<PAGE>
As filed with the Securities Exchange Commission on November 18, 1999
File No. 333-67287
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AEI INCOME & GROWTH FUND 23 LLC
(Name of small business issuer in its charter)
Deleware 6500 41-1848181
(State of other (Primary Standard Industrial (IRS Employer
jurisdiction Classification Code Number) Identification Number)
incorporation)
1300 Minnesota World Robert P. Johnson Copies to:
Trade Center 1300 Minnesota World Trade Center Thomas O. Martin
30 East Seventh Street 30 East Seventh Street Dorsey & Whitney LLP
St. Paul, Minnesota 55101 St. Paul, Minnesota 55101 Pillsbury Center South
(651) 227-7333 or (651) 227-7333 or 220 South Sixth Street
(800) 328-3519 (800) 328-3519 Minneapolis, Minnesota
(Address and telephone (Name, address, including 55402-1498
number of principal zip code and telephone
executive offices and number of agent for
intended principal place service of process)
of business)
Approximate date of proposed sale to public: As soon as
practical after the effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND 23
LIMITED LIABILITY COMPANY
24,000 Limited Liability Company Units
($1,000 Per Unit)
SUPPLEMENT NO. 2
TO
PROSPECTUS DATED MARCH 23, 1999
This Supplement is distributed only with the Prospectus dated
March 23, 1999 and must be read in conjunction therewith.
AEI SECURITIES, INC.
1300 Minnesota World Trade Center
30 East 7th Street
St. Paul, Minnesota 55101
(651) 227-7333
(800) 328-3519
FAX (651) 227-7705
The date of this Supplement is November 18, 1999
</PAGE> 2
<PAGE>
THIS SUPPLEMENT
This Supplement is distributed to potential purchasers of
limited liability company interests ("Units") in AEI Income &
Growth Fund 23 LLC (the "LLC"), a limited liability company
formed to acquire existing and newly constructed commercial
properties in the United States, to lease such properties to
corporate tenants under "triple-net" leases, to hold such
properties for appreciation, and eventually to resell such
properties for a profit.
This Supplement is distributed only with the Prospectus
relating to an investment in the LLC dated March 23, 1999 (the
"Prospectus") which provides detailed information relating to the
LLC. This Supplement is intended only to update the Prospectus
by providing current information on the following topics at the
pages indicated:
Current Status
Release From Escrow 3
Operating Policies
Final Sale of Properties 3
Borrowings 3
Property
Pending Acquisition 3
Selected Financial Data 4
Management's Discussion and Analysis 4
Financial Statements of the LLC at
September 30, 1999 and for the
Period Then Ended 7
Each person who has received this Supplement should also
have received a copy of the Prospectus. The Prospectus should be
carefully reviewed for a detailed description of an investment in
the LLC, including information relating to the management of the
LLC, the LLC's objectives and certain risks of investment in the
LLC. Included among the risks of investment in the LLC are:
<bullet> Risks inherent in the significant compensation to be paid
to the Managing Members and their Affiliates;
<bullet> Risks related to the purchase of real estate generally
(including changing market values, tenant defaults,
illiquidity of properties and difficulties of resale,
among others);
<bullet> Risks related to the illiquidity of an investment in the
units and the difficulty an investor may have in
disposing of his or her investment;
<bullet> Risks related to conflicts of interest the Managing
Members may have in forming and operating the LLC ;
<bullet> Risks related to the inability of investors to review in
advance the property which the LLC may acquire and the
reliance the investors must place on the ability of the
Managing Members to chose appropriate investments;
<bullet> Risks related to the treatment of an investment in the
LLC under Federal income tax laws.
</PAGE> 3
<PAGE>
CURRENT STATUS
Release from Escrow
The Prospectus indicated that the LLC would not be formed
and capitalized, and all subscription funds would be held in
escrow, until receipt of subscriptions for 1,500 Units.
Subscriptions for the 1,500 Units required for release of escrow
proceeds were obtained, and the escrow proceeds released on
September 30, 1999. Since that time, the LLC has commenced the
normal operation of investigating the acquisition of properties
and has, through the date of this supplement, entered into an
agreement to acquire one property. See "Property." Pending
investment in properties, subscription proceeds have been
invested in short-term money market accounts. See "Management's
Discussion and Analysis."
At October 31, 1999, the LLC had accepted subscriptions
for 2,313.6166 Units for aggregate proceeds of $2,313,617.
OPERATING POLICIES
Final Sale of Properties
Although the Operating Agreement provides that the
existence of AEI Income & Growth Fund 23 may continue until 2048,
it is likely that it will be dissolved and liquidated earlier
after the sale of all of its properties. Currently, the managers
intend to sell AEI Income & Growth Fund 23's properties and
commence liquidating the LLC 8 to 10 years after completion of
the acquisition phase, depending upon the then current real
estate and money markets, the economic climate and the income tax
consequences to investors.
Borrowings
Because of the potential adverse tax consequences for
charitable remainder trusts that purchase Units in AEI Income &
Growth Fund 23, no borrowings will be used to acquire properties.
Properties will not be financed in the future to obtain proceeds
for new property acquisitions. AEI Income & Growth Fund 23 may,
however, incur indebtedness to finance its day-to-day operations,
redeem Units submitted for repurchase under the repurchase
provisions, stabilize distributions to investors or for any other
purposes deemed by the managers to be in the best interest of AEI
Income & Growth Fund 23, other than the acquisitions of
properties. AEI Income & Growth Fund 23 will not incur borrowings
while there is cash available for distributions.
</PAGE> 4
<PAGE>
PROPERTY
Pending Acquisition
Tumbleweed - Kettering, Ohio. The LLC has entered into an
agreement to acquire a Tumbleweed restaurant in Kettering, Ohio.
The restaurant will be acquired from Tumbleweed, Inc.
(Tumbleweed) upon completion of construction, which is estimated
to be in the second quarter of 2000. The total costs are
expected to be approximately $1,372,000. The restaurant will be
leased to Tumbleweed under a Lease Agreement with a primary term
of fifteen years and may be renewed for up to two consecutive
terms of five years. The Lease will require an annual base rent
of approximately $135,500 which will increase annually, beginning
in the second lease year by the lesser of two percent or two
times the annual CPI Index. The LLC has agreed to provide
construction financing and will receive interest on the
construction advances at eight and one-quarter percent per annum.
The restaurant will be located on East Dorothy Lane in
Kettering, Ohio, a suburb of Dayton. East Dorothy Lane is a
major artery running east and west through Kettering, connecting
Highways 49 and 675, both which run north and south through the
Dayton metro plex. The site is on a pad of a shopping center
anchored by Elder-Beerman. The immediate area is surrounded by
smaller specialty retail stores, a grocery store and other
national restaurant concepts. The population within a 3-mile
radius of the site was over 90,000 in 1997, with an average
household income of over $53,000. The restaurant will be
approximately 5,400 square feet and will be located on a lot of
approximately 39,000 square feet.
Tumbleweed is a casual theme restaurant which features Tex-
Mex and mesquite grilled foods. It owns and operates 28
restaurants in Kentucky, Indiana and Ohio and has 16 additional
restaurants franchised in the United States and 6 restaurants
outside the United States. Tumbleweed is publicly traded on the
NASDAQ and reported to the Securities and Exchange Commission
total assets of $35.5 million and $33.6 million, stockholders'
equity of $17.1 million and $9.5 million, total revenues of $38.7
million and $42.8 million, and net income of $1.4 million and
$1.9 million for the nine months ending September 30, 1999 and
for its year ending December 31, 1998, respectively.
</PAGE> 5
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the LLC for the
nine months ended September 30, 1999 has been derived from, and
should be read in conjunction with, the Financial Statements
included elsewhere in this Supplement:
For the
Nine Months Ended
September 30, 1999
INCOME $ 262
===========
NET LOSS $ 30,387
===========
TOTAL ASSETS $ 1,590,267
===========
NET LOSS PER LIMITED PARTNERSHIP UNIT $ 16.10
===========
WEIGHTED AVERAGE UNITS OUTSTANDING 1,869
===========
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis
discusses the LLC's financial position at September 30, 1999 and
results of operation for the nine months ended September 30, 1999.
Such discussion should be read in conjunction with the financial
statements of the LLC occurring elsewhere in this Supplement and
in the Prospectus of which this Supplement is a part. In
addition, such discussion should be read together with the
descriptions in the Prospectus of the planned operations of the
LLC, particularly the sections describing the conduct of the
offering, the period over which and the policy employed in
purchasing properties, and the application of proceeds contained
in the sections of the Prospectus captioned "Estimated Use of
Proceeds," "Investment Objectives and Policies," and
"Compensation to the Managers and Affiliates."
Results of Operations
For the period ended September 30, 1999, the LLC earned
$262 in investment income from subscription proceeds which were
invested in a short-term money market account. This investment
income constituted 100% of total income for the period. The
percentage of total income represented by investment income
declines as subscription proceeds are invested in properties.
</PAGE> 6
<PAGE>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
During the period ended September 30, 1999, the LLC paid
administration expenses to affiliated parties of $29,749. These
administration expenses include initial start-up costs and
administrative expenses associated with processing distributions,
reporting requirements and correspondence to the Limited Members.
During the same period, the LLC incurred administration expenses
from unrelated parties of $900. These expenses represent direct
payments to third parties for legal and filing fees, direct
administrative costs, outside audit and accounting costs, and
other costs. The administrative expenses decrease after
completion of the offering and acquisition phases of the LLC's
operations.
The Year 2000 issue is the result of computer systems that
use two digits rather than four to define the applicable year,
which may prevent such systems from accurately processing dates
ending in the Year 2000 and beyond. This could result in
computer system failures or disruption of operations, including,
but not limited to, an inability to process transactions, to send
or receive electronic data, or to engage in routine business
activities.
AEI Fund Management, Inc. (AEI) performs all management
services for the LLC. In 1998, AEI completed an assessment of
its computer hardware and software systems and has replaced or
upgraded certain computer hardware and software using the
assistance of outside vendors. AEI has received written
assurance from the equipment and software manufacturers as to
Year 2000 compliance. The costs associated with Year 2000
compliance have not been, and are not expected to be, material.
The LLC intends to monitor and communicate with tenants
regarding Year 2000 compliance, although there can be no
assurance that the systems of the various tenants will be Year
2000 compliant.
Liquidity and Capital Resources
The LLC's primary sources of cash will be proceeds from
the sale of Units, investment income, rental income and proceeds
from the sale of property. Its primary uses of cash will be
investment in real properties, payment of expenses involved in
the sale of Units, the organization of the LLC, the management of
properties, the administration of the LLC, and the payment of
distributions.
</PAGE> 7
<PAGE>
The Operating Agreement requires that no more than 15% of
the proceeds from the sale of Units be applied to expenses
involved in the sale of Units (including Commissions) and that
such expenses, together with acquisition expenses, not exceed 20%
of the proceeds from the sale of Units. As set forth under the
caption "Estimated Use of Proceeds" of the Prospectus, the
Managing Members anticipate that 15% of such proceeds will be
applied to cover organization and offering expenses if only the
minimum proceeds are obtained and that 14% of such proceeds will
be applied to such expenses if the maximum proceeds are obtained.
To the extent organization and offering expenses actually
incurred exceed 15% of proceeds, they are borne by the Managing
Members.
The Operating Agreement requires that all proceeds from
the sale of Units be invested or committed to investment in
properties by the later of two years after the date of the
Prospectus or six months after termination of the offer and sale
of Units. While the LLC is purchasing properties, cash flow from
investing activities (investment in real property) will remain
negative and will constitute the principal use of the LLC's
available cash flow. Until capital is invested in properties,
the LLC will remain extremely liquid.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Before the acquisition of all such properties, cash flow
from operating activities is not significant. Net income, after
adjustment for depreciation, is lower during the first few years
of operations as administrative expenses remain high and a large
amount of the LLC's assets remain invested on a short-term basis
in lower-yielding cash equivalents. Net income will become the
largest component of cash flow from operating activities and the
largest component of cash flow after the completion of the
acquisition phase.
During the offering of Units, the LLC's primary source of
cash flow will be from the sale of LLC Units. The LLC commenced
its offering of LLC Units to the public through a registration
statement which became effective March 23, 1999 and will continue
until March 22, 2000, subject to extension to March 22, 2001 if
all 24,000 LLC Units are not sold before then. From March 23,
1999 to September 30, 1999, the minimum number of LLC Units
(1,500) needed to form the LLC were sold. On September 30, 1999,
a total of 1,868.616 Units ($1,868,616) were transferred into the
LLC. From subscription proceeds, the LLC paid organization and
syndication costs (which constitute a reduction of capital) of
$280,042.
Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995
</PAGE> 8
<PAGE>
The foregoing Management's Discussion and Analysis
contains various "forward looking statements" within the
meaning of federal securities laws which represent
management's expectations or beliefs concerning future
events, including statements regarding anticipated
application of cash, expected returns from rental income,
growth in revenue, taxation levels, the sufficiency of cash
to meet operating expenses, rates of distribution, and other
matters. These, and other forward looking statements made
by the LLC, must be evaluated in the context of a
number of factors that may affect the LLC's
financial condition and results of operations, including the
following:
<bullet> Market and economic conditions which affect the value
of the properties the LLC owns and the cash
from rental income such properties generate;
<bullet> the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
affects of these consequences for investors;
<bullet> resolution by the Managing Members of conflicts with
which they may be confronted;
<bullet> the success of the Managing Members of locating
properties with favorable risk return characteristics;
<bullet> the effect of tenant defaults; and
<bullet> the condition of the industries in which the tenants of
properties owned by the LLC operate.
</PAGE> 9
<PAGE>
AEI INCOME & GROWTH FUND 23 LLC
BALANCE SHEET
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(Unaudited)
ASSETS
1999 1998
CURRENT ASSETS:
Cash $ 1,590,267 $ 1,000
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 31,080 $ 0
MEMBERS' EQUITY:
Managing Members' Equity 636 1,000
Limited Members' Equity, $1,000 Unit value;
24,000 Units authorized; 1,869 Units issued
and outstanding at September 30, 1999 1,558,551 0
----------- -----------
Total Members' Equity 1,559,187 1,000
----------- -----------
Total Liabilities and Members' Equity $ 1,590,267 $ 1,000
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE> 10
<PAGE>
AEI INCOME & GROWTH FUND 23 LLC
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30
(Unaudited)
1999
INCOME $ 262
ADMINISTRATION EXPENSES 30,649
-----------
NET LOSS $ (30,387)
===========
NET LOSS ALLOCATED:
Managing Members $ (304)
Limited Members (30,083)
-----------
$ (30,387)
===========
NET LOSS PER LIMITED MEMBERSHIP UNIT
(1,869 weighted average Units outstanding) $ (16.10)
===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE> 11
<PAGE>
AEI INCOME & GROWTH FUND 23 LLC
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED SEPTEMBER 30
(Unaudited)
1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (30,387)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Increase in Payable to
AEI Fund Management, Inc. 31,080
-----------
Total Adjustments 31,080
-----------
Net Cash Provided By
Operating Activities 693
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Limited Members 1,868,616
Organization and Syndication Costs (280,042)
-----------
Net Cash Provided By
Financing Activities 1,588,574
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,589,267
CASH AND CASH EQUIVALENTS, beginning of period 1,000
-----------
CASH AND CASH EQUIVALENTS, end of period $ 1,590,267
===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE> 12
<PAGE>
AEI INCOME & GROWTH FUND 23 LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE PERIOD ENDED SEPTEMBER 30
(Unaudited)
Managing Limited
Members Members Total
BALANCE, December 31, 1998 $ 1,000 $ 0 $ 1,000
Capital Contributions 0 1,868,616 1,868,616
Organization and Syndication Costs (60) (279,982) (280,042)
Net Loss (304) (30,083) (30,387)
---------- ---------- ----------
BALANCE, September 30, 1999 $ 636 $1,558,551 $1,559,187
========== ========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE> 13
<PAGE>
AEI INCOME & GROWTH FUND 23 LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
(1) The condensed statements included herein have been prepared
by the LLC, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the LLC believes that
the disclosures are adequate to make the information
presented not misleading.
(2) Organization -
AEI Income & Growth Fund 23 LLC (the LLC), a Limited
Liability Company, was formed on October 14, 1998 to acquire
and lease commercial properties to operating tenants. The
LLC's operations are managed by AEI Fund Management XXI,
Inc. (AFM), the Managing Member of the LLC. Robert P.
Johnson, the President and sole shareholder of AFM, serves
as the Special Managing Member of the LLC. An affiliate of
AFM, AEI Fund Management, Inc., performs the administrative
and operating functions for the LLC.
The terms of the offering call for a subscription price of
$1,000 per LLC Unit, payable on acceptance of the offer.
Under the terms of the Operating Agreement, 24,000 LLC Units
are available for subscription which, if fully subscribed,
will result in contributed Limited Members' capital of
$24,000,000. The LLC commenced operations on September 30,
1999 when minimum subscriptions of 1,500 Limited Membership
Units ($1,500,000) were accepted. At September 30, 1999,
1,868.616 Units ($1,868,616) were subscribed and accepted by
the LLC. The Managing Members have contributed capital of
$1,000.
During the operation of the LLC, any Net Cash Flow, as
defined, which the Managing Members determine to distribute
will be distributed 97% to the Limited Members and 3% to the
Managing Members. Distributions to Limited Members will be
made pro rata by Units.
</PAGE> 14
<PAGE>
Any Net Proceeds of Sale, as defined, from the sale or
financing of the LLC's properties which the Managing Members
determine to distribute will, after provisions for debts and
reserves, be paid in the following manner: (i) first, 99% to
the Limited Members and 1% to the Managing Members until the
Limited Members receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to 7%
of their Adjusted Capital Contribution per annum, cumulative
but not compounded, to the extent not previously distributed
from Net Cash Flow; (ii) any remaining balance will be
distributed 90% to the Limited Members and 10% to the
Managing Members. Distributions to the Limited Members will
be made pro rata by Units.
AEI INCOME & GROWTH FUND 23 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of the LLC's property, will
be allocated first in the same ratio in which, and to the
extent, Net Cash Flow is distributed to the Members for such
year. Any additional profits will be allocated in the same
ratio as the last dollar of Net Cash Flow is distributed.
Net losses from operations will be allocated 99% to the
Limited Members and 1% to the Managing Members.
For tax purposes, profits arising from the sale, financing,
or other disposition of the LLC's property will be allocated
in accordance with the Operating Agreement as follows: (i)
first, to those Members with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Members
and 1% to the Managing Members until the aggregate balance
in the Limited Members' capital accounts equals the sum of
the Limited Members' Adjusted Capital Contributions plus an
amount equal to 7% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Members and 10% to the Managing Members. Losses will be
allocated 98% to the Limited Members and 2% to the Managing
Members.
The Managing Members are not required to currently fund a
deficit capital balance. Upon liquidation of the LLC or
withdrawal by a Managing Member, the Managing Members will
contribute to the LLC an amount equal to the lesser of the
deficit balances in their capital accounts or 1.01% of the
total capital contributions of the Limited Members over the
amount previously contributed by the Managing Members.
</PAGE> 15
<PAGE>
(3) Summary of Significant Accounting Policies -
Financial Statement Presentation
The accounts of the LLC are maintained on the accrual
basis of accounting for both federal income tax purposes
and financial reporting purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing
these financial statements in accordance with generally
accepted accounting principles. Those estimates and
assumptions may affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Actual results could differ from those estimates.
Cash Concentrations of Credit Risk
At times throughout the year, the Partnership's cash
deposited in financial institutions may exceed FDIC
insurance limits.
AEI INCOME & GROWTH FUND 23 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Summary of Significant Accounting Policies - (Continued)
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash
equivalents may include cash in checking, cash invested in
money market accounts, certificates of deposit, federal
agency notes and commercial paper with a term of three
months or less.
Income Taxes
The income or loss of the LLC for federal income tax
reporting purposes is includable in the income tax returns
of the Members. Accordingly, no recognition has been
given to income taxes in the accompanying financial
statements.
The tax return, the qualification of the LLC as such for
tax purposes, and the amount of distributable LLC income
or loss are subject to examination by federal and state
taxing authorities. If such an examination results in
changes with respect to the LLC qualification or in
changes to distributable LLC income or loss, the taxable
income of the members would be adjusted accordingly.
</PAGE> 16
<PAGE>
Real Estate
All of the properties to be purchased by the LLC will be
leased under long-term triple net leases.
The building and equipment of the LLC will be depreciated
using the straight-line method for financial reporting
purposes based on estimated useful lives of 25 years and 5
years, respectively.
(4) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the LLC. The payable to AEI Fund
Management represents the balance due for those services.
This balance is non-interest bearing and unsecured and is to
be paid in the normal course of business.
(5) Fair Value of Financial Instruments -
The carrying value of certain assets and liabilities
approximates fair value.
</PAGE> 17
AEI INCOME & GROWTH FUND 23
AN OFFERING OF LIMITED LIABILITY COMPANY UNITS
$1,500,000 minimum
AEI Income & Growth Fund 23 LLC is a limited liability
company organized to purchase commercial properties
throughout the United States. These properties will be
leased to single corporate tenants under leases that
require the tenant to pay most of the property operation
costs ("net leases"). AEI Fund 23 is not a mutual fund or
an investment company.
SECURITY OFFERED 24,000 Units ($24,000,000 total)
of limited liability company interest
at a price of $1,000 each
MINIMUM PURCHASE 2.5 Units ($2,500); 2 Units ($2,000)
for IRAs and Keoghs (higher in
certain states).
MINIMUM OFFERING SIZE All moneys will be placed in a
special bank escrow until receipt of
$1,500,000.
OFFERING PERIOD The offering will last one year,
extendable to two years.
DEALER MANAGER AEI Securities, Inc., a company
affiliated with the managers, will
act as "Dealer-Manager" and
coordinate sale of units. AEI
Securities will contract with other
broker dealers that are members of
the NASD who will use their best
efforts to offer and sell the units.
PROCEEDS TO AEI FUND 23 Per Unit Total (minimum)
Public Price $1,000.00 $1,500,000 100.0%
Commissions & expenses 100.00 150,000 10.0%
Other offering costs 50.00 50,000 5.0%
Proceeds to AEI Fund 23 850.00 1,300,000 85.0%
Acquisition expenses 40.00 60,000 4.0%
Working capital reserve 10.00 15,000 1.0%
Amount available for
purchase of properties $800.00 $1,274,500 80.0%
WE ENCOURAGE YOU TO READ THE "RISK FACTORS" BEGINNING ON
PAGE 5 OF THIS PROSPECTUS:
<BULLET> You likely will not be able to evaluate properties
before you invest;
<BULLET> $1,500,000 (the minimum) of subscriptions would
allow the purchase of only two properties;
<BULLET> There will be no secondary market for these units
and restrictions will be placed on their resale or
transfer;
<BULLET> The managers of AEI Fund 23 will operate under a
number of conflicts of interest.
Neither the SEC nor any state securities administrator
has approved the units or determined that this prospectus
is accurate and complete. Any representation to the
contrary is a criminal offense. We cannot use projections
in this offering and we cannot make any representation,
verbally or in writing, about the cash or tax benefits
you might receive from investing. We cannot accept your
subscription for units until at least five business days
after you have received this prospectus.
AEI SECURITIES, INC.
March , 1999
-1-
TABLE OF CONTENTS
Summary Page 3
Risk factors Page 5
Who may invest Page 8
Capitalization Page 9
Estimated use of proceeds Page 9
Investment objectives and policies Page 10
The Properties Page 14
Managers Page 17
Prior performance Page 19
Compensation to managers and affiliates Page 22
Conflicts of interest Page 24
Cash distributions and tax allocations Page 27
Income tax aspects Page 28
Restrictions on transfer Page 39
Summary of operating agreement Page 39
Reports to investors Page 45
Plan of distribution Page 46
Sales materials Page 48
Legal proceedings Page 48
Experts Page 48
Legal opinion Page 48
Financial statements Page 49
Operating Agreement Exhibit A
Prior Performance Tables Exhibit B
Certain State Suitability Requirements Exhibit C
Subscription Agreement Exhibit D
-2-
SUMMARY
AEI FUND 23
AEI Income & Growth Fund 23 LLC is a newly organized
limited liability company that will acquire a portfolio
of net leased commercial properties. Our objective is to
acquire properties that provide:
<BULLET> Regular cash distributions of lease income;
<BULLET> Growth in lease income through rent escalations;
<BULLET> Capital growth through appreciation in property
values; and
<BULLET> Stable performance from long-term leases with
corporate tenants.
To achieve these objectives, we may sell properties and
reinvest the proceeds in additional net leased
properties. We cannot assure you that we will achieve
these objectives. AEI Fund 23 is not a "tax shelter" and
is not intended to shelter your taxable income from other
sources.
AEI Fund 23 will continue in existence until 2048 unless
the investors, by majority vote, decide to dissolve it
earlier.
RISKS
There are substantial risks in this investment
associated with the inability of investors to
evaluate properties, the inability of AEI Fund
23 to diversify if only the minimum, invested
the illiquidity of the units, and manager
conflicts which are described under "RISK FACTORS"
starting on page 5.
PROPERTIES AND PROPERTY ACQUISITION
AEI Fund 23 did not own any properties when this
prospectus was written. We will, however, supplement this
prospectus when we have identified any property we intend
to purchase. Most of the properties will be leased to
corporate tenants in the chain or franchised restaurant
industry or in the retail industry. We will acquire
properties for cash whenever possible, although
properties may be acquired with assumable indebtedness if
the financing terms are attractive. Properties may later
be financed for up to 60% of the total purchase price of
all properties in the portfolio.
THE UNITS
Each unit represents a $1,000 equity interest in AEI Fund
23. Unlike profit and loss from a corporation, which are
taxed at the corporate level, profits, gains, losses and
tax deductions in AEI Fund 23 are designed to be passed
directly through to the investors.
Investors in units (limited members) will have a
different interest in profits, losses and distributions
than will the managers. For example: cash from rents will
be allocated and paid to investors and managers
differently than cash from the sale or financing of
properties. Cash distributions will be made as follows:
-3-
1. After deducting any operating expenses, rent and
other income will be paid 97% to investors and 3% to
managers;
2. After provision for debts, reserves and operating
expenses, cash from the sale or refinancing of
properties will be paid 99% to investors and 1% to
the managers. After the investors have received
payout (which occurs when total cash distributions
from property sales or financing equals an
investor's initial investment plus a 7% annual,
uncompounded return on investment) 90% of the cash
from the sale or refinancing of properties will be
paid to investors and 10% will be paid to managers.
THE MANAGERS
This investment program will be managed by AEI Fund
Management XXI, Inc., a Minnesota corporation operating
from its principal offices of the manager at 1300
Minnesota World Trade Center, 30 East Seventh Street,
Saint Paul, Minnesota 55101 and its telephone number is
(651) 227-7333 (toll-free 800-328-3519). Robert P.
Johnson, President of AEI Fund Management XXI, will also
serve as special managing member and will be responsible
for overseeing the corporate manager's activities.
COMPENSATION TO THE MANAGERS
In addition to their interests in the profits and losses
as managing members of AEI Fund 23, the managers will be
reimbursed for the following services at their cost:
1. The organization of AEI Fund 23 and this offering,
almost all of which will be paid to third parties.
This amount is estimated at $200,000 at the minimum.
2. The acquisition of properties. Estimated at
$60,000 at minimum subscriptions;
3. The administration of AEI Fund 23 (including
management, leasing, releasing and sale of
properties). Estimated at $75,000 for first 12
months at the minimum subscriptions.
The payments in 1-3 above will be limited to:
<BULLET> The manager's "cost" (the direct expense of
providing the service including employee
compensation, a portion of office and depreciation
costs);
<BULLET> What an unaffiliated party would charge for
providing comparable services in the same area;
<BULLET> 20% of the subscription capital raised in the
case of organizational expenses and acquisition
expenses;
<BULLET> A "basket amount" in the case of all organizational,
acquisition, sales and overhead reimbursed, plus the
portion of reimbursements that represent salaries of
controlling persons of the managers. The basket
amount is equal to 20% of initial capital, plus 5%
of cash flow from commercial properties that are
managed, plus 3% of the sales price of the
properties if the managers provide sales services,
plus 7% of cash flow from operations.
-4-
RISK FACTORS
GENERAL RISKS
YOU WILL BE RELYING ON THE MANAGERS TO SELECT PROPERTIES
AND MIGHT NOT LIKE THE PROPERTIES THEY SELECT.
It is not likely that you will be able to evaluate
properties before they are purchased. Except through
the redemption option offered by AEI Fund 23, you will
not have a right to a return of your investment if you
do not like the properties purchased. AEI Fund 23 is
retaining the managers and will rely on them to find
and acquire its properties. We cannot assure you that
the managers will be able to find suitable properties
or that the business or investment objectives of AEI
Fund 23 will be achieved.
YOU WILL HAVE LITTLE CONTROL OVER OPERATIONS.
Except for limited voting rights, investors have no
control over AEI Fund 23's management and must rely
almost exclusively on the managers. The managers may
take actions with which you disagree. You will not have
any right to object to most management decisions unless
the managers breach their duties to AEI Fund 23.
WHETHER AEI FUND 23 IS PROFITABLE OR NOT, SUBSTANTIAL
FEES WILL BE PAID TO THE MANAGERS FOR THEIR SERVICES.
In operating AEI Fund 23, the managers may make
business decisions that you would not. The managers may
have duties to other programs that may conflict with
their duties to AEI Fund 23. The managers will receive
payments from AEI Fund 23 whether or not it operates
profitably.
THERE WILL NOT BE A MARKET FOR YOUR UNITS AND THERE WILL
BE RESTRICTIONS PLACED ON THEIR TRANSFER.
To avoid being taxed as a corporation, AEI Fund 23 is
required to place significant restrictions on the
transfer of units. That means investors are required to
receive approval from the manager before reselling or
transferring their units. The manager is required to
refuse a transfer when it would adversely affect the
tax status of AEI Fund 23. Because of these
requirements, there will not be a public market for
your units and you may not be able to sell them at the
time you desire.
YOU WILL NOT HAVE A RIGHT TO A RETURN OF YOUR CAPITAL
PRIOR TO THE TERMINATION OF THE PROGRAM.
Although its intent is to dissolve earlier, AEI Fund 23
is not required to dissolve until 2048 unless investors
vote to have it dissolve earlier. You will not have a
right to redeem your units until it is dissolved.
Although AEI Fund 23 will have a unit repurchase
program, that program is limited, provides for
discounts that may not provide you with full value for
your investment, may be periodically suspended in the
discretion of the managers, and is not available if
there is not adequate capital to pay for repurchases.
-5-
AEI FUND 23 MAY NOT BE ABLE TO DIVERSIFY ITS INVESTMENTS
AND ACCOMPLISH ALL OF ITS INVESTMENT OBJECTIVES.
If it raises only $1,500,000, AEI Fund 23 may purchase
as few as two properties and the proportion of its
capital spent on organizational and offering costs will
be higher. While AEI Fund 23 intends to diversify its
investments, it is under no obligation to do so and may
invest in a single property. PENNSYLVANIA INVESTORS:
Because the minimum is less than $2,400,000, you are
cautioned to carefully evaluate AEI Fund 23's ability
to accomplish its objectives and to ask about the
current amount of subscriptions before you invest.
AEI FUND 23 MAY DISSOLVE IF BOTH MANAGERS DIE OR
WITHDRAW.
If both managers die, are removed, withdraw, or are
declared bankrupt, AEI Fund 23 may be required to
dissolve. In that kind of situation, it might face
selling its properties at disadvantageous prices. AEI
Fund 23 will not carry insurance on the life of
Robert Johnson, the special managing member and
president of the manager.
AEI FUND 23 IS NOT PROVIDING YOU WITH SEPARATE LEGAL OR
ACCOUNTING REPRESENTATION.
AEI Fund 23, its investors and the managers are not
represented by separate counsel. Although counsel has
given the tax opinion referenced in the Tax Matters
section of this prospectus, and an opinion that there
is legal authority to issue the units, the legal
counsel and accountants for AEI Fund 23 have not been
retained, and will not be available, to provide other
legal counsel or tax advice to individual investors.
DISTRIBUTIONS IN THE EARLY STAGES MAY BE A RETURN OF
CAPITAL.
If operating revenues are not sufficient to fund all
distributions, the cash you receive may represent a
return of capital.
REAL ESTATE INVESTMENT RISKS
DEFAULTS BY TENANTS MAY INTERRUPT CASH FLOW OR CAUSE A
DECLINE IN A PROPERTY'S VALUE.
If a tenant defaults, we cannot assure you that AEI
Fund 23 will be able to find a new tenant for the
vacant property at the same rental rate or that it will
be able to sell the property without incurring a loss.
If a tenant files for bankruptcy, we may not be able
to quickly recover the property from the
bankruptcy trustee. If that were to happen, it might
delay re-letting the property and we may not receive
rent from the trustee sufficient to cover our expenses.
SOME PROPERTIES MAY BE SUITABLE FOR ONLY ONE USE AND MAY
BE COSTLY TO UPGRADE IF A LEASE IS TERMINATED.
AEI Fund 23's properties may be designed for a
particular tenant. If AEI Fund 23 holds a property at
termination of the lease, and the tenant does not
renew, or if the tenant defaults on its lease, the
property might not be marketable without substantial
capital improvements. Improvements could require the
use of cash that would otherwise be distributed to
investors. If a decision was made to sell the property,
the sales price might be lower than expected.
-6-
AEI FUND 23 COULD LOSE PROPERTIES IF IT DEFAULTS ON
BORROWINGS.
When purchasing a property, AEI Fund 23 might assume an
existing mortgage. It might also finance properties
initially purchased for all cash. This practice is
known as "Leveraging." Leveraging increases the
capital available for investment, but may also increase
the risk of loss. If AEI Fund 23 were to default on
mortgage payments, and the mortgage holder foreclosed,
AEI Fund 23 could lose its ownership interest in the
property.
FEDERAL INCOME TAX RISKS
OPERATION OF AEI FUND 23 COULD AFFECT THE PROPRIETY OF
ALLOCATIONS AND CAUSE ADDITIONAL TAX AND PENALTIES.
Each investor will be entitled to deduct his or her
allocated share of any tax losses and will report his
or her allocated share of income and gain on the
investor's tax return. Whether those allocations will
be honored by the IRS depends on a number of facts
related to the future operation of AEI Fund 23. Because
AEI Fund 23 has not commenced operation, counsel has
not rendered an opinion as to these allocations. If
these allocations were not honored by the IRS, a change
in the tax treatment of income, gain, loss and
deduction from AEI Fund 23 could occur and on audit,
each investor could be forced to pay taxes or
penalties, or both.
THE TIMING OF TAX DEDUCTIONS COULD BE CHALLENGED BASED ON
THE ALLOCATION OF "BASIS" AMONG PROPERTIES AND INVESTORS
COULD BE SUBJECTED TO INCREASED TAX.
The managers will allocate the purchase price of
properties among buildings (the cost of which is
depreciable), personal property (the cost of which is
depreciable over a shorter period), and the underlying
land (the cost of which is not depreciable).
Because properties have not been purchased, counsel has
not rendered an opinion on whether the allocation of
purchase price, the rate of depreciation or the timing
of deductions is proper. If the IRS successfully
challenged these allocations, investors could lose a
portion of the deductions and be subject to increased
taxable income in the early years of operations.
THE RESALE OF PROPERTIES COULD CAUSE GAINS TO BE TAXED AS
ORDINARY INCOME.
If AEI Fund 23 is characterized as a "dealer" in real
estate when properties are sold, gain or loss on such
sales will be considered ordinary income or loss.
Because the character of AEI Fund 23 as a dealer in
real estate is dependent on future events and the
timing of property purchases and sales, counsel has not
rendered an opinion on this issue. Because ordinary
income is, in most cases, taxed at higher rates than
capital gain, characterization of AEI Fund 23 as a
dealer could cause an increase in taxes payable by an
investor.
THE STRUCTURE OF THE PURCHASE AND LEASE TRANSACTIONS OF
AEI FUND 23 COULD CAUSE LOSS OF SOME DEPRECIATION AND
OTHER DEDUCTIONS.
Sale leaseback transactions in which the lessor
provides certain options to the seller/lessee, such as
a purchase option at a fixed price, could cause the IRS
-7-
to conclude the transaction is not a true lease. If
this were to occur, AEI Fund 23 would not be able to
use some of the deductions it anticipates and more
taxable income would be recognized during operation of
a property.
INCORRECT ALLOCATION OF EXPENSES AMONG START-UP,
ORGANIZATION AND SYNDICATION COULD CAUSE MORE TAXABLE
INCOME.
The manager will allocate expenses during the early
stages of AEI Fund 23's operations to start-up,
organization, syndication and acquisition expenses for
purposes of the deduction or capitalization of such
expenses. These allocations cannot be made until the
expenses are incurred and, therefore, counsel has not
rendered an opinion as to their propriety. If the IRS
determined that the allocations were improper, AEI Fund
23 could lose some deductions and investors would
recognize more income during the early stages of the
operation of properties.
WHO MAY INVEST
To purchase units you must be able to represent in
writing that you have either:
1. A net worth (exclusive of homes, home furnishings
and automobiles) of at least $45,000 and an annual
gross income of at least $45,000; or
2. Irrespective of annual gross income, a net worth
of at least $150,000 determined with the same
exclusions.
You will be required to purchase a minimum of two and one-
half units ($2,500) unless you are investing through an
IRA or other tax-qualified plan. The minimum investment
for IRAs and other tax-qualified plans is two units
($2,000), provided that the person who established the
account or plan meets the standards for an individual
investor. An investment in AEI Fund 23 will not create an
IRA or other tax-qualified plan for any investor.
Investment firms that participate in the distribution of
this offering and solicit orders for units are required
to make every reasonable effort to determine that the
purchase is appropriate for each investor. In addition to
net worth and income standards, the investment firms are
required to determine:
<BULLET> whether you can reasonably benefit from an
investment in the units based on your
investment objectives,
<BULLET> your ability to bear the risk of the
investment, and
<BULLET> your understanding of the risks of the
investment.
They must also determine whether you understand:
<BULLET> the lack of liquidity of the units,
<BULLET> the restrictions on transferability of the
units,
<BULLET> the background and qualifications of the
managers, and
<BULLET> the tax consequences of the investment.
Additional requirements applicable to residents of some
states are set forth in Exhibit C to this prospectus.
-8-
In addition to any other considerations, trustees and
custodians of tax-qualified plans should consider the
following when making an investment decision:
<BULLET> If AEI Fund 23 borrows money to purchase a
property, some of its income may be unrelated
business taxable income. A tax-qualified plan,
although generally exempt from federal income tax,
may be subject to some taxation i f its unrelated
business taxable income, after investment in AEI
Fund 23, exceeds $1,000 in any taxable year.
<BULLET> ERISA establishes diversification requirements
that should be considered. ERISA should also be
considered in light of the nature of an investment
in, and the compensation structure of, the
investment and the potential lack of liquidity of
the units. The prudence of a particular investment
must be determined by the responsible fiduciary
taking into account all the facts and circumstances
of the tax-qualified retirement plan and the
investment.
BECAUSE IT IS POSSIBLE THAT AEI FUND 23 WILL GENERATE
UNRELATED BUSINESS TAXABLE INCOME, IT IS NOT AN
APPROPRIATE INVESTMENT FOR CHARITABLE REMAINDER TRUSTS.
CAPITALIZATION
The capitalization of AEI Fund 23 at December 31, 1998,
and after the issuance and sale of the minimum of 1,500
units is as follows:
December 31, 1998
Title of Class Actual After Sale of 1,500
Units
Managers' Capital $ 1,000 $ 1,000
Investors' Capital $ 0 $ 1,500,000
Less Offering Expenses $ 0 $ (200,000)
___________ ___________
Total Capital $ 1,000 $ 1,300,00
=========== ===========
ESTIMATED USE OF PROCEEDS
AEI Fund 23 expects that there will be approximately
$1,275,000 available for investment in properties and
reserves if $1,500,000 is raised and $20,640,000 if
$24,000,000 is raised. The following table estimates the
use of proceeds from the sale of units. Some of the
items below cannot be precisely calculated and could vary
materially from the amounts shown.
-9-
Minimum Maximum
(1,500 Units) (24,000 Units)
Dollars Percent Dollars Percent
Gross Offering Proceeds $ 1,500,000 100.00% $24,000,000 100.00%
Less Offering Expenses
Selling commissions and
nonaccountable expenses $ (150,000) 10.00% $(2,400,000) 10.00%
Other offering expenses $ (75,000) 5.00% $ (960,000) 4.00%
Amount Available for
Investment
(net proceeds) $ 1,275,000 85.00% $20,640,000 86.00%
Acquistion Expenses $ (60,000) 4.00% $ (720,000) 3.00%
Working Capital Reserve $ (15,000) 1.00% $ (240,000) 1.00%
___________ ___________
CASH AVAILABLE FOR PURCHASE
OF PROPERTIES $ 1,200,000 80.00% $19,680,000 82.00%
=========== ===========
The amount available for investment in properties will
not, in any event, be less than 80% of gross offering
proceeds. The proceeds of the offering will be held in
trust by AEI Fund 23 for the benefit of the purchasers of
units and used only for the purposes set forth above.
AEI Fund 23 will continue to offer and sell units for 12
months after the date of this prospectus. At the election
of the managers, units may be offered during a second 12
months. Except for indebtedness secured by properties, it
will not commit itself to invest more money in properties
than it has raised through the sale of units.
Accordingly, the managers believe that AEI Fund 23 will
have adequate capital to fund its operation for the first
24 months of operation.
INVESTMENT OBJECTIVES AND POLICIES
PRINCIPAL INVESTMENT OBJECTIVES
AEI Fund 23 intends to acquire free-standing, single-
tenant, net-leased commercial properties located
throughout the United States. It may also sell properties
from time to time and purchase other similar properties
when its managers believe conditions are favorable. It
may commit to purchase properties when construction is
completed at agreed prices or pursuant to pricing
formulas.
ACQUISITION OF PROPERTIES
AEI Fund 23 will not purchase or lease any property from,
or sell or lease any property to, the managers or their
affiliates. It may, however, purchase property from the
managers or their affiliates if they purchased the
property in their own name and temporarily held title to
it to help acquire the property or obtain financing.
Purchases from a manager or affiliate will be for a price
no greater than the price paid by the manager or
affiliate, plus acquisition expenses.
-10-
Although AEI Fund 23 does not intend to acquire any
unimproved or undeveloped properties, or to participate
in the development of any properties, it may acquire raw
land prior to the building of improvements and it may
advance funds or make loans in connection with the
construction of improvements. Any construction loan will
be secured by the land and improvements under
construction. Construction loans will not exceed 30% of
offering proceeds.
The purchase price of each property will be supported by
an independent appraisal of its fair market value.
Nevertheless, the managers will rely on their own
analysis, and not on such appraisals, in determining
whether to acquire a particular property. Copies of
appraisals will be retained at the office of AEI Fund 23
for at least five years and will be available for
inspection and duplication by any investor.
Prior to the acquisition of a property, AEI Fund 23 will
be provided with evidence satisfactory to the managers
that it will acquire marketable title to such property,
subject only to acceptable liens and encumbrances. Such
evidence may include a policy of title insurance, an
opinion of counsel or such other evidence as is customary
in the locality in which the property is situated.
TEMPORARILY INVESTED FUNDS
After release from escrow, and before investment in
properties, all funds will be invested in short-term
government securities or in insured deposits with a
financial institution and will earn interest at short-
term deposit rates. Any of the net proceeds of this
offering (except for amounts used to pay operating
expenses or to establish working capital reserves as
determined by the manager) that have not been invested or
committed for investment in real property within 24
months after the date of this prospectus or six months
after termination of the offering of units will be
distributed, without interest but together with a
proportionate amount of any commissions or other
organization and offering expenses, to the investors as a
return of capital. All funds will be available for the
general use of AEI Fund 23 during such period and may be
expended in operating any properties that have been
acquired.
Investment capital will not be segregated or held
separate from other capital of AEI Fund 23 pending
investment. For purposes of the foregoing, capital will
be considered committed to properties, and will not be
returned to the investors, if written contractual
agreements have been signed prior to the period described
above, regardless of whether the property is ultimately
purchased. To the extent that funds have been reserved to
make contingent payments in connection with a property
under a written contractual agreement, or because the
managers determine that additional reserves are necessary
in connection with a property, regardless of whether such
payment is ultimately made, funds will not be returned to
investors.
SALE OF PROPERTIES
At the discretion of the managers, net proceeds from sale
of properties may either be distributed to investors or
reinvested in properties that meet the acquisition
-11-
criteria of AEI Fund 23. Net proceeds from the sale of a
property will not be reinvested unless enough cash is
distributed for investors to pay their income taxes
resulting from the sale, assuming they are taxed at a
rate of seven percent above the individual capital gains
rate.
AEI Fund 23 may sell co-tenancy or other fractional
interests in properties, rather than selling its entire
interest in a property. The manager believes that,
depending on market conditions, sales of smaller
interests through exchanges designed to comply with
Section 1031 of the Internal Revenue Code can result in
greater overall profits to AEI Fund 23. In those
instances in which AEI Fund 23 does not sell all of a
property, it will retain, either alone or with another
program sponsored by affiliates of the managers, the
authority to direct management and policies relating to
the operation and sale of the property.
Although AEI Fund 23 intends to sell its properties for
cash, purchase money obligations secured by mortgages may
be taken as partial payment. The terms of payment may be
affected by custom in the area in which the property is
located and by prevailing economic conditions. To the
extent AEI Fund 23 receives notes and property other than
cash, that portion of the proceeds will not be included
in net proceeds from sale until and to the extent the
notes or other property are actually collected, sold,
refinanced or otherwise liquidated. Therefore, the
distribution to investors of the cash proceeds of a sale
may be delayed until the notes or other property are
collected at maturity, sold, refinanced or otherwise
converted to cash.
AEI Fund 23 may receive payments (cash and other
property) in the year of sale in an amount less than the
full sales price and subsequent payments may be spread
over several years. The entire balance of the principal
may be a balloon payment due at maturity. For federal
income tax purposes, unless it elects otherwise, AEI Fund
23 will report the gain on such sale proportionately
under the installment method of accounting as principal
payments are received.
BORROWING POLICIES
The managers might not finance all properties. They do
not intend to use any financing unless it can be
obtained at rates that are likely to generate an
attractive spread over rental rates. Although the
managers believe that the current interest rate
environment is favorable, if rates increase, the managers
may decide not to use any mortgage financing. In no event
will the total amount of indebtedness exceed 60% of the
purchase price of all properties, or 60% of the fair
market value of the properties on the date they are
refinanced. To the extent that any financing is not
fully amortizing, and it exceeds 25% of the purchase
price of properties, its maturity (its due date) will not
be earlier than ten years after the date of purchase of
the mortgaged property or two years after the anticipated
holding period of the property (provided such holding
period is at least seven years).
AEI Fund 23 will not obtain permanent financing from the
managers or their affiliates. Recourse for any
indebtedness will be limited to the particular property
to which the indebtedness relates. To the extent recourse
is limited to a particular property, under most
circumstances such indebtedness would increase the
investors' tax basis in the units. AEI Fund 23 will not
issue any senior securities and will not invest in junior
mortgages, junior deeds of trust or similar obligations.
-12-
JOINT VENTURE INVESTMENTS
Property may be purchased jointly with another program
sponsored by the managers or their affiliates. These
joint ventured investments will be made only with a
program that has investment objectives and management
compensation provisions substantially the same as those
of AEI Fund 23. AEI Fund 23's ability to enter into a
joint venture may be important if it wishes to acquire an
interest in a specific property but does not have
sufficient funds (or, at the time it enters into a
commitment to acquire a specified property, cannot
determine whether it will have sufficient funds) to
acquire the entire property.
In any joint venture with another fund sponsored by the
managers or their affiliates, the following conditions
must be satisfied:
1. The joint venture must have comparable investment
objectives and the investment by each party to the
joint venture must be on substantially the same
terms and conditions;
2. AEI Fund 23 may not pay more than once for the
same services and may not act indirectly through any
such joint venture if it would be prohibited from
doing so directly;
3. The compensation of the managers and such
affiliates in the other fund must be substantially
identical to their compensation in AEI Fund 23;
4. AEI Fund 23 must have a right of first refusal to
purchase the other party's interest if the other
party to the joint venture wishes to sell a property
There is a potential risk of impasse on joint venture
decisions and a risk that, even though AEI Fund 23 will
have the right of first refusal to purchase the other
party's interest in the joint venture, it may not have
the resources to exercise such right.
DISTRIBUTIONS
We intend to distribute net cash flow from operations to
investors within 30 days after the close of each fiscal
quarter. The amount of any distribution will depend upon
the degree to which operations have been profitable and
have generated cash flow. Net cash flow from operations
will not be used for the acquisition of properties,
although it may be held as reserves. Net cash flow may be
used to repurchase units. Distributions to investors who
elect to participate in a distribution reinvestment plan
will be applied to the purchase of additional units.
The quarterly distribution rate during the first 36
months after the date of this prospectus will likely
exceed the amount of cash generated from operations.
Although the managers have not established a specific
rate of distribution, and may change the rate of
distribution from time to time, because the distribution
will likely exceed the amount of cash generated during
this period, a part of the distribution will likely
constitute a return of the investors initial investment.
After that time, the distribution rate will be allowed to
float quarterly based on the cash flow or proceeds of
sale available for distribution.
-13-
RESERVES FOR OPERATING EXPENSES
The managers expect that about 1% of the offering
proceeds will initially be reserved to meet costs
and expenses. To the extent that such reserves and any
income are insufficient to defray the costs and other
obligations of AEI Fund 23, it may be necessary to
finance or refinance properties or, if that is not
available on acceptable terms, to sell properties,
possibly on unfavorable terms. During the holding period
of a property, AEI Fund 23 may increase reserves to meet
anticipated costs and expenses or other economic
contingencies. If the managers determine that reserves
are not necessary for operations, the excess may be
distributed to investors.
MANAGEMENT OF PROPERTIES
The manager or its affiliates will manage each property,
and enforce the lease obligations of the tenants. The
managers will:
<BULLET> negotiate with tenants,
<BULLET> reflect and remodel properties,
<BULLET> receive and deposit monthly lease payments,
<BULLET> periodically verify payment of real estate taxes
and insurance coverage, and
<BULLET> periodically inspect properties and tenant sales
records, where applicable.
Because the properties will be net leased, the tenants
will be responsible for most of the day-to-day on-site
management, taxes, insurance and maintenance expenses, of
the properties.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES
Investors have no voting rights with respect to the
establishment, implementation or alteration of the
investment objectives and policies of AEI Fund 23, all of
which are the responsibility of the managers.
Nevertheless, the managers will not make any material
changes in the investment objectives and policies
described above without first obtaining the written
consent or approval of investors owning in the aggregate
more than 50% of outstanding Units.
THE PROPERTIES
As of the date of this prospectus, AEI Fund 23 had not
acquired any properties. The managers are continually
evaluating properties for acquisition and engaging in
negotiations with sellers, tenants and developers
regarding the potential purchase of properties. Depending
upon the amount proceeds available from this offering,
the managers intend to diversify the type and location of
properties acquired. There is no limitation on the amount
or percentage of assets that may be invested in any one
property. Although we currently intend to purchase two or
more properties with the net proceeds of this offering,
we may purchase only a single property if, in the
manager's judgment, that would be in the best interest of
AEI Fund 23.
-14-
Most of the leases will provide that risks such as
fitness for use or purpose, design or condition, quality
of material or workmanship, latent or patent defects,
compliance with specifications, location, use, condition,
quality, description or durability will be borne by the
lessee. It is customary in commercial property
transactions that leases provide for early termination
upon the occurrence of certain events (e.g., casualty or
substantial condemnation). Some commercial leases,
particularly those for properties used in the sale of
retail goods or services, require that the landlord bear
the costs of maintaining the structural integrity of the
building, including the roof and foundation.
ACQUISITION CANDIDATES
Many of the properties will be leased to tenants in the
chain or franchise restaurant industry and the retail
industry. There is no prohibition on the acquisition of
properties in other industries. The managers intend to
monitor industry trends and invest in properties that
serve to provide the most favorable return balanced with
risk.
THE RESTAURANT INDUSTRY
The restaurant industry is one of the largest and
fastest growing in the United States. Annual sales of
the top 100 restaurant chains exceeded $118 billion in
1997. With a steady increase in the number of two-
income families and a rapidly expanding senior citizen
population, demographic trends are particularly
favorable for the casual dining segment of the
restaurant industry. Because this industry is highly
property-dependent, the managers believe it offers some
of the best sale leaseback investment opportunities.
The managers believe that this industry includes a
number of companies and franchisees with established
track records that are attractive to AEI Fund 23.
[Graphic: Bar chart illustrating the growth in restaurant sales
from 1991 through 1998]
THE RETAIL INDUSTRY
We believe trends in this industry have increased the
attractiveness of retail properties. Consumer demand for
a large selection of merchandise in a single category at
discount prices has caused many retailers to turn to
freestanding properties that have minimal interior
partitions. These retail buildings, or "superstores," are
often grouped together in a "power center" that has few,
if any, small retailers. Many of the large retailers
operating these establishments use lease financing for
the purchase and construction of their outlets. The
managers believe that the rapid expansion in this
industry may present attractive properties for
acquisition.
[Graphic: Bar chart illustrating the growth in retail sales
from 1993 through 1998]
-15-
ACQUISITION CRITERIA
In determining whether a property is a suitable
acquisition for AEI Fund 23, the managers will consider
the following factors, among others:
<BULLET> The creditworthiness of the lessee and the lease
guarantor, if any, and their ability to meet the
lease obligations;
<BULLET> The location, condition, use and design of the
property and its suitability for a long-term net
lease;
<BULLET> The terms of the proposed lease and guaranty, if
any, including any provisions relating to rent
increases and the passing on of operating
expenses to tenants;
<BULLET> The prospects for long-term appreciation of the
property;
<BULLET> The prospects for long-range liquidity of the
investment; and
<BULLET> The demographics of the community in which a
property is located.
The managers will apply the following standards when
selecting properties:
<BULLET> Tenants must be actively involved in the
operation of the business type occupying the
property.
<BULLET> Tenants must have a history of successful
operations in the business for which the
property is leased.
<BULLET> Tenants will be required to provide evidence
of cash flow, independent of cash flow generated
by the property, or cash reserves, sufficient
to allow the tenant to meet its current
obligations under the lease.
Acquisitions may vary from these standards, but any
variation must be justified to the managers.
PROPERTY UPDATES
When there is a reasonable probability that a property
will be acquired during the offering period, this
prospectus will be supplemented to disclose important
information about it. Based upon the experience and
acquisition methods of the managers, this will normally
occur when a legally binding purchase agreement is signed
for a property, but may occur sooner or later depending
upon the circumstances involved.
Supplements to this prospectus will describe the property
to be acquired, the proposed terms of purchase, the
financial results of any prior operations of the
property, and other information considered appropriate
for an understanding of the transaction. Upon termination
of this offering, no further supplements to this
prospectus will be distributed, but investors will
continue to receive acquisition reports containing
substantially the same information regarding the
properties acquired.
It should be understood that the initial disclosure of
any proposed acquisition cannot be relied upon as an
assurance that AEI Fund 23 will ultimately consummate the
acquisition or that the information provided concerning
an acquisition will not change between the date of this
prospectus (or supplement) and the actual purchase date.
-16-
MANAGERS
FIDUCIARY RESPONSIBILITY
The managers are accountable to AEI Fund 23 as
fiduciaries and must exercise good faith in handling its
affairs. The managers have fiduciary responsibility for
the safekeeping and use of all capital and assets of AEI
Fund 23, whether or not in the managers' possession or
control. The managers are prohibited from employing, or
allowing any other person or entity to employ, the
capital or assets of AEI Fund 23 in any manner except for
the exclusive benefit of its investors.
The managers will not, however, be liable to AEI Fund 23
or the investors for acts or omissions which may occur in
the exercise of their judgment as long as their actions
were made in the good faith belief that such actions were
in the best interest of AEI Fund 23 and not the result of
negligence or misconduct. AEI Fund 23 will indemnify the
managers for any claim or liability arising out of their
activities on its behalf, unless the claim or liability
was the result of negligence or misconduct.
In the opinion of the SEC, and the securities
administrators of most states, indemnification for
liabilities arising under securities laws is against
public policy and therefore unenforceable. If a claim for
indemnification for liabilities under securities laws is
asserted by the managers in connection with registration
of the units, AEI Fund 23 will submit to a court of
appropriate jurisdiction, after apprising such court of
the position of the SEC and state securities
administrators, the question of whether indemnification
by it is against public policy and will be governed by
the final adjudication of such issue.
MANAGEMENT
The managers will have the sole and exclusive right,
power and responsibility to manage AEI Fund 23's
business, including, under certain limited circumstances,
the right and power to have it obtain loans secured by
its property. The managers will make all of the
investment decisions, including:
<BULLET> decisions relating to the properties to be
acquired,
<BULLET> the method and timing of any financing of such
properties,
<BULLET> the selection of tenants,
<BULLET> the terms of leases on such properties, and
<BULLET> the method and timing of the sale of properties.
The managers will coordinate and manage all of the
activities of AEI Fund 23, maintain its records and
accounts, and arrange for the preparation and filing of
all its tax returns. Certain of the administrative and
management functions to be performed by the managers may
be delegated to their affiliates, provided that any
compensation to affiliates of the managers will be at
cost.
-17-
BACKGROUND AND EXPERIENCE OF MANAGEMENT
AEI FUND MANAGEMENT XXI, INC.
AEI Fund Management XXI, Inc., the manager, is a
Minnesota corporation formed in 1994 to serve as a
general partner of AEI Income & Growth Fund XXI Limited
Partnership, an affiliated limited partnership with
investment objectives and structure similar to AEI Fund
23. The sole shareholder and director of the manager is
Robert P. Johnson, who also serves as its President.
Each of the officers of the manager also holds a
position as an officer in the corporations formed to
serve as general partners of prior funds sponsored by
the managers and their affiliates. The officers and
sole director of the manager are as follows:
Name Age Position
Robert P. Johnson 54 Sole Director, Chief Executive
Officer and President
Mark E. Larson 46 Chief Financial Officer, Treasurer
and Secretary
[Graphic: Picture of Robert P. Johnson]
ROBERT P. JOHNSON will also serve as the special
managing member of AEI Fund 23. Mr. Johnson is the
President, Chief Executive Officer, sole shareholder
and sole director of the manager. From 1970 to the
present he has been employed exclusively in the
investment industry, specializing in limited
partnership investments. In that capacity, he has been
involved in the development, analysis, marketing and
management of public and private investment programs
investing in net lease properties as well as public and
private investment programs investing in energy
development.
Since 1971, Mr. Johnson has been the President, a
director and a registered principal of AEI Securities,
Inc., which is registered with the Securities and
Exchange Commission as a securities broker-dealer, is a
member of the National Association of Securities
Dealers, Inc. (NASD) and is a member of the Security
Investors Protection Corporation (SIPC). Mr. Johnson
has been President, a director and the principal
shareholder of AEI Fund Management, Inc., a real estate
management company founded by him, since 1978. Mr.
Johnson is currently a general partner or principal of
the general partner of each of the limited partnerships
set forth under "Prior Performance." Although not
currently subject to any material contingent
liabilities, Mr. Johnson could become subject to the
claims of creditors as a general partner of such
limited partnerships or other Funds he manages.
[Graphic: Picture of Mark E. Larson]
MARK E. LARSON, a Certified Public Accountant, is Chief
Financial Officer, Secretary and Treasurer of the
manager, and is a director of AEI Fund Management, Inc.
and has been employed by AEI Fund Management, Inc. and
affiliated entities since 1985. From 1979 to 1985, Mr.
Larson was with Apache Corporation as manager of
Program Accounting responsible for the accounting and
reports for approximately 45 public partnerships. Mr.
Larson will be primarily responsible for supervising
the accounting functions of the manager and AEI Fund
23, including coordination of reports to the SEC and
investors.
