respect to the Leased Premises;
9. that Tenant has not been granted any right to renew or extend the term of
the Lease or to expand the Leased Premises or any right of early termination or
cancellation rights excepts as follows: Tenant has two options to renew the
Lease for five (5) years as provided in Section 1.2
10. that, to the knowledge of Tenant, there are no rent, lease or similar
concessions payable with respect to the Lease except as follows:
11. that Tenant has not engaged in the production, disposal, generation or
storage of any hazardous waste or toxic materials on, in or about the Leased
Premises in quantities in excess of, or in violation of, any law, rule or
regulation governing the same, and Tenant has no knowledge of any production,
disposal, generation or storage of any hazardous waste or toxic material on, in
or about the Leased Premises;
12. that a true, correct, and complete copy of the Lease is attached hereto as
Exhibit "A";
- ------------
13. that Tenant waives the right of first refusal set forth in Section 2.14 of
the Lease, and acknowledges and agrees that it shall be of no further force and
effect.
14. that, the undersigned is duly authorized and fully qualified to execute
this instrument on behalf of the Tenant.
Very truly yours,
By: Name:
<PAGE>
EXHIBIT K
---------
Personal Property
-----------------
<PAGE>
EXHIBIT L
---------
CONFIDENTIALITY AGREEMENT
-------------------------
THIS CONFIDENTIALITY AGREEMENT is made and Entered into this ____ day of
_________________, 1999 by ____________________ (hereinafter referred to as
"Broker") for the benefit of ___________________ a ("Seller");
WITNESSETH:
WHEREAS, Seller and Broker have entered into that certain dated
_____________(the "Listing Agreement"), pursuant to which Seller has retained
the services of Broker for the purpose of listing for sale certain improved real
property owned by Seller and located at _____________________ (the "Property");
and
WHEREAS, on or about the date hereof, Seller, has entered into that certain
Agreement of Purchase and Sale (the "Purchase Agreement") with CAPITAL, INC., as
purchaser ("Purchaser"), pursuant to which Seller, has agreed to sell the
Property to Purchaser upon the terms and conditions contained therein; and
WHEREAS, in order to facilitate the sale of the Property to Purchaser, upon
the consummation of which event Broker will be entitled to a commission from
Seller, Seller requires that Broker execute this Confidentiality Agreement.
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars (S 10.00), the commissions to be paid by Seller to Broker upon the
consummation of the purchase of the Property by Purchaser, the above-stated
recitals, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Broker hereby agrees as follows:
I. Definitions. The following terms shall have the following meanings:
-------------
a. "Broker's Representatives" shall, with respect to each Broker, mean
------------------------
all agents, employees, contractors, officers, directors, members, shareholders,
and attorneys of Broker.
b. "Confidential Information" shall mean the Inspection Materials, the
------------------------
subject-matter, terms and conditions of the Purchase Agreement, and all matters
concerning or other-wise relating to the matters set forth in the Purchase
Agreement.
c. "Inspection Materials" shall have the meaning ascribed to such term in
--------------------
the Purchase Agreement.
d. "Purchaser's Representatives" shall have the meaning ascribed to such
---------------------------
term in the Purchase Agreement.
e. "Seller's Representatives" shall have the meaning ascribed to such
------------------------
term in the Purchase Agreement.
<PAGE>
2. Confidentiality Agreement. Broker hereby agrees not to disclose,
---------------------------
disseminate, publish or otherwise communicate (or permit the disclosure,
dissemination, publication, or communication of) the Confidential Information to
any third party other than Broker, Seller, Purchaser, Broker's Representatives,
Seller's Affiliates or Purchaser's Representatives. Broker hereby agrees to
cause all Broker's Representatives to comply with this Paragraph 2 as well.
Anything contained in this Paragraph 2 to the contrary notwithstanding, in the
event Broker is approached by third parties interested in purchasing the
Property, Broker and Broker's Representatives shall be permitted to state to
such third parties only that the Property currently is under contract. In no
event shall Broker or Broker's Representatives disclose the identity of
Purchaser or any of the terms or conditions contained in the Purchase Agreement
or any of the Confidential Information, other than as expressly permitted
pursuant to this Paragraph 2.
3. Duration of Confidentiality Agreement. This Agreement shall terminate on
-------------------------------------
the earlier to occur of the following: (1) the termination of the Purchase
Agreement according to its terms or (ii) the closing of the transactions
contemplated by the Purchase Agreement.
4. Indemnification. Broker shall defend, indemnify, and hold Seller and
-----------------
Seller's Affiliates harmless from and against any and all claims, damages,
losses, liabilities, causes of actions, expenses, or costs (including, without
limitation, reasonable attorneys' fees and costs actually incurred) sustained or
incurred by Seller or Seller's Affiliates on account of or as a result of a
breach by Broker of the terms of this Agreement.
5. Miscellaneous. This Agreement represents the entire agreement of the Broker
---------------
and Seller with respect to the subject matter contained herein and supersedes
any prior or contemporaneous agreements among such parties concerning the
subject matter contained herein. This Agreement shall be governed, construed,
enforced, and interpreted in accordance with the laws of the State of
IN WITNESS WHEREOF, Broker has caused this Agreement to be executed and
delivered as of the day and year first above written.
BROKER:
- -------
<PAGE>
LEASE AGREEMENT
BETWEEN
HOGAN TRIAD FT. MYERS I, LTD.
as Landlord
AND
GARTNER GROUP, INC.
as Tenant
Effective Date:
July 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. TERM OF LEASE.................................................................................................. 1
-------------
1.1. Initial Term of Lease............................................................................... 1
---------------------
1.2. Lease Renewal Options............................................................................... 3
---------------------
2. CONSTRUCTION OF IMPROVEMENTS................................................................................... 4
----------------------------
2.1. Landlord's Improvements............................................................................. 4
-----------------------
2.2. Current Plans; Review Period; Final Plans And Specifications........................................ 4
------------------------------------------------------------
2.3. Excused Delay....................................................................................... 5
-------------
2.4. Possession of Demised Premises...................................................................... 6
------------------------------
2.5. Landlord's Failure to Timely Deliver................................................................ 6
------------------------------------
2.6. Outside Delivery Date............................................................................... 6
---------------------
2.7. Construction Guaranty............................................................................... 7
---------------------
2.8. Tenant's Acceptance of Demised Premises............................................................. 7
---------------------------------------
2.9. Tenant Improvements................................................................................. 7
-------------------
2.10. Government Concessions.............................................................................. 7
----------------------
2.11. Option Property 1................................................................................... 7
-----------------
2.12. Option Property 2................................................................................... 8
-----------------
2.13. Proposed Plat....................................................................................... 8
-------------
2.14. Right of First Offer................................................................................ 8
--------------------
3. RENT........................................................................................................... 9
----
3.1. Rent................................................................................................ 9
----
3.2. Additional Rent..................................................................................... 11
---------------
3.3. Delinquent Rental Payments.......................................................................... 11
--------------------------
4. USE OF DEMISED PREMISES........................................................................................ 12
-----------------------
4.1. Permitted Use....................................................................................... 12
-------------
4.2. Preservation of Demised Premises.................................................................... 12
--------------------------------
5. HAZARDOUS SUBSTANCES........................................................................................... 12
--------------------
5.1. Tenant's Covenants Regarding Hazardous Substances................................................... 12
-------------------------------------------------
5.2. Landlord's Covenants Regarding Hazardous Substances................................................. 14
---------------------------------------------------
6. OPERATING EXPENSES............................................................................................. 15
------------------
6.1. Payment of Operating Expenses....................................................................... 15
-----------------------------
6.2. Definition of Operating Expenses.................................................................... 15
--------------------------------
6.3. Certain Exclusions from Operating Expenses.......................................................... 16
------------------------------------------
7. PAYMENT OF TAXES, ASSESSMENTS, ETC............................................................................. 18
----------------------------------
7.1. Payment of Impositions.............................................................................. 18
----------------------
7.2. Tenant's Right to Contest Impositions............................................................... 18
-------------------------------------
7.3. Levies and Other Taxes.............................................................................. 19
----------------------
7.4. Evidence of Payment................................................................................. 19
-------------------
7.5. Landlord's Right to Contest Impositions............................................................. 20
---------------------------------------
7.6 Separate Assessment................................................................................. 20
-------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
8. INSURANCE...................................................................................................... 20
---------
8.1. Landlord's Casualty Insurance Obligations......................................................... 20
-----------------------------------------
8.2. Tenant's Liability and Other Insurance Coverage................................................... 20
-----------------------------------------------
8.3. Landlord's Liability Insurance Coverage........................................................... 21
---------------------------------------
8.4. Extended Coverage Insurance Provisions............................................................ 21
--------------------------------------
8.5. General Insurance Requirements.................................................................... 21
------------------------------
8.6. Waiver of Subrogation............................................................................. 22
---------------------
8.7. Tenant's Personal Property Coverage............................................................... 22
-----------------------------------
8.8. Unearned Premiums................................................................................. 22
-----------------
8.9. Blanket Insurance Coverage........................................................................ 22
--------------------------
8.10. Tenant's Self-Insurance........................................................................... 22
-----------------------
8.11 Worker's Compensation............................................................................. 22
---------------------
9. UTILITIES...................................................................................................... 23
---------
9.1. Payment of Utilities.............................................................................. 23
--------------------
10. REPAIRS........................................................................................................ 23
-------
10.1. Landlord's Repairs................................................................................ 23
------------------
10.2. Maintenance....................................................................................... 23
-----------
10.3. Prohibition Against Waste......................................................................... 24
-------------------------
10.4. Service Agreements................................................................................ 24
------------------
10.5 Parking Areas..................................................................................... 24
-------------
11. COMPLIANCE WITH LAWS AND ORDINANCES............................................................................ 24
-----------------------------------
11.1. Compliance with Laws and Ordinances............................................................... 24
-----------------------------------
11.2. Compliance with Permitted Encumbrances............................................................ 25
--------------------------------------
11.3 Tenant's Right to Contest Laws and Ordinances..................................................... 26
---------------------------------------------
12. MECHANIC'S LIENS AND OTHER LIENS............................................................................... 26
--------------------------------
12.1. Freedom from Liens................................................................................ 26
------------------
12.2. Landlord's Indemnification........................................................................ 27
--------------------------
12.3. Removal of Liens.................................................................................. 27
----------------
13. INTENT OF PARTIES.............................................................................................. 27
-----------------
13.1. No Abatement...................................................................................... 27
------------
13.2. Entry by Landlord................................................................................. 28
-----------------
13.3. Interest on Unpaid Amounts........................................................................ 28
--------------------------
14. DEFAULTS OF TENANT............................................................................................. 28
------------------
14.1 Event of Default.................................................................................. 28
----------------
14.2. Surrender of Demised Premises..................................................................... 29
-----------------------------
14.3. Reletting by Landlord............................................................................. 29
---------------------
14.4. Survival of Tenant's Obligations.................................................................. 29
--------------------------------
14.5. Damages........................................................................................... 30
-------
14.6. No Waiver......................................................................................... 30
---------
14.7. Remedies Cumulative............................................................................... 30
-------------------
14.8. Bankruptcy........................................................................................ 31
----------
14.9. Waiver by Tenant.................................................................................. 31
----------------
15. DESTRUCTION AND RESTORATION.................................................................................... 31
---------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
15.1. Destruction and Restoration....................................................................... 31
---------------------------
15.2. Application of Insurance Proceeds................................................................. 32
---------------------------------
15.3. Continuance of Tenant's Obligations............................................................... 32
-----------------------------------
15.4. Completion of Restoration......................................................................... 33
-------------------------
15.5. Adjustment of Rent and Termination of Lease....................................................... 33
-------------------------------------------
16. CONDEMNATION................................................................................................... 34
------------
16.1. Condemnation of Entire Demised Premises........................................................... 34
---------------------------------------
16.2. Partial Condemnation/Termination of Lease......................................................... 34
-----------------------------------------
16.3. Partial Condemnation/Continuation of Lease........................................................ 35
------------------------------------------
16.4. Continuance of Obligations........................................................................ 36
--------------------------
16.5. Adjustment of Rent................................................................................ 36
------------------
16.6. Determination of "Material Partial Condemnation" and "Minor Partial Condemnation;" Arbitration.... 36
---------------------------------------------------------------------------------------------
17. ASSIGNMENT, SUBLETTING, ETC.................................................................................... 36
---------------------------
17.1. Restriction on Transfer (Transfer Requiring Landlord Consent)..................................... 36
------------------------------------------------------------
17.2. Transfers......................................................................................... 37
---------
18. SUBORDINATION, NONDISTURBANCE, NOTICE TO MORTGAGEE AND ATTORNMENT.............................................. 37
-----------------------------------------------------------------
18.1. Subordination and Attornment by Tenant............................................................ 37
-------------------------------------
18.2. Landlord's Default................................................................................ 38
------------------
19. SIGNS.......................................................................................................... 38
-----
19.1. Tenant's Signs.................................................................................... 38
-------------
20. CHANGES AND ALTERATIONS........................................................................................ 38
-----------------------
20.1. Tenant's Changes and Alterations.................................................................. 38
--------------------------------
21. INDEMNITY...................................................................................................... 40
---------
21.1 Indemnity of Landlord............................................................................. 40
---------------------
21.2. Indemnity of Tenant............................................................................... 40
-------------------
21.3. Defense Provisions................................................................................ 41
------------------
22. MISCELLANEOUS PROVISIONS....................................................................................... 42
------------------------
22.1. Entry by Landlord................................................................................. 42
-----------------
22.2. Exhibition of Demised Premises.................................................................... 42
------------------------------
22.3. Notices........................................................................................... 42
-------
22.4. Quiet Enjoyment................................................................................... 43
---------------
22.5. Landlord's Continuing Obligations................................................................. 43
---------------------------------
22.6. Estoppel.......................................................................................... 44
--------
22.7. Delivery of Corporate Documents................................................................... 44
-------------------------------
22.8. Short Form Lease.................................................................................. 44
----------------
22.9. Severability...................................................................................... 45
------------
22.10. Successors and Assigns............................................................................ 45
----------------------
22.11. Captions.......................................................................................... 45
--------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
22.12. Relationship of Parties......................................................................... 45
-----------------------
22.13. Entire Agreement................................................................................ 45
----------------
22.14. No Merger....................................................................................... 45
---------
22.15. Possession and Use.............................................................................. 45
------------------
22.16. No Surrender During Lease Term.................................................................. 46
------------------------------
22.17. Surrender of Demised Premises................................................................... 46
-----------------------------
22.18. Holding Over.................................................................................... 46
-----------
22.19. Survival........................................................................................ 46
--------
22.20. Attorneys' Fees................................................................................. 46
---------------
22.21. Landlord's Limited Liability.................................................................... 46
----------------------------
22.22. Broker's Commissions............................................................................ 47
--------------------
22.23. Covenants, Representations and Warranties....................................................... 47
-----------------------------------------
22.24. Landlord's Permission, Consent or Approval...................................................... 47
------------------------------------------
22.25. FORUM AND VENUE FOR LEGAL PROCEEDINGS/WAIVER OF JURY TRIAL...................................... 48
----------------------------------------------------------
22.26. Arbitration..................................................................................... 48
-----------
22.27. Counterparts; Expiration of Lease Agreement; "Effective Date"................................... 48
------------------------------------------------------------
22.28 Access.......................................................................................... 49
------
22.29 Protection of Laws.............................................................................. 49
------------------
22.30 OSHA/Tight Building Syndrome.................................................................... 49
----------------------------
22.31 Access by Individuals with Disabilities......................................................... 49
---------------------------------------
22.32 Parking......................................................................................... 49
-------
22.33 Communications Equipment........................................................................ 50
------------------------
22.34 Contingency..................................................................................... 50
-----------
22.35 Waiver of Statutory Landlord's Lien............................................................. 50
-----------------------------------
</TABLE>
iv
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT ("Lease Agreement"), made as of the "Effective Date"
(as defined in Section 22.28), by and between HOGAN TRIAD FT. MYERS I, LTD., a
Florida limited partnership ("Landlord"), and GARTNER GROUP, INC., a Delaware
corporation ("Tenant").
WITNESSETH:
-----------
Landlord, for and in consideration of the rents, covenants and agreements
hereinafter reserved, mentioned and contained on the part of Tenant, its
successors and assigns, to be paid, kept, observed and performed, has leased,
rented, let and demised, and by these presents does lease, rent, let and demise
unto Tenant, and Tenant does hereby take and hire, upon and subject to the
conditions and limitations hereinafter expressed, all that parcel of land
situated in the County of Lee and State of Florida, described in Exhibit "A"
-----------
attached hereto and made a part hereof, together with any appurtenant easements
described in said Exhibit "A" (the "Land"), together with all improvements
-----------
located on and to be constructed thereon. Landlord's Improvements (as defined
in Article 2) and all other improvements, machinery, equipment, fixtures and
other property, real, personal or mixed (except Tenant's trade fixtures)
installed or located thereon, together with all additions, alterations and
replacements thereof are hereinafter referred to as the "Improvements." The
Land, the Building (as hereinafter defined) and the improvements are hereinafter
referred to as the "Demised Premises." The Demised Premises are subject to the
easements, restrictions, reservations and other "permitted encumbrances" set
forth in said Exhibit "D" (provided, however, that the terms of Section 11.2
-----------
shall govern and prevail over any conflicting or inconsistent references to
"permitted encumbrances" contained in this Lease Agreement), true and complete
copies of which Landlord has furnished to Tenant at or prior to the execution
and delivery hereof. The structures located upon and being a part of the
Demised Premises which are constructed for human occupancy or for storage of
goods, merchandise, equipment, or other personal property are collectively
called the "Building." The Demised Premises and Building are located in a
certain development project called "Gateway Center" (the "Project"). The
Demised Premises are demised herein together with the non-exclusive use of all
facilities which serve the Demised Premises and with any and all and singular
appurtenances, rights, privileges and easements in or any way pertaining thereto
including, but not limited to, the right to use such parking facilities,
elevators, stairways, corridors, entrance ways, restrooms, common parking areas
and driveways, and other and similar or related facilities as may exist in and
about the Building and on the Land. Without limiting Tenant's permitted uses of
the Demised Premises as set forth in this Lease Agreement, Landlord and Tenant
acknowledge that Tenant s intended primary use of the Demised Premises will be
for office use ("Tenant's Intended Use"). Landlord represents and warrants to
Tenant (a) that Landlord is the sole owner in fee simple of the Land and (b)
that the Landlord has the full right and authority to lease the Demised Premises
(hereinafter defined to Tenant) and to otherwise enter into this Lease on the
terms and conditions set forth herein and (c) Landlord is not in default in any
of its obligations to any existing mortgagee or ground lessor and Landlord is
current in all its payments to said mortgagee(s) or ground lessor, and (d) the
Demised Premises is located in a municipal zoning classification that permits
Tenant to use the Demised Premises for general office use and related incidental
uses.
1. TERM OF LEASE.
-------------
1.1. Initial Term of Lease.
----------------------
1
<PAGE>
(a) Commencement Date. This Lease Agreement shall be for an initial
-----------------
term of ten (10) years (the "Initial Term") commencing on the "Commencement
Date" (as hereinafter defined). The term "Commencement Date" shall mean the
earlier of the date of (i) Substantial Completion, as hereinafter defined in
Section 1.1(c) below, and delivery of an SNDA, as hereinafter defined, pursuant
to the terms and conditions set forth in this Lease or (ii) the occupancy of the
Demised Premises and commencement of business operations by Tenant.
(b) Final Installation Work. Tenant intends to cause one or more
-----------------------
independent entities to enter into contracts to perform the following
installation work, which items of work are included in the "Construction
Schedule" (as defined in Section 2.2(a)). The following work is collectively
referred to as the "Final Installation Work"; the contractors who are engaged to
perform the Final Installation Work are collectively referred to as "Final
Installation Contractors"; and, the contracts pursuant to which the Final
Installation Work will be performed are collectively referred to as the "Final
Installation Contracts"; provided, however that the definitions of Final
-------- -------
Installation Work, Final Installation Contractors, and Final Installation
Contracts expressly exclude the work, improvements and equipment to be
performed, constructed, provided and/or installed (as applicable) by Landlord
pursuant to other provisions of this Lease Agreement.
(i) Installation of furniture and equipment, including "Work
Stations" (as hereinafter defined), power poles and chairs;
(ii) Accessing (pulling) computer cable (wiring), preparation for,
and final connection (hook-up) of computer equipment; and
(iii) Accessing (pulling) telecommunications cable (wiring),
preparation for, and final connection (hook-up) of telecommunications
equipment.
The parties acknowledge that the Final Installation Work must be completed
with respect to a portion of the Demised Premises in order to accomplish
Substantial Completion. Because the Final Installation Work will need to be
coordinated with other work under the Construction Schedule (which other work
will be supervised by Landlord's general contractor), Landlord and Tenant
mutually desire to cause certain portions of the Final Installation Work (and
certain portions of the scope of work within the related Final Installation
Contracts) to be performed by Landlord's general contractor in the interests of
coordination efficiency and critical path management. Tenant intends to
independently procure and provide the primary equipment and materials to be
installed pursuant to the Final Installation Contracts as described below in the
definition of "Tenant's Final Installation Work" (i.e., the Final Installation
---
Work that is intended to be transferred to Landlord's general contractor is
intended to be solely "installation" supervision and not procurement
management). Tenant shall be responsible for payment of the cost of performing
the Final Installation Work in accordance with the payment terms contained in
the Final Installation Contracts (accordingly, Rent shall not be increased by
any portion of the cost of performing the Final Installation Work). Landlord
and Tenant agree to cooperate with each other, in the exercise of commercially
reasonable diligence, in attempting to cause the applicable portions of the
Final Installation Contracts to be transferred to Landlord's general contractor
and Landlord agrees to use its reasonable efforts to cause Landlord's general
contractor to accept coordination responsibility for such items of Final
Installation Work. The following provisions shall apply to those Final
Installation Contracts (or certain items of work therein) that are ultimately
transferred to Landlord's general contractor: (1) Landlord's general contractor
shall accept and assume responsibility for such Final Installation Contracts;
and (2) the work performed under such Final Installation Contracts shall be
deemed included in the work performed
2
<PAGE>
by Landlord for all purposes of this Lease Agreement, including, without
limitation, Section 2.7 (Construction Guaranty), but excluding Tenant's
obligation to pay for the cost of performing the Final Installation Contracts
pursuant to the terms set forth herein.
As used in this Lease Agreement, the defined phrase "Tenant's Final
Installation Work" shall mean: (i) those items within the scope of work
described in the Final Installation Contracts that Tenant voluntarily elects to
retain and will not be transferred to Landlord's general contractor; and (ii)
those items within the scope of work described in the Final Installation
Contracts that, notwithstanding Landlord's reasonable efforts, Landlord's
general contractor has not agreed to accept.
(c) Substantial Completion. The term "Substantial Completion" shall
----------------------
mean the last to occur of:
(i) Certificate of Occupancy -- the day that Tenant receives
------------------------
notice that a Certificate of Occupancy has been issued by Lee County, Florida
with respect to the base Building and Tenant improvements in accordance with the
"Final Plans and Specifications" (as hereinafter defined) (which notice must
include a true and complete copy of such Certificate of Occupancy);
(ii) Certificate of Architect -- the day that Tenant receives an
-------------------------
original, fully executed and sealed Certificate of Substantial Completion on AIA
Form G704 (1994) and issued by Smallwood, Reynolds, Stewart & Stewart
Architects, Inc. certifying to Tenant that the Landlord's Improvements, to the
best of its knowledge and belief after review and inspection, have been
completed in accordance with the applicable construction documents, with the
only exception of so-called "punch list" items.
