UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
Commission File No. 33-33504
AAA NET REALTY FUND IX, LTD.
(Name of small business issuer in its charter)
Nebraska 76-0318157
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
8 Greenway Plaza, Suite 824
Houston, Texas 77046
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (713) 850-1400.
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B not contained in this form, and no
disclosure will be contained, to the best of the issuer's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
Issuer's revenues for its most recent fiscal year: $520,193
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of Issuer dated June 6, 1990, (included
in Registration Statement No. 33-33504 of Issuer) are incorporated
by reference into Part III.
PART I
Item 1. Business
AAA Net Realty Fund IX, Ltd. (the "Issuer" or the "Partnership") was
formed in 1990 and is engaged in the business of acquiring, operating
and holding real properties for investment. The Partnership was organized
to acquire existing real estate income-producing properties as well as
land upon which such income-producing properties are to be
constructed (the "properties"), to be leased to corporations. The
properties will not be leased to franchisees of such corporations
(unless a tenant corporation was to fail and in such event a
release may involve a franchisee lessee). American Asset Advisers
Management Corporation IX (a Nebraska corporation) is the Managing
General Partner and H. Kerr Taylor is the Individual General
Partner.
The Partnership acquired three properties in 1991, a fourth
property in 1992 and a fifth property in 1993 at a total price of
$4,436,869 including acquisition fees and certain acquisition
expenses. Generally, the Partnership leases properties on a "net
lease" basis to corporations having a net worth at the time of
acquisition in excess of $40,000,000.
A further description of the Partnership's business is included in
Management's Discussion and Analysis of Financial Condition and
Results of Operations included in Item 6 of this Form 10-KSB.
The Objectives of the Partnership are:
(1) to preserve and protect the limited partners' original
capital contributions by the free and clear "all cash"
acquisition of income-producing improved real estate
properties;
(2) to utilize initial limited partner equity to purchase
income-producing properties at prices that are below
appraised values;
(3) to obtain capital appreciation through increases in the
value of the Partnership's properties;
(4) to provide the limited partners with quarterly cash
distributions;
(5) to realize certain limited tax benefits, principally
through depreciation deductions so that taxable income of
the Partnership will be offset to some extent by
deductible items, with the result that investors may
receive distributions generated from the Partnership's
operation with a reduced income tax liability associated
with the distribution of income.
There can be no assurance that such objectives can be attained. It
is not an objective of the Partnership to shelter taxable income of
investors that is derived from sources other than the Partnership.
Properties
As of December 31, 1997, the Partnership owned five properties all
in fee simple. Four of these properties are located in Texas and
one in Tennessee.
-2-
Although the specific terms of each lease vary, a summary of the
terms of the leases is as follows:
The primary term of the leases ranges from ten to eighteen years.
Two of the leases also provide for renewal options. The leases are
all "triple-net" leases whereby the tenants are responsible for the
property taxes, insurance and operating costs. Annual rental rates
range from $8,723 to $187,500. Three of the leases provide for
either percentage rents based on sales in excess of certain
amounts, periodic escalations in the annual rental rates or both.
During 1997, two of the Partnership's leases each contributed more
than 15% of the Partnership's total rental income. Summarized as
follows are the significant items pertaining to each of these
leases:
Golden Corral Tandy
Corporation (1) Corporation (2)
Lease Term 15 Years 10 Years
Expiration Date of Primary Term December 2007 September 2001
Renewal Options N/A 1 Term of 5 Years
Square Footage of Improvements 12,000 15,000
Base Annual Rental $ 182,994 $ 164,844
(1) The Partnership owns two properties on lease to Golden
Corral Corporation, one directly and one through a 4.8% joint
venture. Information included herein pertains only to the
property owned 100% by the Partnership.
(2) The lease with Tandy Corporation was terminated on August
31, 1997. A new lease was originated with Baptist Memorial
Health Services, Inc. beginning September 1, 1997. See Note 5
in the accompanying financial statements for a summary of rental
income by lessee for 1997 and 1996.
All of the Partnership's leases specify a minimum amount of
insurance coverage required to be carried by each tenant.
Management of the Partnership believes that the insurance policies
required to be carried by the tenants will adequately cover the
replacement cost of the properties and any personal liability
losses which the tenants may sustain.
Property Management
Each property is managed by American Asset Advisers Realty
Corporation ("AAA"), an affiliate of the Managing General Partner.
Such management includes providing leasing services in connection
with identifying and qualifying prospective tenants, assisting in
the negotiation of the leases, providing quarterly financial
statements, receiving and depositing monthly lease payments,
periodic verification of tenants' payments of real estate taxes and
insurance coverage, and periodic inspection of properties and
tenants' sales records where applicable. The Managing General
Partner or such affiliates are reimbursed for administrative
expenses at cost. The tenants are responsible, at their expense,
for day-to-day on-site management and maintenance of the
properties.
-3-
Financing - Borrowing Policies - No Leverage
The General Partners expect that the Partnership will incur no
indebtedness in connection with the operation of the properties.
However, in the exercise of their fiduciary duties the General
Partners may elect to borrow funds on behalf of the Partnership,
but only if necessary in their judgment to avoid what would
otherwise be substantial adverse consequences to the Partnership.
All properties were acquired on a debt-free basis.
The Partnership will not issue any senior securities nor will it
invest in junior mortgages, junior deeds of trust or similar
obligations.
Sale of Properties
The General Partners expect that most of the properties will be
sold eight to twelve years after acquisition. The determination of
whether a particular property should be sold or otherwise disposed
of will be made after consideration of performance of the property
and market conditions and will depend, in part, on the economic
benefits of continued ownership. In deciding whether to sell
properties, the General Partners will consider factors such as
potential capital appreciation, cash flow and federal income tax
consequences. The General Partners or their affiliates anticipate
performing various substantial real estate brokerage functions in
connection with the sale of properties by the Partnership.
Competitive Conditions
The properties owned by the Partnership are leased to fast food and
family style restaurants, retail businesses and a medical
facility. These businesses face competition from similar
establishments within the surrounding areas.
At the time a property is sold or otherwise disposed of, the
Partnership will be in competition with others who are also seeking
buyers for their properties.