-18-
AEI FUND MANAGEMENT, INC.
Most of the management services for AEI Fund 23 will be
performed by AEI Fund Management, Inc., a Minnesota
corporation having the same officers as the manager.
AEI Fund Management, Inc. is a property and program
management company that provides services to the 12
publicly syndicated, and 12 privately placed, real
estate programs that are described under the caption
"Prior Performance" below.
The sponsors are using a separate company, (AEI Fund
Management XXI, Inc.) as the corporate manager so that
operation of AEI Fund 23 is not affected by operations
of the other real estate programs for which it provides
services. AEI Fund Management employs approximately 30
persons, four of whom are engaged primarily in property
acquisitions, three in property management, three in
property sales, seven in accounting and financial
reporting, eight in investor support services and
eight in general administrative services. AEI Fund
Management, Inc. has the same officers as AEI Fund
Management XXI, Inc. Management services will be
billed directly to AEI Fund 23.
YEAR 2000
AEI Fund Management maintains a computerized
information system for program, investor and financial
reporting. It is currently installing a new system that
replaces both hardware and software components with
client-server components. Although AEI does not believe
that its former management information system will
properly report date specific information after
December 31, 1999, it has been assured by the vendors
of the new system that it will accurately report such
date specific information.
At the date of this prospectus, it was operating its
program and investor reporting functions with the new
system and anticipates that financial reporting will be
converted to the new system by March 31, 1999. AEI Fund
Management has also inquired of its vendors, including
payroll and banking vendors, of their sensitivity to
date specific problems after December 31, 1999 and all
of them have assured the company that their systems
will properly handle date specific information by
December 31, 1999. If AEI Fund Management were unable
to operate its financial reporting systems on the new
system, it would be required to procure an alternate
system prior to year end. The information system is not
a direct cost of AEI Fund 23. So, unless a new system
was not installed and operating by December 31, 1999,
there should not be any material impact on AEI Fund 23.
PRIOR PERFORMANCE
During the past twenty-five years, Mr. Johnson and
affiliates have syndicated twelve public and twelve
private net lease property investment partnerships in the
United States.
Since 1984, Mr. Johnson and affiliates have formed,
syndicated and now manage twelve public real estate
partnerships that have purchased, for cash, single tenant
properties under long-term net leases. With the exception
of size and the ability to use mortgage indebtedness for
the acquisition of properties, all of such partnerships
are similar to AEI Fund 23. The public partnerships
sponsored by Mr. Johnson and affiliates include the
following:
-19-
Fund Name Month Offering Investment
was Completed Raised
Net Lease Income & Growth
Fund 84-A Limited
Partnership December 84 $5,000,000
AEI Real Estate Fund 85-A
Limited Partnership June 85 $7,500,000
AEI Real Estate Fund 85-B
Limited Partnership February 86 $7,500,000
AEI Real Estate Fund 86-A
Limited Partnership July 86 $7,500,000
AEI Real Estate Fund XV
Limited Partnership December 86 $7,500,000
AEI Real Estate Fund XVI
Limited Partnership November 87 $15,000,000
AEI Real Estate Fund XVII
Limited Partnership November 88 $23,388,750
AEI Real Estate Fund XVIII
Limited Partnership December 90 $22,783,050
AEI Net Lease Income &
Growth Fund XIX Limited
Partnership February 93 $21,157,928
AEI Net Lease Income &
Growth Fund XX Limited
Partnership January 95 $24,000,000
AEI Income & Growth Fund XXI
Limited Partnership January 97 $24,000,000
AEI Income & Growth Fund
XXII Limited Partnership January 99 $16,917,222
A total of approximately 13,500 investors purchased
interests in these partnerships.
The properties purchased by all of these partnerships
were new, or recently constructed, net leased commercial
properties. At September 30, 1998, approximately
$184,000,000 of properties had been purchased or were
under contract for purchase. The following table sets
forth the geographic distribution of the 143 properties
purchased, or under contract for purchase, by prior
public partnerships:
Alabama 1 Georgia 3 Louisiana 4 Nevada 2 Pennsylvania 1
Arizona 5 Illinois 4 Michigan 6 New Hamp. 1 South Caro. 3
Arkansas 1 Indiana 3 Minnesota 12 New Mexico 1 Tennessee 3
California 4 Iowa 2 Missouri 5 North Caro. 3 Texas 38
Colorado 5 Kansas 1 Montana 1 Ohio 14 Virginia 5
Florida 6 Kentucky 1 Nebraska 4 Oregon 1 Wisconsin 3
[Graphic: Map of United States showing states where AEI funds own
properties]
-20-
By cost, approximately 74% were restaurants, 12% were
retail facilities, 8% were childcare centers, 6% were
auto service centers, convenience centers, a motel and an
office building. Upon request and upon payment of a fee
to cover costs of reproduction and mailing, the managers
will provide any potential investor with a copy of the
Annual Report on Form 10-KSB as filed with the Securities
and Exchange Commission for any of these partnerships.
[Graphic: Pie chart showing percentage of properties as
restaurants, general retail, child care, and other]
All but two of the private partnerships were specified
property offerings. Of the remaining private
partnerships, one acquired four properties on a "blind
pool" basis, one is a private partnership offered to
institutional investors that acquired seven properties on
a blind pool basis, and one is a private partnership
currently being offered to accredited investors on a
blind pool basis. The private partnerships purchased 13
properties for $6,371,894, 10 of which were
restaurants, two supermarkets and one automotive center.
Six properties were in Minnesota, three in Florida and
one each in Nebraska, Iowa, Michigan and Ohio. As with
this offering, the primary objective of the earlier
private partnerships was production of income (not tax
shelter) by investment in single-tenant properties under
leases requiring tenants to pay most of the operating
costs of the properties. Many of the private partnerships
acquired properties with a significant amount of
indebtedness.
Like most entities engaged in real estate operations, the
partnerships sponsored by the managers and their
affiliates have owned some properties leased to tenants
that failed to fully perform under the terms of their
leases, including timely payment of rent. In those
events, the affiliates managing the properties take such
action as they deem prudent in commercial lease
transactions. Such actions may include termination of
leases, in which the property may be relet to a new
tenant or sold.
When tenants fail to perform, rental payments will likely
be interrupted. Although rental interruption may cause a
decrease in distributions of cash flow for a period of
time, the public partnerships diversified their
acquisitions. So, no default, or series of defaults, has
caused a public partnership sponsored by the managers to
miss a quarterly cash distribution or to have inadequate
cash to fund operations. It is a continuing objective of
the managers to minimize tenant defaults through careful
property evaluation of the creditworthiness of lessees
and by renegotiating leases or locating new tenants with
the intent of minimizing any interruption of rents.
-21-
COMPENSATION TO MANAGERS AND AFFILIATES
AEI Fund Management XXI and AEI Fund Management will
provide nearly all of the operational services AEI Fund
23 requires and will be compensated accordingly. AEI
Securities will coordinate the sale of units and will
receive commissions and expense allowances, most of which
will be paid or "reallowed" to broker-dealers that
solicit subscriptions for the program. AEI Fund
Management will provide administrative services and will
be reimbursed for all of its expenses in furnishing
services at its "cost," including a portion of its
general expenses directly related to the furnishing of
such services. In addition, AEI Fund Management XXI and
Robert P. Johnson, as managing members of AEI Fund 23,
will receive an interest in net cash flow and net
proceeds from sale of properties. Robert P. Johnson, the
individual manager, is the sole shareholder and the chief
executive officer of AEI Fund Management XXI, AEI Fund
Management and AEI Securities.
The following table sets forth the forms of compensation,
distributions and cost reimbursements that will or may be
paid to AEI Fund Management XXI, AEI Fund Management and
AEI Securities in connection with the organization,
operation and liquidation of AEI Fund 23 and its
properties, assuming the minimum 1,500 units and the
maximum 24,000 units are sold. The following arrangements
were formulated by the managers and are not the result of
arm's-length negotiations.
Person or Form and Method Estimated
Entity of Compensation Dollar
Receiving Amount
Compensation
Offering Stage
AEI Selling commissions and $2,520,000 maximum and
Securities, Inc. nonaccountable expense $157,500 minimum, all
allowance equal to 10% but approximately
of proceeds, all or a $480,000 (maximum) and
portion of which may be and $30,000 (minimum) of
reallowed to other which is expected to be
investment firms, and a reallowed.
1/2% due diligence
allowance, a portion of
which will be reallowed
to other investment firms.
Managers and Reimbursement at cost Estimated $840,000
Affiliates for other organization maximum and $67,500
and offering expenses. (1) minimum, but subject
to limitation (2). Most
organization and offering
expenses are paid to
nonaffiliates.
Property Acquisition Stage
Managers and Reimbursement at cost for Estimated $700,000
Affiliates all acquisition expenses (3). maximum and $60,000
minimum, but subject to
the limitation (3).
-22-
Operating Stage
Managers Three percent (3%) of net Not presently
cash flow. determinable
Managers and Reimbursement at cost for all Estimated $75,000 to
Affiliates administrative expenses, $250,000 for the first 12
including all expenses related months of operations and
to management and disposition and $20,000 to $280,000
of AEI Fund 23's properties each year after that.
and all other transfer agency, The cumulative amount
reporting, investor relations of such expense
and other administrative reimbursements for
functions (4). general overhead of the
the managers and
affiliates, and for
controlling person
expenses, together
with front- end fees and
sales expenses, are
subject to limitation(4).
Property Sale or Financing Stage
Managers 1% of distributions of net Not presently
proceeds of sale until determinable
investors have received an
amount equal to (a) their
"adjusted capital
contributions," plus (b) an
amount equal to 7% of their
adjusted capital
contributions per annum,
cumulative but not compounded,
to the extent not previously
distributed. 10% of
distributions of net proceeds
of sale thereafter.
1. Includes federal and state securities registration
fees, fees of counsel, accountant's fees, printing
expenses, and other out-of-pocket expenses paid to
nonaffiliates.
2. To the extent organization and offering expenses,
including payments to AEI Securities and third parties,
when added to Acquisition Expenses exceed 20% of the
capital contributions, they will be borne by the
managers.
3. Acquisition expenses include amounts paid for
legal fees, travel and communication, appraisal costs,
accounting fees, title expenses and other expenses in
acquiring properties. These expenses will be paid at
"cost," which includes the time spent by the manager's
employees in performing these services.
4. Subject to the limitations set forth in Section
6.2b of the Operating Agreement, AEI Fund 23 will
reimburse the managers and their affiliates at cost for
administrative expenses in managing all operations of
AEI Fund 23. These expenses include costs incurred in
connection with providing services for the acquisition,
leasing and operation of properties. Such expenses
include the salaries, fees and expenses paid to
employees and consultants of the managers and its
affiliates for work performed for AEI Fund 23 including
office rent, telephone, travel, employee benefit
expenses and other expenses attributable to providing
such services. The allocation of a majority of these
-23-
expenses is based on the number of hours devoted by
employees to the affairs of AEI Fund 23 as recorded on
employee daily time records. Excess expenses are
allocated at the end of each month based upon the
number of investors and the capitalization of AEI Fund
23. The cumulative amount of such expense
reimbursements for general overhead of the managers and
affiliates, and for controlling persons, together with
Front-End Fees and sales expenses may not exceed the
sum of 20% of capital contributions, 5% of revenues
from properties, a 3% sales commission, and 7% of net
cash flow.
No real estate commissions will be paid to the managers
or affiliates in connection with the purchase or sale of
any of AEI Fund 23's properties. The managers and
affiliates are, however, compensated at their Cost,
subject to the limitations set forth in the preceding
table and in Section 6.2 of the Operating Agreement, for
all expenses they incur in connection with the purchase
and sale of properties which may include bonus
compensation to non-controlling employees. No acquisition
fees will be paid to the managers. The managers and their
affiliates will not be compensated for services not set
forth in the table above.
-24-
CONFLICTS OF INTEREST
AEI Fund 23 will be subject to actual and potential
conflicts of interest arising out of relationships with
the managers and their affiliates. These conflicts
include, but are not limited to, the following:
LACK OF ARM'S-LENGTH NEGOTIATIONS WITH MANAGEMENT
The managers may realize income from AEI Fund 23 during
its operation and upon its liquidation. Agreements and
arrangements with the managers, including those
relating to compensation, are not the result of arm's-
length negotiations. Moreover, because a significant
portion of the managers' compensation will not be
payable until the sale of properties, the interests of
the managers and the investors with respect to the
timing and price of any sale may conflict.
OTHER REAL ESTATE ACTIVITIES OF MANAGERS
The managers and their affiliates are actively engaged
in the commercial real estate business as general
partners in other programs. Mr. Johnson also intends to
offer additional real estate programs in the future.
AEI Fund 23 will not have independent management but
will rely on the managers and their affiliates for its
operations. The managers will devote only so much of
their time to the business of AEI Fund 23 as, in their
judgment, is reasonably required. It is anticipated
that, although Mr. Johnson may devote approximately 30%
of his time to the business of AEI Fund 23 during its
offering and property acquisition stages, he may devote
less than 10% of his overall work time after properties
are acquired. The allocation of management time,
services and functions among current programs and any
future programs, as well as other business ventures in
which they are involved, may create conflicts of
interest. The managers and their affiliates believe
that they have, or can retain, sufficient staff to
-25-
be fully capable of discharging their responsibilities
to all Programs with which they are affiliated.
COMPETITION WITH MANAGERS AND OTHER AFFILIATED PROGRAMS
FOR PURCHASE AND SALE OF PROPERTIES
The managers and their affiliates may engage in other
business ventures, including forming and sponsoring
other public or private programs, and neither AEI Fund
23 nor any investor will be entitled to any interest
therein.
It is possible that AEI Fund 23 will periodically have
money available to acquire additional properties at the
same time as other programs sponsored by the managers
or their affiliates. If this happens, conflicts of
interest will arise as to which program should acquire
a particular property. The managers will review the
investment portfolio of each program and will make a
decision as to which program will acquire the property
on the basis of several factors, including:
<BULLET> The cash flow requirements of each program;
<BULLET> The degree of diversification of each program;
<BULLET> The estimated income tax effects of the purchase
on each program;
<BULLET> The amount of funds available to each program; and
<BULLET> The length of time such funds have been available
for investment.
If funds should be available in two or more programs to
purchase the same property, and the factors enumerated
above have been evaluated and deemed equally applicable
to each program, it will be acquired by the program
that first reached its minimum investment level. Any
other conflicts will be resolved by the managers in
their sole discretion.
Conflicts of interest may arise when AEI Fund 23
attempts to sell or rent its properties. The managers
may sell less than a 100% interest in a property and
AEI Fund 23 may then own a fractional interest in that
property. The managers may be forced to choose between
selling a property held by AEI Fund 23 and a property
held by the manager or an affiliated program. Such
conflicts will be resolved by the managers, in their
discretion, after consideration of the investment
objectives of the program holding the property and the
length of time until the planned final disposition of
properties. The managers may allow the sale of a
fractional interest held by the managers or an
affiliated program prior to the sale of an interest
held by AEI Fund 23. There can be no assurances that
the terms of sale of all fractional interest in a
property sold at different times will be the same.
POSSIBLE JOINT INVESTMENT WITH AFFILIATED PROGRAMS
AEI Fund 23 may invest in property jointly with another
program sponsored by the managers or their affiliates
under the conditions described in "Investment
Objectives and Policies Joint Venture Investments." In
such a situation, conflicts of interest could arise
between the joint venture partners.
-26-
MANAGER'S REPRESENTATION OF FUND IN AUDIT PROCEEDINGS
The manager will act as the "tax matters partner"
pursuant to Section 6231 of the Internal Revenue Code.
This grants the manager certain discretion and
authority regarding extensions of time for assessment
of additional tax against the investors related to Fund
income, deductions or credits and for settlement or
litigation of controversies involving such items. The
positions taken by the manager on tax matters may have
differing effects on the managers and the investors.
Any decisions made by the manager with respect to such
matters will be made in good faith consistent with its
fiduciary duties to AEI Fund 23 and the investors. The
manager, to the extent its actions as tax matters
partner are in good faith and reasonably intended to be
in the best interests of AEI Fund 23 and subject to the
indemnification and exculpation language contained in
the Operating Agreement, may be entitled to indemnity
for liability incurred as a result of such actions. See
Exhibit A, Section 6.5 at Page A-14.
LACK OF SEPARATE REPRESENTATION
AEI Fund 23, the managers and the investors are not
represented by separate counsel. The attorneys and
accountants who will perform services for AEI Fund 23
also perform services for affiliates of AEI Fund 23,
including the managers, AEI Securities, Inc. and other
affiliates of the managers. Without independent legal
representation, investors may not receive legal advice
regarding certain matters that might be in their
interest but contrary to the interest of the managers
and their affiliates. Should a dispute arise between
AEI Fund 23 and the managers or their affiliates - or
should negotiations or agreements between AEI Fund 23
and the managers, other than those existing or
contemplated on the effective date of this Prospectus,
be necessary - the managers will cause AEI Fund 23 to
retain separate counsel. Any future agreement between
AEI Fund 23 and the managers or their affiliates will
provide that it may be terminated at the option of AEI
Fund 23 upon 60 days' notice without penalty to AEI
Fund 23.
AFFILIATION OF SELLING AGENT
AEI Securities is serving as "Dealer-Manager" for the
offering of units. Accordingly, the "due diligence"
investigation customarily performed by an underwriter
is being performed by an affiliate of the managers. AEI
believes, however, that such due diligence has, in
fact, been exercised. Moreover, under Rule 2810(b)(2)
of the NASD Conduct Rules, each investment firm that
sells units has an obligation to make an appropriate
independent inquiry about the offering.
EXPENSE REIMBURSEMENTS
The managers and their affiliates are reimbursed at
their cost for the services they perform on behalf of
AEI Fund 23. The aggregate cost of such reimbursements
can be as much as the fees and increased interest in
net cash flow interest the managers are allowed to be
paid under applicable state regulation.
-27-
CASH DISTRIBUTIONS AND TAX ALLOCATIONS
CASH DISTRIBUTIONS
The managers intend to make distributions of available
net cash flow, if any, within 30 days after the end of
each fiscal quarter. AEI Fund 23's objective is to
acquire net leased properties which will generate
partially "tax deferred" cash distributions to investors.
Any net cash flow from operations for each fiscal year
will be distributed 97% to investors and 3% to managers.
Upon financing, sale or other disposition of any
properties, net proceeds of sale may be reinvested in
additional properties. If not reinvested, net proceeds of
sale will be distri-buted as follows:
<BULLET> First, 99% to the investors and 1% to the
managers until the investors have received
an amount from net proceeds of sale equal
to the total of their adjusted capital
contributions, plus an amount equal to a 7%
per annum return on their adjusted capital
contributions, cumulative but not compounded,
to the extent such 7% return has not been
previously distributed to them.
<BULLET> Any remaining balance will be distributed
90% to the investors and 10% to the
managers.
The 1% unsubordinated interest in net proceeds of sale
received by the managers for a $1,000 capital
contribution is not proportionate to the interest that
would be received by an investor with the same capital
contribution.
TAX ALLOCATIONS
For income tax purposes, all income, profits, gains and
losses for each fiscal year, other than any gain or loss
realized upon the sale, exchange or other disposition of
any property, shall be allocated as follows:
<BULLET> net loss shall be allocated 99% to the
investors and 1% to the managers so long
as the investors have positive balances
in their capital accounts. If their capital
accounts are reduced to zero, all losses are
allocated to the managers; and
<BULLET> net income will be allocated first in the
ratio, and to the extent, net cash flow is
distributed to the investors for such year
and any additional income for such year
will be allocated in the same ratio as the
last dollar of net cash flow is distributed.
For income tax purposes, the gain realized upon the sale,
exchange or other disposition of any property will be
allocated as follows:
<BULLET> first, to and among the investors in an
amount equal to the negative balances in
their respective capital accounts (pro
rata based on the relative amounts of
such negative balances),
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<BULLET> then, 99% to the investors and 1% to the
managers until the balance in each
investor's capital account equals the
sum of such investor's Adjusted Capital
Contribution plus an amount equal to a
7% per annum return on such investor's
Adjusted Capital Contribution, cumulative
but not compounded, to the extent not
previously distributed,
<BULLET> the balance of any remaining gain will then
be allocated to the investors and the managers
in the same manner as the last dollar distributed.
For income tax purposes, any loss on the sale, exchange
or other disposition of any property shall be allocated
98% to the investors and 2% to the managers.
INCOME TAX ASPECTS
Federal income tax laws and regulations as they apply to
AEI Fund 23 are complicated and are only summarized
below. Investors are urged to consult with their own
counsel and accountants about the state and federal
income tax consequences of ownership of units. Investors
must realize that periodic consultations about their
individual tax situations may be necessary because of
future changes in statutes and regulations or in
interpretations by courts or state and federal tax
authorities.
OPINION OF COUNSEL
Dorsey & Whitney LLP, counsel to AEI Fund 23, has
rendered an opinion on the material federal tax issues
relating to an investment in AEI Fund 23 which involve a
reasonable possibility of challenge by the Internal
Revenue Service or, where such an opinion cannot be
rendered with respect to a material tax issue, has
described the reasons for the inability to opine. As set
forth below, counsel has not rendered an opinion on
certain federal tax issues whose outcome depends upon
facts and circumstances that will be determinable or will
arise only in the future. In particular, as more fully
described below, no opinion is given with respect to the
probable outcome of:
<BULLET> the allocation of basis among buildings
(the cost of which is depreciable),
personal property (the cost of which is
depreciable over a shorter period), and the
underlying land (the cost of which is not
depreciable);
<BULLET> whether AEI Fund 23 will be characterized
as a "dealer" in real estate at the time
of sale or disposition of AEI Fund 23's
properties;
<BULLET> whether the properties will be considered
to be "held for investment";
<BULLET> whether the leases to be entered into by
AEI Fund 23 will be "true leases" or
will be "stepped payment leases" for
purposes of determining whether AEI Fund
23 will be considered an "owner" of properties
entitled to take depreciation and other deductions
thereon and for purposes of the timing of
recognition of rental income thereon; and
<BULLET> whether AEI Fund 23's allocation of start-up,
organization, syndication and acquisition
-29-
expenses for purposes of the deduction or
capitalization of such expenses will be upheld.
Where counsel has not issued an opinion because the
factors relevant to the issue involved cannot be
determined at this time, depend on an investor's tax
situation, or turn on aspects of law that are at present
uncertain, no inferences should be drawn as to any
possible legal outcome. Furthermore, as explained below
in more detail under "Allocation," because of the
uncertainty in the law regarding whether allocations made
to members of a limited liability company treated as a
partnership for tax purposes such as AEI Fund 23 will
have "substantial economic effect," counsel has rendered
a qualified opinion as to whether allocations made to
investors under the operating agreement will be respected
for tax purposes.
Subject to the information contained in this prospectus
and in counsel's opinion (a copy of which is filed as
Exhibit 8 to the registration statement that has been
filed with the SEC), counsel has advised AEI Fund 23 that
in the aggregate the significant tax benefits, as
described herein, potentially available to an investor
will probably be realized. An opinion of counsel
represents only such counsel's best legal judgment and
has no binding effect or official status of any kind. No
assurance can be given that the conclusions reached in an
opinion would be sustained by a court if challenged by
the IRS. Therefore, investors will assume the risks of a
challenge by the IRS of the tax interpretations set forth
herein or otherwise made by AEI Fund 23 or the managers
and the risks of changes in tax laws, rules, regulations
and interpretations.
GENERAL
A limited liability company formed under the Delaware law
is generally treated in the same manner as a partnership
for federal income tax purposes. The limited liability
com-pany form has been employed to allow investors in AEI
Fund 23 to obtain a direct pass-through of their pro rata
share of the operating results of AEI Fund 23. Under the
Internal Revenue Code, no federal income tax is payable
by a limited liability company that is not a "publicly
traded partnership." Each investor and manager is
required to report on his or her federal income tax
return his or her distributive share of the profits,
losses, gains, income, deductions and credits of AEI Fund
23. Subject to certain limitations, including limitations
on passive activity losses, each investor and manager may
deduct his or her share of AEI Fund 23's losses, if any,
for any fiscal year on his or her individual return to
the extent of the adjusted basis of his or her interest
in AEI Fund 23 as of the end of such year. Likewise, each
investor and manager must include his or her distributive
share of any Fund taxable income for each year with his
or her other taxable income whether or not he or she has
received cash distributions from AEI Fund 23 during such
year.
PARTNERSHIP STATUS
AEI Fund 23 has received an opinion from its legal
counsel to the effect that, under currently applicable
-30-
treasury regulations, AEI Fund 23 will be treated as a
partnership for federal income tax purposes and will not
constitute an "association" taxable as a corporation. In
rendering this opinion, counsel has relied on the
existing treasury regulations and the representation that
AEI Fund 23 will not, for any period, elect to be treated
as an association taxable as a corporation.
PUBLICLY TRADED PARTNERSHIPS
The Internal Revenue Code contains several provisions
that significantly change the tax treatment of "publicly
traded partnerships" and the income and loss they
generate. Unless 90% of a publicly traded partnership's
income is from passive-type investments, a publicly
traded partnership will be taxed as if it were a
corporation. Generally, income from a publicly traded
partnership will be treated as portfolio income. Such
income from a publicly traded partnership cannot be
offset by passive losses from other sources and losses
from the publicly traded partnership cannot be used to
offset passive income from other sources.
IRS Regulations provide several "safe harbors" from
publicly traded partnership status for partnerships
interests which are not traded on an established
securities market or readily tradable on a secondary
market or the substantial equivalent thereof. On the
basis of these safe harbors, and based on the provisions
of AEI Fund 23's operating agreement, and provided
transfers of interests are made only in accordance with
such provisions, counsel to AEI Fund 23 is of the opinion
that AEI Fund 23 will not be considered a publicly traded
partnership as defined in section 7704 of the Internal
Revenue Code.
ALLOCATIONS
The operating agreement of AEI Fund 23 allocates to each
investor and manager his or her distributive share of
income, gain, loss, deduction, or credit. The operating
agreement also provides for a specific allocation of
proceeds among the investors and the managers upon
dissolution and termination of AEI Fund 23, upon the
refinancing, sale, or other disposition of AEI Fund 23
properties, and a specific allocation of cash flow.
Whether these allocations will be given effect for
federal income tax purposes depends upon whether they
have "substantial economic effect" under applicable IRS
Regulations. If the allocations in the operating
agreement do not have substantial economic effect, the
distributive share of income, gain, loss, deduction, or
credit of each investor and manager will be determined in
accordance with the interest in AEI Fund 23 held by such
investor or manager.
Because the application of the law concerning the
substantial economic effect of allocations to the
allocations that may be made under the operating
agreement is uncertain, counsel to the Fund is unable to
render an unqualified opinion concerning whether the
allocations made to investors will be respected.
Nevertheless, assuming that all investors and managers
have positive balances in their capital accounts
(determined after adjusting capital accounts as provided
in the operating agreement of AEI Fund 23) throughout the
term of AEI Fund 23 and that the after-tax economic
consequences of the allocations made in the operating
agreement do not violate the "substantiality" requirement
imposed by the IRS regulations, counsel is of the opinion
that it is more likely than not that allocations made in
accordance with the operating agreement will have
substantial economic effect. Counsel is unable to render
an opinion on the allocation of losses or deductions
-31-
where the investors have negative balances in their
capital accounts, because the operating agreement does
not contain an unconditional obligation to restore such
deficit balance.
STATUS OF AEI FUND 23 AS OWNER AND LESSOR OF THE
IMPROVEMENTS
Although it is anticipated that AEI Fund 23 will be
treated as the "owner" of its properties, the IRS has
taken the position in certain situations that lease
transactions should be treated as financing transactions.
If a lease is considered a financing transaction for
federal income tax purposes, the lessor of the property
is not treated as the owner and is not entitled to take
depreciation and other deductions with respect to his or
her investment. The managers intend to attempt to enter
into leases that will result in AEI Fund 23 being treated
as the owner of the leased property. Nevertheless, the
characterization of transactions as leases involves
analysis of complex factual situations under evolving
judicial doctrines. Because AEI Fund 23 has not yet
entered into any leases and no analysis thereof is
possible, counsel for AEI Fund 23 has not expressed an
opinion on the status of AEI Fund 23 as owner and lessor
of properties.
STEPPED PAYMENT LEASES
Under section 467 of the Internal Revenue Code, a lessor
may be required to accrue rental income for income tax
purposes during a taxable period in amounts that differ
from the actual rental payments received during the
period if (1) rental payments are made after the close of
the calendar year following the calendar year in which
the use of the property occurs, or (2) rental payments
increase over the term of the lease ("Section 467
Lease"). Prior programs sponsored by the managers have
entered into leases which may qualify as Section 467
Leases. In certain instances, such agreements may require
accrual of a constant amount of rental income despite
changes in rental rates or may require recapture on the
disposition of the property subject to the lease. Because
AEI Fund 23 has not yet entered into any lease
agreements, it is not possible to determine what
treatment of AEI Fund 23's leases may be required under
section 467. If AEI Fund 23 enters into agreements that
require accrual of a constant amount, such an accrual
could result in AEI Fund 23's recognition in certain
years of a greater amount of income than is actually
received. If, on the other hand, AEI Fund 23 is required
to recapture ordinary income on the disposition of
property subject to its leases, AEI Fund 23 will
recognize ordinary income rather than capital gain to the
extent of the recapture.
ORGANIZATION AND SYNDICATION COSTS AND OTHER PAYMENTS TO THE
MANAGERS
The managers and their affiliates will be reimbursed for
costs they incur that are attributable to AEI Fund 23.
These reimbursements will include the costs of
syndicating, organizing and managing AEI Fund 23, as well
as related general and administrative costs. The managers
will categorize reimbursements as start-up, syndication,
organization, management or acquisition costs. Although
the Internal Revenue Code allows deduction of amounts
-32-
paid to organize AEI Fund 23 ("organization expenses"),
or to create an active trade or business ("start-up
expenses") over a period of not less than 60 months, it
does not allow deduction of amounts paid to issue or
market the units ("syndication expenses"). There can be
no assurance that the IRS will accept the managers'
determination of the classification of costs, and because
the issue is factual in nature, counsel to AEI Fund 23
has not issued an opinion on this issue.
Expenses to acquire properties will generally be added to
the purchase price and deducted over their useful lives.
All other reimbursements will be deducted as management
expenses. Although the managers believe that the
management expenses for which they will be reimbursed
will be deductible and will be paid for necessary and
ordinary services rendered to AEI Fund 23. The IRS could
allege that some of those expenses are not currently
deductible. AEI Fund 23's legal counsel has not issued an
opinion on the deductibility of these expenses because
their deductibility is inherently a factual issue that
depends upon their amount or the appropriateness of the
relevant items for reimbursement.
DEPRECIATION DEDUCTIONS
GENERAL
The Internal Revenue Code allows a taxpayer to claim
depreciation deductions on property used in a trade or
business or held for the production of income. As a
general rule, the cost of acquiring or constructing
property, including incidental costs, may be included
in its tax basis for purposes of computing cost
recovery deductions.
AEI Fund 23 will claim depreciation, cost recovery and
amortization deductions on the properties it acquires
as permitted by the applicable Internal Revenue Code
provisions. Although these deductions will reduce AEI
Fund 23's taxable income, they will also reduce its
adjusted basis in the properties, and increase the
potential gain (or decrease the potential loss) to
AEI Fund 23 when the properties are sold.
Because they will consist solely of commercial
properties, AEI Fund 23 will depreciate most of its
real properties over 39 years using the straight-line
method, although it might be required to use longer
depreciation periods for properties that are tax-exempt
use properties as described below. Some properties,
including automotive service station buildings and car
wash buildings, have shorter useful lives and are
depreciated over a shorter recovery period (e.g. 15
years). A small portion of the property to be purchased
by AEI Fund 23 is expected to be five-year recovery
property.
Allocation of the purchase price of a property among
the various depreciable and non-depreciable assets is a
factual question, and there can be no assurance that
the allocations made by the manager will be accepted by
the IRS. Because none of AEI Fund 23's properties have
been acquired and the issue depends on facts that are
not yet determined, counsel to AEI Fund 23 has not
rendered an opinion on this issue. Adjustment of the
allocation of the purchase price of a property could
decrease Fund depreciation deductions thereby
increasing Fund taxable income or decreasing Fund
losses.
-33-
TAX-EXEMPT USE PROPERTY
Units will be purchased by both tax-exempt investors
and investors not exempt from taxation. The Internal
Revenue Code provides that in some cases where a
limited liability company has both tax-exempt entities
and non tax-exempt entities as members, a portion of
the property owned by the limited liability company
will be deemed "tax-exempt use property" that must be
depreciated over the greater of 40 years or 125% of any
long-term lease. It is likely that, to the extent of
the interests of tax-exempt investors in AEI Fund
23, a portion of its property will be depreciated over
40 years and that depreciation deductions to all
investors will be decreased in early years of operation
as a result of this adjustment.
BASIS OF FUND INTEREST
Subject to the "at risk rules" and the "passive activity
loss limitations" that are described in greater detail
under "Personal Tax Consequences" below, an investor will
generally be allowed to deduct his or her share of losses
from AEI Fund 23 to the extent of the adjusted basis in
the investor's units. Each investor's adjusted basis of
the units initially will include the investor's
investment in AEI Fund 23 plus the investor's pro rata
share of indebtedness as to which neither AEI Fund 23 nor
any investor is personally liable ("nonrecourse
liabilities"). Under the "at risk" rules, a taxpayer
cannot deduct losses arising from an activity, including
the activity of holding real property, to the extent the
losses exceed the aggregate amount with respect to which
the taxpayer is financially "at risk" in such activity.
Generally, a taxpayer is "at risk" in the amount of the
investor's investment plus the investor's share of
recourse liabilities and "qualified nonrecourse
liabilities." The managers will attempt to ensure
that financing, if any, that may be placed on
properties will be qualified nonrecourse financing.
Because that determination depends on facts not yet in
existence, no assurances can be given that any loans
actually obtained by AEI Fund 23 will qualify as amounts
"at risk."
An investor's adjusted basis of his or her units will
increase by the investor's share of income from AEI Fund
23 for each year and decrease by his or her share of
losses and by distributions of cash and other property
made to the investor by AEI Fund 23. The investor's share
of any reduction in principal of AEI Fund 23's
indebtedness will be treated as a distribution of cash to
the investor. The adjusted basis of an investor's units
may not be reduced below zero. In the event that the
amount of losses allocated to an investor for any fiscal
year exceeds the investor's available basis of his or her
units, the excess losses may be carried forward to the
time, if ever, that the basis is sufficient to absorb
such excess losses.
NONLIQUIDATING DISTRIBUTIONS
Nonliquidating distributions of cash to an investor
generally will be regarded as a return of capital for tax
purposes to the extent of a investor's adjusted basis of
his or her units and serve to reduce basis by an amount
equal to the cash distributed. If the cash distributed
exceeds the investor's adjusted basis of her or his units
prior to distribution, the investor will recognize
taxable gain in the amount of the excess.
-34-
SALES OF FUND PROPERTY AND FORECLOSURE
If AEI Fund 23 sells a property, gain will be recognized
to the extent that the amount realized from the sale
exceeds AEI Fund 23's adjusted basis in the property and
loss will be recognized to the extent that the adjusted
basis of the property exceeds the amount realized. The
amount realized from the sale of a property includes all
cash received, all liabilities assumed and the fair
market value of all property received other than cash. In
general, investors will also recognize taxable gain on
foreclosure of a mortgage securing a property of AEI Fund
23 to the extent the foreclosed liability exceeds the
adjusted basis of the property.
If property is sold within one year after it is acquired,
gain, if any, will be recaptured as ordinary income to
the extent that depreciation deductions were taken. If
the depreciated property is sold in an installment sale,
all depreciation will be recaptured in the year of sale.
Under certain circumstances, the sale of property may not
generate net cash proceeds in amounts sufficient to cover
the tax liabilities created for the investors. Such
circumstances might include:
<BULLET> the sale of a property on adverse terms, i.e.,
for gross proceeds that exceed the depreciated
book value of the property by an amount
significantly greater than the net proceeds
after payment of the remaining principal amount
of the related mortgage or deed of trust;
<BULLET> the sale or transfer of a property pursuant to
foreclosure; or
<BULLET> the sale of a property for proceeds that include
illiquid assets, such as promissory notes of the
purchaser.
Any gain or loss on the sale or other disposition of (a)
property that is held by AEI Fund 23 as a "dealer" or (b)
property that is neither a capital asset nor a Section
1231 asset will be taxed as ordinary income or loss.
SALE OF UNITS
INVESTORS MUST RECOGNIZE THAT NO PUBLIC MARKET FOR UNITS
MAY EXIST AT THE TIME THE INVESTOR WISHES TO SELL HIS
UNITS.
Unless you are a "dealer" in securities, gain or loss on
sale or disposition (including transfer by gift) of your
units will be treated as capital gain or loss.
Nevertheless, you may have to report ordinary income if
AEI Fund 23's "unrealized receivables and inventory
items" have appreciated substantially in value. For this
purpose, unrealized receivables of AEI Fund 23 include
depreciation recapture property to the extent that any
gain realized if AEI Fund 23 had sold the property at its
fair market value would have been taxed as ordinary
income (as described above, with respect to depreciation
recapture). Inventory items include all items of AEI Fund
23 that, if sold by AEI Fund 23 or if held by the selling
investor and sold by him, would have been taxed as
ordinary income either because the property was neither a
capital asset nor a "Section 1231 asset" or because AEI
Fund 23 or the selling investor would be a "dealer" in
-35-
such property. Furthermore, in determining the amount
received upon the sale or exchange of a unit, an investor
must take into account his or her share of any reduction
of the nonrecourse partnership liabilities. Accordingly,
an investor's gain on the sale or exchange of units may
substantially exceed the cash proceeds from the sale, and
the income taxes payable with respect to such gain also
may exceed the cash proceeds.
A gift of units by an investor may result in the
imposition of income tax on the investor if the gift is
made at a time when the investor's share of AEI Fund 23's
nonrecourse liabilities exceeds the basis of the units
that are the subject of the gift. The taxable income
resulting from a gift of units would be equal to the
amount by which the investor's share of nonrecourse
partnership liabilities exceeds his basis in the units
given. Such a gift also may result in a federal gift tax
being imposed upon the donor.
If an investor transfers units, AEI Fund 23 may elect,
pursuant to section 754 of the Internal Revenue Code, to
adjust the transferee's share of the basis of the assets
of AEI Fund 23. The manager has discretion to determine
whether such adjustment to the basis of the assets of AEI
Fund 23 will be made. Because of the complexities and
added expense of the tax accounting required to implement
such an election, the manager does not intend to cause
AEI Fund 23 to make the Section 754 election. Therefore,
any benefit that might be available to the investors by
reason of such an election probably will not be
available. Moreover, an investor may have greater
difficulty in selling his units or may realize a lower
sales price since the purchaser will obtain no current
tax benefits from his investment to the extent that his
cost of such investment exceeds his allocable share of
AEI Fund 23's basis in its assets.
LIQUIDATION OF AEI FUND 23
When AEI Fund 23 is liquidated, an investor will
recognize taxable gain to the extent that any money
distributed to the investor exceeds the adjusted basis of
the investor's interest in AEI Fund 23. An investor will
recognize a loss only if he or she receives liquidation
distributions from AEI Fund 23 consisting solely of
money, unrealized receivables or inventory items and then
only to the extent that the adjusted basis of his or her
interest in AEI Fund 23 exceeds the basis of the items
distributed to the investor.
TAX AUDIT, RETURNS AND PENALTIES
The manager will arrange for the preparation and filing
of all tax returns for AEI Fund 23. The manager also will
serve as the "tax matters partner" under the Internal
Revenue Code. As tax matters partner, the manager will
have discretion and authority regarding extensions of
time for assessment of additional tax against investors
related to income, deductions or credits from AEI Fund 23
and settlement or litigation of controversies involving
such items. This is significant because controversies
regarding determination of taxable income will be
resolved, under regulations, through settlement or
litigation at the AEI Fund 23 level. Investors are
required to report any item of income, gain or loss
consistently with the reporting of such item by AEI Fund
23, unless a specific explanation of the inconsistency is
included with the affected income tax return.
-36-
Each investor whose interest in revenues of AEI Fund 23
is 1% or more will receive notice of any tax
controversy from the IRS. Each investor will have the
right to participate in settlement or litigation of any
tax controversy if such right is exercised timely.
Investors who do not reserve their right to reject
settlements accepted by the manager will be bound by the
settlement. All investors will be bound by the outcome of
any litigation that may result. The IRS may assess
penalties against investors for understatement of tax
based on whether treatment of taxable items by the Fund
had "substantial basis."
PERSONAL TAX CONSEQUENCES
The provisions of the Code discussed below may have tax
consequences to investors beyond their investment in AEI
Fund 23, and the applicability of such provisions to an
investment in AEI Fund 23 must be considered with regard
to the total individual tax situation of the investor,
which is beyond the scope of the tax discussion contained
in this Prospectus.
1. INVESTMENT BY TAX-QUALIFIED PLANS/UBTI
Tax-qualified plans, although generally exempt from
federal income taxation, nevertheless are subject to
tax to the extent that their unrelated business taxable
income ("UBTI") exceeds $1,000 during any tax year. An
allocable portion of income from property that is "debt-
financed property" will constitute UBTI. Debt-financed
property is generally defined to mean any property as to
which there is "acquisition indebtedness." Acquisition
indebtedness includes indebtedness incurred in
acquiring or improving a property, indebtedness
incurred before acquisition or improvement if such
indebtedness would not have occurred but for the
acquisition or improvement, and indebtedness incurred
after acquisition or improvement if reasonably
foreseeable at the time of acquisition or improvement.
If AEI Fund 23 properties are financed with acquisition
indebtedness, tax-qualified plans that invest will be
required to recognize UBTI. If a tax-qualified plan's
share of UBTI from AEI Fund 23 together with UBTI from
other investments of the plan exceeds $1,000 during any
tax year, the plan will be required to pay federal
income tax on the UBTI. If any of AEI Fund 23's
properties are financed with acquisition indebtedness,
a portion of the income directly associated with the
financed properties reduced by a portion of the
deductions directly associated with the financed
properties will be treated as UBTI. When AEI Fund 23
disposes of a property with acquisition indebtedness,
the tax-qualified plan will be required to recognize a
portion of the gain as UBTI.
The portion of AEI Fund 23's income that is not deemed
to be UBTI will continue to be exempt for a tax-
qualified plan even if a portion of AEI Fund 23's
income is deemed to be UBTI. Moreover, the UBTI will
not affect the tax-qualified plan's tax status or its
exemption from taxation of normal investment income
from other sources.
2. INVESTMENT BY CHARITABLE REMAINDER TRUSTS/UBTI
AEI FUND 23 IS NOT AN APPROPRIATE INVESTMENT FOR A
CHARITABLE REMAINDER TRUST BECAUSE SUCH AN INVESTMENT
WOULD LIKELY CAUSE ALL OF THE TRUST'S INCOME TO BE
-37-
SUBJECT TO FEDERAL TAX. A charitable remainder trust
loses its exemption from income tax if it has any
amount of UBTI. Since AEI Fund 23 may borrow money to
purchase one or more of the properties that it
acquires, AEI Fund 23 may have "acquisition
indebtedness" with respect to such properties, and a
charitable remainder trust, as a member, would be
deemed to have its proportionate share of such
acquisition indebtedness. Therefore, a charitable
remainder trust that invested in AEI Fund 23 (either
directly or indirectly, through a partnership or
another entity taxable as a partnership) would derive
at least some unrelated business taxable income from
that investment, which would cause all of its income to
become subject to federal income tax.
3. LOSSES AND CREDITS FROM PASSIVE ACTIVITIES
Under the Internal Revenue Code, losses from a "passive
activity" are deductible only against the income from
that activity and other passive activities. Passive
activity losses that are not deductible are carried
forward and become deductible against future passive
activity income or when the taxpayer liquidates his or
her interest in the activity. When an investor disposes
of his or her units or AEI Fund 23 is liquidated, any
passive activity losses not previously deducted by the
investor together with any losses recognized as a
result of the disposition or liquidation, will be
allowed as a deduction against income in the following
order: (1) passive income or gain from AEI Fund 23, (2)
net income or gain from all passive activities and
(3) any other income or gain (subject to limitations on
the deductibility of capital items). Credits from
passive activities are, in general, limited to the tax
attributable to income from passive activities.
Accordingly, to the extent losses or deductions from
passive activities of AEI Fund 23, when combined with
deductions from all other passive activities of such
investor, exceed the investor's income from passive
activities, the excess losses or deductions will be
suspended and carried forward to future years until
applied.
Interest, dividends, annuities or royalties not derived
in the ordinary course of a trade or business on
property held for investment, and associated expenses
and gain or loss on sale, are not taken into account in
computing income or loss from passive activity.
Instead, these items are considered "portfolio income
items." If a limited liability company holds assets
producing portfolio income items, the gross income (and
gain or loss) from and expenses allocable to such
portfolio assets are considered to arise from an
activity that is separate from any passive activity
engaged in by the limited liability company. Also, that
portion of any gain from the sale of an interest in
such a limited liability company will be considered a
portfolio income item to the extent the underlying
assets determined on an applicable date generate
portfolio income items.
The manager intends to conduct AEI Fund 23's affairs in
a manner so that an investor's distributive share of
income derived from AEI Fund 23's real estate rental
activities will constitute passive activity income
which may be utilized by the investor as an offset
against passive activity losses. In the opinion of
counsel for AEI Fund 23, and subject to IRS regulations
which may be adopted in the future, it is more likely
than not that the real estate rental activities of AEI
Fund 23, from which AEI Fund 23 does not derive the
equivalent of a guaranteed return or portfolio income
-38-
or other item not allocable thereto, will constitute
passive activities with respect to an investor, and
therefore that an investor's distributive share of
income or loss (computed without taking into account
portfolio income items and other non-passive activity
items, if any) will constitute income or loss from
passive activities. Interest income earned on the
proceeds of the offering of units prior to the
investment of such proceeds in real property and income
(or loss) attributable to working capital investments
will be treated as portfolio income items, and losses
from passive activities will not offset an investor's
share of income derived from such portfolio income
items.
4. MINIMUM TAX
Passive losses, such as operating losses from AEI Fund
23, if any, are not allowed in determining alternative
minimum taxable income to the extent they exceed
alternative minimum taxable income from passive
activities. In applying these limitations, minimum tax
rules apply to the measurement and allowability of all
relevant items of income, deduction and credit. The
amount of any passive loss that is subject to
disallowance is determined after computing all
preferences and making all other adjustments to income
that apply for minimum tax purposes. Thus, the amount
of suspended losses attributable to passive activities
may differ for minimum and regular tax purposes.
Prospective investors are urged to consult their tax
advisors with respect to the effect of the alternative
minimum tax on their specific situations.
5. FOREIGN INVESTORS
Although this discussion is not intended to describe
foreign or federal tax consequences of an investment in
AEI Fund 23 by foreign investors, it should be noted
that the Foreign Investment in Real Property Tax Act of
1980 taxes nonresident aliens and foreign corporations
on gains from the disposition of United States real
property interests as if such taxpayers were engaged in
a trade or business in the United States. If AEI Fund
23 disposes of properties or if a foreign investor
disposes of an interest in AEI Fund 23, the foreign
investor may be subject to tax and withholding as a
result of the disposition.
Furthermore, AEI Fund 23 is required to withhold
federal income tax on amounts of income allocable to
foreign investors (rather than amounts actually
distributed to them). The rates of withholding are 35%
of the amount of income allocable to a foreign investor
that is a corporation and 39.6% of the amount of income
allocable to any other foreign investor. AEI Fund 23 is
obliged to make estimated quarterly withholding
payments based on annualized taxable income.
STATE INCOME TAXES
This prospectus does not summarize the state income tax
consequences of owning a unit in the various states in
which investors may reside or of owning property in the
various states in which AEI Fund 23 may acquire
properties. An investor is advised to consult with his
own tax counsel as to the state income tax consequences
in his particular state of residence.
-39-
RESTRICTIONS ON TRANSFER
It is anticipated that there will never be a public
market for the units and, therefore, an investor should
not expect to readily liquidate this investment or to use
the units as collateral for a loan. If an investor wishes
to transfer units, he or she might not be able to find a
buyer for the units due to market conditions or the
general illiquidity of the units. Moreover, if an
investor was able to sell his or her units, depending
upon the price negotiated, he or she might receive less
than the amount of his or her original investment. No
representation is made that the units could be resold for
their original purchase price.
The operating agreement allows transfers, other than
"permitted transfers," only to the extent that they
comply with certain safe harbors created by the IRS from
treatment as a "publicly traded partnership" for tax
purposes. Counsel for AEI Fund 23 has advised the
managers that these limitations are necessary to fall
within the safe harbor provisions from treatment as a
publicly traded partnership for tax purposes.
Under AEI Fund 23's operating agreement, any substituted
investor must, as a condition of receiving any interest
in AEI Fund 23, agree in the instrument of assignment to
become an investor and pay reasonable legal fees and
filing costs in connection with his substitution as an
investor. Transfer of units will be recognized by AEI
Fund 23 only as of the last day of the month in which
written evidence respecting the assignment is received by
AEI Fund 23 in form satisfactory to the managers.
SUMMARY OF OPERATING AGREEMENT
The rights of members in AEI Fund 23 are established and
governed by the operating agreement that is enclosed with
this prospectus as Exhibit A. The subscription agreement
that each investor signs includes a power of attorney
that gives the managers the power to sign the operating
agreement on the investor's behalf. Each investor and
his advisors should carefully review the operating
agreement. The following summarizes certain provisions of
it, but is not as complete or as detailed as the
operating agreement itself.
Some provisions of the operating agreement are described
in other sections of this prospectus:
<BULLET> For a discussion of compensation and payments to
the managers and their affiliates, see "Compensation
to Managers and Affiliates";
<BULLET> For a discussion of the distribution of cash and
the allocation of profits and losses for tax
purposes, see "Cash Distributions and Tax
Allocations";
<BULLET> For a discussion of investment objectives and
policies, see "Investment Objectives and Policies";
<BULLET> For a discussion of the liability of the managers
for their acts or omissions and the indemnification
of the managers, see "Managers Fiduciary
Responsibility";
<BULLET> For a discussion of the reports to be received by
the investors, see "Reports to Investors."
-40-
TERM AND DISSOLUTION
The operating agreement provides that AEI Fund 23 will be
dissolved and liquidated at any of the following times or
events:
<BULLET> December 31, 2048;
<BULLET> The decision of investors holding a majority of
the units;
<BULLET> The sale or disposition of its final assets;
<BULLET> The final decree of a court that such dissolution
is required under law;
<BULLET> Or, if the managers withdraw without a successor
either being appointed by the withdrawing managers
or being elected by investors holding a majority of
the units.
RETURN OF CAPITAL
Prior to dissolution and liquidation, no investor will
have the right to demand the return of his capital
contribution unless AEI Fund 23 is unable to fully
utilize the offering proceeds, either by purchasing
properties or through joint ventures with other similar
programs.
VOTING RIGHTS
The investors, as limited members, will have the right to
vote on and approve the following matters:
<BULLET> Amendments to the Operating Agreement;
<BULLET> Removal of either or both of the managers;
<BULLET> Election of a new manager;
<BULLET> The sale of all or substantially all of the assets
of AEI Fund 23;
<BULLET> Dissolution of AEI Fund 23 by the members.
Investors may vote at a meeting or by written consent. In
either case, the vote of the holders of the majority of
the units outstanding will decide each matter, except
that any amendment to the operating agreement that
adversely effects the managers may not be approved
without their consent.
MEETINGS
No regular or periodic meeting of unit holders is
required or contemplated. Upon delivery of proper
notification, the managers may at any time call a meeting
of the investors. In addition, investors holding at least
10% of the units have the right to request that the
manager call a meeting. After receipt of a request for a
meeting, the managers are required to send notice to all
investors of the meeting within 10 days and hold the
meeting at the time requested (which must be more than 15
days and less than 60 days after the request).
-41-
REPURCHASE OF UNITS
Starting 36 months after the date of this prospectus, and
subject to certain conditions discussed in the Operating
Agreement, AEI Fund 23 will repurchase an investor's
unit(s) upon the written request of the investor. The per
unit repurchase price will be equal to 80% of the net
value of AEI Fund 23's assets, as estimated by the
manager, divided by the number of units outstanding. For
these purposes, the manager will base the net value of
assets on the discounted present value of the rental
income from properties, on the most recent price at which
units have been purchased by third parties, or such other
method as it believes is reasonable.
The managers will calculate and make available to
investors on the first business day of January and July
of each year the price at which units may be presented
for repurchase. AEI Fund 23's obligation to repurchase
units is limited in any year to 2% of the number of units
outstanding at the beginning of the year of repurchase.
Investors will be allowed to present their units for
repurchase during two different periods in each year.
Investors who want their units repurchased must submit
notification, as directed by the manager, of the
number of units they want repurchased. The notification
must be postmarked after January 1 but before January 31,
or after July 1 but before July 31 of the year of
repurchase. If units totaling more than 2% are
tendered, repurchase requests with the earliest postmarks
will be honored first. Units will be repurchased
on March 31 and September 30 of each year and any
investor who tenders units that are not repurchased
must re-tender the units in succeeding periods if he or
she wants the request reconsidered.
AEI Fund 23 is not obligated to repurchase any unit(s) if
doing so would, in the discretion of the managers, impair
its operations. Repurchases will be funded out of either
revenues otherwise distributable to investors or
borrowings. No assurances can be given that revenues or
borrowings will be available, that AEI Fund 23 will be
able to repurchase any or all of the units tendered, or
that the managers will not suspend repurchases. A
repurchase will result in smaller distributions to
remaining investors in the year of repurchase, but will
not result in a reduction of taxable income or gains to
such investors. In addition, a repurchase may result in
certain adverse tax consequences to the tendering
investor.
DISTRIBUTION REINVESTMENT PLAN
The managers have established a distribution reinvestment
plan to enable investors who elect in writing to have
their distributions of cash flow from AEI Fund 23
reinvested in additional units of AEI Fund 23 during the
period of the offering pursuant to this Prospectus. The
managers, in their discretion, may determine not to
provide such a reinvestment plan or to terminate the
reinvestment plan at any time. The reinvestment plan
provides for the direct purchase by the reinvesting
investor of units at the public offering price per unit
of $1,000.
No distributions accrue to an investor who participates
in the reinvestment plan prior to release of funds from
escrow and execution of the Operating Agreement will be
reinvested.
-42-
All other distributions to participants in the
reinvestment plan will be reinvested within 30 days after
the date of the distribution in additional units or
fractional units, provided that:
<BULLET> the sale of units continues to be registered or
qualified for sale under federal and applicable
state securities laws;
<BULLET> each continuing participant has received a current
prospectus relating to AEI Fund 23, including any
supplements, and executed a confirmation within one
year of such reinvestment indicating his or her
intention to purchase units in AEI Fund 23 and
confirming that he or she continues to satisfy the
investor suitability requirements; and
<BULLET> there has been no distribution of sales or
refinancing proceeds to investors.
The reinvestment plan will terminate upon completion of
the public offering of the units. If at any time one of
the requirements described above is not satisfied,
distributions will be paid in cash to participants in the
reinvestment plan.
Each investor participating in the reinvestment plan
agrees that, if at any time the investor fails to meet
suitability standards or cannot make the other investor
representations contained in the current fund prospectus,
the subscription agreement, or the operating agreement,
he or she will promptly notify the manager in writing.
Investors should note that affirmative action is required
to change or withdraw from participation in the
reinvestment plan. Change in or withdrawal from
participation in the reinvestment plan will be effective
only with respect to distributions made 30 days following
receipt by the managers of written notice of change or
withdrawal. In the event an investor transfers his or her
units, the transfer will terminate the investor's
participation in the reinvestment plan as of the first
day of the quarter in which such transfer is effective.
Selling commissions may be paid by AEI Fund 23 in amounts
not to exceed 8% with respect to any units purchased
with reinvested distributions. Each participant in the
reinvestment plan is permitted to identify, change or
eliminate the name of his or her account executive at a
participating dealer. Identification of the account
executive may be changed or eliminated for subsequent
distributions. If no account executive is identified, or
if the account executive is not employed by a broker-
dealer having a dealer agreement with AEI Fund 23, no
selling commission will be paid with respect to
distributions which are then reinvested, and AEI Fund 23
will retain for additional investment in real estate any
amounts otherwise payable as commissions. All holders of
units, based on the number of units outstanding, will
receive the benefit of the savings realized by AEI Fund
23 from investors who do not identify account executives.
No reinvestment fee or charge will be offset against any
reinvested distributions pursuant to the reinvestment
plan. The cost of administering the reinvestment plan
will be considered an organization and offering cost of
AEI Fund 23 and the actual cost of administering such
reinvestment plan may be reimbursed to the managers in
accordance with the limitations on reimbursements for
organization and offering expenses.
Following each reinvestment each participant in the
plan will be sent a statement showing the
distributions received and the number and price of
units issued to the participant. Taxable participants
-43-
will incur tax liability for income allocated to them
even though they have elected not to receive their
distributions in cash but rather to have their
distributions reinvested in the purchase of units.
AEI Fund 23 reserves the right to amend any aspect of the
reinvestment plan, or to terminate the reinvestment plan,
with respect to any distribution of cash flow subsequent
to notice of such amendment or termination, provided that
notice is sent to all participants in the plan at least
10 days prior to the record date for the distribution.
The managers also reserve the right to assign the
administrative duties of the reinvestment plan to a
reinvestment agent who may hold units on behalf of
participants, provide reports to participants, and
satisfy other record keeping requirements.
Investors may also be given the opportunity to reinvest
distributions from AEI Fund 23 in interests of a program
having substantially identical investment objectives as
AEI Fund 23, if affiliates of the managers publicly offer
such program interests after the termination of the
offering of units under this prospectus. Investors would
be allowed to reinvest distributions from AEI Fund 23 in
a subsequent program only if each of the following
conditions are satisfied:
<BULLET> the subsequent program is registered under federal
and applicable state securities laws;
<BULLET> the subsequent program has substantially identical
investment objectives;
<BULLET> reinvesting investors are afforded the revocation
rights described above with respect to such
reinvestments and the payment of commissions on such
reinvestments; and
<BULLET> each participating investor receives the
prospectus relating to such subsequent program and
satisfies the investment qualifications, including
minimum investment requirements, for such subsequent
offering.
Nothing herein shall be construed as obligating the
managers or any affiliate to continue the offering of
units or to offer units in any subsequent real estate
programs or permit reinvestment therein.
LIABILITIES OF INVESTORS
No investor will be liable for any obligations of AEI
Fund 23 in excess of the capital contribution he or she
has agreed in the operating agreement to make by signing
a subscription agreement, plus his or her share of
undistributed net income; except that an investor
receiving a return of his or her capital contribution
will be liable to AEI Fund 23, for a period of one year
if such capital contribution was returned in accordance
with the Operating Agreement and for a period of six
years if it was not, for any sum, not in excess of such
returned capital contribution with interest, necessary to
discharge the liabilities to all creditors who extended
credit, or whose claims arose, before such capital
contribution was returned. Investors will not have the
right to a return of their capital contributions except
in accordance with the distribution and repurchase
provisions of the Operating Agreement.
-44-
RIGHTS, POWER AND DUTIES OF THE MANAGERS
The managers will have the exclusive right to manage the
business of AEI Fund 23. The managers will be responsible
for the selection, acquisition, sale, financing,
refinancing and leasing of the properties. The rights,
powers and duties of the managers may be delegated or
contracted to an affiliate of the managers at cost. AEI
Fund Management XXI, Inc. will initially serve as
manager.
WITHDRAWAL OR REMOVAL OF A MANAGER
Neither AEI Fund Management XXI (the manager) nor Robert
P. Johnson (the special managing member) may withdraw
from AEI Fund 23 without providing a substitute manager.