(d) Lease Year. For the purposes of this Lease Agreement, the term
----------
"Lease Year" shall be defined as follows. The first Lease Year shall begin on
the Commencement Date. The first Lease Year will end twelve (12) months after
the Commencement Date. Each subsequent Lease Year shall commence on the day
immediately following the last day of the preceding Lease Year and shall
continue for a period of twelve (12) full calendar months. Promptly after the
Commencement Date the parties shall execute and deliver a written statement
which verifies the actual Commencement Date.
1.2. Lease Renewal Options.
---------------------
(a) Tenant shall have the right to renew this Lease Agreement for
two (2) additional terms of five (5) years (each hereinafter referred to as a
"Renewal Term"), provided that (i) Tenant gives Landlord written notice of its
renewal of this Lease Agreement no later than one (1) year prior to the
expiration of the Initial Term or Renewal Term, as the case may be, and (ii)
Tenant is not then in material default under the terms of this Lease Agreement,
beyond any applicable notice and cure periods, and this Lease Agreement is in
full force and effect. References to the "Term" shall mean the term of this
Lease Agreement, and shall include the Initial Term and, if applicable, the
Renewal Term(s). The Base Rent to be paid during the first year of each Renewal
Term shall be the lesser of (x) the then existing Base Rent, as escalated by two
and one-half percent (2.5%), or (y) ninety-five percent (95%) of the market rent
then being paid by other tenants occupying a similar amount of space at a
comparable building and project in Lee County, Florida (the "Renewal Base
Rent"). In the event Tenant provides Landlord with notice of its exercise of its
option to renew, Tenant and Landlord shall negotiate in good faith to determine
the market rent to be paid during the applicable renewal term, based upon the
foregoing criteria. If the parties are unable to agree upon the market rent
described in the preceding clause (y) within thirty (30) days after the
3
<PAGE>
giving of Tenant's notice of intent to renew, then the parties shall submit the
dispute to binding arbitration as provided in Section 22.27 below. The Base
Rent shall escalate by two and one-half percent (2.5%) per annum, cumulative
and compounded, during any renewal or extension period to the same extent as
during the Initial Term and the Tenant shall remain obligated to also pay
Additional Rent and Operating Expenses during any renewal or extension period to
the same extent as obligated during the Initial Term.
2. CONSTRUCTION OF IMPROVEMENTS.
----------------------------
2.1. Landlord's Improvements. The Building shall consist of a two story
-----------------------
building of approximately 62,400 "Rentable Square Feet" (as such term is defined
in Section 3.1 below). The Building will be constructed by Landlord at its sole
cost and expense and delivered to Tenant in "turnkey" condition. The Building
and other Improvements to be constructed by Landlord shall be designed and
constructed in accordance with the "Final Plans and Specifications" (as
hereinafter defined) (collectively, the "Landlord's Improvements"). Landlord
agrees to furnish at Landlord's sole cost and expense all of the material,
labor, and equipment for the construction of the Landlord's Improvements.
Landlord's Improvements shall be constructed in a good and workmanlike manner in
accordance with the Final Plans and Specifications and Landlord agrees to
complete the construction thereof in accordance with the applicable building
code in effect at the time of issuance of the building permits and all other
applicable Laws as they are presently interpreted and enforced by the
governmental bodies having jurisdiction thereof
2.2. Current Plans; Review Period; Final Plans And Specifications.
------------------------------------------------------------
(a) Current Plans. The Demised Premises shall include and
-------------
incorporate all those certain design and program elements described in the
following documents (collectively, the "Current Plans"):
(i) The floor plan of the Building prepared by Smallwood,
Reynolds, Stewart & Stewart Architects, Inc. ("Smallwood") dated May 22,
1997;
(ii) The Schematic Plans and Specifications prepared by the
Perry Company dated May 22, 1997 (the "Schematic Plans and
Specifications");
(iii) The Construction Schedule prepared by the Perry Company
dated June 24, 1997 (the "Construction Schedule").
(b) Review Period. The term "Review Period" shall mean a five (5)
-------------
business day period after receipt by Tenant and Corporate Design Group, LLP (at
the addresses set forth in Section 2.2 (e) below) (collectively, "Tenant's
Review Team"), or Landlord as the case may be, during which such party shall
review the submitted documents and provide comments or approve such documents
pursuant to the terms set forth in this Section 2.2.
(c) Approved Final Plans and Specifications. Landlord, at its sole
---------------------------------------
cost and expense, shall cause proposed Final Plans and Specifications for the
Demised Premises to be prepared in accordance with the Current Plans and the
building code and all other applicable laws referenced in Section 2.1 above.
Upon completion of all proposed Final Plans and Specifications, Landlord shall
submit the same (and all subsequent amendments thereto) to Tenant's Review Team
for its approval. Tenant's Review Team shall have a Review Period to approve,
reject or comment on, in writing, a submission of the proposed Final Plans and
Specifications furnished by Landlord. Tenant's Review Team shall respond in
writing within the
4
<PAGE>
Review Period and if such response does not unconditionally approve Landlord's
submission, Tenant's Review Team will include in its response a reasonable
explanation of those comments that are not self-explanatory ("Tenant's
Response"). Upon Landlord's receipt of Tenant's Response, Landlord and Tenant
shall meet to agree on changes in the proposed Final Plans and Specifications
that are not inconsistent with the Current Plans within a Review Period
commencing upon Landlord's receipt of Tenant's Response. If the proposed Final
Plans and Specifications are not approved within this Review Period, the
proposed Final Plans and Specifications of Landlord and the proposed Final Plans
and Specifications of Tenant shall be immediately submitted to the "Independent
Architect" in accordance with Section 2.2(f). Once the proposed Final Plans and
Specifications have been approved by Tenant in accordance with this Section, the
proposed Final Plans and Specifications shall be approved in writing by Landlord
and Tenant and be deemed the "Approved Final Plans and Specifications" and shall
be deemed incorporated into this Lease.
(e) Tenant's Review Team. In the event the time of (i) Tenant's
--------------------
review exceeds any Review Period, or (ii) a critical item, as shown on the
Construction Schedule, is disapproved by Tenant and subsequently the Independent
Architect finds for Landlord with respect to such critical item, then the
"Completion Date" and "Outside Delivery Date" (as hereinafter defined) shall be
extended for the same amount of days by which the actual review and approval
time exceeded such Review Period (the total number of such extension days is
referred to as the "Tenant Review Delay"). Any Final Plans and Specifications
or documentation requiring approval of Tenant shall be delivered to the
attention of Tenant, Attention: Mr. Brent Genovese, with a copy to Mr. Paul
Parker, at the following addresses, by courier, Airborne Express, Federal
Express or Certified Mail:
Brent Genovese Paul Parker
56 Top Gallant Road 56 Top Gallant Road
P.O. Box 10212 P.O. Box 10212
Stamford, CT 06904-2212 Stamford. CT 06904-2212
Telephone: (203) 316-6525 Telephone: (203) 316-6475
Facsimile: (203) 316-6841
The Review Period shall commence immediately upon receipt of the proposed Final
Plans and Specifications or other documentation by Tenant's Review Team or any
individual within their respective offices accepting delivery of same.
(f) Independent Architect. Disputes arising in connection with the
---------------------
approvals required under this Section 2.2 shall be referred to Hellmuth, Obata &
Kassabaum (the "Independent Architect") for binding arbitration. These
arbitration proceedings shall be conducted in Tampa, Florida and the parties
acknowledge the Contractor shall be included as a party to the binding
arbitration. With respect to any binding arbitration conducted under this
Section, Independent Architect shall enter a final written decision within five
(5) days of the receipt of the proposed Final Plans and Specifications and
written comments of each party. Neither party can dismiss the Independent
Architect appointed hereunder without the written consent of the other party.
Should the Independent Architect be dismissed by mutual agreement of the parties
or should the Independent Architect resign this appointment, a new independent
third party architect will be selected by mutual agreement of the parties. The
Independent Architect's reasonable fees and costs shall be shared equally
between Landlord and Tenant.
2.3. Excused Delay. Landlord shall diligently proceed with the
-------------
construction of the Landlord's Improvements and complete the same and deliver
possession thereof to Tenant on or before February 1,
5
<PAGE>
1998 (the "Completion Date"); provided, however if delay is caused or
--------
contributed to by act (including change orders) or neglect of Tenant, or those
acting for or under Tenant, labor disputes, casualties, acts of God or the
public enemy, governmental embargo restrictions, shortages of fuel, labor or
building materials, action or non-action of public utilities, or federal
governments affecting the work, or action or non-action of Seller, as
hereinafter defined, (and not caused by Landlord), or other entities exercising
control over the Property via restrictive covenants or other causes beyond
Landlord's reasonable control then the time of completion of said construction
shall be extended for the additional time caused by such delay. The delays
resulting from the events described in this Section 2.3 are each hereinafter
referred to as an "Excused Delay" and the events are each hereinafter referred
to as "Force Majeure Events."
2.4. Possession of Demised Premises. If the Landlord's Improvements are
------------------------------
not Substantially Completed on or prior to the Completion Date but are partially
ready for occupancy, Tenant may, but need not, occupy the portion of same that
is ready for occupancy, and in the event of such occupancy Tenant shall pay to
Landlord the pro rata portion of the full Base Rent and the pro rata portion of
the full amount of other obligations to be paid by Tenant hereunder equitably
based upon the area of the Building occupied by Tenant. Base Rent and the
payment of other obligations to be paid by Tenant shall commence upon the
Commencement Date; provided, however that in the event the Landlord's
--------
Improvements are partially completed and partially ready for occupancy, and are
occupied by Tenant, a pro rata portion of the Base Rent and the pro rata portion
of all other obligations to be paid by Tenant shall be payable commencing with
such date of partial occupancy, and shall be equitably adjusted from time to
time based upon the area of the portion of Landlord's Improvements actually
occupied by Tenant. Prior to such partial occupancy, Tenant and/or Tenant's
contractors shall have been able to install its machinery, equipment, fixtures
and other personal property within the portion of the Demised Premises to be
occupied by Tenant. In performing such pre-occupancy work, Tenant shall not
thereby interfere with the completion of construction or occasion any labor
dispute as a result of such installations and Tenant hereby agrees to assume all
risk of loss or damage to such machinery, equipment, fixtures and other personal
property, and to indemnify, defend and hold harmless Landlord from any loss or
damage to such machinery, equipment, fixtures and personal property, and all
liability, loss or damage arising from any injury to the property of Landlord,
or its contractors, subcontractors or materialmen, and any death or personal
injury to any person or persons to the extent caused by Tenant or its
contractors in connection with such installations, except for liability, loss or
damage to the extent caused by Landlord's negligence or willful misconduct (or
of Landlord's agents, contractors or employees).
2.5. Landlord's Failure to Timely Deliver. Landlord shall deliver the
------------------------------------
completed Landlord's Improvements no later than the Completion Date; provided,
--------
however that the Completion Date may be extended, due to an Excused Delay
- -------
without Landlord being thereby responsible to pay liquidated damages to Tenant.
Subject to Excused Delay, in the event Substantial Completion takes place on or
after the Completion Date, Landlord shall pay to Tenant as liquidated damages
(and not as a penalty) an amount equal to two times the per diem Base Rent for
each day beyond the Completion Date that the Landlord's Improvements have not
achieved Substantial Completion. Such payment shall be in the form of cash or
as an offset against Rent due by Tenant, at the option of Landlord.
2.6. Outside Delivery Date. In the event Landlord fails or is unable to
---------------------
achieve Substantial Completion of the Landlord's Improvements on or prior to
April 15, 1998, provided, however, that such date may be extended "day for day"
-------- -------
by an Excused Delay (the "Outside Delivery Date"); then Tenant may, in its sole
and absolute discretion, cancel and terminate this Lease Agreement by providing
written notice thereof to Landlord within thirty (30) days following the Outside
Delivery Date (but prior to Substantial Completion), whereupon this Lease
Agreement shall terminate effective as of the date set forth in Tenant's
6
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notice, or Tenant's right to terminate under this Section 2.6 is waived (but
Tenant's other rights under this Lease or at law or in equity are not waived in
such event and are hereby expressly reserved). Landlord shall use commercially
reasonable efforts and proceed with commercially reasonable diligence to
complete the construction of the Building and Demised Premises by February 1,
1998.
2.7. Construction Guaranty. Landlord guarantees the Landlord's
---------------------
Improvements (excluding those items installed or materials purchased by Tenant
in connection with Final Installation Work and Tenant Final Installation Work)
against defective workmanship and/or materials for a period of one (1) year from
the date of "Substantial Completion" (as defined in Section 1.1 above) of
Landlord's Improvements and Landlord agrees, at its sole cost and expense, to
repair or replace any defective item occasioned by poor workmanship and/or
materials during said one-year period. Any such cost will not be considered part
of Operating Expenses, as hereinafter defined, during this one (1) year period.
Thereafter, all such costs, to the extent not covered by applicable warranties,
shall be considered Operating Expenses.
2.8. Tenant's Acceptance of Demised Premises. Within a period of ninety
---------------------------------------
(90) days after the Commencement Date, Tenant shall notify Landlord, in writing,
of all portions of the Landlord's Improvements which are incomplete and Landlord
shall forthwith complete such items; however, such obligation shall not include
-------
or apply to any aspects of the Landlord's Improvements which consist of latent
defects or other aspects which would not be apparent upon a visual inspection of
the Landlord's Improvements.
2.9. Tenant Improvements. Included in the Landlord's Improvements shall
-------------------
be certain interior improvements for Tenant ("Tenant Improvements"), which
Landlord will provide, to the extent of $14.42 per square foot based on a 62,400
square foot building (the "Tenant Improvement Allowance"). If the cost of the
Tenant Improvements exceeds the Tenant Improvement Allowance, Tenant shall pay
any difference between the Tenant Improvement Allowance and the actual costs of
the Tenant Improvements as approved in the Current Plans within ten (10) days of
receipt of an invoice, together with verifying documentation, from Landlord. In
the event the actual cost of the Tenant Improvements of the Demised Premises is
less than $14.42 per square foot (the "Tenant Improvement Savings"), Landlord,
at its option, shall either (i) pay the amount of the Tenant Improvement Savings
to Tenant in the form of cash, (ii) pay the amount of the Tenant Improvement
Savings to Tenant by setoff against the next Rent Payment or payments due, or
(iii) reduce the Base Rent by an amount calculated according to the following
formula: Tenant Improvements Savings x 9% / Rentable Square Feet of the
Building = reduction in Base Rent.
2.10. Government Concessions. Landlord and Tenant agree to use their
----------------------
best commercially reasonable efforts to seek concessions from all agencies
having jurisdiction over the construction or operation of the Building in the
form of reduced impact fees, taxes or other government related costs. In the
event actual cost savings are generated as a result of such efforts, Landlord,
at its option, shall either (i) pay the amount of the actual cost savings to
Tenant in the form of cash, (ii) pay the amount of the actual cost savings to
Tenant by setoff against the next Rent Payment or payments due, or (iii) reduce
the Base Rent by an amount calculated according to the following formula:
Dollar amount of concessions x 9% / Rentable Square Feet of Building = reduction
in Base Rent.
2.11. Option Property 1. At any time before February 15, 2002, Tenant
-----------------
shall have the right to notify Landlord in writing of its desire to expand into
a separate, free-standing facility containing between 30,000 rentable square
feet and 32,000 rentable square feet (the "Small Option Building") to be
constructed by Landlord on the property described in Exhibit B attached hereto
(the "Exhibit B Property"), with occupancy provided to Tenant within nine (9)
months from the date Landlord and Tenant enter into a
7
<PAGE>
mutually agreeable lease for the Small Option Building (the "Small Option
Building Lease"). Landlord and Tenant shall enter into the Small Option Building
Lease within thirty (30) days of such written notification and the full
execution of the Small Option Building Lease by and between Landlord and Tenant
shall be a condition precedent to Landlord exercising its option under its
Option Agreement with Seller, as hereinafter defined, to purchase the Exhibit B
Property. In addition to other mutually agreeable terms, the Small Option
Building Lease shall provide that (i) the term of the Small Option Building
Lease shall be for a minimum of ten (10) years, (ii) the Initial Term shall be
extended through the expiration of the Small Option Building Lease, and (iii)
the Rent for the Small Option Building shall be mutually determined by Landlord
and Tenant within thirty (30) days of receipt of Tenant's notification to
Landlord of its desire to expand into the Small Option Building. Tenant's
exercise of its rights under this Section 2.11 terminates all of Tenant's rights
under Section 2.12. Landlord and Tenant agree that Landlord's failure to perform
its obligations under this Section 2.11 shall not constitute a breach of its
obligations under this Lease, that this Section 2.11 is a separate and
independent obligation of Landlord and that Tenant shall have the right to bring
a separate and independent action for damages against Landlord under this
Section 2.11 subject to the terms and conditions of Sections 22.20, 22.21 and
22.26, which are incorporated into this Section 2.11 by this reference.
2.12. Option Property 2. At any time before February 15, 2002, Tenant
-----------------
shall have the right to notify Landlord in writing of its desire to expand into
a separate, freestanding facility containing between 60,000 rentable square feet
and 75,000 rentable square feet (the "Large Option Building"), to be constructed
by Landlord on the Exhibit B Property and the property described in Exhibit C
attached hereto (the "Exhibit C Property") with occupancy provided to Tenant
within nine (9) months from the date Landlord and Tenant enter into a mutually
agreeable lease for the Large Option Building (the "Large Option Building
Lease"). Landlord and Tenant shall enter into the Large Option Building Lease
within thirty (30) days of such written notification and the full execution of
the Large Option Building Lease by and between Landlord and Tenant shall be a
condition precedent to Landlord exercising its option under its Option Agreement
with Seller, as hereinafter defined, to purchase the Exhibit B Property and the
Exhibit C Property. In addition to other mutually agreeable terms, the Large
Option Building Lease shall provide that (i) the term of the Large Option
Building Lease shall be for a minimum of 10 years, (ii) the Initial Term shall
be extended through the expiration of the Large Option Building Lease, and (iii)
the Rent for the Large Option Building shall be mutually determined by Landlord
and Tenant within thirty (30) days of receipt of Tenant's notification of its
desire to expand into the Large Option Building. Tenant's exercise of its
rights under this Section 2.12 terminates all of Tenant's rights under Section
2.11. Landlord and Tenant agree that Landlord's failure to perform its
obligations under this Section 2.12 shall not constitute a breach of its
obligations under this Lease, that this Section 2.12 is a separate and
independent obligation of Landlord and that Tenant shall have the right to bring
a separate and independent action for damages against Landlord under this
Section 2.12 subject to the terms and conditions of Sections 22.20, 22.21, and
22.26, which are incorporated into this Section 2.12 by this reference.
2.13. Proposed Plat. Landlord and Tenant acknowledge that the Land needs
-------------
to be platted prior to the Commencement Date and Landlord and Tenant hereby
approve that certain preliminary plat prepared by Thomas J. Garris, P.L.S.
#3741, Reference Number 9345PCS for filing and recording with the applicable
authorities in Lee County, Florida.
2.14. Right of First Offer. For the period commencing on the Commencement
--------------------
Date and ending on the date that Hogan Triad Ft. Myers I, Ltd ("Triad") sells
the Demised Premises, Tenant shall have the continuing right of first offer with
respect to Demised Premises as set forth in this Section. In the event Triad
desires to sell, exchange or otherwise dispose of the Demised
8
<PAGE>
Premises (or a portion thereof), then Triad shall transmit a true and complete
copy of the offer that Triad is willing to accept ("Offer") to Tenant, along
with its other information regarding the Offer which is in the possession of or
available to Triad on a reasonable basis in order to allow Tenant to evaluate
the Offer. Tenant may elect to accept the Offer by providing notice of such
election to Triad within 15 days after Tenant's receipt of the Offer related
information as aforesaid. If Tenant fails to provide notice of such election on
or before the expiration of such 15 day period, then Tenant will be deemed to
have rejected the Offer and Triad may sell the Demised Premises to any purchaser
for a price equal to or greater than 90% of the Offer. If Tenant timely elects
to accept such offer, then the parties hereto shall proceed to consummate the
transactions set forth in the Offer pursuant to the terms and provisions
thereof; provided, however, that closing shall occur no later than the outside
closing date set forth in the Offer, but in no event shall Tenant be required to
consummate closing prior to the date that is 90 days after receipt of the Offer
and related information. If Tenant elects (or is deemed to have elected) to
reject the Offer, Triad shall be entitled to market the Demised Premises for
Sale (or exchange) to any other potential purchasers; provided, however, in the
event that Triad receives an Offer that Triad is prepared to accept which offer
is more than 10% lower than the Purchase Price contained in the Offer that
Tenant did not accept, Triad shall present such modified Offer to Tenant
whereupon Tenant shall have the same rights to accept or reject the modified
Offer as described above with respect to the Offer.
3. RENT.
----
3.1. Rent. In consideration of the leasing of the Demised Premises and
----
the construction of the Landlord's Improvements referred to in Article 2 hereof,
Tenant covenants to pay Landlord, without previous demand therefor and without
any right of setoff or deduction whatsoever (except as otherwise expressly
provided hereinafter), at the address of Landlord set forth hereinbelow, or at
such other place as Landlord may from time to time designate in writing, a
rental for the initial Term of this Lease as follows:
(a) Rent Components. Tenant shall pay rent in an amount equal to
---------------
$12.87 per "Rentable Square Foot" (as such term is hereinafter defined) based on
a 62,400 square foot Building, subject to adjustment pursuant to this Lease
Agreement ("Rent"), the components of which are (i) $12.06 per rentable Square
Foot for base rent, which amount is based on Current Plans and is subject to
adjustment pursuant to this Lease Agreement ("Base Rent"), and (ii) $.81, which
represents the estimated total of the Operating Expenses as defined in Section
6.2 (collectively the "Estimated First Year Operating Expenses"). If the actual
Rentable Square Feet as determined by Section 3.1(g) is greater than or less
than 62,400 square feet, the rent per square foot will be adjusted so that the
gross rent is equal to the product of $12.87 per square foot times 62,400 square
feet. Rent shall be payable in equal monthly installments, in advance, together
with any Federal, State, local or other jurisdictional sales or use taxes.
(b) Rent Schedule. Tenant shall pay Rent in accordance with the
-------------
following schedule:
(i) Year 1: During the first Lease Year, Tenant's Base Rent
------
shall be based on 41,600 Rentable Square Feet. Operating
Expenses shall be based on the total square feet within the
Building ("the Total Building Space").
9
<PAGE>
(ii) Year 2: During the second Lease Year, Tenant's Base Rent,
------
increased as set forth in Section 3.1(c) herein, shall be
based on 52,000 Rentable Square Feet. Operating expenses,
as adjusted pursuant to Section 3.1(d) herein, shall be
based on the Total Building Space.
(iii) Year 3 and Subsequent Years: During the third Lease Year
---------------------------
and all subsequent years, Tenant's Base Rent and Operating
Expenses, as adjusted by Sections 3.1(c) and 3.1(d) herein,
shall be based on the Total Building Space.
(c) Base Rent Increase. Beginning on the first day of the second
------------------
Lease Year, and continuing annually thereafter, Base Rent per square foot (or
the Renewal Base Rent, if applicable) shall be increased by an amount equal to
two and one-half percent (2.5%) per year, cumulative and compounded.
(d) Base Year Operating Expenses. Landlord and Tenant acknowledge
----------------------------
that the Estimated First Year Operating Expenses reflect only an estimate of
Operating Expenses based on Landlord's experience in developing, owning and
managing similar buildings. Therefore, at the end of the First Lease Year,
Landlord shall calculate actual Operating Expenses for the First Lease Year and
those expenses, subject to the adjustments set forth below, collectively shall
be deemed the "Base Year Operating Expenses".
(e) Operating Expense Adjustments. The parties each acknowledge
-----------------------------
that the Rent specified in sub Section (a) of this Section 3 does not provide
for increases in Operating Expenses (as hereinafter defined) which may hereafter
affect the Building; accordingly, during the Term of this Lease, and any
extension(s) thereof, beginning with the first day of the Second Lease Year,
Tenant shall pay to Landlord in the form of Additional Rent (plus any applicable
tax), estimated increased Operating Expenses (including real estate taxes) over
the Base Year Operating Expenses (the "Estimated Increase").