Employees
The overall management decisions of the Partnership are made by the
Managing General Partner, American Asset Advisers Management
Corporation IX, who delegates certain day-to-day functions to the
officers of AAA, consultants, and employees of AAA. The
Partnership itself has no employees.
Item 2. Properties
As of March 31, 1998, the Partnership owned five properties in fee
simple (four directly and one through a joint venture with an
affiliated partnership). The properties are located in Texas and
Tennessee. They are operated as retail stores, restaurants and
medical facilities.
Land - The Partnership's property sites range from approximately
34,000 to 60,000 square feet depending upon building size and local
demographic factors. Sites purchased by the Partnership are in
high traffic corridors and have been reviewed for traffic and
demographic pattern and history.
-4-
Buildings - The buildings are all single tenant and generally
rectangular. They are positioned for good exposure to traffic
flows and constructed from various combinations of stucco, steel,
wood, brick and tile. Buildings range from approximately 2,300 to
15,000 square feet. Buildings are suitable for possible conversion
to other uses, although modifications may be required prior to use
for other operations. There are no plans for renovations or
improvements.
Leases - Tenants are companies whose net worth exceed a minimum of
$40,000,000. Tenants are diversified by business type and are
represented by the following types of businesses: medical
facilities, retail clothing and accessories, full service
restaurants and fast food restaurants.
Geographic Location - The properties are located within major
metropolitan areas with populations that exceed 250,000.
A total of $4,436,869 has been invested in properties as of
December 31, 1997, for the Partnership. This includes land,
building and acquisition costs. A further description of the
Partnership properties is included in Item 1 and in Schedule
III-Real Estate Owned and Accumulated Depreciation of this Form 10-KSB.
Item 3. Legal Proceedings
The Partnership does not have any material legal proceedings
pending.
Item 4. Submission of Matters to a Vote of Security Holders
During the fiscal year ended December 31, 1997, no matter was
submitted to a vote of security holders through the solicitation of
proxies or otherwise.
-5-
PART II
Item 5. Market for the Issuer's Common Equity and Related Stockholder Matters
As of March 31, 1998, 327 limited partners had subscribed for
5,390.5 Units. No established public trading market currently
exists for the Units.
For the years ended December 31, 1997 and 1996, the Partnership
paid cash distributions to the Limited Partners (LPs) in the amount
of $460,593 and $458,462, respectively and to the General Partners
(GPs) in the amount of $3,000 and $3,000, respectively. The
distributions were paid entirely from the operating profits of the
Partnership.
A summary of the distributions by quarter is as follows:
Quarter 1997 1996
Ended GPs LPs GPs LPs
March 31 $ 750 $ 114,926 $ 750 $ 114,548
June 30 $ 750 $ 115,087 $ 750 $ 114,548
September 30 $ 750 $ 115,223 $ 750 $ 114,548
December 31 $ 750 $ 115,357 $ 750 $ 114,818
The Partnership intends to continue the payment of regular
quarterly distributions. There are currently no material legal
restrictions that would limit the Partnership's ability to pay
distributions.
Item 6. Management's Discussion and Analysis of the Partnership's
Financial Condition and Results of Operations.
The Partnership was organized on February 1, 1990, to acquire, on
a debt-free basis, existing and newly constructed commercial
properties located in the continental United States and
particularly in the Southwest, to lease these properties to tenants
under generally "triple net" leases, to hold the properties with
the expectation of equity appreciation and eventually to sell the
properties.
The Partnership's overall investment objectives are to acquire
properties that offer investors the potential for (i) preservation
and protection of the Partnership's capital; (ii) partially tax-deferred
cash distributions from operations; and (iii) long-term
capital gains through appreciation in value of the Partnership's
properties realized upon sale.
AAA has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue.
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. AAA's hardware and
software are believed to be Year 2000 compliant. Accordingly,
the Partnership does not expect to incur any material costs in connection
with the compliance of the Year 2000 Issue.
LIQUIDITY AND CAPITAL RESOURCES
On June 6, 1990, the Partnership commenced an offering to the
public of up to $15,000,000 (15,000 Units) of limited partnership
interests. The proceeds of the offering, lease income from the
Partnership's properties and interest income are the Partnership's
source of capital. The Partnership closed its offering on June 5,
1992, having raised $5,390,500. Limited partners are not required
to make any additional capital contributions.
-6-
The Partnership's investment strategy of acquiring properties for
all cash and leasing them under net leases to corporations
minimizes the Partnership's operating expenses. The General
Partners believe that net rental income from the leases will
generate cash flow in excess of Partnership operating expenses.
Since the leases generally have initial or remaining terms of at
least 10 years and provide for specified rental increases in excess
of the initial base rent, it is anticipated that Partnership income
will increase over time. Approximately $145,000 has been set aside
for working capital reserves. Because of the low operating
expenses and ongoing cash flow, the General Partners do not believe
that other working capital reserves are necessary at this time.
Because all leases of the Partnership's properties are on a net-lease
basis, it is not anticipated that a large reserve for
maintenance and repairs will be necessary. The Partnership intends
to distribute a significant portion of its cash available for
distribution unless it becomes necessary to maintain additional
reserves.
As of December 31, 1997, the Partnership had acquired five
properties and had invested $4,436,869 including certain
acquisition expenses related to the Partnership's investment in
these properties. These expenditures resulted in a corresponding
decrease in the Partnership's liquidity.
The Partnership made cash distributions from operations to the
limited partners during each quarter of 1997 and 1996, distributing
a total of $460,593 and $458,462 to the limited partners,
respectively.
Inflation has had very little effect on income from operations.
Management expects that increases in store sales volumes due to
inflation as well as increases in the Consumer Price Index (C.P.I.)
may contribute to capital appreciation of the Partnership
properties. These factors, however, also may have an adverse
impact on the operating margins of the tenants of the properties.
RESULTS OF OPERATIONS
Years Ended December 31, 1997 and 1996:
Rental income increased from $494,299 in 1996 to $514,719 in 1997
primarily as a result of negotiating a lease on one property with
a new tenant at a higher rental rate. Interest income increased
slightly from $5,303 in 1996 to $5,474 in 1997 as a result of an
increase in interest rates. Expenses declined by $99,433 primarily
from a reduction in amortization expenses as the Partnership's
organization and syndication costs were fully amortized in late
1996. The Partnership recorded net income in 1997 of $390,199 as
compared to $270,175 in 1996. Each of the four properties owned
100% by the Partnership contributed more than 10% of the total
rental income for 1997.