Any substitute manager must be accepted by the vote of a
majority, by interest, of the investors at a special
meeting called by the manager for such purpose. A manager
shall be expelled or replaced upon its bankruptcy or
insolvency or upon a finding of fraud or breach of its
management duties or upon the vote of a majority, by
interest, of the investors at a special meeting called
for the purpose of replacing such manager.
SUBSTITUTED INVESTORS; ASSIGNEES
No investor will have the right to substitute an investor
in his or her place unless the substituted investor has
agreed in the instrument of assignment to become an
investor and has paid all expenses in connection with
admission as a substituted investor. An assignee who does
not become a substitute investor as provided above will
only have the right to receive the distributions from AEI
Fund 23 to which the assigning investor would have been
entitled if no such assignment had been made. Such
assignee will have no right to require any information or
account of AEI Fund 23's transactions or to inspect AEI
Fund 23's books.
APPOINTMENT OF MANAGERS AS ATTORNEYS-IN-FACT
Each investor will irrevocably constitute and appoint the
managers, and each of them individually, to be his true
and lawful attorney-in-fact, with full power to execute
such documents as may be necessary or appropriate to
carry out the provisions of the operating agreement.
"ROLL-UPS"
The operating agreement prohibits transactions in which
units are required to be exchanged for securities of
another entity (as defined in the operating agreement as
a "roll-up") unless certain rights of the investors are
maintained in the resulting entity and unless a vote of
the majority of the investors is obtained. The operating
agreement defines a roll-up to include certain
transactions involving the acquisition, merger,
conversion, or consolidation, either directly or
indirectly, of AEI Fund 23 and the issuance of securities
from another entity. This definition comports with
requirements under certain state securities laws but
differs slightly from definitions used by the SEC and may
-45-
differ from definitions contained in rules or legislation
promulgated in the future. The determination of whether a
transaction constitutes a roll-up will, in the first
instance, be made by the managers.
The operating agreement provides, in material part, that
AEI Fund 23 may not participate in any roll-up that
would:
<BULLET> reduce the democracy rights of investors;
<BULLET> impede the ability of the equity owners of the
resulting entity to purchase the securities of
that entity;
<BULLET> limit the voting rights of the investors as equity
owners of the resulting entity;
<BULLET> limit rights to access to records of the resulting
entity; or
<BULLET> provide, without the consent of investors, that
the costs of the roll-up are to be borne by AEI Fund
23.
Further, the operating agreement requires AEI Fund 23 to
obtain an appraisal by a competent independent expert of
its assets, based on all available information and
assuming an orderly liquidation of AEI Fund 23's assets,
in connection with any roll-up and to provide a summary
of that appraisal to investors. If the appraisal is
included in a prospectus to offer securities of the
entity that results from the roll-up, it must be filed
with securities authorities and AEI Fund 23 will have
liability for misrepresentations or omissions therein.
Any roll-up requires the vote of holders of not less than
a majority of the units. The operating agreement provides
that an investor who votes against the amendments must be
given the option of accepting securities in the
resulting entity or accepting either cash for such
investor's units at the pro rata appraised value of the
assets or retention of such investor's interest in AEI
Fund 23 on the same terms and conditions as existed
previously.
REPORTS TO INVESTORS
The books and records of AEI Fund 23 will be maintained
at its principal offices and will be open for examination
and inspection by the investors during reasonable
business hours. AEI Fund 23 will furnish a list of names
and addresses and number of units held by all investors
to any investor who requests such a list in writing for a
proper purpose, with costs of photocopying and postage to
be borne by the requesting investor. The assignee of an
investor does not have a right to receive any reports
unless such assignee is admitted as a substitute member
in accordance with the Operating Agreement.
WITHIN 75 DAYS AFTER THE CLOSE OF EACH TAXABLE YEAR OF
AEI FUND 23, THE MANAGERS WILL DISTRIBUTE TO EACH
INVESTOR ALL INFORMATION NECESSARY FOR THE PREPARATION OF
INVESTOR'S FEDERAL INCOME TAX RETURNS. A separate report
will be issued, solely for purposes of asset evaluation
by tax-qualified plans, that will contain the managers'
estimate of the fair market value of the units.
-46-
WITHIN 120 DAYS AFTER THE END OF EACH FISCAL YEAR, THE
MANAGERS WILL ALSO DISTRIBUTE TO THE INVESTORS AN ANNUAL
REPORT containing a balance sheet and statements of
operations, changes in members' equity and cash flows
(which will be prepared on a GAAP basis of accounting and
will be examined and reported upon by an independent
public accountant) and a report of AEI Fund 23's
activities during the period reported upon. Such annual
report will describe all reimbursements to the managers
and their affiliates and all distributions to investors,
including the source of such payments.
WITHIN 60 DAYS AFTER THE END OF EACH QUARTER, THE
MANAGERS WILL ALSO DISTRIBUTE TO THE INVESTORS A REPORT
CONTAINING A CONDENSED BALANCE SHEET, CONDENSED
STATEMENTS OF OPERATION, AND A RELATED CASH FLOW
STATEMENT, together with a detailed statement describing
all real properties acquired (including the geographic
locale and the plan of operation, the appraised value and
purchase price and all other material information),
setting forth all fees, if any, received by the managers
or their affiliates and describing the services rendered
for such fees.
THE MANAGERS INTEND TO MAKE ALL OF THE FOREGOING REPORTS
AVAILABLE ELECTRONICALLY, AND TO ALLOW DELIVERY TO AN E-
MAIL ADDRESS OR THROUGH ACCESS AT ONE OF THE MANAGER'S
WEB SITES. BECAUSE ELECTRONIC DELIVERY IS EXPECTED TO
SAVE CONSIDERABLE PRINTING AND MAILING COSTS, ALL
INVESTORS WHO HAVE THE ABILITY TO ACCEPT ELECTRONIC
DELIVERY ARE URGED TO COMPLETE THE PORTION OF THE
SUBSCRIPTION AGREEMENT THAT PROVIDES WRITTEN CONSENT TO
THIS FORM OF DELIVERY.
Finally, when and if required by applicable SEC rules,
AEI Fund 23 will make available to investors, upon
request, the information set forth in SEC Form 10-QSB
within 45 days after the close of each quarter and SEC
Form 10-KSB within 90 days after the close of each fiscal
year. The managers are permitted to combine such reports
so long as they are distributed in a timely manner.
PLAN OF DISTRIBUTION
AEI Fund 23 is offering, through AEI Securities, as the
manager of a syndicate of broker-dealers that will
solicit purchase of units, $24,000,000 of its limited
liability company interests in the form of 24,000 units
of $1,000 each. The minimum investment required of each
investor is two and one-half units ($2,500), except that
IRAs and other tax-qualified plans will be permitted
to purchase two units ($2,000). The offering period will
commence on the date hereof. No units will be sold unless
subscriptions for at least 1,500 units are received
within one year after the date of this prospectus.
EACH INVESTOR WILL BE REQUIRED TO ACCEPT AND ADOPT THE
PROVISIONS OF THE OPERATING AGREEMENT ATTACHED TO THIS
PROSPECTUS AS EXHIBIT A AND TO COMPLETE AND EXECUTE A
SUBSCRIPTION AGREEMENT, WHICH INCLUDES A POWER OF
ATTORNEY (EXHIBIT D). At the time the prospective
investor submits a subscription agreement, he or she must
tender a check to AEI Fund 23 in the amount of $1,000 for
each unit being purchased. Checks should be made payable
to "Fidelity Bank_AEI Real Estate Escrow 23." Units will
only be sold to an investor who represents in writing
that, at the time the investor executes the Subscription
Agreement, he or she meets the applicable suitability
requirements.
-47-
ALL FUNDS RECEIVED FROM SUBSCRIBERS WILL BE DEPOSITED IN
AN ESCROW ACCOUNT WITH THE FIDELITY BANK, EDINA,
MINNESOTA UNTIL $1,500,000 HAS BEEN DEPOSITED. Purchases
by the managers and their affiliates will not be counted
for purposes of meeting the minimum. If the required
$1,500,000 has not been deposited within one year after
the date of this prospectus, all subscriptions will be
canceled and all funds will be promptly returned to
investors with interest and without any deduction. A
subscriber may not withdraw his funds from the escrow
account. When subscriptions for the minimum number of
units have been received, the managers may remove funds
from escrow and instruct the escrow agent to pay accrued
selling commissions. When subscriptions for the minimum
number of units have been received, the escrow account
will convert to a convenience clearing account for use
by AEI Fund 23 and the managers.
UPON ADMISSION TO AEI FUND 23, EACH INVESTOR WILL RECEIVE
HIS PRO RATA SHARE OF ANY INTEREST EARNED ON ESCROWED
FUNDS BASED ON THE DATE OF DEPOSIT OF HIS SUBSCRIPTION
PAYMENT. Escrow funds will be invested in insured
deposits with a financial institution and will earn
interest at short-term deposit rates. Following first
admission, AEI Fund 23 will admit additional investors as
limited members on or before the first business day of
each month until the termination of the offering. Only
subscribers whose subscriptions have been received and
accepted at least three days prior to each admittance
date will be admitted as limited members on such date.
THE MANAGERS HAVE COMPLETE DISCRETION TO REJECT ANY
SUBSCRIPTION AGREEMENT EXECUTED BY ANY SUBSCRIBER WITHIN
30 DAYS OF ITS SUBMISSION AND FUNDS FROM A REJECTED
SUBSCRIBER WILL BE RETURNED WITHIN 10 DAYS THEREAFTER.
Subscriptions may be rejected for an investor's failure
to meet the suitability requirements, an over-
subscription of the offering, or for other reasons
determined to be in the best interest of AEI Fund 23. The
managers and their affiliates may purchase units, without
limitation, on the same terms as other investors. Any
purchase by the managers or affiliates will be for
investment and not for redistribution.
AEI SECURITIES, AND OTHER BROKER-DEALERS THAT ARE
MEMBERS OF THE NASD AS "PARTICIPATING DEALERS," HAVE
AGREED TO USE THEIR "BEST EFFORTS" TO SELL THE UNITS.
None of these broker-dealers are obligated to purchase
units and resell them or to sell any or all of the units.
Participating dealers in the offering will offer and
sell units on the same terms and conditions as AEI
Securities. AEI Securities will receive selling
commissions and a non-accountable expense allowance
totaling 10% of the gross proceeds from the sale of
units, all or a portion of which it will repay to
participating dealers. AEI Securities may also receive up
to one-half of 1% of the gross offering proceeds for the
reimbursement of due diligence expenses of the
participating dealers, all of which will be repaid by AEI
Securities to the participating dealers.
The broker-dealers that act as participating dealers
and their controlling persons, will be indemnified by the
managers against certain liabilities, including
liabilities under the Securities Act of 1933. As of the
date of this prospectus, no broker-dealers have entered
into a Participating Dealer Agreement. The managers will
receive reimbursement of certain expenses incurred by
them in connection with the supervision and monitoring of
the organizational and pre-sale activities of AEI Fund
23.
-48-
SALES MATERIALS
SALES MATERIAL MAY BE USED IN CONNECTION WITH THIS
OFFERING ONLY WHEN ACCOMPANIED OR PRECEDED BY THE
DELIVERY OF THIS PROSPECTUS. The sales materials that may
be disseminated to prospective investors are a brochure,
video, slide presentation and transmittal letter prepared
by the managers describing AEI Fund 23 and its proposed
operations. In certain states, all sales materials may
not be available. With the aforementioned exceptions,
sales materials have not been authorized for use by the
managers and should be disregarded.
THE OFFERING IS MADE ONLY BY MEANS OF THIS PROSPECTUS.
Although the information contained in the supplemental
sales material does not conflict with the information
contained in this prospectus, such sales material does
not purport to be complete and should not be considered
part of this prospectus or as forming the basis of the
offering of the units.
LEGAL PROCEEDINGS
Neither AEI Fund 23 nor the managers are parties to any
pending legal proceedings that are material to AEI Fund
23. Neither AEI Fund Management XXI, Inc. nor Robert P.
Johnson, who is the general partner of other investment
programs, is an adverse party in any legal proceedings
with limited partners in such other limited partnerships.
EXPERTS
The balance sheets of AEI Income & Growth Fund 23 LLC and
AEI Fund Management XXI, Inc. as of December 31, 1998 and
December 31, 1998 and December 31, 1997, respectively,
included in this Prospectus have been examined by Boulay,
Heutmaker, Zibell & Co., P.L.L.P., independent public
accountants, as indicated in their report with respect
thereto, and are included herein in reliance on the
authority of said firm as experts in giving such report.
The statements concerning federal taxes under the
headings "Income Tax Aspects" and "Risks and Other
Important Factors" have been reviewed by Dorsey & Whitney
LLP, counsel for AEI Fund 23, and have been included
herein, to the extent they constitute matters of law, in
reliance upon the authority of said firm as experts
thereon. Counsel for AEI Fund 23 believes that such
material constitutes a full and fair general disclosure
of the material tax risks associated with an investment
in the units.
LEGAL OPINION
The legality of the units will be passed upon for AEI
Fund 23 by its counsel, Dorsey & Whitney LLP.
-49-
INDEPENDENT AUDITOR'S REPORT
To the Partners
AEI Income & Growth Fund 23 LLC
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI Income
& Growth Fund 23 LLC as of December 31, 1998. This financial
statement is the responsibility of the Partnership'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 require that we plan and
perform the audit to obtain reasonable assurance about whether
the balance sheet is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
Balance Sheet presentation. We believe that our audit of
the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents
fairly, in all material respects, the financial position of AEI
Income & Growth Fund 23 LLC as of December 31,1998 in conformity
with generally accepted accounting principles.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Boulay, Heutmaker, Zibell & Co. P.L.L.P
Certified Public Accountants
Minneapolis, Minnesota
February 22, 1999
-50-
AEI INCOME & GROWTH FUND 23 LLC
BALANCE SHEET
December 31, 1998
ASSETS
Cash $ 1,000
========
LIABILITIES AND MEMBERS' EQUITY
MEMBERS' EQUITY:
Managing Members' Equity $ 1,000
--------
Total Liabilities and Members' Equity $ 1,000
========
The accompanying Notes to the Balance Sheet are an integral
part of this statement.
-51-
AEI INCOME & GROWTH FUND 23 LLC
NOTES TO THE BALANCE SHEET
DECEMBER 31, 1998
(1)Summary of Organization and Significant Accounting Policies -
Organization
AEI Income & Growth Fund 23 LLC (the LLC), a Limited
Liability Company, commenced operations on October 14,
1998 to acquire and lease commercial properties to
operating tenants. The LLC's operations are managed by
AEI Fund Management XXI, Inc. (AFM), the Manager of the
LLC. Robert P. Johnson, the President and sole
shareholder of AFM, serves as the Special Managing
Member of the LLC. The LLC has elected December 31 for
its fiscal year end. The Membership Agreement provides
that the entity is to expire in the year 2048.
The terms of the offering call for a subscription price
of $1,000 per LLC Unit, payable on acceptance of the
offer. The LLC has not yet sold any Units.
Under the terms of the Restated Operating Agreement,
24,000 LLC Units are available for subscription which,
if fully subscribed, will result in contributed Limited
Members' capital of $24,000,000. The agreement sets
forth the methods for allocation of Net Cash Flow, Net
Proceeds of Sale and profits, losses and other items.
Operations
In the interim period since inception, the LLC did not
engage in any operations or incur any expenses except
for banking fees and a minor management fee.
Accordingly, a Statement of Income, Statement of Cash
Flows and Statement of Changes in Members' Capital are
not presented.
Accounting Estimates
Management uses estimates and assumptions in preparing
the balance sheet in accordance with generally accepted
accounting principles. Those estimates and assumptions
affect the reported amounts of assets, liabilities and
equity. Actual results could differ from those
estimates.
(2) Income Taxes -
The income or loss of the LLC for federal income tax
reporting purposes is includable in the income tax
returns of the members. Accordingly, no recognition has
been given to income taxes in the accompanying balance
sheet.
The tax return, the qualification of the LLC as such for
tax purposes, and the amount of distributable LLC income
or loss are subject to examination by federal and state
taxing authorities. If such an examination results in
changes with respect to the LLC qualification or in
changes to distributable LLC income or loss, the taxable
income of the members would be adjusted accordingly.
(3) Fair Value of Financial Instruments -
The carrying value of certain assets and liabilities
approximate fair value.
-52-
REPORT OF INDEPENDENT AUDITORS
Board of Directors
AEI Fund Management XXI, Inc.
Saint Paul, Minnesota
We have audited the accompanying balance sheet of AEI
Fund Management XXI, Inc. as of December 31, 1998 and
December 31, 1997. This financial statement 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 require that
we plan and perform the audit to obtain reasonable assurance
about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
Balance Sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above
presents fairly, in all material respects, the financial
position of AEI Fund Management XXI, Inc. as of December
31, 1998 and December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Boulay, Heutmaker, Zibell & Co. P.L.L.P
Certified Public Accountants
Minneapolis, Minnesota
February 22, 1999
-53-
AEI FUND MANAGEMENT XXI, INC.
BALANCE SHEET
ASSETS
December 31, December 31,
1998 1997
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,339 $ 10,196
Partnership Distributions Receivable 7,806 4,453
Receivable from AEI Fund Management, Inc. 159 10
--------- ---------
Total Current Assets $ 10,304 $ 14,659
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
NONCURRENT LIABILITIES:
Deficit in Real Estate Partnership
Investments $ 13,053 $ 17,806
STOCKHOLDER'S EQUITY:
Common Stock, Par Value $.01 Per Share,
1,000 Shares Issued 10 10
Additional Paid-in Capital 990 990
Retained Earnings (Deficit) (3,749) (4,147)
--------- ----------
Total Stockholder's Equity (Deficit) (2,749) (3,147)
--------- ----------
Total Liabilities and
Stockholder's Equity $ 10,304 $ 14,659
========= =========
The accompanying notes to Balance Sheet are an integral part
of this statement.
-54-
AEI FUND MANAGEMENT XXI, INC.
NOTES TO BALANCE SHEET
DECEMBER 31, 1998 AND 1997
(1)Summary of Organization and Significant Accounting Policies -
Organization
AEI Fund Management XXI, Inc. (Company) is the Managing
General Partner of AEI Income & Growth Fund XXI Limited
Partnership (Fund XXI), and AEI Income & Growth Fund
XXII Limited Partnership (Fund XXII). The Company is
the Managing Member of AEI Income & Growth Fund 23 LLC
(Fund 23), which was formed in October, 1998. At
December 31, 1998, the Company owned 22 Limited
Partnership Units of Fund XXII, which were purchased in
the fourth quarter of 1998. Investors in Fund XXI,
Fund XXII and Fund 23 have no interest in the assets or
operations of the Company.
Financial Statement Presentation
The Company accounts for its investments in
Partnerships under the equity method of accounting.
The Company's major source of revenue is its share of
distributions allocated under the terms of the
Partnerships' Limited Partnership Agreements. The
combined assets, revenues and net income for the above
referenced entities was $31,626,515, $3,263,180 and
$1,581,042 for 1998 and $25,399,227, $2,150,692 and
$417,039 for 1997. The Company's share of income
(loss) ranges from 1% to 2%. At December 31, 1998 and
December 31, 1997, the Company has accumulated deficits
of $13,053 and $17,806, respectively, in excess of its
basis in Fund XXI and Fund XXII. The Company would be
responsible to fund a deficiency in its capital account
if the Partnership terminates.
Accounting Estimates
Management uses estimates and assumptions in preparing
this balance sheet in accordance with generally
accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets,
liabilities and stockholder's equity. Actual results
could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt
instruments purchased with a maturity of three months
or less to be cash equivalents.
(2) Receivable from AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative
and operating functions of the Company. The receivable
from AEI Fund Management, Inc. represents the balance
due for those services. The balance is non-interest
bearing and unsecured and is to be paid in the normal
course of business.
(3) Income Taxes -
The Company elected S-Corporation status. As a result,
the income of the Company for Federal and State income
tax reporting purposes is includable in the income tax
return of the sole stockholder. Accordingly, there is
no provision for income taxes.
-55-
EXHIBIT A
OPERATING AGREEMENT
OF
AEI INCOME & GROWTH FUND 23 LLC
TABLE OF CONTENTS
Article Page
I. Formation of Limited Liability Company A-2
II. Definitions A-2
III. Purpose and Character of Business A-6
IV. Capital A-6
V. Allocation of Profits, Gains and
Losses; Distributions to Members A-9
VI. Rights, Powers and Duties of Managing Members A-11
VII. Provisions Applicable to Limited Members A-17
VIII. Books of Account; Reports and Fiscal Matters A-19
IX. Assignment of Limited Member's Interest A-21
X. Death Withdrawal, Expulsion and Replacement
of the Managing Members A-22
XI. Amendment of Agreement and Meetings A-23
XII. Dissolution and Liquidation A-24
XIII. Miscellaneous Provisions A-25
OPERATING AGREEMENT
OF
AEI INCOME & GROWTH FUND 23 LLC
THIS OPERATING AGREEMENT is entered into as of this
day of , 1998, by and among AEI Fund Management XXI,
Inc. (the "Managing Member"), a Minnesota corporation,
Robert P. Johnson (the "Special Managing Member"), and all
other parties comprising the Limited Members, who shall
execute this agreement and whose addresses appear at the end
of this agreement.
I. FORMATION OF THE LIMITED LIABILITY COMPANY
The parties hereto do hereby confirm the formation of
a limited liability company (the "Company") pursuant to the
provisions of the Delaware Limited Liability Company Act
(the " Act") by the filing of a Certificate of Formation on
and agree that the Company shall be governed by the terms of
this agreement. The parties agree that they shall promptly
file any amended certificates of formation that may be
required in the appropriate office in the State of Delaware
and in such other offices as may be required, and that the
parties shall comply with the other provisions and
requirements of the Limited Liability Company Act as in
effect in Delaware, which Act shall govern the rights and
liabilities of the Members, except as herein or otherwise
expressly stated.
1.1 NAME. The business of the Company is conducted
under the firm name and style of: AEI INCOME & GROWTH FUND
23 LLC.
1.2 AGENT FOR SERVICE. The agent for service of
process is The Corporation Trust Company. The location of
the and agent for service of process of the Company shall be
at The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, New Castle County, Delaware
19801.
1.3 PRINCIPAL PLACE OF BUSINESS /NAMES AND ADDRESSES.
The location of the principal place of business, principal
office and agent for service of process of the Company shall
be at the offices of the Managing Member, 1300 Minnesota
World Trade Center, 30 East Seventh Street, Saint Paul,
Minnesota 55101. The Company may also maintain offices at
such other place of business as the Managing Member may from
time to time determine. The name and address of the Managing
Member is AEI Fund Management XXI, Inc., 1300 Minnesota
World Trade Center, 30 East Seventh Street, Saint Paul,
Minnesota 55101. The name and address of the Special
Managing Member is Robert P. Johnson, 1300 Minnesota World
Trade Center, 30 East Seventh Street, Saint Paul, Minnesota
55101. The names and addresses of the Limited Members are
set forth on Schedule A at the end of this agreement.
1.4 Term. The Company shall commence business on the
date hereof, and shall continue until December 31, 2048,
unless dissolved, terminated and liquidated prior thereto
under the provisions of Article XIII.
II. DEFINITIONS
As used in this agreement, the following terms shall
have the following meanings:
2.1 "Acquisition Expenses" means expenses including,
but not limited to, legal fees and expenses, travel and
communication expenses, costs of appraisals, non-refundable
option payments on properties not acquired, accounting fees
and expenses, title insurance and miscellaneous expenses
related to selection and acquisition of properties, whether
or not acquired.
2.2 "Acquisition Fees" means the total of all fees
and commissions paid by any party in connection with making
or investing in mortgage loans or the purchase, development
or construction of Properties, whether designated as a real
estate commission relating to the purchase of Properties,
selection fee, Development Fee, Construction Fee,
nonrecurring management fee, loan fees or points paid by
borrowers to the Managing Member if the Company invests in
mortgage loans, or any fee of a similar nature, however
designated or however treated for tax or accounting
purposes. Acquisition Fees shall not include Development
Fees and Construction Fees paid to any person or entity not
Affiliates of the Managing Members in connection with the
actual development and construction of a project.
2.3 "Adjusted Capital Contributions" means the
aggregate original capital contribution of a Limited Member
reduced, from time to time, by (i) any return of capital
contributions pursuant to Section 4.5, and (ii) to the
extent the Company has paid a cumulative (but not
compounded) 6% per annum return on Adjusted Capital
Contributions, by total cash distributed from Net Proceeds
of Sale with respect to the Units; and increased from time
to time by the product of (i) the Adjusted Capital
Contribution of any Limited Member whose Units are
repurchased and (ii) the ratio of each remaining Limited
Member's Units to the total Units outstanding after such
repurchase. Adjusted Capital Contributions shall not be
reduced by distributions of Net Cash Flow.
2.4 "Administrative Expenses" means expenses incurred
by the Managing Members and their Affiliates during the
operation of the Company directly attributable to rendering
the following services to the Company: (i) administering
the Company (including agency type services, member
relations and communications, financial and tax reporting ,
accounting and payment of accounts, payment of
distributions, payment of unit redemptions, staffing and
processing other investor requests); (ii) property
management (including collecting, depositing and monitoring
rental payments and penalties, monitoring compliance with
leases, monitoring the maintenance of property and liability
insurance and the payment of taxes, maintenance of lease
insurance (if applicable), monitoring and negotiating other
forms of tenant security and financial condition, ongoing
site inspections and property reviews and reviewing tenant
reports); (iii) property and lease workout (including
enforcing lease provisions in default, filing lease
insurance claims, enforcing guarantees, collecting letters
of credit or foreclosing other collateral, if applicable,
eviction of tenants in default, re-leasing of properties,
and monitoring tenant disputes and foreclosures); (iv)
property financing and refinancing; and (v) Company
dissolution and liquidation (accounting, final payment to
creditors, administrative filings and other costs).
2.5 "Affiliate" means (i) any person directly or
indirectly controlling, controlled by or under common
control with another person, (ii) any person owning or
controlling 10% or more of the outstanding voting securities
of such other person, (iii) any officer, director or partner
of such person and (iv) if such other person is an officer,
director or partner, any such company for which such person
acts in such capacity.
2.6 "Competitive Real Estate Commissions" means real
estate or brokerage commissions paid for the purchase or
sale of a Property that are reasonable, customary and
competitive in light of the size, type and location of such
Property and which do not, in any event, exceed 6% of the
contract price for the sale of such Property.
2.7 "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 of Company Property.
2.8 "Cost" means, when used with respect to services
furnished by the Managing Members or their Affiliates to, or
on behalf of, the Company, the lesser of (i) the actual
expenses incurred by such Managing Members and Affiliates in
providing services necessary to the prudent operation of the
Company, including salaries and expenses paid to officers,
directors, employees and consultants, depreciation and
amortization, office rent, travel and communication
expenses, employee benefit expenses, supplies and other
overhead expenses directly attributable to the furnishing of
such services; or (ii) the price that would be charged by
unaffiliated parties rendering similar services in the same
geographic location. Overhead expenses shall be charged
only if directly attributable to such services and shall be
allocated based upon the amount of time personnel actually
spend providing such services, or such other method of
allocation as is acceptable to the Company's independent
public accountant.
2.9 "Development Fee" means a fee for packaging the
Company's Property, including negotiating and approving
plans, and undertaking to assist in obtaining zoning and
necessary variances and necessary financing for a specific
Property, either initially or at a later date.
2.10 "Front-End Fees" means fees and expenses paid by
any party for services rendered during the Company's
Organizational or acquisition phase, including
Organizational and Offering Expenses, Acquisition Fees,
Acquisition Expenses, interest on deferred fees and expenses
and other similar fees, however designated by the Managing
Member.
2.11 "Managing Members" means the Managing Member,
the Special Managing Member and any substitute Managing
Member as provided in Article X.
2.12 "Special Managing Member" means Robert P.
Johnson, and any substitute as provided in Article X.
2.13 "Investment in Properties" means the amount of
capital contributions actually paid or allocated to the
purchase of Properties, including working capital reserves
allocable thereto (except that working capital reserves in
excess of 5% will not be included) and other cash payments
such as interest and taxes, but excluding Front-End Fees.
2.14 "Limited Members" means all parties who shall
execute, either personally or by an authorized attorney-in-
fact, this agreement as Limited Members and comply with the
conditions in Section 4.2, and any and all assignees of the
Limited Members, whether or not such assignees are admitted
to the Company as substitute Limited Members; provided,
however, that an assignee of the interest of any Limited
Member shall not be considered a "Limited Member" for
purposes of Articles X and XI hereof unless such assignee is
admitted as a substitute Limited Member as provided in
Article IX.
2.15 "Limited Liability Company Act" means the
Delaware Limited Liability Company Act, as the same may be
amended.
2.16 "Limited Liability Company Unit" or "Unit" means
the Company interest and appurtenant rights, powers and
privileges of a Limited Member and represents the stated
capital contributions with respect thereto, all as set forth
elsewhere in this agreement.
2.17 "Major Repairs or Rehabilitation" means the
repair, rehabilitation or reconstruction of a Property where
the aggregate costs exceed 10% of the fair market value of
the Property at the time of such services.
2.18 "Managing Member" means AEI Fund Management XXI,
Inc., and any substitute as provided in Article X.
2.19 "Net Value" means the aggregate value of the
Company's assets less the Company's liabilities, as
determined by the Managing Member, after taking into account
(i) the present value of future net cash flow from rental
income on the Fund's properties, (ii) the price at which
Units of the Company have last been purchased, and (ii) such
other factors as the Managing Members deem relevant.
2.20 "Net Cash Flow" means Company cash funds
provided from operations, including lease payments from
builders and sellers without deduction for depreciation, but
after deducting cash funds used to pay all other expenses,
debt payments, capital improvements and replacements and
less the amount set aside for restoration or creation of
reserves.
2.21 "Net Proceeds of Sale" means the excess of gross
proceeds from any sale, refinancing (including the financing
of a Property that was initially purchased debt-free) or
other disposition of a Property over all costs and expenses
related to the transaction, including fees payable in
connection therewith, and over the payments made or required
to be made on any prior encumbrances against such Property
in connection with such transaction.
2.22 "Members" means the Managing Member, the Special
Managing Member and the Limited Members.
2.23 "Organization and Offering Expenses" means those
expenses incurred in connection with and in preparing the
Company for registration and subsequently offering and
distributing it to the public, including any sales
commissions, nonaccountable expense allowances or
reimbursement of due diligence expenses paid to broker-
dealers in connection with the distribution of the Company
and all advertising expenses.
2.24 "Company" means the limited liability company
formed by this agreement.
2.25 "Permitted Transfer" means, with respect to the
transfer of Units in any fiscal year of the Company (i)
transfers in which the basis of the Unit in the hands of the
transferee is determined, in whole or in part, by reference
to its basis in the hands of the transferor, or is
determined under Section 732 of the Internal Revenue Code of
1986, as amended (the "Code"), (ii) transfers of Units upon
the death of a Limited Member, (iii) transfers of Units
between members of a family (as defined in Section 267(c)(4)
of the Code), (iv) transfers of Units at original issuance
and sale, (v) transfers of Units pursuant to distribution
under a Qualified Plan, and (vi) block transfers of Units by
a single Member in one or more transactions during any
thirty calendar day period representing in the aggregate
more than five percent (5%) of the total interest of all
Members in Company capital and profits.
2.26 "Properties" or "Property" means real properties
or any interest therein acquired directly or indirectly by
the Company and all improvements thereon and all repairs,
replacements or renewals thereof, together with all personal
property acquired by the Company that from time to time is
located thereon or specifically used in connection
therewith.
2.27 "Prospectus" means that certain prospectus
of the Company dated , 1999.
2.28 "Qualified Matching Service" means a listing
system operation, provided either through the Managing
Members or through any unrelated third party (including any
dealer in the Units), in which Limited Members contact the
operator to list Units they desire to transfer and through
which the operator attempts to match the listing Limited
Member with a customer desiring to buy Units without (i)
regularly quoting prices at which the operator stands ready
to buy or sell interests, (ii) making such quotes available
to the public, or (iii) buying or selling interests for its
own account.
2.29 "Qualified Matching Service Transfer" means a
transfer of Units through a Qualified Matching Service in
which (i) at least a fifteen (15) calendar day delay occurs
between the day (the "Contact Date") a Limited Member
provides written confirmation to the Qualified Matching
Service that his or her Units are available for sale and the
earlier of (A) the day information is made available to
potential buyers that such Units are available for sale, or
(B) the day information is made available to the selling
Limited Member regarding the existence of outstanding bids
to purchase Units, (ii) the closing of the transfer does not
occur until at least forty five (45) days after the Contact
Date, (iii) the Limited Member's offer to sell is removed
from the Qualified Matching Service within one hundred and
twenty (120) days of the Contact Date, and (iv) no Units of
such Limited Member are entered for listing by the Qualified
Matching Service for at least sixty (60) days after the
removal of the Limited Member's information from such
Qualified Matching Service; provided, however, that no
transfer shall be a Qualified Matching Service Transfer if,
after giving effect to such transfer, the aggregate of (a)
Qualified Matching Service Transfers, (b) transfers pursuant
to the repurchase provisions contained in section 7.7 of
this agreement of Limited Member interests and (c) all other
transfers of Limited Member interests except Permitted
Transfers since the beginning of the fiscal year in which
such transfer is made would exceed ten percent (10%) of the
Company interests outstanding.
2.30 "Qualified Plans" means Keogh Plans and
pension/profit-sharing plans that are qualified under
Section 401 of the Internal Revenue Code.
2.31 "Roll-Up" means a transaction involving the
acquisition, merger, conversion, or consolidation, either
directly or indirectly, of the Company and the issuance of
securities of a Roll-Up Entity; provided, however, that a
Roll-Up shall not include a transaction involving the
conversion to corporate, trust or association form of only
the Company if, as a consequence of such transaction, there
will be no significant adverse change in any of the
following:
(i) voting rights of Limited Members;
(ii) the term of existence of the surviving entity
beyond that of the Company;
(iii) compensation to the Managing Members or their
Affiliates;
(iv) the investment objectives of the Company or the
surviving entity.
2.32 "Roll-Up Entity" means a Company, real estate
investment trust, corporation, trust or other entity that
would be created or would survive after successful
completion of a proposed Roll-Up Transaction.
2.33 "Sponsor" means any person, Company,
corporation, association or other entity which is directly
or indirectly instrumental in organizing, wholly or in part,
the Company or any person, Company, corporation, association
or other entity which will manage or participate in the
management of the Company, and any Affiliate of such person,
Company, corporation, association or other entity, but does
not include a person, Company, corporation, association or
other entity whose only relation with the Company is as that
of an independent property manager, whose only compensation
is as such. "Sponsor" does not include wholly independent
third parties such as attorneys, accountants, and
underwriters whose only compensation is for professional
services rendered in connection with the offering of Company
interests. A person, Company, corporation, association or
other entity may also be a Sponsor of the Company by: (i)
taking the initiative, directly or indirectly, in founding
or organizing the business or enterprise of the Company,
either alone or in conjunction with one or more other
persons, companies, corporations, associations or other
entities; (ii) receiving a material participation in the
Company in connection with the founding or organizing of the
business of the Company, in consideration of services or
property, or both services and property; (iii) having a
substantial number of relationships and contacts with the
Company; (iv) possessing significant rights to control
Company Properties; (v) receiving fees for providing
services to the Company which are paid on a basis that is
not customary in the industry; (vi) providing goods or
services to the Company on a basis which was not negotiated
at arm's length with the Company.
III. PURPOSE AND CHARACTER OF THE BUSINESS
The purpose and character of the business of the
Company shall be to acquire an interest in the Properties
upon such terms and conditions as the Managing Member, in
its absolute discretion, shall determine, including, without
limitation, taking title to the Properties; to own, lease,
operate and manage the Properties for income-producing
purposes; to furnish services and goods in connection with
the operation and management of the Properties; to enter
into agreements pertaining to the operation and management
of the Properties; to borrow funds for such purposes and to
mortgage or otherwise encumber any or all of the Company's
assets or Properties to secure such borrowings; to sell or
otherwise dispose of the Properties and the assets of the
Company; and to undertake and carry on all activities
necessary or advisable in connection with the acquisition,
ownership, leasing, operation, management and sale of the
Properties.
IV. CAPITAL
4.1 MANAGING MEMBERS. The Managing Member and the
Special Managing Member shall be obligated to make capital
contributions to the Company, to the extent not previously
made, in the amounts of $600 and $400, respectively. The
Managing Members shall not be obligated to make any other
contributions to the capital of the Company, except that, in
the event that the Managing Members have negative balances
in their capital accounts after dissolution and winding up
of, or withdrawal from, the Company, the Managing Members
will contribute to the Company an amount equal to the lesser
of (a) the deficit balances in their capital accounts or (b)
1.01% of the total capital contributions of the Limited
Members' over the amount previously contributed by the
Managing Members hereunder.
4.2 LIMITED MEMBER CAPITAL CONTRIBUTIONS.
(a) INITIAL CONTRIBUTION. There shall initially be
available for subscription by prospective Limited
Members an aggregate of 24,000 Limited Liability Company
Units. The purchase price of each Unit shall be $1,000,
except that the AEI Securities Incorporated may purchase
Units for $920. Except as provided in section 4.10,
each subscriber must subscribe for a minimum purchase of
two and one-half Units, with the exception of Qualified
Plans and Individual Retirement Accounts, which must
subscribe for a minimum purchase of two Units and
subscribers may purchase fractional Units above such
minimums.
(b) REQUIREMENTS FOR LIMITED MEMBER STATUS. Upon the
initial closing of the sale of Units, the purchasers
will be admitted as Limited Members not later than 15
days after the release from impound of the purchasers'
funds. Thereafter, an investor will be admitted to the
Company not later than the first day of each month
provided that his or her subscription for Units has been
received at least three days prior to such date. All
subscriptions for Units shall be accepted or rejected by
the Company within 30 days of their receipt; if
rejected, all funds shall be returned to the subscriber
within ten business days. The Members shall not be
obligated to make any additional contributions to the
capital of the Company.
4.3 CAPITAL ACCOUNTS. A separate capital account
shall be maintained by the Company for each Member. It is
intended that the capital account of each Member will be
maintained in accordance with the capital accounting rules
of Treas. Reg. Section 1.704-1(b)(2)(iv). In general this
will mean that the capital account of each Member shall be
initially credited with the amount of his or her cash
contribution to the capital of the Company. The capital
account of each Member shall further be credited by the
amount of any additional contributions to the capital of the
Company made by such Member from time to time, shall be
debited by the amount of any cash distributions made by the
Company to such Member and shall be credited with the amount
of income and gains and debited with the amount of losses of
the Company allocated to such Member. In all instances the
capital accounting rules in Treas. Reg. Section 1.704-
1(b)(2)(iv) will determine the proper debits or credits to
each Member's capital account. The Managing Member may, at
its option, increase or decrease the capital accounts of the
Members to reflect a revaluation of Company Property on the
Company's books at the times when, pursuant to Treas. Reg.
Section 1.704-1(b)(2)(iv), such adjustments may occur. The
adjustments, if made, will be made in accordance with such
Regulation, including allocating taxable items, as computed
for book purposes, to the capital accounts as prescribed in
such Regulation. In the case of the transfer of all or a
part of an interest in the Company, the capital account of
the transferor Member attributable to the transferred
interest will carry over to the transferee Member. In the
case of termination of the Company pursuant to Section 708
of the Code, the rules of Treas. Reg. Section 1.704-
1(b)(2)(iv) shall govern adjustments to the capital
accounts. If there are any adjustments to Company property
as a result of Sections 732, 734, or 743, the capital
accounts of the Members shall be adjusted as provided in
Treas. Reg. Section 1.701-1(b)(2)(iv)(m). Except as
provided in Section 4.1 of this agreement, in the event that
any Member has a negative capital account balance after
dissolution and winding up of the Company, such Member will
not be obligated to contribute capital in the amount of such
deficit.
4.4 NO RIGHT TO RETURN OF CONTRIBUTION. The Limited
Members shall have no right to withdraw or to receive a
return of their contributions to the capital of the Company,
as reflected in their respective capital accounts from time
to time, except upon presentment of Units in accordance with
Section 7.7 or upon the dissolution and liquidation of the
Company pursuant to Article XII.
4.5 RETURN OF UNUSED NET OFFERING PROCEEDS. In the
event that any portion of the Limited Members' capital
contributions is not invested or committed for investment in
real property before the later of two years after the date
of the Prospectus or six months after the date of the offer
and sale of Units pursuant to the Prospectus is terminated
(except for amounts utilized to pay operating expenses of
the Company and to establish reasonable working capital
reserves as determined by the Managing Member), such portion
of the capital contributions shall be distributed, without
interest but with any Front-End Fees, including without
limitation commissions or other Organization and Offering
Costs, paid thereon, by the Company to the Limited Members
as a return of capital. All of such capital contributions
will be available for the general use of the Company during
such period and may be expended in operating the Properties
that have been acquired. For the purpose of the foregoing,
funds will be deemed to have been committed to investment,
and will not be returned to the Limited Members to the
extent written contractual agreements have been executed
prior to the expiration of the preceding period, regardless
of whether any such investment is ultimately consummated
pursuant to the written contractual agreement. To the
extent any funds have been reserved to make contingent
payments in connection with any Property pursuant to a
written contractual agreement in connection with such
Property or pursuant to a reasonable decision of the
Managing Members that additional reserves are necessary in
connection with any Property, regardless of whether any such
payment is ultimately made, subscription funds will not be
returned to the Limited Members.
4.6 LOANS TO COMPANY; NO INTEREST ON CAPITAL. The
Members may make loans to the Company from time to time, as
authorized by the Managing Member, in excess of their
contributions to the capital of the Company, and any such
loans shall not be treated as a contribution to the capital
of the Company for any purpose hereunder, nor shall any such
loans entitle such Member to any increase in his or her
share of the profits and losses and cash distributions of
the Company, nor shall any such loans constitute a lien
against the Properties. The amount of any such loans with
interest thereon at a rate determined by the Managing
Member, in its absolute discretion, but not to exceed the
rate that otherwise would be charged by unaffiliated lending
institutions on comparable loans for the same purpose, shall
be an obligation of the Company to such Member. The
Managing Members or their Affiliates may loan funds to the
Company during the offering period for the purpose of
acquiring a Property. Interest on such loans shall not be
in excess of the rate that either would be charged by an
unrelated lending institution on comparable loans for the
same purpose in the same locality of the Properties or
represents the cost of funds of the Managing Members or
their Affiliates. No interest shall be paid by the Company
on the contributions to the capital of the Company by the
Members.
4.7 PURCHASE OF LIMITED LIABILITY COMPANY UNITS BY
MANAGING MEMBERS. The Managing Members and their Affiliates
may subscribe for and acquire Units for their own account;
provided, however, that any Units acquired by the Managing
Members or their Affiliates will be acquired for investment
and not with a view to the distribution thereof and that the
aggregate amount of Units so purchased by the Managing
Members will not exceed five percent (5%) of the Units
offered. With respect to such Units, the Managing Members
and their Affiliates shall have all the rights afforded to
Limited Members under this agreement, except as may be
expressly provided in this agreement.
4.8 NONRECOURSE LOANS. A creditor who makes a
nonrecourse loan to the Company will not have or acquire, at
any time as a result of making the loan, any direct or
indirect interest in the profits, capital or property of the
Company other than as a secured creditor.
4.9 WORKING CAPITAL RESERVE. The Managing Members
shall use their best efforts to maintain a working capital
reserve of one percent (1%) of the aggregate Adjusted
Capital Contributions and to restore such reserve if
depleted.
4.10 DISTRIBUTION REINVESTMENT PLAN.
(a) A Limited Member may elect to participate in a
program for the reinvestment of his or her distributions
of Net Cash Flow (the "Distribution Reinvestment Plan")
and have his or her distributions of Net Cash Flow from
operations reinvested in Units of the Company. Limited
Members participating in the Distribution Reinvestment
Plan may purchase fractional Units and there shall be no
minimum purchase amount with respect to such
participants. Each Limited Member electing to
participate in the Distribution Reinvestment Plan shall
receive, at the time of each distribution of Net Cash
Flow, a notice advising such Limited Member of the
number of additional Units purchased with such
distribution and advising such Limited Member of his or
her ability to change his or her election to participate
in the Distribution Reinvestment Plan.
(b) If a Limited Member withdraws from the
Distribution Reinvestment Plan, such withdrawal shall be
effective only with respect to distributions made more
than 30 days following receipt by the Company of written
notice of such withdrawal. In the event of a transfer
by a Limited Member of Units, such transfer shall
terminate the Limited Member's participation in the plan
as of the first day of the quarter in which the transfer
is effective.
(c) Distributions may be reinvested only if (i) the
sale of Units continues to be registered or qualified
for sale under federal and applicable state securities
laws; (ii) each continuing Participant has received a
current prospectus relating to the Company, including
any supplements thereto, and executed a confirmation
within one year of such reinvestment indicating such
Participant's intention to purchase units in the Company
through the Plan and confirming that the Participant
continues to satisfy the investor suitability
requirements; (iii) there has been no distribution of
Net Proceeds of Sale or Refinancing. If (A) any of the
foregoing conditions are not satisfied at the time of
any distribution, or (B) no interests are available to
be purchased, such distributions shall be paid in cash.
(d) Each Limited Member electing to participate in
the Distribution Reinvestment Plan hereby agrees that
his or her investment in this Company constitute his or
her agreement to be a Limited Member of the Company and
to be bound by the terms and conditions of this
agreement and, if at any time he or she fails to meet
applicable investor suitability guidelines or cannot
make the other investor representations required or set
forth in the then current Company agreement prospectus
or subscription agreement, he or she will promptly
notify the Managing Members in writing.
(e) The Company shall pay a commission in connection
with any reinvestment pursuant to the plan to any broker-
dealer designated by the Participant in the plan. If no
broker-dealer is designated or the Limited Member has
advised the Company that he or she desires that such
commissions not be paid, or if the designated broker-
dealer has not signed a dealer agreement with respect to
the Company, or if the broker-dealer is no longer
qualified under applicable law to engage in the
solicitation of the sale of such Company interests, then
no commission shall be paid and all Limited Members in
the Company shall be credited with a pro rata portion of
the commission not so paid. No fees shall be paid to
the Company or the Managing Members at the time of any
such reinvestment, but the Managing Members of the
Company may be reimbursed for the Cost incurred in
making such reinvestment, in accordance with the
provisions of this agreement.
(f) The Managing Members may, at their option, elect
to terminate the Distribution Reinvestment Plan at any
time without notice to Limited Members.
V. ALLOCATION OF PROFITS, GAINS AND LOSSES; DISTRIBUTIONS
TO MEMBERS
The Members agree that the income, profits, gains and
losses of the Company shall be allocated and that cash
distributions of the Company shall be made as follows:
5.1 ALLOCATION OF INCOME, PROFITS, GAINS AND LOSSES.
For income tax purposes, income, profits, gains and losses
of the Company for each fiscal year, other than any gain or
loss realized upon the sale, exchange or other disposition
of any Property, using such methods of accounting for
depreciation and other items as the Managing Member
determines to use for federal income tax purposes, shall be
allocated as of the end of each fiscal year to each Member
based on his or her varying interest in the Company during
such fiscal year. The Company shall determine, in the
discretion of the Managing Member and as recommended by the
Company auditors, whether to prorate items of income and
deduction according to the portion of the year for which a
Member was a member of the Company or whether to close the
books on an interim basis and divide such fiscal year into
segments. Subject to Section 5.6, for income tax purposes,
income, profits, gains and losses, other than any gain or
loss realized upon the sale, exchange or other disposition
of any Property, shall be allocated as follows:
(a) Net loss shall be allocated 99% to the Limited
Members, .6% to the Managing Member and .4% to the
Special Managing Member; and
(b) Net income, profits and gains shall be allocated
first in the ratio in which, and to the extent, Net Cash
Flow is distributed to the Members for such year, and
any additional income, profits and gains for such year
will be allocated in the same ratio as the last dollar
of Net Cash Flow is distributed.
5.2 DISTRIBUTIONS OF NET CASH FLOW. Net Cash Flow
from operations, if any, with respect to a fiscal year will
first be distributed 97% to the Limited Members and 3% to
the Managing Members. Any amounts distributed to the
Limited Members in accordance with this Section 5.2 shall be
allocated among the Limited Members pro rata based on the
number of Units held by each Limited Member and the number
of days such Units were held during such fiscal year.
5.3 ALLOCATION OF GAIN OR LOSS UPON SALE, EXCHANGE OR
OTHER DISPOSITION OF A PROPERTY.
(a) Subject to Section 5.6, for income tax purposes,
the gain realized upon the sale, exchange or other
disposition of any Property shall be allocated as
follows:
(i) First, to and among the Members in an
amount equal to the negative balances in their
respective capital accounts (pro rata based on the
respective amounts of such negative balances).
(ii) Next, 99% to the Limited Members and
1% to the Managing Members until the balance in each
Limited Member's capital account equals the sum of
such Limited Member's Adjusted Capital Contribution
plus an amount equal to a 7% per annum return on such
Limited Member's Adjusted Capital Contribution,
cumulative but not compounded, to the extent not
previously distributed pursuant to Section 5.2 and
Section 5.4(a).
(iii) The balance of any remaining gain
will then be allocated 90% to the Limited Members and
10% to the Managing Members.
(b) Subject to Section 5.6, any loss on the sale,
exchange or other disposition of any Property will be
allocated 98% to the Limited Members and 2% to the
Managing Members.
5.4 DISTRIBUTION OF NET PROCEEDS OF SALE. Upon
financing, refinancing, sale or other disposition of any of
the Properties, Net Proceeds of Sale may be reinvested in
additional properties; provided, however, that sufficient
cash is distributed to the Limited Members to pay state and
federal income taxes (assuming Limited Members are taxable
at a marginal rate of 7% above the federal capital gains
rate applicable to individuals) created as a result of such
transaction. Except for distributions upon liquidation of
the Company (which are governed by Section 12.3 of this
agreement), Net Proceeds of Sale that are not reinvested in
additional properties will be distributed as follows:
(a) First, 99% to the Limited Members and 1% to the
Managing Members until the Limited Members have received
an amount from Net Proceeds of Sale equal to the sum of
(i) an amount equal to a 7% per annum return on their
Adjusted Capital Contributions, cumulative but not
compounded, to the extent such 7% return has not been
previously distributed to them pursuant to Section 5.2
and this Section 5.4(a), plus (ii) their Adjusted
Capital Contributions.
(b) Any remaining balance will be distributed 90% to
the Limited Members and 10% to the Managing Members.
In no event will the Managing Members receive more than 10%
of Net Proceeds of Sale.
5.5 CUMULATIVE RETURN. The Company shall pay a
cumulative, but not compounded, 7% per annum return on
Adjusted Capital Contributions before applying Net Proceeds
of Sale to a reduction of Adjusted Capital Contributions.
The cumulative (but not compounded) return on Adjusted
Capital Contributions with respect to each Unit shall
commence on the first day of the calendar quarter following
the date on which such Unit is initially held by a Limited
Member.
5.6 REGULATORY ALLOCATIONS. The following Regulatory
Allocations shall be made in the following order:
(a) MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Section 1.704-2(f) of the Treasury
Regulations, notwithstanding any other provision of
these Regulatory Allocations, if there is a net decrease
in Company minimum gain during any Company fiscal year,
each Member shall be specially allocated items of
Company income and gain for such year (and, if
necessary, subsequent years) in an amount equal to that
Member's share of the net decrease in Company minimum
gain (within the meaning of Treas. Reg. 1.704-2(b)(2)
and 1.704-2(d)) determined in accordance with Treas.
Reg. 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be
determined in accordance with Treas. Reg. 1.704-
2(f)(6) and 1.704-2(j)(2). This paragraph (a) is
intended to comply with the minimum gain chargeback
requirement in Treas. Reg. 1.704-2(f) and shall be
interpreted consistently therewith.
(b) MEMBER MINIMUM GAIN CHARGEBACK. Except as
otherwise provided in Treas. Reg. 1.704-2(i)(4),
notwithstanding any other provision of these Regulatory
Allocations, if there is a net decrease in Member
nonrecourse debt minimum gain, as defined in Treas. Reg.
1.704-2(i)(2) and determined pursuant to Treas. Reg.
1.704-2(i)(3), attributable to a Member nonrecourse
debt, as defined in Treas. Reg. 1.704-2(b)(4), during
any Company fiscal year, each Member who has a share of
the Member nonrecourse debt minimum gain attributable to
such Member nonrecourse debt, determined in accordance
with Treas. Reg. 1.704-2(i)(5), shall be specially
allocated items of Company income and gain for such year
(and if necessary, subsequent years) in an amount equal
to such Member's share of the net decrease in Member
nonrecourse debt minimum gain attributable to such
Member nonrecourse debt, determined in accordance with
Treas. Reg. 1.704-2(i)(4). Allocations pursuant to
the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each
Member pursuant thereto. The items to be so allocated
shall be determined in accordance with Treas.
Regulations 1.704-2(i)(4) and 1.704-2(j)(2). This
paragraph (b) is intended to comply with the minimum
gain chargeback requirement in Treas. Reg. 1.704-
2(i)(4) and shall be interpreted consistently therewith.
(c) QUALIFIED INCOME OFFSET. If a Member
unexpectedly receives an adjustment, allocation or
distribution described in Treas. Reg. s 1.704-
1(b)(2)(ii)(d)(4), (5) or (6), and such unexpected
adjustment, allocation or distribution puts such
Member's capital account into a deficit balance or
increases such deficit balance determined after such
account is credited by any amounts which the Member is
obligated to restore or is deemed to be obligated to
restore pursuant to the penultimate sentence of Treas.
Reg. 1.704-2(g)(1) and 1.704-2(i)(5) and debited by
the items described in Treas. Reg. 1.704-
1(b)(2)(ii)(d)(4), (5) and (6) and for all other
allocations tentatively made pursuant to these
Regulatory Allocations as if this paragraph (c) were not
in this agreement, such Member shall be allocated items
of Company income and gain in an amount and manner
sufficient to eliminate such deficit or increase as
quickly as possible. It is intended that this paragraph
(c) shall meet the requirement that this agreement
contain a "qualified income offset" as defined in Treas.
Reg. 1.704-1(b)(2)(ii)(d) and this Section shall be
interpreted and applied consistently therewith.
(d) GROSS INCOME ALLOCATION. In the event any Member
has a deficit capital account at the end of any fiscal year
which is in excess of the sum of (i) the amount such Member
is obligated to restore pursuant to any provision of this
agreement, and (ii) the amount such Member is deemed to be
obligated to restore pursuant to the penultimate sentences
of Treas. Reg. 1.704-2(g)(1) and 1.704-2(i)(5), each such
Member shall be specially allocated items of Company income
and gain in the amount of such excess as quickly as possible,
provided that an allocation pursuant to this paragraph (d)
shall be made only if and to the extent that such Member
would have a deficit capital account in excess of such sum
after all other allocations provided for in these Regulatory
Allocations have been made as if paragraph (c) and this
paragraph (d) were not in the Agreement.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse deductions,
within the meaning of Treas. Reg. 1.704-2(b)(1), for any
fiscal year or other period shall be specially allocated to
the Members in proportion to their Units.
(f) MEMBER NONRECOURSE DEDUCTIONS. Any Member
nonrecourse deductions, within the meaning of Treas.
Reg. 1.704-2(i)(1) and 1.704-2(i)(2), for any fiscal
year or other period shall be specially allocated to the
Member who bears the economic risk of loss with respect
to the Member nonrecourse debt to which such Member
nonrecourse deductions are attributable in accordance
with Treas. Regulations Section 1.704-2(i).
(g) SECTION 754 ADJUSTMENT. To the extent an
adjustment to the adjusted tax basis of any Company
asset pursuant to Code Sections 732, 734(b) or 743(b) is
required, pursuant to Treas. Reg. 1.704-
1(b)(2)(iv)(m)(2) or (4), to be taken into account in
determining capital accounts, the amount of such
adjustment to the capital accounts shall be treated as
an item of gain (if the adjustment increases the basis
of the asset) or loss (if the adjustment decreases such
basis) and such gain or loss shall be specially
allocated to the Members in a manner consistent with the
manner in which their capital accounts are required to
be adjusted pursuant to such Sections of the Treasury
Regulations.
The Regulatory Allocations are intended to comply with
certain requirements of the Treasury Regulations. It is the
intent of the Members that to the extent possible, all
Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other
items of Company income, gain, loss, or deduction pursuant
to this paragraph. Therefore, notwithstanding any other
provision of these Regulatory Allocations (other than the
Regulatory Allocations), the Managing Member shall make such
offsetting special allocations of Company income, gain,
loss, or deduction in whatever manner it determines
appropriate so that, after such offsetting allocations are
made, each Member's capital account balance is, to the
extent possible, equal to the capital account balance such
Member would have had if the Regulatory Allocations were not
part of the Agreement and all Company items were allocated
pursuant to Section 12.1 and Section 12.2. In exercising
its discretion under this paragraph, the Managing Member
shall take into account future Regulatory Allocations under
Sections paragraphs (a) and (b) that, although not yet made,
are likely to offset other Regulatory Allocations previously
made under paragraphs (e) and (f).
5.7 LIMITATION ON LOSS ALLOCATION. Notwithstanding
anything in Sections 5.1 above, losses allocated pursuant to
Section 5.1 shall not exceed the maximum amount of losses
that can be so allocated without causing a Member to have an
adjusted capital account deficit at the end of any fiscal
year. In the event one of the Members would have an
adjusted capital account deficit as a consequence of an
allocation of losses pursuant to Section 5.1, the limitation
set forth herein shall be applied on a Member by Member
basis so as to allocate the maximum permissible losses to
each Member under Section 1.704-1(b)(2)(ii)(d) of the
Regulations. All losses in excess of the foregoing
limitation shall be allocated to the Members in proportion
to their Units.
5.8 ALLOCATION AMONG MANAGING MEMBERS. Any
allocations or distributions to the Managing Members shall
be made in the following ratio: 60% to the Managing Member
and 40% to the Special Managing Member.
VI. RIGHTS, POWERS AND DUTIES OF MANAGING MEMBERS
The Members agree that the Managing Members, acting
through the Managing Member, shall have the following
rights, powers and, where provided, duties in connection
with the conduct of the business of the Company.
The Managing Member shall manage the affairs of the
Company in a prudent and business-like fashion and shall use
its best efforts to carry out the purposes and character of
the business of the Company. The Managing Member shall
devote such of its time as it deems necessary to the
management of the business of the Company and may enter into
agreements with an Affiliate to provide services for the
Company, provided that such services are furnished at Cost.
6.1 APPOINTMENT OF MANAGING MEMBER. Subject to the
limitations herein, and to the express rights afforded
Limited Members herein, including, without limitation, the
rights set forth in Articles VII and XI herein, the Special
Managing Member and the Limited Members delegate to the
Managing Member the sole and exclusive authority for all
aspects of the conduct, operation and management of the
business of the Company, including making any decision
regarding the sale, exchange, lease or other disposition of
the Properties; PROVIDED, HOWEVER, that the Managing Member
shall be required to obtain the prior consent of a majority
of the Limited Members, by interest, to the sale of all or
substantially all of the assets of the Company. In the
event the Managing Member proposes to cause the Company to
enter into a transaction requiring the consent of the
Special Managing Member, the Managing Member shall forthwith
notify the Special Managing Member of its intentions in
writing. The Special Managing Member shall be considered to
have consented to such proposal if he fails to notify the
Managing Member of his objection thereto within 20 days of
the date of notice of such proposal, such notification to
include a brief statement of each reason for the Special
Managing Member's opposition to such proposal. With the
exceptions stated above, the Managing Member shall have the
exclusive authority to make all decisions affecting the
Company and to exercise all rights and powers granted to the
Managing Members.