To implement and effect the foregoing obligation of Tenant to pay the
Estimated Increase, Tenant shall pay Landlord on or before the first day of each
calendar month one-twelfth (1/12) of the amount of the Estimated Increase for
the then current Lease Year. There shall be an annual reconciliation between
what Tenant paid and what Tenant should have paid within ninety (90) days
following the end of each Lease Year. Any amount paid by Tenant which exceeds
the correct amount due shall be credited to the next succeeding payment of Rent
due under this Section 3.1. If Tenant has paid less than the correct amount
due, Tenant shall pay the balance within ten (10) days of receipt of written
notice from Landlord. Tenant's obligation to pay the adjustments described in
this Section 3.1(e) shall survive the expiration or earlier termination of this
Lease. Tenant shall have thirty (30) days immediately following the submission
to it by Landlord of each applicable adjustment calculation to objection to such
particular calculation. Should Tenant fail duly and timely to object to such
particular calculation, which object, to be effective, must be in writing and
must state the specifics of such particular objection, then the parties
understand and agree, Landlord's calculation shall be conclusively deemed to be
correct.
Landlord, simultaneously with its submission to Tenant of each
applicable year-end adjustment calculation, shall submit to Tenant a reasonably
detailed statement of Operating Expenses to include, where reasonably
appropriate, backup data. Tenant shall have the right, by itself, or through
its employees or agents, at reasonable times and at a reasonable place in Tampa,
Florida, designated by Landlord, to audit Landlord's books and records in
support of the then applicable year-end adjustment
10
<PAGE>
calculation. Tenant agrees that it will not divulge or disclose to third parties
(other than Tenant's attorneys, accountants, auditors or similar professionals,
where in each instance such "outside" parties have a bona fide "need to know")
any data, information, etc., disclosed by Landlord to Tenant (or its auditors)
under the terms and provisions of this Section 3.1(e). If there is a timely
written objection by Tenant (see final two sentences of the immediately
preceding Section), and if Landlord and Tenant are unable to resolve such
objection within thirty (30) days following the delivery by Tenant to Landlord
of such written objection, then Tenant shall immediately thereafter pay Landlord
what Landlord claims is due. The dispute may then be submitted by Tenant to
binding arbitration by the American Arbitration Association in Tampa, Florida,
in accordance with its then prevailing rules. Judgment upon the arbitration
award may be entered in any court in Tampa, Florida, having jurisdiction. The
arbitrators shall have no power to change the provisions of this Lease. The
arbitration panel shall consist of three arbitrators, one of whom shall be a
commercial real estate attorney actively engaged in the practice of law for at
least the last 5 years, another of whom shall be a certified public accountant
actively engaged in the practice of accounting in the commercial real estate
area for at least the last 5 years, and the third of whom shall be a licensed
real estate broker actively engaged in the commercial leasing brokerage area for
at least the last 5 years. Both parties shall continue to perform their
respective Lease obligations during the pendency of any arbitration proceedings.
If it is determined by such arbitration that Tenant overpaid the amount due, the
overpaid amount, together with interest thereon at the rate of two percent (2%)
above the "prime rate" or "base rate" from time to time announced by
NationsBank, N.A. [or its successors] (such rate of interest is sometimes
referred to herein as the "Maximum Rate of Interest and shall be charged from
the date when the same is due hereunder until the same shall be paid, but in no
event shall such rate be in excess of the maximum rate permitted by law), shall
be paid by Landlord to Tenant within ten (10) days, or, at Tenant's election,
applied to the Rent next due under this Lease. For the purposes of that portion
of this Lease dealing with attorney's fees, Tenant shall not be deemed to be
"the prevailing party" unless it is determined by such arbitration that Tenant
overpaid by more than five percent (5%) the Estimated Increases. Likewise for
the purposes of that portion of this Lease dealing with attorney's fees,
Landlord shall not be deemed to be "the prevailing party" unless it is
determined by such arbitration that Tenant has underpaid by more than five
percent (5%) the Estimated Increases. Subject to the foregoing, the arbitrators
shall have the power to award reasonable attorney's fees and reasonable expenses
and costs.
(f) First Year Operating Expenses. In the event actual Operating
-----------------------------
Expenses for the first Lease Year are less than the Estimated First Year
Operating Expenses, Tenant shall receive a credit against the next succeeding
payment of Operating Expenses equal to the amount by which the Estimated First
Year Operating Expenses exceeded actual First Year Operating Expenses. In the
event Estimated First Year Operating Expenses are less than actual First Year
Operating Expenses, Tenant shall pay the balance due within ten (10) days of
receipt of written notice from Landlord.
(g) For the purposes of this Lease Agreement, the term "Rentable
Square Feet" shall mean the total square footage of the Building measured from
the exterior surface of each outer wall to the exterior surface of the opposite
outer wall. On or before the date which is thirty (30) days prior to the
anticipated Commencement Date, Landlord shall submit to Tenant a statement in
writing, certified as being true and correct by Landlord's architect, of the
exact number of Rentable Square Feet contained in the Demised Premises. Such
calculation and certification shall be subject to verification by Tenant and/or
Tenant's architect at Tenant's cost and expense. In the event of a dispute as
to the Rentable Square Feet, Landlord and Tenant agree to submit the dispute to
the Independent Architect under and pursuant to the terms of Section 2.2(f).
3.2. Additional Rent. In addition to the payment of Rent, Tenant shall
---------------
be responsible for
11
<PAGE>
paying or satisfying the amount by which the actual Operating Expenses, as
defined in Section 6.2, exceed the Estimated First Year Operating Expenses or
the Base Year Operating Expenses, as the case may be.
3.3. Delinquent Rental Payments. All payments of Base Rent and
--------------------------
Additional Rent shall be payable without previous demand therefor and without
any right of setoff or deduction whatsoever, and in case of nonpayment of any
item of Additional Rent by Tenant when the same is due, Landlord shall have, in
addition to all its other rights and remedies, all of the rights and remedies
available to Landlord under the provisions of this Lease Agreement or by law in
the case of nonpayment of Rent or Additional Rent. The performance and
observance by Tenant of all the terms, covenants, conditions and agreements to
be performed or observed by Tenant hereunder shall be performed and observed by
Tenant at Tenant's sole cost and expense. Any installment of Rent or Additional
Rent or any other charges payable by Tenant under the provisions hereof which
shall not be paid when due or within ten (10) days thereafter shall bear
interest at the Maximum Rate of Interest.
4. USE OF DEMISED PREMISES.
-----------------------
4.1. Permitted Use. The Demised Premises including all buildings or
-------------
other improvements hereafter erected upon the same shall be used for such
activities as may be lawfully carried on in and about the Demised Premises,
provided that such use does not violate the terms of any restrictive covenants.
- --------
Tenant shall not use or occupy the same, or knowingly permit them to be used or
occupied, contrary to any statute, rule, order, ordinance, requirement or
regulation applicable thereto, or in any manner which would violate any
certificate of occupancy affecting the same, or which would make void or
voidable any insurance then in force with respect thereto or which would make it
impossible to obtain fire or other insurance thereon required to be furnished
hereunder, or which would cause structural injury to the improvements or cause
the value or usefulness of the Demised Premises, or any portion thereof,
substantially to diminish (reasonable wear and tear excepted), or which would
constitute a public or private nuisance or waste, and Tenant agrees that it will
promptly, upon discovery of any such use, take all necessary steps to compel the
discontinuance of such use.
4.2. Preservation of Demised Premises. Tenant shall not use, suffer, or
--------------------------------
permit the Demised Premises, or any portion thereof, to be used by Tenant, any
third party or the public in such manner as might reasonably tend to impair
Landlord's title to the Demised Premises, or any portion thereof, or in such
manner as might reasonably make possible a claim or claims of adverse usage or
adverse possession by the public, as such, or third persons, or of implied
dedication of the Demised Premises, or any portion thereof. Nothing in this
Lease Agreement contained and no action nor inaction by Landlord shall be deemed
or construed to mean that Landlord has granted to Tenant any right, power or
permission to do any act or make any agreement that may create, or give rise to
or be the foundation for any such right, title, interest, lien, charge or other
encumbrance upon the estate of Landlord in the Demised Premises.
5. HAZARDOUS SUBSTANCES.
--------------------
5.1. Tenant's Covenants Regarding Hazardous Substances.
-------------------------------------------------
(a) In connection with Tenant's use and occupancy of the Demised
Premises, Tenant shall at all times and in all respects comply with all
applicable federal, state and local laws, ordinances and regulations ("Hazardous
Materials Laws") relating to industrial hygiene, environmental protection or the
use, analysis, generation, manufacture, storage, presence, disposal or
transportation of any oil, flammable explosives, asbestos, urea formaldehyde,
radioactive materials or waste, or other hazardous toxic,
12
<PAGE>
contaminated or polluting materials, substances or wastes, including without
limitation any "hazardous substances," "hazardous wastes," "Hazardous Materials"
or "toxic substances" under any such laws, ordinances or regulations
(collectively, "Hazardous Materials").
(b) Tenant shall at its own expense procure, maintain in effect and
comply with all conditions of any and all permits, licenses and other
governmental and regulatory approvals required for Tenant's use of the Demised
Premises, including, without limitation, discharge of (appropriately treated)
materials or waste into or through any sanitary sewer system serving the Demised
Premises (excluding therefrom, however, normal sanitary sewer discharge, it
being understood and agreed by the parties hereto that Landlord shall be
responsible for costs and expenses associated with normal sanitary sewer permits
and authorizations with respect to the Demised Premises). Except as discharged
into the sanitary sewer in strict accordance and conformity with all applicable
Hazardous Materials Laws, Tenant shall cause any and all Hazardous Materials
placed or installed on the Demised Premises by Tenant, its agents, employees or
contractors, to be removed from the Demised Premises and transported solely by
duly licensed haulers to duly licensed facilities for final disposal of such
Hazardous Materials. Tenant shall in all respects, handle, treat, deal with and
manage any and all such Hazardous Materials in, on, under or about the Demised
Premises in complete conformity with all applicable Hazardous Materials Laws and
prudent industry practices regarding the management of such Hazardous Materials.
All reporting obligations imposed by Hazardous Materials Laws regarding such
Hazardous Materials are solely the responsibility of Tenant unless otherwise
required by law. Upon expiration or earlier termination of this Lease, Tenant
shall cause all Hazardous Materials which were installed or placed in the
Demised Premises by Tenant, its agents, employees or contractors, to be removed
from the Demised Premises and transported for use, storage or disposal in
accordance with and in complete compliance with all applicable Hazardous
Materials Laws. Tenant shall not take any remedial action in response to the
presence of any such Hazardous Materials in, on, about or under the Demised
Premises or in any Improvement situated on the Land, nor enter into any
settlement agreement, consent decree or other compromise in respect to any
claims relating to any such Hazardous Materials in any way connected with the
Demised Premises or the Improvements on the Land without first notifying
Landlord of Tenant's intention to do so and affording Landlord ample opportunity
to appear, intervene or otherwise appropriately assert and protect Landlord's
interest with respect thereto. In addition, at Landlord's request, Tenant shall
remove all tanks or fixtures which were installed or placed in or on the Demised
Premises by Tenant, its agents, employees or contractors, and which contain or
contained or are contaminated with Hazardous Materials.
(c) Promptly after Tenant acquires actual knowledge of same, Tenant
shall notify Landlord in writing of (i) any enforcement, clean-up, removal or
other governmental or regulatory action instituted, completed or threatened
pursuant to any Hazardous Materials Laws with respect to the Demised Premises;
(ii) any claim made or threatened by any person against Landlord, or the Demised
Premises, relating to damage, contribution, cost recovery, compensation, loss or
injury resulting from or claimed to result from any Hazardous Materials placed
or installed on the Demised Premises by Tenant, its agents, employees or
contractors; and (iii) any reports made to any environmental agency arising out
of or in connection with any such Hazardous Materials in, on or about the
Demised Premises or with respect to any such Hazardous Materials removed from
the Demised Premises, including, any complaints, notices, warnings, reports or
asserted violations in connection therewith. Tenant shall also provide to
Landlord, as promptly as possible, and in any event within five (5) business
days after Tenant first receives or sends the same, copies of all claims,
reports, complaints, notices, warnings or asserted violations relating in any
way to the Demised Premises or Tenant's use thereof. Upon written request
therefor by Landlord (to enable Landlord to defend itself from any claim or
charge related to any Hazardous Materials Law), Tenant shall promptly deliver to
Landlord notices of hazardous waste manifests reflecting the legal and proper
disposal
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of all such Hazardous Materials removed from the Demised Premises. All such
manifests shall list the Tenant or its agent as a responsible party and in no
way shall attribute responsibility for any such Hazardous Materials to Landlord.
(d) Tenant shall indemnify, defend (with counsel reasonably
acceptable to Landlord), protect and hold Landlord and each of Landlord's
officers, directors, partners, employees, agents, attorneys, successors and
assigns free and harmless from and against any and all claims, liabilities,
damages, costs, penalties, forfeitures, losses or expenses (including attorneys'
fees) for death or injury to any person or damage to any property whatsoever
arising or resulting in whole or in part, directly or indirectly, from the
presence or discharge of Hazardous Materials, in, on, under, upon or from the
Demised Premises or the Improvements placed or installed thereon by Tenant, its
agents, employees or contractors or from the transportation or disposal of such
Hazardous Materials to or from the Demised Premises to the extent caused by
Tenant whether knowingly or unknowingly. Tenant's obligations hereunder shall
include, without limitation, and whether foreseeable or unforeseeable, all costs
of any required or necessary repairs, clean-up or detoxification or
decontamination of the Demised Premises or the Improvements, and the presence
and implementation of any closure, remedial action or other required plans in
connection therewith, and shall survive the expiration of or early termination
of the term of this Lease Agreement. For purposes of the indemnity provided
herein, any acts or omissions of Tenant, or its employees, agents, customers,
sub-lessees, assignees, contractors or sub-contractors of Tenant (whether or not
they are negligent, intentional, willful or unlawful) shall be strictly
attributable to Tenant.
(e) Landlord may, at its expense, commission an environmental audit
of the Demised Premises at any time after prior written notice to Tenant.
5.2. Landlord's Covenants Regarding Hazardous Substances.
---------------------------------------------------
(a) Landlord warrants and represents (i) that, to the best of its
present knowledge, the Demised Premises will be at the Commencement Date free
from any Hazardous Materials and shall comply with all applicable Hazardous
Materials Laws; (ii) that the Demised Premises are and will be at the
Commencement Date free of any asbestos or asbestos containing substance; (iii)
that Landlord has never received any notice of any violation of or non-
compliance with any Hazardous Material Laws as regards the Demised Premises;
(iv) that, except for use or discharge in strict accordance and conformity with
all applicable laws, Landlord has never caused or permitted any Hazardous
Material, asbestos or asbestos-containing substance to be placed, held, located
or disposed of on, under or at the Premises or any part thereof. Landlord shall
indemnify and hold Tenant harmless from and against any and all loss, damage,
cost or expense (including but not limited to clean-up costs and losses relating
to interruption or cessation of operations) arising out of or relating to any
breach of any of the foregoing warranties and representations.
(b) In connection with Landlord's ownership, development, operation,
management and maintenance and replacement of the Project (including the Demised
Premises) (such activity by or at the bequest of Landlord and/or its affiliate
being hereinafter collectively called the "Landlord's Activities"), Landlord
shall at all times and in all respects comply with all Hazardous Materials Laws.
(c) Landlord shall at its own expense procure, maintain in effect
and comply with all conditions of any and all permits, licenses and other
governmental and regulatory approvals in connection with Landlord's Activities,
including, without limitation, discharge of (appropriately treated) materials or
waste into or through any sanitary sewer system serving the Project. Except as
discharged into the sanitary
14
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sewer in strict accordance and conformity with all applicable Hazardous
Materials Laws, Landlord shall cause any and all Hazardous Materials to be
removed from the Project and transported solely by duly licensed haulers to duly
licensed facilities for final disposal of such Hazardous Materials. Landlord
shall in all respects, handle, treat, deal with and manage any and all Hazardous
Materials in, on, under or about the Project in complete conformity with all
applicable Hazardous Materials Laws and prudent industry practices regarding the
management of such Hazardous Materials. All reporting obligations imposed by
Hazardous Materials Laws with respect to the Landlord's Activities are solely
the responsibility of Landlord. Landlord shall not take any remedial action in
response to the presence of any Hazardous Materials in, on, about or under the
Demised Premises or in any Improvement situated on the Land, nor enter into any
settlement agreement, consent decree or other compromise in respect to any
claims relating to any Hazardous Materials in any way connected with the Demised
Premises or the Improvements on the Land without first notifying Tenant of
Landlord's intention to do so and affording Tenant ample opportunity to appear,
intervene or otherwise appropriately assert and protect Tenant's interest with
respect thereto.
(d) Promptly after Landlord acquires actual knowledge of same,
Landlord shall notify Tenant in writing of (i) any enforcement, clean-up,
removal or other governmental or regulatory action instituted, completed or
threatened pursuant to any Hazardous Materials Laws with respect to the Project;
(ii) any claim made or threatened by any person against Tenant, or the Demised
Premises, relating to damage, contribution, cost recovery, compensation, loss or
injury resulting from or claimed to result from any Hazardous Materials; and
(iii) any reports made to any environmental agency arising out of or in
connection with any Hazardous Materials in, on or about the Project or with
respect to any Hazardous Materials removed from the Project, including, any
complaints, notices, warnings, reports or asserted violations in connection
therewith. Landlord shall also provide to Tenant, as promptly as possible, and
in any event within five (5) business days after Landlord first receives or
sends the same, with copies of all claims, reports, complaints, notices,
warnings or asserted violations relating in any way to the Project or Landlord's
Activities.
(e) Landlord shall indemnify, defend (with counsel reasonably
acceptable to Tenant), protect and hold Tenant and each of Tenant's officers,
directors, partners, employees, agents, attorneys, successors and assigns free
and harmless from and against any and all claims, liabilities, damages, costs,
penalties, forfeitures, losses or expenses (including attorneys' fees) for death
or injury to any person or damage to any property whatsoever arising or
resulting in whole or in part, directly or indirectly, from the presence or
discharge of Hazardous Materials, in, on, under, upon or from the Project or the
Improvements located thereon or from the transportation or disposal of Hazardous
Materials to or from the Project to the extent caused by Landlord, its agents,
employees or contractors, whether knowingly or unknowingly. Landlord's
obligations hereunder shall include, without limitation, and whether foreseeable
or unforeseeable, all costs of any required or necessary repairs, clean-up or
detoxification or decontamination of the Project or the Improvements, and the
presence and implementation of any closure, remedial action or other required
plans in connection therewith, and shall survive the expiration of or early
termination of the term of this Lease Agreement. For purposes of the indemnity
provided herein, any acts or omissions of Landlord, or its employees, agents,
customers, sub-lessees, assignees, contractors or sub-contractors of Landlord
(whether or not they are negligent, intentional, willful or unlawful) shall be
strictly attributable to Landlord.
6. OPERATING EXPENSES.
------------------
6.1. Payment of Operating Expenses. In addition to Rent during the First
-----------------------------
Lease Year (which
15
<PAGE>
includes the Estimated First Year Operating Expenses), Tenant shall pay to
Landlord as "Additional Rent" the amount by which actual "Operating Expenses"
(as such term is hereinafter defined) for each Lease Year exceed the Estimated
First Year Operating Expenses during the first Lease Year of the Initial Term
and the "Base Year Operating Expenses" each Lease Year thereafter.
6.2. Definition of Operating Expenses. Subject to the exclusions set
--------------------------------
forth in Section 6.3 below, for the purposes of this Lease Agreement, the term
"Operating Expenses" shall mean the total cost or expense, incurred by Landlord
operating, repairing or maintaining the Demised Premises and sales, use and
other similar taxes which are paid by Tenant to Landlord together with the
monthly installments of Rent. Operating Expenses shall include, without
limitation, the following:
(a) Wages, salaries, payroll costs, and benefits paid to or on
behalf of Landlord's employees directly engaged in the operation, maintenance,
repair and security (pro rated to reflect only that portion of the employee(s)
time serving the Demised Premises and excluding any time, expenses, etc. to the
extent relating to any other building or property owned, operated or managed by
Landlord or any affiliate of Landlord).
(b) Administrative costs of management, including a reasonable and
customary management fee, provided the management fee does not exceed three (3)
percent of the Rent.
(c) Cost of insurance required by Article 8.
(d) Any cost or expense incurred by Landlord in connection with
maintaining its option agreement for the Exhibit C Property under Section 2.12.
6.3. Certain Exclusions from Operating Expenses.
------------------------------------------
(a) Notwithstanding the terms and provisions of Section 6.2 or of
any other terms or provision of this Lease Agreement, the following shall be
excluded from Operating Expenses: (1) leasing commissions, (2) subject to
Tenant's obligation to make "Tenant's Compliance Contribution" pursuant to
Section 11.1, costs incurred by Landlord for alterations or additions that are
considered capital improvements and/or replacements under generally accepted
accounting principles; (3) any depreciation or amortization on the Project; (4)
subject to Tenant's obligation to make "Tenant's Compliance Contribution"
pursuant to Section 11.1, costs of a capital nature, including, without
limitation, capital improvements, capital repairs, capital equipment and capital
tools as determined in accordance with generally accepted accounting principles;
(5) costs, fines or penalties incurred due to a violation by Landlord of any of
the terms and conditions of this lease or any other lease relating to the
Project, or of any Laws; (6) interest on debt or amortization payments, or
increases in interest on debt, or any mortgages and rental under any ground or
underlying lease, or any other debt for borrowed money; (7) repairs and any
other work occasioned by fire, windstorm or other casualty which are paid from
insurance or condemnation proceeds; (8) fines, penalties or late charges
incurred because of Landlord's failure to promptly pay an obligation; and (9)
any cost or expense which is already passed onto Tenant (or reimbursed to
Landlord) pursuant to some other term or provision of this Lease Agreement, or
any expense billed to and paid directly by Tenant on its own account or on
behalf of Landlord and (10) the cost of constructing the Improvements and
preparing the Demised Premises for occupancy by Tenant.
(b) Capital Improvements. Tenant shall not be obligated to pay for
--------------------
any costs of a capital nature, subject to the following two qualifications: (1)
Tenant shall be obligated to pay "Tenant's
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<PAGE>
Compliance Contribution" pursuant to Section 11.1; and (2) if during the Initial
Term (or any Renewal Term) Landlord and Tenant mutually agree that a capital
improvement would result in a reduction in Operating Expenses, Landlord and
Tenant may (at the time that they mutually approve such capital improvement)
agree upon a portion of the amortization of such capital improvement to be
included in the definition of "Operating Expenses", provided, however, it is the
intent of the parties that in no event will the portion of the amortization
included in Operating Expenses exceed the cost savings associated with the
capital improvement and if Landlord incurs a cost of a capital nature without
obtaining Tenant's prior written consent and agreement, Tenant shall not be
responsible for paying any portion of such capital cost.
(c) Tenant's Direct Obligations. Except for Landlord's obligations
---------------------------
under Section 10.1(a) and Operating Expenses as set forth in Section 6.2, Tenant
shall directly maintain, pay and perform any and all other obligations and
charges in connection with Tenant's use and occupancy of the Demised Premises,
including, without limitation, business license or similar permit fees (but not
Certificate of Occupancy or construction related permits, licenses or other
authorizations, all of which shall be paid by Landlord). In the event Tenant
fails to perform, pay or discharge any such obligations or charges when due
without penalty or interest, Landlord may, but shall not be obligated to pay the
same. In the event Landlord makes any such payment, Tenant shall immediately
reimburse Landlord therefore together with interest at the Maximum Rate of
Interest on such amount within 15 days of demand by Landlord. Further, Tenant
agrees to indemnify, defend and hold Landlord harmless from and against Tenant's
failure to comply with this Section 6.3(c). The direct obligations and charges
related to Tenant's use and occupancy of the Demised Premises under this Section
6.3(c) shall include but not be limited to the following:
(i) Cost of all utilities as set forth in Article 9 including
but not limited to electricity, water and sewer.