Item 7. Financial Statements and Supplementary Data
The response to this item is submitted in Item 13(a) of this report
and is incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
-7-
PART III
Item 9. Directors and Executive Officers of the Issuer
The Issuer has no officers or directors. The individual and
Managing General Partners are as follows:
H. Kerr Taylor, age 47, is the Individual General Partner of the
Partnership. Mr. Taylor is a graduate of Trinity University. Mr.
Taylor also received a Masters of Business Degree from Southern
Methodist University and a Doctor of Jurisprudence from South Texas
College of Law. Mr. Taylor has over twenty years experience and
has participated in over 300 real estate transactions. Mr. Taylor
has served on a board and governing bodies of a bank, numerous
private and public corporations and charitable institutions. Mr.
Taylor is the president, the sole director and sole shareholder of
AAA, a real estate operating company he founded in 1988. Mr.
Taylor has served in this capacity since the company's formation.
Mr. Taylor is currently a general partner or principal of a general
partner of eleven affiliated limited partnerships. Mr. Taylor is
a member of the National Board of Realtors, Texas Association of
Realtors and Texas Bar Association.
American Asset Advisers Management Corporation IX is a Nebraska
corporation which was organized for the sole purpose of acting as
the Managing General Partner of the Partnership. The Managing
General Partner has a nominal net worth. The two initial voting
shareholders of American Asset Advisers Management Corporation IX
are Mr. Taylor and Realty Assets, Inc., a Nebraska corporation. Mr.
Taylor's ownership interest is 80% of the stock of the Managing
General Partner; Realty Assets, Inc. owns the remaining 20%.
Realty Assets, Inc. received its 20% interest as consideration for
agreeing to assume the risks associated with advancing a portion of
the organization and offering costs relating to this offering.
The President and Treasurer of the Managing General Partner is Mr.
Taylor who is also a Director. Stephen K. Wild, a resident of
Omaha, Nebraska, has been named Vice President, Secretary and a
Director of the Managing General Partner. Messrs. Taylor and Wild
are the two Directors of the Managing General Partner.
Mr. Wild, age 49, is the Chairman of Securities America, Inc., a
registered broker/dealer, which was also the dealer/manager of the
Partnership during the offering period. Mr. Wild has served as the
Chairman of the Board of Securities America, Inc. since 1984 and
also as its President from February 1991 to September 1997. Mr.
Wild has also been the Chairman of Financial Dynamics, Inc., the
holding company for Securities America, Inc. and certain other
financial service companies since September 1985. Realty Assets,
Inc., which owns 20 percent of the common stock of the Managing
General Partner, is an affiliate of the Dealer/Manager.
The affairs of the Partnership are conducted by AAA. In addition
to Mr. Taylor as president, other officers of AAA include:
Tim Kelley, age 50, serves as Vice President of Operations of AAA.
Mr. Kelley's career spans over twenty years of debt and equity
industry experience. Mr. Kelley has held senior management,
compliance and sales responsibilities in Broker/Dealers and in
investment banking firms including Lehman Brothers Kuhn Loeb,
Oppenheimer and Co., Inc., and McKenna and Company. Mr. Kelley
holds the series 24, 27, 7, 3, 15, and 63 NASD licenses. He
received his B.S. degree from Kent State University.
-8-
Randal Garbs, age 44, serves as Vice President of Acquisitions of
AAA. Mr. Garbs is responsible for property acquisitions as well as
marketing services to its tenants and developers. Mr. Garbs has
over twenty years experience in marketing including acting as CEO
of a Houston based service company. Mr. Garbs has earned the
series 7 and 63 NASD licenses, the Texas Real Estate license and is
a candidate for the CCIM designation. Mr. Garbs received his B.S.
and M.B.A. from Houston Baptist University and is active in various
community organizations and charitable foundations.
L. Larry Mangum, age 33, serves as Vice President of Finance of
AAA. Mr. Mangum is responsible for the financial accounting and
reporting relating to the AAA-sponsored partnerships and their
properties. He has over ten years of accounting experience,
including four years with a public accounting firm. He previously
worked for American General Corporation, a national insurance
company, from 1991-1996 as part of a team responsible for
supervising their reporting activities. Mr. Mangum received a
B.B.A. degree in accounting from Stephen F. Austin State University
and subsequently earned the CPA designation.
Other individuals who are specialists in their respective fields
are periodically employed by AAA and are engaged on an as-needed
basis to perform services on behalf of the Partnership or the
Managing General Partner or both. These individuals are not
employees of the Partnership or the Managing General Partner nor
are they employees of other AAA-sponsored partnerships, although
they do perform various services and activities for those
partnerships.
These individuals are:
Don Grieb, age 46, is the Director of Development and Acquisitions
of AAA. Mr. Grieb has over twenty years experience within the real
estate industry including development, investment analysis and
administration. Mr. Grieb has served within management of such
real estate firms as Hines Interests and AEW. Mr. Grieb received
his B.S. and M.B.A. from the University of Illinois and is a
registered architect.
Joe Mayer, age 42, is a permanent advisor of AAA responsible for
debt and equity issues. Mr. Mayer has over twenty years of
experience in business, accounting, investments and real estate
transactions. Mr. Mayer is a certified public accountant and
worked for a national public accounting firm. Mr. Mayer received
his B.B.A. degree in accounting from the University of Kentucky and
is a licensed real estate broker.
Jane Costello, age 41, is a certified public accountant and is
responsible for the tax accounting related to the AAA-sponsored
partnerships and their properties. She has over eighteen years
experience as an accountant including over 4 years with a national
public accounting firm and the last eight years with her own
accounting practice. Ms. Costello received a B.B.A. degree in
accounting from the University of Texas.
Item 10. Executive Compensation
Other than as discussed in Item 12, neither the Individual General
Partner nor any of the directors and officers of the Managing
General Partner received any remuneration from the Issuer. The
Individual General Partner and his affiliates received fees and
reimbursements of expenses from the Partnership as discussed in
Note 7 in the accompanying financial statements.