6.2 REIMBURSEMENT OF EXPENSES.
(a) Subject to the limitations set forth in Section
6.2(b), the Company shall reimburse the Managing Members
and their affiliates at their Cost: (i) for any
expenditures of their own funds for purposes of
organizing the Company and arranging for the offer and
sale of Units (including commissions); (ii) for all
Acquisition Expenses incurred by them, (iii) for the
services they provide in the sales effort of the
Properties, and (iv) for the expenses of controlling
persons and overhead expenses directly attributable to
the forgoing services or attributable to Administrative
Services (which overhead expenses shall be allocated
based upon the amount of time personnel actually spend
providing such services, or such other method of
allocation as is acceptable to the Company's independent
public accountant). In addition, the Company shall
reimburse the Managing Members and their affiliates at
their Cost for Administrative Expenses necessary for the
prudent operation of the Company, provided that any
expenses of controlling persons and overhead expenses
included in such Administrative Expense reimbursements
shall be subject to the limitations set forth in Section
6.2(b).
(b) The aggregate cumulative reimbursements pursuant
to Section 6.2(a)(i) to (iv) to the Managing Members and
their Affiliates, will not exceed, at the end of any
fiscal year, the sum of (i) the Front-End Fees of up to
20% of capital contributions, (ii) property management
fees of up to 1% of Net Cash Flow, except for a one time
initial leasing fee of 3% of the gross revenues on each
lease payable over the first five full years of the
original term of the lease, (iii) real estate commission
of 3% of Net Proceeds of Sale of properties on which the
Managing Members or Affiliates furnish a substantial
amount of sales efforts, and (iv) 10% of Net Cash Flow
less the Net Cash Flow actually distributed to the
Managing Members. The Managing Members will review the
reimbursements that they and their Affiliates receive at
the end of each fiscal year of the Company. If the
Managing Members and their Affiliates receive
reimbursement for items set forth in Section 6.2(a)(i)
to (iv) in excess of the limitations set forth in this
section, they will refund the difference to the Company
within 30 days of discovery of such excess. Such review
shall not take into account any of the fees that might
be paid in years after the fiscal year for which the
calculation is made.
(c) The Company's annual report to Limited Members
will contain information concerning reimbursements made
to the Managing Member and its Affiliates. Within the
scope of the annual audit, an independent certified
public accountant shall verify the allocation of costs
to the Company. The methods of verification shall be in
accordance with generally accepted auditing standards
and shall, accordingly, include such tests of the
accounting records and such other auditing procedures
that the Managing Member's independent certified public
accountants consider appropriate in the circumstances.
Such methods of verification shall at a minimum provide:
(i) a review of the time records of employees and
control persons, the costs of whose services were
reimbursed and (ii) a review of the specific nature of
the work performed by each such employee and control
person. The additional cost of such verification will
be itemized by such accountant on a program-for-program
basis, and the Managing Members will be reimbursed for
such additional cost only to the extent that the cost of
such verification, when added to all reimbursements to
the Managing Members for services rendered to the
Company, does not exceed the competitive price for such
services which would be charged by non-affiliated
persons rendering similar services in the same or
comparable geographic location.
(d) The Managing Members and their Affiliates will
not be reimbursed or otherwise paid for any services
except as set forth in Section 6.2(a).
6.3 OTHER ACTIVITIES OF MANAGING MEMBERS. The
Managing Members, during the term of this Company, may
engage in and possess an interest for their own account in
other business ventures of every nature and description,
independently or with others, including, but not limited to,
the ownership, financing, leasing, operation, management,
syndication, brokerage, investment in and development of
real estate; and neither the Company nor any Member, by
virtue of this agreement, shall have any right in and to
said independent ventures or any income or profits derived
therefrom. Nothing in this section shall be deemed to
diminish the Managing Member's overriding fiduciary
obligation to the Company, or to constitute a waiver of any
right or remedy the Company or Limited Members may have in
the event of a breach by a Managing Member of such
obligation.
6.4 INDEMNIFICATION AND LIABILITY OF MANAGING
MEMBERS.
(a) The Company shall indemnify each of the Managing
Members and their Affiliates (other than an Affiliate
that is acting in the capacity of a Broker-Dealer
selling Units) against any claim or liability incurred
or imposed upon such Managing Member or such Affiliates
provided such Managing Member or Affiliate was acting on
behalf of or performing services for the Company and the
Managing Member has determined, in good faith, that the
course of conduct which caused the loss or liability was
in the best interests of the Company, and such conduct
of the Managing Member or Affiliate did not constitute
misconduct or negligence. The Managing Members or
Affiliates shall not be liable to the Company or any
Member by reason of any act or omission of such Managing
Member or Affiliate provided the Managing Member has
determined, in good faith, that the course of conduct
which caused the loss or liability was in the best
interests of the Company, and such conduct of the
Managing Member or Affiliate did not constitute
misconduct or negligence. Solely for purposes of this
Section 6.4, but for all such purposes, the term
"Affiliate" shall mean only those Affiliates, as defined
in Section 2.5, that furnish services to the Company
within the scope of the Managing Members' authority.
(b) No Managing Member or Affiliate or any Broker-
Dealer selling Units shall be indemnified for any
liability imposed by judgment, or costs associated
therewith, including attorneys' fees, arising from or
out of a violation of state or federal securities laws.
The Managing Members and such Affiliates, and such
Broker-Dealers, shall be indemnified for settlements and
related expenses of lawsuits alleging securities law
violations, and for expenses incurred in successfully
defending such lawsuits, provided that the party seeking
indemnification places before the court the position of
the Massachusetts Securities Division, of the Missouri
Securities Division, of the Pennsylvania Securities
Commission, of the administrator of other relevant state
securities laws and of the Securities and Exchange
Commission on indemnification for securities law
violations, and the court thereafter either:
(i) approves the settlement and finds that
indemnification of the settlement and related costs
should be made, or
(ii) approves indemnification of litigation
costs if a successful defense is made.
Any indemnification pursuant to this Section 6.4, or
otherwise, shall be recoverable only from the assets of
the Company and not from any of the Limited Members. No
Managing Member or Affiliate shall be entitled to
advances for legal expenses and other costs incurred as
a result of legal action initiated against the Managing
Members or Affiliate unless (1) the action relates to
the performance of the duties of such Managing Member or
Affiliate on behalf of the Company, (2) the action is
not initiated by a Limited Member, and (iii) the
Managing Member or Affiliate undertakes to repay such
advances in cases in which it is determined they are not
entitled to indemnification.
(c) The Managing Member shall have fiduciary
responsibility for the safekeeping and use of all funds
and assets of the Company, whether or not in its
immediate possession or control, and the Managing Member
shall not employ, or permit another to employ, such
funds or assets in any manner except for the exclusive
benefit of the Company. The Managing Members and the
Company may not permit the Limited Members to contract
away the fiduciary duty owed to the Limited Members by
the Managing Members under the common law.
6.5 PROHIBITED TRANSACTIONS. Notwithstanding
anything to the contrary contained herein, the Managing
Members and Affiliates of the Managing Members (i) may not
receive interest and other financing charges or fees on
loans made to the Company in excess of the amounts that
would otherwise be charged by unaffiliated lending
institutions on comparable loans for the same purpose and in
the same locality of the Property if the loan is made in
connection with a particular Property, (ii) may not require
a prepayment charge or penalty on any loan from the Managing
Members to the Company, (iii) may not provide financing to
the Company that is payable over a period exceeding 48
months or for which more than 50% of the principal is due in
more than 24 months, (iv) may not grant to themselves an
exclusive listing for the sale of any Property, (v) may not
directly or indirectly pay or award any commissions or other
compensation to any person engaged by a potential investor
for investment advice as an inducement to such adviser to
advise the purchaser of the Units, provided, however, that
this provision shall not prohibit the normal sales
commissions payable to a registered broker-dealer or other
properly licensed person for selling the Units, (vi) may not
commingle Company funds with the funds of any other person,
(vii) may not sell property to, purchase property from, or
lease property to or from the Company, provided that the
Company may purchase real property from the Managing Members
or their Affiliates (but not from affiliated programs unless
the interest purchased by the Company from the affiliated
program is equal to or smaller than the interest retained by
the affiliated program and the joint venture so created
complies with section 6.6 of this agreement) if the Managing
Members or their Affiliates purchased the property in their
own name and temporarily held title thereto for a period not
in excess of twelve months for the purpose of facilitating
the acquisition of the property, the borrowing of money, the
obtaining of financing for the Company or any other purpose
related to the business of the Company, and the property is
purchased by the Company for a price no greater than the
price paid by the Managing Members or their Affiliates plus
Acquisition Expenses in accordance with the provisions of
this agreement, and any profit or loss on such property
during such period is paid to or charged against the
Company, and there is no other benefit arising out of such
transaction to the Managing Members or their Affiliates
apart from compensation otherwise permitted by this
agreement (the prohibitions of this Section 6.5(vii) shall
also apply to any program in which the Managing Members have
an interest), (viii) may not receive a commission or fee in
connection with the reinvestment or distribution of the
proceeds of the resale, exchange or refinancing of the
Properties (ix) may not cause the Company to incur
indebtedness directly or indirectly related to the purchase
of properties, from any source, aggregating in excess of 60%
of the purchase price of all Company Properties, (x) may not
cause the Company to invest in other limited partnerships or
limited liability companies, provided that joint venture
arrangements set forth in Section 6.6 shall not be
prohibited, (xi) may not cause the Company to acquire
property in exchange for Units, (xii) may not cause the
Company to pay a fee to the Managing Members or their
Affiliates for insurance coverage or brokerage services,
(xiii) may not cause the Company to make loans or
investments in real property mortgages other than in
connection with the purchase or sale of the Company's
properties, (xiv) may not cause the Company to operate in a
manner as to be classified as an "investment company" for
purposes of the Investment Company Act of 1940, (xv) may not
cause the Company to underwrite or invest in the securities
of other issuers, except as specifically discussed in
Section 6.6 and in the Prospectus, (xvi) may not cause the
Company to incur the cost of that portion of liability
insurance that insures the Managing Members or their
Affiliates for any liability as to which such Managing
Members or their Affiliates are prohibited from being
indemnified under Section 6.4., (xvii) may not receive a
real estate commission in connection with the purchase, sale
or financing of a Property and will not permit aggregate
compensation to others in connection with the sale of any
Property to exceed a Competitive Real Estate Commission,
(xviii) may not receive an Acquisition Fee (including,
without limitation, Development Fee or Construction Fee) or
permit such Acquisition Fees, together with Acquisition
Expenses paid to any party, by the Company to exceed 18% of
the total capital contributions of Limited Members pursuant
to Section 4.2 of this agreement, (xix) may not cause the
Company to incur Front-End Fees to the extent that such fees
would cause the Company's Investment in Properties to be
less than 80% of capital contributions, (xx) may not receive
any rebate or give-up nor participate in any reciprocal
business arrangement in circumvention of the NASAA
Guidelines, nor shall any Managing Member participate in any
reciprocal business arrangement that would circumvent the
restrictions of such NASAA Guidelines against dealing with
affiliates or promoters, and (xxi) may not cause the Company
to make any loans or advances at any time to the Managing
Members or their Affiliates.
6.6 INVESTMENTS IN OTHER PROGRAMS. The Company may
purchase limited partnership or limited liability company
interests of another program. The Company may, however,
invest (a) in general partnerships or ventures that own and
operate a particular property provided the Company, either
alone or together with any publicly-registered Affiliate,
acquires a controlling interest in such other ventures or
general partnerships, and such general partnerships or joint
venture does not result in duplicate fees, (b) in joint
venture arrangements with another publicly-registered
program sponsored by the Managing Members or their
Affiliates, or (c) in joint venture arrangements with the
Managing Members or their Affiliates other than another
publicly registered program. For purposes of Section
6.6(a), "controlling interest" means an equity interest
possessing the power to direct or cause the direction of the
management and policies of the Company or joint venture,
including the authority to:
(i) review all contracts entered into by the general
Company or joint venture that will have a material
effect on its business or property;
(ii) cause a sale or refinancing of the property or
the Company's interest therein subject in certain cases
where required by the Company or joint venture
agreement, to limits as to time, minimum amounts and/or
a right of first refusal by the joint venture Member or
consent of the joint venture Member;
(iii) approve budgets and major capital expenditures,
subject to a stated minimum amount;
(iv) veto any sale or refinancing of the property,
or, alternatively, to receive a specified preference on
sale or refinancing proceeds; and,
(v) exercise a right of first refusal on any desired
sale or refinancing by the joint venture Member of its
interest in the property except for transfer to an
Affiliate of the joint venture Member.
For purposes of 6.6(b), the Company shall be permitted
to invest in joint venture arrangements with another
publicly-registered program or programs sponsored by the
Managing Members or their Affiliates for the purpose of
acquiring a property from unaffiliated parties only if all
the following conditions are met:
(a) The two programs have substantially identical
investment objectives;
(b) There are no duplicate property management or
other fees;
(c) The Managing Members' compensation is
substantially identical in each program;
(d) In the event of a proposed sale of property held
in the joint venture by the other joint venture member,
the Company will have a right of first refusal to
purchase the other party's interest; and
(e) The investment by each of the programs in the
joint venture must be on substantially the same terms
and conditions.
For purposes of 6.6(c), the Company shall be permitted to
invest in joint venture arrangements with the Managing
Members or their Affiliates other than a publicly-registered
program for the purpose of acquiring a property from
unaffiliated parties only if all the following conditions
are met:
(a) The investment is necessary to relieve the
Managing Member from any commitment to purchase the
property entered into in compliance with Section
6.5(vii) prior to the closing of the offering period of
the Company;
(b) There are no duplicate property management or
other fees;
(c) The investment by each of the programs in the
joint venture must be on substantially the same terms
and conditions;
(d) In the event of a proposed sale of property held
in the joint venture by the other joint venture member,
the Company will have a right of first refusal to
purchase the other party's interest.
6.7 UNIMPROVED OR NON-INCOME PRODUCING
PROPERTY/PROPERTY UNDER CONSTRUCTION.
(a) The Company may not acquire unimproved or non-
income producing property except in amounts and upon
terms which can be financed by the Limited Members'
capital contributions or from funds provided from
operations. In no event shall the Company acquire
unimproved or non-income producing property exceeding
10% of the total capital contributions of Limited
Members pursuant to Section 4.2 of this agreement. For
purposes of this Section 6.7, properties that are
expected to produce income within two years shall not be
considered unimproved or non-income producing
properties. Neither the Managing Members nor any
Affiliate will develop, construct or provide Major
Repairs or Rehabilitation for properties, or render
services in connection with such activities; provided
that nothing in this section shall prohibit an
unaffiliated third party from engaging in such
activities on behalf of the Company.
(b) The Company may not acquire property which
is under construction unless completion is guaranteed at
the purchase price contracted for by (i) a completion
bond, (ii) a written guarantee of completion by a person
who, or entity that, has provided financial statements
demonstrating sufficient net worth and collateral, or
(iii) retention of a reasonable portion of the purchase
price as an offset in the event the seller does not
perform.
6.8 INVESTMENTS IN JUNIOR TRUST DEEDS. The Company
may not invest in junior trust deeds and other similar
obligations except to the extent such investments arise upon
sale of Properties. In no event shall such investments
exceed 10% of the gross assets of the Company.
6.9 REQUIREMENT FOR REAL PROPERTY APPRAISAL. All
Property acquisitions by the Company will be supported by an
appraisal prepared by a competent, independent appraiser.
The appraisal will be maintained in the Company's records
for at least five years and will be available for inspection
and duplication by any Limited Member.
6.10 BALLOON PAYMENTS.
(a) Any Indebtedness of the Company (which shall, in
any event, be subject to the limitations contained in
Section 6.5(ix) of this agreement) which is not fully
amortized in equal payments over a period of not more
than 30 years, shall have a maturity date (due date)
which is not earlier than ten years after the date of
purchase of the underlying property or two years after
the anticipated holding period of the property (provided
such holding period is at least seven years); provided,
however, that this Section 6.10(a) shall not limit the
ability of the Company to finance Properties using
adjustable rate mortgages.
(b) The Company may not incur indebtedness of any
kind, including all-inclusive and wrap-around loans and
interest-only loans, in connection with the purchase of
a Property, but may assume indebtedness on operating
properties that complies with the provisions of this
section 6.10 and section 6.5(ix).
(c) The provisions of this Section 6.10 shall not
apply (but the provisions of section 6.5(ix) shall
apply) to indebtedness representing, in the aggregate,
25% or less of the total purchase price of all
Properties acquired, or to interim financing, including
construction financing, with a full take-out commitment.
6.11 SELLING COMMISSIONS.
(a) Except as otherwise provided in this Section
6.11, the Company shall pay any and all Selling
Commissions and expense allowances in the amount of $100
per Unit sold in accordance with the Dealer Manager
Agreement with AEI Securities Incorporated. The Company
shall also reimburse the Dealer Manager for the bona
fide due diligence expenses of dealers selling Units to
the extent the aggregate of such reimbursements do not
exceed $5.00 per Unit sold.
(b) A registered principal or representative of AEI
Securities Incorporated or any other broker-dealer may
purchase Units net of commissions, at a per Unit
purchase price of $920.
6.12 ROLL-UP TRANSACTIONS
(a) The Company shall not participate in any Roll-Up
(i) which would result in Limited Members having
democracy rights in the Roll-Up Entity which are less
than those provided in this Company Agreement (provided
that, if the form of the Roll-Up entity is other than a
Company, the democracy rights shall conform to those
provided in this Company Agreement to the greatest
extent possible); (ii) which includes provisions that
would act to materially impede or frustrate the
accumulation of shares of any purchaser of the
securities of the Roll-Up entity (except to the extent
required to preserve the tax status of the Roll-Up
Entity); (iii) which would limit the rights of Limited
Members to exercise voting rights in the securities of
the Roll-Up entity on the basis of the number of equity
interests held by such Limited Members; (iv) which would
result in a Roll-Up Entity which would have rights to
access of records less than those of the Company; or (v)
which provides for the costs of the Roll-Up to be borne
by the Company and which is not approved by Limited
Members.
(b) No Roll-Up shall be conducted unless an
appraisal of all material Company assets has been
obtained from a competent person or entity that has no
material current or prior business or personal
relationship with the Managing Members or their
Affiliates and who is engaged to a substantial extent in
the business of rendering opinions regarding the value
of assets of the type held by the Company and is
qualified to perform such appraisal. The appraisal
shall be based on an evaluation of all relevant
information, assuming an orderly liquidation of the
Company's assets over a 12-month period, and shall
indicate the value of the Company's material assets as
of a date immediately preceding announcement of the
proposed Roll-Up. The appraiser expert performing the
appraisal shall be engaged for the benefit of the
Company and its Members. A summary of the appraisal
shall be included in a report to the Limited Members in
connection with the Proposed Roll-Up and if such report
is a part of a prospectus used to offer securities in
the Roll-Up Entity, the appraisal shall be filed with
the SEC and the states in connection with the
registration statement for the offering.
(c) Any Limited Member who votes against a Roll-Up
that is completed, shall be given the option to (i)
accept the securities in the Roll-Up Entity in the Roll-
Up, or (ii) either one of (x) remaining a Limited Member
in the Company or (y) receiving cash in the amount of
the appraised value of the assets of the Company.
VII. PROVISIONS APPLICABLE TO LIMITED MEMBERS
The following provisions shall apply to the Limited
Members, and the Limited Members hereby agree thereto.
7.1 LIABILITY. The Limited Members shall be liable
with respect to the Company only to the extent of the amount
of the contribution to capital made by such Limited Members
as provided in Section 4.2. The Units are nonassessable.
7.2 NO PARTICIPATION IN MANAGEMENT. No Limited
Member shall take any part or participate in the conduct of,
or have any control over, the business of the Company, and
no Limited Member shall have any right or authority to act
for or to bind the Company; provided, however, that the
Company may not sell all or substantially all of the assets
of the Company without the prior written consent of a
majority of the Limited Members, by interest.
7.3 NO WITHDRAWAL OR DISSOLUTION. No Limited Member
shall at any time withdraw from the Company except as
provided in this agreement. No Limited Member shall have
the right to have the Company dissolved or to have his or
her contribution to the capital of the Company returned
except as provided in this agreement. The death or
bankruptcy of a Limited Member shall not dissolve or
terminate the Company.
7.4 CONSENT. To the fullest extent permitted by law,
each of the Limited Members hereby consents to the exercise
by the Managing Member of all the rights and powers
conferred on the Managing Member by this agreement.
7.5 POWER OF ATTORNEY. Each of the Limited Members
and the Special Managing Member hereby irrevocably
constitute and appoint the Managing Member his or her or its
true and lawful attorney, in his or her or its name, place
and stead to make, swear to, execute, acknowledge and file:
(a) this Operating Agreement and any and all
certificates of formation of the Company, and any
amendments thereto that may be required by the Limited
Liability Company Act, including amendments required for
the reflection of return of capital to any Member or the
contribution of any additional capital, and the
continuation of the business of the Company by a
substitute and/or additional Managing Member;
(b) any certificate or other instrument and any
amendments thereto that may be required to be filed by
the Company in order to accomplish the business and the
purposes of the Company, including any business
certificate, fictitious name certificate or assumed name
certificate;
(c) any cancellation of such certificates of
formation, this Operating Agreement and any and all
other documents and instruments that may be required
upon the dissolution and liquidation of the Company;
(d) new certificates of formation and any and all
documents and instruments that may be required to effect
a continuation of the business of the Company as
provided in this agreement; and
(e) any amended operating agreement or certificate of
formation that has been duly adopted hereunder or
authorized hereby.
It is expressly intended that the foregoing power of
attorney is (1) coupled with an interest and shall survive
the bankruptcy, death, incompetence or dissolution of any
person hereby giving such power and (2) does not affect the
Limited Members' rights to approve or disapprove any
amendments to this agreement or other matters as provided
elsewhere herein.
If a Limited Member assigns his or her interest in the
Company, as provided in Article IX, the foregoing power of
attorney shall survive the delivery of the instruments
effecting such assignment for the purpose of enabling the
Managing Member to sign, swear to, execute and acknowledge
and file any and all amendments to the certificates of
formation of the Company and other instruments and documents
necessary to effectuate the substitution of the assignee as
a Limited Member.
7.6 LIMITATION OF ACQUISITION OF EQUITY SECURITIES OF
THE MANAGING MEMBERS. The Limited Members (excluding the
Managing Members or their Affiliates who purchase Limited
Liability Company Units) shall not own, directly or
indirectly, individually or in the aggregate, more than 20%
of the outstanding equity securities of either of any
Managing Member or its Affiliates.
The phrase "own, directly or indirectly" used herein
shall have the meaning set forth in Section 318 of the
Internal Revenue Code of 1954, as currently in effect or as
hereafter amended. As of the date hereof, such term
includes ownership by a Limited Member, his or her spouse,
children, grandchildren, parents, any Company of which the
Limited Member or any of the foregoing is a member, any
estate or trust of which the Limited Member or any of the
foregoing is the beneficiary and any corporation at least
50% owned in the aggregate by said Limited Member or any of
the foregoing.
7.7 RIGHT TO PRESENT UNITS FOR PURCHASE.
(a) Beginning 36 months from the date of the
Prospectus, each Limited Member shall have the right,
subject to the provisions of this Section 7.7, to
present his or her Units to the Company for purchase by
submitting notice on a form supplied by the Company to
the Managing Member specifying the number of Units he or
she wishes repurchased. Such notice must be postmarked
after January 1 but before January 31, and after July 1
but before July 31 of each year. On March 31 and
September 30 of each year, and subject to the
limitations set forth below, the Managing Member shall
cause the Company to purchase the Units of Limited
Members who have tendered their Units to the Company.
The purchase price shall be equal to eighty percent
(80%) of the Net Value of the Company's assets divided
by the number of Units outstanding. The Managing
Members shall publish the repurchase price offered for
Units based on the Net Value of the Company's assets on
the first business day of January and July of each year.
The Company will not be obligated to purchase in any
year any number of Units such that such Units, when
aggregated with all other transfers of Units that have
occurred since the beginning of the same calendar year
(excluding Permitted Transfers) would exceed two percent
(2%) of the total number of Units outstanding on January
1 of such year. In the event requests for purchase of
Units received in any given year exceed the two percent
(2%) limitation, the Units to be purchased will be
determined based on the postmark date of the written
notice of Limited Members tendering Units. Any Units
tendered but not selected for purchase in any given year
will be considered for purchase in subsequent years only
if the Limited Member retenders his or her Units. In no
event shall the Company be obligated to purchase Units
if, in the sole discretion of the Managing Member, such
purchase would impair the capital or operation of the
Company nor shall the Company purchase any Units in
violation of applicable legal requirements.
(b) For purposes of all calculations pursuant to
Article V of this agreement, any Net Cash Flow or Net
Proceeds of Sale used to repurchase Units or to repay
borrowings that were used to repurchase Units shall be
deemed distributed to the remaining Limited Members pro
rata based on the ratio of the number of Units owned to
all Units outstanding after such repurchase.
7.8 VOTING RIGHTS. To the extent permitted under the
Limited Liability Company Act, as amended, the Limited
Members may, by vote of a majority of the outstanding Units
(excluding Units held by the Managing Members for their own
accounts), and without the concurrence of the Managing
Members:
(1) amend this Operating Agreement in
accordance with the provisions of Article XI;
(2) remove the Managing Member and elect a
new Managing Member in accordance with Section
10.4 of this agreement;
(3) approve or disapprove the sale of all
or substantially all of the assets of the
Company;
(4) dissolve the Company in accordance with
Section 12.1(g).
VIII. BOOKS OF ACCOUNT; REPORTS AND FISCAL MATTERS
8.1 BOOKS; PLACE; ACCESS. The Managing Member shall
maintain accurate books of account and each and every
transaction shall be entered therein. The Company records
shall contain the names and addresses of all Members and
shall maintain, for a period of six years after completion
of the offering of Units, copies of all subscriptions and
other materials used to determine that the purchase of the
Units was suitable for each Limited Member. The books of
account and the records shall be kept at the office of the
Company in St. Paul, Minnesota, and any Member or his or her
legal counsel may inspect and copy the Company books and
records at any time during ordinary business hours. The
Managing Member shall have no obligation to deliver or mail
to Limited Members copies of certificates of limited Company
or amendments thereto.
8.2 METHOD. The books of account shall be kept in
accordance with generally accepted accounting principles.
8.3 FISCAL YEAR. The fiscal year of the Company
shall end on December 31 of each year.
8.4 ANNUAL REPORT. At the Company's expense, the
books of account shall be audited at the close of each
fiscal year by a firm of independent public accountants
selected by the Managing Member, and a copy of its report
shall be transmitted within 120 days after the close of such
fiscal year to the Members and to such state securities
commissioners as may be required by the rules and
regulations of the various states.
The annual report shall contain (a) a balance sheet as
of year end, a statement of operations for the year then
ended, a statement of Members' equity, and statement of cash
flows, all of which shall be audited with a report
containing an unqualified opinion expressed thereon, or an
opinion containing no material qualification of an
independent public accountant, (b) a report of the
activities of the Company during the period covered by the
report and (c) the amount of any fees or other
reimbursements to the Managing Members or any Affiliates of
the Managing Members during the fiscal year to which such
annual report relates, including information required by
Section 6.2. Such report shall set forth distributions to
Limited Members for the period covered thereby and shall
separately identify distributions from (i) cash flow from
operations during the period, (ii) cash flow from operations
during a prior period that had been held as reserves, (iii)
proceeds from the disposition of property and investments
and (iv) reserves from the gross proceeds of the offering
originally obtained from the Limited Members. The financial
information contained in the annual report will be prepared
on the GAAP basis. The Managing Member also shall make
available to each Limited Member, upon request, a copy of
any annual reports that the Company may be required to file
with the Securities and Exchange Commission within 90 days
after the close of the period to which such reports relate.
8.5 QUARTERLY REPORTS. During the life of the
Company, the Managing Member shall prepare and distribute to
all Members within 60 days after the end of each quarter and
to such state securities commissioners as may be required by
the rules and regulations of the various states, a quarterly
summary of Company financial results. Such quarterly
reports shall contain (a) a current condensed balance sheet,
which may be unaudited, (b) a condensed operating statement
for the quarter then ended, which may be unaudited, (c) a
condensed cash flow statement for the quarter then ended,
which may be unaudited, and (d) other pertinent information
regarding the Company and its activities during the quarter
covered by the report. Such quarterly reports shall also
contain a detailed statement setting forth the services
rendered, or to be rendered, by the Managing Members or
their Affiliates and the amount of the fees received. The
Managing Member also shall make available to each Limited
Member, upon request, a copy of any reports that the Company
may be required to file with the Securities and Exchange
Commission within 45 days after the close of the period to
which such reports relate.
8.6 SPECIAL REPORTS. The Managing Member shall have
prepared, as of the end of each quarter in which a Property
is acquired, a special report of real property acquisitions
within the quarter. Such special reports shall be
distributed to the Limited Members for each quarter in which
a Property is acquired until all proceeds available from the
offering of Units are invested or returned to the Limited
Members as provided in Section 4.5. Such special reports
shall describe the Properties acquired and shall include a
description of the geographic location and the market upon
which the Managing Member is relying. The special report
shall include all facts that reasonably appear to materially
influence the value of the Property, including, but not
limited to, the date and amount of the appraised value, the
purchase price and terms of the purchase, the amount of
proceeds in the Company that remain unexpended or
uncommitted and any Acquisition Expenses paid by the Company
to the Managing Members or their Affiliates in connection
with real property acquisitions within the quarter.
8.7 TAX RETURNS; TAX INFORMATION. Within 75 days
after the close of each fiscal year, all necessary tax
information shall be transmitted to all Members and to such
state securities commissioners as may be required by the
rules and regulations of the various states.
8.8 BANK ACCOUNTS. Except as otherwise described in
the Prospectus, the Managing Member shall select a bank
account or accounts for the funds of the Company, and all
funds of every kind and nature received by the Company shall
be deposited in such account or accounts. The Managing
Member shall designate from time to time the persons
authorized to withdraw funds from such accounts. The funds
of the Company will not be commingled with funds of any
other person or entity.
8.9 TAX ELECTIONS. In the event of a transfer of all
or part of the Company interest of any Member, the Company,
in the sole discretion of the Managing Member, may elect
pursuant to Section 754 of the Internal Revenue Code of 1986
(or any successor provisions) to adjust the basis of the
assets of the Company. The Managing Member shall be the
"tax matters Member" for the Company as that term is defined
in Section 6231 of the Internal Revenue Code of 1986, as
amended.
8.10 INVESTOR LIST. In addition to the other records
maintained by the Company, the Company shall maintain at all
times, in alphabetical order and on white paper with
printing in not less than 10 point type, a list of Limited
Members, including the names, addresses and business
telephone numbers of the Limited Members and the number of
Units held by each, which shall be updated at least
quarterly to reflect changes in the information contained
therein. The list of Limited Members shall be available for
inspection by any Limited Member or such Limited Member's
designated agent at the office of the Company upon request
of such Limited Member. In addition, a copy of the Limited
Member list shall be mailed to any Limited Member requesting
the same within ten (10) days of the receipt of a written
request. The Company may charge a reasonable fee to such
Limited Member to cover the costs of reproduction and
postage. The purposes for which such list may be requested
by the Limited Members shall include, without limitation,
matters relating to voting rights of the Limited Members and
the exercise of rights of the Limited Members under federal
proxy laws. If the Managing Member neglects or refuses to
exhibit, produce or mail a copy of the Limited Member list
as requested, the Managing Member shall be liable for the
costs, including attorneys' fees, incurred by the Limited
Member in compelling the production of the list and for the
actual damages suffered by the Limited Member by reason of
such refusal or neglect. It shall be a defense that the
actual purpose and reason for the request for inspection or
for a copy of the Limited Member list is to secure such list
or other information for the purpose of selling such list or
copies thereof, or of using the same for a commercial
purpose other than in the interest of the applicant as a
Limited Member relative to the affairs of the Company. The
Managing Member may require the Limited Member requesting
such list to represent that the list is not requested for a
commercial purpose unrelated to the Limited Member's
interest in the Company. For all such purposes, the
acquisition of additional Units shall be considered a
commercial purpose unrelated to the Limited Member's
interest in the Company. The Managing Member may also
require, as a condition to making such list available, (i)
that the list be requested under the signature of the
Limited Member of record rather than a person or entity
holding a power of attorney for such Limited Member; and
(ii) whenever the Managing Member has a reasonable belief
that such list will be used to solicit purchases of Units,
that the requesting Limited Member agree to provide
materials to the persons solicited, and to the Managing
Member for review and comment prior to use, generally
complying with the disclosure requirements of Section 14(d)
of the Securities Exchange Act of 1934 and Rule 14d-6
promulgated thereunder, including, without limitation, the
price at which the Fund last agreed to repurchase Units and
the price at which Units were last purchased in any
secondary trading service that is published. The remedies
set forth in this section 8.10 shall be in addition to, and
not by way of limitation of, remedies available to Limited
Members under federal law, or the laws of any state.
IX. ASSIGNMENT OF LIMITED MEMBER'S INTEREST
The Company interest of a Limited Member shall be
represented by a Certificate of Participation. The form and
content of the Certificate of Participation shall be
determined by the Managing Member. The Company interest of
a Limited Member may not be assigned, pledged, mortgaged,
sold or otherwise disposed of, and no Limited Member shall
have the right to substitute an assignee in his or her
place, except as provided in this Article IX.
9.1 LIMITED MEMBERS.
(a) Other than pursuant to a Permitted Transfer, no
Limited Member shall transfer or assign any part of his
or her interest in the Company, and no such transfer or
assignment shall be recognized by the Company but shall
be null and void, if such transfer or assignment, when
added to all other transfers or assignments made during
the same fiscal year, other than (A) Permitted
Transfers, (B) Qualified Matching Service Transfers, or
(C) transfers pursuant to the repurchase provisions of
section 7.7 of this agreement, would constitute
transfers of in excess of two percent (2%) of Company
interests outstanding. The Managing Member may request
such information from a transferring Limited Member as
is necessary to determine whether a transfer is a
Permitted Transfer or a Qualified Matching Service
Transfer. The Managing Member may refuse to affect any
transfer if the transferring Limited Member is unable,
or refuses, to demonstrate that the transfer is a
Permitted Transfer or Qualified Matching Service
Transfer or if the Managing Member is not able to
verify, to its satisfaction, that the transfer will
qualify for a safe harbor under Treasury Regulation
1.7704-1(e) or (g).
(b) Except as provided in Section 9.1(a), each
Limited Member may transfer or assign all or part of his
or her interest in the Company as provided in the
Limited Liability Company Act; provided, however, that
no transfer or assignment shall be effective until
written notice thereof is received by the Managing
Member and the Managing Member approves such transfer or
assignment. Such approval shall be granted unless the
Managing Member determines that the transfer will cause
a violation of the provisions of this agreement,
including the percentage limitations referred to in
Section 9.1(a) above. In any case that a transfer is
not permitted for any reason other than pursuant to the
limitations set forth in section 9.1(a), the decision to
prohibit the transfer shall be supported by an opinion
of counsel. All transfers or assignments of interests
in the Company occurring during any month shall be
deemed effective (i.e., the transferee shall become a
Limited Member of record) on the last day of the
calendar month in which written notice thereof is
received by the Managing Member.
(c) No assignee of all or part of the Company
interests of any Limited Member shall have the right to
become a substitute Limited Member unless (i) his or her
assignor has stated such intention in the instrument of
assignment, (ii) such assignee shall pay all expenses in
connection with such admission as a substitute Limited
Member, as described in Section 9.2 and (iii) such the
transfer to such assignee has been made in compliance
with Section 9.1(a).
(d) No purported sale, assignment or transfer by a
Limited Member of less than two and one-half Units (two
Units for transfers by Qualified Plans and Individual
Retirement Plans) will be permitted or recognized,
except by gift, inheritance, intra-family transfers,
family dissolutions, transfers to Affiliates or by
operation of law.
(e) If a Limited Member dies, his or her executor,
administrator or trustee, or if he or she is adjudged
incompetent or insane, his or her committee guardian or
conservator, or if he or she becomes bankrupt, the
receiver or trustee of his or her estate, shall have the
rights of a Limited Member for the purpose of settling
or managing his or her estate and such power as the
decedent or incompetent possessed to assign all or any
part of his or her Units and to join with the assignee
thereof in satisfying conditions precedent to such
assignee becoming a substitute Limited Member. The
death, dissolution or adjudication of incompetency or
bankruptcy of a Limited Member shall not dissolve the
Company.
(f) By executing and adopting this agreement, each
Limited Member hereby consents to the admission of
additional or substitute Limited Members by the Managing
Member and to any assignee of his or her Units becoming
a substitute Limited Member.
9.2 DOCUMENTS AND EXPENSES. As a condition to
admission as a substitute Limited Member, an assignee of all
or part of the Company interest of any Limited Member or the
legatee or distributee of all or any part of the Company
interest of any Limited Member shall execute and acknowledge
such instruments, in form and substance satisfactory to the
Managing Member, as the Managing Member shall deem necessary
or advisable to effectuate such admission and to confirm the
agreement of the person being admitted as such substitute
Limited Member to be bound by all of the terms and
provisions of this agreement. Such assignee, legatee or
distributee shall pay all reasonable expenses, not exceeding
$100, in connection with such admission as a substitute
Limited Member.
9.3 ACQUIT COMPANY. In the absence of written notice
to the Company of any assignment of a Company interest, any
payment to the assigning Member or his or her executors,
administrators or representatives shall acquit the Company
of liability to the extent of such payment to any other
person who may have an interest in such payment by reason of
an assignment by the Member or by reason of such Member's
death or otherwise.
9.4 RESTRICTION ON TRANSFER. Notwithstanding the
foregoing provisions of this Article IX, no sale or exchange
of a Company interest may be made if the interest sought to
be sold or exchanged, when added to the total of all other
Company interests sold or exchanged within the period of 12
consecutive months prior thereto, would result in the
termination of the Company under section 708 of the Internal
Revenue Code of 1986 (or any successor section).
9.5 ENDORSEMENT ON CERTIFICATE. The foregoing
provisions governing the assignment of the Company interest
of a Limited Member shall be indicated by an endorsement on
the certificate evidencing such Limited Member's interest in
the Company, in the form as determined from time to time by
the Managing Member.
X. DEATH, WITHDRAWAL, EXPULSION AND REPLACEMENT OF THE
MANAGING MEMBERS
10.1 DEATH. In the event of the death of the
Special Managing Member, the estate of the Special Managing
Member shall assume all of his obligations under this
agreement and be responsible for their discharge. The
estate may elect to withdraw from the Company only upon
satisfaction of the conditions in Section 10.2 applicable to
the Special Managing Member.
10.2 WITHDRAWAL. The Managing Member may not withdraw
from the Company without first providing 90 days' written
notice to the Limited Members of its intent to so withdraw
and providing a substitute Managing Member to the Company
that shall be accepted by a vote of not less than a
majority, by interest, of the Limited Members (excluding any
Limited Company Units held by any Managing Member for its
own account); provided, however, that nothing in this
agreement shall be deemed to prevent the merger,
consolidation or reorganization of the Managing Member into
or with a successor entity controlled by, or under common
control with, a Managing Member, and such successor entity
shall be deemed to be the Managing Member of the Company for
all purposes and effects and shall succeed to and enjoy all
rights and benefits and bear all obligations and burdens
conferred or imposed hereunder upon the Managing Member.
The Limited Members shall vote to accept or reject the
proposed substitute Managing Member in person or by proxy at
a meeting called by the Managing Member for such purpose in
accordance with Section 11.1 of this agreement.
The Special Managing Member may not withdraw from the
Company prior to December 31, 2000.
10.3 EXPULSION. A Managing Member shall be expelled
without further action for "cause," which means (1) final
judicial determination or admission of its bankruptcy or
insolvency, (2) withdrawal from the Company without
providing a substitute Managing Member in accordance with
Section 10.2 or (3) final judicial determination that it (i)
was grossly negligent in its failure to perform its
obligations under this agreement, (ii) committed a fraud
upon the Members or upon the Company, (iii) committed a
felony in connection with the management of the Company or
its business or (iv) was in material breach of its
obligations under this agreement. This section does not
limit the right of the Limited Members to remove the
Managing Members upon a majority vote of the Limited
Members.
10.4 REMOVAL AND REPLACEMENT OF MANAGING MEMBERS.
In the event of (i) the wrongful withdrawal of a Managing
Member or the expulsion of a Managing Member under
circumstances that the Company lacks a Managing Member or
(ii) the written proposal of Limited Members holding 10% or
more of the issued and outstanding Units, and upon providing
not less than 10 nor more than 60 days' written notice by
certified mail to all Members, the Limited Members may call
a meeting of the Company for the purpose of removing or
replacing any or all of the Managing Members. At such
meetings, any of the Managing Members may be removed or
replaced without cause by a vote (rendered in person or by
proxy) of a majority, by interest, of the Limited Members
(excluding Units held by the Managing Members for their own
accounts).
10.5 PAYMENT FOR REMOVED MANAGING MEMBER'S INTEREST.
Upon the expulsion, withdrawal or removal of a Managing
Member, the Company shall pay to the terminated Managing
Member all amounts then accrued and owing to the terminated
Managing Member and an amount equal to the then present fair
market value of the terminated Managing Member's interest in
the Company determined by agreement of the terminated
Managing Member and the Company, or, if they cannot agree,
by arbitration in accordance with the then current rules of
the American Arbitration Association. The expense of
arbitration shall be borne equally by the terminated
Managing Member and the Company. The fair market value of
the terminated Managing Member's interest shall be the
amount the terminated Managing Member would receive upon
dissolution and termination of the Company assuming that
such dissolution or termination occurred on the date of the
terminating event and the assets of the Company were sold
for their then fair market value without any compulsion on
the part of the Company to sell such assets. In the case of
a voluntary withdrawal, the withdrawing Managing Member
shall be paid the fair market value of its or his interest
by the issuance by the Company of a non-interest bearing
unsecured promissory note providing for payment of principal
from distributions that the withdrawing Managing Member
otherwise would have been entitled to receive under this
agreement had such Managing Member not withdrawn. In the
case of an involuntary termination, the terminated Managing
Member shall be paid the fair market value of its or his
interest by the issuance by the Company of a promissory note
with a five year maturity payable in five equal installments
of principal and interest at the prevailing market rate of
interest.
10.6 FAILURE TO ADMIT SUBSTITUTE MANAGING MEMBER. In
the event that a substitute Managing Member has not been
appointed and admitted as provided in Section 10.4 so that
there is no Managing Member acting, the Company shall then
be dissolved, terminated and liquidated.
XI. AMENDMENT OF AGREEMENT AND MEETINGS
11.1 GENERAL. Either Managing Member may, at any
time, propose an amendment to this agreement and shall
notify all Members thereof in writing, together with a
statement of the purpose(s) of the amendment and such other
matters as the Managing Member deems material to the
consideration of such amendment. If such proposal does not
adversely affect the rights of the Limited Members, such
proposal shall be considered adopted and this agreement
deemed amended. At any time, Limited Members holding not
less than 10% of the issued and outstanding Units may
propose an amendment to this agreement, or a meeting of
Limited Members to consider any other proposal for which the
Limited Members may vote hereunder, including the sale of
all or substantially all of the assets of the Company. Upon
the request in writing to the Managing Member of any person
entitled to call a meeting, or in the event a proposal of a
Managing Member adversely effects the rights of Limited
Members, or in the event of objection by 10% of Limited
Members by interest to such a proposal, the Managing Member
shall call a special meeting of all Members, in each case at
a location convenient to Limited Members, to consider the
proposal at the time requested by the person requesting the
meeting which shall be not less than 15 nor more than 60
days after receipt of such request. Written notice of the
meeting shall be given to all Members either personally or
by certified mail not less than 10 nor more than 60 days
before the meeting, but in any case where a meeting is duly
called by request of Limited Members, not more than 10 days
after receipt of such request. Included in the notice shall
be a detailed statement of the action proposed, including a
verbatim statement of the wording of any resolution or
amendment proposed. The notice shall provide that Limited
Members may vote in person or by proxy. The affirmative
vote of a majority, by interest, of the Limited Members
(excluding any Units held by the Managing Members for their
own accounts) shall decide the matter, without the consent
of the Managing Members. In any event, however, no such
amendment shall affect the allocation of economic interests
to the Members or alter the allocation of Company management
responsibilities and control without the approval of each
Managing Member and a majority by interest, of the Limited
Members, except as otherwise provided in Article X.
11.2 ALTERNATIVE TO MEETINGS. As an alternative to
voting at meetings of the Company pursuant to this and other
Articles of this agreement, the Limited Members may consent
to and approve by written action any matter that the Limited
Members may consent to and approve by vote at a meeting. In
order to consent to and approve the matter, the same
percentage of Limited Members, by interest, must sign the
written action as is required by vote at a meeting;
provided, however, that written notice is given to all
Members at least 15 days before solicitation of signatures
is begun.
XII. DISSOLUTION AND LIQUIDATION
12.1 EVENTS CAUSING DISSOLUTION. The Company shall
be dissolved only upon the occurrence of one or more of the
following events:
(a) the expiration of the term set forth in
Section 1.4;
(b) the occurrence of any event that, under the laws
of the jurisdictions governing the Company shall
dissolve the Company;
(c) the bankruptcy of the Company or any of the
Managing Members;
(d) the withdrawal or the expulsion of a Managing
Member if a substitute Managing Member has not been
timely admitted as provided in Article X, with the
result that there is no Managing Member acting;
(e) the decree of court that other circumstances
render a dissolution of the Company equitable or
required by law;
(f) the sale or other disposition of all or
substantially all of the assets of the Company; and
(g) at any time by the affirmative vote of a
majority, by interest, of the Limited Members (excluding
Units held by the Managing Members for their own
accounts) at a meeting called in accordance with Section
11.1 of this agreement.
12.2 CONTINUATION OF BUSINESS. Except as provided in
Section 12.3, upon the dissolution of the Company for any
reason, the business of the Company and title to the
property of the Company shall be vested in the Company
continuing the business. Upon any such dissolution no
Member, nor his or her legal representatives, shall have the
right to an account of his or her interest as against the
Company continuing the business, and no Member, nor his or
her legal representatives, as against the Company continuing
the business, shall have the right to have the value of his
or her interest as of the date of dissolution ascertained
nor have any right as a creditor or otherwise with respect
to the value of his or her interest.
12.3 LIQUIDATION AND WINDING UP. If dissolution of
the Company should be caused by reason of (a) an event that
makes it unlawful for the business of the Company to be
carried on or for the Members to carry it on in the Company,
(b) the bankruptcy of the Company, (c) the withdrawal or
expulsion of a Managing Member and no substitute Managing
Member has been timely admitted as provided in Article X,
with the result that there is no Managing Member acting, (d)
a decree of court that other circumstances render a
dissolution and winding up of the affairs of the Company
equitable or required by law, (e) the sale of all or
substantially all of the assets of the Company, (f) the
express will of Limited Members as provided in Section
12.1(g) above, the Company shall be liquidated and the
Managing Member (or the person or persons selected by a
decree of court to carry out the winding up of the affairs
of the Company) shall wind up the affairs of the Company.
The Managing Member or the person winding up the
affairs of the Company shall promptly proceed to liquidate
the Company. No distribution upon liquidation in kind of
property and assets shall be made to Limited Members. In
settling the accounts of the Company, the assets and the
property of the Company shall be distributed in the
following order of priority:
(a) To the payment of all debts and liabilities of
the Company, including loans by Members that are secured
by mortgages, but excluding any other loans or advances
that may have been made by the Members to the Company,
in the order of priority as provided by law;
(b) To the establishment of any reserves deemed
necessary by the Managing Member or the person winding
up the affairs of the Company for any contingent
liabilities or obligations of the Company;
(c) To the repayment of any unsecured loans or
advances that may have been made by any Members to the
Company in the order of priority as provided by law;
(d) Any remaining balance will be distributed to the
Members pro rata based on each Member's positive capital
account balance, after giving effect to allocations
pursuant to Sections 5.1 and 5.3 and after taking into
account all capital account adjustments for the Company
taxable year during which liquidation occurs (other than
those made pursuant to this Section 12.3(d)).
XIII. MISCELLANEOUS PROVISIONS
13.1 INTERPRETATION. The terms and provisions of
this agreement shall be governed by and construed in
accordance with the laws of the State of Delaware. All
references herein to Articles and Sections refer to Articles
and Sections of this agreement. All Article and Section
headings are for reference purposes only and shall not
affect the interpretation of this agreement. The use of the
masculine gender, for all purposes of this agreement, shall
be deemed to refer to both male and female Members.
13.2 NOTICE. Any notice given in connection with the
business of the Company shall be duly given if mailed, by
certified or registered mail, postage prepaid: if to the
Company, to the principal office of the Company set forth in
Section 1.3 or to such other address as the Company may
hereafter designate by notice to the Members; if to the
Managing Member or the Special Managing Member, to the
address set forth in Section 1.3 or such other address as
such Managing Members may hereafter designate by notice to
the Company; if to the Limited Members, to the addresses set
forth in the subscription agreement executed by each Limited
Member or to such other address as such Limited Members may
hereafter designate by notice to the Company.
13.3 SUCCESSORS AND ASSIGNS. Except as herein
otherwise provided to the contrary, this agreement shall be
binding upon and inure to the benefit of the parties hereto
and their personal representatives, assigns and successors.
13.4 COUNTERPARTS. This agreement may be executed in
several counterparts, and all so executed shall constitute
one agreement, binding on all parties hereto,
notwithstanding that all of the parties are not signatory to
the original or the same counterpart.
13.5 SEVERABILITY. In the event that any provision
of this agreement shall be held to be invalid, the same
shall not affect the validity of the remainder of this
agreement or the validity or the formation of the Company as
a limited Company under the Limited Liability Company Act.
IN WITNESS WHEREOF, this agreement has been executed
as of the day of 1999.
LIMITED MEMBERS MANAGING MEMBERS
1. By AEI Fund Management XXI, Inc., AEI Fund Management XXI, Inc.
attorney-in-fact Managing Member
By By
Robert P. Johnson, President Robert P. Johnson, President
Robert P. Johnson, Special Managing
Member
EXHIBIT B
PRIOR PERFORMANCE TABLES
The information presented in the following tables represents the
historical experience of all public real estate programs organized by
the Manager or their Affiliates during the periods indicated. Limited
Members in the Fund should not assume that they will experience returs
if any, comparable to those experienced by investors in such prior real
estate programs. Investors will have no interest in the assets or
operations of the Managing Members.
Additional information relating to the performance of prior
programs is contained in Part II of the Registratioin Statement, of
which this Prospectus is a part of, that has been filed with the
Securities and Exchange Commission. Such information may be
obtained by contacting Mr. Robert P. Johnson, President, AEI Fund
Management XXI, Inc., 1300 Minnesota World Trade Center, 30 East
Seventh Street, Saint Paul, Minnesota 55101.
The programs included in the following tables have investment
objectives similiar to those of the Partnership, including protection
of capital, distribution of partially "tax sheltered" cash flow
from operations, and capital appreciation.
Table Index Description Page
I Experience in Raising and Investing Funds B-2
II Compensation to Sponsors B-3
III Operating Results of Prior Partnerships B-4
IV Results of Completed Programs B-7
V Sales or Disposals of Properties B-8
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(Unaudited)
The following table provides information at December 31, 1997, as to the
experience of the General Partners and their Affiliates in raising and
investing funds with respect to all prior public programs closed in the
last five years.
AEI AEI
Net Lease Net Lease AEI AEI
Income & Income & Income & Income &
Growth Growth Growth Growth
Fund XIX Fund XX Fund XXI Fund XXII
Dollar Amount Offered $30,000,000 $24,000,000 $24,000,000 $24,000,000
Dollar Amount Raised $21,151,928 $24,000,000 $24,000,000 $ 7,655,996
Percentage of Amount
Raised 100.0% 100.0% 100.0% 100.0%
Less Offering Expenses:
Selling Commissions
and Discounts 7.0 8.0 8.0 8.0
Organizational
Expenses 7.3 5.7 5.6 7.0
Other (a) 4.2 2.2 4.3 2.3
Less Reserves 0.1 0.1 0.1 .1
----------- ----------- ----------- ------------
Percent Available
for Investment 81.4% 84.0% 82.0% 82.6%
=========== =========== =========== ============
Acquisition Costs:
Prepaid Items and
Fees Related
to Purchase of
Property 0.0% 0.0% 0.0% 0.0%
Investment in
Properties (b) 81.4 84.0 73.2(c) 10.0(c)
Acquisition Fees 0.0 0.0 0.0 0.0
----------- ----------- ----------- -----------
Total Acquisition Cost 81.4% 84.0% 73.2% 10.0%
=========== =========== =========== ===========
Percent Leverage 0.0% 0.0% 0.0% 0.0%
Date Offering Began Feb. 91 Jan. 93 Feb. 95 Jan. 97
Length of Offering
(months) 24 24 24 (d)
Months to Invest 90% of
Amount Available for
Investment (measured
from beginning of
offering) 34 38 36 (c)
(a) Represents distributions in excess of net cash flow (return of capital).
(b) Includes cash down payments and capitalized costs and expenses related
to the purchase of properties, including the cost of appraisals,
attorney's fees, expenses of personnel in investigating properties, and
overhead allocated to such activities.
(c) Acquisitions are in process.
(d) Represents subscriptions accepted through December 31, 1997. Offering
had not closed as of December 31, 1997.
B-2
TABLE II
COMPENSATION TO SPONSORS
(Unaudited)
The following table provides information as to the compensation paid to
the General Partners and their Affiliates during the period from February,
1991 to December 31, 1997 for all prior public programs closed in the last
five years.
AEI AEI
Net Lease Net Lease AEI AEI
Income & Income & Income & Income &
Growth Growth Growth Growth
Fund XIX Fund XX Fund XXI Fund XXII
Type of Compensation
Date Offering Commenced Feb. 91 Jan. 93 Feb. 95 Jan. 97
Dollar Amount Raised $21,151,928 $24,000,000 $24,000,000 $ 7,655,996
Amount Paid to Sponsors
From Proceeds of Offering:
Underwriting Fees (a) 407,378 471,307 466,013 157,120
Acquisition Expenses
D purchase option on
property 0 0 0 0
D real estate
commission 0 0 0 0
D expense
reimbursement 931,909(c) 793,843(c) 516,519(c) 87,531(c)
Organization Offering
Expenses 345,490 227,451 359,605 153,494
Dollar Amount of Cash
Generated From
Operations Before
Deducting Payments
to Sponsors 10,317,099 7,164,836 2,968,812 115,975
Amount Paid to Sponsors
From Operations:
Property Management
Fees (b) 0 0 0 0
Partnership
Management Fees (b) 0 0 0 0
Reimbursements 1,623,883 1,099,934 625,158 137,864
Leasing Commissions 0 0 0 0
Participation in Cash
Distributions 98,322 66,085 33,800 5,331
Dollar Amount of Property
Sales and Refinancing
Before Deducting
Payments to Sponsors:
- cash 8,607,297 3,548,896 520,790 0
- notes 2,216,982 0 0 0
Amount Paid to Sponsors
From Property Sales
and Refinancing:
Real Estate
Commissions 0 0 0 0
Incentive Fees 0 0 0 0
Participation in Cash
Distributions 9,537 7,109 3,520 0
(a) Does not include fees paid to AEI Incorporated which were reallowed
to participating dealers.
(b) Although not paid a fixed fee for property management and
partnership management, the General Partners and Affiliates were
reimbursed at their Cost for the provision of such services. Such
reimbursements are reflected under the line item "Amount Paid to
Sponsors From OperationsDReimbursements."
(c) The Partnerships received reimbursements from the lessees in the
form of financing fees, commitment fees and expense reimbursements
to offset these costs. The reimbursements received by Fund XIX,
Fund XX, Fund XXI and Fund XXII totaled $627,692, $355,010, $342,001
and $11,414, respectively.
B-3
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PARTNERSHIPS
(Unaudited)
The following tables provide information as to the results of all prior
programs closed in the past five years for each year of the five years (or
from inception if formed after January 1, 1992) ended December 31, 1997.
<CAPTION>
AEI NET LEASE INCOME & GROWTH FUND XIX
Years Ended December 31
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Gross Revenues from Operations $ 1,837,921 $ 2,407,235 $ 2,282,282 $ 2,124,542 $ 1,792,599
Profit on Sale of Properties 155,035 431,484 969,054 571,927 77,703
Less:
Operating Expenses 291,635 291,636 292,268 352,591 360,253
Depreciation 194,173 373,799 369,226 340,721 313,146
Real Estate Impairment 0 0 0 0 1,310,484
Minority Interest in Net
Operating Income 58,188 165,801 311,287 0 0
----------- ----------- ----------- ----------- -----------
Net Income (Loss)-GAAP Basis $ 1,448,960 $ 2,007,483 $ 2,278,555 $ 2,003,157 $ (113,581)
=========== =========== =========== =========== ===========
Taxable Income (Loss):
-from operations $ 1,210,836 $ 1,470,087 $ 1,206,527 $ 1,500,668 $ 952,997
-from gain on sale 157,420 438,278 933,622 588,768 93,755
=========== =========== =========== =========== ===========
Cash Generated (Deficiency)From Operations $ 1,158,331 $ 2,099,865 $ 1,466,120 $ 1,929,889 $ 1,423,151
Cash Generated From Sales 574,859 1,765,130 5,367,636 1,334,525 675,838
Cash Generated From Refinancing 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated From Operations,
Sales and Refinancing 1,733,190 3,864,995 6,833,756 3,246,414 2,098,989
Less: Cash Distributions to Investors
-from operating cash flow 1,158,331 1,915,568 1,466,120 1,799,923 1,423,151
-from sales and refinancing 0 165,972 419,246 121,458 247,028
-from cash reserves (a) 735,571 0 224,365 0 109,996
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions (160,712) 1,783,455 4,724,025 1,325,033 318,814
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ (160,712) $ 1,783,455 $ 4,724,025 $ 1,324,787 $ 318,814
=========== =========== =========== =========== ===========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 58 69 57 70 45
-from recapture 8 7 23 4 1
Capital Gain (Loss) 0 13 20 24 3
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 69 94 99 90 0
-Return of Capital 21 3 0 0 84
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 8 20 6 12
-Refinancing 0 0 0 0 0
-Operations 55 89 69 84 67
-Cash Reserves (a) 35 0 10 0 5
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 0 0 0 0 100%
</TABLE>
(a) Represents initial capital or cash retained from prior years' cash flow.
(b) Based on an investment of a weighted average unit outstanding.
<TABLE>
B-4
TABLE III (Continued)
OPERATING RESULTS OF PRIOR PARTNERSHIPS
(Unaudited)
<CAPTION>
AEI NET LEASE INCOME & GROWTH FUND XX
Years Ended December 31
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Gross Revenues from Operations $ 139,288 $ 1,046,839 $ 1,852,292 $ 2,359,797 $ 2,003,892
Profit on Sale of Properties 0 0 225,180 87,281 472,575
Less:
Operating Expenses 114,321 297,038 292,122 255,505 354,554
Depreciation 6,008 124,146 251,092 381,794 390,066
Real Estate Impairment 0 0 0 0 626,800
Minority Interest in Net Operating Income 0 0 19,454 0 0
----------- ----------- ----------- ----------- -----------
Net Income (Loss)-GAAP Basis $ 18,959 $ 625,655 $ 1,514,804 $ 1,809,779 $ 1,105,047
=========== =========== =========== =========== ===========
Taxable Income (Loss):
-from operations $ 127,265 $ 809,315 $ 1,275,827 $ 1,720,326 $ 1,274,296
-from gain on sale 0 0 223,456 85,640 469,188
=========== =========== =========== =========== ===========
Cash Generated (Deficiency)From Operations $ 126,644 $ 637,370 $ 1,583,637 $ 2,145,303 $ 1,604,421
Cash Generated From Sales 0 0 988,838 461,077 2,098,981
Cash Generated From Refinancing 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated From Operations,
Sales and Refinancing 126,644 637,370 2,572,475 2,606,380 3,703,402
Less: Cash Distributions to Investors
-from operating cash flow 64,800 637,370 1,467,084 2,034,864 1,604,421
-from sales and refinancing 0 0 486,375 100,571 124,011
-from cash reserves (a) 0 216,850 0 0 388,234
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions 61,844 (216,850) 619,016 470,945 1,586,736
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ 61,844 $ (216,850) $ 619,016 $ 470,945 $ 1,586,736
=========== =========== =========== =========== ===========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 28 58 53 72 53
-from recapture 0 0 2 1 4
Capital Gain (Loss) 0 0 7 3 15
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 4 45 63 75 46
-Return of Capital 10 16 18 14 43
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 0 20 4 5
-Refinancing 0 0 0 0 0
-Operations 14 45 61 85 68
-Cash Reserves (a) 0 16 0 0 16
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 0 0 0 0 98%
(a) Represents initial capital or cash retained from prior years' cash flow.