(ii) All supplies and materials used in operation and
maintenance of the Demised Premises.
(iii) Cost of any maintenance or service agreements such as
alarm or security service (excluding the cost of any separate alarm or
security service paid for by Tenant), landscape maintenance, window
cleaning, and air conditioning service.
(iv) Cost of repairs, replacements and general maintenance,
excluding capital improvements, except as otherwise provided in
Section 6.3(b) and Section 11.1 hereinafter.
(v) All assessments by Gateway Services District and any other
applicable assessments or charged levied by entities having
jurisdiction thereof, pursuant to restrictive covenants or law,
against the Demised Premises.
(vi) All impositions as set forth in Article 7.
(vii) Cost to provide janitorial service.
(viii) Cost to keep and maintain the Building, the Demised
Premises, common facilities, common areas, parking area, sidewalks and
appurtenances in a first class condition.
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<PAGE>
(ix) Cost to adequately light the Building and the Demised
Premises, and provide and replace lamps and related equipment when
necessary.
(x) Cost to provide hot and cold water and sanitary and
toilet facilities and supplies for use by Tenant, its employees and
invitees.
(xi) Cost to furnish and provide the Demised Premises with
electric current for lighting, normal office use, heating, air
conditioning and office machines, such as duplicating and word
processing equipment and computer terminals.
(xii) Cost to provide sufficient elevator service for access to
the Demised Premises. (At least one (1) elevator shall operate during
non-business hours, affording access to the Premises.)
(xiii) Cost to provide adequate security services for the
Demised Premises, the Building and common areas in and around the
Building, including fire and burglar alarm devices and guard
protection, to perform annual inspection and/ or testing of the smoke
detectors and fire extinguishers in the Demised Premises and
elsewhere in the Building and to provide for the periodic maintain
and annual inspection of the Building fire alarm system.
7. PAYMENT OF TAXES, ASSESSMENTS, ETC.
----------------------------------
7.1. Payment of Impositions. Tenant covenants and agrees to pay during
----------------------
the Term directly to the applicable authority before any fine, penalty, interest
or cost may be added thereto for the nonpayment thereof, all real estate taxes,
special assessments, water rates and charges, sewer rates and charges, including
charges for public utilities, street lighting, excise levies, licenses, permits,
inspection fees, other governmental charges, and all other charges or burdens of
whatsoever kind and nature (including costs, fees, and expenses of complying
with any restrictive covenants or similar agreements to which the Demised
Premises are subject) incurred in the use, occupancy, ownership, operation,
leasing or possession of the Demised Premises, without particularizing by any
known name or by whatever name hereafter called, and whether any of the
foregoing be general or special, ordinary or extraordinary, foreseen or
unforeseen (all of which are sometimes herein referred to as "Impositions"),
which at any time during the Term may have been or may be assessed, levied,
confirmed, imposed upon, or become a lien on the Demised Premises, or any
portion thereof, or any appurtenance thereto, rents or income therefrom, and
such easements or rights as may now or hereafter be appurtenant or appertain to
the use of the Demised Premises. Tenant shall be able to take advantage of all
applicable discounts for early payment of Impositions. Neither the Impositions
nor any other charge passed onto Tenant shall ever include any (i) profit,
income, revenue or similar tax upon the income of Landlord or any franchise,
excise, corporate, estate, partnership, inheritance, succession, capital levy,
transfer, documentary or similar tax of Landlord, or (ii) any charge, fee or
amount due and payable in connection with the design, development or
construction of the Demised Premises. Tenant shall pay all special (or similar)
assessments for public improvements or benefits which, during the Term shall be
laid, assessed, levied or imposed upon or become payable or become a lien upon
the Demised Premises, or any portion thereof, provided, however, that if by law
--------
any special assessment is payable (without default) or, at the option of the
owner, may be paid (without default) in installments (whether or not interest
shall accrue on the unpaid balance of such
18
<PAGE>
special assessment), Tenant may pay the same, together with any interest accrued
on the unpaid balance of such special assessment, in installments as the same
respectively become payable and before any fine, penalty, interest or cost may
be added thereto for the nonpayment of any such installment and the interest
thereon. Tenant shall pay all special assessments or installments thereof
(including interest accrued thereon), whether heretofore or hereafter laid,
assessed, levied or imposed upon the Demised Premises, or any portion thereof,
which are due and payable during the Term. Landlord shall pay all installments
of special assessments (including interest accrued on the unpaid balance) which
are payable prior to the commencement and after the expiration or sooner
termination of the Term. Tenant shall pay all real estate taxes, whether
heretofore or hereafter levied or assessed upon the Demised Premises, or any
portion thereof, which are due and payable during the Term. Landlord shall pay
all real estate taxes which are payable prior to the commencement of the Term.
Any provision herein to the contrary notwithstanding, Landlord shall pay that
portion of the real estate taxes and installments of special assessments
attributable to the Demised Premises prior to and after the Term which the
number of days in said years not within the Term bears to 365, and Tenant shall
pay the balance of said real estate taxes and installments of special
assessments during said years.
7.2. Tenant's Right to Contest Impositions. Tenant shall have the right
-------------------------------------
at its own expense to contest the amount or validity, in whole or in part, of
any Imposition by appropriate proceedings diligently conducted in good faith,
but only after payment of such Imposition, unless such payment, or a payment
thereof under protest, would operate as a bar to such contest or interfere
materially with the prosecution thereof, in which event, notwithstanding the
provisions of Section 7.1 hereof, Tenant may postpone or defer payment of such
Imposition if (i) neither the Demised Premises nor any portion thereof would, by
reason of such postponement or deferment, be in danger of being forfeited or
lost, and (ii) Tenant shall have deposited with Landlord cash or a certificate
of deposit or irrevocable letter of credit payable to Landlord issued by a
national bank or federal savings and loan association or other security
reasonably acceptable to Landlord in the amount of the Imposition so contested
and unpaid, together with all interest and penalties which may accrue in
Landlord's reasonable judgment in connection therewith, and all charges that may
or might be assessed against or become a charge on the Demised Premises, or any
portion thereof, during the pendency of such proceedings. If, during the
continuance of such proceedings, Landlord shall, from time to time, reasonably
deem the amount deposited, as aforesaid, insufficient, Tenant shall, upon demand
of Landlord, make additional deposits of such additional sums of money or such
additional certificates of deposit or irrevocable letters of credit as Landlord
may reasonably request. Upon failure of Tenant to make such additional
deposits, the amount theretofore deposited may be applied by Landlord to the
payment, removal and discharge of such Imposition, and the interest, fines and
penalties in connection therewith, and any costs, fees (including attorney's
fees) and other liability (including costs incurred by Landlord) accruing in any
such proceedings. Upon the termination or final determination of any such
proceedings, Tenant shall pay the amount of such Imposition or part thereof, if
any, as finally determined in such proceedings, the payment of which may have
been deferred during the prosecution of such proceedings, together with any
costs, fees, including reasonable attorney's fees, interest, penalties, fines
and other liability in connection therewith, and upon such payment Landlord
shall return all amounts, certificates or other security deposited with it with
respect to the contest of such Imposition, as aforesaid, or, at the written
direction of Tenant, Landlord shall make such payment out of the funds on
deposit with Landlord and the balance, if any, shall be returned to Tenant.
Tenant shall be entitled to the refund of any Imposition, penalty, fine and
interest thereon received by Landlord which have been paid by Tenant or which
have been paid by Landlord but for which Landlord has been previously reimbursed
in full by Tenant. Landlord shall not be required to join in any proceedings
referred to in this Section 7.2 unless the provisions of any law, rule or
regulation at the time in effect shall require that such proceedings be brought
by or in the name of Landlord, in which event Landlord shall join in such
proceedings or permit the same
19
<PAGE>
to be brought in Landlord's name upon compliance with such conditions as
Landlord may reasonably require. Landlord shall not ultimately be subject to any
liability for the payment of any fees, including attorney's fees, costs and
expenses in connection with such proceedings. Tenant agrees to pay all such fees
(including reasonable attorney's fees), costs and expenses or, within ten (10)
days of Landlord's demand, to make reimbursement to Landlord for such payment.
During the time when any such certificate of deposit or other security is on
deposit with Landlord, and prior to the time when the same is returned to Tenant
or applied against the payment, removal or discharge of Impositions, as above
provided, Tenant shall be entitled to receive all interest paid thereon. Cash
deposits shall bear interest.
7.3. Levies and Other Taxes. If, at any time during the term of this
----------------------
Lease Agreement, any method of taxation shall be such that there shall be
levied, assessed or imposed on Landlord, or on the Base Rent or Additional Rent,
or on the Demised Premises, or any portion thereof, a capital levy, gross
receipts tax or other tax on the rents received therefrom, or a franchise tax,
or an assessment, levy or charge measured by or based in whole or in part upon
such rents, Tenant covenants to pay and discharge the same, it being the
intention of the parties hereto that the rent to be paid hereunder shall be paid
to Landlord absolutely net without deduction or charge of any nature whatsoever
foreseeable or unforeseeable, ordinary or extraordinary, or of any nature, kind
or description, except as in this Lease Agreement otherwise expressly provided.
Nothing in this Lease Agreement shall require Tenant to pay any profit, income,
revenue or similar tax upon the income of Landlord or any franchise, excise,
corporate, estate, partnership, inheritance, succession, capital, levy,
transfer, documentary or similar tax of Landlord.
7.4. Evidence of Payment. Tenant covenants to furnish Landlord, within
-------------------
thirty (30) days after the date upon which any Imposition or other tax,
assessment, levy or charge is payable by Tenant without imposition of any fine,
penalty, interest or cost, official receipts of the appropriate taxing
authority, or other appropriate proof satisfactory to Landlord, evidencing the
payment of the same. The certificate, advice or bill of the appropriate
official designated by law to make or issue the same or to receive payment of
any Imposition or other tax, assessment, levy or charge may be relied upon by
Landlord as sufficient evidence that such Imposition or other tax, assessment,
levy or charge is due and unpaid at the time of the making or issuance of such
certificate, advice or bill.
7.5. Landlord's Right to Contest Impositions. In addition to the right
---------------------------------------
of Tenant under Section 7.2 to contest the amount or validity of Impositions,
Landlord shall also have the right, but not the obligation, to contest the
amount or validity, in whole or in part, of any Impositions not contested by
Tenant, by appropriate proceedings conducted in the name of Landlord or in the
name of Landlord and Tenant. If Landlord elects to contest the amount or
validity, in whole or in part, of any Impositions, such contests by Landlord
shall be at Landlord's expense, provided, however that if the amounts payable by
-----------------
Tenant for Impositions are reduced (or if a proposed increase in such amounts is
avoided or reduced) by reason of Landlord's contest of Impositions, Tenant shall
reimburse Landlord for Tenant's pro-rata share of Landlord's actual and
reasonable costs incurred by Landlord in contesting Impositions, but such
reimbursements shall not be in excess of the amount saved by Tenant by reason of
Landlord's actions in contesting such Impositions.
7.6 Separate Assessment. Landlord represents and warrants to Tenant that
-------------------
the Demised Premises are currently separately assessed from the remainder of the
Project (or other portions thereof), or are capable of being separately assessed
and will be so assessed in the next assessment cycle.
8. INSURANCE.
---------
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8.1. Landlord's Casualty Insurance Obligations. In connection with Rent
-----------------------------------------
and Additional Rent to be paid by Tenant to Landlord, Landlord agrees to obtain
and continuously maintain in full force and effect during the Term, commencing
with the date that Rent (full or partial) commences, policies of insurance
covering the Improvements constructed, installed or located on the Demised
Premises naming the Tenant, as an additional insured, against: (i) loss or
damage by fire; (ii) loss or damage from such other risks or hazards now or
hereafter embraced by an "Extended Coverage Endorsement," including, but not
limited to, windstorm, hail, explosion, vandalism, riot and civil commotion,
damage from vehicles, smoke damage, water damage and debris removal; (iii) loss
for flood if the Demised Premises are in a designated flood or flood insurance
area; (iv) loss from so-called explosion, collapse and underground hazards; (v)
loss of rental insurance for at least a twelve (12) month period; and (vi) loss
or damage from such other risks or hazards of a similar or dissimilar nature
which are now or may hereafter be customarily insured against with respect to
improvements similar in construction, design, general location, use, occupancy
and location to the Improvements. At all times, such insurance coverage shall be
in an amount equal to one hundred percent (100%) of the then "full replacement
cost" of the Improvements. "Full Replacement Cost" shall be interpreted to mean
the cost of replacing the Improvements without deduction for depreciation or
wear and tear, and it shall include a reasonable sum for architectural,
engineering, legal, administrative and supervisory fees connected with the
restoration or replacement of the Improvements in the event of damage thereto or
destruction thereof. If a sprinkler system shall be located in the Improvements,
sprinkler leakage insurance shall be procured and continuously maintained by
Landlord. For the period prior to the date when full or partial Rent commences
hereunder Landlord, at its sole cost and expense, shall also maintain in full
force and effect, on a completed value basis, insurance coverage on the Building
and Improvements on Builder's Risk or other comparable coverage. Landlord and
Tenant shall require any contractor, subcontractor, sub-subcontractor, laborer
or materialman that works on the Demised Premises for Landlord or Tenant to
provide a satisfactory certificate of insurance to the other prior to
commencement of any such work.
8.2. Tenant's Liability and Other Insurance Coverage. During the Term,
-----------------------------------------------
Tenant, at its sole cost and expense, shall obtain and continuously maintain in
full force and effect the following insurance coverage:
(a) Commercial general liability insurance against any loss,
liability or damage on, about or relating to the Demised Premises, or any
portion thereof, with limits of not less than Two Million Dollars
($2,000,000.00) combined single limit coverage, per occurrence and aggregate, on
an occurrence basis. Any such insurance obtained and maintained by Tenant shall
name Landlord as an additional insured therein and shall be obtained and
maintained from and with a reputable and financially sound insurance company
authorized to issue such insurance in the State of Florida. Such insurance shall
specifically insure (by contractual liability endorsement) Tenant's obligations
under Section 21.1 of this Lease Agreement.
(b) Such other insurance and in such amounts as may from time to
time be reasonably required by Landlord, against other insurable hazards which
-------
at the time are commonly insured against in the case of premises and/or
buildings or improvements similar in construction, design, general location,
use, occupancy and location to those on or appurtenant to the Demised Premises
and at commercially reasonable rates.
The insurance set forth in this Section 8.2 shall be maintained by Tenant
at not less than the limits set forth herein until reasonably required to be
changed firm time to time by Landlord, in writing, whereupon Tenant covenants to
obtain and maintain thereafter such protection in the amount or amounts
21
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so required by Landlord.
8.3. Landlord's Liability Insurance Coverage. During the Term, Landlord,
---------------------------------------
at its sole cost and expense, shall obtain and continuously maintain in full
force and effect commercial general liability insurance against any loss,
liability or damage on, about or relating to the Project, or any portion
thereof, with limits of not less than Five Million Dollars ($5,000,000.00)
combined single limit coverage, per occurrence and aggregate, on an occurrence
basis. Any such insurance obtained and maintained by Landlord shall name Tenant
as an additional insured therein (unless Tenant elects to self insure under
Section 8.10, in which event Tenant shall be removed as an additional insured),
and shall be obtained and maintained from and with a reputable and financially
sound insurance company authorized to issue such insurance in the State of
Florida. Such insurance shall specifically insure (by contractual liability
endorsement) Landlord's obligations under Section 21.2 of this Lease Agreement.
8.4. Extended Coverage Insurance Provisions. All policies of insurance
--------------------------------------
required by Section 8.1 shall provide that the proceeds thereof shall be payable
to Landlord and if Landlord so requests shall also be payable to any contract
purchaser of the Demised Premises and the holder of any mortgages now or
hereafter becoming a lien on the fee of the Demised Premises, or any portion
thereof, as the interest of such purchaser or holder appears pursuant to a
standard named insured or mortgagee clause. Tenant shall not, on Tenant's own
initiative or pursuant to request or requirement of any third party, take out
separate insurance concurrent in form or contributing in the event of loss with
that required in Section 8.1 hereof, unless Landlord is named therein as an
additional insured with loss payable as in said Section 8.1 provided. Tenant
shall immediately notify Landlord whenever any such separate insurance is taken
out and shall deliver to Landlord original certificates evidencing the same.
8.5. General Insurance Requirements. Each policy required under Sections
------------------------------
8.1 and 8.2 shall have attached thereto (i) an endorsement that such policy
shall not be canceled or materially changed without at least thirty (30) days
prior written notice to the party named therein as an additional insured, and
(ii) an endorsement to the effect that the insurance as to the interest of the
party named as additional insured shall not be invalidated by any act or neglect
of the insuring party. All policies of insurance shall be written on companies
reasonably satisfactory to the party named as an additional insured therein and
licensed in the State of Florida. Certificates evidencing insurance shall be in
a form reasonably acceptable to the recipient party, shall be delivered to such
party upon commencement of the Term and prior to expiration of such policy, new
certificates evidencing such insurance, shall be delivered to such party not
less than twenty (20) days prior to the expiration of the then current policy
term.
8.6. Waiver of Subrogation. Landlord and Tenant shall include in the
---------------------
policy or policies of insurance required by this Article 8 a waiver by the
insurer of all rights of subrogation against Landlord or Tenant in connection
with any loss or damage thereby insured against. Neither party, nor its agents,
employees or guests, shall be liable to the other for loss or damage caused by
the risk covered by such insurance.
8.7. Tenant's Personal Property Coverage. Tenant, at its option, shall
-----------------------------------
maintain insurance coverage (including loss of use and business interruption
coverage) upon Tenant's business and upon all personal property of Tenant or the
personal property of others kept, stored or maintained on the Demised Premises
against loss or damage by fire, windstorm or other casualties or causes for such
amount as Tenant may desire.
8.8. Unearned Premiums. Upon expiration or sooner termination of the
-----------------
Term, the unearned
22
<PAGE>
premiums upon any insurance policies or certificates thereof lodged with Tenant
by Landlord shall, subject to the provisions of Article 14 hereof, be payable to
Tenant.
8.9. Blanket Insurance Coverage. Nothing in this Article shall prevent
--------------------------
Tenant from taking out insurance of the kind and in the amount provided for
under the preceding Sections of this Article under a blanket insurance policy or
policies (evidence thereof reasonably satisfactory to Landlord shall be
delivered to Landlord) which may cover other properties owned or operated by
Tenant as well as the Demised Premises; provided, however, that any such policy
--------
of blanket insurance of the kind provided for shall (i) specify therein the
amounts thereof exclusively allocated to the Demised Premises or Tenant shall
furnish Landlord and the holder of any fee mortgage with a written statement
from the insurers under such policies specifying the amounts of the total
insurance exclusively allocated to the Demised Premises, and (ii) not contain
any clause which would result in the insured thereunder being required to carry
any insurance with respect to the property covered thereby in an amount not less
than any specific percentage of the Full Replacement Cost of such property in
order to prevent the insured therein named from becoming a co-insurer of any
loss with the insurer under such policy; and provided further, however, that
----------------
such policies of blanket insurance shall, as respects the Demised Premises,
contain the various provisions required of such an insurance policy by the
foregoing provisions of this Article.
8.10. Tenant's Self-Insurance. Notwithstanding anything herein to the
-----------------------
contrary, upon ninety (90) days prior written notice to Landlord, Tenant may
from time to time self-insure with respect to any or all of the risks required
to be insured against by Tenant under this Lease Agreement; subject to its
continued waiver of subrogation under Section 8.6 hereinabove and provided that
Tenant provides satisfactory evidence to Landlord that Tenant has a net worth in
excess of $100,000,000.00. In connection therewith, Tenant shall be required to
deliver to Landlord, from time to time, at Landlord's request, updated financial
information of Tenant certifying that Tenant has a net worth in excess of
$100,000,000.00 (the "Net Worth Certification"). The mere purchase and existence
of insurance by the Tenant, or the Tenant's decision to self-insure does not
reduce or relieve the Tenant from liability incurred and/or assumed within the
scope of this Lease.
8.11 Worker's Compensation
---------------------
Landlord shall carry appropriate workers' compensation and employers'
liability insurance on those of its employees who may at any time enter the
Demised Premises and agrees to indemnify and hold harmless Tenant from and
against any and all expenses connected with claims made by Landlord's employees
for injuries incurred at the Demised Premises.
9. UTILITIES.
---------
9.1. Payment of Utilities. During the Term, Tenant will pay directly to
--------------------
the applicable utility company, when due without the imposition of any fine,
penalty, interest of costs, all charges of every nature, kind or description for
utilities furnished solely to the Demised Premises or chargeable solely against
the Demised Premises, including all charges for water, sewage, heat, gas, light,
garbage, electricity, telephone, steam, power, or other public or private
utility services. Prior to the Commencement Date, Landlord shall pay for all
utilities or services at the Demised Premises used by it or its agents,
employees or contractors (excluding therefrom, however, any utilities consumed
in connection with construction of the Demised Premises). All such charges for
utilities are Operating Expenses pursuant to Section 6 hereinabove.
23
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10. REPAIRS.
-------
10.1. (a) Landlord's Repairs. Landlord, at its sole cost and expense
------------------
(subject to Landlord's right to receive Tenant's Compliance Contribution
pursuant to Section 11.1(b) as Operating Expenses pursuant to Section 6.1),
throughout the Term, shall take good care of the roof, structure (which, for the
purposes of this Agreement shall mean load bearing walls, foundation, roof
system and exterior panels, excluding items of a cosmetic nature) and paved
parking areas (in accordance with Section 10.5 herein) in the Demised Premises
(including any improvements hereafter erected or installed on the Land), and
shall keep the same in good order and condition, and shall make and perform all
routine maintenance thereof and all necessary repairs thereto, ordinary and
extraordinary, foreseen and unforeseen, of every nature, kind and description.
When used in this Article, "repairs" shall include all necessary replacements,
renewals, alterations, additions and betterments. All repairs made by Landlord
shall be at least equal in quality to the original work and shall be made by
Landlord in accordance with all laws, ordinances and regulations whether
heretofore or hereafter enacted. The necessity for or adequacy of maintenance
and repairs shall be measured by the standards which are appropriate for
improvements of similar construction and class, provided that Landlord shall in
any event make all repairs necessary to avoid any structural damage or other
damage or injury to the Improvements.
(b) Tenants Repairs. Except to the extent otherwise set forth in
---------------
Section 10.1(a) above, Tenant, at its sole cost and expense, throughout the
Term, shall take good care of the Demised Premises and shall keep the same in
good order and condition, and shall make and perform all routine maintenance
thereof and all necessary repairs thereto, interior and exterior, ordinary and
extraordinary, foreseen and unforeseen, of every nature, kind and description.
When used in this Article, "repairs" shall include all necessary replacements,
renewals, alterations, additions and betterments. All repairs made by Tenant
shall be at least equal in quality to the original work and shall be made by
Tenant in accordance with all laws, ordinances and regulations whether
heretofore or hereafter enacted. The necessity for or adequacy of maintenance
and repairs shall be measured by the standards which are appropriate for
improvements of similar construction and class, provided that Tenant shall in
any event make all repairs necessary to avoid any damage or injury to the
Improvements.