-9-
Item 11. Security Ownership of Certain Beneficial Owners and
Management
As of December 31, 1997, no person was known by the Issuer to be
the beneficial owner of more than 5% of the Units of the Issuer.
Neither General Partner owns any Units nor does any director or
officer of the Managing General Partner own any Units.
Item 12. Certain Relationships and Related Transactions
The Individual General Partner and the Managing General Partner
received cash distributions from operations during, or with respect
to, the fiscal years ended December 31, 1997 and 1996 of $3,000 and
$3,000, respectively. For a description of the share of cash
distributions from operations, if any, and fees to which the
General Partners are entitled, reference is made to the material
contained in the Prospectus under the headings CASH DISTRIBUTIONS
AND TAX ALLOCATIONS and COMPENSATION TO GENERAL PARTNERS AND
AFFILIATES.
The Issuer has entered into arrangements with AAA pursuant to which
AAA has assumed direct responsibility for day-to-day management of
the Partnership's properties. This service includes the
supervision of leasing, rent collection, maintenance, budgeting,
employment of personnel, payment of operating expenses, etc. AAA
is reimbursed for its actual costs associated with performing the
foregoing services, but does not receive a property management fee.
In connection with administrative services rendered to the
Partnership, $17,678 and $16,200 was paid to AAA in 1997 and 1996,
respectively. See Note 7 in the accompanying financial
statements.
Mr. Taylor, President of AAA, receives compensation from AAA for
services performed for AAA, which may include services rendered in
connection with the Issuer. However, the Managing General Partner
believes that any compensation relating to such services is not
material.
-10-
PART IV
Item 13. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) (1) Financial Statements
Independent Auditors' Report
Balance Sheet, December 31, 1997
Statements of Income for the Years Ended December 31, 1997 and 1996
Statements of Partnership Equity (Deficit) for the Years
Ended December 31, 1997 and 1996
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996
Notes to Financial Statements for the Years Ended December 31, 1997
and 1996
(2) Financial Statement Schedules: See (d) below
(3) Exhibits: See (c) below
(b) Reports on Form 8-K filed after September 30, 1997:
None
(c) Exhibits
3 See Exhibit 4 (a)
4 (a) Amended and Restated Certificate and Agreement
of Limited Partnership (Incorporated by
reference to Exhibit A to the Prospectus of
Issuer dated October 27, 1990, contained in
Registration Statement No. 33-33504 of Issuer
("the Prospectus")).
(b) Subscription Agreement and Signature Page
(Incorporated by reference to Exhibit D to the
Prospectus).
10 (a)(1) Lease Agreement between Issuer and Foodmaker,
Inc., dated July 2, 1991. (Incorporated by
reference to the exhibit filed with the
Issuer's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
10 (a)(2) Assignment of Lease between Issuer and Lads
Commercial Real Estate Developers dated
October 4, 1991. (Incorporated by reference
to the exhibit filed with the Issuer's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994).
10 (a)(3) Assignment of Rents and Leases between Issuer
and Northwend Center LP dated November 8,
1991. (Incorporated by reference to the
exhibit filed with the Issuer's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1994).
-11-
10 (a)(4) Lease Agreement between Issuer and Golden
Corral Corporation dated July 14, 1992.
(Incorporated by reference to the exhibit
filed with the Issuer's Annual Report on Form
10-K for the fiscal year ended December 31,
1994).
10 (a)(5) Joint Venture Agreement between Issuer and AAA
Net Realty Fund X, Ltd. dated March 15, 1993.
(Incorporated by reference to the exhibit
filed with the Issuer's Annual Report on Form
10-K for the fiscal year ended December 31,
1994.)
10 (a)(6) Lease Agreement between Issuer and Baptist
Memorial Health Services, Inc. dated September
11, 1997.
27 Financial Data Schedule
(d) Financial Statement Schedules
Schedule III - Real Estate Owned and Accumulated Depreciation
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Issuer has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AAA Net Realty Fund IX, Ltd.
March 31, 1998 /s/ H. Kerr Taylor
Date H. Kerr Taylor, Individual General Partner
American Asset Advisers Management
Corporation IX, Managing General Partner
March 31, 1998 By /s/ H. Kerr Taylor
Date H. Kerr Taylor
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following person on
behalf of the Issuer and in the capacities and on the dates
indicated.
March 31, 1998 /s/ H. Kerr Taylor
Date H. Kerr Taylor
President (Chief Executive Officer and
Chief Financial Officer) and Director
March 31, 1998 /s/ Stephen K. Wild
Date Stephen K. Wild, Director
March 31, 1998 /s/ L. Larry Mangum
Date L. Larry Mangum (Principal Accounting
Officer)
-13-
ANNUAL REPORT ON FORM 10-KSB
ITEMS 7, 13 (a)(1) AND (2) AND 13(d)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FINANCIAL STATEMENT SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 1997
AAA NET REALTY FUND IX, LTD.
F-1
AAA NET REALTY FUND IX, LTD.
INDEX TO FINANCIAL STATEMENTS
Page
FINANCIAL STATEMENTS
Independent Auditors' Report F-3
Balance Sheet, December 31, 1997 F-4
Statements of Income for the Years Ended
December 31, 1997 and 1996 F-5
Statements of Partnership Equity (Deficit)
for the Years Ended December 31, 1997 and 1996 F-6
Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996 F-7
Notes to Financial Statements for the Years Ended
December 31, 1997 and 1996 F-8 to F-11
FINANCIAL STATEMENT SCHEDULE:
Schedule III Real Estate Owned and Accumulated Depreciation
for the Year Ended December 31, 1997 F-12
All other financial statement schedules are omitted as the
required information is either inapplicable or is included in the
financial statements or related notes.
F-2
INDEPENDENT AUDITORS' REPORT
AAA Net Realty Fund IX, Ltd.
We have audited the accompanying balance sheet of AAA Net Realty
Fund IX, Ltd. as of December 31, 1997 and the related statements of
income, partnership equity (deficit) and cash flows for each of the
two years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the Index.