(b) Based on an investment of a weighted average Unit outstanding.
</TABLE>
<TABLE>
B-5
TABLE III (Continued)
OPERATING RESULTS OF PRIOR PARTNERSHIPS
(Unaudited)
<CAPTION>
AEI INCOME & GROWTH FUND XXI
August 31, 1994
(Operations Commenced) Years Ended December 31
to December 31, 1994 1995 1996 1997
<S> <C> <C> <C> <C>
Gross Revenues from Operations $ 0 $ 263,399 $ 1,341,753 $ 1,513,094
Profit on Sale of Properties 0 0 0 106,551
Less:
Operating Expenses 2,915 144,180 278,563 348,934
Depreciation 0 11,687 150,958 251,272
Real Estate Impairment 0 0 0 580,200
----------- ----------- ----------- -----------
Net Income (Loss)-GAAP Basis $ (2,915) $ 107,532 $ 912,232 $ 439,239
=========== =========== =========== ===========
Taxable Income (Loss):
-from operations $ 0 $ 245,581 $ 1,135,292 $ 937,374
-from gain on sale 0 0 0 102,599
=========== =========== =========== ===========
Cash Generated (Deficiency) From Operations $ (14) $ 171,812 $ 1,098,924 $ 966,562
Cash Generated From Sales 0 0 0 520,790
Cash Generated From Refinancing 0 0 0 0
----------- ----------- ----------- -----------
Cash Generated From Operations,
Sales and Refinancing (14) 171,812 1,098,924 1,487,352
Less: Cash Distributions to Investors
-from operating cash flow 0 171,812 1,098,924 966,562
-from sales and refinancing 0 0 0 352,009
-from cash reserves (a) 0 21,611 75,670 720,708
----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions (14) (21,611) (75,670) (551,927)
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0
----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ (14) $ (21,611) $ (75,670) $ (551,927)
=========== =========== =========== ===========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 0 35 64 39
-from recapture 0 0 0 0
Capital Gain (Loss) 0 0 0 4
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 0 15 52 18
-Return of Capital 0 13 14 66
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 0 0 14
-Refinancing 0 0 0 0
-Operations 0 25 62 40
-Cash Reserves (a) 0 3 4 30
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 0 0 0 99%
(a) Represents initial capital or cash retained from prior years' cash flow.
(b) Based on an investment of a weighted average Unit outstanding.
</TABLE>
B-6
TABLE III (Continued)
OPERATING RESULTS OF PRIOR PARTNERSHIPS
(Unaudited)
AEI INCOME & GROWTH FUND XXII
July 31, 1996 Year Ended
(Operations Commenced) December 31,
to December 31, 1996 1997
Gross Revenues from Operations $ 0 $ 116,807
Profit on Sale of Properties 0 0
Less:
Operating Expenses 357 138,339
Depreciation 0 668
Real Estate Impairment 0 0
----------- -----------
Net Loss - GAAP Basis $ (357) $ (22,200)
=========== ===========
Taxable Income (Loss):
-from operations $ 0 $ 114,913
-from gain on sale 0 0
=========== ===========
Cash Generated (Deficiency)From Operations $ (57) $ 139,614
Cash Generated From Sales 0 0
Cash Generated From Refinancing 0 0
----------- -----------
Cash Generated From Operations,
Sales and Refinancing (57) 139,614
Less: Cash Distributions to Investors
-from operating cash flow 0 77,357
-from sales and refinancing 0 0
-from cash reserves (a) 0 0
----------- -----------
Cash Generated (Deficiency)
After Cash Distributions (57) 62,257
Less: Special Items (Not Including
Sales and Refinancing) 0 0
----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ (57) $ 62,257
=========== ===========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 0 30
-from recapture 0 0
Capital Gain (Loss) 0 0
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 0 0
-Return of Capital 0 20
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 0
-Refinancing 0 0
-Operations 0 20
-Cash Reserves (a) 0 0
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 0 100%
(a) Represents initial capital or cash retained from prior years' cash flow.
(b) Based on an investment of a weighted average Unit outstanding.
B-7
TABLE IV
RESULTS OF COMPLETED PROGRAMS
None of the public partnerships sponsored by the General
Partners or their Affiliates have completed operations.
B-8
<TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
The following table provides information with respect to
sales or disposals of property by prior programs during the past
three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Taco Cabana
Income & Growth Waco,
Fund XIX Texas (b) May 92 Jan. 95 138,351 0 0 0 138,351 0 95,180 95,180 34,648
AEI Real Estate Hardee's
Fund 85-A Sierra Vista,
Arizona July 86 Mar. 95 296,020 0 0 0 296,020 0 580,050 580,050 710,275
AEI Net Lease Applebee's
Income & Growth Aurora,
Fund XIX Colorado(b) Dec. 92 Mar. 95 141,542 0 0 0 141,542 0 111,589 111,589 30,721
AEI Net Lease SportsTown
Income & Growth Greensboro,
Fund XIX North
Carolina(c) May 94 Apr. 95 2,942,532 0 341,701 0 3,284,233 0 2,917,284 2,917,284 295,998
AEI Net Lease Applebee's
Income & Growth Aurora,
Fund XIX Colorado(b) Dec.92 June 95 299,759 0 0 0 299,759 0 235,846 235,846 71,105
AEI Net Lease Taco Cabana
Income & Growth Waco,
Fund XIX Texas(b) May 92 June 95 131,257 0 0 0 131,257 0 93,637 93,637 39,535
AEI Net Lease Applebee's
Income & Growth Aurora,
Fund XIX Colorado(b) Dec.92 June 95 216,443 0 0 0 216,443 0 173,417 173,417 52,344
AEI Real Estate Cheddar's
Fund 86-A Columbus,
Ohio(d) June 90 July 95 314,826 0 0 0 314,826 0 306,711 306,711 201,737
</TABLE> B-9
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C><C> <C> <C>
AEI Real Estate Cheddar's
Fund XVIII Columbus,
Ohio (d) June 90 July 95 1,259,320 0 0 0 1,259,320 0 1,306,192 1,306,192 805,116
AEI Net Lease Applebee's
Income & Growth Crestview Hills,
Fund XIX Kentucky(b) June 93 July 95 238,320 0 0 0 238,320 0 185,056 185,056 46,450
AEI Real Estate Fair Muffler
Fund 85-A Ashwaubenon,
Wisconsin Oct. 85 July 95 299,874 0 0 0 299,874 0 230,134 230,134 311,572
AEI Net Lease Black-Eyed Pea
Income & Growth Davie,
Fund XIX Florida Aug. 94 July 95 184,971 0 1,556,982 0 1,741,953 0 1,781,075 1,781,075 209,831
AEI Real Estate Applebee's
Fund 86-A Fort Myers,
Florida Feb. 88 July 95 1,646,608 0 0 0 1,646,608 0 1,179,405 1,179,405 1,152,645
AEI Real Estate Applebee's
Fund XVI Columbia,
South
Carolina(e) May 88 July 95 990,453 0 0 0 990,453 0 723,823 723,823 716,868
AEI Real Estate Applebee's
Fund XVII Columbia,
South
Carolina(e) May 88 July 95 715,545 0 0 0 715,545 0 534,973 534,793 516,452
AEI Net Lease HomeTown Buffet
Income & Growth Albuquerque,
Fund XX New Mexico(b)Sept.93 Aug. 95 365,678 0 0 0 365,678 0 309,413 309,413 70,539
</TABLE> B-10
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Real Estate Hardee's
Fund 85-A Wayne,
Nebraska Dec. 85 Aug. 95 474,530 0 0 0 474,530 0 447,944 447,944 619,736
AEI Real Estate Applebee's
Fund XVII Hampton,
Virginia July 88 Aug. 95 1,747,127 0 0 0 1,747,127 0 1,287,072 1,287,072 1,326,976
AEI Real Estate Applebee's
Fund XVIII Memphis,
Tennessee Aug. 89 Sept. 95 1,444,822 0 0 0 1,444,822 0 1,126,919 1,126,919 951,090
AEI Net Lease Applebee's
Income& Growth Temple Terrace,
Fund XIX Florida(b) Oct. 93 Sept. 95 215,211 0 0 0 215,211 0 163,548 163,548 41,808
AEI Net Lease HomeTown Buffet
Income& Growth Albuquerque,
Fund XX New Mexico(b) Sept.93 Oct. 95 180,622 0 0 0 180,622 0 136,866 136,866 33,862
AEI Net Lease HomeTown Buffet
Income& Growth Albuquerque,
Fund XX New Mexico(b) Sept.93 Oct. 95 270,352 0 0 0 270,352 0 207,742 207,742 51,603
AEIReal Estate Jiffy Lube
Fund XVI Dallas,
Texas(e) Dec. 87 Oct. 95 161,218 0 0 0 161,218 0 154,781 154,781 146,941
AEIReal Estate Jiffy Lube
Fund XVII Dallas,
Texas(e) Mar. 88 Oct. 95 483,653 0 0 0 483,653 0 454,300 454,300 396,126
</TABLE> B-11
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEIReal Estate Jiffy Lube
Fund XVI Garland,
Texas(e) Dec. 87 Oct. 95 322,443 0 0 0 322,443 0 301,884 301,884 277,244
AEIReal Estate Jiffy Lube
Fund XVII Garland,
Texas (e) Feb. 88 Oct. 95 322,442 0 0 0 322,442 0 303,108 303,108 265,759
AEIReal Estate Applebee's
Fund XVII Richmond,
Virginia Sept.88 Oct. 95 1,755,975 149,463 0 0 1,905,438 0 1,375,732 1,375,732 1,291,422
AEIReal Estate Applebee's
Fund XVII Virginia Beach,
Virginia(b) Oct. 88 Nov. 95 1,496,613 0 0 0 1,496,613 0 1,106,638 1,106,638 1,087,649
AEINetLease HomeTown Buffet
Income&Growth Albuquerque,New
FundXIX Mexico(b) Sept.93 Dec. 95 172,186 0 0 0 172,186 0 138,494 138,494 36,594
AEI Net Lease Applebee's
Income &Growth Temple Terrace,
Fund XIX Florida(b) Oct. 93 Dec. 95 171,714 0 0 0 171,714 0 126,414 126,414 35,449
AEI Net Lease Applebee's
Income& Growth Crestview Hills,
Fund XIX Kentucky(b) Jun. 93 Dec. 95 172,924 0 0 0 172,924 0 134,587 134,587 40,579
AEI Net Lease Applebee's
Income& Growth Crestview Hills,
Fund XIX Kentucky(b) Jun. 93 Dec. 95 172,910 0 0 0 172,910 0 134,586 134,586 40,579
</TABLE> B-12
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Lease Auto Max
Income & Growth St. Paul,
Fund 84-A Minnesota May 85 Mar. 96 327,622 0 0 0 327,622 0 302,540 302,540 436,484
AEI Real Estate Super 8
Fund XV Hot Springs,
Arkansas(f) Apr.88 Mar. 96 663,386 0 0 0 663,386 0 581,541 581,541 635,940
AEI Real Estate Super 8
Fund XVI Hot Springs,
Arkansas(f) Apr.88 Mar. 96 663,386 0 0 0 663,386 0 583,653 583,653 635,834
AEI Net Lease HomeTown Buffet
Income &Growth Tucson,
Fund XIX Arizona(b) Jun.93 Apr. 96 201,357 0 0 0 201,357 0 164,251 164,251 55,127
AEI RealEstate Office Building
Fund 86-A Kearney,
Nebraska Dec.86 Apr. 96 329,785 0 0 0 329,785 0 434,623 434,623 236,988
AEI Net Lease Applebee's
Income& Growth Crestview Hills,
Fund XIX Kentucky(b) June 93 Apr. 96 86,495 0 0 0 86,495 0 63,334 63,334 22,161
AEI RealEstate Taco Cabana
Fund XVIII New Braunfels,
Texas May 92 May 96 962,298 0 0 0 962,298 0 784,045 784,045 431,686
AEI Net Lease Applebee's
Income &Growth Crestview Hills,
Fund XIX Kentucky(b) June 93 May 96 216,781 0 0 0 216,781 0 158,335 158,335 56,433
</TABLE> B-13
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Lease Auto Max
Income& Growth St. Paul,
Fund 84-A Minnesota May 85 May 96 401,778 9,254 0 0 411,032 60,000 340,650 400,650 558,426
AEI Net Lease Applebee's
Income & Growth Temple Terrace,
Fund XIX Florida(b) Oct.93 June 96 87,119 0 0 0 87,119 0 60,501 60,501 21,024
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas(b) July 91 Aug. 96 217,259 0 0 0 217,259 0 158,441 158,441 100,302
AEIReal Estate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Sept.96 123,933 0 0 0 123,933 0 108,418 108,418 3,925
AEI Real Estate Danny's Family
Fund XVII Car Wash
Phoenix,
Arizona Feb. 89 Sept.96 1,690,844 0 0 0 1,690,844 0 1,688,271 1,688,271 1,544,183
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna,
Fund XX Georgia(b) May 94 Sept.96 181,497 0 0 0 181,497 0 152,813 152,813 39,599
AEI Real Estate Taco Cabana
Fund XVIII San Antonio,
Texas,(b) Jul. 91 Oct. 96 173,913 0 0 0 173,913 0 122,467 122,467 80,899
AEI Real Estate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Oct. 96 147,152 0 0 0 147,152 0 127,551 127,551 5,677
</TABLE> B-14
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C><C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Applebee's
Income & Growth Crestview Hills,
Fund XIX Kentucky(b) June 93 Oct. 96 224,036 0 0 0 224,036 0 172,104 172,104 70,701
AEI Net Lease Taco Cabana
Income & Growth Round Rock,
Fund XIX Texas July 94 Nov. 96 303,049 0 660,000 0 963,049 0 784,210 784,210 437,864
AEI Net Lease Applebee's
Income& Growth Temple Terrace,
Fund XIX Florida(b) Oct. 93 Nov. 96 215,688 0 0 0 215,688 0 152,674 152,674 62,188
AEI Net Lease Arby's/Mrs. Winner's
Income& Growth Smyrna,
Fund XX Georgia(b) May 94 Dec. 96 279,580 0 0 0 279,580 0 240,680 240,680 67,468
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas(b) July 91 Dec. 96 216,663 0 0 0 216,663 0 153,084 153,084 104,707
AEIReal Estate Applebee's
Fund XVIII Destin,
Florida(b) Nov. 91 Dec. 96 191,781 0 0 0 191,781 0 141,215 141,215 91,618
AEI RealEstate Applebee's
Fund XVIII Destin,
Florida(b) Nov. 91 Dec. 96 168,333 0 0 0 168,333 0 123,976 123,976 80,435
AEIReal Estate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Jan. 97 176,383 0 0 0 176,383 0 150,060 150,060 11,427
</TABLE> B-15
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C><C> <C> <C>
AEI Net Lease Applebee's
Income& Growth Temple Terrace,
Fund XIX Florida(b) Oct. 93 Jan. 97 175,838 0 0 0 175,838 0 122,139 122,139 51,877
AEI Net Lease Arby's/Mrs. Winner's
Income &Growth Smyrna,
Fund XX Georgia(b) May 94 Jan. 97 224,838 0 0 0 224,838 0 196,635 196,635 57,179
AEIReal Estate Sizzler
Fund XVI Kings Island,
Ohio(g) Jan. 90 Jan. 97 149,201 0 0 0 149,201 0 468,140 468,140 131,616
AEIReal Estate Sizzler
Fund XVII Kings Island,
Ohio(g) Jan. 90 Jan. 97 315,229 0 0 0 315,229 0 1,048,666 1,048,666 279,192
AEIReal Estate Sizzler
Fund XVIII Kings Island,
Ohio(g) Jan. 90 Jan. 97 19,867 0 0 0 19,867 0 66,093 66,093 17,519
AEIReal Estate Children's World
Fund XV Moreno Valley,
California May 87 Jan. 97 1,301,342 0 0 0 1,301,342 0 963,717 963,717 1,195,705
AEIet Lease Rally's
Income& Growth Brownsville,
Fund XIX Texas July 93 Feb. 97 250,000 0 0 0 250,000 0 281,713 281,713 81,507
AEI Net Lease Rally's
Income& Growth Edinburg,
Fund XIX Texas July 93 Feb. 97 250,000 0 0 0 250,000 0 281,761 281,761 81,528
</TABLE> B-16
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEIReal Estate Automax
Fund XV Minneapolis,
Minnesota June 86 Feb.97 411,993 0 0 0 411,993 0 388,800 388,800 539,623
AEIReal Estate Taco Cabana
Fund XVIII San Antonio,
Texas(b) July 91 Feb.97 192,268 0 0 0 192,268 0 133,503 133,503 95,414
AEIReal Estate Applebee's
Fund XVIII Destin,
Florida(b) Nov. 91 Mar.97 230,971 0 0 0 230,971 0 175,029 175,029 117,929
AEIReal Estate Champps
Fund XVIII Columbus,
Ohio(b) Aug. 96 Mar.97 220,067 0 0 0 220,067 0 181,887 181,887 10,447
AEIReal Estate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Mar.97 42,331 0 0 0 42,331 0 36,092 36,092 3,449
AEIReal Estate Applebee's
Fund XVIII Destin,
Florida(b) Nov. 91 Mar.97 231,740 0 0 0 231,740 0 175,028 175,028 118,592
AEIReal Estate Champps
Fund XVIII Columbus,
Ohio(b) Aug. 96 Mar.97 219,568 0 0 0 219,568 0 181,886 181,886 11,039
AEIReal Estate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Mar.97 219,996 0 0 0 219,996 0 187,574 187,574 18,517
</TABLE> B-17
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna,
Fund XX Georgia(b) May 94 Apr. 97 185,171 0 0 0 185,171 0 166,517 166,517 53,623
AEI RealEstate Champps
Fund XVIII Columbus,
Ohio(b) Aug. 96 July 97 368,142 0 0 0 368,142 0 304,040 304,040 30,138
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna,
Fund XX Georgia(b) May 94 Aug 97 174,495 0 0 0 174,495 0 152,812 152,812 54,721
AEI RealEstate Applebee's
Fund XVIII Destin,
Florida (b) Nov 91 Sept.97 216,157 0 0 0 216,157 0 160,443 160,443 118,263
AEI RealEstate Applebee's
Fund XVIII Destin,
Florida(b) Nov 91 Sept.97 263,568 0 0 0 263,568 0 198,898 198,898 147,315
AEI RealEstate Sizzler
Fund XVIII Fairfield,
Ohio Mar.91 Sept.97 528,476 0 0 0 528,476 0 1,608,265 1,608,265 208,636
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas (b) July 91 Sept.97 267,448 0 0 0 267,448 0 180,533 180,533 143,024
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna
Fund XX Georgia (b) May 94 Sept.97 224,663 0 0 0 224,663 0 180,203 180,203 67,210
</TABLE> B-18
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio (b) July 94 Sept.97 135,839 0 0 0 135,839 0 107,517 107,517 37,838
AEI Income & Champps
Growth Fund Columbus,
XXI Ohio (b) Aug. 96 Sept.97 225,622 0 0 0 225,622 0 189,156 189,156 21,417
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas (b) July 91 Oct. 97 226,316 0 0 0 226,316 0 147,978 147,978 118,031
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna,
Fund XX Georgia(b) May 94 Oct. 97 169,721 0 0 0 169,721 0 136,955 136,955 51,473
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio (b0 July 94 Oct. 97 275,421 0 0 0 275,421 0 217,027 217,027 77,008
Net Lease Rio Bravo
Income & Growth St. Paul,
Fund 84-A Minnesota(b) Feb. 85 Oct. 97 177,504 0 0 0 177,504 0 202,961 202,961 267,864
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas (b) July 91 Oct. 97 226,315 0 0 0 226,315 0 147,977 147,977 118,888
Net Lease Chi-Chi's
Income & Growth Appleton,
Fund 84-A Wisconsin(b) Feb. 85 Nov. 97 276,279 0 0 0 276,279 0 246,174 246,174 398,842
</TABLE> B-19
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI RealEstate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Nov. 97 296,961 0 0 0 296,961 0 237,846 237,846 38,903
AEI Income & Champps
Growth Fund Columbus,
XXI Ohio (b) Aug. 96 Nov. 97 295,168 0 0 0 295,168 0 239,850 239,850 29,608
AEI RealEstate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Nov. 97 182,816 0 0 0 182,816 0 150,061 150,061 25,256
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio(b) July 94 Dec. 97 227,960 0 0 0 227,960 0 177,891 177,891 66,211
Net Lease Gingham's
Income & Growth St. Charles,
Fund 84-A Missouri(b) July 85 Dec. 97 226,762 0 0 0 226,762 0 232,334 232,334 278,773
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio (b) July 94 Dec. 97 225,225 0 0 0 225,225 0 175,756 175,756 66,207
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio (b) July 94 Dec. 97 218,596 0 0 0 218,596 0 170,775 170,775 64,386
Net Lease Rio Bravo
Income & Growth St. Paul,
Fund 84-A Minnesota(b) Feb. 85 Dec. 97 271,675 0 0 0 271,675 0 302,919 302,919 404,755
</TABLE> B-20
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Real J.T. McCord's
Estate Fund Irving,
XVI Texas Dec. 87 Dec. 97 741,635 0 0 0 741,635 0 1,147,333 1,147,333 35,207
AEI Net Lease Applebee's
Income & Growth Middletown
Fund XX Ohio(b) July 94 Jan. 98 239,893 0 0 0 239,893 0 177,891 177,891 68,324
AEI Income & Champps
Growth Fund Columbus
XXI Ohio(b) Aug. 96 Jan. 98 227,414 0 0 0 227,414 0 189,156 189,156 26,890
Net Lease Chi-Chi's
Income & Growth Appleton
Fund 84-A Wisconsin(b) Feb. 85 Jan. 98 170,985 0 0 0 170,985 0 153,193 153,193 252,160
AEI Net Lease Champps
Income & Growth Lyndhurst
Fund XX Ohio (b) Apr. 96 Jan. 98 184,032 0 0 0 184,032 0 149,183 149,183 25,949
AEI Net Lease Champps
Income & Growth Columbus,
Fund XXI Ohio(b) Aug. 96 Feb. 98 181,855 0 0 0 181,855 0 132,408 132,408 20,481
AEI Real Estate am/pm
Fund 86-A Mini Market
Carson City,
Nevada Aug. 87 Feb. 98 955,401 0 0 0 955,401 0 779,896 779,896 1,103,787
</TABLE> B-21
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI RealEstate am/pm
Fund XVII Mini Market
Carson City,
Nevada Nov. 88 Feb. 98 850,996 0 0 0 850,996 0 703,871 703,871 872,915
AEI Income & Champps
Growth Fund Columbus,
XXI Ohio (b) Aug. 96 Mar. 98 226,394 0 0 0 226,394 0 165,510 27,455
Net Lease Rio Bravo
Income& Growth St. Paul,
Fund 84-A Minnesota (b) Feb. 85 Apr. 98 198,039 0 0 0 198,039 0 222,627 222,627 302,865
AEI Net Lease Red Line
Income &Growth Burgers
Fund XIX Houston,Texas Feb. 93 Apr. 98 0 0 0 0 0 0 303,629 303,629 104,350
Net Lease Chi-Chi's
Income& Growth Appleton,
Fund 84-A Wisconsin(b) Feb. 85 May 98 123,721 0 0 0 123,721 0 107,267 107,267 180,300
Net Lease Chi-Chi's
Income& Growth Appleton
Fund 84-A Wisconsin (b) Feb. 85 June 98 174,596 0 0 0 174,596 0 149,883 149,883 253,585
AEI RealEstate Tractor Supply
Fund 85-A Maryville,
Tennessee (b) Feb. 96 July 98 136,320 0 0 0 136,320 0 95,494 95,494 24,900
</TABLE> B-22
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Income Champps
& Growth Columbus,
Fund XXI Ohio (b) Aug. 96 July 98 227,225 0 0 0 227,225 0 171,422 171,422 34,463
AEI RealEstate Sizzler
Fund 86-A Springboro,
Ohio (d) Aug. 98 July 98 25,000 0 0 0 25,000 0 89,097 89,097 7,608
AEI RealEsate Sizzler
Fund XVIII Springboro,
Ohio (d) Aug. 90 July 98 350,000 0 0 0 350,000 0 1,310,562 1,310,562 120,717
</TABLE>
[FN]
(a) Does not include deduction for partnership general and
administrative expenses not related to the properties.
(b) Sale of less than a majority interest in the property.
(c) The Partnership owned a 92.74194% interest in this property.
(d) This property was owned jointly by AEI Real Estate Funds 86-A and XVIII.
(e) This property was owned jointly by AEI Real Estate Funds XVI
and XVII.
(f) This property was owned jointly by AEI Real Estate Funds XV
and XVI.
(g) This property was owned jointly by AEI Real Estate Funds
XVI, XVII and XVIII.
</FN>
</PAGE> 179
C-1
EXHIBIT C
CERTAIN STATE REQUIREMENTS
The information below sets forth various state law provisions
with respect to financial suitability standards for investors in
certain states. The dealer agreement between AEI Securities and
the investment firms that will solicit purchases of the units
requires that the investment firms diligently make inquiries as
required by law of you to ascertain whether a purchase of the
units is suitable for you. Units will be sold only to investors
who represent, by executing the signature pages attached to this
prospectus, that they meet the suitability standards contained
under the caption "Who May Invest" (at page 7 of this prospectus),
and if applicable, higher standards as set forth in the table
below. The minimum net worth standards in the table exclude the
investor's home, furnishings and automobiles.
IOWA:
The minimum investment for Iowa tax-qualified plans, other
than IRAs and Keoghs, is $2,500.
MISSOURI
Missouri investors must have either (i) a net worth
(excluding home, furniture and automobiles) of at least $60,000
and an annual taxable income of at least $60,000 or (ii)
irrespective of gross income, a net worth of at least $225,000
(determined with the same exclusions.
NEW HAMPSHIRE:
Investors must have (i) a net worth (exclusive of homes, home
furnishings and automobiles) of at least $45,000 and an annual
gross income of at least $45,000, or (ii) irrespective of annual
gross income, a net worth of at least $150,000 (determined with
the same exclusions).
PENNSYLVANIA AND OHIO:
The amount of an investor's investment in the Fund may not
exceed 10% of such investor's net worth.
NORTH CAROLINA:
North Carolina investors must have either (i) a net worth
(excluding home, home mortgage, furniture and automobiles) of at
least $60,000 and an annual taxable income of at least $60,000 or
(ii) irrespective of gross income, a net worth of at least
$225,000 (determined with the same exclusions), in each case
without regard to the investment that is proposed.
EXHIBIT D
AEI INCOME & GROWTH FUND 23 LLC
SUBSCRIPTION AGREEMENT
(Including Power of Attorney)
MAKE YOUR CHECK PAYABLE TO "FIDELITY BANK - AEI FUND 23 ESCROW"
IMPORTANT REPRESENTATIONS ARE MADE ON THIS FORM. PLEASE
READ CAREFULLY BEFORE SIGNING. PLEASE TYPE OR PRINT.
1. INVESTMENT [ ] Initial Investment [ ] Add-On to Existing Investment
Number of Units Amount of Investment
($1,000 x No. of Units) $
2. OWNERSHIP [ ] Tenants in Common [ ] IRA [ ] Taxable Trust
[ ] Uniform Gift to Minors Act of the State of
[ ] Individual [ ] Community Property [ ] Keogh [ ] Partnership
[ ] Joint Tenants [ ] Other (Explain)
[ ] Pension/Profit Sharing Plan [ ] Non-Taxable Trust Corporation
3. REGISTERED OWNER (Name of Trust, Partnership or Corporation, if
applicable. Give both names if jointly held.)
Last Name(s) First Name(s) Initial(s)
[ ] Mr. [ ] Ms.
[ ] Mr. [ ] Ms.
Mailing Address Street City State Zip Code Phone
Residential Address Street City State Zip Code Phone
4. QUARTERLY DISTRIBUTIONS AUTHORIZATION FOR AUTOMATIC
Please send my distribution checks to the DEPOSITS (ACH) _ Please
following address (Insert "same" if checks include a copy of voided check
are to be sent to mailing address. Insert or savings deposit slip.
name, address, account number and phone I authorize AEI Fund Management,
number if checks are to be sent to a Inc., and Fidelity Bank of Edina,
financial institution.) Minnesota, to initiate variable
entries to my checking or savings
account. This authority will
remain in effect until I notify
AEI in writing to cancel in such
Name and complete address: time as to afford AEI a
reasonable opportunity to act on
the cancellation.
Phone Number
Financial Institution Name and
Address
(Please Print):
Account Type (Circle One):
[ ] Checking [ ] Savings [ ] Other
Account Number:
Office Use Only: Bank Routing No.
Trans. Code
5. DISTRIBUTION REINVESTMENT PLAN (Expires after the offering period.)
Do you wish to participate in the distribution reinvestment plan [ ] Yes [ ] No
(If you elect to participate by checking "Yes," rental income and
other Fund income included in "Net Cash Flow" will not be distributed
to you but instead will be applied to the purchase of additional Units,
or fractional Units, at $1,000 per Unit as long as such purchase continues
to comply with applicable securities laws and the Fund has not
distributed proceeds from sale or refinancing of properties.) UNLESS YOU
DIRECT OTHERWISE, COMMISSIONS OF UP TO 8% AND EXPENSES WILL BE PAID TO
THE BROKER DEALER DESIGNATED BELOW ON YOUR REINVESTED NET CASH FLOW.
6. INVESTOR REPRESENTATIONS (Each of the following MUST BE INITIALED BY
INVESTOR for this Subscription Agreement to be accepted)
[ ] I have received a copy of the Prospectus of the LLC,
dated (the "Prospectus")*.
[ ] I understand that there will be no public market for the
Units and that it may not be possible to liquidate readily
an investment in the LLC.
[ ] I meet the suitability standards set forth in the Prospectus
under the heading "Who May Invest" and as further specified
in Exhibit C to the Prospectus and am purchasing Units for
my own account.
[ ] I hereby make, constitute and appoint the Managing Member,
or either of them, with full power of substitution, my true
and lawful attorney for the purposes and in the manner
provided in Section 7.5 of the Agreement, which section of
the Agreement is incorporated herein by reference and hereby
made a part hereof.
*Your broker is obligated to provide you with a copy of the
Prospectus five business days before you subscribe. We are
prohibited from selling the Units to you until five business
days after you receive the Prospectus. If you did not receive
the Prospectus five business days in advance, you have the right
to withdraw your subscription.
NOTE: SIGNATURES AUTHORIZING THIS INVESTMENT MUST APPEAR ON
THE REVERSE SIDE OF THIS FORM.
Please turn over
7. INVESTOR SIGNATURES AND CERTIFICATIONS
IMPORTANT FORM W-9 CERTIFICATION INSTRUCTIONS: YOU MUST CROSS OUT ITEM
(2) BELOW IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO
BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON
YOUR TAX RETURN. However, if after being notified by the IRS that you
were subject to backup withholding you received another notification
from the IRS that you are no longer subject to backup withholding, do not
cross out item (2). Under penalties of perjury I certify that:: (1)
The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), AND (2) I am
not subject to backup withholding either because I have not been notified
by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends,
or the IRS has notified me that I am no longer subject to backup
withholding.
IMPORTANT CHECK ONE:
THE INVESTOR IS A UNITED STATES CITIZEN. Check Here [ ]
THE INVESTOR IS A FOREIGN INVESTOR. Check Here [ ]
(Nonresident Alien or Individual, Foreign Corporation,
Foreign Partnership, or Foreign Trust or Estate).
(I/WE ARE AUTHORIZED TO ENTER INTO THIS SUBSCRIPTION AGREEMENT ON BEHALF OF
THE PERSON(s) OR ENTITY(s) LISTED IN 3 ABOVE) NEITHER A BROKER, DEALER,
INVESTMENT ADVISER NOR ANY OF THEIR AGENTS MAY SIGN ON BEHALF OF AN
INVESTOR. (Custodians must sign for custodial accounts. All other forms of
registration must be signed by the investing parties.)
Investor Signature(s) [X] [X]
Print Name & Capacity Print Name & Capacity
Tax ID Number Tax ID Number
Primary
8. CONSENT TO ELECTRONIC DELIVERY OF REPORTS
By intialing one of the boxes below, you will be consenting to delivery
of periodic reports by AEI Income & Growth Fund 23 LLC to you
electronically. These reports would include:
<BULLET> annual reports that contain audited financial statements, and
<BULLET> quarterly reports containing unaudited condensed financial
statements.
You have the option of either (1) having these reports sent to the e-mail
address you designate below, or (2) agreeing to download these reports
from our web site once you have been notified by e-mail that they have
been posted. You must have an e-mail address to use this service. IF
YOU ELECT TO RECEIVE THESE REPORTS ELECTRONICALLY, YOU WILL NOT RECEIVE
PAPER COPIES OF THE REPORTS IN THE MAIL, UNLESS YOU LATER REVOKE YOUR
CONSENT. You may revoke your consent and receive paper copies at any
time by notifying us in writing at AEI Securities Incorporated, 1300
Minnesota World Trade Center, 30 East Seventh Street, St. Paul, MN
55101.
If you agree to accept reports electronically, please complete the
following enrollment information:
Name of Investor:
E-Mail Address
(I understand that I must immediately advise the Fund
at the address above if my e-mail address changes.)
Form of Delivery (please check one):
[ ] Please deliver the full report directly to my e-mail address above.
[ ] Please post the report on your web site, or in a hyperlink from
your website, and advise me by e-mail to the address above when
it is posted.
Investor Signature(s) [X] [X]
BROKER/DEALER INFORMATION (Registered representative signature required
for processing. Please type or print.)
Broker/Dealer Firm Registered Representative Name
Registered Representative's Office Address
City State Zip Code Phone (including area code)
To substantiate compliance with Appendix F to Article 3, Section 34 of
the NASD's Rules of Fair Practice, the undersigned registered representative
hereby certifies as follows:
1. I have reasonable grounds to believe, based on information obtained from
the Subscriber concerning investment objectives, other investments,
financial situations and needs and other information known to me, that
investment in the Fund is suitable for such Subscriber in light of
income, finnancial position, net worth and other suitability
characteristics.
2. I have discussed with the Subscriber the risks associated with and the
liquidity of an investment in the Fund.
Dated:
Signature Registered Representative
AEI Fund Management XXI, Inc., as Manager AEI Fund Management XXI, Inc.
of the Fund, hereby accepts this
Subscription Agreement this day of By
ATTEST Its
AEI INCOME & GROWTH FUND 23 LLC
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 is
required.
5. PENSION/PROFIT SHARING PLANS: The trustee signs the
Subscription Agreement.
6. 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 them to receive checks and other
pertinent information regarding the investment.
7. KEOGH (HR 10): Same rules as those applicable to IRAs.
8. TRUST: The trustee signs the Subscription Agreement.
Provide the name of the trust, the name of the trustee
and the name of the beneficiary.
9. PARTNERSHIP: Identify the entity as to whether it is a
general or limited partnership. The general partners
must be identified and their signatures obtained on the
order. In the case of an investment by a general
partnership, all partners must sign (unless a "managing
partner" has been designated for the partnership, in
which case he may sign on behalf of the partnership if
a certified copy of the document granting him authority
to invest on behalf of the partnership is submitted).
10. CORPORATION: The Subscription Agreement must be
accompanied by (1) a certified copy of the resolution
of the Board of Directors 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.
11. UNIFORM GIFT TO MINORS ACT (UGMA): 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 the Uniform Gift to Minors Act. In
addition, designate state under which UGMA is being
made.
12. OTHER: Please indicate any other ownership type. This
space may also be used to indicate that Transfer On
Death ("TOD") instructions are included with the
Subscription Agreement. If TOD instructions are
included, the form of Ownership must still be indicated
within Section 2. Please contact AEI Investment
Services at 800-328-3519 to obtain the form(s)
necessary to provide complete TOD instructions.
SUBSCRIPTION DOCUMENTS INCLUDE:
1. Completed Subscription Agreement
(all information completed, dated and signed)
2. Subscriber's Check
(made payable to Fidelity Bank _ AEI Fund 23 Escrow)
IMPORTANT: MISSING SIGNATURES OR INVESTOR REPRESENTATIONS
WILL DELAY ORDER PROCESSING. ORIGINAL SIGNATURES ARE
REQUIRED.
MAIL TO: Make your check payable to FIDELITY BANK_AEI FUND
23 ESCROW and return with the Subscription Agreement
to:
AEI Fund Management, Inc.
1300 Minnesota World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
651-227-7333 651-227-7705 (fax) 800-328-3519
AEI INCOME & GROWTH FUND 23 LLC
SUBSCRIPTION AGREEMENT INSTRUCTIONS
INVESTOR To purchase Units of the currently effective LLC
INSTRUCTIONS complete and sign the Subscription Agreement and
deliver it to your broker, together with your check.
YOUR CHECK SHOULD BE MADE PAYABLE TO: FIDELITY BANK
AEI FUND 23 ESCROW. In order to invest, it is
necessary that all items on the Subscription
Agreement be completed.
1. INVESTMENT Limited Liability Company interests in the Fund are
being offered in units of $1,000. Insert the number of
Units to be purchased, multiply the dollar amount of
the investment ($1,000 x No. of Units). An individual,
partnership, corporation, trust, association or other
legal entity must purchase a minimum of two and one-
half ($2,500) Units. The minimum investment for an
Individual Retirement Account, Keogh Plan or other
Qualified Plan is at least two ($2,000) Units.
According to state law, individuals in Nebraska must
purchase a minimum of five ($5,000) Units.
2. OWNERSHIP Check the appropriate box indicating the manner in
which title is to be held. Please note that the box
checked must be consistent with the number of
signatures appearing in Section 7. (See Instruction
7). In the case of partnerships, corporations,
custodianships or trusts, the box checked must be
consistent with the legal title (registration).
PARTICIPANTS IN IRAS AND KEOGH PLANS SHOULD NOTE THE PURCHASE OF LLC UNITS
DOES NOT IN ITSELF CREATE THE PLAN; YOU MUST CREATE THE PLAN THROUGH A
BONAFIDE CUSTODIAN OR TRUSTEE WHO WILL EXECUTE THE SUBSCRIPTION AGREEMENT.
3. REGISTERED Please type or print the exact name (registration)
OWNER that the investor desires on the account. If the
investor is an individual, a partnership or a
corporation, please include in this space the
complete name and title in which the investment
is to be held. If the investor is a trust such as
an IRA or Keogh Plan, please include the name and
address of the trustee and the trust name. In the
case of a trust or custodian investment including
IRAs, Keogh Plans and other trusts or
custodianships, quarterly distributions and
investment correspondence will normally be sent
to the trustee or custodian at the mailing address.
The plan participant will receive correspondence
at home. ALL ACCOUNTS MUST SUPPLY THE INVESTOR'S
RESIDENTIAL ADDRESS (FOR BLUE SKY REGISTRATION
PURPOSES).
4. QUARTERLY After impounds are met, Fidelity Bank will release
DISTRIBUTIONS the interest earned during the impound period to
(Automatic the designated address (distribution reinvestment
deposits does not apply to impound interest).The Partnership
or checks) will then commence distributions of cash available
for distribution to investors. Please insert "same"
if the checks are to be mailed to the mailing
address. Please insert the name and address of the
financial institution as well as the account number,
if checks are to be sent to a bank, savings and loan,
or other financial institution or destination.
For Electronic Direct Deposit through ACH, a voided check or savings
deposit slip is required.
5. DISTRIBUTION Answer the question by checking yes or no if the
REINVESTMENT investor elects to participate in the Distribution
Reinvestment Plan.
6. INVESTOR To comply with securities regulations,the investor
REPRESENTATIONS MUST make the representations in this Subscription
Agreement. ALL FOUR SPACES MUST BE INITIALED BY THE
INVESTOR.
7. INVESTOR IRS regulations require our escrow bank to have the
CERTIFICATIONS W-9 SIGNATURES AND certification completed for all
Limited Members. This certifies that the taxpayer
is not subject to backup withholding. If
certification is not completed, the escrow agent
must legally withhold, and pay to the IRS, 20% of
the taxpayer's escrow interest. Read the Subscription
Agreement carefully for additional W-9 Certification
Instructions. If the investor is a Nonresident Alien
or Individual, Foreign Corporation, Foreign
Partnership or Foreign Trust or Estate, please check
the Foreign Status Certification box. To authorize
the investment, sign in the space(s) provided. If
title is to be held as joint tenancy or tenants in
common, at least two signatures are required. In the
case of community property, only one investor
signature is required (see reverse side for details
on required signatures). ALL INVESTORS AND/OR PLAN
PARTICIPANTS MUST PROVIDE SOCIAL SECURITY NUMBERS.
Trusts, corporations, partnerships, custodians and
estates MUST ADDITIONALLY FURNISH a tax
identification number.
8. CONSET TO ELEC- Please complete this section if you consent to
TRONIC DELIVERY electronic delivery of financial reports. You must
OR REPORTS have an e-mail address to use this service. Enter
your name and e-mail address, indicate the from of
delivery you desire, and enter your signature(s)
where indicated.
BROKER/DEALER IT IS NECESSARY THAT ALL ITEMS BE FULLY INFORMATION
COMPLETED. INCLUDE REGISTERED REPRESENTATIVE'S NAME
AND BRANCH OFFICE ADDRESS. THE REGISTERED
REPRESENTATIVE MUST SIGN AND DATE WHERE INDICATED
IN ORDER FOR THE APPLICATION TO BE ACCEPTED.
COMPLETE THE REGISTERED REPRESENTATIVE'S TELEPHONE
NUMBER. IN SOME CASES, THE HOME OFFICE MUST ALSO
SIGN THE APPROVAL.
No person has been authorized in
connection with this offering
to give any information or to
make any representation other than
those contained in this prospectus.
This prospectus does not constitute
an offer or solicitation in any
state or other jurisdiction to any
person to whom it is unlawful to 24,000 Units
make such offer or solicitation. AEI INCOME & GROWTH
Neither the delivery of this
prospectus nor any sale hereunder FUND 23 LLC
shall under any circumstances create
an implication that there has been
no change in AEI Fund 23's affairs PROSPECTUS
since the date hereof. If, however,
any material change in AEI Fund 23's
affairs occurs at any time when this
prospectus is required to be delivered,
this prospectus will be amended or
supplemented accordingly.
DEALER PROSPECTUS DELIVERY OBLIGATION.
Until [90 days after the effective
date], all dealers that effect
transactions in these securities,
whether or not participating in this
offering, may be required to deliver a
prospectus. This is in addition to
the dealers' obligation to deliver
a prospectus when acting as AEI Securities, Inc.
underwriters and with respect to
their unsold allotments or subscriptions.
Investors are not to construe the
contents of this prospectus as legal
or tax advice. Each investor should
consult his or her own counsel,
accountant and other financial
advisors (and be responsible for their
fees) regarding the legal, tax and
investment aspects of this offering.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 27. Exhibits.
EXHIBIT NO. DESCRIPTION
*1.1 Form of Dealer-Manager Agreement
*1.2 Form of Dealer Agreement
*3.1 Certificate of Formation
*3.2 Form of Operating Agreement
included as Exhibit A to Prospectus
*5 Opinion of Dorsey & Whitney LLP as to the
legality of the securities being
registered, including consent
*8 Opinion of Dorsey & Whitney LLP as to tax
matters, including consent
*10 Form of Impoundment Agreement with
Fidelity Bank, Edina, Minnesota
10.1 Development Financing Agreement dated
November 3, 1999, between AEI Income
& Growth Fund 23 LLC and Tumbleweed,
Inc., Relating to the property in
Kettering, Ohio.
24 Consent of Independent Public Accountants
* Previously Filed
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to
believe that it meets the requirements for filing on Form SB-2
and has duly caused this Post-Effective Amendment No. 2 to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Paul
on the 18th day of November, 1999.
AEI INCOME & GROWTH FUND 23 LLC
By AEI Fund Management XXI, Inc.
Managing Member
By /s/ ROBERT P Johnson
Robert P. Johnson, President
In accordance with the requirements of the Securities Act of 1933,
this Amendment No. 2 to the Registration Statement was signed by the
following persons in the capacities and on the dates stated.
MANAGING MEMBER
AEI Fund Management XXI, Inc. Date
By /s/ ROBERT P JOHNSON Sole Director and November 18, 1999
Robert P. Johnson President (principal
executive officer)
By /s/ MARK E LARSON Chief Financial Officer November 18, 1999
Mark E. Larson and Treasurer (principal
financial and accounting
officer)
INDIVIDUAL Managing Member
By /s/ ROBERT P JONHSON Individual Managing Member November 18, 1999
Robert P. Johnson
AEI INCOME & GROWTH FUND 23 LLC
REGISTRATION STATEMENT
ON FORM SB-2/A
EXHIBITS
Exhibit No. Description Page
*1.1 Form of Dealer-Manager Agreement
*1.2 Form of Dealer Agreement
*3.1 Certificate of Formation
*3.2 Form of Operating Agreement
included as Exhibit A to Prospectus
*5 Opinion of Dorsey & Whitney LLP as to
the legality of the securities being
registered, including consent
*8 Opinion of Dorsey & Whitney LLP as to
tax matters, including consent
*10 Form of Impoundment Agreement with
Fidelity Bank, Edina, Minnesota
10.1 Development Financing Agreement dated
November 3, 1999, between AEI Income
& Growth Fund 23 LLC and Tumbleweed,
Inc., Relating to the property in
Kettering, Ohio.
24 Consent of Independent Public Accountants
* Previously Filed
DEVELOPMENT FINANCING AND LEASING COMMITMENT
(the "Commitment")
November 3, 1999
AEI Income & Growth Fund 23 LLC, or its assigns,
("AEI"), agrees to purchase, and you, Tumbleweed, Inc,
("Lessee"), agree to lease from AEI, a parcel of land to be
located at Kettering, Ohio legally described on EXHIBIT "A"
attached hereto (together with the "Improvements" as defined
below, the "Parcel"), with the understanding that the
building, site improvements, fixtures, HVAC, non-trade
fixture items financed by AEI, constituting a Tumbleweed
restaurant (the "Improvements") are to be developed by you
on the Parcel after AEI's purchase of the Parcel from Center-
Plex Venture ("Seller"), which Parcel's development and
lease will be subject to the provisions and conditions
herein contained:
A. LESSEE
Lessee Name: Tumbleweed, Inc.
Address: 1900 Mellwood Ave
Louisville, Kentucky 40206
Phone: 502 893-0323
B. ACQUISITION OF PARCEL
This Commitment is contingent upon AEI's purchase of
the Parcel from Seller, pursuant to an assignment to
AEI of the purchaser's interest in a purchase agreement
between Lessee and Seller. Said purchase agreement
(hereinafter, the "Purchase Agreement") and assignment
shall be in a form and substance reasonably
satisfactory to AEI. The assignment of the Purchase
Agreement to AEI would not be executed until the
Closing Date, defined in ARTICLE D.2.
C. FEES AND COSTS
1. A commitment fee equal to Two percent (2.0%) of
the Estimated Total Project Cost of the Parcel
(defined below) (the "Commitment Fee"), will be
payable by Lessee to AEI upon the signing and
delivery of this Commitment by Lessee to AEI.
Lessee's estimate of the total project cost which
will be incurred to acquire the land and complete
the Improvements is $1,372,000("Estimated Total
Project Cost").
Subject to ARTICLE L hereof, the Commitment Fee
shall be considered earned upon AEI's execution
and delivery of this Commitment to Lessee. At
Lessee's election, the Commitment Fee may be
included as a funded project cost and reimbursed
to Lessee at closing on AEI's acquisition of the
Parcel (the "Closing"). Said Commitment Fee will
be adjusted on the date of the final disbursement
of the Development Financing, defined in ARTICLE
C.4 hereof, (the "Final Disbursement Date") to
reflect two percent (2.0%) of the final Actual
Total Project Cost, defined in ARTICLE D.1 hereof.
2. All outstanding real estate taxes, and levied and
pending special assessments, due and payable prior
to the Closing Date, as defined in ARTICLE C.2
hereof, or assessed for the year in which closing
shall occur, if due and payable in the year in
which closing shall occur, shall be paid by Seller
or Lessee in full at or prior to the Closing Date
(pro-rated in the Purchase Agreement for the
Parcel as of the Closing Date). If Seller and AEI
must enter into a tax pro-ration agreement because
the Parcel is not as of the closing designated as
a separate tax parcel, Lessee hereby agrees to
indemnify and hold AEI harmless from any and all
liability under said agreement or the failure of
Seller to comply with the terms thereof. Lessee
further understands that AEI may pay the taxes
upon the larger parcel of which the Parcel is a
part for tax purposes, to avoid forfeiture in the
event Seller fails to pay its proportionate share
of the entire tax liability, and that this
indemnity by Lessee shall extend to such decision
to pay the entire tax liability to avoid tax
forfeiture.
3. Lessee shall pay all expenses incident to the
Closing and necessary to comply with the
requirements herein, as consistent with this
Commitment, including AEI's outside legal costs
incurred by AEI and reimburseable in such amounts
as agreed to by AEI as set forth on the Estimated
Total Project Cost Budget set forth on EXHIBIT B .
Such costs may be included, at Lessee's option, as
project costs funded by AEI.
4. AEI shall permit Lessee to construct the Improvements
on the Parcel owned by AEI, according to the plans and
specifications submitted to AEI, and pursuant to a
construction contract between Lessee and its contractor
("General Contractor"), an executed copy of which shall
be provided to AEI in advance of the Closing Date.
Subject to the terms of the Development Financing
Agreement, attached as EXHIBIT "G" hereto, funds will
be advanced for the construction of the Improvements
and related soft costs, up to the Actual Total Project
Cost set forth in ARTICLE D.1 hereof (the "Development
Financing") by AEI as set forth in ARTICLE E. hereof.
At the Final Disbursement Date, AEI shall pay
Lessee a fee for developing the Improvements in
the amount of $12,636 (the "Parcel Development
Fee"). The Parcel Development Fee will be included
as a funded project cost and paid to Lessee on the
Final Disbursement Date. However, the Actual
Total Project Cost payable by AEI (defined in
ARTICLE D.1 hereof), including the Parcel
Development Fee, shall not exceed the approved
MAI appraised value. If the Actual Total Project
Cost shall exceed the MAI appraised value, Lessee
shall provide the necessary Lessee Equity (as
defined in the Development Financing Agreement)
and at AEI's option, shall sell the Parcel to AEI
at the approved MAI appraised value.
D. CLOSING TERMS
1. Actual Total Project Cost: The Actual Total
Project Cost will include only all verifiable
project costs actually incurred, which costs are
approved by AEI, either as part of the Estimated
Total Project Cost Budget, or subsequently in
AEI's reasonable discretion (the "Actual Total
Project Cost"), being those costs described on
EXHIBIT "B" attached hereto.
2. Closing Date: The closing date for AEI's purchase
of the Parcel from Seller and the commencement of
the Lease described in ARTICLE F. hereof shall be
November 15, 1999 or sooner (the "Closing Date"),
after delivery and approval of all of the items
contemplated hereunder including, but not limited
to, the execution of the documents described in
ARTICLE H. hereof. If Lessee has not performed
under this Commitment by the Closing Date, this
Commitment shall be null and void at the option of
AEI. In the event Lessee requests an extension of
this Commitment, and said extension is approved by
AEI in its sole discretion, a written addendum to
this Commitment shall be required.
3. Closing Agent: The closing contemplated hereunder
shall be handled by the national office of
Lawyer's Title Insurance Company located in
Dayton, Ohio, acting under instructions from
AEI's counsel.
4. This Commitment shall not be assignable by Lessee
without AEI's prior written approval, by law, or
otherwise, but may be assigned by AEI at its
option, in whole or in part, in such manner as AEI
may determine, to an affiliate or affiliates of
AEI.
5. Parcel Inspection: As a condition precedent to
AEI's obligations hereunder, the Parcel shall be
inspected and approved by AEI.
6. As a condition precedent to closing on AEI's
acquisition of the Parcel and AEI's first
disbursement for the Development Financing, the
supporting documentation listed below must be
submitted to AEI not less than ten (10) business
days prior to the Closing Date, in form and
content satisfactory to AEI and its counsel:
a. Lessee is to furnish AEI with an acceptable
cost breakdown itemizing estimated
construction costs, including, but not
limited to, land acquisition, building
construction, site development, landscaping
and soft costs, equal to the Estimated Total
Project Cost (the "Project Cost Budget"), if
the same has materially changed from Exhibit
"B" attached hereto;
b. The Lessee shall submit to AEI current
financial statements as described on EXHIBIT
"C".
c. The Lessee shall furnish a commitment for an
ALTA Owner's Policy of Title Insurance (ALTA
owner - most recent edition) insuring
marketable title in the Parcel, subject only
to such matters as AEI may approve and
excluding exceptions for mechanic's liens,
survey and parties in possession (the "Title
Commitment"). The policy shall be issued by
Lawyer's Title Insurance Company located in
Dayton, Ohio (the "Title Company") and shall
contain such endorsements as AEI may require
including, a future disbursements endorsement
up to the Estimated Total Project Cost, an
extended coverage endorsement, creditor's
rights endorsement, and an owners
comprehensive coverage endorsement. The
Title Commitment shall list Seller as the
present fee owner and should show AEI as the
fee owner to be insured. The Title
Commitment shall also include an itemization
of all outstanding and pending special
assessments or should state that there are
none, if such is the case, and state the
manner in which any outstanding assessments
are payable, that is, whether they are
payable in monthly or yearly installments,
setting forth the amount of each such
installment and its duration. The Title
Commitment shall also include an itemization
of taxes affecting the Parcel and the tax
year to which they relate; should state
whether taxes are current and, if not, shall
show the amounts unpaid, the tax parcel
numbers, and whether the tax parcel includes
property other than the Parcel to be
purchased. All easements, restrictions,
documents, and other items affecting title
should be listed in Schedule "B" of the Title
Commitment. COPIES OF ALL INSTRUMENTS
CREATING SUCH EXCEPTIONS MUST BE ATTACHED TO
THE TITLE COMMITMENT.
During construction of the Improvements, AEI
is to be furnished with down-date endorsements
to the owner's title insurance policy with
continuing affirmative mechanic's lien coverage
pursuant to acceptable endorsements increasing
coverage to the aggregate of all disbursements
made by AEI to the date thereof.
d. AEI is to be furnished with a policy of
builder's risk insurance, as well as public
liability coverage, hazard insurance, and
workman's' compensation coverage, all in such
amounts and placed with such companies as may
be reasonably acceptable to AEI, in
accordance with the Instructions to Insurance
Agent set forth on EXHIBIT "D-1" attached
hereto. In addition, AEI shall be furnished
with satisfactory flood and earthquake
insurance, unless satisfactory evidence is
given that the Parcel is not located within a
federally designated flood plain area or is
above the applicable 100 year flood plain
level, and not in a federally designated
earthquake prone area or is not in an ISO
High Risk Earthquake Zone respectively.
All policies of insurance must name as
additional named insureds: AEI or its
specific assigns and the Corporate Managing
Member of AEI and of said assignee, and
Robert P. Johnson, as an Individual Managing
Member of said assignee, and Lessee as
insured or additional insured, as their
respective interests may appear, and shall
provide that the policies cannot be canceled
without thirty (30) days written notice to
the parties. In addition, all policies shall
contain endorsements by the respective
insurance companies waiving all rights of
subrogation, if any, against the parties
named as insured or additional insured. All
insurance companies must be approved in
writing by AEI. No closing will occur
without all insurance policies completed and
in place.
e. Preliminary survey acceptable to AEI prepared
by a licensed surveyor, complying with the
guidelines set forth on EXHIBIT "E-1"
attached hereto.
f. Final plans and specifications for the
Improvements upon which construction shall
commence, prepared by an architect or
engineer reasonably acceptable to AEI.
g. A soils report prepared by an engineer
reasonably acceptable to AEI.
h. Appraisal of the Parcel by an independent MAI
appraiser acceptable to AEI (AEI shall make
the initial attempts to obtain such appraisal
in a form satisfactory to AEI).
i. A letter from the appropriate officer of the
municipality or county exercising land use
control over the Parcel stating: (a) the
zoning code affecting the Parcel; (b) that
the Parcel and its intended use complies with
such zoning code, city ordinances and
building and use restrictions; (c) that there
are no variances, conditional use permits or
special use permits required for use of the
Improvements on the Parcel, or if such
permits are required, specifying the
existence of same and their terms, and (d)
that the Parcel complies with the platting
ordinances affecting them and can be conveyed
without the requirement of a plat or replat
of the Parcel. If the Parcel falls within
any subdivision rules or regulations,
evidence of compliance with such subdivision
regulations, or waiver of the same by the
appropriate officials, is required. (AEI
shall make the initial attempts to obtain
such zoning compliance letter in a form
satisfactory to AEI).
j. Written advice from all proper public
utilities and municipal authorities, that
utility services are available and connected
to the Parcel for gas, electricity,
telephone, water and sewer (AEI shall make
the initial attempts to obtain such utility
letters in a form satisfactory to AEI).
k. Copy of the building permit for construction
of the Improvements on the Parcel.
l. Copies of all construction contracts.
m. Copy of architect's contract.
n. Copy of purchase agreement for the land
between Lessee and Seller and all amendments
and assignments of said purchase agreement,
including the assignment of the purchase
agreement to AEI.
o. Photographs of all sides of the Parcel.
p. Certified copies of the Articles of Formation
or Incorporation, By-Laws (and/or Operating
or Membership Agreement) and Good Standing
Certificate for the Lessee, together with all
other documents AEI deems necessary to
support the authority of the persons
executing any documents on behalf of the
corporation, including encumbrancy
certificates and corporate resolutions of the
directors and shareholders (or of the
Partnership, including resolution of the
partners).
q. UCC searches on Seller and Lessee from the
offices of the Secretary of State and the
county recorder for the state and county in
which the Parcel is located.
r. Phase I Environmental Assessment Report
prepared by an engineer reasonably
satisfactory to AEI containing evidence
satisfactory to AEI that the Parcel complies
with all federal, state and local
environmental regulations. Additional reports
may be required by AEI based upon its review
of the Phase I report. If Lessee fails to
deliver any additional reports AEI may deem
necessary to complete and approve its
environmental investigation of this Parcel,
AEI may terminate this Commitment and retain
that portion of the Commitment Fee to cover
any and all of its costs incurred hereunder.
s s.Executed documents described in ARTICLE H. hereof.
t. All documentation listed on EXHIBIT "F"
attached hereto.
7. At the completion of construction of the
Improvements on the Parcel and prior to the Final
Disbursement of the Development Financing, Lessee shall
deliver the following documents to AEI:
a. Certificate of Completion executed by the
Project Architect, General Contractor. Said
Certificate shall be in a form reasonably
satisfactory to AEI, and substantially
similar to the form previously delivered by
Lessee in prior transactions with Lessor or
its affiliates.
b. Certificate of Occupancy.
c. Copies of all necessary permits and licenses
of any governmental body or authority which
are necessary to permit the use and occupancy
of the Improvements on the Parcel,
specifically including, but not limited to,
liquor licenses.
d. Certified cost statement itemizing the Actual
Total Project Costs signed by the Lessee and
related documentation supporting said project
costs.
e. Insurance policies issued by companies
acceptable to AEI for coverage as required by
the lease, with AEI named as additional named
insured, complying with the guidelines set
forth on EXHIBIT "D-2" attached hereto.
f. As-built survey, complying with the
requirements of EXHIBIT "E-2" attached
hereto.
g. Final date-down endorsement to title policy.
h. Final draw documentation as required by the
development financing documentation described
in ARTICLE E. hereof.
i. Estoppel from Lessee.
j. Lease amendment setting forth the second full
lease year's commencement date, the rent for
the remainder of the term and terminating the
Development Financing Agreement (as described
in ARTICLE E. hereof).