10.2. Maintenance. Except to the extent otherwise set forth in Section
-----------
10.1(a) above, Tenant, at its sole cost and expense, shall take good care of,
repair and maintain all driveways, pathways, roadways, sidewalks, curbs, spur
tracts, parking areas (in accordance with Section 10.5 herein), loading areas,
landscaped areas, entrances and passageways of the Demised Premises in good
order and repair and shall promptly remove all accumulated snow, ice and debris
from any and all driveways, pathways, roadways, sidewalks, curbs, parking areas,
loading areas, entrances and passageways, and keep all portions of the Demised
Premises including areas appurtenant thereto, in a clean and orderly condition
free of dirt, rubbish, debris and unlawful obstructions. Further, Tenant shall
keep the Demised Premises safe for human occupancy and use.
All work performed by Tenant under this Article 10 shall provide for
containment of any toxic materials which may be encountered and shall be in
strict conformance with OSHA and EPA standards and local building codes and
regulations. Landlord shall not use toxic paint or other materials which may
emit fumes or odors harmful to Tenant's employees.
10.3. Prohibition Against Waste. Tenant shall not do or suffer any
-------------------------
waste or damage, disfigurement or injury to the Demised Premises, or any
improvements hereafter erected thereon, or to the fixtures or equipment therein
or permit or suffer any overloading of the floors or other use of the
24
<PAGE>
Improvements that would place an undue stress on the same or any portion thereof
beyond that for which the same was designed.
10.4. Service Agreements. Tenant, at its sole cost and expense, shall
------------------
maintain contracts for servicing the systems serving the Demised Premises,
including, without limitation, landscape maintenance, pest control, security,
wells or lift stations, if applicable, generators, window cleaning, trash
removal, parking lot maintenance and sweeping, fire safety maintenance and
inspection, signage maintenance, exterior painting, interior cosmetic
maintenance such as wall covering, painting walls and carpeting, plumbing
repairs and general plumbing maintenance, the elevator system and the HVAC
System, with contractors and pursuant to contracts reasonably satisfactory to
Landlord. Tenant shall provide Landlord with copies of such contracts and
information regarding such contractors for Landlord's approval, which approval
shall not be unreasonably withheld.
10.5 Parking Areas. Tenant shall be responsible for ordinary repairs,
-------------
maintenance and sweeping of all parking areas, including any routine pothole
patching or repair. Tenant shall cause the parking areas to be resealed and
restriped as needed, but in no event less than once every three (3) years.
Landlord shall be responsible for resurfacing the parking areas upon the
recommendation of an independent parking consultant selected by Landlord and
Tenant; however, in the event Tenant fails to adhere to the resealing and
restriping schedule set forth herein, Landlord shall be relieved of such
responsibility and any required resurfacing shall be the sole responsibility of
Tenant.
11. COMPLIANCE WITH LAWS AND ORDINANCES.
-----------------------------------
11.1. Compliance with Laws and Ordinances. As used in this Lease
-----------------------------------
Agreement, the term "Laws" shall mean all present and future laws, ordinances,
orders, rules, regulations and requirements of all federal, state, municipal and
other governmental bodies having jurisdiction over the Demised Premises and the
appropriate departments, commissions, boards and officers thereof, and the
orders, rules and regulations of the Board of Fire Underwriters where the
Demised Premises are situated, or any other body now or hereafter constituted
exercising lawful or valid authority over the Demised Premises, or any portion
thereof or the sidewalks, curbs, roadways, alleys, entrances or railroad tract
facilities adjacent or appurtenant thereto, or exercising authority with respect
to the use or manner of use of the Demised Premises, or such adjacent or
appurtenant facilities, including, without limitation, the Americans with
Disabilities Act. Landlord shall be responsible for constructing Landlord's
Improvements in accordance with all Laws, as such laws exist as of the date of
the issuance of its building permits and certificate of occupancy. At all times
during Tenant's occupancy of the Demised Premises (or any portion thereof),
Tenant shall cease and remove any violation of Laws resulting from Tenant's
specific use of the Demised Premises other than for general office use. Landlord
and Tenant mutually acknowledge that amendments to existing Laws or enactment of
new Laws taking effect after the Commencement Date may require that substantial
cost be incurred in making physical alterations or improvement to Landlord's
Improvements (physical alterations or improvements to the Landlord's
Improvements that are required to be made during the initial term or any renewal
term to bring the Demised Premises into compliance with amendments to existing
Laws or enactments of new Laws are collectively referred to as "Future
Compliance Improvements"). The term "Future Compliance Improvements" shall not
include any improvements necessary due to Landlord's failure to comply with all
existing Laws as they related to construction of the Landlord's Improvements.
Because the cost of making the Future Compliance Improvements is unforeseeable
as of the Effective Date of this Lease Agreement and may be substantial, the
parties hereby agree to the following with respect to making Future Compliance
Improvements:
25
<PAGE>
(a) Landlord shall have the responsibility, at Landlord's sole
expense, for constructing or making the Future Compliance Improvements which are
attributable solely to changes in Laws and are required for Tenant to continue
to utilize Landlord's Improvements for the purposes permitted under this Lease,
subject only to Tenant's obligation to pay Landlord the "Tenant's Compliance
Contribution."
(b) Except to the extent otherwise elected by Tenant or Landlord
herein below, Tenant shall be required to reimburse Landlord for the cost of
constructing or making the Future Compliance Improvements by paying Landlord
additional Operating Expenses in a monthly amount during the Lease Term equal to
the amortized cost of the Future Compliance Improvements constructed or made by
Landlord, amortized over the useful life of such Future Compliance Improvements
as determined by generally accepted accounting principles, such amortization
period not to exceed twenty (20) years ("Tenant's Compliance Contribution"). As
conditions precedent to Landlord's right to receive the Tenant's Compliance
Contribution, (i) Landlord shall have delivered a written notice to Tenant
stating that Landlord intends to commence a Future Compliance Improvement, which
notice shall also cite the applicable Law pursuant to which the Future
Compliance Improvement is being made and provide an estimate of Tenant's
Compliance Contribution, and (ii) Landlord shall submit to Tenant invoices and
other reasonable documentation evidencing the amounts paid by Landlord in making
or constructing the Future Compliance Improvements. Upon Tenant's receipt of a
notice from Landlord of Future Compliance Improvements to be constructed by
Landlord, Tenant may provide Landlord with notice that Tenant will not pay
Tenant's Compliance Contribution and if Tenant does not agree to pay, Landlord
shall, within thirty (30) days of such notice from Tenant, elect to terminate
the Lease or to pay Tenant's Compliance Contribution. If Tenant agrees to pay
Tenant's Compliance Contribution, Landlord agrees to provide Tenant with
reasonable documentation supporting the cost to construct the Future
Improvements and Tenant's Compliance Contribution prior to the initial payment
of Tenant's Compliance Contribution.
(c) Tenant shall have the responsibility, at Tenant's sole expense,
for constructing or making the Future Compliance Improvements which are solely
attributable to changes in use by Tenant or alterations by Tenant.
11.2. Compliance with Permitted Encumbrances. Tenant shall not violate
--------------------------------------
the terms and provisions of the agreements, contracts, easements, restrictions,
reservations or covenants, if any, set forth in Exhibit "D" attached, or
hereafter created by Tenant or consented to, in writing, by Tenant or requested,
in writing, by Tenant, provided, however that, although Tenant shall not violate
--------
the terms of such documents identified on Exhibit "D" as aforesaid, the parties
acknowledge and agree that Tenant is not a party to or otherwise bound by any of
such documents and that nothing in this Lease Agreement is intended or shall be
deemed or construed to pass on to or otherwise impose upon Tenant the duties,
obligations or liabilities of Landlord or of any other party under such
documents (except for Tenant's covenant to Landlord not to violate such
documents as set forth above in this Section 11.2). Tenant shall also comply
with, observe and perform all provisions and requirements of all policies of
insurance at any time in force with respect to the Demised Premises and required
to be obtained and maintained under the terms of Article 8 hereof and shall
comply with all development permits issued by governmental authorities issued in
connection with the development of the Demised Premises. Landlord agrees to
comply with, and perform all of its duties and obligations under, the Permitted
Encumbrances (and all other agreements, contracts, easements, restrictions,
reservations or covenants, if any, created during the Term that affect or relate
to the Demised Premises), including, without limitation, the timely payment of
and any and all sums required to be paid thereunder.
11.3 Tenant's Right to Contest Laws and Ordinances. After prior written
---------------------------------------------
notice to Landlord,
26
<PAGE>
Tenant, at its sole cost and expense and without cost or expense to Landlord,
shall have the right to contest the validity or application of any law or
ordinance referred to in this Article 11 in the name of Tenant or Landlord, or
both, by appropriate legal proceedings diligently conducted but only if the
terms of any such law or ordinance, compliance therewith pending the prosecution
of any such proceeding may legally be delayed without the occurrence of any
lien, charge or liability of any kind against the Demised Premises, or any
portion thereof, and without subjecting Landlord or Tenant to any liability,
civil or criminal, for failure so to comply therewith until the termination or
final determination of such proceeding; provided, however if any lien, charge or
--------
civil liability would be incurred by reason of any such delay, Tenant
nevertheless, on the prior written consent of Landlord, may contest as aforesaid
and delay as aforesaid, provided that such delay would not subject Tenant or
Landlord to criminal liability and Tenant: (i) furnishes Landlord security,
reasonably satisfactory to Landlord, against any loss or injury by reason of any
such contest or delay; (ii) prosecutes the contest with due diligence and in
good faith; and (iii) agrees to indemnify, defend and hold harmless Landlord and
the Demised Premises from any charge, liability or expense whatsoever. The
security furnished to Landlord by Tenant shall be in the form of a cash deposit,
a Certificate of Deposit issued by a national bank or federal savings and loan
association payable to Landlord or irrevocable letter of credit payable to
Landlord or other form reasonably acceptable to Landlord. Said deposit shall be
held, administered and distributed in accordance with the provisions of Section
7.2 hereof relating to the contest of the amount or validity of any Imposition.
If necessary or proper to permit Tenant to contest the validity or
application of any such law or ordinance, Landlord shall, at Tenant's sole cost
and expense, including reasonable attorneys fees incurred by Landlord, execute
and deliver any appropriate papers or other documents; provided, however, that
-------- -------
Landlord shall not be required to execute any document or consent to any
proceeding which would result in the imposition of any cost, charge, expense or
penalty on Landlord or the Demised Premises.
12. MECHANIC'S LIENS AND OTHER LIENS.
--------------------------------
12.1. Freedom from Liens. Tenant shall not suffer or permit any mechanic's
------------------
lien or other lien to be filed against the Demised Premises, or any portion
thereof, by reason of work, labor, skill, services, equipment or materials
supplied to the Demised Premises at the request of Tenant, or anyone holding the
Demised Premises, or any portion thereof, through or under Tenant. If any such
mechanic's lien or other lien caused by or attributed to Tenant shall at any
time be filed against the Demised Premises, or any portion thereof, Tenant shall
cause the same to be discharged of record or bonded within sixty (60) days after
the date of filing the same. If Tenant shall fail to discharge or bond such
mechanic's lien or liens or other lien within such period, then, in addition to
any other right or remedy of Landlord, after five (5) days prior written notice
to Tenant, Landlord may, but shall not be obligated to, discharge the same by
paying to the claimant the amount claimed to be due or by procuring the
discharge of such lien as to the Demised Premises by deposit into the court
having jurisdiction of such lien, the foreclosure thereof or other proceedings
with respect thereto, of a cash sum sufficient to secure the discharge of the
same, or by the deposit of a bond or other security with such court sufficient
in form, content and amount to procure the discharge of such lien, or in such
other manner as is now or may in the future be provided by present or future law
for the discharge of such lien as a lien against the Demised Premises. Any
amount paid by Landlord, or the value of any deposit so made by Landlord,
together with all costs, fees and expenses in connection therewith (including
reasonable attorneys' fees of Landlord), together with interest thereon at the
Maximum Rate of Interest set forth in Section 3.4 hereof, shall be repaid by
Tenant to Landlord on demand by Landlord and if unpaid may be treated as
Additional Rent. Tenant shall indemnify and defend Landlord against and save
Landlord and the Demised Premises, and any portion thereof, harmless from all
losses, costs, damages, expenses, liabilities, suits penalties, claims, demands
and obligations, including,
27
<PAGE>
without limitation, reasonable attorneys' fees resulting from the assertion,
filing, foreclosure or other legal proceedings with respect to any such
mechanic's lien or other lien.
All materialmen, contractors, artisans, mechanics, laborers and any other
person now or hereafter furnishing any labor, services, materials, supplies or
equipment to Tenant with respect to the Demised Premises, or any portion
thereof, are hereby charged with notice that they must look exclusively to
Tenant to obtain payment for the same. Notice is hereby given that Landlord
shall not be liable for any labor, services, materials, supplies, skill,
machinery, fixtures or equipment finished or to be furnished to Tenant upon
credit, and that no mechanic's lien or other lien for any such labor, services,
materials, supplies, machinery, fixtures or equipment shall attach to or affect
the state or interest of Landlord in and to the Demised Premises, or any portion
thereof.
12.2. Landlord's Indemnification. The provisions of Section 12.1 above
--------------------------
shall not apply to any mechanic's lien or other lien for labor, services,
materials, supplies, machinery, fixtures or equipment furnished to the Demised
Premises in the performance of Landlord's obligation to construct the Landlord's
Improvements required by the provisions of Article 2 hereof, and Landlord does
hereby agree to indemnify and defend Tenant against and save Tenant and the
Demised Premises, and any portion thereof, harmless from all losses, costs,
damages, expenses, liabilities and obligations, including, without limitation,
reasonable attorneys' fees resulting from the assertion, filing, foreclosure or
other legal proceedings with respect to any such mechanic's lien or other lien.
12.3. Removal of Liens. Except as otherwise provided for in this Article,
----------------
Tenant shall not create, permit or suffer, and shall promptly discharge and
satisfy of record, any other lien, encumbrance, charge, security interest, or
other right or interest which shall be or become a lien, encumbrance, charge or
security interest upon the Demised Premises, or any portion thereof, or the
income therefrom, or on the interest of Landlord or Tenant in the Demised
Premises, or any portion thereof, save and except for those liens, encumbrances,
charges, security interests, or other rights or interests consented to, in
writing by Landlord, or those mortgages, assignments of rents, assignments of
leases and other mortgage documentation placed thereon by Landlord in financing
or refinancing the Demised Premises.
13. INTENT OF PARTIES.
-----------------
13.1. No Abatement. Except as may be otherwise set forth in this Lease
------------
Agreement, all Rent and Additional Rent shall be paid by Tenant to Landlord
without abatement, deduction, diminution, deferment, suspension, reduction or
setoff, nor shall the obligations of Tenant be affected by reason of any other
cause whether similar or dissimilar to the foregoing or by any laws or customs
to the contrary. It is the express intent of Landlord and Tenant that unless
otherwise set forth herein: (i) the obligations of Landlord and Tenant hereunder
shall be separate and independent covenants and agreements and that the Rent and
Additional Rent, and all other charges and sums payable by Tenant hereunder,
shall commence at the times provided herein and shall continue to be payable in
all events unless the obligations to pay the same shall be terminated pursuant
to an express provision in this Lease Agreement or under applicable Law; (ii)
all costs or expenses of any character or kind, general or special, ordinary or
extraordinary, foreseen or unforeseen, and of every kind and nature whatsoever
that may be necessary or required in and about the Demised Premises, or any
portion thereof, and Tenant's possession or authorized use thereof during the
Term, shall be paid by Tenant except to the extent otherwise set forth in this
Lease Agreement; (iii) all Impositions, insurance premiums, utility expense and
all other costs, fees, interest, charges, expenses, reimbursements and
obligations of every kind and nature whatsoever relating to the Demised
Premises, or any portion thereof, which may arise or become due during the Term,
or any extension or
28
<PAGE>
renewal thereof, shall be paid or discharged by Tenant as Additional Rent; and
(iv) Tenant hereby agrees to indemnify, defend and save Landlord harmless from
and against such costs, fees, charges, expenses, reimbursements and obligations,
any interest thereon.
13.2. Entry by Landlord. If Tenant shall at any time fail to pay Rent
-----------------
or Additional Rent, or shall fail to make any other payment or perform any other
act on its part to be made or performed, then Landlord, after prior written
notice to Tenant as provided in Section 14.1 and any applicable cure period (or
without notice or cure in case of emergency), and without waiving or releasing
Tenant from any obligation of Tenant contained in this Lease Agreement, may, but
shall be under no obligation to do so make any payment or perform any act on
Tenant's part to be paid or performed as set forth in this Lease Agreement in
such manner and to such extent as Landlord may deem necessary or desirable, and
Landlord may enter upon the Demised Premises for any such purpose and take all
such action therein or thereon as may be necessary therefor. Nothing herein
contained shall be deemed as a waiver or release of Tenant from any obligation
of Tenant in this Lease Agreement contained.
13.3. Interest on Unpaid Amounts. If Landlord performs Tenant's
--------------------------
obligations as set forth in Section 13.2, all sums so paid by Landlord and all
necessary and incidental costs and expenses, including reasonable attorneys'
fees, in connection with the performance of any such act by Landlord, together
with interest thereon at the Maximum Rate of interest provided for in Section
3.4 hereof from the date of making such expenditure by Landlord, shall be deemed
Additional Rent hereunder and, except as is otherwise expressly provided herein,
shall be payable to Landlord within ten (10) days of demand or, at the option of
Landlord, may be added to any monthly installment of Rent then due or thereafter
becoming due under this Lease Agreement, and Tenant covenants to pay any such
sum or sums, with interest as aforesaid, and Landlord shall have, in addition to
any other right or remedy of Landlord, the same rights and remedies in the event
of nonpayment thereof by Tenant as in the case of default by Tenant in the
payment of monthly Base Rent.
14. DEFAULTS OF TENANT.
------------------
14.1 Event of Default. If any one or more of the following events (in
----------------
this Lease Agreement sometimes called "Event of Default" in the singular and
"Events of Default" in the plural) shall happen:
(a) If default shall be made by Tenant, by operation of law or
otherwise, under the provisions of Article 17 hereof relating to assignment,
sublease, mortgage or other transfer of Tenant's interest in this Lease
Agreement or in the Demised Premises or in the income arising therefrom;
(b) If default shall be made in the due and punctual payment of any
Base Rent or Additional Rent payable under this Lease Agreement or in the
payment of any obligation to be paid by Tenant hereunder, when and as the same
shall become due and payable without imposition of any fine, penalty, interest
or cost, and such default shall continue for a period of ten (10) days after
written notice thereof given by Landlord to Tenant in accordance with Section
22.3;
(c) If default shall be made by Tenant in keeping, observing or
performing any of the terms contained in this Lease Agreement, other than those
referred to in Subsections (a) and (b) of this Section 14.1, which does not
expose Landlord to criminal liability, and such default shall continue for a
period of thirty (30) days after written notice thereof given by Landlord to
Tenant, or in the case of such a default or contingency which cannot with due
diligence and in good faith be cured within thirty (30) days, and Tenant fails
to proceed promptly and with due diligence and in good faith to cure the same
and
29
<PAGE>
thereafter to prosecute the curing of such default with due diligence and in
good faith, it being intended that in connection with a default which does not
expose Landlord to criminal liability, not susceptible of being cured with due
diligence and in good faith within thirty (30) days, that the time allowed
Tenant within which to cure the same shall be extended for such period as may be
necessary for the curing thereof promptly with due diligence and in good faith;
(d) If default shall be made by Tenant in keeping, observing or
performing any of the terms contained in this Lease Agreement, other than those
referred to in subsections (a), (b) and (c) of this Section 14.1, and which
exposes Landlord to criminal liability, and such default shall continue after
written notice thereof given by Landlord to Tenant, and Tenant fails to proceed
timely and promptly with all due diligence and in good faith to cure the same
and thereafter to prosecute the curing of such default with all due diligence,
it being intended that in connection with a default which exposes Landlord to
criminal liability that Tenant shall proceed immediately to cure or correct such
condition with continuity and with all due diligence and in good faith; then,
and in any such event, Landlord, at any time thereafter during the continuance
of any such Event of Default, may give written notice to Tenant specifying such
Event of Default or Events of Default and stating that this Lease Agreement
shall expire and terminate on the date specified in such notice, and upon the
date specified in such notice this Lease Agreement, all rights of Tenant under
this Lease Agreement, including all rights of renewal whether exercised or not,
shall expire and terminate. In the alternative or in addition to the foregoing
remedy, Landlord may assert and have the benefit of any other remedy allowed at
law, or in equity under the laws of the State of Florida.
14.2. Surrender of Demised Premises. Upon any expiration or termination of
-----------------------------
this Lease Agreement, Tenant shall quit and peaceably surrender the Demised
Premises, and all portions thereof, to Landlord and Landlord, upon or at any
time after any such expiration or termination, may, without further notice,
enter upon and reenter the Demised Premises, and all portions thereof, and
possess and repossess itself thereof by summary proceeding or ejectment and may
dispossess Tenant and remove Tenant and all other persons and property from the
Demised Premises, and all portions thereof, and may have, hold and enjoy the
Demised Premises and the right to receive all rental and other income of and
from the same.
14.3. Reletting by Landlord. At any time, or from time to time after any
---------------------
such expiration or termination, Landlord may relet the Demised Premises, or any
portion thereof, in the name of Landlord or otherwise, for such term or terms
(which may be greater or less than the period which would otherwise have
constituted the balance of the Term) and on such conditions (which may include
concessions or free rent) as Landlord, in its sole and absolute discretion, may
determine and may collect and receive the rents therefor. Landlord shall in no
way be responsible or liable for any failure to relet the Demised Premises, or
any part thereof, or for any failure to collect any rent due upon any such
reletting. Landlord agrees to use reasonable good faith efforts to relet the
Demised Premises to mitigate damages.
14.4. Survival of Tenant's Obligations.
--------------------------------
(a) No such expiration or termination of this Lease Agreement shall
relieve Tenant of its liabilities and obligations under this Lease Agreement (as
if this Lease Agreement had not been so terminated or expired), and such
liabilities and obligations shall survive any such expiration or termination. In
the event of any such expiration or termination, whether or not the Demised
Premises, or any portion thereof, shall have been relet, Tenant shall pay to
Landlord a sum equal to the Rent, and the Additional Rent and any other charges
required to be paid by Tenant, up to the time of such expiration or termination
of this Lease Agreement, and thereafter Tenant, until the end of what would have
been the Term in the absence of such expiration or termination, shall be liable
to Landlord for, and shall pay to Landlord, as and
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for liquidated and agreed current damages for Tenant's default:
(i) The equivalent of the amount of the Rent, Additional Rent
and any other charges which would be payable by Tenant under this Lease
Agreement if this Lease Agreement were still in effect, less
(ii) The net proceeds of any reletting effected pursuant to the
provisions of Section 14.3 hereof after deducting all of Landlord's actual
and reasonable expenses in connection with such reletting, including,
without limitation, all repossession costs, brokerage commissions, legal
expenses, reasonable attorneys' fees, alteration costs, and expenses of
preparation of the Demised Premises, or any portion thereof, for such
reletting.
(b) Tenant shall pay such current damages in the amount determined in
accordance with the terms of this Section, as set forth in a written statement
thereof from Landlord to Tenant (hereinafter called the "Deficiency"), to
Landlord in monthly installments on the days on which the Rent, Additional Rent
and other charges payable by Tenant would have been payable under this Lease
Agreement if this Lease Agreement were still in effect, and Landlord shall be
entitled to recover from Tenant each monthly installment of the Deficiency as
the same shall arise.