These financial statements and the financial statement schedule are
the responsibility of the Partnership's management. Our
responsibility is to express an opinion on the financial statements
and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of AAA Net Realty Fund
IX, Ltd. as of December 31, 1997 and the results of their
operations and their cash flows for each of the two years in the
period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
March 10, 1998
F-3
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash and cash equivalents $ 149,919
Accounts receivable 46,875
Property:
Land 1,490,494
Buildings 2,946,375
4,436,869
Accumulated depreciation (546,565)
Total property 3,890,304
Other assets:
Accrued rental income 7,060
TOTAL ASSETS $ 4,094,158
LIABILITIES AND PARTNERSHIP EQUITY
Liabilities:
Accounts payable $ 15,474
TOTAL LIABILITIES 15,474
Partnership equity (deficit):
General partners (3,984)
Limited partners 4,082,668
TOTAL PARTNERSHIP EQUITY 4,078,684
TOTAL LIABILITIES AND PARTNERSHIP EQUITY $ 4,094,158
See Notes to Financial Statements.
F-4
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
For the Years Ended December 31,
1997 1996
Revenues:
Rental income $ 514,719 $ 494,299
Interest income 5,474 5,303
Total revenues 520,193 499,602
Expenses:
Advisory fees to related party 17,678 16,200
Amortization - 104,069
Depreciation 93,536 93,536
Professional fees 18,780 15,622
Total expenses 129,994 229,427
Net income $ 390,199 $ 270,175
Allocation of net income:
General partners $ 3,902 $ 2,702
Limited partners 386,297 267,473
$ 390,199 $ 270,175
Net income per unit $ 72.39 $ 50.12
Weighted average units outstanding 5,390.5 5,390.5
See Notes to Financial Statements.
F-5
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERSHIP EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
General Limited
Partners Partners Total
Balance at December 31, 1995 $ (4,588) $ 4,347,953 $ 4,343,365
Net income 2,702 267,473 270,175
Distributions ($85.05 per Limited
Partnership Unit) (3,000) (458,462) (461,462)
Balance at December 31, 1996 (4,886) 4,156,964 4,152,078
Net income 3,902 386,297 390,199
Distributions (85.45 per Limited
Partnership Unit) (3,000) (460,593) (463,593)
Balance at December 31, 1997 $ (3,984) $ 4,082,668 $ 4,078,684
See Notes to Financial Statements.
F-6
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 390,199 $ 270,175
Adjustments to reconcile net income to net cash
flows from operating activities:
Amortization - 104,069
Depreciation 93,536 93,536
Increase in accounts receivable (45,825) -
Increase in accrued rental income (7,060) -
Increase (decrease) in accounts payable 2,520 (7,535)
Net cash provided by operating activities 433,370 460,245
Cash flows from financing activities:
Distributions paid to partners (463,593) (461,462)
Net cash used in financing activities (463,593) (461,462)
Net decrease in cash and cash equivalents (30,223) (1,217)
Cash and cash equivalents at beginning of year 180,142 181,359
Cash and cash equivalents at end of year $ 149,919 $ 180,142
</TABLE>
See Notes to Financial Statements.
F-7
AAA NET REALTY FUND IX, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
AAA Net Realty Fund IX, Ltd. (the "Partnership") is a limited
partnership formed February 1, 1990, under the laws of the
State of Nebraska. The Partnership commenced operations as of
June 6, 1990. American Asset Advisers Management Corporation
IX (a Nebraska corporation) is the Managing General Partner and
H. Kerr Taylor is the Individual General Partner.
The Partnership was formed to acquire commercial properties for
cash, own, lease, operate, manage and eventually sell the properties.
The supervision of the operations of the properties is managed by
American Asset Advisers Realty Corporation ("AAA"), a related party.
BASIS OF ACCOUNTING
The financial records of the Partnership are maintained on the
accrual basis of accounting whereby revenues are recognized
when earned and expenses are recorded when incurred.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Partnership
considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash
equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds.
PROPERTY
Property is leased to others on a net lease basis whereby all
operating expenses related to the properties including property
taxes, insurance and common area maintenance are the
responsibility of the tenant. The leases are accounted for
under the operating lease method under which the properties are
recorded at cost. Rental income is recognized ratably over the
life of the lease and depreciation is charged based upon the
estimated useful life of the property.
The Partnership's lease agreements do not provide for
contingent rentals.
The Partnership obtains an appraisal on each property prior to
a property's acquisition and also performs an annual valuation
update to evaluate potential impairment for each property for
which an appraisal is older than twelve months. This valuation
is based on capitalization of income for each property, a
review of current market conditions and any significant events
or factors which would indicate a potential impairment to the
value of a property.
F-8
The final property acquisition was completed as a joint venture.
The Partnership's interest in the joint venture is 4.8%. At
December 31, 1997, the net book value of this property
comprised 1.7% of total assets, the rental income of $8,724
comprised 1.7% of total rental income and 2.2% of net income.
Because of the immateriality of these amounts to the financial
statements as a whole, the initial purchase and the subsequent
rental income and depreciation have been accounted for on the
proportionate consolidation method.
DEPRECIATION
Buildings are depreciated using the straight-line method over
an estimated useful life of 31.5 years.
STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
No cash was paid for income taxes or interest during 1997 or
1996.
FEDERAL INCOME TAXES
All income and expense items flow through to the partners for
tax purposes. Consequently, no provisions for federal or state
income taxes is provided in the accompanying financial
statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments, consisting of
cash, cash equivalents, accounts receivable and liabilities
approximate their fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. PARTNERSHIP EQUITY
The Managing General Partner, American Asset Advisers
Management Corporation IX, and the Individual General Partner,
H. Kerr Taylor, have made capital contributions in the amounts
of $990 and $10, respectively. All other contributions have
been made by the limited partners. The General Partners shall
not be obligated to make any other contributions to the capital
of the Partnership, except that, in the event that the General
Partners have negative balances in their capital accounts after
dissolution and winding up of, or withdrawal from, the
Partnership, the General Partners will contribute to the
Partnership 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 partners over the amount
previously contributed by the General Partners.
F-9
3. ALLOCATIONS AND DISTRIBUTIONS
All income, profits, gains and losses of the Partnership for
each fiscal year, other than any gain or loss realized upon the
sale, exchange or other disposition of any of the Partnership
properties, shall be allocated as follows:
(a) net loss shall be allocated 99% to the limited partners,
.99% to the Managing General Partner and .01% to the Individual
General Partner; and (b) net income will be allocated first in
the ratio, and to the extent, net cash flow is distributed to
the partners for such year and any additional income for such
year will be allocated 99% to the limited partners, 1% to the
General Partners.