E. DEVELOPMENT FINANCING TERMS
Disbursements for construction of the Improvements and
related soft costs, the Development Financing, will be made
in accordance with the provisions of the Development
Financing Agreement and Development Financing Disbursement
Agreement attached hereto as EXHIBITS "G" AND `H"
respectively.
F. LEASE TERMS
The Lease, in the form attached hereto as EXHIBIT "I"
(or to be agreed upon between the parties hereto prior to
the Closing Date), will be executed and delivered by AEI and
Lessee at Closing, to include the following terms:
1. Base Rent:
a. Annual rent on the Initial Disbursed Funds
from date of disbursement through the Rental
Modification Date: eight and one-quarter
percent (8.25%).
b. Initial Annual Rent as a Percentage of Actual
Total Project Cost from the earlier of the
Rental Modification Date or the Final
Disbursement Date: nine and seven-eights
percent (9.875%).
Rent shall be payable in advance of the first
day of each month in equal monthly installments.
c. Beginning in the second lease year and each
lease year thereafter, such annual rent will
increase as set forth in the Lease attached
as EXHIBIT I.
2. Initial Lease Term: Fifteen (15) years plus the
Development Financing Period set forth in the
Development Financing Agreement.
3. Renewal Terms: Two (2) terms of five (5) years
each with rent increases as set forth above in
ARTICLE F.1.C.
4. Type of Use: Tumbleweed Restaurant
5. Lease effective date: The Lease shall be
effective as of the Closing Date.
6. Lessee's Right of Assignment: The Lease shall not
be assignable by Lessee until after the Final
Disbursement Date, and then only in accordance
with the terms of the Lease.
G. GUARANTOR(S) OF LEASE AND DEVELOPMENT FINANCING
AGREEMENT
Not Applicable.
H. DOCUMENTS
The documents listed below shall be prepared by AEI's
counsel in accordance with the terms hereof and
executed at, or prior to, the Closing Date in form and
substance satisfactory to AEI:
1. Development Financing Agreement;
2. Development Financing Disbursement Agreement;
3. Assignment of purchase agreement for the
land;
4. Assignments of construction contracts and
architect's contract;
5. Net Lease Agreement;
6. Attorney's Opinion Letter to be given by
Lessee's internal and outside counsel
necessarily familiar with the conduct of
Lessee's business and the jurisdiction in
which the Parcel is situated to render such
opinion, as to the enforceability of the
Lease and compliance of the Lease with local
law and due authority of the signatures, in a
form and substance reasonably satisfactory to
AEI. Such form of opinion shall be
satisfactory if reasonably similar in form
and content (except as to matters and
documents particular to this transaction) to
opinions previously delivered to AEI or its
affiliates by similarly situated Lessees;
7. Affidavit of Lessee;
8. Hazardous Substances Indemnification
Agreement of Lessee;
9. FIRPTA Affidavit of Seller;
Lessee, or its counsel, shall furnish a copy of the
proposed warranty deed and opinions to AEI's counsel
for its review and approval prior to closing and such
other documents as the Title Company deems necessary
for the terms contemplated hereunder in accordance with
the provisions of this Commitment.
I. FAIR CREDIT REPORTING ACT
Lessee warrants that all credit information submitted
is true and correct, and authorizes AEI to make credit
investigations and obtain credit reports and other
financial information, written or oral, respecting
Lessee's credit and financial positions, as it may deem
necessary or expedient at Lessee's cost and expense.
J. INTERPRETATION
This Commitment and the terms of the transaction
contemplated to be made in conformity herewith, shall
be construed in accordance with all applicable
governmental regulations and in accordance with the
laws of the state where the Parcel is located.
K. CERTIFICATION
Lessee hereby certifies that:
1. It has no actions or proceedings pending, which
would materially affect the Parcel, Lessee, except
matters fully covered by insurance;
2. The consummation of the transactions contemplated
hereby, and the performance of this Commitment and
the delivery of the Lease and other security and
credit instruments contemplated hereunder, will
not result in any material breach of, or
constitute a material default under, any
indenture, bank loan or credit agreement, or other
instruments to which Lessee is a party or by which
Lessee may be bound or affected, which breach or
default would have a material adverse effect on
Lessee's performance under this Commitment;
3. All of Lessee's covenants, agreements, and
representations made herein, and in any and all
documents which may be delivered pursuant hereto,
shall survive the delivery to AEI of the Lease and
other documents furnished in accordance herewith,
for one year from the Final Disbursement Date, and
the provisions hereof shall continue to inure for
such period to AEI's benefit, and its successors
and assigns;
4. The Parcel is in good condition, substantially
undamaged by fire and other hazards, and has not
been made the subject of any condemnation
proceeding.
L. TERMINATION
This Commitment may be terminated in writing prior to
closing at AEI's option (but reserving to AEI its right
to pursue its remedies at law or equity for Lessee's
breach hereof) in such manner as AEI may reasonably
determine, if: 1) Lessee fails to comply with any of
the material terms hereof, including but not limited
to, obtaining AEI's approval of the documents listed
in ARTICLE D.6. hereof, and does not satisfactorily
cure the same on or before the Closing Date; 2) a
material default exists in any financial obligation of
Lessee which would have a material adverse effect on
Lessee's performance under this Commitment; 3) any
representation made in any submission proves to be
untrue, substantially false or misleading at any time
prior to the Closing Date which would have a material
adverse effect on Lessee's performance under this
Commitment; 4) there has been a material adverse change
in the financial condition of Lessee or there shall be
a material action, suit or proceeding pending or
threatened against Lessee which would have a material
adverse effect on Lessee's performance under this
Commitment; 5) any bankruptcy, reorganization,
insolvency, withdrawal, or similar proceeding is
instituted by or against Lessee and such proceeding is
not removed prior to Closing; 6) Seller's financial
condition gives rise to a commercially reasonable risk
that the transaction contemplated hereby constitutes a
fraudulent conveyance subject to attack by Seller's
creditors. Provided, however, if AEI shall terminate
this Agreement under paragraph 6 only, AEI's remedy
shall be limited to reimbursement of its out of pocket
costs (including reasonable attorneys fees), and AEI
shall return the remaining balance, if any, after such
out of pocket expenses, of the Commitment Fee of Lessee
hereunder.
In the event Lessee and AEI do not reach mutual
agreement prior to the Initial Disbursement of Funds on
the documents contemplated to be executed by either
party hereunder by delivery of written notice to the
other party, this Commitment may be terminated at the
option of either party. AEI shall, in such event,
refund the Commitment Fee to Lessee, less AEI's
reasonable out-of-pocket expenses incurred hereunder,
including, but not limited to, attorney's fees.
AEI and Lessee acknowledge the unique nature of the
Parcel and agree that the mutual remedies of any party
hereunder shall be limited to the liquidated damages in
the amount of either the return of the Commitment Fee
to Lessee or retention of the Commitment Fee by AEI
plus the outside counsel fees incurred by the non-
breaching party in connection with this Commitment
prior to the date of termination hereof; provided,
however, if Lessee shall refuse to close (and being
without right to terminate this Commitment as otherwise
set forth herein) even though AEI shall be ready,
willing, and able to do so, and Lessee shall thereafter
occupy the Leased Premises, AEI shall retain all
remedies available to it at law or in equity.
N. INCORPORATION OF SUBMITTED WRITTEN MATERIALS AND
AMENDMENTS
This Commitment is issued by AEI pursuant to all
written materials previously submitted by Seller,
Lessee to AEI (the "Submitted Written Materials") and
it is a proviso hereof that the content, terms and
provisions of said Submitted Written Materials are by
express and specific reference incorporated herein and
made a part hereof. Provided, however, in the case of
any contradiction, variance, or ambiguity between any
of the content, terms and provisions hereof and those
of the Submitted Written Materials, the terms
specifically delineated in this Commitment shall govern
and shall supersede the conditions of the Submitted
Written Materials. Neither this Commitment nor any
provision hereof may be changed, 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, and
in the case of AEI, signed by Robert P. Johnson,
President of AEI, or his designee in writing signed by
Mr. Johnson authorizing such other party to execute a
specific change, waiver, discharge or termination
instrument on behalf of AEI.
O. FEES AND COSTS
As a condition hereof, Lessee agrees to pay the fees of
AEI's outside counsel plus all costs and expenses
incurred by AEI, as well as all title and escrow
charges, the cost of issuance of interim title
certifications, recording and release fees and all
other costs incurred in connection with the transaction
contemplated hereunder.
P. ADVERTISING
During construction, AEI may place a sign on the Parcel
at a location to be determined by Lessee in its
reasonable discretion, specifying that it is
participating in the financing on the Parcel, to the
extent permitted by law or private covenant, condition,
or agreement affecting the Project. Further, AEI may
publicize the financing and may include in publicity
releases, if applicable, the names of Lessee's
corporate officers, principals, and a general
description of the Parcel, occupancy and rentals.
Q. EXPIRATION
This Commitment must be executed and returned to AEI no
later than November 8, 1999 for the terms to be
effective.
AEI Income & Growth Fund 23 LLC
By:AEI Fund Management XXI, Inc.,
Managing Member
By:/s/ Robert P Johnson
Robert P. Johnson, President
STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me the
12th day of November, 1999, by Robert P. Johnson, President
of AEI Fund Management XXI, Inc., the corporate Managing
Member of AEI Income & Growth Fund 23 LLC, on behalf of said
Limited Liability Company.
/s/ Barbara J Kochevar
Notary Public
[notary seal]
This Commitment is accepted and agreed to
this 3rd day of November, 1999.
(Lessee) Tumbleweed, Inc.
By: /s/ James Mulrooney
Its: Executive Vice President
By: /s/ Gregory A Compton
Its: VP/Secretary
STATE OF Kentucky )
) ss
COUNTY OF Jefferson )
On this 3rd day of November, 1999, before me, the
undersigned, a Notary Public in and for said State,
personally appeared James Mulrooney and Gregory A Compton,
personally known to me to be the persons who executed the
within instrument as the Executive Vice President and
VP/Secretary of Tumbleweed, Inc.., a Delaware corporation,
on behalf of said corporation.
/s/ Lisa Wright Hall
Notary Public
/s/ My commission expires 4-27-
2003
I authorize the release of any information deemed necessary
by AEI to verify any and all information supplied to AEI.
Lessee shall hold AEI harmless for any damages arising from
verification of said information.
(Lessee) Tumbleweed, Inc.
By: /s/ James Mulrooney
Its:Executive Vice President
Attest:By: /s/ Gregory A Compton
Its: VP/Secretary
Dated: November 3, 1999
EXHIBIT `A'
LEGAL DESCRIPTION
[graphic of record plan map]
Exhibit B
TUMBLEWEED, INC. KETTERING, OH
PROJECT COST BUDGET OCTOBER 27, 1999
LAND AND HARD COSTS:
Land Acquisition Cost $ 450,000.00
Building/General Construction 453,000.00
Sitework $ 175,000.00
Owner Vendors
Landscaping 13,000.00
Dimmer Panels 4,560.00
Wains Coating/Trim 13,185.00
Electrical Panels 6,200.00
Air Balance 1,600.00
Lighting 5,275.00
HVAC 19,500.00
Joists 13,230.00
Construction Contingency-10.0% 78,205.00
SUBTOTAL HARD COSTS $1,232,755.00
Soft Costs:
Survey 2,500.00
Appraisal 3,500.00
Phase I Environmental 2,500.00
Permits/TAP Fees 9,000.00
Architect/Engineering 20,750.00
Title Insurance & Closing Costs 10,000.00
Development Interest 15,500.00
Attorney's Fees- AEI
(Construction/Sale/Leaseback) 10,000.00
Attorney's Fees-Borrower
(Construction/Sale/Leaseback) 2,500.00
AEI Sale/Leaseback Commitment Fee 2% 26,640.00
AEI Credit Report Fees (Promesa) 500.00
AEI State Qualification Fees 1,500.00
AEI Site Inspection Fee 1,500.00
Tumbleweed Parcel Development Fee 12,636.00
AEI 1% Reimbursement 13,320.00
Miscellaneous 4,899.00
SUBTOTAL SOFT COSTS $ 139,245.00
TOTAL PROJECT COST $1,372,000.00
EXHIBIT "C" TO DEVELOPMENT FINANCING COMMITMENT
FINANCIAL DOCUMENTATION REQUIREMENTS
Prior to Closing, the following must be received and
approved by AEI, along with those items specified more fully
in the Development Financing and Leasing Commitment:
I. Lessee's prior three (3) fiscal years' audited
financial statement prepared by a nationally
recognized independent accounting firm acceptable
to AEI.
II. Lessee's internally generated consolidated
financial statements for the current and fiscal
year-to-date periods. Said financial statements
shall include at a minimum, a balance sheet and
statement of income. Cash flow statements and
statements of stockholder's equity should also be
provided if available.
III. Lessee's internally generated per store annual
financial statements for the current and fiscal year-
to-date periods. Said financial statements shall
include at a minimum, a balance sheet and statement
of income. Cash flow statements and statements of
stockholder's equity should also be provided if
available.
IV. Lessee's internally generated per store financial
statements for each of its prior two (2) fiscal
periods. Said financial statements shall include at
a minimum, a balance sheet and statement of income.
Cash flow statements and statements of
stockholder's equity should also be provided if
available.
V. Lessee's prior three years' federal corporate
income tax return.
VI. Pro-forma of first year's operations for the
Parcel.
VII. Itemized budget of total project cost for the
Parcel.
Lessee's financial statements, and any additional financial
information requested by AEI shall be prepared in accordance
with current GAAP guidelines and signed by an authorized
officer, who must certify to the accuracy thereof. The
certification language must read as follows:
"THE UNDERSIGNED HEREBY CERTIFIES AND WARRANTS THAT THE
INFORMATION CONTAINED IN THESE FINANCIAL STATEMENTS IS TRUE
AND CORRECT, UNDERSTANDS THAT AEI IS RELYING UPON SUCH
INFORMATION AS AN INDUCEMENT FOR ENTERING INTO A PURCHASE
AND LEASE TRANSACTION WITH THE UNDERSIGNED, AND EXPRESSLY
REPRESENTS THAT AEI MAY RELY UPON SUCH INFORMATION."
PLEASE DIRECT ALL QUESTIONS REGARDING THE FOREGOING TO THE
PROPERTY ACQUISITIONS DEPARTMENT. THE TOLL-FREE NUMBER IS
800-328-3519.
EXHIBIT "D-l"
INSTRUCTIONS TO INSURANCE AGENT
(Construction Phase)
The following instructions will be followed with respect to
the insurance policies on the Parcel:
1. AEI shall receive a Builder's Risk insurance policy,
covering "All Risk" or "Special Cause of Loss Form" covered
perils, including collapse, mudslide or mudflow and sinkhole
collapse, in the amount of Replacement Cost. The coverage
shall include building materials and property in transit.
The deductible shall not exceed $10,000 per occurrence.
2. AEI shall receive Comprehensive General Liability
insurance from the General Contractor (which coverage shall
extend to acts while on the project of the agents or
subcontractors hired by the General contractor) to cover the
property under construction, with limits of $2,000,000 per
occurrence and $5,000,000 general aggregate. AEI shall
receive Comprehensive General Liability insurance from any
other Contractor or supplier covering the Parcel under
construction with limits of $1,000,000 per occurrence and
$3,000,000 general aggregate. These limits can be
accomplished either by underlying liability policies or by
the sum of the underlying policy plus an excess or umbrella
policy. The coverage shall include an endorsement in favor
of AEI which is ISO form CG 20 11 11 85 - "Additional
Insured - Managers Or Lessors Of Premises", or an equivalent
endorsement and shall include Broad Form Contractual
Liability coverage. The Claims Made form of coverage is not
acceptable.
3. Flood insurance shall be required, in amounts of
$500,000 unless evidence is provided that the Parcel is not
located in a designated flood area or storm surge area.
Satisfactory evidence to determine if coverage is necessary
shall be a Base Flood Elevation Certificate and/or a
National Geodetic Vertical Datum (NGDV)-National standard
reference datum for elevations, formerly referred to as mean
Sea Level (MSL) of 1929. The deductible shall not exceed
$10,000 per occurrence.
4. Earthquake insurance shall be required, in the amounts
acceptable to AEI, unless evidence is provided that the
Parcel is not located in a federally designated earthquake
prone area or is not in an ISO High Risk Earthquake Zone.
The deductible shall not exceed 10% of the coverage
provided.
5. AEI shall receive Certificates of Insurance for
Comprehensive General Liability, with limits and provisions
referred to in Item 2 above, and for Workers' Compensation
coverage, from all contractors, subcontractors, independent
contractors and suppliers who will be present on the
jobsite. Certificates of Insurance for Employer's Liability,
with limits of $500,000/$500,000/$500,000 shall also be
provided.
6. AEI shall receive Certificates of Insurance for
Business Auto Liability, from all contractors and suppliers
whose vehicles will be present on the jobsite. The coverage
limits shall be $1,000,000 combined single limit.
7. The following will be required for all insurance
policies:
a. All property policies shall name AEI as Loss Payee
and Additional Insured.
b. All liability policies shall name AEI as Additional
Insured.
c. The additional insured and loss payee clause for
property and the additional insured clause for
general liability will name the Lessor, and its
corporate Managing Member as stated on the
signature page of this document. It will also name
Robert P. Johnson its individual Managing Member,
its successors and assigns and any other owners as
their interests may appear.
d. AEI shall receive a thirty (30) day written notice
in the event of cancellation, material amendment,
or expiration of any insurance policies. The
following words will be deleted from the
cancellation notice: "endeavor to" and "but failure
to mail such notice shall impose no obligation or
liability of any kind upon the company, its agents
or representatives".
e. Lessee agrees to notify Lessor in writing if Lessee
is unable to procure all or some part of the
aforesaid insurance. In the event Lessee fails to
provide all insurance required under this Exhibit,
Lessor shall have the right, but not the
obligation, to procure such insurance on Lessee's
behalf, following five (5) business days written
notice to Lessee of Lessor's intent to do so
(unless insurance then in place would during such
period, or already has, lapse, in which case no
notice need be given) and Lessee may obtain such
insurance during said five day period and not then
be in default hereunder. If Lessor shall obtain
such insurance, Lessee will then, within five (5)
business days from receiving written notice, pay
Lessor the amount of the premiums due or paid,
together with interest thereon at the lesser of 15%
per annum or the highest rate allowable by law.
f. Lessee agrees that it will not settle any property
insurance claims affecting the Leased Premises in
excess of $25,000 without Lessor's prior written
consent, such consent not to be unreasonably
withheld or delayed.
g. All property policies shall contain Waiver of
Subrogation Endorsements waiving all rights of
subrogation, if any, against AEI as defined above.
h. All insurance companies shall be approved in
writing by AEI.
EXHIBIT "D-2"
INSURANCE REQUIREMENTS
(Post Construction)
Post Construction Insurance must be in place at a point in time
determined by the earliest of the following events:
Occupancy date, business opening or cancellation of coverage
in Exhibit "D- 1".
The following instructions will be followed with respect to
requesting insurance policies and certificates of insurance
on the Parcel:
1. An original property insurance policy for "All Risk" or
"Special Cause of Loss Form" perils, including all
exclusions and endorsements, will be required. The policy(s)
shall be written with a coverage amount of full Replacement
Cost of the parcel, including improvements. The insured
parcel shall be described by street address. In the event
that it is impossible to furnish the original policy in time
for the closing on AEI's purchase of the parcel, an
Insurance Certificate, form ACORD 27, detailing the policy
coverage forms, shall be acceptable. The original policy,
along with paid receipts, shall be forwarded to AEI without
delay.
2. If the coverage referred to in Item 1 above is written via a
blanket insurance policy, a Certificate of Insurance with a
Statement of Values attached will be acceptable.
3. All property insurance policies shall include a Replacement
Cost endorsement or clause.
4. All property insurance policies shall include a Building
Ordinance Compliance Endorsement for an amount at least 10%
of replacement cost of the building at the inception of the
lease.
5. All property insurance policies shall be written with no co-
insurance.
6. The maximum deductible on any property insurance policy
shall be $10,000.
7. Property insurance shall include Loss Of Rents insurance in
an amount to cover at least a 12 month period with the loss
proceeds payable to AEI.
8. Flood insurance shall be required, in amounts acceptable to
AEI, unless evidence is provided that the Parcel is not
located in a designated flood area or storm surge area.
Satisfactory evidence to determine if coverage is necessary
shall be a Base Flood Elevation Certificate and/or a
National Geodetic Vertical Datum (NGDV)-National standard
reference datum for elevations, formerly referred to as mean
Sea Level (MSL) of 1929. If the coverage is necessary, it
shall be in the following amount: $500,000. The deductible
shall not exceed $10,000 per occurrence.
9. Earthquake insurance shall be required, in the amounts
acceptable to AEI, unless evidence is provided that the
Parcel is not located in a federally designated earthquake
prone area or is not in an ISO High Risk Earthquake Zone.
The deductible shall not exceed 10% of coverage provided.
10. Comprehensive general liability coverage shall be written,
with limits of $2,000,000 per occurrence and $5,000,000
general aggregate. These limits can be accomplished either
by underlying liability policies or by the sum of the
underlying policy plus an excess or umbrella policy. The
coverage shall include an endorsement in favor of AEI which
is ISO form CG 20 11 85 Additional Insured - Managers Or
Lessors Of Premises", or an equivalent endorsement. The
coverage shall by written on an Occurrence Form basis and
shall include Broad Form Contractual Liability coverage. The
Claims Made form of coverage is not acceptable. The maximum
deductible for any liability insurance policy shall be
$5,000.
11. If liquor is sold on the premises of the parcel, Liquor
Liability coverage (also known as Dram Shop coverage) shall
be required. If the state in which the parcel is located has
a maximum recovery statute, the coverage shall be written in
that amount. Otherwise the coverage shall be written with
limits of $2,000,000 per occurrence and $5,000,000 general
aggregate.
12. The additional Requirements for All insurance Policies" are
as follows:
a. All property policies shall name AEI as Loss Payee
and as an Additional Insured.
b. All liability policies shall name AEI as an
Additional Insured.
c. The additional insured and loss payee clause for
property and the additional insured clause for
general liability will name the Lessor, and its
corporate managing Member as stated on the
signature page of this document. It will also name
Robert P. Johnson its individual Managing Member,
its successors and assigns and any other owners as
their interests may appear.
d. AEI shall receive a thirty (30) day written notice
in the event of cancellation, material amendment,
or expiration without renewal of the policies. The
following words will be deleted from the
cancellation notice: "endeavor to" and "but failure
to mail such notice shall impose no obligation or
liability of any kind upon the company, its agents
or representatives".
e. Lessee agrees to notify Lessor in writing if Lessee
is unable to procure all or some part of the
aforesaid insurance. In the event Lessee fails to
provide all insurance required under this Exhibit,
Lessor shall have the right, but not the
obligation, to procure such insurance on Lessee's
behalf, following five (5) business days written
notice to Lessee of Lessor's intent to do so
(unless insurance then in place would during such
period, or already has, lapsed, in which case no
notice need be given) and Lessee may obtain such
insurance during said five day period and not then
be in default hereunder. If Lessor shall obtain
such insurance, Lessee will then, within five (5)
business days from receiving written notice, pay
Lessor the amount of the premiums due or paid,
together with interest thereon at the lesser of 15%
per annum or the highest rate allowable by law.
f. Lessee agrees that it will not settle any property
insurance claims affecting the Leased Premises in
excess of $25,000 without Lessor's prior written
consent, such consent not to be unreasonably
withheld or delayed.
g. All property insurance policies shall contain
Waiver of Subrogation Endorsements waiving all
rights of subrogation, if any, against AEI as
defined above.
h. All insurance companies shall be approved in
writing by AEI.
EXHIBIT "E-1" to Development Financing Commitment
ALTA Survey Requirements
(Pre-Construction)
1. The plat or map of such survey must bear the name, address
and signature of the licensed land surveyor who made the
survey, that surveyor's official seal and license number (if
any, or both), and the date of the survey, with the
following certification:
I, _________________________, a registered land surveyor, in
and for the State of Ohio do hereby certify to AEI Income &
Growth Fund 23 LLC, and ________________________________
(insert name of title company), that this is a true and
correct plat of a survey of
(Insert Legal Description)
which correctly shows the location of all buildings,
structures and improvements on said described Parcel; that
there are no visible encroachments onto adjoining
properties, streets, alleys, easements or setback lines by
any of said buildings, structures or improvements; that
there are no recorded or visible right of ways or easements
on said described Parcel, except as shown on said survey;
that there are no party walls or visible encroachments on
said described Parcel by buildings, structures or other
improvements situated on adjoining property, except as shown
on said plat or survey; and that the described Parcel has
direct access to a publicly dedicated right-of-way at the
location shown on said plat or survey.
By: _________________________
Dated: _______________________
2. If the street address of the Parcel is available, it should
be noted on the survey.
3. The survey boundary should be drawn to a convenient scale,
with that scale clearly indicated. If feasible, a graphic
scale should be indicated. When practical, the plat or map
of survey should be oriented so that North is at the top of
the drawing. Supplementary or exaggerated scale diagrams
should be presented accurately on the plat
or map and drawn to scale. No plat or map drawing less than
the minimum size of 8-1/2" by 11" will be acceptable.
4. The plat or map of survey should meet with the minimum
Standard Detail Requirements for Land Title Surveys as
adopted by the American Title Association and American
Congress on Surveying and Mapping.
5. The character and location of all buildings upon the Parcel
must be shown and their location given with reference to
boundaries. Proper street numbers should be shown where
available. Physical evidence of easements and/or servitudes
of all kinds, including but not limited to those created by
roads, rights of way, water courses, drains, telephone,
telegraph or electric lines, water, sewer, oil or gas
pipelines, etc., on or across the surveyed Parcel and on
adjoining properties if they appear to affect the enjoyment
of the surveyed Parcel should be located and noted. If the
surveyor has knowledge of any such easements and/or
servitudes, not physically evidenced at the time the present
survey is made, such physical non-evidence should be noted.
All recorded easements, rights of way and other record
matters affecting the Parcel should be located and
identified by recording date. Surface indications, if any,
of underground easements and/or servitudes should also be
shown. If there are no buildings erected on the Parcel
being surveyed, the plat or map of survey should bear the
statement "No Buildings". Curb cuts and adjoining streets
should be shown.
6. Joint or common driveways and alleys must be indicated.
Independent driveways along the boundary must be shown
together with the width thereof. Encroaching driveways,
strips, ribbons, aprons, etc., should be noted. Rights of
access to public highways should be shown. The right-of-way
line of any public street must be shown in relationship to
the Parcel surveyed and the street must be labeled "Publicly
Dedicated" or "Private Thoroughfare" as the case may be.
7. As a minimum requirement, at least two (2) sets of prints of
the plat or map of survey should be furnished to AEI and one
(1) set to the title company.
8. The survey should certify as to the total square footage of
the area surveyed and as to the square footage at the
exterior walls of any improvements on the Parcel. The
survey should note the absence of, or indicate the existence
of, any building restriction or setback lines. Paved areas
should be shown and the survey should designate the area for
parking and its dimensions. If completed, the survey should
indicate the actual number of parking spaces and, if
possible, the actual parking spaces should be outlined on
the survey.
EXHIBIT "E-2" to Development Financing Commitment
ALTA Survey Requirements
(As-Built/Post-Construction)
1. The plat or map of such survey must bear the name, address
and signature of the licensed land surveyor who made the
survey, that surveyor's official seal and license number (if
any, or both), and the date of the survey, with the
following certification:
I, _, a registered land surveyor, in and for the State of
Ohio do hereby certify to AEI Income & Growth Fund 23 LLC,
and ____
____________________ (insert name of title company),
that this is a true and correct plat of a survey of
(Insert Legal Description)
which correctly shows the location of all buildings,
structures and improvements on said described Parcel; that
there are no visible encroachments onto adjoining
properties, streets, alleys, easements or setback lines by
any of said buildings, structures or improvements; that
there are no recorded or visible right of ways or easements
on said described Parcel, except as shown on said survey;
that there are no party walls or visible encroachments on
said described Parcel by buildings, structures or other
improvements situated on adjoining property, except as shown
on said plat or survey; and that the described Parcel has
direct access to a publicly dedicated right-of-way at the
location shown on said plat or survey.
By: _________________________
Dated: _______________________
2. If the street address of the Parcel is available, it should
be noted on the survey.
3. The survey boundary should be drawn to a convenient scale,
with that scale clearly indicated. If feasible, a graphic
scale should be indicated. When practical, the plat or map
of survey should be oriented so that North is at the top of
the drawing. Supplementary or exaggerated scale diagrams
should be presented accurately on the plat or map and drawn
to scale. No plat or map drawing less than the minimum size
of 8-1/2" by 11" will be acceptable.
4. The plat or map of survey should meet with the minimum
Standard Detail Requirements for Land Title Surveys as
adopted by the American Title Association and American
Congress on Surveying and Mapping.
5. The character and location of all buildings upon the Parcel
must be shown and their location given with reference to
boundaries. Proper street numbers should be shown where
available. Physical evidence of easements and/or servitudes
of all kinds, including but not limited to those created by
roads, rights of way, water courses, drains, telephone,
telegraph or electric lines, water, sewer, oil or gas
pipelines, etc., on or across the surveyed Parcel and on
adjoining properties if they appear to affect the enjoyment
of the surveyed Parcel should be located and noted. If the
surveyor has knowledge of any such easements and/or
servitudes, not physically evidenced at the time the present
survey is made, such physical non-evidence should be noted.
All recorded easements, rights of way and other record
matters affecting the Parcel should be located and
identified by recording date. Surface indications, if any,
of underground easements and/or servitudes should also be
shown. If there are no buildings erected on the Parcel
being surveyed, the plat or map of survey should bear the
statement "No Buildings". Curb cuts and adjoining streets
should be shown.
6. Joint or common driveways and alleys must be indicated.
Independent driveways along the boundary must be shown
together with the width thereof. Encroaching driveways,
strips, ribbons, aprons, etc., should be noted. Rights of
access to public highways should be shown. The right-of-way
line of any public street must be shown in relationship to
the Parcel surveyed and the street must be labeled "Publicly
Dedicated" or "Private Thoroughfare" as the case may be.
7. As a minimum requirement, at least two (2) sets of prints of
the plat or map of survey should be furnished to AEI and one
(1) set to the title company.
8. The survey should certify as to the total square footage of
the area surveyed and as to the square footage at the
exterior walls of any improvements on the Parcel. The
survey should note the absence of, or indicate the existence
of, any building restriction or setback lines. Paved areas
should be shown and the survey should designate the area for
parking and its dimensions. If completed, the survey should
indicate the actual number of parking spaces and, if
possible, the actual parking spaces should be outlined on
the survey.
EXHIBIT "F"
PRELIMINARY DOCUMENTATION CHECKLIST
Prior to closing, the following should be received and approved by
AEI, along with those items specified more fully in the
Commitment:
1. Purchase Agreement for the Parcel
2. Site Investigation Package as prepared by Project
Civil Engineers
3. Site Documents
4 Site plan and maps showing site(s) and
location(s) of competition.
5. Complete city map.
EXHIBIT `G'
FORM OF
DEVELOPMENT FINANCING AGREEMENT
DEVELOPMENT FINANCING AGREEMENT
THIS AGREEMENT, made and entered into effective as of
this ____ day of November, 1999, by and between Tumbleweed ,
Inc. (hereinafter referred to as "Lessee"), whose address is
1900 Mellwood Avenue, Louisville, Kentucky, and AEI Income
& Growth Fund 23 LLC, whose principal business address is
1300 Minnesota World Trade Center, 30 East Seventh Street,
St. Paul, Minnesota 55101 (hereinafter referred to as
"Lessor") .
W I T N E S S E T H, that:
WHEREAS, Lessee is contemplating building the following
Improvements on the premises described in Exhibit "A"
attached hereto :
Construction of an approximately 5,500 square foot
building and improvements to be used as a Tumbleweed
Restaurant.
WHEREAS, Lessee has made application to Lessor for
development financing to defray the costs of constructing
such Improvements;
WHEREAS, Lessor's Assignor has issued to Lessee its
Development Financing and Leasing Commitment to advance
funds in the amount hereinafter specified, subject to
compliance with the terms and conditions of this Development
Financing Agreement and the Net Lease Agreement (the
"Lease") of even date herewith;
NOW, THEREFORE, in consideration of entering into the
Lease and other good and valuable consideration, the receipt
of which is hereby acknowledged by the parties hereto, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall
have the following meanings:
1. "Application" shall mean
Lessee's application to the Lessor for the Development
Financing the terms and conditions of which are
incorporated herein by reference.
2. "Architect's Contract" shall
mean Lessee's contract with the Project Architect.
3. "Commitment" shall mean
Lessor's Commitment to Lessee agreeing to provide the
Development Financing. (The "Development Financing and
Leasing Commitment" dated of even date herewith.)
4. "Completion Date" shall mean midnight, May 31, 2000,
subject to Force Majeure, as defined herein.
5. "Construction Costs" shall mean
land costs, all costs paid to construct and complete the
Improvements, as specified on Exhibit "B" attached hereto
and made a part hereof.
6. "Construction Contracts" shall
mean the contracts between Lessee and Contractors for the
furnishing of labor, services or materials to the Leased
Premises in connection with the construction of the
Improvements.
7. "Contractors" shall mean those
firms directly engaged by Lessee to construct the
Improvements, whether one or more.
8. "Contract Documents" shall mean
the Project Architect's Contract, Plans and Specifications
and the contract with the Contractor.
9. "Development Financing" shall mean
the funds to be made available pursuant to the Commitment
and not to exceed the lesser of the Construction Costs or
the maximum loan amount of One Million Three Hundred Seventy-
Two Thousand Dollars ($1,372,000) as specified in the
Commitment.
10. "Development Financing and
Carrying Charges" shall mean all fees, taxes and charges
incurred under the Development Financing and in the
construction of the Improvements including, but not limited
to, non-refundable commitment fees; interest charges,
service and inspection fees, attorney's fees, title
insurance fees and charges, recording fees and insurance
premiums.
11. "Development Financing Documents"
shall mean this Agreement, the Lease, Assignment of
Architects and Construction Contracts, Guarantees, and such
other documents given to the Lessor as security for the
Development Financing.
12. "LTIC-CDD" shall mean Lawyers
Title Insurance Corporation, Construction Disbursement
Department, the nationally recognized title insurer, to be
LTIC-CDD under the Development Financing Disbursement
Agreement executed by and between the parties of even date
herewith.
13. "Final Disbursement Date" shall
mean the date of the final disbursement of the Development
Financing provided hereunder.
14. "Improvements" shall mean the
structures and other improvements to be constructed on the
Leased Premises in accordance with the Plans and
Specifications.
15. "Initial Disbursed Funds" shall
mean those funds disbursed on the Closing Date for land
acquisition and related soft costs upon Lessor's acquisition
of the Leased Premises.
16. "Inspecting Architect" shall mean
the architect, if any, hired by Lessor to perform
inspections of the premises. An Inspecting Architect may
only be engaged by Lessor in the event of a default relating
to construction of the Improvements under the Development
Financing Documents.
17. "Leased Premises" shall mean the
real property described in the Exhibit "A" attached to this
Agreement, together with all Improvements, equipment and
fixtures thereon.
18. "Lessee Equity" shall mean the
final Construction Costs less the amount of the Development
Financing.
19. "Plans and Specifications" shall
mean the plans and specifications prepared by the Project
Architect who shall be licensed in the jurisdiction of the
Leased Premises and selected by Lessee.
20. "Project" shall mean the
construction of the Improvements on the Leased Premises.
21. "Project Architect" shall mean the
architect retained by Lessee to design and supervise
construction of the Improvements.
22. "Rental Modification Date" shall
mean a date one hundred and twenty days (120) from the date
hereof.
23. "Sub-Contractors" shall mean those
persons furnishing labor or materials for the Project
pursuant to the Sub-Contracts.
24. "Sub-Contracts" shall mean the
contracts between the Contractor and its materialmen and
mechanics in the furnishing of labor or materials for the
Project.
25. "Title" shall mean Lawyers Title
Insurance Corporation issuing the Lessor's fee owner's title
insurance policy.
ARTICLE II
THE DEVELOPMENT FINANCING
Subject to compliance with the provisions of this Agreement,
Lessor agrees to advance to Lessee, and Lessee agrees to
request from Lessor, the Development Financing. The
Development Financing shall be advanced in stages by Lessor
to LTIC-CDD and disbursed by LTIC-CDD pursuant to the
provisions of Article VIII hereof. The Development
Financing, or so much thereof as has been advanced
hereunder, shall bear interest at the rate and shall be
repaid in accordance with the terms hereof and the Lease.
The proceeds of the Development Financing shall be used
exclusively for the purposes of defraying Construction
Costs.
ARTICLE III
N/A
ARTICLE IV
CONSTRUCTION OF IMPROVEMENTS
Lessee agrees to commence construction of the Improvements
within thirty (30) days from the date of this Agreement.
After commencement of construction of any Improvements,
Lessee agrees to diligently pursue said construction to
completion, and to supply such moneys and to perform such
duties as may be necessary to complete the construction of
said Improvements pursuant to the Plans and Specifications
and in full compliance with all terms and conditions of this
Agreement and the Development Financing Documents, all of
which shall be accomplished on or before the Completion
Date, subject to Force Majeure and without liens, claims or
assessments (actual or contingent) asserted against the
Leased Premises for any material, labor or other items
furnished in connection therewith, subject to Lessee's right
to contest such liens, claims, or assessments provided the
same are removed as a lien upon the Leased Premises prior to
foreclosure of such lien, and all in full compliance with
all construction, use, building, zoning and other similar
requirements of any pertinent governmental jurisdiction.
Lessee will provide to Lessor, upon request, evidence of
satisfactory compliance with all the above requirements.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE LESSEE
Lessee hereby represents and warrants to the Lessor, which
representations and warranties shall be deemed to be
restated by Lessee each time Lessor makes an advance of the
Development Financing, that:
1. VALIDITY OF DEVELOPMENT FINANCING DOCUMENTS - The
Development Financing Documents are in all respects legal,
valid and binding according to their terms.
2. NO PRIOR LIEN ON FIXTURES - No mortgage, bill of sale,
security agreement, financing statement, or other title
retention agreement (except those executed in favor of
Lessor) has been, or will be, executed with respect to any
fixture (except Lessee's trade fixtures not financed with
this Development Financing) used in conjunction with the
construction, operation or maintenance of the improvements.
3. CONFLICTING TRANSACTION OF LESSEE - The consummation of the
transactions hereby contemplated and the performance of the
obligations of Lessee under and by virtue of the Development
Financing Documents will not result in any breach of, or
constitute a default under, any mortgage, lease, bank loan
or credit agreement, corporate charter, by-laws, partnership
agreement, or other instrument to which Lessee is a party or
by which it may be bound or affected, the breach of which
would materially affect Lessee's ability to perform its
obligations hereunder.
4. PENDING LITIGATION - There are no actions, suits or
proceedings pending, or to the knowledge of Lessee
threatened, against or affecting it or the Leased Premises,
or involving the validity or enforceability of any of the
Development Financing Documents, at law or in equity, or
before or by any governmental authority, except actions,
suits and proceedings that are fully covered by insurance or
which, if adversely determined would not substantially
impair the ability of Lessee to perform each and every one
of its obligations under and by virtue of the Development
Financing Documents; and to the Lessee's knowledge it is not
in default with respect to any order, writ, injunction,
decree or demand of any court or any governmental authority.
5. VIOLATIONS OF GOVERNMENTAL LAW, ORDINANCES OR REGULATIONS -
To the best knowledge of Lessee, there are no violations or
notices of violations of any federal or state law or
municipal ordinance or order or requirement of the State in
which the Leased Premises are located or any municipal
department or other governmental authority having
jurisdiction affecting the Leased Premises, which violations
in any way have a material adverse affect on the Leased
Premises and which remain uncured after notice by such
governmental authority or department (if notice is required)
and the expiration of the time within which Lessee may cure
such violation, or if no time limitation is specified,
within a reasonable time after notice to cure such violation
.
6. COMPLIANCE WITH ZONING ORDINANCES AND SIMILAR LAWS - To the
best knowledge of Lessee, the Plans and Specifications and
construction pursuant thereto and the use of the Leased
Premises contemplated thereby comply and will comply with
all present governmental laws and regulations and
requirements, zoning ordinances, standards, and regulations
of all governmental bodies exercising jurisdiction over the
Leased Premises. Lessee agrees to provide the Project
Architect's certification to such effect prior to the
funding of the first disbursement under the Development
Financing.
7. LESSEE'S STATUS AND AUTHORITY - If the Lessee be a
corporation, limited liability company, trust or a
partnership, Lessee warrants and represents that (i) it is
duly organized, existing and in good standing under the laws
of the state in which it is incorporated or created; (ii) it
is duly qualified to do business and is in good standing in
the state in which the Leased Premises are located; (iii) it
has the corporate or other power, authority and legal right
to carry on the business now being conducted by it and to
engage in the transactions contemplated by this Agreement
and the Development Financing Documents; and (iv) the
execution and delivery of this Agreement and the Development
Financing Documents and the performance and observance of
the provisions hereof and thereof have been (or future acts
will be) duly authorized by all necessary trust,
partnership, or corporate actions of Lessee. Lessee will
furnish such resolutions, affidavits and opinions of counsel
to such effect as Lessor may reasonably require.
8. AVAILABILITY OF UTILITIES - All utility services necessary
for the construction of the Improvements will be available
prior to the commencement of construction, and all utility
services necessary for the proper operation of the
Improvements for their intended purposes are available at
the Leased Premises or will be available at the Leased
Premises prior to the Final Disbursement Date, at
commercially comparable utility rates and hook-up charges
for the vicinity, including water supply, storm and sanitary
sewer facilities, gas, electricity and telephone facilities.
Lessee shall furnish evidence of such availability of
utilities from time to time at Lessor's request.
9. BUILDING PERMITS - All building permits required for the
construction of the Improvements have been obtained prior to
the commencement of the construction of the Improvements and
copies of same will be delivered to Lessor.
10.CONDITION OF LEASED PREMISES - The Leased Premises are not
now damaged or injured as a result of any fire, explosion,
accident, flood or other casualty, nor to the best of
Lessee's knowledge, subject to any action in eminent domain.
11.APPROVAL OF PLANS AND SPECIFICATIONS - To the best knowledge
of Lessee in reliance upon the Project Architect's
certification to such effect, the Plans and Specifications
conform to the requirements and conditions set out by
applicable law or any effective restrictive covenant, to all
governmental authorities which exercise jurisdiction over
the Leased Premises or the construction thereon, and no
construction will be commenced upon the Leased Premises
until said Plans and Specifications shall have been approved
by Lessor, which consent shall not be unreasonably withheld
or delayed and shall be given or withheld within ten
business days after written request therefor. Subject to
Article VI, paragraph 14, no material changes are to be made
in the Plans and Specifications as approved without Lessor's
prior consent, which consent shall not be unreasonably
withheld or delayed and shall be given or withheld within
ten business days after written request therefor; except,
after prior written notice to Lessor, provided the
Development Financing shall remain in balance as set forth
in Article VII, paragraph 3 herein, Lessor shall consent to
reallocation among line items or use of the Construction
Contingency in the aggregate of not more than the amount
budgeted as set forth on Exhibit B for Construction
Contingency, unless Lessee shall deposit Owner Equity with
LTIC-CDD in the amount of such excess over the budgeted
amount.
12.CONSTRUCTION CONTRACTS - Lessee has entered into contracts
with the Contractors or separate contracts with materialmen
and laborers providing for the construction of the
Improvements. Lessee will cause the Contractors to promptly
furnish Lessor with the complete list of all Sub-contractors
or entities as and when under contract, which Contractors
propose to engage to furnish labor and/or materials in
constructing the Improvements (such list containing the
names, addresses, and amounts of such sub-contracts as
written in excess individually of $5,000, and prior to
disbursement of funds to or for the benefit of such
Subcontractors, affidavits of authorized signatory and other
documents commercially reasonably required by Title to
insure that the Leased Premises remain lien free) and will
from time to time furnish Lessor or Title with true copies
of all Contracts entered into by Lessee and with the terms
of all verbal agreements therefor, if any, and as to
subcontractors, letters signed by sub-contractors whose
contracts are in excess of $5,000 setting forth the present
amount of their contract and the amounts remaining to be
paid under that contract, if the same information is not
stated on a lien waiver reflecting the most currently
requested payment to such subcontractor.
13.BROKERAGE COMMISSIONS - No brokerage commissions are due in
connection with the transaction contemplated hereby or if
there are commissions due or payable the same will be paid
by Lessee. Lessee agrees to and shall indemnify Lessor from
any liability, claims or losses arising by reason of any
such brokerage commissions. This provision shall survive
the repayment of the Development Financing and shall
continue in full force and effect so long as the possibility
of such liability, claims or losses exists.
14.NO PRIOR WORK - Except as may have been permitted by Lessor,
no work or construction has been commenced or will be
commenced by or on behalf of Lessee on the Leased Premises,
nor has Lessee entered into any contracts or agreements for
such work or construction which could result in the
imposition of a mechanic's or materialmen's lien on the
Leased Premises or the Improvements prior to or on parity
with the interest of Lessor.
15.ENVIRONMENTAL IMPACT STATEMENT - All required environmental
impact statements as required by any governmental authority
having jurisdiction over the Leased Premises or the
construction of the Improvements have been duly filed and
approved.
16.ACCESS - The Leased Premises front on a publicly maintained
road or street or have access to such a road or street under
an easement or private way, which is not subject to a
reversion in favor of any party.
17.FINANCIAL INFORMATION - Any financial statements heretofore
delivered to Lessor are true and correct in all respects,
have been prepared in accordance with generally accepted
accounting practice, and fairly present the respective
financial conditions of the subject thereof as of the
respective dates thereof and no materially adverse change
has occurred in the financial conditions reflected therein
since the respective dates thereof.
18. NOTICE OF COMMENCEMENT\FURNISHING - To provided Lessor
prior to the initial request for a Disbursement, with a copy
of the Notice of Commencement and any amendments thereto
prepared in accordance with Ohio Revised Code Section
1311.04 and to be recorded with the Franklin County
Recorder's Office. Lessee represents and warrants that a
Notice of Commencement has not been and will not be recorded
prior to the recording of the Deed transferring title to the
Leased Premises to Lessor. Lessee shall post and keep
posted the Notice of Commencement and all amendments thereto
in a conspicuous place on the Premises during the course of
construction of the Project. Lessee further represents and
warrants to timely comply with all provisions of Ohio
Revised Code Section 1311.04 and failure to do so shall be
deemed an Event of Default as defined under the Lease.
Lessee shall provide Lessor with a copy of each Notice of
Furnishing (as defined in Ohio Revised Code Section 1311.05)
received by Lessee during the course of construction of any
Improvements on the Leased Premises.
ARTICLE VI
COVENANTS OF LESSEE
Lessee hereby covenants and agrees with Lessor as follows:
1. SURVEYS - Prior to execution of any Development Financing
Documents and prior to the initial request for a
Disbursement (as defined in Article VIII hereof), Lessee has
furnished to Lessor three copies of a current perimeter land
survey, in form and substance satisfactory to Lessor,
certified to Lessor, giving a description of the Leased
Premises and showing all encroachments onto or from the
Leased Premises, currently certified by a registered
surveyor and bearing his registry number and showing access
rights, easements, or utilities, rights of way, all setback
requirements upon the Leased Premises, improvements, matters
affecting title and such other items as Lessor may
reasonably request.
2. TITLE INSURANCE - Prior to the initial request for
Disbursement the Lessee has furnished Lessor with an ALTA
policy of title insurance, and prior to any subsequent
request for Disbursement such ALTA policy of title insurance
shall be brought down to the date of Disbursement by
endorsement, all in form and substance satisfactory to
Lessor issued at the Lessee's expense and written by Title
insuring the Leased Premises to be marketable, free from
exceptions for mechanic's and materialmen's liens and free
from other exceptions not previously approved by the Lessor,
naming Lessor as fee owner insured to the extent of advances
made hereunder subject only to such exceptions as may be
reasonably approved by Lessor.
3. RESTRICTIONS ON CONVEYANCE OR SECONDARY FINANCING - Lessee
will not transfer, sell, convey or encumber the Leased
Premises or subject the Leased Premises to any secondary
financing in any way without the written consent of the
Lessor, except as permitted in Article V, paragraph 2
relating to trade fixture financing sources or suppliers.
4. INSURANCE - To obtain or cause Contractor to obtain and
maintain such insurance or evidence of insurance as Lessor
may reasonably require, including but not limited to the
following:
(a) BUILDER'S RISK INSURANCE -
Builder's Risk Insurance written on the so-called "Builder's
Risk-Completed Value Basis" in an amount equal to the full
replacement cost of the Improvements at the date of
completion with coverage available on the so-called multiple
peril form of policy, including coverage against collapse
and water damage, naming Lessor as additional named insured,
such insurance to be in such amounts and form and written by
such companies as shall be reasonably approved by Lessor,
and the originals of such policies (together with
appropriate endorsement thereto, evidence of payment of
premiums thereon and written agreements by the insurer or
insurers therein to give Lessor ten (10) days' prior written
notice of any intention to cancel) shall be promptly
delivered to Lessor, said insurance coverage to be kept in
full force and effect at all times until the completion of
construction of the Improvements.
(b) HAZARD INSURANCE - Fire and
Extended Coverage Insurance, and such other hazard insurance
as Lessor may require and as called for in the Lease in an
amount equal to the full replacement cost of the
Improvements naming Lessor as an additional named insured,
such insurance to be in such amounts and form and written by
such companies as shall be reasonably approved by Lessor,
and the originals of such policies (together with
appropriate endorsements thereto, evidence of payment of
premiums thereon and written agreement by the insurer or
insurers therein to give Lessor ten (10) days' prior written
notice of any intention to cancel) shall be promptly
obtained and delivered to Lessor immediately upon completion
of the construction of the Improvements and before any
portion is occupied by Lessee or any tenant of Lessee with
such insurance to be kept in full force and effect at all
times thereafter.
(c) PUBLIC LIABILITY - Comprehensive
public liability insurance (including operations, contingent
liability operations, operations of sub- contractors,
completed operations and contractual liability insurance) in
limits of coverage as set forth in the Lease.
(d) WORKMEN'S COMPENSATION INSURANCE -
Evidence of compliance with the required coverage under
statutory workmen's compensation requirements.
5. COLLECTION OF INSURANCE PROCEEDS - To cooperate with Lessor
in obtaining for Lessor the benefits of any insurance or
other proceeds lawfully or equitably payable to it in
connection with the transaction contemplated hereby and the
collection of any indebtedness or obligation of the Lessee
to Lessor incurred hereunder (including the payment by
Lessee of the expense of an independent appraisal on behalf
of Lessor in case of a fire or other casualty affecting the
Leased Premises).
6. APPLICATION OF DEVELOPMENT FINANCING PROCEEDS - To use the
proceeds of the Development Financing solely for the purpose
of paying for Construction Costs and such incidental costs
relative to the construction as may be reasonably approved
from time to time in writing by Lessor, and in no event to
use any of the Development Financing proceeds for personal,
corporate or other purposes.
7. EXPENSES - To pay all costs of closing the Development
Financing and all expenses of Lessor with respect thereto,
including, but not limited to, legal fees by Lessor's
counsel and all other reasonable attorney's fees (limited as
set forth in the Commitment), costs of title insurance,
transfer taxes, license and permit fees, recording expenses,
surveys, intangible taxes, appraisal fees, Inspecting
Architect fees, expenses of retaking possession upon default
by Lessee hereunder or other costs of enforcement (including
reasonable attorney's fees) and similar items.
8. LAWS, ORDINANCES AND ETC. - To comply promptly with any law,
ordinance, order, rule or regulation of all authorities
exercising jurisdiction over the Leased Premises or the
construction thereon, including appropriate supervising
boards of fire underwriters and similar agencies and the
requirements of any insurer issuing coverage on the Project.
9. RIGHT OF LESSOR TO INSPECT LEASED PREMISES - Upon 48 hours
notice, except in cases which Lessor reasonably deems to be
an emergency, in which event upon reasonable notice under
the circumstances, to permit Lessor and Title and their
representatives and agents to enter upon the Leased Premises
and to inspect the Improvements and all materials to be used
in construction thereof and to cooperate and cause
Contractor to cooperate with Lessor or Title and their
representatives and agents during such inspections, provided
that such is accomplished without interrupting the
construction process. Provided, further, however, that this
provision shall not be deemed to impose upon Lessor or Title
any duty or obligation whatsoever to undertake such
inspections, to correct any defects in the Improvements or
to notify any person with respect thereto.
10. BOOKS AND RECORDS - To set up and maintain accurate and
complete books, accounts and records pertaining to the
Project including the working drawings in a manner
reasonably acceptable to Lessor. The Lessor, Title and
Inspecting Architect shall have the right at all reasonable
times and upon reasonable prior notice to inspect, examine
and copy all books and records of Lessee relating to the
Project, and to enter and have free access to the Leased
Premises and Improvements and to inspect all work done,
labor performed and material furnished in or about the
Project, provided that such is accomplished without
interrupting the construction process. Notwithstanding the
foregoing, Lessee shall be responsible for making
inspections as to the Improvements during the course of
construction and shall determine to its own satisfaction
that the work done or materials supplied by the Contractors
and all Subcontractors has been properly supplied or done in
accordance with the applicable contracts. Lessee will hold
Lessor and Title harmless from and Lessor and Title shall
have and have no liability or obligation of any kind to
Lessee or creditors of Lessee in connection with any
defective, improper or inadequate workmanship or materials
brought in or related to the Improvements or the Leased
Premises, or any mechanic's liens arising as a result of
such workmanship or materials. Upon Lessor's request,
Lessee shall replace or cause to be replaced any such work
or material found to be materially deficient by the Project
Architect or Independent Architect. Lessor shall cooperate
with Lessee in obtaining any rights under any applicable
warranties to accomplish such work. Any inspections made by
Inspecting Architect, Title or Lessor are for the sole
benefit of Lessor and neither Lessee nor any creditor,
tenant or vendee of Lessee shall be entitled to rely on such
inspection. Lessee shall obtain for Lessor coincident
rights to rely upon any warranties obtain by Lessee from its
Contractors or subcontractors.
11.CORRECTION OF DEFECTS - To promptly correct any structural
defects in the Improvements or any material departure from
the Plans and Specifications not previously approved by
Lessor. The advance of any Development Financing proceeds
shall not constitute a waiver of Lessor's right to require
compliance with this covenant.
12.SIGN REGARDING DEVELOPMENT FINANCING - To allow Lessor to
erect and maintain at a suitable site on the Leased
Premises, at a location to be chosen by Lessee in its
reasonable discretion, a sign indicating that Development
Financing is being provided by Lessor, to the extent
permitted by law or private covenant, condition, or
agreement affecting the Project.
13.ADDITIONAL DOCUMENTS - To furnish to Lessor all instruments,
documents, initial surveys, footing or foundation surveys,
if conducted, certificates, plans and specifications,
appraisals, financial statements, title and other insurance
reports and agreements and each and every other document and
instrument required to be furnished by the terms hereof, all
at Lessee's expense; to assign and deliver to Lessor such
documents, instruments, assignments and other writings, and
to do such other acts necessary or desirable to preserve and
protect the Leased Premises, as Lessor may require; and to
do and execute all and such further lawful and reasonable
acts, conveyances and assurances for the carrying out of the
intents and purposes of this Agreement, the Lease, or the
Commitment, as Lessor shall reasonably require from time to
time.
14.ARCHITECTS AND CONSTRUCTION CONTRACTS - To commit no default
nor knowingly permit a default under the terms of the
Architects or Construction Contracts; To waive none nor
knowingly permit a waiver of the obligations of the parties
thereunder; To do no act which would relieve such parties
from their obligations thereunder; To make no amendments to
such contracts, without the prior written consent of Lessor;
To enter into no change orders or extras that cause a
reallocation among budgeted line items, or that in the
aggregate or singularly result in a net increase in excess
of 10% of the original contract amount without Lessor's
prior written consent, which consent shall not be
unreasonably withheld or delayed; provided, however, Lessor
shall be given written notice and copies of all change
orders; provided, further, however, with written notice to
Lessor prior to any request for funds subsequent to any such
change order or reallocation, the Lessee shall be allowed to
enter into any change order or extra which is accounted for
by use of any reallocation among line items or any remaining
budgeted Contingency line item, or if the same has been
exhausted, Lessee shall be allowed increases in the original
contract amount without Lessor's consent if Lessee has, upon
the execution of said change order, deposited with Lessor
the amount by which such change order increases the total
Construction Cost; To allow all such contracts to be subject
to the approval of Lessor for its loan purposes; To allow
Lessor to take advantage of all the rights and benefits of
the contracts upon any default by Lessee; and to submit
evidence to Lessor that both the Architect and the
Contractors will permit Lessor to acquire Lessee's interest
under their respective contracts and the Contract Documents
without additional charge or fee should an event of default
occur hereunder, which default is not cured within
applicable notice and cure periods.
15.ENFORCE PERFORMANCE OF SUB-CONTRACTS - To enforce, or cause
to be enforced, the prompt performance of the Sub-Contracts
in accordance with their terms and not to approve any
changes in the same that in the aggregate or singularly
result in a net increase in excess of 10% of the original
General Contractor's contract amount without Lessor's prior
written consent, which consent shall not be unreasonably
withheld or delayed, provided Lessee's right to enter into
any such change order shall be on the same terms set forth
in Section 14 above.
16.COMPLIANCE WITH RULES - To comply with, and to require the
Contractors to comply with, all rules, regulations,
ordinances and laws bearing on the conduct of the work on
the Improvements, including the requirements of any insurer
issuing coverage on the Project and the requirements of any
applicable supervising boards of fire underwriters.
17.OPINIONS OF COUNSEL - To furnish such opinions of counsel as
may be reasonably requested of the Lessee in connection with
the matters contemplated by this Agreement.
18.SOIL TESTS - To provide the Lessor with a soil report
prepared by an acceptable engineer certifying as to the
status of the soil conditions on the Leased Premises, the
need or lack of need for special pilings and foundations and
that either any pilings and foundation necessary to support
the Improvements have been placed in a manner and quantity
sufficient to provide the required support or that no such
pilings and foundations are necessary for the support and
construction of the Improvements.
19.MARKETABLE TITLE - To execute and deliver or cause to be
executed and delivered such instruments as may be required
by the Lessor and Title to provide Lessor with a marketable,
valid title to the Leased Premises subject only to such
exceptions to title as may be reasonably approved by Lessor.
20.VIOLATIONS OF GOVERNMENTAL LAW, ORDINANCES OR REGULATIONS -
Lessee will permit no violations nor commit the same, of any
federal or state law or municipal ordinance or order or
requirement of the State in which the Leased Premises are
located or any municipal department or other governmental
authority having jurisdiction affecting the Leased Premises,
which violations in any way have a material adverse affect
on the Leased Premises and which remain uncured after notice
by such governmental authority or department (if notice is
required) and the expiration of the time within which Lessee
may cure such violation, or if no time limitation is
specified, within a reasonable time after notice to cure
such violation .
21.COMPLIANCE WITH ZONING ORDINANCES AND SIMILAR LAWS - The
Plans and Specifications and construction pursuant thereto
and the use of the Leased Premises contemplated thereby will
comply with all governmental laws and regulations and
requirements, zoning ordinances, standards, and regulations
of all governmental bodies exercising jurisdiction over the
Leased Premises, including environmental protection and
equal employment regulations, and appropriate supervising
boards of fire underwriters and similar agencies.