14.5. Damages. At any time after an Event of Default and termination of
-------
this Lease, whether or not Landlord shall have collected any monthly Deficiency
as set forth in Section 14.4, Landlord shall, at its option, be entitled to
recover from Tenant, and Tenant shall pay to Landlord, within ten (10) days of
Landlord's demand, as and for final damages for Tenant's default, an amount
equal to the positive difference (if any) between (A) the then present value of
the aggregate of the Rent, Additional Rent and other charges (as set forth in
Section 6.3(c)) to be paid by Tenant hereunder for the unexpired portion of the
term of the Lease Agreement (assuming this Lease Agreement had not been so
terminated), minus (B) the present value of the then aggregate fair and
reasonable market rent of the Demised Premises and Additional Rent and other
charges (as set forth in Section 6.3(c)) to be paid by Tenant for the same
period less a good faith estimate of the customary and reasonable expenses that
may be incurred by Landlord in reletting the Demised Premises.
14.6. No Waiver. No failure by Landlord or by Tenant to insist upon the
---------
performance of any of the terms of this Lease Agreement or to exercise any right
or remedy consequent upon a breach thereof, and no acceptance by Landlord of
full or partial rent from Tenant or any third party during the continuance of
any such breach, shall constitute a waiver of any such breach or of any of the
terms of this Lease Agreement. None of the terms of this Lease Agreement to be
kept, observed or performed by Landlord or by Tenant, and no breach thereof,
shall be waived, altered or modified except by a written instrument executed by
Landlord or by Tenant, as the case may be. No waiver of any breach shall affect
or alter this Lease Agreement, but each of the terms of this Lease Agreement
shall continue in full force and effect with respect to any other then existing
or subsequent breach of this Lease Agreement. No waiver of any default of Tenant
herein shall be implied from any omission by Landlord to take any action on
account of such default, if such default persists or is repeated and no express
waiver shall affect any default other than the default specified in the express
waiver and then only for the time and to the extent therein stated. One or more
waivers by Landlord shall not be construed as a waiver of a subsequent breach of
the same covenant, term or condition.
14.7. Remedies Cumulative. In the event of any breach or breach by either
-------------------
party of any of the terms contained in this Lease Agreement, the non-breaching
party shall be entitled to enjoin such breach or
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breach and shall have the right to invoke any right or remedy allowed at law or
in equity or by statute or otherwise as though entry, reentry, summary
proceedings and other remedies were not provided for in this Lease Agreement.
Each remedy or right of either party provided for in this Lease Agreement shall
be cumulative and shall be in addition to every other right or remedy provided
for in this Lease Agreement, or now or hereafter existing under Florida law or
in equity or otherwise, and the exercise or the beginning of the exercise by
Landlord or Tenant of any one or more of such rights or remedies shall not
preclude the simultaneous or later exercise by Landlord or Tenant of any or all
other rights or remedies.
14.8. Bankruptcy. If, during the term of this Lease Agreement, (i) Tenant
----------
shall make an assignment for the benefit of creditors, (ii) a voluntary petition
be filed by Tenant under any law having for its purpose the adjudication of
Tenant a bankrupt, or Tenant be adjudged a bankrupt pursuant to an involuntary
petition in bankruptcy, (iii) a receiver be appointed for the property of
Tenant, or (iv) any department of the state or federal government, or any
officer thereof duly authorized, shall take possession of the business or
property of Tenant as a result of the breach of any Law on the part of Tenant,
the occurrence of any such event shall be deemed a breach of the Lease Agreement
and this Lease Agreement shall, ipso facto upon the happening of any of said
events, be terminated and the same shall expire as fully and completely as if
the day of the happening of such event were the date hereon specifically fixed
for the expiration of the term, and Tenant will then quit and surrender the
Demised Premises, but Tenant shall remain liable as hereinafter provided.
Notwithstanding other provisions of this Lease Agreement, or any present or
future law, Landlord shall be entitled to recover from Tenant or Tenant's estate
(in lieu of the equivalent of the amount of all rent and other charges unpaid at
the date of such termination) the damages set forth in Section 14.4 above,
unless any statute or rule of law covering the proceedings in which such damages
are to be proved shall limit the amount of such claim capable of being so
proved, in which case Landlord shall be entitled to prove as and for damages by
reason of such breach and termination of this Lease Agreement the maximum amount
which may be allowed by or under any such statute or rule of law without
prejudice to any fights of Landlord against any guarantor of Tenant's
obligations herein. Nothing contained herein shall limit or prejudice Landlord's
right to prove and obtain as damages arising out of such breach and termination
the maximum amount allowed by any such statute or rule of law which may govern
the proceedings in which such damages are to be proved, whether or not such
amount be greater equal to, or less than the amount of damages to which Landlord
is entitled under Section 14.4. Specified remedies to which Landlord may resort
under the terms of this Section 14.8 are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which Landlord may be
lawfully entitled.
14.9. Waiver by Tenant. Tenant hereby expressly waives, so far as permitted
----------------
by law, any and all right of redemption or reentry or repossession or to revive
the validity and existence of this Lease Agreement in the event that Tenant
shall be dispossessed by a judgment or by order of any court having jurisdiction
over the Demised Premises or the interpretation of this Lease Agreement or in
case of entry, reentry or repossession by Landlord or in case of any expiration
or termination of this Lease Agreement.
15. DESTRUCTION AND RESTORATION.
---------------------------
15.1. Destruction and Restoration. Landlord covenants and agrees that
---------------------------
in case of damage to or destruction of the Improvements after the Commencement
Date by fire or otherwise, Landlord, at its sole cost and expense, shall
promptly restore, repair, replace and rebuild the same within a period of twelve
(12) months from the date of the damage or destruction (provided, however, such
period shall be subject to Excused Delay). The Demised Premises (including
Tenant's changes and alterations made pursuant to Section 20.1, provided such
changes or alterations are insured by Landlord pursuant to Article 8) shall be
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restored as nearly as possible to the condition that the same were in
immediately prior to such damage or destruction with such changes or alterations
(made in conformity with Article 20 hereof) as may be reasonably acceptable to
Landlord and Tenant or required by Law. Tenant shall forthwith give Landlord
written notice of such damage or destruction upon the occurrence thereof and
specify in such notice, in reasonable detail, the extent thereof. Such
restoration, repairs, replacements, rebuilding, changes and alterations,
including the cost of temporary repairs for the protection of the Demised
Premises, or any portion thereof, pending completion thereof are sometimes
hereinafter referred to as the "Restoration." The Restoration shall be carried
on and completed in accordance with the provisions and conditions of this
Article 15. If the net amount of the insurance proceeds (after deduction of all
costs, expenses and fees related to recovery of the insurance proceeds)
recovered by Landlord or Tenant and held by Landlord and Tenant as co-trustees
is reasonably deemed insufficient by Landlord to complete the Restoration of the
Improvements (exclusive of Tenant's leasehold improvements, personal property
and trade fixtures which shall be restored, repaired or rebuilt out of Tenant's
separate funds), Landlord shall, upon request of Tenant, deposit with Landlord
and Tenant, as co-trustees a cash deposit equal to the reasonable estimate of
the amount necessary to complete the Restoration of the Improvements less the
amount of such insurance proceeds available.
15.2. Application of Insurance Proceeds.
---------------------------------
(a) All insurance monies recovered by Landlord or Tenant shall be
held by Landlord and Tenant as co-trustees on account of such damage or
destruction, less the costs, if any, to Landlord of such recovery, shall be
applied to the payment of the costs of the Restoration and shall be paid out
from time to time as the Restoration progresses upon the written request of
Landlord, accompanied by a certificate of the architect or a qualified
professional engineer in charge of the Restoration stating that as of the date
of such certificate: (i) the sum requested is justly due to the contractors,
subcontractors, materialmen, laborers, engineers, architects, or persons, firms
or corporations furnishing or supplying work, labor, services or materials for
such Restoration, or is justly required to reimburse Landlord for any
expenditures made by Landlord in connection with such Restoration, and when
added to all sums previously paid out by Landlord and Tenant does not exceed the
value of the Restoration performed to the date of such certificate by all of
said parties; (ii) except for the amount, if any, stated in such certificates to
be due for work, labor, services or materials, there is no outstanding
indebtedness known to the person signing such certificate, after due inquiry,
which is then due for work, labor, services or materials in connection with such
Restoration, which, if unpaid, might become the basis of a mechanic's lien or
similar lien with respect to the Restoration or a lien upon the Demised
Premises, or any portion thereof, and (iii) the costs, as estimated by the
person signing such certificate, of the completion of the Restoration required
to be done subsequent to the date of such certificate in order to complete the
Restoration do not exceed the sum of the remaining insurance monies, plus the
amount deposited by Landlord, if any, remaining in the hands of Landlord and
Tenant as co-trustees after payment of the sum requested in such certificate.
(b) Landlord shall furnish Tenant at the time of any such payment
with evidence reasonably satisfactory to Tenant that there are no unpaid bills
in respect to any work, labor, services or materials performed, furnished or
supplied in connection with such Restoration. Landlord and Tenant as co-trustees
shall not be required to pay out any insurance monies where Landlord fails to
supply satisfactory evidence of the payment of work, labor, services or
materials performed, famished or supplied, as aforesaid. If the insurance monies
in the hands of Landlord and Tenant as co-trustees, and such other sums, if any,
deposited with Landlord and Tenant as co-trustees pursuant to this Section 15.2
hereof, shall be insufficient to pay the entire costs of the Restoration,
Landlord agrees to pay any deficiency promptly upon demand. Upon completion of
the Restoration and payment in full thereof by Landlord, Tenant shall,
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within a reasonable period of time thereafter, turn over to Landlord all
insurance monies or other monies then remaining upon submission of proof
reasonably satisfactory to Tenant that the Restoration has been paid for in full
and the damaged or destroyed Building and other improvements repaired, restored
or rebuilt as nearly as possible to the condition they were in immediately prior
to such damage or destruction, or with such changes or alterations as may be
made in conformity with Article 20 hereof.
15.3. Continuance of Tenant's Obligations. Except as provided for in
-----------------------------------
Section 15.6, no destruction of or damage to the Demised Premises, or any
portion thereof, by fire, casualty or otherwise shall permit Tenant to surrender
this Lease Agreement or shall relieve Tenant from its liability to pay to
Landlord the Rent and Additional Rent payable under this Lease Agreement or from
any of its other obligations under this Lease Agreement, and Tenant waives any
rights now or hereafter conferred upon Tenant by present or future law or
otherwise to quit or surrender this Lease Agreement or the Demised Premises, or
any portion thereof, to Landlord or to any suspension, diminution, abatement or
reduction of rent on account of any such damage or destruction.
15.4. Completion of Restoration. The foregoing provisions of this Article
-------------------------
apply only to damage or destruction of the Improvements by fire, casualty or
other cause occurring after the Commencement Date. Any such damage or
destruction occurring prior to such time shall be restored, repaired, replaced
and rebuilt by Landlord, and during such period of construction Landlord shall
obtain and maintain the builder's risk insurance coverage referred to in Article
2 hereof all monies received by Landlord under its builder's risk insurance
coverage shall be applied by Landlord to complete the Restoration of such damage
or destruction and if such insurance proceeds are insufficient Landlord shall
provide all additional funds necessary to complete the Restoration of the
Improvements.
15.5. Adjustment of Rent and Termination of Lease. In the event of damage
-------------------------------------------
to or destruction of the Improvements, in whole or in part, under Section 15.1
hereof, the Base Rent payable hereunder the period from and after such damage or
destruction to the date of Substantial Completion of the Restoration of the
Improvements shall be equitably adjusted and abated based on the portion of the
Improvements being utilized by Tenant after such damage or destruction. If
Landlord fails to complete the Restoration of the Demised Premises required
under this Lease within the time period set forth under Section 15.1 above,
Tenant may terminate this Lease upon giving Landlord written notice of its
election to terminate fifteen (15) days following the expiration of such time
period or Tenant shall have waived its right to terminate for this breach of the
Lease, except to the extent otherwise provided under this Section 15.6. If,
within twenty-four (24) months prior to the expiration of the Term, the
Improvements shall be destroyed or damaged to such an extent that the
Restoration thereof will cost an amount in excess of Two Hundred Fifty Thousand
Dollars ($250,000.00) over and above the net proceeds of the insurance required
to be and maintained by Landlord (to be collected by Landlord and Tenant as co-
trustees as provided in Section 15.2 above), hereinafter referred to as the
"Excess Funds", and Landlord shall be unable or unwilling to expend out of its
own funds such Excess Funds for the purpose of Restoration of such damage or
destruction for occupancy by Tenant, Landlord shall, with reasonable promptness,
notify Tenant, in writing, of such fact, which notice shall be accompanied by a
detailed statement of the nature and extent of such damage or destruction and
detailed estimates of the total cost of Restoration. Within thirty (30) days
after the giving of such notice, Tenant shall notify Landlord either that (i) it
will furnish, at its sole cost and expense, the Excess Funds which are
necessarily required in connection with the Restoration (to be disbursed in
conformity with the requirements of Section 15.2 hereof), (ii) it is unwilling
to expend the Excess Funds for such purpose. Failure to give such notice within
such thirty (30) day period shall be deemed an election by Tenant not to make
such expenditure. In the event that Landlord elects not to expend the Excess
Funds, as aforesaid, then Tenant shall have the option, within thirty (30) days
after the
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expiration of said thirty (30) day period, to terminate this Lease Agreement and
surrender the Demised Premises to Landlord by a notice, in writing, addressed to
Landlord, specifying such election accompanied by Tenant's payment of the then
remaining balance, if any, of the Rent and Additional Rent and other charges
hereafter specified in this Section. Upon the giving of such notice and the
payment of such amounts, the Term shall cease and come to an end on a day to be
specified in Tenant's notice, which date shall not be more than thirty (30) days
after the date of delivery of such notice by Tenant to Landlord. Tenant shall
accompany such notice with its payment of all Rent and Additional Rent and other
charges payable by Tenant hereunder, justly apportioned to the date of such
termination. In such event Landlord shall be entitled to the proceeds of all
insurance required to be carried hereunder and Tenant shall execute all
documents reasonably requested by Landlord to allow such proceeds to be paid to
Landlord.
If, within twenty-four (24) months prior to the expiration of the Term, the
Improvements shall be destroyed or damaged to such an extent that the
Restoration thereof cannot be reasonably completed by Landlord within seven (7)
months of such damage or destruction, Landlord shall, with reasonable promptness
notify Tenant in writing of such fact, which notice shall be accompanied by a
detailed statement of the proposed schedule for the Restoration period. Within
thirty (30) days after the giving of such notice, Tenant shall notify Landlord
either that (i) it will agree to the construction schedule of Landlord or (ii)
it will elect to terminate this Lease Agreement and surrender the Demised
Premises to Landlord by notice in writing addressed to Landlord specifying such
election accompanied by Tenant's payment of the then remaining balance, if any,
of the Rent and Additional Rent and other charges due and owing by Tenant under
this Lease Agreement. Upon the giving of such notice and the payment of such
amounts, the Term shall cease and come to an end on a day to be specified in
Tenant's notice, which date shall not be more than 30 days after the delivery of
such notice by Tenant to Landlord. In such event Landlord shall be entitled to
the proceeds of all insurance required to be carried hereunder and Tenant shall
execute all documents reasonably requested by Landlord to allow such proceeds to
be paid to Landlord.
16. CONDEMNATION.
------------
16.1. Condemnation of Entire Demised Premises.
---------------------------------------
(a) If, during the Term, the entire Demised Premises shall be taken
as the result of the exercise of the power of eminent domain (hereinafter
referred to as the "Proceedings"), this Lease Agreement and all right, title and
interest of Tenant hereunder shall cease and come to an end on the sooner of (i)
the date of vesting of title pursuant to such Proceedings, or (ii) the date on
which Tenant can no longer occupy the Demised Premises as set forth herein and
Landlord shall be entitled to and shall receive the total award made in such
Proceedings, Tenant hereby assigning any interest in such awards, damages,
consequential damages and compensation to Landlord and Tenant hereby waiving any
right Tenant has now or may have under present or future law to receive any
separate award of damages for its interest in the Demised Premises, or any
portion thereof, or its interest in this Lease Agreement, except as hereinafter
provided in subsection (b).
(b) In any taking of the Demised Premises, or any portion thereof,
whether or not this Lease Agreement is terminated as in this Section provided,
Tenant shall not be entitled to any portion of the award for the taking of the
Demised Premises or damage to the Improvements, except as otherwise provided for
in Section 16.3 with respect to the restoration of the Improvements, or for the
estate or interest of Tenant therein, all such award, damages, consequential
damages and compensation being hereby assigned to Landlord, and Tenant hereby
waives any right it now has or may have under present or future law to receive
any separate award of damages for its interest in the Demised Premises, or any
portion
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thereof, or its interest in this Lease Agreement, except that Tenant shall have,
nevertheless, the limited right to prove in the Proceedings and to receive any
award which may be made for damages to or condemnation of Tenant's trade
fixtures and equipment, the damage to Tenant's business and for Tenant's
relocation costs, and moving expenses and reestablishment costs in connection
therewith.
16.2. Partial Condemnation/Termination of Lease. If, during the Initial
-----------------------------------------
Term of this Lease Agreement, or any extension or renewal thereof, less than the
entire Demised Premises, shall be taken in any such Proceedings, this Lease
Agreement shall, upon the sooner of (i) the date of vesting of title in the
Proceedings or (ii) the date on which Tenant can no longer occupy the Demised
Premises as set forth herein that constitutes a "Material Partial Condemnation"
(as defined below), terminate as to the portion of the Demised Premises so
taken, and Tenant may, at its option, terminate this Lease Agreement as to the
remainder of the Demised Premises. A "Material Partial Condemnation" shall mean
a taking pursuant to which the business of Tenant conducted in the portion of
the Demised Premises taken cannot reasonably be carried on with substantially
the same scope, utility and efficiency in the remainder of the Demised Premises.
Such termination as to the remainder of the Demised Premises shall be effected
by notice in writing given not more than sixty (60) days after the date of
vesting of title in such Proceedings, and shall specify a date not more than
sixty (60) days after the giving of such notice as the date for such
termination. Upon the date specified in such notice, the Term, and all right,
title and interest of Tenant hereunder, shall cease and come to an end. In the
event that Tenant elects not to terminate this Lease Agreement as to the
remainder of the Demised Premises, the rights and obligations of Landlord and
Tenant shall be governed by the provisions of Section 16.3 below.
16.3. Partial Condemnation/Continuation of Lease. If, during the Initial
------------------------------------------
Term, or any extension or renewal thereof, less than the entire Demised Premises
shall be taken in any such Proceeding, and this Lease Agreement is not
terminated as in Section 16.2 hereof provided (a "Minor Partial Condemnation"),
this Lease Agreement shall, upon the sooner of (i) the date of vesting of title
in the Proceedings or (ii) the date on which Tenant can no longer occupy the
Demised Premises as set forth herein, terminate as to the parts so taken. The
net amount of the award (after deduction of all costs and expenses, including
attorneys' fees) shall be held by Landlord and Tenant as co-trustees and applied
as hereinafter provided. Landlord, in such case, covenants and agrees, at
Landlord's sole cost and expense (subject to reimbursement to the extent
hereinafter provided), promptly to restore that portion of the Improvements on
the Demised Premises not so taken to a complete architectural and mechanical
unit for the use and occupancy of Tenant as in this Lease Agreement provided,
but only to the extent such award or proceeds are actually made available to
Landlord. In the event that the net amount of the award (after deduction of all
costs and expenses, including attorneys' fees) that may be received by Landlord
and held by Landlord and Tenant as co-trustees in any such Proceedings for
physical damage to the Improvements as a result of such taking is insufficient
to pay all costs of such restoration work, Landlord shall deposit with Landlord
and Tenant as co-trustees such additional sum as may be required. Landlord and
Tenant as co-trustees agree in connection with such restoration work to apply so
much of the net amount of any award (after deduction of all costs and expenses,
including attorneys' fees) that may be received by Landlord and held by Landlord
and Tenant as co-trustees in any such Proceedings for physical damage to the
Improvements as a result of such taking to the costs of such restoration work
thereof and the said net award for physical damage to the Improvements as a
result of such taking shall be paid out from time to time to Landlord, or on
behalf of Landlord, as such restoration work progresses upon the written request
of Tenant, which shall be accompanied by a certificate of the architect or the
registered professional engineer in charge of the restoration work stating that:
(i) the sum requested is justly due to the contractors, subcontractors,
materialmen, laborers, engineers, architects or other persons, firms or
corporations furnishing or supplying work, labor, services or materials for such
restoration work or as is justly required to reimburse Landlord
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for expenditures made by Landlord in connection with such restoration work, and
when added to all sums previously paid out by Landlord and Tenant as co-trustees
does not exceed the value of the restoration work performed to the date of such
certificate. If payment of the award for physical damage to the Improvements as
a result of such taking, as aforesaid, shall not be received by Landlord in time
to permit payments as the restoration work progresses (except in the event of an
appeal of the award by Landlord), Landlord shall, nevertheless, perform and
fully pay for such work without delay (except such Excused Delays as are
referred to in Article 2.3 hereof), and payment of the amount to which Landlord
may be entitled shall thereafter be made by Tenant out of the net award for
physical damage to the Improvements as a result of such taking as and when
payment of such award is received by Tenant. If Landlord appeals an award and
payment of the award is delayed pending appeal Landlord shall, nevertheless,
perform and fully pay for such work without delay (except such Excused Delays as
are referred to in Article 2.3 hereof). Landlord shall also furnish Landlord and
Tenant as co-trustees with each certificate hereinabove referred to, together
with evidence reasonably satisfactory to Landlord and Tenant as co-trustees that
there are no unpaid bills in respect to any work, labor, services or materials
performed, furnished or supplied, or claimed to have been performed, furnished
or supplied, in connection with such restoration work, and that no liens have
been filed against the Demised Premises, or any portion thereof Landlord and
Tenant as co-trustees shall not be required to pay out any funds when there are
unpaid bills for work, labor, services or materials performed, furnished or
supplied in connection with such restoration work, or where a lien for work,
labor, services or materials performed, furnished or supplied has been placed
against the Demised Premises, or any portion thereof. Upon completion of the
restoration work and payment in full therefor by Landlord, and upon submission
of proof reasonably satisfactory to Landlord that the restoration work has been
paid for in full and that the Improvements have been restored or rebuilt to a
complete architectural and mechanical unit for the use and occupancy of Tenant
as provided in this Lease Agreement, Landlord and Tenant as co-trustees shall
pay over to Landlord any portion of the cash deposit furnished by Landlord then
remaining. From and after the date of delivery of possession to the condemning
authority pursuant to the Proceedings, a just and proportionate part of the Base
Rent and Operating Expenses, according to the extent and nature of such taking,
shall abate for the remainder of the Term.
16.4. Continuance of Obligations. In the event of any termination of this
--------------------------
Lease Agreement, or any part thereof, as a result of any such Proceedings,
Tenant shall pay to Landlord all Base Rent and all Additional Rent and other
charges payable hereunder with respect to that portion of the Demised Premises
so taken in such Proceedings with respect to which this Lease Agreement shall
have terminated justly apportioned to the date of such termination. In the event
this Lease Agreement is not terminated in accordance with the terms of this
Article 16, then from and after the sooner of (i) the date of vesting of title
in such Proceedings or (ii) the date on which Tenant can no longer occupy the
Demised Premises as set forth herein, Tenant shall continue to pay the Base
Rent and Additional Rent and other charges payable hereunder, as in this Lease
Agreement provided, to be paid by Tenant subject to an abatement of a just and
proportionate part of the Base Rent and Operating Expenses according to the
extent and nature of such taking as provided for in Section 16.5 with respect to
the Demised Premises remaining after such taking.
16.5. Adjustment of Rent. In the event of a partial taking of the Demised
------------------
Premises under Section 16.2 hereof, or a partial taking of the Demised Premises
under Section 16.3 hereof, followed by Tenant's election not to terminate this
Lease Agreement, the fixed Base Rent payable hereunder during the period from
and after the sooner of the date of vesting of title in such Proceedings or the
date on which Tenant can no longer occupy the Demised Premises as set forth
herein to the termination of this Lease Agreement shall be reduced to a sum
equal to the product of the Base Rent provided for herein multiplied by a
fraction, the numerator of which is the value of the Demised Premises after such
taking and after the same has been restored to a complete architectural unit,
and the denominator of which is the value of the
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Demised Premises prior to such taking.