For income tax purposes, the gain realized upon the sale,
exchange or other disposition of any property will be allocated
as follows:
a. first, to and among the partners in an amount equal to the
negative balances in their respective capital accounts (pro
rata based on the relative amounts of such negative
balances);
b. then, to each limited partner until the balance in such
limited partner's capital account equals the amount to be
distributed to such limited partner in the first tier of the
distributions of net proceeds of sale;
c. then, to the General Partners, until the balance in
their capital accounts equals the amounts to be
distributed to the General Partners in the second
tier of distributions of net proceeds of sale;
d. then, 85% to the limited partners and 15% to the General
Partners; and,
e. thereafter, the Partners shall be allocated gain or loss in
order to meet Treasury Regulation regarding qualified income
offset requirements.
Any loss on the sale, exchange, or other disposition of any
property shall be allocated 99% to the limited partners and 1%
to the General Partners.
4. OPERATING LEASES
A summary of minimum future rentals, exclusive of any renewals,
under noncancellable operating leases in existence at December
31, 1997 are as follows:
1998 $ 530,215
1999 $ 530,215
2000 $ 535,840
2001 $ 547,090
2002 $ 511,923
2003-2009 $ 2,444,861
F-10
5. MAJOR TENANTS
The Partnership's operations are related to the acquisition and
leasing of commercial real estate properties. The following schedule
summarizes rental income by lessee for 1997 and 1996:
1997 1996
Foodmaker (Texas) $ 66,212 $ 63,735
Tandy Corporation (Tennessee) $ 109,896 * $ 164,844
Baptist Memorial Health Services, Inc. (Tennessee) $ 69,560 $ -
Payless ShoeSource/WaldenBooks (Texas) $ 77,331 $ 74,000
Golden Corral Corporation (Texas) $ 191,720 $ 191,720
Total $ 514,719 $ 494,299
* Lease terminated during 1997
6. INCOME RECONCILIATION
A reconciliation of net income for financial reporting
purposes to income for federal income tax purposes is as
follows for the year ended December 31:
1997 1996
Net income for financial reporting purposes $ 390,199 $ 270,175
Amortization for financial reporting purposes not
deductible for tax purposes - 72,844
Accrued rental income (7,060) -
Income for tax reporting purposes $ 383,139 $ 343,019
7. RELATED PARTY TRANSACTIONS
The Partnership Agreement provides for the reimbursement for
administrative services necessary for the prudent operation of
the Partnership and its assets with the exception that no
reimbursement is permitted for rent, utilities, capital
equipment, salaries, fringe benefits or travel expenses
allocated to the Individual General Partner or to any
controlling persons of the Managing General Partner. In
connection with administrative services rendered to the
Partnership, $17,678 and $16,200 was incurred and paid to AAA
in 1997 and 1996, respectively.
F-11
AAA NET REALTY FUND IX, LTD.
SCHEDULE III - REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
PROPERTY ENCUM- IMPROVE- COST AT CLOSE OF YEAR ACCUMULATED DATE OF DATE INCOME STMT.
DESCRIPTION BRANCES BUILDING LAND MENTS BUILDING LAND DEPRECIATION CONST. ACQUIRED IS COMPUTED
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jack in the Box, $0 $406,805 $174,345 $0 $406,805 $174,345 $83,406 N/A 07-12-91 31.5 Years
Texas
Baptist Memorial Health $0 $1,097,725 $470,454 $0 $1,097,725 $470,454 $217,802 N/A 10-4-91 31.5 Years
Services, Inc.
Tennessee
Payless Shoe Source, $0 $393,573 $168,674 $0 $393,573 $168,674 $76,805 N/A 11-07-91 31.5 Years
Texas
Golden Corral Restaurant, $0 $995,048 $654,211 $0 $995,048 $654,211 $160,456 N/A 08-20-92 31.5 Years
Texas
Golden Corral Restaurant, $0 $53,224 $22,810 $0 $53,224 $22,810 $8,096 N/A 03-15-93 31.5 Years
Texas
$0 $2,946,375 $1,490,494 $0 $2,946,375 $1,490,494 $546,565
(1) Transactions in real estate and accumulated depreciation during 1997 and 1996 are summarized as follows:
Accumulated
Cost Depreciation
Balance at December 31, 1995 $4,436,869 $359,494
Acquisitions $0 $0
Depreciation expense $0 $93,536
Balance at December 31, 1996 $4,436,869 $453,030
Acquisitions $0 $0
Depreciation expense $0 $93,535
Balance at December 31, 1997 $4,436,869 $546,565
(2) Aggregate cost for Federal
income tax purposes $4,436,869
F-12
Exhibit 10 (a)(6)
TRIPLE NET
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into by and between AAA
NET REALTY FUND IX, LTD, a Nebraska limited partnership,
hereinafter referred to as "Landlord," and BAPTIST MEMORIAL HEALTH
SERVICES, INC., a Tennessee non-profit corporation, hereinafter
referred to as "Tenant."
W I T N E S S E T H:
In consideration of the payment of the Rent as herein provided
and the performance of the covenants and compliance with the terms
and conditions contained herein by Tenant, Landlord hereby leases
to Tenant, and Tenant hereby leases from Landlord, upon and subject
to the terms and provisions of this Lease, the land described in
Exhibit "A" attached hereto, together with all improvements thereon
and all appurtenances and easements thereto (hereinafter referred
to collectively as the "Premises"). The Premises and this Lease
are subject to the restrictions and other matters described on
Exhibit "B" hereto.
TO HAVE AND TO HOLD the Premises unto Tenant for the term of
this Lease (hereinafter referred to as the "Lease Term"), which
shall begin on the Commencement Date (as hereinafter defined) and
end on August 31, 2007, unless extended under the provisions of
Article XXI hereof.
ARTICLE I. ACCEPTANCE OF PREMISES.
1.1 Improvements have previously been constructed on the
Premises and by occupying the Premises, Tenant accepts the same AS
IS AND WHERE IS, WITH ALL FAULTS AND WITHOUT WARRANTY, EXPRESSED OR
IMPLIED.
1.2 The "Commencement Date" of this Lease shall be September
1, 1997.