22.APPROVAL OF PLANS AND SPECIFICATIONS - The Plans and
Specifications will conform to the requirements and
conditions set out by applicable law or any effective
restrictive covenant, and to all governmental authorities
which exercise jurisdiction over the Leased Premises or the
construction thereon.
23. NOTICE OF COMMENCEMENT\FURNISHING - To provide Lessor prior
to the initial request for a Disbursement, with a copy of
the Notice of Commencement and any amendments thereto
prepared in accordance with Ohio Statute and to be recorded
with the County Recorder's Office where the Leased Premises
are situate immediately following the recording of the
Memorandum of Lease between the parties hereto. Lessee
shall post and keep posted the Notice of Commencement and
all amendments thereto in a conspicuous place on the Leased
Premises during the course of construction of the Project.
Lessee further represents and warrants to timely comply with
all provisions of Ohio Statute respecting keeping the Leased
Premises free of mechanic's liens and failure to do so shall
be deemed an Event of Default as defined under the Net Lease
Agreement and this Agreement. Lessee shall provide Lessor
with a copy of each Notice of Furnishing (as defined in Ohio
Statute) received by Lessee during the course of
construction of any Improvements on the Leased Premises.
ARTICLE VII
CONDITIONS PRECEDENT TO A DISBURSEMENT
It shall be a condition precedent to each Disbursement under
this Development Financing Agreement that:
1. DEVELOPMENT FINANCING DOCUMENTS - The Development Financing
Documents shall have been duly executed and delivered to
Lessor and shall be in full force and effect.
2. LESSEE EQUITY - Lessee shall have paid all of the Lessee
Equity funds into the Project before the first Disbursement
(or any subsequent Disbursement if additional Lessee Equity
should be required) and Lessee shall deliver evidence of
such payment reasonably satisfactory to Lessor.
3. DEVELOPMENT FINANCING BALANCE - As of the date immediately
prior to any Disbursement, the total amount of unadvanced
proceeds of the Development Financing shall be sufficient,
in the commercially reasonable opinion of Lessor (the
opinion of Lessor being based upon affidavit of the General
Contractor, the Project Architect, the Inspecting Architect,
or other reliable licensed third party contractor) to
complete the Improvements free of liens. To the extent the
total of the unadvanced proceeds of the Development
Financing shall be insufficient, at any time, in Lessor's
reasonable opinion, (based upon the affidavit as set forth
above) to complete the Improvements, or be less than the
total Construction Costs not yet paid for or not yet
incurred (including interest accruing for the remainder of
the term or extensions thereof, if any), the Lessee shall
immediately deposit with the Lessor or with Title, as
additional Lessee Equity funds, an amount equal to such
deficiency and such additional Lessee Equity funds shall be
disbursed by LTIC-CDD prior to the Disbursement of any
further advance or advances under this Agreement.
4. NO DEFAULT - No event of default, which remains uncured
after the expiration of applicable cure periods, shall exist
under this Agreement or the Development Financing Documents.
5. REPRESENTATIONS AND WARRANTIES - The representations and
warranties in Article V hereof shall be true and correct on
and as of the date of each Disbursement.
6. COVENANTS - Lessee shall have complied with all of the
covenants made by it in Article VI hereof.
7. SWORN CONSTRUCTION STATEMENT - Prior to the initial
disbursement hereunder, the Lessee shall have submitted to
Lessor and Title a Construction Cost Statement or the
Construction Contract (if such information is contained
therein) sworn to by Lessee and Contractors reflecting all
major Sub-Contractors or materialmen who shall then be
engaged in furnishing labor, materials or supplies for the
Improvements. The list should show the name of each and
every Contractor, Sub-Contractor and materialman (or at
least such entities or individuals whose contract is in
excess of $5,000), its address and an estimate of the dollar
value of the work, labor and materials to be done or
supplied and a general statement of the nature of the work
to be done or materials to be supplied by each Contractor.
Thereafter, if such list should change or new subcontractors
shall execute contracts not reflected on the above list, the
Lessee shall furnish to the Lessor any amendments or
additions to the original statement as so submitted.
8. APPLICATION FOR PAYMENT - Lessor shall have received an
Application for Payment pursuant to Article VIII hereof.
9. TITLE - Title shall issue its endorsement to the title
policy dated the date of disbursement of the requested draw
insuring the Lessor as fee owner under the policy in the
aggregate amounts of all prior Disbursements and the
requested Disbursement.
10.WORK IN PLACE - All work or materials for which a
Disbursement is requested shall be in place and incorporated
into the Improvements.
11. AMENDED NOTICE OF COMMENCEMENT - Lessee shall provide
Lessor with any amended Notice of Commencement filed in
accordance with Ohio Statue, and any Notice of Furnishing
(as defined in Ohio Statute) received by Lessee during the
course of construction of any Improvements on the Leased
Premises.
ARTICLE VIII
METHODS OF DISBURSEMENTS OF DEVELOPMENT FINANCING PROCEEDS
The Development Financing shall be disbursed (a "Disbursement")
as follows:
1. PROCEDURE - Not more often than monthly, Lessee may submit
an Application for Payment in the form attached hereto as
Exhibit "C" requesting the Disbursement of proceeds under
the Development Financing, which request shall be submitted
to Lessor and to LTIC-CDD at least five (5) business days
prior to the date on which a Disbursement is requested.
Provided the conditions of this Development Financing
Agreement are met on the date requested for such advance,
Lessor shall advance to LTIC-CDD amounts certified to be
currently payable by Lessee (excluding the retainage
hereinafter specified) for the then incurred portion of
Total Construction Costs pursuant to the Application for
Payment. All costs shall have been approved in writing by
the Project Architect, Lessee, Contractor, and if required
by Lessor, by the Inspecting Architect. All interest
accruing need not be disbursed to LTIC-CDD, but may be
immediately and automatically credited by Lessor to the
Development Financing account. LTIC-CDD shall disburse all
funds advanced to it by Lessor in accordance with the terms
and provisions of this Agreement and any special escrow
requirements imposed by LTIC-CDD as a condition to its
acting as the disbursing agent hereunder. The disbursed
proceeds of the Development Financing shall bear interest
from and including the date of disbursement to LTIC-CDD or
the date of credit by Lessor provided that in the event LTIC-
CDD shall fail to disburse any advances within five (5)
business days after the date set for an advance, LTIC-CDD
shall return said advance to Lessor and interest on such
advance shall abate from and after the date of such return.
Any amounts disbursed to LTIC-CDD and returned by LTIC-CDD
to the Lessor shall not be deemed to be advanced under the
Development Financing Documents. Each Application for
Payment shall clearly set forth the amounts due to Lessee
and to each Contractor out of the requested Development
Financing and shall be accompanied by the following:
a. A Draw Request Certificate in the
form attached hereto as Exhibit "D" certifying that each
contractor or materialman for which payment is requested in
the relevant Application for Payment has satisfactorily
completed the work or furnished the materials for which
payment is requested in accordance with the applicable
contract; that all work for which an Application for Payment
is made substantially conforms to the Contract Documents and
any approved changes, and is in place; and that sufficient
funds remain of the undisbursed Development Financing
proceeds to complete the Project and that all funds
previously disbursed have been applied as per the previous
Application for Payment.
b. Waivers of Mechanics' Liens and
Materialmen's Liens executed by all Contractors for all work
done and all materials furnished to the Leased Premises and
included in such current Application for Payment, or
evidence reasonably required by Title to insure over the
same by special specific endorsement, or such other releases
of lien pursuant to bonding or otherwise to prevent such
liens from attaching to the Leased Premises.
c. Waivers of Mechanics' Liens and
Materialmen's Liens executed by all Sub-Contractors and
workmen and materialmen for all work done and all materials
furnished to the Leased Premises and included in the
immediately preceding Application for Payment, or evidence
reasonably required by Title to insure over the same by
special specific endorsement, or such other releases or lien
pursuant to bonding or otherwise to prevent such liens from
attaching to the Leased Premises.
d. Such other supporting evidence,
including invoices and receipts as may be requested by
Lessor or LTIC-CDD to substantiate all payments which are to
be made out of the Disbursement or to substantiate all
payments then made in respect to the Project.
2. INTEREST ADVANCE - If interest has accrued on the
Development Financing and is unpaid or fees are payable to
the Lessor hereunder, Lessor shall be, and hereby is,
authorized at any time to advance to itself from the
proceeds of the Development Financing the total amount of
such accrued interest and fees, whether or not an
Application for Payment has been submitted by the Lessee and
the same shall be deemed to be an advance of the proceeds of
the Development Financing under this Agreement in the same
manner and with the same effect as if advanced under the
provisions above. It is understood Lessor may establish an
automatic interest reserve whereby Lessor may withdraw from
the Development Financing account on a regular basis the
accrued interest on the Development Financing and credit the
Development Financing balance with the same.
3. ASSESSMENT AND TAX ADVANCE - As taxes and assessments become
due on the Leased Premises, Lessor shall be, and hereby is,
authorized to advance to itself automatically from the
proceeds of the Development Financing, the total amount of
such taxes and assessments and the same shall be deemed to
be an advance of the proceeds of the Development Financing
under this Agreement in the same manner and with the same
effect as if advances under the provisions above, if not
previously paid before due pursuant to Lessee's obligations
under the Lease.
4. DISBURSE UNDER DEVELOPMENT FINANCING DOCUMENT - All sums
advanced and disbursed hereunder shall be disbursed under
and shall be secured by the Development Financing Documents.
5. PAYMENTS TO SUBCONTRACTORS - In its reasonable discretion
LTIC-CDD may make payments directly to any subcontractor or
materialman.
6. RETAINAGE - Each Disbursement shall be limited to an amount
equal to ninety percent (90%) of the value, exclusive of
Contractor's profit and overhead, of the materials and labor
furnished to the Leased Premises and the balance (herein
called the Retainage) shall be retained by Lessor, provided
that thirty (30) days after completion by each subcontractor
or materialman of his subcontract Lessor will disburse to
such party, or to the Contractor on behalf of such party the
Retainage withheld from said party, provided that as a
condition to such disbursement the Lessee and Project
Architect and the Inspecting Architect shall certify to
Lessor the date that such Party's subcontract has been fully
and satisfactorily completed and the subcontractor or
materialmen shall have supplied Title with satisfactory
final lien waivers, including final lien waivers for any of
its submaterialmen or sub- contractors and the requirements
of any bonding company issuing the Bonds shall have been
fulfilled. Any Retainage due the Contractor for work
performed or materials furnished by the Contractor and the
final balance of Contractor's profit and overhead shall be
disbursed on the Final Disbursement Date pursuant to Article
IX hereof. Contractor's profit and overhead shall be
disbursed based upon and in proportion to the percentage of
completion of the Project, or amounts payable under the
Construction Contract for work actually performed, whichever
is less, as certified by the Project Architect.
ARTICLE IX
FINAL DEVELOPMENT FINANCING BALANCE
Unless and until Lessor and Lessee have entered into a mutually
satisfactory escrow holdback and undertaking agreement to,
inter alia, complete the Improvements and otherwise satisfy
the requirements of this Article IX, at no time and in no
event shall Lessor be obligated to disburse the balance of
the proceeds of the Development Financing, including any
Retainage until the date the following have been satisfied
(the "Final Disbursement Date"):
1. Lessor shall have received reasonably satisfactory evidence
of the final completion of the Improvements in substantial
accordance with the Contract Documents and the Certificate
of Final Completion from the Project Architect accepted by
the Contractor and Lessee.
2. Lessor shall have received satisfactory as-built surveys
reflecting the final location of the Improvements as fully
completed on the Leased Premises in accordance with the
Contract Documents, said survey to be prepared by a
registered or licensed surveyor bearing his registry number,
certifying to Lessor as to the legal description of the
Leased Premises and showing all Improvements located on the
Leased Premises and indicating the street address of the
Improvements, absence of any encroachments on the Leased
Premises or from the Leased Premises onto adjacent land,
showing all access points, and showing conformance to all
set back requirements and delineating all utility easements
that are specifically legally described, rights of way and
other matters affecting the Leased Premises, and certifying
as to the total acreage of the land, the exterior dimensions
of the Improvements, and the number of parking spaces, if
any, and such other matters as Lessor may reasonably
request.
3. Lessor shall have received a requisite affidavit of the
Lessee, Contractor and Project Architect, and approved by
the Inspecting Architect certifying as to the final cost of
the Improvements.
4. Title shall have been furnished with such final lien waivers
sufficient in the opinion of Title to dissolve any possible
Mechanic's and Materialman's Liens affecting title to the
Leased Premises or Lessee shall have provided a bond or
other security sufficient to remove the lien as an
encumbrance upon title to the Leased Premises and Title
shall have issued its endorsements to the title policy
increasing the insured coverage to the full amount of all
sums disbursed under this Development Financing Agreement.
5. Lessor shall have received evidence that all of the terms,
provisions and conditions on the part of the Lessee to be
performed or caused to be performed hereunder and under the
Lease, including but not limited to obtaining casualty
insurance for the full insurable value of the Improvements,
have been fulfilled to the satisfaction of Lessor.
6. Lessor shall have received a Final Certificate of Occupancy
issued by the appropriate governmental authority covering
the Improvements and a Certificate of Substantial Completion
from the Project Architect indicating that the Improvements
as built comply with all building codes and zoning
ordinances, including any plat requirements or requirements
of recorded operating covenants or agreements affecting the
Leased Premises.
7. All remaining uncompleted "punch list" items shall have been
satisfactorily completed.
8. The requirements of all bonding companies, if any, with
respect to release of retainage shall have been met.
9. An amendment to the Lease shall be executed by Lessee and
Lessor setting forth the date the first Lease Year shall end
and the Rent for the balance of the first Lease Year, and
evidencing the satisfaction and termination of this
Agreement.
ARTICLE X
EVENTS OF DEFAULT
An "event of default" shall be deemed to have occurred
hereunder and under the Lease, if:
1. DEFAULT UNDER DEVELOPMENT FINANCING DOCUMENTS - Any default
or event of default occurs (which remains uncured after the
expiration of any applicable cure period as may be set forth
in any Development Financing Document) under any of the
Development Financing Documents as defined therein; or
2. FAILURE TO COMPLETE CONSTRUCTION - Lessee shall fail for any
reason, except Lessor's wrongful refusal to fund the
Development Financing pursuant to the terms hereof, to
substantially complete the construction of the Improvements
by the Completion Date; or
3. BREACH OF AGREEMENT - Lessee breaches or fails to perform,
observe or meet any covenant or condition of this Agreement,
provided, however, with respect to non-monetary defaults
hereunder, Lessee shall have twenty days after notice from
Lessor to cure such non-monetary default, or if such default
(but for the payment of monies) cannot be cured within
twenty days, such longer time as may be reasonably necessary
to effect a cure if Lessee is diligently pursuing a course
of conduct reasonably designed to cure the default.; or
4. BREACH OF WARRANTY - Any warranties made or agreed to be
made in any of the Development Financing Documents or this
Agreement shall be breached by Lessee or shall prove to be
false or misleading, and the same shall not be cured or made
to be true and correct within the applicable cure periods;
or
5. FILING OF LIENS AGAINST THE LEASED PREMISES - Any lien for
labor, material, taxes or otherwise shall be filed against
the Leased Premises and such lien shall not be promptly
paid, released, contested in an appropriate forum, or bonded
over to Lessor's reasonable satisfaction before the lien
shall materially adversely affect Lessor's interest in the
Premises; or
6. LITIGATION AGAINST LESSEE - Any suit shall be filed against
Lessee, and is not resolved within 120 days and, which if
adversely determined, could substantially impair the ability
of Lessee to perform each and every one of its obligations
under and by virtue of the Development Financing Documents;
or
7. LEVY UPON THE LEASED PREMISES - A levy be made under any
process on the Leased Premises and such levy shall not be
promptly Bonded over prior to the execution of such levy; or
8. TRANSFER OF LEASED PREMISES - Lessee shall without the prior
written consent of Lessor, voluntarily or by operation of
law, sell, transfer, convey or encumber all or any part of
its interest in the Leased Premises or in any of the
personalty located thereon, or used or intended to be used
in connection therewith; or
9. ABANDONMENT - Lessee abandons the project or delays or
ceases work thereon for a period of fifteen consecutive (l5)
days, or delays construction or suffers construction to be
delayed for any period of time for any reason whatsoever so
that completion of Improvements cannot be accomplished in
the judgment of Lessor on or before the Completion Date,
subject to force majeure; or
10.BANKRUPTCY - Lessee shall make an assignment for the benefit
of its 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 a bankrupt or insolvent
or shall file a petition seeking any reorganization,
dissolution, liquidation, arrangement, composition,
readjustment, or similar relief under any present or future
bankruptcy or insolvency statute, law or regulation, or
shall file an answer admitting to or not contesting the
material allegations of a petition filed against it in any
such proceedings, or shall not have the same dismissed or
vacated, or shall seek or consent or acquiesce in the
appointment of any trustee, receiver or liquidator of a
material part of its properties, or shall not after the
appointment without the consent or acquiescence of it of a
trustee, receiver, or liquidator of any material part of its
properties have such receiver, liquidator or appointment
vacated; or
11.EXECUTION LEVY - Execution shall have been levied against
the Leased Premises or any lien creditors commence suit to
enforce a judgment lien against the Leased Premises or such
action or suit shall have been brought and shall not be
immediately bonded over and shall continue unstayed and in
effect for a period of more than 120 consecutive days; or
12.ATTACHMENT - Any part of the Lessor's commitment to make the
advances hereunder shall at any time be subject or liable to
attachment or levy at the suit of any creditor of the Lessee
or at the suit of any subcontractor or creditor of the
Contractor and shall remain unstayed prior to the time
Lessor shall be obligated to comply with the same.
ARTICLE XI
REMEDIES OF LESSOR
Lessee hereby agrees that the occurrence of any one or more of
the events of default set out in Article X hereof, shall
also constitute an event of default under each of the
Development Financing documents, thereby entitling Lessor,
after the expiration of any applicable cure period, at its
option, to proceed to exercise any or all of the following
remedies:
1. EXERCISE OF REMEDIES - To exercise any of the various
remedies provided in any of the Development Financing
Documents, including the acceleration of the Put described
in Articles XIV hereof;
2. CUMULATIVE RIGHTS - Cumulatively to exercise all other
rights, options and privileges provided by law;
3. CEASE MAKING ADVANCES - To refrain from making any advances
under this Agreement but Lessor may make advances after the
happening of any such event without thereby waiving the
right to refrain from making other further advances or to
exercise any of the other rights Lessor may have.
4. RIGHTS TO ENTER - To require Lessee to vacate the Leased
Premises and permit Lessor (whether prior to the exercise of
the Put or during any period prior to the closing of the
sale pursuant to the Put;
(a) To enter into possession;
(b) To perform or cause to be
performed any and all work and labor necessary to complete
the Improvements in accordance with the Plans and
Specifications;
(c) To employ security watchmen to protect the Leased
Premises; and
(d) To disburse that portion of the
Development Financing Proceeds not previously disbursed
(including any Retainage) to the extent necessary to
complete the construction of the Improvements in accordance
with the Contract Documents and if the completion requires a
larger sum than the remaining undisbursed portion of the
Development Financing, to disburse such additional funds,
all of which funds so disbursed by Lessor shall be deemed to
have been disbursed to Lessee. For this purpose, Lessee
hereby consents upon an uncured default by Lessee after the
expiration of any applicable notice and cure period, to the
Lessor taking the following actions, or not, in Lessor's
reasonable discretion: to complete the construction of the
Improvements in the name of the Lessee, and hereby empowers
Lessor to take all actions necessary in connection therewith
including but not limited to using any funds of Lessee
including any balance which may be held in escrow and any
funds which may remain unadvanced hereunder for the purpose
of completing the said portion of the Improvements in the
manner called for by the Contract Documents; to make such
additions and changes and corrections in the Contract
Documents which shall be necessary or desirable to complete
the said portion of the Improvements in substantially the
manner contemplated by the Contract Documents; to employ
such contractors, subcontractors, agents, architects, and
inspectors as shall be required for said purposes; to pay,
settle or compromise all existing or future bills and claims
which are or may be liens against said Leased Premises, or
may be necessary or desirable for the completion of the said
portion of the Improvements or the clearance of title to the
Leased Premises; to execute all applications and
certificates in the name of Lessee which may be required by
any construction contract and to do any and every act with
respect to the construction of the said portion of the
Improvements which Lessee may do in its own behalf. Lessor
shall also have power to prosecute and defend all actions
and proceedings in connection with the construction of the
said portion of the Improvements and to take such action and
require such performance as it deems necessary. In
accordance therewith, Lessee hereby assigns and quitclaims
unto Lessor all sums to be advanced hereunder including
Retainage. Any funds so disbursed or fees or charges so
incurred shall be included in any amount necessary for the
Lessee to pay pursuant to the Put.
(e) To discontinue making advances
hereunder to the Lessee and to terminate Lessor's
obligations under this Agreement.
5. RIGHTS NON CUMULATIVE - No right or remedy by this Agreement
or by any Development Financing Document or instrument
delivered by the Lessee pursuant hereto, conferred upon or
reserved to the Lessor shall be or is intended to be
exclusive of any other right or remedy and each and every
right and remedy shall be cumulative and in addition to any
other right or remedy or now or hereafter arising at a law
or in equity or by statute. Except as Lessor may hereafter
otherwise agree in writing, no waiver by Lessor or any
breach by or default of Lessee of any of its obligations,
agreements, or covenants under this Agreement shall be
deemed to be a waiver of any subsequent breach of the same
or any other obligation, agreement or covenant, nor shall
any forbearance by Lessor to seek a remedy for such breach
be deemed a waiver of its rights and remedies with respect
to such a breach, nor shall Lessor be deemed to have waived
any of its rights and remedies unless it be in writing and
executed with the same formality as this Agreement.
6. EXPENSES - The Development Financing and this Agreement and
the performance by the Lessor or Lessee of their obligations
hereunder shall be without cost and expense to the Lessor,
all of which costs and expenses the Lessee agrees to pay and
hold Lessor harmless of and payment of which shall be
secured by the Development Financing Documents.
Specifically, Lessee agrees to pay all title charges,
surveyor's fees, appraisals, loan fees and attorney's fees
and costs and the like incurred in connection with this
Agreement.
ARTICLE XII
GENERAL CONDITIONS AND MISCELLANEOUS
The following conditions shall be applicable throughout the
term of this Agreement:
1. RIGHTS OF THIRD PARTIES - All conditions of the obligations
of Lessor hereunder, including the obligation to make
disbursements are imposed solely and exclusively for the
benefit of Lessee, and no other person shall have standing
to require satisfaction of such conditions in accordance
with their terms or be entitled to assume that Lessor will
refuse to make advances in the absence of strict compliance
with any or all thereof, and no other person shall, under
any circumstances, be deemed to be a beneficiary of such
conditions, any and all of which may be freely waived in
whole or in part by Lessor at any time if in its sole
discretion it deems it desirable to do so. In particular,
Lessor makes no representations and assumes no duties or
obligations as to third parties concerning the quality of
the construction of the Improvements or the absence
therefrom of defects. In this connection, Lessee agrees to
and shall indemnify Lessor from any liability, claims or
losses resulting from the disbursement of the Development
Financing proceeds or from the condition of the Leased
Premises whether related to the quality of construction or
otherwise and whether arising during or after the term of
the Development Financing made by Lessor to Lessee in
connection therewith, except for Lessor's gross negligence
or willful misconduct. This provision shall survive the
termination of this Agreement and shall continue in full
force and effect so long as the possibility of any such
liability, claims or losses exists.
2. EVIDENCE OF SATISFACTION OF CONDITIONS - Any condition of
this Agreement which requires the submission of evidence of
the existence or non- existence of a specified fact or facts
implies as a condition the existence or non- existence, as
the case may be, of such fact or facts, and Lessor shall, at
all times, be free independently to establish to its
reasonable satisfaction such existence or non-existence.
3. ASSIGNMENT - Lessee may not assign this Development
Financing Agreement or any of its rights or obligations
hereunder without the prior written consent of Lessor.
4. SUCCESSORS AND ASSIGNS - Whenever in this Agreement one of
the parties hereto is named or referred to, the heirs, legal
representatives, successors and assigns of such parties
shall be included and all covenants and agreements contained
in this Agreement by or on behalf of the Lessee or by or on
behalf of the Lessor shall bind and inure to the benefit of
their respective heirs, legal representatives, successors
and assigns, whether so expressed or not.
5. HEADINGS - The headings of the sections, paragraphs and
subdivisions of this Agreement are for the convenience of
reference only, and are not to be considered a part hereof
and shall not limit or otherwise affect any of the terms
hereof.
6. INVALID PROVISIONS TO AFFECT NO OTHERS - If fulfillment of
any provision hereof, or any transaction related thereto at
the time performance of any such provision shall be due,
shall involve transcending the limit of validity prescribed
by law, then, ipso facto, the obligation to be fulfilled
shall be reduced to the limit of such validity; and such
clause or provision shall be deemed invalid as though not
herein contained, and the remainder of this Agreement shall
remain operative in full force and effect.
7. NUMBER AND GENDER - Whenever the singular or plural number,
masculine or feminine or neuter gender is used herein, it
shall equally include the other.
8. AMENDMENTS - Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by the party against
whom enforcement of the change, waiver, discharge or
termination is sought.
9. NOTICES - Any notice which any party hereto may desire or
may be required to give to any of the parties shall be in
writing and the mailing thereof by certified mail, or
equivalent, to the respective parties' addresses set forth
hereinabove or to such other place such party may by notice
in writing designate as its address shall constitute service
of notice hereunder.
10.GOVERNING LAW - This Development Financing Agreement is made
and executed pursuant to and is intended to be governed by
the laws of the State where the Leased Premises are located.
11. FORCE MAJEURE - Anything in this Agreement to the contrary
notwithstanding, Lessee shall not be deemed in default with
respect to the performance of any of the terms, provisions,
covenants, and conditions of this Agreement (except for the
payment of all other monetary sums payable hereunder, to
which the provisions of this Section shall not apply), if
the same shall be due to any strike, lockout, civil
commotion, warlike operations, invasion, rebellion,
hostilities, sabotage, governmental regulations or controls,
impracticability of obtaining any materials or labor (except
due to the payment of monies), shortage or unavailability of
a source of energy or utility service, Act of God, casualty,
adverse weather conditions, or any cause beyond the
reasonable control of Lessee (except due to the payment of
monies). Provided, however, in order to invoke the
extension of the Completion Date afforded by this section,
Lessee shall notify Lessor in writing within five days of
the occurrence of such force majeure, and in any event the
Completion Date shall be extended as a result of such
occurrence no more than reasonably necessary and in no event
no more than 90 days.
ARTICLE XIII
DAMAGE, DESTRUCTION, CONDEMNATION, USE OF INSURANCE PROCEEDS
1. DAMAGE OR DESTRUCTION OF THE LEASED PREMISES. Lessee
will give the Lessor prompt notice of any damage to or
destruction of the Leased Premises and in case of loss
covered by policies of insurance the Lessor (whether before
or after the exercise of the Put if Lessee be in default
hereof) is hereby authorized at its option to settle and
adjust any claim arising out of such policies and collect
and receipt for the proceeds payable therefrom, provided,
that the Lessee may itself adjust and collect for any losses
arising out of a single occurrence aggregating not in excess
of $50,000.00. Any expense incurred by the Lessor in the
adjustment and collection of insurance proceeds (including
the cost of any independent appraisal of the loss or damage
on behalf of Lessor) shall be reimbursed to the Lessor first
out of any proceeds. The proceeds or any part thereof shall
be applied to reduction of the Put Price, which Put may then
be exercised by Lessor, without the application of any
prepayment premium, or to the restoration or repair of the
Leased Premises, the choice of application to be solely at
the discretion of Lessor.
2. CONDEMNATION. Lessee will give the Lessor prompt notice
of any action, actual or threatened, in condemnation or
eminent domain affecting the Leased Premises and hereby
assigns, transfers, and sets over to the Lessor the entire
proceeds of any award or claim for damages for all or any
part of the Leased Premises taken or damaged under the power
of eminent domain or condemnation, the Lessor being hereby
authorized to intervene in any such action and to collect
and receive from the condemning authorities and give proper
receipts and acquittances for such proceeds. Lessee will
not enter into any agreements with the condemning authority
permitting or consenting to the taking of the Leased
Premises unless prior written consent of Lessor is obtained.
Any expenses incurred by the Lessor in intervening in such
action or collecting such proceeds shall be reimbursed to
the Lessor first out of the proceeds. The proceeds or any
part thereof shall be applied to reduction of the Put Price,
which Put may then be exercised by Lessor, without the
application of any prepayment premium, or to the restoration
or repair of the Leased Premises, the choice of application
to be solely at the discretion of Lessor.
3. DISBURSEMENT OF INSURANCE AND CONDEMNATION PROCEEDS.
Any restoration or repair shall be done under the
supervision of an architect acceptable to Lessor and
pursuant to plans and specifications approved by the Lessor.
Subject to paragraph 4 below, in any case where Lessor may
elect to apply the proceeds to repair or restoration or
permit the Lessee to so apply the proceeds they shall be
held by Lessor for such purposes and will from time to time
be disbursed by Lessor to defray the costs of such
restoration or repair under such safeguards and controls as
Lessor may reasonably require to assure completion in
accordance with the approved plans and specifications and
free of liens or claims. Lessee shall on demand deposit
with Lessor any sums necessary to make up any deficits
between the actual cost of the work and the proceeds and
provide such lien waivers and completion bonds as Lessor may
reasonably require. Any surplus which may remain after
payment of all costs of restoration or repair shall be
applied against the rent then most remotely to be paid,
whether due or not, without application of any prepayment
premium or credit.
4. LESSOR TO MAKE PROCEEDS AVAILABLE. In the event of
insured damage to the improvements or in the event of a
taking by condemnation of only a portion of the improvements
or land area of the Leased Premises, and provided, the
portion remaining can with restoration or repair continue to
be operated for the purposes utilized immediately prior to
such damage or taking, and if the appraised value of the
Leased Premises after such restoration or repair shall not
have been reduced, and provided further, no event of default
exists under this Agreement after the expiration of any
applicable cure periods and Lessee is diligently pursuing a
course of conduct reasonably designed to cure such default,
and the Lessee certified to Lessor their intention to remain
in possession of the Leased Premises without any abatement
or adjustment of rental payments, the Lessor agrees to make
the proceeds available to the restoration or repair of the
improvements on the Leased Premises in accordance with the
provisions of paragraph 3 hereof.
ARTICLE XIV
MANDATORY PUT UPON DEFAULT
Should Lessee commit an event of Default under this
Agreement or any Development Financing Document (after the
expiration of any applicable notice and cure period)
("Uncured Default"), Lessor shall have the following rights:
Upon an Uncured Default, or damage or destruction or
condemnation of the Leased Premises not addressed by
paragraph XIII (4), if Lessor elects to exercise the
following option, Lessee shall purchase the Leased Premises
from Lessor subject to the following terms and conditions:
A. The purchase price at which
Lessor shall sell the Leased Premises to Lessee, shall
be the total amount of Initial Disbursed Funds
disbursed by Lessor to acquire the Leased Premises at
the Closing Date (as defined in the Commitment), plus
the total amount of funds disbursed pursuant to this
Agreement, plus all accrued interest and incurred
expenses of Lessor fundable pursuant to this Agreement,
plus all reasonable costs of collection and enforcement
of the terms hereof.
B. At such time as Lessor shall
elect to sell the Leased Premises, Lessor shall give
Lessee written notice of its intent to exercise its
option to sell the Leased Premises to Lessee, including
in such notice Lessor's calculation of the Purchase
Price through the actual closing of the sale of the
Leased Premises to Lessee pursuant to the terms hereof
(the "Sale Date"), which shall be sixty days from such
notice by Lessor. Lessee shall on or before the Sale
Date deliver the purchase price as set forth in
subparagraph (A) of this Article to Lessor. Upon such
delivery, which shall be preceded by ten (10) days
notice to Lessor, Lessor shall deliver to Lessee a
warranty deed and appropriate affidavits evidencing
that Lessor transfers the Leased Premises to Lessee
subject to restrictions, easements or other
encumbrances upon title existing as of the date of
delivery, if any, except to the extent, if any, placed
of record or caused by Lessor. The purchase price to
be paid to Lessor shall be a net amount. All expenses
in connection with the transfer of the Leased Premises,
including, but not limited to appraisal fees, title
insurance, recording fees, documentary stamps,
conveyance tax, title evidence, and all other closing
costs, shall be paid by the Lessee. The purchase price
shall be paid by Lessee in cash to Lessor concurrently
with the conveyance of the Leased Premises by the
Lessor to the Lessee. If Lessor elects to sell the
Leased Premises to Lessee pursuant to the terms hereof,
the Leased Premises shall be conveyed by the Lessor to
the Lessee "As Is".
If Lessee shall fail to pay the Purchase Price on or before
the Sale Date, Lessor may terminate the Lease, and sell the
Leased Premises to any third party purchaser. Lessor may
then send Lessee notice of the shortfall (the "Deficiency"),
if any, between the amount of the net proceeds received by
Lessor in such sale, and the total amount of Initial
Disbursed Funds disbursed by Lessor to acquire the Parcel at
the Closing Date (as defined in the Commitment), plus the
total amount of funds disbursed pursuant to this Agreement,
plus all accrued interest and incurred expenses of Lessor
fundable pursuant to this Agreement, plus all reasonable
costs of collection and enforcement of the terms hereof.
Lessee shall immediately upon receipt of such notice of
Deficiency remit the amount of the Deficiency in good funds
to Lessor.
Lessor's rights under this Mandatory Put shall expire on the
Final Disbursement Date when the amendment to the Lease has
been executed by all parties as set forth in Article IX
hereof.
ARTICLE XV
RENT, INTEREST, AND RENTAL MODIFICATION DATE
1. Rent shall be payable by Lessee and calculated as follows,
on the funds advanced by Lessor on the Closing Date for the
purchase of the land and related closing costs (the "Initial
Disbursed Funds"): Rent shall accrue in the amount of
$3,159.06 per month absent an uncured Default by Lessee;
absent an uncured Default, accrued rent during the period of
construction of the Improvements prior to the Rental
Modification Date shall not be payable until the Final
Disbursement Date. Upon the occurrence of an uncured
Default, all accrued rent shall be immediately due and
payable.
On the Rental Modification Date, if not otherwise in default
hereunder, Lessee shall begin paying Rent by the first of
each month (prorata for the balance of any partial month in
which the Rental Modification Date occurs, payable with the
first such adjusted Rent payable on the first day of the
first full month following the Rental Modification Date) in
the amount of $3,781.30 per month out of pocket. On the
Final Disbursement Date, absent an Uncured Default, Rent
shall be adjusted and documented by the lease amendment
contemplated in Article IX hereof and paid to Lessor as
described in Article F. of the Commitment.
2. Disbursed proceeds of the Development Financing shall
accrue interest at a rate of Eight and one-quarter percent
(8.25%) per annum, which interest shall accrue unpaid unless
advanced by Lessor to itself, or Lessee shall default
hereunder, which default shall remain uncured after the
expiration of any applicable notice and cure period.
However, one hundred and twenty days (120) from the date
hereof, (the "Rental Modification Date"), Lessee shall begin
making monthly payments of subsequently accruing interest at
the rate of 9.875% per annum out of pocket ("Out of Pocket
Invoiced Interest") within 5 days after invoice from Lessor.
3. Upon the occurrence of an event of default which
remains uncured after the expiration of applicable notice
and cure periods, disbursed proceeds of the Development
Financing shall accrue interest at a rate of Fifteen Percent
(15.0%) per annum, or the highest rate allowed by law,
whichever is less, and the rental rate on the Initial
Disbursed funds shall increase to Fifteen Percent (15.0%)
per annum, or the highest rental rate allowed by law,
whichever is less.
ARTICLE XVI
COUNTERPART EXECUTION
Counterpart Execution. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an
original and all of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, Lessee and Lessor have hereunto caused
these presents to be executed on the date first above
written.
Tumbleweed, Inc., a Delaware
Corporation
By:
Its:
By:
Its:
[Lessor's Signature appears on following page.]
AEI INCOME & GROWTH FUND 23 LLC
By: AEI Fund Management XXI, Inc.
By: ____________________________________
Robert P. Johnson, President
Exhibit B
TUMBLEWEED, INC. KETTERING, OH
PROJECT COST BUDGET OCTOBER 27, 1999
LAND AND HARD COSTS:
Land Acquisition Cost $ 450,000.00
Building/General Construction 453,000.00
Sitework $ 175,000.00
Owner Vendors
Landscaping 13,000.00
Dimmer Panels 4,560.00
Wains Coating/Trim 13,185.00
Electrical Panels 6,200.00
Air Balance 1,600.00
Lighting 5,275.00
HVAC 19,500.00
Joists 13,230.00
Construction Contingency-10.0% 78,205.00
SUBTOTAL HARD COSTS $ 1,232,755.00
Soft Costs:
Survey 2,500.00
Appraisal 3,500.00
Phase I Environmental 2,500.00
Permits/TAP Fees 9,000.00
Architect/Engineering 20,750.00
Title Insurance & Closing Costs 10,000.00
Development Interest 15,500.00
Attorney's Fees- AEI
(Construction/Sale/Leaseback) 10,000.00
Attorney's Fees-Borrower
(Construction/Sale/Leaseback) 2,500.00
AEI Sale/Leaseback Commitment Fee 2% 26,640.00
AEI Credit Report Fees (Promesa) 500.00
AEI State Qualification Fees 1,500.00
AEI Site Inspection Fee 1,500.00
Tumbleweed Parcel Development Fee 12,636.00
AEI 1% Reimbursement 13,320.00
Miscellaneous 4,899.00
SUBTOTAL SOFT COSTS $ 139,245.00
TOTAL PROJECT COST $ 1,372,000.00
Exhibit C to Development Financing Agreement
APPLICATION FOR PAYMENT
Tumbleweed, Inc. ("Lessee") hereby requests a
disbursement in the amount of______________________
($____________________) pursuant to that certain Development
Financing Agreement dated effective as of November _____,
1999 by and between Lessee and AEI Income & Growth Fund 23
LLC ("Lessor"). The amounts requested have been or will be
used to pay the items identified on Exhibit "A" attached
hereto and made a part hereof.
After payment of the amounts requested herein, the
balance of undisbursed Development Financing proceeds of
$_____________________ will be sufficient to complete
construction and pay all related project costs currently
known and approved by Lessor. In the event of cost overruns
which cannot be accounted for by re-allocation among line
items, Lessee agrees to contribute the necessary equity to
complete construction pursuant to Development Financing
Agreement and Development Financing Disbursement Agreement.
All representations and warranties made by the Lessee
in the Development Financing Documents (as defined in the
Development Financing Agreement) are true and correct as of
the date hereof and Lessee is not in default of any of the
provisions thereof.
The total cost of the items for which Lessor is funding
is estimated to be $1,372,000. To date,
$______________(exclusive of this request) has been
disbursed pursuant to the Development Financing Disbursing
Agreement.
Dated:______________________________
Lessee:
Tumbleweed, Inc., a Delaware corporation
By:
Its:
Lessee
Exhibit D-1 to Development Financing Agreement
DRAW REQUEST CERTIFICATE
This Certificate made by Tumbleweed, Inc.("Lessee").
RECITALS
WHEREAS, Lessee and AEI Income & Growth Fund 23 LLC
("Lessor") have entered into a Development Financing
Agreement dated effective as of November ,
1999 (the "Development Financing Agreement") pursuant to
which Lessor agreed to make Development Financing Proceeds
in the amount of $1,372,000 available to Lessee for the
purpose of constructing a Tumbleweed Restaurant on certain
real property described on Exhibit "A" attached to the
Development Financing Agreement ("Project"); and
WHEREAS, Lessee and Contractor have entered into a
contract dated , 1999, ("Construction Contract");
and
WHEREAS, the Development Financing Agreement requires
the submission to Escrowee and Lessor of this Certificate
prior to the advancement of any loan proceeds under the
Development Financing Agreement.
NOW, THEREFORE, Lessee does hereby certify to Escrowee
and Lessor as follows:
1. This Draw Request for the period from
____________________________, 1999 to _____________________,
1999, showing work completed to date of $
and requesting a current payment of
$________________________ relates to costs incurred pursuant
to the Construction Contract, and other line items, all as
shown on the Development Financing Budget attached to the
Development Financing Agreement, and are costs only
pertaining to the Project and are included in the
Development Financing Agreement.
2. As of the date of this Draw Request, the balance
remaining due for all costs under the Construction Contract,
including retainage and approved change orders, to complete
the Project after receipt of payments requested herein will
be $________________.
3. As of the date of this Draw Request, the remaining
balance due on the Development Financing Agreement as set
forth above is sufficient to complete the Project in
accordance with the Plans and Specifications (as defined in
the Development Financing Agreement) to the degree set forth
by the Development Financing Agreement.
4. That all work covered by this Draw Request has been
completed in accordance with the Construction Contract,
Plans and Specifications, and any amendments thereto
approved by Lessor.
5. That all work completed to date conforms to the
Construction Contract, Plans and Specifications, and any
amendments thereto approved by Lessor.
6. That all funds previously disbursed for costs
incurred pursuant to the Construction Contract under the
Development Financing Agreement have been applied as
provided in all previous Draw Request Certificates.
7. That as of the date hereof, to the best of Lessee's
knowledge after due inquiry, the Project complies with the
requirements of all zoning and building laws, ordinances,
regulations and permits; the requirements of all
governmental agencies having jurisdiction over the Project;
and there is no action or proceeding pending before any
court or administrative agency with respect to such laws,
ordinances, regulations and/or any certifications or permits
issued thereunder.
Dated this ______ day of ____________________, 1999.
Lessee: Tumbleweed, Inc.
By:________________________
Its________________________
STATE OF )
)ss.
COUNTY OF )
I, _______________________________________________, a
Notary public of the said State and County do hereby certify
that _________________________________________ personally
appeared before me this day and he is the
____________________________ of Tumbleweed, Inc., and that
by authority duly given and as the act of the corporation,
the foregoing instrument was signed in its name by its
_______________________________, on behalf of said
corporation.
Witness my hand and official stamp or seal, this ______
day of _________________, 1999.
____________________________
My commission expires:________ Notary Public
CONTRACTOR AND ARCHITECT
Exhibit D-2 to Development Financing Agreement
DRAW REQUEST CERTIFICATE
This Certificate made by ,("Contractor"),
AND ("Architect").
RECITALS
WHEREAS, Tumbleweed, Inc.. ("Lessee") and AEI Income &
Growth Fund 23 LLC ("Lessor") have entered into a
Development Financing Agreement dated effective as of
, 1999 (the "Development Financing Agreement") pursuant to
which Lessor agreed to make Development Financing Proceeds
in the amount of $1,372,000 available to Lessee for the
purpose of constructing a Tumbleweed Restaurant on certain
real property described on Exhibit "A" attached to the
Development Financing Agreement ("Project"); and
WHEREAS, Lessee and Contractor have entered into a
contract dated , 1999, ("Construction Contract");
and
WHEREAS, Lessee and Architect have entered into a
contract dated , 1999, ("Architect Contract");
and
WHEREAS, the Development Financing Agreement requires
the submission to Escrowee and Lessor of this Certificate
prior to the advancement of any loan proceeds under the
Development Financing Agreement.
NOW, THEREFORE, Contractor and Architect do hereby
certify to Escrowee and Lessor as follows:
1. This Draw Request for the period from
____________________________, 1999 to _____________________,
1999, showing work completed to date of $
and requesting a current payment of
$________________________ relates to costs incurred pursuant
to the Construction Contract, and are costs only pertaining
to the Project.
2. As of the date of this Draw Request, the balance
remaining due for all costs under the Construction Contract,
including retainage and approved change orders, to complete
the Project after receipt of payments requested herein will
be $________________.
3. As of the date of this Draw Request, the remaining
balance due on the Construction Contract as set forth above
is sufficient to complete the Project in accordance with the
Plans and Specifications (as defined in the Construction
Contract) to the degree set forth by the Construction
Contract.
4. That all work covered by this Draw Request has been
completed in accordance with the Construction Contract,
Plans and Specifications, and any amendments thereto
approved by Lessor.
5. That each subcontractor or materialmen for which
payment is requested in this Draw Request has satisfactorily
completed the work or furnished materials for which payment
is requested in accordance with the Construction Contract.
6. That all work completed to date conforms to the
Construction Contract, Plans and Specifications, and any
amendments thereto approved by Lessor.
7. That all funds previously disbursed for costs
incurred pursuant to the Construction Contract have been
applied as provided in all previous Draw Request
Certificates.
8. That as of the date hereof, to the best of
Contractor's and Architect's knowledge after due inquiry,
the Project complies with the requirements of all zoning and
building laws, ordinances, regulations and permits; the
requirements of all governmental agencies having
jurisdiction over the Project; and there is no action or
proceeding pending before any court or administrative agency
with respect to such laws, ordinances, regulations and/or
any certifications or permits issued thereunder.
Dated this ______ day of ____________________, 1999.
CONTRACTOR:
By:
Its:
ARCHITECT:
By:
Its:
STATE OF )
)ss.
COUNTY OF )
I, _______________________________________________, a
Notary public of the said State and County do hereby certify
that _________________________________________ personally
appeared before me this day and he is the
____________________________ of
, a corporation, and that by authority duly
given and as the act of the corporation, the foregoing
instrument was signed in its name by its
_______________________________, on behalf of said
corporation.
Witness my hand and official stamp or seal, this ______
day of _________________, 1999.
_____________________
My commission expires:________ Notary Public
STATE OF )
)ss.
COUNTY OF )
I, _______________________________________________, a
Notary public of the said State and County do hereby certify
that _________________________________________ personally
appeared before me this day and he is the
____________________________ of
, a corporation, and that by authority duly
given and as the act of the corporation, the foregoing
instrument was signed in its name by its
_______________________________, on behalf of said
corporation.
Witness my hand and official stamp or seal, this ______
day of _________________, 1999.
_________________________________________
My commission expires:________ Notary Public
EXHIBIT `H'
FORM OF
DEVELOPMENT FINANCING DISBURSEMENT AGREEMENT
DEVELOPMENT FINANCING DISBURSEMENT AGREEMENT
THIS AGREEMENT, made and entered into effective as of this
day of November, 1999, by and among Tumbleweed, Inc.
(hereinafter referred to as the "Lessee"), Lawyers Title
Insurance Corporation - Construction Disbursement Department
(hereinafter referred to as "LTIC-CDD" or "Title"), and AEI
Income & Growth Fund 23 LLC, a Minnesota limited liability
company, whose corporate Managing Member is AEI Fund
Management XXI, Inc., a Minnesota corporation; whose
principal business address is 1300 Minnesota World Trade
Center, 30 East Seventh Street, St. Paul, Minnesota 55101
(hereinafter referred to as the "Lessor").
WITNESSETH:
WHEREAS, the Lessor and Lessee have entered into that
certain Net Lease Agreement and that certain Development
Financing Agreement of even date herewith (hereinafter
referred to as the "Lease" or the "Development Financing
Agreement") pursuant to which Lessor has agreed to make
advances to the Lessee in the aggregate principal amount of
up to and including $1,372,000 upon the terms and conditions
therein set forth; and
WHEREAS, LTIC-CDD acknowledges receipt of an executed
copy of the Development Financing Agreement for the
reference purposes as specifically cross-referenced herein;
and
WHEREAS, the Lessor desires that LTIC-CDD disburse the
advances made by the Lessor under the Development Financing
Agreement, and LTIC-CDD is willing to do so, on the terms
and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the terms of the
Lease and the Development Financing Agreement and other good
and valuable consideration, the receipt and the sufficiency
of which is hereby acknowledged, the parties hereto agree as
follows:
1. For purposes of this Agreement, unless the context
otherwise requires, all words used herein which
are defined in the Development Financing Agreement
shall have the same meaning as is given to them in
the Development Financing Agreement.
2. At the request of the Lessee, the Lessor will
deposit with LTIC-CDD from time to time
undisbursed proceeds of the Development Financing.
3. LTIC-CDD is authorized and directed to disburse
the funds deposited hereunder to:
a. Pay costs of construction of the improvements
to be erected on the above leased premises.
b. Obtain releases and satisfaction of liens and
other encumbrances, if any, pursuant to
statements of amounts due which must be
approved by the Lessor.
4. The Inspecting Architect, if any, is to be
selected by Lessor at Lessor's option and the
General Contractor is to be a contractor selected
by Lessee, licensed to do business in the state
wherein the Leased Premises are located and
selected by Lessee.
5. Prior to the first disbursement of funds
hereunder, it is a requirement of this Agreement
that LTIC-CDD be furnished:
a. A sworn Lessee statement disclosing the
various contracts entered into by the Lessee
and setting forth the names (when under
contract) of the contractors, their
addresses, work or materials to be furnished,
amounts of the contracts (if in excess of
$5,000), amounts paid to date and balance due
and the names of all parties who have lien
rights on the Leased Premises pursuant to
applicable Ohio Statute and copies of said
notice;
b. A sworn General Contractor's statement
setting forth in detail all contractors and
material suppliers with whom it has
contracted to date for or in connection with
the improvements to the Leased Premises,
their addresses, work or materials to be
furnished, amounts of the contracts (if in
excess of $5,000), amounts paid to date, and
balance due and the names of all parties who
have lien rights on the Leased Premises
pursuant to applicable Ohio Statute and
copies of said notice;
c. An approval by the Lessor for the purposes of
loan disbursement of the General Contractor's
statement and the Lessee's statement, which
are provided at 5.a. and 5.b. above.
d. Copies of the contracts with the Architect,
General Contractor and any other construction
contracts required by LTIC-CDD.
6. Prior to each disbursement of funds hereunder, it
is a requirement of this Agreement that LTIC-CDD
be furnished:
a. An Application for Payment in the form
attached to the Development Financing
Agreement as Exhibit "C".
2. A Draw Request Certificate in the form attached to the
Development Financing Agreement as Exhibit "D".
c. Sufficient funds to cover the requested
disbursements, and to pay for extras or
change orders for which waivers have not been
deposited and for which funds have not
previously been deposited.
d. Sufficient funds to cover unpaid title and
escrow charges.
e. Statements, waivers, affidavits, supporting
waivers and releases of lien (if necessary)
satisfactory to LTIC-CDD and Lessor.
f. Approval of Lessor of the relevant
Application for Payment.
g. Updated Sworn Lessee Statement as set forth
in paragraph 5(a) above.
h. Updated Sworn Contractors Statement as set
forth in paragraph 5 (b) above.
7. Not later than five (5) business days following
receipt of the documents delivered to it pursuant
to Paragraph 6, LTIC-CDD will orally notify the
Lessor (i) whether the delivered documents are
satisfactory to it and (ii) whether it has
received lien waivers from all contractors who
should have been paid by it from the proceeds of
the disbursement made in response to the previous
Application for Payment. If waivers are missing,
LTIC-CDD will promptly advise Lessor and Lessee,
in reasonable detail, of the deficiency or missing
lien waivers, as the case may be. If such
deficiency is corrected to the reasonable
satisfaction of the Lessor, or if missing lien
waivers are furnished to LTIC-CDD, or if the
Lessor is initially notified by LTIC-CDD that the
documents delivered to it are satisfactory and
that such lien waivers have been delivered by it,
the Lessor will (on the requested date of
disbursement) transmit to LTIC-CDD the amount of
the disbursement applied for in the relevant
Application for Payment, less an amount sufficient
to pay interest on the Note and fees of the
Inspector/Architect, if any, which have accrued
and are payable in connection with the relevant
Application for Payment, by transfer of such funds
to LTIC-CDD for deposit in LTIC-CDD's Account.
8. Upon receiving the funds transmitted by Lessor
pursuant to Paragraph 7, LTIC-CDD will pay the
Lessee and\or Contractor directly the amount in
the relevant Application for Payment under the
terms and conditions described herein, or, if less
because Lessee Equity is required to bring the
Development financing into balance as set forth in
the Development Financing Agreement, the amount
approved by the Lessor. If direct disbursements
are required by Lessor to the parties disclosed in
the Application for Payment as being entitled to
receive payment, a sworn statement from the Lessee
and\or Contractor must be furnished disclosing all
parties to be paid and the amount to be paid.
Direct disbursements will be undertaken only the
written direction to do so from Lessor. If, for
any reason any of said funds on deposit in LTIC-
CDD's account are not disbursed by LTIC-CDD by the
close of business on the twelfth (12) business day
following credit of funds to its accounts, (if not
sooner requested to do so by Lessee) LTIC-CDD will
forthwith remit to the Lessor, in immediately
available funds, the amount of the funds in such
account that were not so disbursed. LTIC-CDD
shall not be liable to Lessor for interest on the
funds deposited with it, except and to the extent
that LTIC-CDD fails to remit to Lessor undisbursed
funds deposited with it in accordance with this
Paragraph 8, in which event interest shall be at
the rate provided in the Note and shall be payable
on demand.
9. LTIC-CDD will keep and maintain, at all times,
full, true and accurate books and records, in
sufficient detail to reflect the disbursements
made by it hereunder. The Lessor may during
normal business hours, examine all books and
records of LTIC-CDD pertaining to disbursements
made by it hereunder and make extracts therefrom
and copies thereof.
10. As LTIC-CDD makes a partial disbursement of
Development Financing Proceeds hereunder, it will
cause Title to furnish the Lessor the following:
ALTA down-date endorsement and upon final
advance, deletion of pending disbursement
clause.
11. Prior to the final disbursement of funds
hereunder, it is a requirement of this Agreement
that LTIC-CDD furnish to Lessor a Commitment for a
ALTA Owner's Policy of Title Insurance prepared by
LTIC-CDD (also referred to as "Title") subject to
the usual terms, conditions and exceptions
contained in that form of policy, exceptions
approved by Lender and together with the coverages
required by the Lessor.
12. If at any time during the course of construction,
the total of the unpaid disclosed cost of the
construction as indicated by the column totals on
the general contractor's sworn statement exceeds
the amount of the undisbursed Development
Financing Proceeds, as calculated by subtracting
the total amount of the liability taken on the
endorsement from the face amount of the
Development Financing, and the Development
Financing Balance shall be insufficient, in
Lessor's reasonable opinion, as set forth in
Article VII, paragraph 3, of the Development
Financing Agreement, to complete the Project, LTIC-
CDD need not make further disbursements under the
terms of this Agreement until the Lessee has
deposited the sum necessary to make the available
funds equal to the unpaid disclosed cost of
construction, or unless specifically directed to
do so by Lessor. Also, if LTIC-CDD discovers a
material misstatement in an affidavit furnished by
the general contractor or the Lessee, it may stop
disbursement until the misstatement has been
corrected. No liability is assumed by LTIC-CDD to
the Lessee as regards protection against
mechanic's lien claims.
13. The functions and duties assumed by LTIC-CDD
include only those described in this Agreement and
LTIC-CDD is not obligated to act except in
accordance with the terms and conditions of this
Agreement. LTIC-CDD does not insure that the
building will be completed, nor does it insure
that the building when completed will be in
accordance with the plans and specifications, nor
that sufficient funds will be available for the
completion, nor does it make the certifications of
the Inspector/Architect its own, nor does it
assume any liability for same other than
procurement as one of the conditions precedent to
each disbursement.
14. The Lessee shall pay all reasonable title and
escrow charges as they are determined. These
items are to be considered as a cost of
construction for purposes of Paragraph 8.
15. At any time prior to its commitment of
disbursement of funds hereunder, LTIC-CDD reserves
the right to decline any risk offered for
insurance hereunder, whereupon it shall return to
Lessor any documents in its possession relating to
such loan and the funds received by it.
Commencement of disbursement makes this Agreement
effective as to all funds that are received and
disbursed on the construction in question.
16. Where, after first disbursement, a further title
search reveals a subsequently arising exception
over which Title is unwilling to insure, LTIC-CDD
will notify Lessor and may discontinue
disbursement until the exception has been disposed
of to its reasonable satisfaction.
17. LTIC-CDD has no liability for loss caused by an
error in the certification furnished it hereunder
as to work in place.
18. LTIC-CDD shall not be responsible for any loss of
documents or funds while such documents or funds
are not in its custody. Documents or funds which
are deposited in the United States mail shall not
be construed as being in the custody of LTIC-CDD.
19. This Agreement shall be binding upon the parties
hereto and their respective successors and
assigns; provided, however, that LTIC-CDD may not
assign its duties hereunder without the prior
written consent of the Lessor and Lessee.
20. This Agreement can be amended or modified only by
a writing signed by the parties hereto.
21. For the Final requisition of construction funds
the Contractor, in addition to the requirement for
the submission of a final Draw Request, shall
furnish a Final Contractors Affidavit stating that
all parties furnishing labor service or materials
have been paid in full along with Final Waivers of
Lien from all parties who have lien rights on the
Leased Premises including the Contractor. If the
fact be otherwise, the affidavit must show the
name of each party who has not been paid in full
and the amount due. Final Payment will then be
made to the Lessee or to those parties submitting
Final Waivers, when Final Waivers are submitted
from the parties requesting payment set forth in
the Final Affidavit and a Final Waiver of Lien is
furnished by the Contractor or Sub-Contractor. If
Final Waivers are not available, LTIC-CDD shall
not disburse any funds until it receives joint
directions in writing to fund from the Lessee and
Lessor as well as sufficient funds to make each
disbursement.
22. LTIC-CDD may satisfy its obligation hereunder as
to any construction lien for which it may be
liable due to its failure to follow the
instructions herein by bonding off the claim of
lien in accordance with applicable Ohio Statute.
23. LTIC-CDD shall have no responsibility to a)
inspect the construction site; b) for claims of
liens not disclosed by the lessees or contractor
statement; c) to see that the improvements are
constructed in accordance with the plans and
specifications, or that said improvements are
constructed, or that sufficient funds are
available for completion;
24. The Lessee covenants and agrees to promptly secure
the necessary recordable lien release or transfer
any construction lien filed on the Property to
surety or cash bond as further provided by Ohio
Statutes as same relates to construction liens.
25. In consideration of, among other things, LTIC-CDD
entering into this Agreement, Lessee indemnifies
and saves LTIC-CDD harmless from any and all
losses, costs, damages, expenses and liabilities,
including attorneys fees, which may incur under
this agreement, arising from any construction
liens or from the breach of any warranty or
covenant made to LTIC-CDD by Lessee, or any person
claiming by, through, or under it.
26. Nothing contained in this Agreement shall in any
way limit or diminish the obligations of the
Lessee or Contractor nor the rights of the Lessor
as may be contained in any Development Financing
Agreement between the parties.
27. LTIC-CDD has no responsibility for determining
whether Lessee or Contractor is in compliance with
the terms of any Agreement with the Lessor, nor
shall LTIC-CDD be responsible for the failure of
either party to perform under such agreement. The
funding of any Development Financing Proceeds to
LTIC-CDD shall be deemed Lessor's direction to
LTIC-CDD to Disburse.
28. Prior to the actual disbursement of funds by LTIC-
CDD, pursuant to this Agreement, LTIC-CDD will
make a record title search. If any intervening
recorded instruments appear of record, LTIC-CDD
will advise Lessor and Lessee of the same. No
disbursements will be made until the matter is
removed from the record or until LTIC-CDD shall
receive from the Lessor written approval to
disburse and to reflect the instruments or
instrument in the endorsement to be issued.
29. LTIC-CDD will execute this Agreement only upon the
condition that the Deed conveying title to Lessor
will be recorded prior to the recording of a
Notice of Commencement under Ohio Statute.
30. Counterpart Execution. This Agreement may be
executed in multiple counterparts, each of which
shall be deemed an original and all of which shall
constitute one and the same instrument.
TUMBLEWEED, INC., a Delaware corporation
By:
Its:
By
Its
[Remainder of page intentionally left blank - additional
signatures on following pages]
LAWYERS TITLE INSURANCE CORPORATION-
CONSTRUCTION DISBURSEMENT DEPARTMENT
By
Its
[Remainder of page intentionally left blank - additional
signatures on following page]
AEI INCOME & GROWTH FUND 23 LLC
By: AEI Fund Management XXI, Inc.