16.6. Determination of "Material Partial Condemnation" and "Minor Partial
-------------------------------------------------------------------
Condemnation;" Arbitration. Landlord and Tenant shall make reasonable, good
- --------------------------
faith efforts to reach agreement whether a taking pursuant to Proceedings
constitutes a "Material Partial Condemnation" or a "Minor Partial Condemnation"
as defined in Article 16. If the parties are unable to reach agreement, such
dispute shall be resolved by binding arbitration using the same procedure as is
set forth in Section 22.27, subject to the following modifications: (i) the
appraiser(s) shall be instructed to determine whether the applicable
condemnation constitutes a "Material Partial Condemnation" or a "Minor Partial
Condemnation" as defined in Article 16 (not market value); and (ii) last
sentence of Section 22.27 will be deemed modified to provide that the
determination of at least two of the three appraisers shall prevail.
17. ASSIGNMENT, SUBLETTING, ETC.
----------------------------
17.1. Restriction on Transfer (Transfer Requiring Landlord Consent).
-------------------------------------------------------------
Except with respect to Permitted Transfers (as such term is hereinafter defined
in Section 17.2 below), Tenant shall not sublet the Demised Premises, or any
portion thereof, nor assign, mortgage, pledge, transfer or otherwise encumber or
dispose of this Lease Agreement, or any interest therein, or in any manner
assign, mortgage, pledge, transfer or otherwise encumber or dispose of its
interest or estate in the Demised Premises, or any portion thereof under this
Lease Agreement without obtaining Landlord's prior written consent in each and
every instance, which consent may be withheld by Landlord, in its sole and
absolute discretion.
17.2. Transfers. Notwithstanding anything in this Lease Agreement to
---------
the contrary, Tenant may, in its sole and absolute discretion and without the
prior written consent or approval of Landlord, assign, sublease, transfer, or
otherwise dispose of any or all of its interest in, to or under this Lease
Agreement or in, to or under the Demised Premises to an "Affiliate" (as such
term as hereinafter defined) (any such transaction or event being herein called
an "Affiliate Transfer") or any other entity, provided that such Affiliate or
entity has a net worth equal to or greater than Tenant at the time of execution
of this Lease as adjusted for inflation to the date of the assignment. For the
purposes of this Section, the term "Affiliate" shall mean and refer to: (i) any
person or entity which acquires all or substantially all of the assets or the
issued and outstanding capital stock of Tenant; (ii) any corporation or other
entity resulting from reorganization, consolidation or merger of Tenant into or
with any other entity; (iii) the holder or holders of the majority of the issued
or outstanding capital stock of Tenant or of any of the entities described in
this Section; or (iv) any parent, subsidiary, brother, sister, or affiliate
corporation or entity of Tenant. As used in the foregoing clause (iv), the
expression "affiliate corporation or entity" shall mean and refer to a
corporation or entity that directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under the control of,
Tenant. The term "control" as used in the foregoing provision shall mean and
refer to the right and power, direct or indirect, to direct or cause the
direction of the management and policies of such corporation.
18. SUBORDINATION, NONDISTURBANCE, NOTICE TO MORTGAGEE AND ATTORNMENT.
----------------------------- -----------------------------------
18.1. Subordination and Attornment by Tenant. This Lease Agreement and all
--------------------------------------
rights of Tenant herein, and all interest or estate of Tenant in the Demised
Premises, or any portion thereof, shall be subject and subordinate to the lien
of any mortgage, deed of trust, security instrument or other document of like
nature ("Mortgage"), which at any time may be placed upon the Demised Premises,
or any portion thereof, by Landlord, and to any replacements, renewals,
amendments, modifications, extensions or refinancing
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thereof, and to each and every advance made under any Mortgage. Tenant agrees at
any time hereafter, and from time to time on demand of Landlord, to execute and
deliver to Landlord any instruments, releases or other documents that may be
reasonably required for the purpose of subjecting and subordinating this Lease
Agreement to the lien of any such Mortgage. The subordination and attornment
provided for in this Section 18.1 is conditioned upon Landlord obtaining a
Subordination, Non-Disturbance and Attornment Agreement ("SNDA") from the
existing mortgagee, and from any future mortgagee providing that in the event of
a termination of or foreclosure under any such ground lease or mortgage, such
holder will respect Tenant's possession rights under this Lease Agreement and
shall not disturb Tenant's possession of the Demised Premises provided that
Tenant (i) is not in default of any of its material obligations under this Lease
subject to the giving of notice, if any, and the expiration of any applicable
cure period; (ii) that Tenant will execute the SNDA in form and content
reasonably provided by said mortgagee or lessor provided that the SNDA shall
provide that in any action or proceeding commenced by such mortgagee or lessor
or upon any enforcement of any rights by such mortgagee or lessor, that Tenant's
rights under the Lease Agreement shall be respected and shall not be disturbed
and that the Lease Agreement shall remain in full force and effect provided that
Tenant is not in default under any of the material terms, covenants or
conditions of the Lease Agreement beyond the expiration of all applicable notice
and cure periods, and (iii) that Tenant agrees that upon mortgagee acquiring
title to the Demised Premises, Tenant shall attorn directly to said mortgagee or
its purchaser, and (iv) that Tenant agrees to such other terms and conditions as
may be reasonably required by said mortgagee provided that such terms and
conditions do not increase or alter any of Tenant's obligations under this Lease
Agreement or decrease any rights of Tenant or adversely affect the Tenant's
leasehold interest under this Lease Agreement, and (v) that Tenant shall join in
the execution and delivery of the SNDA and shall agree to the effect that if
such holder of the Mortgage (or purchaser of holder's interest at a foreclosure
sale or otherwise) shall succeed to the interest of the Landlord under this
Lease (whether as a consequence of a foreclosure or any other circumstance),
Tenant shall be bound to the holder of the Mortgage (or purchaser of holder's
interest at a foreclosure sale or otherwise) under the terms, conditions and
covenants of this Lease Agreement for the balance of the term remaining after
such succession and Tenant will attorn to such holder of the Mortgage (or
purchaser of holder's interest at a foreclosure sale or otherwise) as its
Landlord upon any such succession.
18.2. Landlord's Default. In the event of any act of omission of
------------------
Landlord constituting a default by Landlord, Tenant shall not exercise any
remedy until Tenant has given Landlord prior written notice of such act or
omission and until a thirty (30) day period of time to allow Landlord or the
mortgagee to remedy such act or omission shall have elapsed following the giving
of such notice; provided however, that if such act or omission cannot, with due
----------------
diligence and in good faith, be remedied within such thirty (30) day period, the
Landlord and/or mortgagee shall be allowed such further period of time as may be
reasonably necessary provided that it shall have commenced remedying the same
with due diligence and in good faith within said thirty (30) day period (up to a
maximum of ninety (90) days). In the event Landlord's act or omission which
constitutes a Landlord's default hereunder results in the reasonable possibility
of criminal liability or an immediate threat of bodily harm to Tenant's
employees, agents or invites, or damage to Tenant's property, Tenant may proceed
to cure the default without prior notice to Landlord provided, however, that in
--------- -------
that event Tenant shall give written notice to Landlord as soon as possible upon
commencement of such cure. Nothing herein contained shall be construed or
interpreted as requiring any mortgagee to remedy such act or omission. Landlord
shall reimburse Tenant for any costs or expenses paid by Tenant on behalf of
Landlord under this Section 18.2, together with interest at the Maximum Rate of
Interest, within fifteen (15) days of written demand by Tenant.
19. SIGNS.
-----
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19.1. Tenant's Signs. Tenant may erect signs on the exterior or interior of
--------------
the Building or on the landscaped area adjacent thereto, provided that such sign
or signs: (i) do not cause any structural damage or other damage to the
Building; (ii) do not violate applicable Laws; and (iii) do not violate any
existing restrictions affecting the Demised Premises.
20. CHANGES AND ALTERATIONS.
-----------------------
20.1. Tenant's Changes and Alterations. Subject to the terms and
--------------------------------
conditions of this Section 20, Tenant shall have the right at any time, and from
time to time during the term of this Lease Agreement, to make such changes and
alterations, structural or otherwise, to the Building, Improvements and fixtures
hereafter erected on the Demised Premises as Tenant shall deem necessary or
desirable in connection with the requirements of its business, which such
changes and alterations (other than changes or alterations of Tenant's movable
trade fixtures and equipment) shall be made in all cases subject to the
following conditions, which Tenant covenants to observe and perform:
(a) Permits. No change or alteration shall be undertaken until Tenant
-------
shall have procured and paid for, so far as the same may be required from time
to time, all municipal, state and federal permits and authorizations of the
various governmental bodies and departments having jurisdiction thereof, and
Landlord agrees to join in the application for such permits or authorizations
whenever such action is necessary, all at Tenant's sole cost and expense,
provided such applications to not cause Landlord to become liable for any cost,
fees or expenses.
(b) Compliance with Final Plans and Specifications. Before
----------------------------------------------
commencement of any change, alteration, restoration or construction involving
(a) alteration of a structural component of the Building, (b) alteration of the
exterior surface of the Building (excluding signage, landscaping and other
matters that do not directly or permanently affect the exterior surface of the
Building, and (c) non-structural alterations to the interior of the Building
with an estimated cost of more than Two Hundred Fifty Thousand Dollars
($250,000) (collectively, "Restricted Alterations"), Tenant shall: (i) furnish
Landlord with detailed plans and specifications of the proposed change or
alteration; (ii) obtain Landlord's prior written consent, which consent shall
not be unreasonably withheld or delayed or conditioned; (iii) obtain Landlord's
prior written approval of a licensed architect or licensed professional engineer
selected and paid for by Tenant, who shall supervise any such work if Tenant
elects to engage such architect or engineer (hereinafter referred to as
"Alterations Architect or Engineer"); and (iv) obtain Landlord's prior written
approval of detailed Final Plans and Specifications prepared and approved in
writing by said Alterations Architect or Engineer, and of each amendment and
change thereto. With respect to Landlord's prior approval of Restricted
Alterations, (A) Landlord shall not unreasonably withhold, condition or delay
its approval of non-structural Restricted Alterations, and (B) Landlord may
withhold its approval of structural Restricted Alterations in its sole
discretion. All changes or alterations under this Article 20 other than
Restricted Alterations are referred to as "Unrestricted Alterations." Tenant
shall have the right to commence and proceed with Unrestricted Alterations
without obtaining Landlord's prior consent or approval; provided, however, that
Tenant shall give Landlord reasonable notice that it is making an Unrestricted
Alteration.
(c) Utility Maintained. Any change or alteration shall, when
------------------
completed, be of such character as not to reduce the utility of the Demised
Premises or the Building for general office use to which such change or
alteration is made below its utility to Landlord immediately before such change
or alteration, nor shall such change or alteration reduce the area or cubic
content of the Building, nor change the character of the Demised Premises or the
Building as to use without Landlord's express written
40
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consent.
(d) Compliance with Laws. All Work done in connection with any change
--------------------
or alteration shall be done promptly and in a good and workmanlike manner and in
compliance with all building and zoning laws of the place in which the Demised
Premises are situated, and with all Laws. The cost of any such change or
alteration shall be paid in cash so that the Demised Premises and all portions
thereof shall at all times be free of liens for labor and materials supplied to
the Demised Premises, or any portion thereof provided, however that the
-----------------
foregoing is not intended to prohibit progress payments, retainages, escrows and
related payment mechanisms which are customary among prudent and well
represented owners in the commercial construction industry. The Work of any
change or alteration shall be prosecuted with reasonable dispatch, delays due to
strikes, lockouts, acts of God, inability to obtain labor or materials,
governmental restrictions or similar causes beyond the control of Tenant
excepted. Tenant shall obtain and maintain, at its sole cost and expense, during
the performance of the Work, workers' compensation insurance covering all
persons employed in connection with the Work and with respect to which death or
injury claims could be asserted against Landlord or Tenant or against the
Demised Premises or any interest therein, together with comprehensive general
liability insurance for the mutual benefit of Landlord and Tenant with limits of
not less than One Million Dollars ($1,000,000.00) in the event of injury to one
person, Three Million Dollars ($3,000,000.00) in respect to any one accident or
occurrence, and Five Hundred Thousand Dollars ($500,000.00) for property damage,
and the fire insurance with "extended coverage" endorsement required by Section
8.1 hereof shall be supplemented with "builder's risk" insurance on a completed
value form or other comparable coverage on the Work. All such insurance shall be
in a company or companies authorized to do business in the State of Florida and
reasonably satisfactory to Landlord, and all such policies of insurance or
certificates evidencing insurance shall be delivered to Landlord endorsed
"Premium Paid" by the company or agency issuing the same, or with other evidence
of payment of the premium reasonably satisfactory to Landlord.
(e) Location of Improvements. No change, alteration, restoration or
------------------------
new construction shall be in or connect the Improvements with any property,
building or other improvement located outside the boundaries of the parcel of
land described in Exhibit "A" attached, nor shall the same obstruct or interfere
-----------
with any existing easement.
(f) Removal of Improvements. As a condition to granting approval for
-----------------------
any changes or alterations, Landlord may require Tenant to agree that Landlord,
by written notice to Tenant, given at or prior to the time of granting such
approval, may require Tenant to remove any improvements, additions or
installations installed by Tenant in the Demised Premises at Tenant's sole cost
and expense, and repair and restore any damage caused by the installation and
removal of such improvements, additions, or installations; provided, however,
-------- -------
that the only improvements, additions or installations which Tenant shall remove
shall be those specified in such notice.
Tenant's business and trade fixtures, machinery and equipment, whether or
not attached to the Premises, and all furniture, furnishings and other articles
of movable personal property shall be and remain Tenant's property and may be
removed by Tenant prior to the expiration date of this Lease at Tenant's sole
cost and expense and Tenant shall repair and restore any damage caused by such
removal. Landlord agrees that Tenant shall not be required to remove any part of
the Landlord's Improvements and Tenant shall not be required to remove any
alteration, installation, addition or improvement made by or on behalf of
Tenant, after completion of the Landlord's Improvements, unless Landlord, at
that time it grants its approval to such alteration, installation or
improvement, notifies Tenant that the same must be removed at the end of the
Lease Term and provided that such change does not constitute a normal office
alteration,
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installation, addition or improvement.
21. INDEMNITY.
---------
21.1 Indemnity of Landlord. Tenant shall pay and discharge, and shall
---------------------
defend, indemnify and hold Landlord (and Landlord's Affiliates and the
respective officers, directors, agents, employees, representatives, successors
and assigns of each), forever harmless from, against and in respect of all
obligations, settlements, liabilities, losses, damages, injunctions, suits,
actions, proceedings, fines, penalties, claims, liens, demands, costs, charges
and expenses of every kind or nature, including, without limitation, reasonable
fees of attorneys and other professionals, and disbursements which may be
imposed on, incurred by or asserted against the persons hereby required to be
indemnified (but not against any of the same to the extent that a negligent or
willful act or omission of any of such parties was the cause of the same),
arising directly or indirectly from or out of:
(a) any failure by Tenant to perform any of the agreements, terms,
covenants or conditions on Tenant's part to be performed under this Lease
Agreement;
(b) any wrongful act or negligence on the part of Tenant or its
Affiliates, or their respective agents, employees, contractors or invitees, or
any failure of Tenant to comply with any applicable Laws or with the directive
of any governmental authority that Tenant is required to comply with pursuant to
this Lease Agreement; or
(c) any other provision of this Lease Agreement which provides that
Tenant shall indemnify and/or hold harmless Landlord in respect of the matters
contained in such provision.
21.2. Indemnity of Tenant. Landlord shall pay and discharge, and shall
-------------------
defend, indemnify and hold Tenant (and Tenant's Affiliates and their respective
officers, directors, agents, employees, representatives, successors and assigns
of each) forever harmless from, against and in respect of all obligations,
settlements, liabilities, losses, damages, injunctions, suits, actions,
proceedings, fines, penalties, claims, liens, demands, costs, charges and
expenses of every kind or nature, including, without limitation, reasonable fees
of attorneys and other professionals, and disbursements which may be imposed on,
incurred by or asserted against the persons hereby required to be indemnified
(but not against any of the same to the extent that a negligent or willful act
or omission of any such parties was the cause of same), arising directly or
indirectly from or out of:
(a) any failure by Landlord to perform any of the agreements, terms,
covenants or conditions on Landlord's part to be performed under this Lease
Agreement;
(b) any wrongful act or negligence on the part of Landlord or its
Affiliates, or their respective agents, employees or contractors or invitees or
any failure of Landlord to comply with any applicable Laws or with the directive
of any governmental authority that Landlord is required to comply with pursuant
to this Lease Agreement; or
(c) any other provision of this Lease Agreement which provides that
Landlord shall indemnify and/or hold harmless Tenant in respect of the matters
contained in such provision.
21.3. Defense Provisions.
------------------
42
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(a) Any party seeking indemnification under this Lease Agreement (the
"Indemnified Party") shall give notice to the party required to provide
indemnification hereunder (the "Indemnifying Party") promptly after the
Indemnified Party has actual knowledge of any claim as to which Indemnity may be
sought hereunder, and the Indemnified Party shall permit the Indemnifying Party
(at the expense of the Indemnifying Party) to assume the defense of any claim or
litigation resulting therefrom; provided, however that: (i) counsel for the
--------
Indemnifying Party who shall conduct the defense of such claim or litigation
shall be reasonably satisfactory to the Indemnified Party (The parties agree
that if any claim is covered by insurance that the insurance company counsel
shall be deemed to be satisfactory); (ii) the Indemnified Party may participate
in such defense, but only at the Indemnified Party's own cost and expense; and
(iii) the omission by the Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its indemnification obligations
hereunder except to the extent that such omission results in a failure of actual
notice to the Indemnifying Party and the Indemnifying Party is actually and
materially damaged as a result of such failure to give notice.
(b) The Indemnifying Party shall not, except with the consent of the
Indemnified Party, consent to entry of any judgment or administrative order or
enter into any settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to the Indemnified Party of a release
from all liability with respect to such claim or litigation.
(c) In the event that the Indemnifying Party does not accept the
defense of any matter as above provided, the Indemnified Party shall have the
full right to defend against any such claim or demand, and shall be entitled to
settle or agree to pay in full such claim or demand, in its sole discretion. Any
such defense, settlement or payment by the Indemnified Party shall not
constitute a waiver, release or discharge of the Indemnifying Party's
obligations under this Article, it being understood and agreed that any such
defense, settlement, or payment shall be without prejudice to the right of the
Indemnified Party to pursue remedies against the Indemnifying Party arising out
of or related to the Indemnifying Party's failure or refusal to defend the
Indemnified Party as required herein. Notwithstanding the foregoing, any
Indemnified Party shall have the right to settle any such action or proceeding
at any time, provided that it releases the Indemnifying Party from any further
indemnification obligation hereunder with respect to such settlement.
(d) The provisions of this Article shall survive the expiration or
sooner termination of this Lease.
22. MISCELLANEOUS PROVISIONS.
------------------------
22.1. Entry by Landlord. Upon at least one (1) business day's notice,
-----------------
Tenant agrees to permit Landlord and authorized representatives of Landlord to
enter upon the Demised Premises at all reasonable times during ordinary business
hours (or at other times, and upon such notice as is reasonable under the
circumstances, in bona fide emergency situations) for the purpose of inspecting
the same and making any necessary repairs to comply with any laws, ordinances,
rules, regulations or requirements of any public body, or the Board of Fire
Underwriters, or any similar body. Nothing herein contained shall imply any
duty upon the part of Landlord to do any such work which, under any provision of
this Lease Agreement, Tenant may be required to perform and the performance
thereof by Landlord shall not constitute a waiver of Tenant's default in failing
to perform the same. Landlord may, during the progress of any work, keep and
store upon the Demised Premises all necessary materials, tools and equipment.
Landlord agrees to use reasonable good faith efforts to minimize any
interference or disruption of Tenant's use of the Demised Premises. However,
Landlord shall not in any event be liable for inconvenience, annoyance,
disturbance,
43
<PAGE>
loss of business or other damage to Tenant by reason of making repairs or the
performance of any work in or about the Demised Premises, or on account of
bringing material, supplies and equipment into, upon or through the Demised
Premises during the course thereof, and the obligations of Tenant under this
Lease Agreement shall not be thereby affected in any manner whatsoever.
22.2. Exhibition of Demised Premises. Upon prior appointment and at
------------------------------
least two (2) business' days notice, Landlord is hereby given the right during
usual business hours at any time during the Term to enter upon the Demised
Premises and to exhibit the same for the purpose of mortgaging or selling the
same. Tenant may, at is option, elect to require that one or more agents or
representatives of Tenant be present during all such activity. During the final
year of the Term or Renewal Term, if applicable, Landlord shall be entitled to
display on the Demised Premises, in such manner as to not unreasonably interfere
with Tenant's business, signs indicating that the Demised Premises are for rent
or sale and suitably identifying Landlord or its agent. Tenant agrees that such
signs may remain unmolested upon the Demised Premises and that Landlord may
exhibit said premises to prospective Tenants during said period as set forth
above.
22.3. Notices. All notices which are required or permitted hereunder must
-------
be in writing and shall be deemed to have been given, delivered or made, as the
case may be (i) when delivered by personal delivery or (ii) subject to
verification by the date of the return receipt, three (3) business days after
having been deposited in the United States Mail, certified or registered, return
receipt requested, sufficient postage affixed and prepaid, or (iii) subject to
verification of receipt by the courier service's record of delivery, one (1)
business day after having been deposited with an expedited overnight courier
service (such as, by way of example, but not limitation, U.S. Express Mail,
Federal Express or Purolator), addressed to the party to whom notice is intended
to be given at the address set forth below:
To Landlord: c/o Triad Properties Corporation
200 Clinton Avenue West
Suite 1001
Huntsville, Alabama 35804
Attn: Mr. Gerry Shannon
With a copy to: Hogan Burt Development, Inc.
101 East Kennedy Boulevard
Suite 4000
Tampa, Florida 33602
Attn: James T. Burt, II
and
With a copy to: W. Lawrence Smith, Esquire
Hill, Ward & Henderson
101 East Kennedy Boulevard
Suite 3700
Tampa, Florida 33602
To Tenant: Gartner Group, Inc.
56 Top Gallant Road
P.O. Box 10212
44
<PAGE>
Stamford, Conn 06904-2212
Attn: Director of Real Estate
With a copy to: Gartner Group, Inc.
56 Top Gallant Road
P.O. Box 10212
Stamford, CT 06904-2212
Attn: Corporate Counsel
or at such other place as the parties may from time to time designate by written
notice to each other.
22.4. Quiet Enjoyment. Landlord covenants and agrees that Tenant, upon
---------------
paying the Base Rent and Additional Rent, and upon observing and keeping the
covenants, agreements and conditions of this Lease Agreement on its part to be
kept, observed and performed, shall lawfully and quietly hold, occupy and enjoy
the Demised Premises (subject to the provisions of this Lease Agreement) during
the term of this Lease Agreement without hindrance or molestation by Landlord or
by any person or persons claiming under Landlord.