ARTICLE II. RENT.
2.1 Rent shall accrue hereunder from the Commencement Date.
2.2 Tenant promises and agrees to pay to Landlord at 8
Greenway Plaza, Suite 824, Houston, Texas 77046, or such other
place as Landlord may from time to time designate in writing, the
following "Rent":
(a) A monthly minimum rent for the Premises of
$15,625.00 (based upon $12.50 per square feet per year),
subject to adjustment as hereinafter provided, which shall be
-1-
due and payable in advance in monthly installments on the
first day of each month ("Minimum Rent") commencing September
1, 1997. Beginning September 1, 2000 and continuing until the
August 31, 2003, the Minimum Rent shall be adjusted to
$17,031.25 (based upon a 3% per year increase). Beginning
September 1, 2003 and continuing until August 31, 2006, the
Minimum Rent shall be adjusted to $18,564.06 (based upon a 3%
per year increase). Beginning September 1, 2006 and
continuing until August 31, 2007, the Minimum Rent shall be
adjusted to 20,234.83 (based upon a 3% per year increase).
(b) Any costs reasonably incurred by Landlord, that
Tenant is herein obligated to pay and fails to pay within
thirty (30) days from date of receipt of Landlord's notice to
pay, in connection with operation or maintenance of the
Premises (except Landlord shall not be required to operate or
maintain the Premises), including any costs or expenses
incurred by Landlord under the provisions of those covenants
and restrictions set forth in Exhibit "B" hereto, which costs
shall be payable upon demand by Landlord or as otherwise
provided herein;
(c) Taxes in accordance with Article XIV hereof; and
(d) All other charges payable by Tenant hereunder and
all sums expended by Landlord on behalf of Tenant, as provided
herein.
2.3 Except as otherwise provided herein, all Rent and other
charges for each month shall be due and payable on the first day of
such month. Unless otherwise expressly provided herein, all Rent
and other charges shall be due and payable without demand, notice,
offset, reduction or abatement and Tenant hereby waives and
relinquishes any and all rights which Tenant might otherwise have
to claim any nature of lien against or to withhold, deduct from or
offset Rent or other charges. In the event any installment of
Rent, or any other fees or charges hereunder, is not received
within five business days after the date on which such amount is
due, Tenant shall pay an administrative late charge of $10.00 for
each such late payment. If such failure to pay Rent or other
charges continues beyond ten days after Tenant has received notice
of such failure, any and all due and unpaid Rent or other charges
shall bear interest from the date such Rent or other charges became
due until the date such Rent or other charges is received by
Landlord at the interest rate which is equal to the lesser of (i)
18 percent per annum or (ii) the maximum non-usurious rate allowed
by applicable law. Such interest, as accrued, shall be immediately
due and payable as additional Rent hereunder. The collection of
such late charge and/or such interest by Landlord shall be in
addition to and cumulative of any and all other remedies available
-2-
to Landlord. It is the intention of Landlord and Tenant to conform
to all applicable laws concerning the contracting for, charging
and receiving of interest. In the event that any payments of
interest required under this Lease are ever found to exceed any
applicable limits, Landlord shall credit the amount of any such
excess paid by Tenant against any amount owing under this Lease or
if all amounts owing under this Lease have been paid, Landlord
shall refund to Tenant the amount of such excess paid by Tenant.
Landlord and Tenant agree that Landlord shall not be subject to any
applicable penalties in connection with any such excess interest,
it being agreed that any such excess interest contracted for,
charged or received pursuant to this Lease shall be deemed a result
of a bona fide error and a mistake. Tenant shall also pay an
administrative charge of $25.00 for each check returned unpaid for
any reason.
ARTICLE III. USE AND CARE OF PREMISES.
3.1 The Premises may be used and occupied as an outpatient
medical or other health related facility of Tenant, its successors,
assignees and sublessees, and for no other purpose without the
prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Tenant shall not make or permit
any unlawful use of the Premises or any use which violates any
covenants or restrictions which affect the Premises. Tenant or its
successors, assigns and sublessees shall not at any time vacate the
Premises, but shall in good faith continuously throughout the term
of this Lease conduct and carry on in the Premises the type of
business for which the Premises are leased, in accordance with the
reasonable standards of operation of such business.
3.2 Tenant shall not, without Landlord's prior written
consent, perform any act or fail to perform any act, keep anything
within the Premises or use the Premises for any purpose that
invalidates any insurance policy carried on the Premises or on
other parts of the Premises. If Landlord does give written consent
to Tenant pursuant to the above sentence, then Tenant shall be
liable, at its sole cost and expense, for the amount of any
increase in the insurance premium cost resulting from such act or
omission to which Landlord has consented.
3.3 Tenant shall not, without Landlord's prior written
consent, place or permit any loud speakers or amplifiers, flashing
lights or searchlights on the roof or outside the Premises or where
the same can be seen or heard outside the building; nor place or
display any signs, advertisements or other items (other than
dignified displays permitted under paragraph 6.l hereof) in any
windows or glass building fronts; nor take any other action which
is a nuisance.
-3-
3.4 Tenant, at its sole cost and expense, shall obtain all
permits and licenses and pay all fees required for the transaction
of its business in the Premises. Tenant shall not violate any
applicable law, ordinance or governmental regulation now in force
or which may hereafter be in force pertaining to the Premises or
the operation of Tenant's business therein.
3.5 Tenant shall take good care of the Premises and keep the
same free from waste or nuisance at all times, ordinary wear and
tear excepted. Tenant shall keep the Premises, including windows
and signs and sidewalks, service ways and loading areas, if any,
adjacent to the Premises neat, clean, and free from dirt or rubbish
at all times and shall store all trash and garbage within the
Premises, arranging for the regular pickups of such trash and
garbage at Tenant's expense.
ARTICLE IV. MAINTENANCE AND REPAIR OF PREMISES.
4.1 Landlord shall have no repair obligations hereunder. The
foregoing notwithstanding, Tenant shall have no obligation to incur
any expense for repairs to the roof, which are covered by
Landlord's roof warranty.