By: ____________________________________
Robert P. Johnson, President
EXHIBIT "I"
FORM OF
NET LEASE AGREEMENT
NET LEASE AGREEMENT
THIS LEASE, made and entered into effective as of the
day of November, 1999, by and among AEI Income & Growth Fund
23 LLC, a Minnesota limited liability company whose
corporate Managing Member is AEI Fund Management XXI, Inc.,
a Minnesota corporation ("Fund 23"), whose principal
business address is 1300 Minnesota World Trade Center, 30
East Seventh Street, St. Paul, Minnesota 55101 (hereinafter
referred to as "Lessor"), and Tumbleweed, Inc., a Delaware
corporation (hereinafter referred to as "Lessee"), whose
principal business address is 1900 Mellwood Avenue,
Louisville, Kentucky;
WITNESSETH:
WHEREAS, Lessor is the fee owner of a certain parcel of
real property and improvements located at Kettering, Ohio,
and legally described in Exhibit "A", which is attached
hereto and incorporated herein by reference; and
WHEREAS, Lessee will be constructing the building and
improvements (together the "Building") on the real property
described in Exhibit "A", which Building is described in the
plans and specifications heretofore submitted to Lessor; and
WHEREAS, Lessee desires to lease said real property and
Building (said real property and Building hereinafter
referred to as the "Leased Premises"), from Lessor upon the
terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the Rents, terms,
covenants, conditions, and agreements hereinafter described
to be paid, kept, and performed by Lessee, Lessor does
hereby grant, demise, lease, and let unto Lessee, and Lessee
does hereby take and hire from Lessor and does hereby
covenant, promise, and agree as follows:
ARTICLE 1. LEASED PREMISES
Lessor hereby leases to Lessee, and Lessee leases and
takes from Lessor, the Leased Premises subject to the
conditions of this Lease.
ARTICLE 2. TERM
(A) The term of this Lease ("Term") shall be Fifteen
(15) consecutive "Lease Years", as hereinafter defined,
commencing on the effective date hereof ("Occupancy Date"),
plus the period between the date hereof and the end of the
month in which the First Amendment hereto is executed as
contemplated under the Development Financing Agreement
described in Article 34 hereof .
(B) The first "Lease Year" of the Term shall be for a
period of twelve (l2) consecutive calendar months from the
Occupancy Date, plus the period between the date hereof and
the end of the month in which the First Amendment hereto is
executed as contemplated under the Development Financing
Agreement described in Article 34 hereof . Each Lease Year
after the first Lease Year shall be a successive period of
twelve (l2) calendar months.
(C) The parties agree that once the Occupancy Date has
been established, upon the request of either party, a short
form or memorandum of this Lease will be executed for
recording purposes. That short form or memorandum of this
Lease will set forth the actual occupancy and termination
dates of the Term and optional Renewal Terms, as defined in
Article 28 hereof, and the existence of any right of
renewal, and that said right shall terminate when the Lessee
shall lose right to possession or this Lease is terminated,
whichever occurs first.
ARTICLE 3. CONSTRUCTION OF IMPROVEMENTS
(A) Lessee warrants and agrees that the Building will
be constructed on the Leased Premises, and all other
improvements to the land, including the parking lot,
approaches, and service areas, will be constructed in all
material respects by Lessee substantially in accordance with
the plot, plans, and specifications heretofore submitted to
Lessor.
(B) Lessee warrants that the Building and all other
improvements to the land contemplated do comply with the
laws, ordinances, rules, and regulations of all state and
local governments.
(C) Lessee agrees to pay, if not already paid in full,
for all architectural fees and actual construction costs
relating to the Building and other related improvements on
the Leased Premises, in the past, present or future, which
shall include, but not be limited to, plans and
specifications, general construction, carpentry, electrical,
plumbing, heating, ventilating, air conditioning,
decorating, equipment installation, outside lighting,
curbing, landscaping, blacktopping, electrical sign hookup,
conduit and wiring from building, fencing, and parking
curbs, builder's risk insurance (naming Lessor, Lessee, and
contractor as co-insured), and all construction bonds for
improvements made by or at the direction of Lessee.
(D) Opening for business in the Leased Premises by
Lessee shall constitute an acceptance of the Leased Premises
and an acknowledgment by Lessee that the premises are in the
condition described under this Lease.
ARTICLE 4. RENT PAYMENTS
(A) Annual Rent Payable for the part of the first
Lease Year until execution of the First Amendment hereto or
adjusted as contemplated under the Development Financing
Agreement: Lessee shall pay to Lessor an annual Base Rent
of $37,908.75, which amount shall be payable in advance on
the first day of each month in equal monthly installments of
$3,159.06 to Lessor Fund 23. If the first day of the Lease
Term is not the first day of a calendar month, then the
monthly Rent payable for that partial month shall be a
prorated portion of the equal monthly installment of Base
Rent.
(B) Annual Rent Payable beginning in the
second and each Lease Year thereafter:
1. In the second and each Lease
Year thereafter, the annual Base Rent due and
payable shall increase by an amount equal to
the lesser of: a) Two Percent (2%) of the
Base Rent payable for the immediately prior
Lease Year, or b) A percentage equal to two
times the "CPI-U Percentage Increase" of the
Base Rent payable for the prior Lease Year.
"CPI-U" shall mean the
Consumer Price Index for All Urban Consumers,
(all items), published by the United States
Department of Labor, Bureau of Labor
Statistics (BLS) (1982-84 equal 100), U.S.
Cities Average, or, in the event said index
ceases to be published, by any successor
index recommended as a substitute therefor by
the United States Government or a comparable,
nonpartisan substitute reasonably designated
by Lessor. If the BLS changes the base
reference period for the Price Index from
1982-84=100, the CPI-U Percentage Increase
shall be determined with the use of such
conversion formula or table as may be
published by the BLS.
The term "CPI-U Percentage
Increase" shall mean the percentage increase
in the CPI-U determined by reference to the
increase, if any, in the latest monthly CPI-U
issued prior to the first day of the Lease
Year for which Base Rent is being increased,
over the CPI-U issued for the same month in
the year prior (e.g., the January CPI-U for
the year 2000 over the January CPI-U for the
year 1999.) Said month's CPI-U shall be used
even though that CPI-U will not be for the
month in which the renewal term commences.
In no event shall the CPI-U Percentage
Increase be less than zero.
(C) Overdue Payments.
Lessee shall pay interest on all overdue payments of
Rent or other monetary amounts due hereunder at the rate of
fifteen percent (15%) per annum or the highest rate allowed
by law, whichever is less, accruing from the expiration of
the applicable notice and cure period after the date such
Rent or other monetary amounts were properly due and
payable.
ARTICLE 5. INSURANCE AND INDEMNITY
(A) Lessee shall, throughout the Term or Renewal
Terms, if any, of this Lease, at its own cost and expense,
procure and maintain insurance which covers the Leased
Premises and improvements against fire, wind, and storm
damage (including flood insurance if the Leased Premises is
in a federally designated flood prone area) and such other
risks (including earthquake insurance, if the Leased
Premises is located in a federally designated earthquake
zone or in an ISO high risk earthquake zone) as may be
included in the broadest form of all risk, extended coverage
insurance as may, from time to time, be available in amounts
sufficient to prevent Lessor or Lessee from becoming a co-
insurer within the terms of the applicable policies. In any
event, the insurance shall not be less than one hundred
percent (100%) of the then insurable value, with such
commercially reasonable deductibles as Lessor may reasonably
require from time to time. Additionally, replacement cost
endorsements, vandalism endorsement, malicious mischief
endorsement, waiver of subrogation endorsement, waiver of co-
insurance or agreed amount endorsement (if available), and
Building Ordinance Compliance endorsement and Rent loss
endorsements (for a period of twelve months) must be
obtained.
(B) Lessee agrees to place and maintain throughout the
Term or Renewal Terms, if any, of this Lease, at Lessee's
own expense, public liability insurance with respect to
Lessee's use and occupancy of said premises, including "Dram
Shop" or liquor liability insurance, if the same shall be or
become available in the State of Indiana, with initial
limits of at least $2,000,000 per occurrence/$5,000,000
general aggregate (inclusive of umbrella coverage), or such
additional amounts as Lessor shall reasonably require from
time to time.
(C) Lessee agrees to notify Lessor in writing if
Lessee is unable to procure all or some part of the
aforesaid insurance. In the event Lessee fails to provide
all insurance required under this Lease, Lessor shall have
the right, but not the obligation, to procure such insurance
on Lessee's behalf, following five (5) business days written
notice to Lessee of Lessor's intent to do so (unless
insurance then in place would during such period, or already
has, lapsed, in which case no notice need be given) and
Lessee may obtain such insurance during said five day period
and not then be in default hereunder. If Lessor shall obtain
such insurance, Lessee will then, within five (5) business
days from receiving written notice, pay Lessor the amount of
the premiums due or paid, together with interest thereon at
the lesser of 15% per annum or the highest rate allowable by
law, which amount shall be considered Rent payable by Lessee
in addition to the Rent defined at Article 4 hereof.
(D) All policies of insurance provided for or
contemplated by this Article can be under Lessee's blanket
insurance coverage and shall name Lessor, Lessor's corporate
managing members, and Robert P. Johnson, and Lessee as
additional insured and loss payee, as their respective
interests (as landlord and lessee, respectively) may appear,
and shall provide that the policies cannot be canceled,
terminated, changed, or modified without thirty (30) days
written notice to the parties. In addition, all of such
policies shall be in place on or before the Occupancy Date
and contain endorsements by the respective insurance
companies waiving all rights of subrogation, if any, against
Lessor. All insurance companies providing coverages must be
rated "A" or better by Best's Key Rating Guide (the most
current edition), or similar quality under a successor guide
if Best's Key Rating shall cease to be published. Lessee
shall maintain legible copies of any and all policies and
endorsements required herein, to be made available for
Lessor's review and photocopy upon Lessor's reasonable
request from time to time. On the Occupancy Date and no
less than fifteen (15) business days prior to expiration of
such policies, Lessee shall provide Lessor with legible
copies of any and all renewal Certificates of Insurance
reflecting the above terms of the Policies (including
endorsements). Lessee agrees that it will not settle any
property insurance claims affecting the Leased Premises in
excess of $25,000 without Lessor's prior written consent,
such consent not to be unreasonably withheld or delayed.
Lessor shall consent to any settlement of an insurance claim
wherein Lessee shall confirm in writing with evidence
reasonably satisfactory to Lessor that Lessee has sufficient
funds available to complete the rebuilding of the Premises.
(E) Lessee shall defend, indemnify, and hold Lessor
harmless against any and all claims, damages, and lawsuits
arising after the Occupancy Date of this Lease and any
orders, decrees or judgments which may be entered therein,
brought for damages or alleged damages resulting from any
injury to person or property or from loss of life sustained
in or about the Leased Premises, unless such damage or
injury results from the intentional misconduct or the gross
negligence of Lessor and Lessee agrees to save Lessor
harmless from, and indemnify Lessor against, any and all
injury, loss, or damage, of whatever nature, to any person
or property caused by, or resulting from any act, omission,
or negligence of Lessee or any employee or agent of Lessee
acting in such capacity. In addition, Lessee hereby
releases Lessor from any and all liability for any loss or
damage caused by fire or any of the extended coverage
casualties, unless such fire or other casualty shall be
brought about by the intentional misconduct or gross
negligence of Lessor. In the event of any loss, damage, or
injury caused by the joint negligence or willful misconduct
of Lessor and Lessee, they shall be liable therefor in
accordance with their respective degrees of fault.
(F) Lessor hereby waives any and all rights that it
may have to recover from Lessee damages for any loss
occurring to the Leased Premises by reason of any act or
omission of Lessee; provided, however, that this waiver is
limited to those losses for which Lessor is compensated by
its insurers, if the insurance required by this Lease is
maintained. Lessee hereby waives any and all right that it
may have to recover from Lessor damages for any loss
occurring to the Leased Premises by reason of any act or
omission of Lessor; provided, however, that this waiver is
limited to those losses for which Lessee is, or should be if
the insurance required herein is maintained, compensated by
its insurers.
ARTICLE 6. TAXES, ASSESSMENTS AND UTILITIES
(A) Lessee shall be liable and agrees to pay the
charges for all public utility services rendered or
furnished to the Leased Premises, including heat, water,
gas, electricity, sewer, sewage treatment facilities and the
like, all personal property taxes, real estate taxes,
special assessments, and municipal or government charges,
general, ordinary and extraordinary, of every kind and
nature whatsoever, which may be levied, imposed, or assessed
against the Leased Premises, or upon any improvements
thereon, at any time after the Occupancy Date of this Lease
for the period prior to the expiration of the term hereof,
or any Renewal Term, if exercised.
(B) Lessee shall pay all real estate taxes,
assessments for public improvements or benefits, and other
governmental impositions, duties, and charges of every kind
and nature whatsoever which shall or may, during the term of
this Lease, be charged, laid, levied, assessed, or imposed
upon, or become a lien or liens upon the Leased Premises or
any part thereof. Such payments shall be considered as Rent
paid by Lessee in addition to the Rent defined at Article 4
hereof. If due to a change in the method of taxation, a
franchise tax, Rent tax, or income or profit tax shall be
levied against Lessor in substitution for or in lieu of any
tax which would otherwise constitute a real estate tax, such
tax shall be deemed a real estate tax for the purposes
herein and shall be paid by Lessee; otherwise Lessee shall
not be liable for any such tax levied against Lessor.
(C) All real estate taxes, assessments for public
improvements or benefits, water rates and charges, sewer
rents, and other governmental impositions, duties, and
charges which shall become payable for the first and last
tax years of the term hereof shall be apportioned pro rata
between Lessor and Lessee in accordance with the respective
number of months during which each party shall be in
possession of the Leased Premises (or through the expiration
of the term hereof, if longer) in said respective tax years.
Lessee shall pay within 60 days of the expiration of the
term hereof Lessor's reasonable estimate of Lessee's pro-
rata share of real estate taxes for the last tax year of the
term hereof, based upon the last available tax bill. Lessor
shall give Lessee notice of such estimated pro-rata real
estate taxes no later than 75 days from the end of the term
hereof. Upon receipt of the actual statement of real estate
taxes for such prorated period, Lessor shall either refund
to Lessee any over payment of the pro-rata Lessee
obligation, or shall assess and Lessee shall pay promptly
upon notice any remaining portion of the Lessee's pro-rata
obligation for such real estate taxes.
(D) Lessee shall have the right to contest or review
by legal proceedings or in such other manner as may be legal
(which, if instituted, shall be conducted solely at Lessee's
own expense) any tax, assessment for public improvements or
benefits, or other governmental imposition aforementioned,
upon condition that, before instituting such proceeding
Lessee shall pay (under protest) such tax or assessments for
public improvements or benefits, or other governmental
imposition, duties and charges aforementioned, unless such
payment would act as a bar to such contest or interfere
materially with the prosecution thereof and in such event
Lessee shall post with Lessor alternative security
reasonably satisfactory to Lessor. All such proceedings
shall be begun as soon as reasonably possible after the
imposition or assessment of any contested items and shall
be prosecuted to final adjudication with reasonable
dispatch. In the event of any reduction, cancellation, or
discharge, Lessee shall pay the amount that shall be finally
levied or assessed against the Leased Premises or
adjudicated to be due and payable, and, if there shall be
any refund payable by the governmental authority with
respect thereto, if Lessee has paid the expense of Lessor in
such proceedings, Lessee shall be entitled to receive and
retain the refund, subject, however, to apportionment as
provided during the first and last years of the term of this
Lease.
(E) Lessor, within sixty (60) days after notice to
Lessee if Lessee fails to commence such proceedings, may,
but shall not be obligated to, contest or review by legal
proceedings, or in such other manner as may be legal, and at
Lessor's own expense, any tax, assessments for public
improvements and benefits, or other governmental imposition
aforementioned, which shall not be contested or reviewed, as
aforesaid, by Lessee, and unless Lessee shall promptly join
with Lessor in such contest or review, Lessor shall be
entitled to receive and retain any refund payable by the
governmental authority with respect thereto.
(F) Lessor shall not be required to join in any
proceeding referred to in this Article, unless in Lessee's
reasonable opinion, the provisions of any law, rule, or
regulation at the time in effect shall require that such a
proceeding be brought by and/or in the name of Lessor, in
which event Lessor shall upon written request, join in such
proceedings or permit the same to be brought in its name,
all at no cost or expense to Lessor.
(G) Within thirty (30) days after Lessor notifies
Lessee in writing that Lessor has paid such amount, Lessee
shall also pay to Lessor, as additional Rent, the amount of
any sales tax, franchise tax, excise tax, on Rents imposed
by the State where the Leased Premises are located. At
Lessor's option, Lessee shall deposit with Lessor on the
first day of each and every month during the term hereof, an
amount equal to one-twelfth (1/12) of any estimated sales
tax payable to the State in which the property is situated
for Rent received by Lessor hereunder ("Deposit"). From
time to time out of such Deposit Lessor will pay the sales
tax to the State in which the property is situated as
required by law. In the event the Deposit on hand shall not
be sufficient to pay said tax when the same shall become due
from time to time, or the prior payments shall be less than
the current estimated monthly amounts, then Lessee shall pay
to Lessor on demand any amount necessary to make up the
deficiency. The excess of any such Deposit shall be
credited to subsequent payments to be made for such items.
If a default or an event of default shall occur under the
terms of this Lease, Lessor may, at its option, without
being required so to do, apply any Deposit on hand to cure
such default, in such order and manner as Lessor may elect.
ARTICLE 7. PROHIBITION ON ASSIGNMENTS AND SUBLETTING;
TAKE-BACK
RIGHTS
(A) Except as otherwise expressly provided in this
Article, Lessee shall not, without obtaining the prior
written consent of Lessor, in each instance:
1. assign or otherwise transfer
this Lease, or any part of Lessee's right,
title or interest therein, except in the
event the Lease is assigned by Tumbleweed to
its successor entity in the event of either
an Initial Public Offering or Direct Public
Offering of Lessee or to any other entity
controlled by or under common control with
Lessee or such successor of Lessee; or
2. sublet all or any part of the
Leased Premises or allow all or any part of
the Leased Premises to be used or occupied by
any other Persons (herein defined as a Party
other than Lessee, be it a corporation, a
partnership, an individual or other entity);
or
3. mortgage, pledge or otherwise
encumber this Lease, or the Leased Premises.
(B) For the purposes of this Article:
1. the transfer of voting control
of any class of capital stock of any
corporate Lessee or sublessee, or the
transfer of voting control of the total
interest in any other person which is a
Lessee or sublessee, however accomplished,
whether in a single transaction or in a
series of related or unrelated transactions,
shall be deemed an assignment of this Lease,
or of such sublease, as the case may be;
2. an agreement by any other
Person, directly or indirectly, to assume
Lessee's obligations under this Lease shall
be deemed an assignment;
3. any Person to whom Lessee's
interest under this Lease passes by operation
of law, or otherwise, shall be bound by the
provisions of this Article;
4. each material modification,
amendment or extension or any sublease to
which Lessor has previously consented shall
be deemed a new sublease;
Lessee agrees to furnish to Lessor within five (5)
business days following demand at any time such information
and assurances as Lessor may reasonably request that neither
Lessee, nor any previously permitted sublessee or assignee,
has violated the provisions of this Article.
(C) Except as permitted under Section (A)(1) above, if
Lessee agrees to assign this Lease or to sublet all or any
portion of the Leased Premises, Lessee shall, prior to the
effective date thereof (the "Effective Date"), deliver to
Lessor executed counterparts of any such agreement and of
all ancillary agreements with the proposed assignee or
sublessee, as applicable. If Lessee shall fail to do so,
and shall have surrendered possession of the Leased Premises
in violation of its duty of prior notice and failed to
obtain Lessor's prior consent (if and where required
herein), and, if in such event, Lessor in its sole
discretion (except as otherwise specifically limited herein)
shall not consent to a proposed sublease or assignment,
Lessor shall then have all of the following rights (in
addition to any rights Lessor may possess occasioned by
Lessee's default hereunder), any of which Lessor may
exercise by written notice to Lessee given within thirty
(30) days after Lessor receives the aforementioned
documents:
1. with respect to a proposed
assignment of this Lease, the right to
terminate this Lease on the Effective Date as
if it were the Expiration Date of this Lease;
2. with respect to a proposed
subletting of the entire Leased Premises, the
right to terminate this Lease on the
Effective Date as if it were the Expiration
Date; or
3. with respect to a proposed
subletting of less than the entire Leased
Premises, the right to terminate this Lease
as to the portion of the Leased Premises
affected by such subletting on the Effective
Date, as if it were the Expiration Date, in
which case Lessee shall promptly execute and
deliver to Lessor an appropriate modification
of this Lease in form satisfactory to Lessor
in all respects.
4. with respect to a proposed
subletting or proposed assignment of this
Lease, impose such conditions upon Lessor's
consent as Lessor shall determine in its sole
discretion.
(D) If Lessor exercises any of its options under
Article 7(C) above, (and if Lessor shall impose conditions
upon its consent and Lessee shall fail to meet any
conditions Lessor may impose upon its consent), Lessor may
then lease the Leased Premises or any portion thereof to
Lessee's proposed assignee or sublessee, as the case may be,
without liability whatsoever to Lessee.
(E) Notwithstanding anything above to the contrary,
Lessor agrees to consent to any assignment or sublease all
or any portion of the Lessee's interests herein to a
franchisee or licensee in good standing of Tumbleweed, Inc.,
for the Tumbleweed restaurant concept, provided Lessor is
given prior written notice of such sublease or assignment,
accompanied by a copy of such sublease or assignment, and
the consents of Lessee (such consent to be in form and
substance satisfactory to Lessor) to such assignment or
sublet, affirming their continued liability hereunder, and
Lessee shall pay the reasonable attorney's fees incurred by
Lessor to review such proposed sublet or assignment.
Lessor agrees that its consent to any other proposed
assignment or sublet shall not be unreasonably withheld or
delayed, provided Lessor is given prior written notice of
such sublease or assignment, accompanied by a copy of such
sublease or assignment, and the consents of Lessee (such
consent to be in form and substance satisfactory to Lessor)
to such assignment or sublet, affirming their continued
liability hereunder, and Lessee shall pay the reasonable
attorney's fees incurred by Lessor to review such proposed
sublet or assignment.
(F) Notwithstanding anything above to the contrary,
the Lessee's interest herein shall not be assignable in any
manner in accordance with the terms hereof unless and until
the termination of the Development Financing Agreement as
set forth in Article 34 hereof.
ARTICLE 8. REPAIRS AND MAINTENANCE
(A) Lessee covenants and agrees to keep and maintain
in good order, condition and repair the interior and
exterior of the Leased Premises during the term of the
Lease, or any renewal terms, and further agrees that Lessor
shall be under no obligation to make any repairs or perform
any maintenance to the Leased Premises. Lessee covenants
and agrees that it shall be responsible for all repairs,
alterations, replacements, or maintenance of, including but
without limitation to or of: The interior and exterior
portions of all doors; door checks and operators; windows;
plate glass; plumbing; water and sewage facilities;
fixtures; electrical equipment; interior walls; ceilings;
signs; roof; structure; interior building appliances and
similar equipment; heating and air conditioning equipment;
and any equipment owned by Lessor and leased to Lessee
hereunder, as itemized on Exhibit B attached hereto (if any)
and incorporated herein by reference; and further agrees to
replace any of said equipment when necessary. Lessee
further agrees to be responsible for, at its own expense,
snow removal, lawn maintenance, landscaping, maintenance of
the parking lot (including parking lines, seal coating, and
blacktop surfacing), and other similar items.
(B) If Lessee refuses or neglects to commence or
complete repairs promptly and adequately, after prior
written notice as required under Article 16(B) (except in
cases of emergency to prevent waste or preserve the safety
and integrity of the Leased Premises, in which case no
notice need be given), Lessor may cause such repairs to be
made, but shall not be required to do so, and Lessee shall
pay the cost thereof to Lessor within five (5) business days
following demand. It is understood that Lessee shall pay
all expenses and maintenance and repair during the term of
this Lease. If Lessee is not then in default hereunder,
Lessee shall have the right to make repairs and improvements
to the Leased Premises without the consent of Lessor if such
repairs and improvements do not exceed Fifty Thousand
Dollars ($50,000.00), provided such repairs or improvements
do not affect the structural integrity of the Leased
Premises. Any repairs or improvements in excess of Fifty
Thousand Dollars ($50,000.00) or affecting the structural
integrity of the Leased Premises may be done only with the
prior written consent of Lessor, such consent not to be
unreasonably withheld or delayed. All alterations and
additions to the Leased Premises shall be made in accordance
with all applicable laws and shall remain for the benefit of
Lessor, except for Lessee's moveable trade fixtures. In the
event of making such alterations as herein provided, Lessee
further agrees to indemnify and save harmless Lessor from
all expense, liens, claims or damages to either persons or
property or the Leased Premises which may arise out of or
result from the undertaking or making of said repairs,
improvements, alterations or additions, or Lessee's failure
to make said repairs, improvements, alterations or
additions.
ARTICLE 9. COMPLIANCE WITH LAWS AND REGULATIONS
Lessee will comply with all statutes, ordinances,
rules, orders, regulations and requirements of all federal,
state, city and local governments, and with all rules,
orders and regulations of the applicable Board of Fire
Underwriters which affect the use of the improvements.
Lessee will comply with all easements, restrictions, and
covenants of record against or affecting the Leased Premises
and any franchise or license agreements required for
operation of the Leased Premises in accordance with Article
14 hereof.
ARTICLE 10. SIGNS
Lessee shall have the right to install and maintain a
sign or signs advertising Lessee's business, provided that
the signs conform to law, and further provided that the sign
or signs conform specifically to the written requirements of
the appropriate governmental authorities.
ARTICLE 11. SUBORDINATION
(A) Lessor reserves the right and privilege to subject
and subordinate this Lease at all times to the lien of any
mortgage or mortgages now or hereafter placed upon Lessor's
interest in the Leased Premises and on the land and
buildings of which said premises are a part, or upon any
buildings hereafter placed upon the land of which the Leased
Premises are a part, provided such mortgagee shall execute
its standard form, commercially reasonable subordination,
attornment and non-disturbance agreement. Lessor also
reserves the right and privilege to subject and subordinate
this Lease at all times to any and all advances to be made
under such mortgages, and all renewals, modifications,
extensions, consolidations, and replacements thereof,
provided such mortgagee shall execute its standard form,
commercially reasonable subordination, attornment and non-
disturbance agreement.
(B) Lessee covenants and agrees to execute and
deliver, upon demand, such further instrument or instruments
subordinating this Lease on the foregoing basis to the lien
of any such mortgage or mortgages as shall be desired by
Lessor and any proposed mortgagee or proposed mortgagees,
provided such mortgagee shall execute its standard form,
commercially reasonable subordination, attornment and non-
disturbance agreement.
ARTICLE l2. CONDEMNATION OR EMINENT DOMAIN
(A) If the whole of the Leased Premises are taken by
any public authority under the power of eminent domain, or
by private purchase in lieu thereof, then this Lease shall
automatically terminate upon the date possession is
surrendered, and Rent shall be paid up to that day. If any
part of the Leased Premises shall be so taken as to render
the remainder thereof materially unusable in the opinion of
a licensed third party arbitrator reasonably approved by
Lessor and Lessee, for the purposes for which the Leased
Premises were leased, then Lessor and Lessee shall each have
the right to terminate this Lease on thirty (30) days notice
to the other given within ninety (90) days after the date of
such taking. In the event that this Lease shall terminate
or be terminated, the Rent shall, if and as necessary, be
paid up to the day that possession was surrendered.
(B) If any part of the Leased Premises shall be so
taken such that it does not materially interfere with the
business of Lessee, then Lessee shall, with the use of the
condemnation proceeds to be made available by Lessor, but
otherwise at Lessee's own cost and expense, restore the
remaining portion of the Leased Premises to the extent
necessary to render it reasonably suitable for the purposes
for which it was leased. Lessee shall make all repairs to
the building in which the Leased Premises is located to the
extent necessary to constitute the building a complete
architectural unit. Provided, however, that such work shall
not exceed the scope of the work required to be done by
Lessee in originally constructing such building unless
Lessee shall demonstrate to Lessor's reasonable satisfaction
the availability of funds to complete such work. Provided,
further, the cost thereof to Lessor shall not exceed the
proceeds of its condemnation award, all to be done without
any adjustments in Rent to be paid by Lessee. This lease
shall be deemed amended to reflect the taking in the legal
description of the Leased Premises.
(C) All compensation awarded or paid upon such total
or partial taking of the Leased Premises shall belong to and
be the property of Lessor without any participation by
Lessee, whether such damages shall be awarded as
compensation for diminution in value to the leasehold or to
the fee of the premises herein leased. Nothing contained
herein shall be construed to preclude Lessee from
prosecuting any claim directly against the condemning
authority in such proceedings for: Loss of business; damage
to or loss of value or cost of removal of inventory, trade
fixtures, furniture, and other personal property belonging
to Lessee; provided, however, that no such claim shall
diminish or otherwise adversely affect Lessor's award or the
award of any fee mortgagee.
ARTICLE 13. RIGHT TO INSPECT
Lessor reserves the right to enter upon, inspect and
examine the Leased Premises at any time during business
hours, after reasonable notice to Lessee, and Lessee agrees
to allow Lessor free access to the Leased Premises to show
the premises. Upon default by Lessee or at any time within
ninety (90) days of the expiration or termination of the
Lease, Lessee agrees to allow Lessor to then place "For
Sale" or "For Rent" signs on the Leased Premises. Lessor
and Lessor's representatives shall at all times while upon
or about the Leased Premises observe and comply with
Lessee's reasonable health and safety rules, regulations,
policies and procedures. Lessor agrees to indemnify and
hold Lessee, its successors, assigns, agents and employees
from and against any liability, claims, demands, cause of
action, suits and other litigation or judgements of every
kind and character, including injury to or death of any
person or persons, or trespass to, or damage to, or loss or
destruction of, any property, whether real or personal, to
the extent resulting from the negligence or willful
misconduct or Lessor or Lessor's representatives while upon
or about the Leased Premises.
ARTICLE 14. EXCLUSIVE USE
(A) After the Occupancy Date, Lessee expressly agrees
and warrants that the Leased Premises will be used
exclusively as a Tumbleweed Restaurant or other casual
dining sit-down restaurant. In any other such case, after
obtaining Lessor's prior written consent, such consent not
to be unreasonably withheld or delayed, Lessee may conduct
any lawful business from the Leased Premises. Lessee
acknowledges and agrees that any other use without the prior
written consent of Lessor will constitute a default under
and a violation and breach of this Lease. Lessee agrees:
To open for business within a reasonable period of time
after completion of construction of the contemplated
Improvements; to operate all of the Leased Premises during
the Term or Renewal Terms during regular and customary hours
for businesses similar to the permitted exclusive use stated
herein, unless prevented from doing so by causes beyond
Lessee's control or due to remodeling; and to conduct its
business in a professional and reputable manner.
(B) If the Leased Premises are not operated as a
Tumbleweed Restaurant or other casual dining sit-down
restaurant or other permitted use hereunder, or remain
closed for thirty (30) consecutive days (unless such closure
results from reasons beyond Lessee's reasonable control) and
in the event Lessee fails to pay Rent when due or fulfill
any other obligation hereunder, then Lessee shall be in
default hereunder and Lessor may, at its option, cancel this
Lease by giving written notice to Lessee or exercise any
other right or remedy that Lessor may have; provided,
however, that closings shall be reasonably permitted for
replacement of trade fixtures or during periods of repair
after destruction or due to remodeling.
ARTICLE 15. DESTRUCTION OF PREMISES
If, during the term of this Lease, the Leased Premises
are totally or partially destroyed by fire or other
elements, within a reasonable time (but in no event longer
than one hundred eighty (180) days and subject to the
provisions herein below), Lessee shall repair and restore
the improvements so damaged or destroyed as nearly as may be
practical to their condition immediately prior to such
casualty. All rents payable by Lessee shall be abated
during the period of repair and restoration to the extent
that Lessor shall be compensated by the proceeds of the rent
loss insurance required to be maintained by Lessee
hereunder.
Provided Lessee is not in default hereunder (and
retains according to the terms hereof the right to rebuild)
with the Lessor's prior written consent, which consent shall
not be unreasonably withheld or delayed, Lessee shall have
the right to promptly and in good faith settle and adjust
any claim under such insurance policies with the insurance
company or companies on the amounts to be paid upon the
loss. The insurance proceeds shall be used to reimburse
Lessee for the cost of rebuilding or restoration of the
Leased Premises. Risk that the insurance company shall be
insolvent or shall refuse to make insurance proceeds
available shall be with Lessee. The Leased Premises shall be
so restored or rebuilt so as to be of at least equal value
and substantially the same character as prior to such damage
or destruction. If the insurance proceeds are less than
Fifty Thousand Dollars ($50,000), they shall be paid to
Lessee for such repair and restoration. If the insurance
proceeds are greater than or equal to Fifty Thousand Dollars
($50,000), they shall be deposited by Lessee and Lessor into
a customary construction escrow at a nationally recognized
title insurance company, or at Lessee's option, with Lessor
("Escrowee") and shall be made available from time to time
to Lessee for such repair and restoration. Such proceeds
shall be disbursed in conformity with the terms and
conditions of a commercially reasonable construction loan
agreement. Lessee shall, in either instance, deliver to
Lessor or Escrowee (as the case may be) satisfactory
evidence of the estimated cost of completion together with
such architect's certificates, waivers of lien, contractor's
sworn statements and other evidence of cost and of payments
as the Lessor or Escrowee may reasonably require and
approve. If the estimated cost of the work exceeds One
Hundred Thousand Dollars ($100,000), all plans and
specifications for such rebuilding or restoration shall be
subject to the reasonable approval of Lessor.
Any insurance proceeds remaining with Escrowee after
the completion of the repair or restoration shall be paid to
Lessor to reduce the sum of monies expended by Lessor to
acquire its interest in the Leased Premises and rent
hereunder shall be reduced by 9.875% of such amount.
If the proceeds from the insurance are insufficient,
after review of the bids for completion of such
improvements, or should become insufficient during the
course of construction, to pay for the total cost of repair
or restoration, Lessee shall, prior to commencement of work,
demonstrate to Escrowee and Lessor's reasonable
satisfaction, the availability of such funds necessary to
completion construction and Lessee shall deposit the same
with Escrowee for disbursement under the construction escrow
agreement.
Provided, further, that should the Leased Premises be
damaged or destroyed to the extent of fifty (50%) percent of
its value or such that Lessee cannot carry on business as a
casual dining restaurant without (in the opinion of a
licensed third party architect reasonably approved by Lessor
and Lessee) being closed for more than sixty (60) days
(which duration of closure may be established by Lessee by
the affidavit of the approved independent third party
architect as to the estimated time of repair) during the
last two (2) years of the remaining term of this Lease or
any of the option terms of this Lease, if any further
options to renew remain, Lessee may elect within 30 days of
such damage, to then exercise at least one (1) option to
renew this Lease so that the remaining term of the Lease is
not less than five (5) years in order to be entitled to such
insurance proceeds for restoration or rebuilding. Absent
such election, this Lease shall terminate upon Lessor's
receipt of insurance proceeds (and the deductible
thereunder) payable under policies maintained pursuant to
this Lease.
ARTICLE 16. ACTS OF DEFAULT
Each of the following shall be deemed a default by
Lessee and a breach of this Lease:
(A) Failure to pay the Rent or any
monetary obligation herein reserved, or any
part thereof when the same shall be due and
payable, provided, however, Lessee shall have
five (5) business days after written notice
from Lessor within which to cure the failure
to pay the Rent or any monetary obligation
herein reserved.
(B) Failure to do, observe, keep
and perform any of the other terms,
covenants, conditions, agreements and
provisions in this Lease to be done,
observed, kept and performed by Lessee;
provided, however, that Lessee shall have
Thirty (30) days after written notice from
Lessor within which to cure such default, or
such longer time as may be reasonably
necessary if such default cannot reasonably
be cured within Thirty (30) days, if Lessee
is diligently pursuing a course of conduct
that in Lessor's reasonable opinion is
capable of curing such default, but in any
event such longer time shall not exceed 120
days after written notice from Lessor of the
default hereunder.
(C) The abandonment of the
premises by Lessee, the adjudication of
Lessee as a bankrupt, the making by Lessee of
a general assignment for the benefit of
creditors, the taking by Lessee of the
benefit of any insolvency act or law, the
appointment of a permanent receiver or
trustee in bankruptcy for Lessee property, or
the appointment of a temporary receiver which
is not vacated or set aside within sixty
(60) days from the date of such appointment;
provided, however, that the foregoing shall
not constitute events of default so long as
Lessee continues to otherwise satisfy its
obligations (including but not limited to the
payment of Rent) hereunder.
ARTICLE 17. TERMINATION FOR DEFAULT
In the event of any uncured default by Lessee and at
any time thereafter, Lessor may serve a written notice upon
Lessee that Lessor elects to terminate this Lease. This
Lease shall then terminate on the date so specified as if
that date had been originally fixed as the expiration date
of the term herein granted, provided, however, that Lessee
shall have continuing liability for future rents for the
remainder of the original term and any exercised renewal
term as set forth in Article 19, notwithstanding any earlier
termination of the Lease hereunder (except where Lessee has
exercised a right to terminate where granted herein),
preserving unto Lessor the benefit of its bargained-for
rental payments.
ARTICLE 18. LESSOR'S RIGHT OF RE-ENTRY
In the event that this Lease shall be terminated as
hereinbefore provided, or by summary proceedings or
otherwise, or in the event of an uncured default hereunder
by Lessee, or in the event that the premises or any part
thereof, shall be abandoned by Lessee and Rent shall not be
paid or other obligations (including but not limited to
repair and maintenance obligations) of Lessee hereunder
shall not be met, then Lessor or its agents, servants or
representatives, may immediately or at any time thereafter,
re-enter and resume possession of the premises or any part
thereof, and remove all persons and property therefrom,
either by summary dispossess proceedings or by a suitable
action or proceeding at law, or by force or otherwise
without being liable for any damages therefor, except for
damages resulting from Lessor's negligence or willful
misconduct. Notwithstanding anything above to the contrary,
if Lessee is still in possession of the Leased Premises,
Lessor agrees to use such legal proceedings (summary or
otherwise) prescribed by law to regain possession of the
Leased Premises.
ARTICLE 19. LESSEE'S CONTINUING LIABILITY
(A) Should Lessor elect to re-enter as provided in
this Lease or should it take possession pursuant to legal
proceedings or pursuant to any notice provided for by law,
Lessor shall undertake commercially reasonable efforts to
mitigate Lessee's continuing liability hereunder as such
efforts may be prescribed by law or statute (which shall
include listing the Leased Premises with a licensed
commercial real estate broker and securing the property
against waste, but shall not otherwise include the
expenditure of Lessor's funds, unless the same be required
by law or statute and cannot be waived as provided for
herein), and in addition, Lessor may either (i) terminate
this Lease or (ii) it may from time to time, without
terminating the contractual obligation of Lessee to pay Rent
under this Lease, make such alterations and repairs as may
be necessary to relet the Leased Premises or any part
thereof for the remainder of the original Term or any
exercised Renewal Terms, at such Rent or Rents, and upon
such other terms and conditions as Lessor in its sole
discretion may deem advisable. Termination of Lessee's
right to possession by Court Order shall be sufficient
evidence of the termination of Lessee's possessory rights
under this Lease, and the filing of such an Order shall be
notice of the termination of Lessee's renewal rights as set
forth in any Memorandum of Lease of record.
(B) Upon each such reletting, without termination of
the contractual obligation of Lessee to pay Rent under this
Lease, all Rents received by Lessor shall be applied as
follows:
1. First, to the payment of any
indebtedness other than Rent due hereunder
from Lessee to Lessor;
2. Second, to the payment of any
costs and expenses of such reletting,
including brokerage fees and attorney's fees
and of costs of such alterations and repairs;
3. Third, to the payment of Rent
and other monetary obligations due and unpaid
hereunder;
4. Finally, the residue, if any,
shall be held by Lessor and applied in
payment of future Rent as the same may become
due and payable hereunder.
If such Rents received from such reletting during any month
are less than that to be paid during that month by Lessee
hereunder, Lessee shall pay any such deficiency to Lessor.
Such deficiency shall be calculated and paid monthly. No
such re-entry or taking possession of such Leased Premises
by Lessor shall be construed as an election on its part to
terminate Lessee's contractual obligations under this Lease
respecting the payment of rent and obligations for the costs
of repair and maintenance unless a written notice of such
intention be given to Lessee.
(C) Notwithstanding any such reletting without
termination, Lessor may at any time thereafter elect to
terminate this Lease for any uncured breach.
(D) In addition to any other remedies Lessor may have
with this Article 19, Lessor may recover from Lessee all
damages it may incur by reason of any uncured breach,
including: The cost of recovering and reletting the Leased
Premises; reasonable attorney's fees; and, the present value
(discounted at a rate of 8% per annum) of the excess of the
amount of Rent and charges equivalent to Rent reserved in
this Lease for the remainder of the Term over the then
reasonable Rent value of the Leased Premises (or the actual
Rents receivable by Lessor, if relet), (the Lessee bearing
the burden of proof to demonstrate the amount of rental loss
for the same period, that through reasonable efforts to
mitigate damages, could have been avoided) for the remainder
of the Term, all of which amounts shall be immediately due
and payable from Lessee to Lessor in full. In the event
that the Rent obtained from such alternative or substitute
tenant is more than the Rent which Lessee is obligated to
pay under this Lease, then such excess shall be paid to
Lessor provided that Lessor shall credit such excess against
the outstanding obligations of Lessee due pursuant hereto,
if any.
(E) It is the object and purpose of this Article 19
that Lessor shall be kept whole and shall suffer no damage
by way of non-payment of Rent or by way of diminution in
Rent. Lessee waives and will waive all rights to trial by
jury in any summary proceedings or in any action brought to
recover Rent herein which may hereafter be instituted by
Lessor against Lessee in respect to the Leased Premises.
Lessee hereby waives any rights of re-entry it may have or
any rights of redemption or rights to redeem this Lease upon
a termination of this Lease.
ARTICLE 20. PERSONALTY, FIXTURES AND EQUIPMENT
(A) All building fixtures, building machinery, and
building equipment used in connection with the operation of
the Leased Premises including, but not limited to, heating,
electrical wiring, lighting, ventilating, plumbing, walk-in
refrigerators/coolers, walk-in freezers, air conditioning
systems, and the equipment owned by Lessor and leased to
Lessee hereunder as specifically set forth on Exhibit B
attached hereto, if any, and incorporated herein by
reference shall be the property of Lessor. All other trade
fixtures and all other articles of personal property owned
by Lessee shall remain the property of Lessee.
(B) Lessee shall furnish and pay for any and all
equipment, furniture, trade fixtures, and signs, except for
such items, if any, described in Article 20(A) above, as
owned by Lessor. Lessee agrees that Lessor shall have a
lien on all Lessee's equipment, furniture, trade fixtures,
furnishings, and signs as security for the performance of
and compliance with this Lease, subject to the rights of any
bona fide third party's security interest in such property.
Provided Lessee is not in default hereunder, Lessor will
agree that its interest in the personal property of Lessee
will be subordinated to financing which may exist or which
Lessee may cause to exist in the future on that same
personal property.
(C) At the end of the term of this Lease, the property
described at Article 20(B) above, after written notice to
Lessor given at least ten (10) business days prior to any
proposed removal, may be removed from the Leased Premises by
Lessee regardless of whether or not such property is
attached to the Leased Premises so as to constitute a
"fixture" within the meaning of the law; however, all
damages and repairs to the Leased Premises which may be
caused by the removal of such property shall be paid for by
Lessee.
ARTICLE 21. LIENS
Lessee shall not do or cause anything to be done
whereby the Leased Premises may be encumbered by any
mechanic's or other liens. Whenever and as often as any
mechanic's or other lien is filed against said Leased
Premises purporting to be for labor or materials furnished
or to be furnished to Lessee, Lessee shall remove the lien
of record by payment or by bonding with a surety company
authorized to do business in the state in which the property
is located, within forty-five (45) days from the date of the
filing of said mechanic's or other lien and delivery of
notice thereof to Lessee. Should Lessee fail to take the
foregoing steps within said forty-five (45) day period (or
in any event, prior to the expiration of the time within
which Lessee may bond over such lien to remove it as a lien
upon the Leased Premises), Lessor shall have the right,
among other things, to pay said lien without inquiring into
the validity thereof, and Lessee shall forthwith reimburse
Lessor for the total expense incurred by it in discharging
said lien as additional Rent hereunder.
ARTICLE 22. NO WAIVER BY LESSOR EXCEPT IN WRITING
No agreement to accept a surrender of the Leased
Premises or termination of this Lease shall be valid unless
in writing signed by Lessor. The delivery of keys to any
employee of Lessor or Lessor's agents shall not operate as a
termination of the Lease or a surrender of the premises.
The failure of Lessor to seek redress for violation of any
rule or regulation, shall not prevent a subsequent act,
which would have originally constituted a violation, from
having all the force and effect of an original violation.
Neither payment by Lessee or receipt by Lessor of a lesser
amount than the Rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated Rent. Nor
shall any endorsement or statement on any check nor any
letter accompanying any check or payment as Rent be deemed
an accord and satisfaction. Lessor may accept such check or
payment without prejudice to Lessor's right to recover the
balance of such Rent or pursue any other remedy provided in
this Lease. This Lease contains the entire agreement
between the parties, and any executory agreement hereafter
made shall be ineffective to change it, modify it or
discharge it, in whole or in part, unless such executory
agreement is in writing and signed by the party against whom
enforcement of the change, modification or discharge is
sought.
ARTICLE 23. QUIET ENJOYMENT
Lessor covenants that Lessee, upon paying the Rent set
forth in Article 4 and all other sums herein reserved as
Rent and upon the due performance of all the terms,
covenants, conditions and agreements herein contained on
Lessee's part to be kept and performed, shall have, hold and
enjoy the Leased Premises free from molestation, eviction,
or disturbance by Lessor, or by any other person or persons
lawfully claiming the same, and that Lessor has good right
to make this Lease for the full term granted, including
renewal periods.
ARTICLE 24. BREACH - PAYMENT OF COSTS AND ATTORNEYS' FEES
Each party agrees to pay and discharge all reasonable
costs, and actual attorneys' fees, including but not limited
to attorney's fees incurred at the trial level and in any
appellate or bankruptcy proceeding, and expenses that shall
be incurred by the prevailing party in enforcing the
covenants, conditions and terms of this Lease or defending
against an alleged breach, including the costs of reletting.
Such costs, attorneys fees, and expenses if incurred by
Lessor shall be considered as Rent as due and owing in
addition to any Rent defined in Article 4 hereof.
ARTICLE 25. ESTOPPEL CERTIFICATES
Either party to this Lease will, at any time, upon not
less than ten (10) business days prior request by the other
party, execute, acknowledge and deliver to the requesting
party a statement in writing, executed by an executive
officer of such party, certifying that: (a) this Lease is
unmodified (or if modified then disclosure of such
modification shall be made); (b) this Lease is in full force
and effect; (c) the date to which the Rent and other charges
have been paid; and (d) to the knowledge of the signer of
such certificate that the other party is not in default in
the performance of any covenant, agreement or condition
contained in this Lease, or if a default does exist,
specifying each such default of which the signer may have
knowledge. It is intended that any such statement delivered
pursuant to this Article may be relied upon by any
prospective purchaser or mortgagee of the Leased Premises
or any assignee of such mortgagee or a purchaser of the
leasehold estate.
ARTICLE 26. FINANCIAL STATEMENTS
During the term of this Lease, Lessee will, within
ninety (90) days after the end of Lessee's fiscal year,
furnish Lessor with Lessee's financial statements (in SEC
Form 10-K, if available). The financial statements shall
be audited, at the Lessee's expense, by a nationally
recognized independent certified public accounting firm
reasonably acceptable to Lessor and shall be prepared in
conformity with generally accepted accounting principles
(GAAP). Lessee shall also provide Lessor with financial
statements for the Leased Premises within 90 days after the
end of each Lease Year. The financial statements for the
Leased Premises do not need to be prepared by an independent
certified public accountant, but shall be certified as true
and correct by the chief financial officer or other
authorized officer of Lessee. Additionally, during the term
of the Lease, Lessee will within forty-five (45) days from
the end of each quarter of each fiscal year, furnish Lessor
with Lessee's financial statements (in SEC Form 10-Q if
available)and financial statements of the Leased Premises
for such quarter. Lessor shall have the right to require
such financial statements for the Lessee and the Leased
Premises on a monthly basis after the occurrence of a
default in any Lease Year. Provided, however, if Lessee
shall not commit a default for twelve consecutive months,
Lessor's right to require such monthly financial statements
shall terminate until Lessee shall again commit a default in
any given Lease Year. Said quarterly (or monthly, if
required by Lessor) financial statements do not need to be
prepared by an independent certified public accountant, but
shall be certified as true and correct by the chief
financial officer or other authorized officer of Lessee.
The financial statements shall conform to GAAP, and include
a balance sheet and related statements of operations,
statement of cash flows, statement of changes in
shareholder's equity, and related notes to financial
statements, if any.
ARTICLE 27. MORTGAGE
Lessee does hereby agree to make reasonable
modifications of this Lease requested by any Mortgagee of
record from time to time, provided such modifications are
not substantial and do not increase any of the Rents or
obligations of Lessee under this Lease or substantially
modify any of the business elements of this Lease.
ARTICLE 28. OPTION TO RENEW
If this Lease is not previously canceled or terminated
and if Lessee has materially complied with and performed all
of the covenants and conditions in this Lease after
applicable cure periods and is not currently in default,
then Lessee shall have the option to renew this Lease upon
the same conditions and covenants contained in this Lease
for Two (2) consecutive periods of Five (5) years each
(singularly "Renewal Term"). Rent during the Renewal Term
shall increase each Lease Year by the lesser of Two Percent
(2%) of the Rent payable for the preceding Lease Year, or
the CPI-U Percentage Increase, as defined in Article 4
hereof.
The first Renewal Term will commence on the day
following the date the original Term expires and successive
Renewal Terms would commence on the day following the last
day of the then expiring Renewal Term. Except as otherwise
provided in Article 15 hereof, Lessee must give ninety (90)
days written notice to Lessor of its intent to exercise this
option prior to the expiration of the original Term of this
Lease or any Renewal Term, as the case may be.
ARTICLE 29. MISCELLANEOUS PROVISIONS
(A) All written notices shall be given to Lessor or
Lessee by certified mail or nationally recognized overnight
mail. Notices to either party shall be addressed to the
person and address given on the first page hereof. Lessor
and Lessee may, from time to time, change these addresses by
notifying each other of this change in writing. Notices of
overdue Rent may be sent to Lessee by regular, special
delivery, or nationally recognized overnight mail.
(B) The terms, conditions and covenants contained in
this Lease and any riders and plans attached hereto shall
bind and inure to the benefit of Lessor and Lessee and their
respective successors, heirs, legal representatives, and
assigns.
(C) This Lease shall be governed by and construed
under the laws of the State where the Leased Premises are
situate.
(D) In the event that any provision of this Lease
shall be held invalid or unenforceable, no other provisions
of this Lease shall be affected by such holding, and all of
the remaining provisions of this Lease shall continue in
full force and effect pursuant to the terms hereof.
(E) The Article captions are inserted only for
convenience and reference, and are not intended, in any way,
to define, limit, describe the scope, intent, and language
of this Lease or its provisions.
(F) In the event Lessee remains in possession of the
premises herein leased after the expiration of this Lease
and without the execution of a new lease and without
Lessor's written permission, Lessee shall be deemed to be
occupying said premises as a tenant from month-to-month,
subject to all the conditions, provisions, and obligations
of this Lease insofar as the same can be applicable to a
month-to-month tenancy except that the monthly installment
of Rent shall be One Hundred Fifty percent (150%) the amount
due on the last month prior to such expiration.
(G) If any installment of Rent (whether lump sum,
monthly installments, or any other monetary amounts required
by this Lease to be paid by Lessee and deemed to constitute
Rent hereunder) shall not be paid when due, or non-monetary
default shall remain uncured after the expiration of any
applicable cure period, Lessor shall have the right to
charge Lessee a late charge of $250.00 per month for each
month that any amount of Rent installment remains unpaid or
non-monetary default shall go uncured after the first such
occurrence in any 12 month period. Said late charge shall
commence after such installment is due or non-monetary
default goes uncured after the expiration of any applicable
cure period and continue until said installment, interest
and all accrued late charges are paid in full or such non-
monetary default is cured.
(H) Any part of the Leased Premises may be conveyed by
Lessor for private or public non-exclusive easement purposes
at any time, provided such easement does not interfere with
the access to the Leased Premises, visibility, or operations
of the business of Lessee. In such event Lessor shall, at
its own cost and expense, restore the remaining portion of
the Leased Premises to the extent necessary to render it
reasonably suitable for the purposes for which it was
leased, all to be done without adjustments in Rent to be
paid by Lessee. All proceeds from any conveyance of an
easement shall belong solely to Lessor.
(I) For the purpose of this Lease, the term "Rent"
shall be defined as Rent under Article 4, and any other
monetary amounts required by this Lease to be paid by
Lessee.
(J) Lessee agrees to cooperate with Lessor to allow
Lessor to obtain and use at Lessor's expense promotional
photographs of the Leased Premises, to the extent permitted
by Lessee's franchisor or licensor.
ARTICLE 30. REMEDIES
NON-EXCLUSIVITY. Notwithstanding anything contained
herein it is the intent of the parties that the rights and
remedies contained herein shall not be exclusive but rather
shall be cumulative along with all of the rights and
remedies of the parties which they may have at law or
equity. In the event of a breach by Lessor, Lessee shall be
entitled to all remedies at law or equity, to be
cumulatively enforced.
ARTICLE 31. HAZARDOUS MATERIALS INDEMNITY
Lessee covenants, represents and warrants to Lessor,
its successors and assigns, (i) that it has not used or
permitted and will not use or permit the Leased Premises to
be used, whether directly or through contractors, agents or
tenants, and to the best of Lessee's knowledge and except as
disclosed to Lessor in writing, the Leased Premises has not
at any time been used for the generating, transporting,
treating, storage, manufacture, emission of, or disposal of
any dangerous, toxic or hazardous pollutants, chemicals,
wastes or substances as defined in the Federal Comprehensive
Environmental Response Compensation and Liability Act of
1980 ("CERCLA"), the Federal Resource Conservation and
Recovery Act of 1976 ("RCRA"), or any other federal, state
or local environmental laws, statutes, regulations,
requirements and ordinances ("Hazardous Materials"); (ii)
that there have been no investigations or reports involving
Lessee, or the Leased Premises by any governmental authority
which in any way pertain to Hazardous Materials (iii) that
the operation of the Leased Premises has not violated and is
not currently violating any federal, state or local law,
regulation, ordinance or requirement governing Hazardous
Materials; (iv) that the Leased Premises is not listed in
the United States Environmental Protection Agency's National
Priorities List of Hazardous Waste Sites nor any other list,
schedule, log, inventory or record of Hazardous Materials or
hazardous waste sites, whether maintained by the United
States Government or any state or local agency; and (v) that
the Leased Premises will not contain any formaldehyde, urea
or asbestos, except as may have been disclosed in writing to
Lessor by Lessee at the time of execution and delivery of
this Lease. Lessee agrees to indemnify and reimburse
Lessor, its successors and assigns, for:
(a) any breach of these representations and
warranties, and
(b) any loss, damage, expense or cost
arising out of or incurred by Lessor which is the
result of a breach of, misstatement of or
misrepresentation of the above covenants,
representations and warranties, and
(c) any and all liability of any kind
whatsoever which Lessor may, for any cause and at
any time, sustain or incur by reason of Hazardous
Materials discovered on the Leased Premises during
the term hereof or placed or released on the
Leased Premises by Lessee;
together with all attorneys' fees, costs and disbursements
incurred in connection with the defense of any action
against Lessor arising out of the above. These covenants,
representations and warranties shall be deemed continuing
covenants, representations and warranties for the benefit of
Lessor, and any successors and assigns of Lessor and shall
survive expiration or sooner termination of this Lease. The
amount of all such indemnified loss, damage, expense or
cost, shall bear interest thereon at the lesser of 15% or
the highest rate of interest allowed by law and shall become
immediately due and payable in full on demand of Lessor, its
successors and assigns.
ARTICLE 32. ESCROWS
Upon a default by Lessee which is uncured after the
expiration of any applicable notice and cure period, or upon
the request of Lessor's Mortgagee, if any, Lessee shall
deposit with Lessor on the first day of each and every
month, an amount equal to one-twelfth (1/12th) of the
estimated annual real estate taxes, assessments and
insurance (if the insurance is to be purchased by Lessor)
("Charges") due on the Leased Premises, or such higher
amounts reasonably determined by Lessor as necessary to
accumulate such amounts to enable Lessor to pay all charges
due and owing at least thirty (30) days prior to the date
such amounts are due and payable. From time to time out of
such deposits Lessor will, upon the presentation to Lessor
by Lessee of the bills therefor, pay the Charges or at
Lessee's option, will upon presentation of receipted bills
therefor, reimburse Lessee for such payments made by Lessee.
In the event the deposits on hand shall not be sufficient to
pay all of the estimated Charges when the same shall become
due from time to time or the prior payments shall be less
than the currently estimated monthly amounts, then Lessee
shall pay to Lessor on demand any amount necessary to make
up the deficiency. The excess of any such deposits shall be
credited to subsequent payments to be made for such items.
If a default or an event of default shall occur under the
terms of this Lease, Lessor may, at its option, without
being required so to do, apply any Deposit on hand to cure
the default, in such order and manner as Lessor may elect.
ARTICLE 33. NET LEASE
Notwithstanding anything contained herein to the
contrary it is the intent of the parties hereto that this
Lease shall be a net lease and that the Rent defined
pursuant to Article 4 should be a net Rent paid to Lessor.
Any and all other expenses including but not limited to,
maintenance, repair, insurance, taxes, and assessments,
shall be paid by Lessee.
ARTICLE 34. DEVELOPMENT FINANCING AGREEMENT
The parties hereto hereby acknowledge that the terms
hereof are subject to and shall in the event of conflicts be
controlled by that certain Development Financing Agreement
of even date herewith, until such Agreement is terminated in
accordance with its terms.
ARTICLE 35. COUNTERPART EXECUTION
This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have respectively
signed and sealed this Lease as of the day and year first
above written.
LESSEE: Tumbleweed, Inc..
By:
Its:
By:
Its:
STATE OF )
)SS.
COUNTY OF )
The foregoing instrument was acknowledged before me
this ______ day of November, 1999, by
and , as
and , respectively,
of Tumbleweed, Inc. on behalf of said corporation.
Notary Public
LESSOR:
AEI INCOME & GROWTH FUND 23 LLC
By: AEI Fund Management XXI, Inc.
By:
Robert P. Johnson, President
STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me the
day of November, 1999, by Robert P. Johnson, the President
of AEI Fund Management XXI, Inc., a Minnesota corporation,
corporate Managing Member of AEI Income & Growth Fund 23
LLC, on behalf of said limited liability company.
Notary Public
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated
February 22,1999 on the balance sheet of AEI Income & Growth Fund
23 Limited Liability Company as of December 31, 1998, and our
report dated February 22, 1999 on the balance sheet of AEI Fund
Management XXI, Inc. as of December 31, 1998 and 1997 in the
post-effective Amendment #2 Form SB-2 Registration Statement of
AEI Income & Growth Fund 23 Limited Liability Company dated on
or about November 18, 1999 and to the reference to our Firm under
the caption "Experts" in the Prospectus included therein.
/s/ BOULAY, HEUTMAKER, ZIBELL & CO. P.L.L.P.
Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Minneapolis, Minnesota
November 18, 1999