22.5. Landlord's Continuing Obligations. The term "Landlord," as used in
---------------------------------
this Lease Agreement so far as covenants or obligations on the part of Landlord
are concerned, shall be limited to mean and include only the owner or owners at
the time in question of the fee of the Demised Premises, and in the event of any
transfer or transfers or conveyance (with respect to which Landlord shall
provide at least ten (10) days advance notice and such notice shall at a minimum
include information regarding the identity and ownership of the prospective
grantee or and a copy of the agreement evidencing Landlord's assignment and the
grantee's assumption of Landlord's obligations hereunder) the then grantor shall
be automatically freed and relieved from and after the date of such transfer or
conveyance of all liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease Agreement thereafter
to be performed, provided that any funds in the hands of such Landlord or the
then grantor at the time of such transfer, in which Tenant has an interest,
shall be turned over to the grantee, and any amount then due and payable to
Tenant by Landlord or the then grantor under any provision of this Lease
Agreement shall be paid to Tenant. Notwithstanding the foregoing, if Tenant has
pending at any time prior to the effective date of such transfer any action or
suit against the transferring "Landlord" hereunder, the foregoing is not
intended and shall not be deemed or construed to prevent or impair the pendency
of such action or suit or the rights of Tenant with respect thereto. The
covenants and obligations contained in this Lease Agreement on the part of
Landlord shall, subject to the aforesaid, be binding on Landlord's successors
and assigns, during and in respect of their respective successive periods of
ownership. Nothing herein contained shall be construed as relieving Landlord of
its obligations under Article 2 of this Lease Agreement, or releasing Landlord
from any obligation to complete the cure of any breach by Landlord during the
period of its ownership of the Demised Premises.
22.6. Estoppel. Landlord and Tenant shall, each without charge at any time
--------
and from time to time, (but not more than three (3) times in a Lease Year)
within ten (10) days after written request by the other party, certify by
written instrument, duly executed, acknowledged and delivered to any mortgagee,
assignee of a mortgagee, proposed mortgagee, or to any purchaser or proposed
purchaser, or to any other person dealing with Landlord, Tenant or the Demised
Premises:
(a) That this Lease Agreement is unmodified and in full force and
effect (or, if there have been modifications, that the same is in full force and
effect, as modified, and stating the
45
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modifications);
(b) The dates to which the Rent or Additional Rent or Tenant's Direct
Obligations under Section 6.3(c) have been paid in advance;
(c) Whether or not there are then existing any breaches or defaults
by such party or the other party known by such party under any of the covenants,
conditions, provisions, terms or agreements of this Lease Agreement, and
specifying such breach or default, if any, or any setoffs or defenses against
the enforcement of any covenant, condition, provision, term or agreement of this
Lease Agreement upon the part of Landlord or Tenant as the case may be, to be
performed or complied with (and, if so, specifying the same and the steps being
taken to remedy the same); and
(d) Such other statements or certificates as the requesting party may
reasonably request.
It is the intention of the parties hereto that any statement delivered pursuant
to this Section 23.6 may be relied upon by any of such parties dealing with
Landlord, Tenant or the Demised Premises.
22.7. Delivery of Corporate Documents. In the event that Tenant is a
-------------------------------
corporation, Tenant shall, without charge to Landlord, at any time and from time
to time (but not more than two (2) times in any Lease Year) within ten (10) days
after written request by Landlord, deliver to Landlord, in connection with any
proposed sale or mortgage of the Demised Premises, the following instruments and
documents:
(a) Certificate of Good Standing in the state of incorporation of
Tenant issued by the appropriate state authority and bearing a current date
(such certificate shall be deemed to bear a current date if issued on any date
after the most recent mandatory reporting date to avoid potential revocation of
corporate charter or authorization to do business); and
(b) A copy of Tenant's certificate of incorporation and any
amendments thereof, as such documents appear in the public records.
22.8. Short Form Lease. Upon not less than ten (10) days prior written
----------------
request by either party, the parties hereto agree to execute and deliver to each
other a Short Form Lease, in recordable form, setting forth the follows:
(a) The date of this Lease Agreement;
(b) The parties to this Lease Agreement;
(c) The Term;
(d) The legal description of the Demised Premises; and
(e) Such other matters reasonably requested by either party to be
stated therein.
22.9. Severability. If any covenant, condition, provision, term or
------------
agreement of this Lease Agreement shall, to any extent, be held invalid or
unenforceable, the remaining covenants, conditions, provisions, terms and
agreements of this Lease Agreement shall not be affected thereby, but each
covenant,
46
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condition, provision, term or agreement of this Lease Agreement shall be valid
and in force to the fullest extent permitted by law. This Lease Agreement shall
be construed and be enforceable in accordance with the laws of the state in
which the Demised Premise are located.
22.10. Successors and Assigns. The covenants and agreements herein
----------------------
contained shall bind and inure to the benefit of Landlord, its successors and
assigns, and Tenant and its successors and assigns (provided that Tenant has
complied with the applicable terms of Section 17).
22.11. Captions. The caption of each section of this Lease Agreement is
--------
for convenience and reference only, and in no way defines, limits or describes
the scope or intent of such or of this Lease Agreement.
22.12. Relationship of Parties. This Lease Agreement does not create
-----------------------
the relationship of principal and agent, or of partnership, joint venture, or of
any association or relationship between Landlord and Tenant, the sole
relationship between Landlord and Tenant being that of landlord and tenant.
22.13. Entire Agreement. All preliminary and contemporaneous negotiations
----------------
are merged into and incorporated in this Lease Agreement. This Lease Agreement
together with the Exhibits contains the entire agreement between the parties and
shall not be modified or amended in any manner except by an instrument in
writing executed by the parties hereto.
22.14. No Merger. There shall be no merger of this Lease Agreement or the
---------
leasehold estate created by this Lease Agreement with any other estate or
interest in the Demised Premises by reason of the fact that the same person,
firm, corporation or other entity may acquire, hold or own directly or
indirectly, (i) this Lease Agreement or the leasehold interest created by this
Lease Agreement of any interest therein, and (ii) any such other estate or
interest in the Demised Premises, or any portion thereof. No such merger shall
occur unless and until all persons, firms, corporations or other entities having
an interest (including a security interest) in (1) this Lease Agreement or the
leasehold estate created thereby, and (2) any such other estate or interest in
the Demised Premises, or any portion thereof, shall join in a written instrument
expressly effecting such merger and shall duly record the same.
22.15. Possession and Use. Tenant acknowledges that the Demised Premises
------------------
are the property of Landlord and that Tenant has only the right to possession
and use thereof upon the covenants, conditions, provisions, terms and agreements
set forth in this Lease Agreement.
22.16. No Surrender During Lease Term. No surrender to Landlord of this
------------------------------
Lease Agreement or of the Demised Premises, or any portion thereof, or any
interest therein, prior to the expiration of the term of this Lease Agreement
shall be valid or effective unless agreed to and accepted in writing by Landlord
and consented to in writing by all contract vendors and mortgagees, and no act
or omission by Landlord or any representative or agent of Landlord, other than
such a written acceptance by Landlord consented to by all contract vendors and
the mortgagees, as aforesaid, shall constitute an acceptance of any such
surrender.
22.17. Surrender of Demised Premises. At the expiration of the Term,
-----------------------------
Tenant shall surrender the Demised Premises in the same condition as the same
were in upon delivery of possession thereto at the Commencement Date reasonable
wear and tear excepted and damage by fire or other casualty excepted as provided
in this Lease Agreement, and shall surrender all keys to the Demised Premises to
Landlord at the place then fixed for the payment of Base Rent and shall inform
Landlord of all combinations on locks, safes and vaults, if any. Tenant shall
at such time remove all of its property therefrom and all alterations
47
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and improvements placed thereon by Tenant if so requested by Landlord as
provided in Section 20.1 above. Tenant shall repair any damage to the Demised
Premises caused by such removal, and any and all such property not so removed
shall, at Landlord's option, become the exclusive property of Landlord or be
disposed of by Landlord, at Tenant's cost and expense, without further notice to
or demand upon Tenant. Tenant's obligation to observe or perform this covenant
shall survive the expiration or other termination of this Lease Agreement. All
property of Tenant which Tenant is obligated to remove that is not removed
within thirty (30) days after the last day of the Term shall be deemed
abandoned. Tenant hereby appoints Landlord its agent to remove all property of
Tenant from the Demised Premises upon termination of this Lease Agreement and to
cause its transportation and storage for Tenant's benefit, all at the sole cost
and risk of Tenant and Landlord shall not be liable for damage, theft,
misappropriation or loss thereof and Landlord shall not be liable in any manner
in respect thereto. Tenant shall pay all costs and expenses of such removal,
transportation and storage. Tenant shall reimburse Landlord upon demand for any
expenses incurred by Landlord with respect to removal or storage of abandoned
property and with respect to restoring said Demised Premises to good order,
condition and repair.
22.18. Holding Over. In the event Tenant remains in possession of the
------------
Demised Premises after expiration of this Lease Agreement, and without the
execution of a new lease, it shall be deemed to be occupying the Demised
Premises as a Tenant from month to month, subject to all the provisions,
conditions and obligations of this Lease Agreement insofar as the same can be
applicable to a month-to-month tenancy, except that the Base Rent shall be
escalated to one hundred twenty-five percent (125%) of the then current Base
Rent for the Demised Premises.
22.19. Survival. All obligations (together with interest or money
--------
obligations at the Maximum Rate of Interest) accruing prior to expiration of the
Term shall survive the expiration or other termination of this Lease Agreement.
22.20. Attorneys' Fees. In the event of any litigation or judicial
---------------
action in connection with this Lease Agreement or the enforcement thereof, the
prevailing party in any such litigation or judicial action shall be entitled to
recover all costs and expenses of any such judicial action or litigation
(including, but not limited to, actual attorneys' and paralegals' fees
reasonably incurred) from the other party.
22.21. Landlord's Limited Liability. Tenant agrees to look solely to
----------------------------
Landlord's interest in the Demised Premises and the Project, and all profits,
rents and sales proceeds arising therefrom for recovery of any monetary judgment
from Landlord, it being agreed that Landlord (and if Landlord is a partnership,
its partners, whether general or limited, and if Landlord is a corporation, its
directors, officers or shareholders) shall not be personally liable for any
monetary judgment or deficiency decree or judgment against Landlord.
22.22. Broker's Commissions. All negotiations relative to this Lease
--------------------
Agreement and the Demised Premises have been conducted by and between Landlord
and Tenant without the intervention of any person or other party as agent or
broker except for Cushman & Wakefield of Florida, Inc. and Hogan * Burt *
Bishop, Inc. (collectively, the "Brokers"). Landlord, pursuant to separate
agreements or arrangements with the Brokers, shall be responsible for any and
all fees or commissions due and payable to the Brokers arising out of this Lease
Agreement in any way and Tenant shall have no liability therefor. Except with
respect to the fees and commissions of the Brokers to be paid for by Landlord as
aforesaid, Landlord and Tenant warrant and represent to each other that there
are and will be no broker's commissions or fees payable in connection with this
Lease Agreement or the demise of the Demised Premises by reason of their
respective dealings, negotiations or communications. Landlord and Tenant
48
<PAGE>
(except with respect to the Brokers as aforesaid) shall and do each hereby
indemnify, defend and hold harmless the other from and against the claims,
demands, actions and judgments against any and all brokers, agents and other
intermediaries alleging a commission, fee or other payment to be owing by reason
of their respective dealings, negotiations or communications in connection with
this Lease Agreement or the demise of the Demised Premises.
22.23. Covenants, Representations and Warranties.
-----------------------------------------
(a) Landlord. Landlord represents and warrants to Tenant, and
--------
covenants and agrees with Tenant, the following:
(i) Landlord is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Florida;
(ii) All material information and data furnished to Tenant
by Landlord or its agents with respect to the Project is true, correct, complete
and not misleading in any material respect;
(iii) Landlord, and the undersigned signatories executing
this Lease Agreement on behalf of Landlord, are duly authorized and empowered to
enter into this Lease Agreement with Tenant;
(b) Tenant. Tenant represents and warrants to Landlord, and
-------
covenants and agrees with Landlord, the following:
(i) Tenant is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware; and
(ii) Tenant, and the undersigned signatures executing this
Lease Agreement on behalf of Tenant, are duly authorized and empowered to enter
into this Lease Agreement with Landlord.
(iii) All material information and data furnished to Landlord
by Tenant or its agents with respect to Tenant is correct and complete and not
misleading in any material respect.
22.24. Landlord's Permission, Consent or Approval. Whenever in this
------------------------------------------
Lease Agreement Landlord's or Tenant's permission, consent or approval is
required, then, except to the extent otherwise expressly provided, such
permission, consent or approval shall not be unreasonably withheld, delayed or
conditioned. Furthermore, except as otherwise expressly provided herein, in the
event that Landlord fails to respond to any written request for consent or
approval within thirty (30) days after the giving of such request, then such
request shall be deemed to have been approved.
22.25. FORUM AND VENUE FOR LEGAL PROCEEDINGS/WAIVER OF JURY TRIAL. ANY
----------------------------------------------------------
LEGAL PROCEEDING OF ANY NATURE BROUGHT BY EITHER PARTY AGAINST THE OTHER TO
ENFORCE ANY RIGHT OR OBLIGATION UNDER THIS LEASE AGREEMENT, OR ARISING OUT OF
ANY MATTER PERTAINING TO THIS LEASE AGREEMENT, SHALL EXCLUSIVELY BE SUBMITTED
FOR TRIAL, WITHOUT JURY, BEFORE ANY COURT SITTING IN LEE COUNTY, STATE OF
FLORIDA HAVING SUBJECT MATTER JURISDICTION. THE PARTIES CONSENT AND SUBMIT TO
THE EXCLUSIVE JURISDICTION OF ANY SUCH COURT AND AGREE TO ACCEPT SERVICE OF
PROCESS OUTSIDE THE STATE OF FLORIDA IN ANY MATTER TO BE SUBMITTED TO ANY SUCH
49
<PAGE>
COURT PURSUANT HERETO, AND EXPRESSLY WAIVE ALL RIGHTS TO TRIAL BY JURY REGARDING
ANY SUCH MATTER.
22.26. Arbitration. Any dispute with respect to the current
-----------
determination of market rent as set forth in clause (y) of Section 1.3(a) shall
be determined by Landlord and Tenant with Landlord and Tenant promptly
attempting to agree upon an appraiser (Only Appraiser) who shall determine the
"then current fair market rental value for the Demised Premises." If Landlord
and Tenant do not agree upon the Only Appraiser within thirty (30) days after
such applicable time period, Landlord shall designate an appraiser (First
Appraiser) and Tenant shall designate an appraiser (Second Appraiser). The First
Appraiser and Second Appraiser designated shall meet within ten (10) days after
said fifteen (15) day period, and, if within thirty (30) days after said ten
(10) day period has expired, the First Appraiser and Second Appraiser shall not
have agreed upon the "then current fair market rental value for the Demised
Premises", then the First Appraiser and Second Appraiser shall then appoint a
Third Appraiser and if they are unable to agree upon such Third Appraiser within
ten (10) days of the expiration of said last thirty (30) day period, then the
Third Appraiser shall be selected by a court located in Lee County, Florida or
if said court fails or refuses to select, then by the manner provided for in the
Florida Arbitration Code. The Third Appraiser shall be instructed that his
appraisal shall be made in thirty (30) days after his appointment. If any
appraiser fails or refuses or is unable to act or if either Landlord or Tenant
fails or refuses to appoint a required appraiser, then a new appraiser shall be
appointed in his stead which appointment shall be made as herein provided for
the appointment of the Third Appraiser if the First Appraiser or Second
Appraiser are unable to agree. Landlord and Tenant shall each pay its own
expenses and, if there is more than one appraiser, then Landlord and Tenant
shall pay the fees and expenses of the First Appraiser and Second Appraiser
respectively. The fees and expenses of the Third Appraiser or of the Only
Appraiser, if there is only one appraiser, shall be borne equally by Landlord
and Tenant. Any appraiser designated to serve will be a disinterested party,
shall be qualified to determine the "then current fair market rental value for
the Demised Premises," shall be a member of American Institute of Real Estate
Appraisers (or any successor association or body of comparable standing), and
shall have been actively engaged in the appraisal of office real estate in the
Tampa area for a period of not less than five (5) years immediately prior to his
appointment. If there is an Only Appraiser, then the decision of such appraiser
shall be final and binding upon Landlord and Tenant. If there are two
appraisers, then the decision of such two appraisers will be final and binding
on Landlord and Tenant. If there are three appraisers, then the "then current
fair market rental for the Demised Premises" shall be the arithmetic average of
the then current fair market rental for the Demised Premises determined by the
two appraisers having the closest appraisal values and such determination and
average and shall be final and binding on Landlord and Tenant.
22.27. Counterparts; Expiration of Lease Agreement; "Effective Date".
------------------------------------------------------------
This Lease Agreement may be executed in separate counterparts, each of which
shall be deemed an original, and all of such counterparts together shall
constitute one and the same instrument. This Lease Agreement shall be null, void
and of no effect unless it is fully executed by Landlord and Tenant, without
modification (except for mutually agreed upon and initialed changes), and either
(i) at least one fully executed original Lease Agreement has been delivered to
both parties at or before 5:00 p.m. (Eastern Time) on July 30,1997, or (ii) at
or before 5:00 p.m. (Eastern Time) on July 30, 1997 the parties shall have
exchanged executed counterpart signature pages with transmittal letters from
their respective legal counsels confirming that the Lease Agreement has been
deemed fully executed (facsimile transmission of such signature pages and
letters shall be acceptable), provided that the parties agree to cause at least
one fully executed original Lease Agreement will be delivered to both parties
within two (2) business days thereafter. Subject to the immediately preceding
sentence, the"Effective Date" of this Lease Agreement shall mean the later of
the two dates set forth below the respective signatures of Landlord and Tenant.
50
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22.28 Access. Tenant, its employees and agents, shall have access to the
------
Demised Premises twenty-four (24) hours a day and seven (7) days a week, except
to the extent prohibited or restricted by Force Majeure Events.
22.29 Protection of Laws. Notwithstanding anything which may be contained
------------------
in the Lease to the contrary, Tenant shall be afforded the full protection
afforded a tenant under the law governing the relationship between landlords and
tenants in the state wherein the Demised Premises are situated.
22.30 OSHA/Tight Building Syndrome. Landlord represents and warrants that,
----------------------------
to the best of its present knowledge, the Demised Premises and the Building
comply with the applicable safety and health standards in effect pursuant to the
Federal Occupational Safety and Health Act, as amended, Environmental Protection
Act (including U.S. Environmental Protection Agency -- Official Pesticides and
Toxic Substances Guidance for Controlling Asbestos-Containing Materials in
Buildings, EPA 560/5-85024 (June, 1985, as revised from time to time) and all
applicable state and local safety and health laws. Subject to Section 11.1,
Landlord covenants to maintain the Demised Premises and the Building in such a
manner as to assure continued compliance with such laws and standards and agrees
to promptly make such repairs or renovations as may be necessary to meet any new
or modified requirement. Landlord agrees to pay, hold harmless and indemnify
Tenant from and against any all losses, damages, claims, suits, actions,
judgments, and costs (including reasonable attorneys' fees) which may arise or
grow out of injury, claim of injury or death of persons or damage to property
attributable to the presence in the Building or Demised Premises (or the land on
which the Building is situate) of any hazardous or toxic substance.
Landlord represents and warrants that, to the best of its present
knowledge, the Demised Premises and the Building are serviced with sufficient
air handling capacity so as to provide adequate ventilation and fresh air to the
Building and to the Premises, the parties recognizing that certain new buildings
are affected by "tight building syndrome" where the air handling equipment does
not provide sufficient fresh air to the occupants, resulting in complaints of
nausea, headache, eyestrain, and other ailments.
22.31 Access by Individuals with Disabilities. Landlord represents and
---------------------------------------
warrants that, to the best of its present knowledge, the Demised Premises and
the Building will, upon Substantial Completion, comply with all applicable laws
and regulations dealing with access by individuals with disabilities, including
Title III of the Americans with Disabilities Act, Public Law 10 1 -336 (July,
1990) as revised from time to time. To the extent that the Demised Premises are
not fully accessible to any disabled employees or invitees or Tenant and subject
to Section 11.1, Landlord shall take all reasonable steps to modify the Building
and/or the Demised Premises so as to offer full accessibility. If required
modifications are in excess of standards imposed by applicable law and
regulations, and Landlord is thus unwilling to proceed, then Tenant, at its sole
expense, may make such modifications to the Building and /or the Demised
Premises as it deems necessary or desirable to permit access by any such
employees or invitee.
22.32 Parking. Except to the extent prohibited or restricted by Force
-------
Majeure Events, Landlord shall provide Tenant with at least 312 parking spaces
on the Land for the exclusive use of its employees and/or invitees.
22.33 Communications Equipment. Tenant may, at its option, install and
------------------------
maintain a radio antenna, satellite dish or similar communicating mechanism, on
or about the Land and Building at a location mutually agreed upon by the parties
hereto and identified on a plot plan which each of the parties hereto shall
initial upon the execution of the Lease. In the event the parties hereto fail to
designate a location for Tenant's communications equipment, Tenant may locate
its communications equipment
51
<PAGE>
anywhere on or about the Building or common areas about the Building, so long as
the installation and the use thereof do not violate any federal, state, county,
or local law, rule or regulation or restrictive covenants. Tenant shall, upon
the expiration or earlier termination of the Term hereof, remove its
communications equipment and repair any damage cause as a result of removal.
22.34 Contingency. Landlord has entered into a Deposit Receipt and
-----------
Sales Agreement dated July 8, 1997, (the "Contract") with Bay Colony - Gateway,
Inc. (the "Seller") to purchase the Land on or before July 31, 1997. If Landlord
does not purchase the Land pursuant to the Contract, this Lease Agreement shall
automatically and immediately terminate and neither Landlord nor Tenant shall
have any obligations to the other under this Lease.
22.35 Waiver of Statutory Landlord's Lien. Landlord hereby agrees to
-----------------------------------
waive its statutory Landlord's lien under Chapter 83 of the Florida Statutes.
IN WITNESS WHEREOF, intending to be legally bound and with the specific
intent that this Lease Agreement constitute an instrument under seal, each of
the parties hereto has caused this Lease Agreement to be duly executed as of the
Effective Date.
Signed, sealed and delivered
in the presence of
LANDLORD:
HOGAN TRIAD FT. MYERS I, LTD,
a Florida limited partnership
By: Triad Properties Holdings-Florida L.L.C., a
Florida limited liability company, its
general partner
By: /s/ Gerry E. Shannon
----------------------------------- (SEAL)
Name: /s/ [ILLEGIBLE] Name: Gerry E. Shannon
-------------------- -------------------------------------
Title: Manager
------------------------------------
By: /s/ William R. Stroud
----------------------------------- (SEAL)
Name: /s/ [ILLEGIBLE] Name: William R. Stroud
-------------------- -------------------------------------
Title: Manager
------------------------------------
Date signed by Landlord:
July ____, 1997
TENANT:
GARTNER GROUP, INC., a Delaware corporation
By: /s/ Paul S. Parker
------------------------------------------
Name: /s/ [ILLEGIBLE] Name: Paul S. Parker
-------------------- -------------------------------------
Title: VP PROD, DELIVERY & ADMIN
------------------------------------
Name: /s/ Cathy S. Sat Date signed by Landlord:
-------------------- July 30, 1997
52
<PAGE>
EXHIBIT 23.2
CONSENT OF ARTHUR ANDERSEN LLP
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 13, 1999
<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
execute and sign any and all post-effective amendments to the Registration
Statement on Form S-11 of Wells Real Estate Investment Trust, Inc. (Commission
File No. 333-32099) 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, effective as of August 19, 1998,
by the following persons and in the capacities indicated below.
Signatures Title
- ---------- -----
/s/ Leo F. Wells, III President and Director
- --------------------------------
Leo F. Wells, III (Principal Executive Officer)
/s/ Brain M. Conlon Executive Vice President (Principal
- --------------------------------
Brian M. Conlon Financial and Accounting Officer)
and Director
/s/ John L. Bell Director
- --------------------------------
John L. Bell
/s/ Richard W. Carpenter Director
- --------------------------------
Richard W. Carpenter
Page 1 of 2
<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/ Walter W. Sessoms Director
- --------------------------------
Walter W. Sessoms
/s/ Neil H. Strickland Director
- --------------------------------
Neil H. Strickland
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