4.2 During the Lease Term, Tenant shall keep the Premises in
good, clean condition and shall make all needed repairs, including,
without limitation, maintenance of all direct utility connections,
roof repairs (in excess of repairs covered by Landlord's warranty)
and replacement of cracked or broken glass. Tenant shall comply at
its sole cost and expense with all governmental laws, ordinances
and regulations applicable to the Premises. If any repairs
required to be made by Tenant hereunder are not made within thirty
days after written notice delivered to Tenant by Landlord, Landlord
may at its option make such repairs without liability to Tenant for
any loss or damage which may result to its stock or business by
reason of such repairs, except for liability resulting from the
negligence or wilful misconduct of Landlord, its employees, agents
or contractors, and Tenant shall pay to Landlord upon demand as
additional rental hereunder the actual and reasonable cost of such
repairs. At the expiration of this Lease, Tenant shall surrender
the Premises in good condition, ordinary wear and tear excepted.
4.3 In addition but without limitation, during the Lease
Term, Tenant shall have sole responsibility for maintenance and
upkeep on the air conditioning/heating system, the sprinkler
system, if any, and the water meter and shall, at Tenant's sole
cost and expense, repair and replace any part thereof as may be
necessary from time to time to keep such items in as good working
condition as on the Commencement Date.
-4-
ARTICLE V. ALTERATIONS AND FIXTURES.
5.1 Except for those alterations shown on Exhibit "C" hereto,
which Landlord has approved, Tenant shall not, without on each
occasion obtaining Landlord's prior written consent, which will not
be unreasonably withheld or delayed: (i) alter or change the
exterior or architectural treatment of the Premises or any part
thereof; (ii) paint or decorate any part of the exterior of the
Premises; (iii) make any alterations or additions to the Premises
or permit the making of any holes in the structural walls, ceilings
or floors thereof; (iv) injure, overload, deface or otherwise harm
the Premises or any part thereof or any equipment or installation
therein; or (v) permit the use of any forklift and tow truck, or
any other mechanically powered machine or equipment for handling
freight in the Premises except in the ordinary course of its
business. All repairs, replacements, alterations, additions,
improvements, plate glass, exterior doors, overhead sprinkler
systems (if any) floor coverings and fixtures (other than
unattached, movable trade fixtures and attached fixtures which
serve a purely medical or health related purpose) including all air
conditioning electrical, mechanical and plumbing machinery and
equipment, which may be made or installed by either party hereto
upon the interior or exterior of the Premises shall become the
property of Landlord without credit or compensation to Tenant at
the termination of this Lease for any reason whatsoever, and at the
termination of this Lease shall remain upon and be surrendered
with the Premises, unless Landlord requests their removal, in which
event Tenant shall remove the same and restore the Premises to
their original condition, ordinary wear and tear excepted, at
Tenant's expense.
ARTICLE VI. SIGNS AND ADVERTISING.
6.1 Other than as expressly provided herein, Tenant shall
not, make any changes to the Premises or install anything on the
exterior of the building, which violates (a) any local ordinances
or regulations or (b) the covenants and restrictions which affect
the Premises. No portable or trailer signs of any kind shall be
permitted. Landlord shall have the right to remove any items
placed by Tenant on the Premises in violation of this Section.
ARTICLE VII. UTILITIES.
7.1 Tenant shall pay at its sole cost and expense the sums
required to have connected all utility services to the Premises,
including, but not limited to, any and all utility deposits and tap
and meter fees. Tenant shall promptly pay all charges for
electricity, water, gas, telephone service and all other utilities
furnished to the Premises during the Lease Term. Landlord shall
not be liable for any interruption whatsoever in utility services.
-5-
No interruption shall be construed as either a constructive or
actual eviction of Tenant, nor work an abatement of Rent, nor
relieve Tenant from fulfilling any covenant or condition of this
Lease.
ARTICLE VIII. INSURANCE AND INDEMNITY.
8.1 Except as hereinafter provided, Tenant shall indemnify
and hold Landlord and Landlord's agents, employees,
representatives, heirs and assigns harmless from and against any
and all losses, claims, actions, demands, liens, costs, damages,
expenses and liabilities whatsoever including, but not limited to,
reasonable attorney's fees and court costs, arising out of any
claims of any person or persons on account of or by reason of: (i)
any occurrence in, upon or at the Premises or resulting from or
related to Tenant's occupancy or use thereof during the Lease Term;
(ii) the use or misuse of the parking area, whether by Tenant or by
any person or persons holding or using the Premises, or any part
thereof, under Tenant, including without limitation, Tenant's
customers, invitees, agents, contractors, employees, servants,
subtenants, assignees, licensees or concessionaires. Without
limiting the generality of the foregoing, Tenant shall indemnify
and hold Landlord, Landlord's agents, employees, representatives,
heirs and assigns harmless from and against any penalty, damage or
charge incurred or imposed by reason of any violation of law,
statute, ordinance or governmental rule, regulation or requirement
now or hereafter in force, by Tenant or any person or persons
holding under Tenant, and from any cost, damage or expense arising
out of the death of or injury to any person or persons holding
under Tenant or using the Premises, or any part thereof, or any
part of the parking area, except for those matters resulting from
the negligent acts or omissions or wilful misconduct of any of
Landlord's agents, employees, representatives, heirs or assigns,
occurring in the parking area.
8.2 Tenant shall throughout the term of this Lease carry and
maintain, at Tenant's cost and expense, the following types of
insurance, in the amounts specified and in the forms hereinafter
provided:
(a) general public liability insurance covering the
Premises and Tenant's use thereof against claims for bodily
injury or death and property damage occurring upon, in or
about the Premises, such insurance to afford protection with
limits of not less than $2,000,000 with respect to injury or
death to any number of persons arising out of any occurrence
and such insurance against property damage to afford
protection with limits of not less than $100,000 with respect
to any occurrence of property damage. The insurance coverage
required under this Section 8.2(a) shall, in addition, extend
-6-
to any liability of Tenant arising out of the indemnities
provided in Section 8.l;
(b) fire insurance covering the building and other
improvements, Tenant's leasehold improvements, heating,
ventilating and air conditioning equipment, trade fixtures and
all personal property from time to time in, on, or upon the
Premises, and all alterations, additions or changes made by
Tenant pursuant to the terms of this Lease, in an amount not
less than the full replacement cost thereof from time to time
during the term of this Lease, providing protection against
perils included within the standard Tennessee form of fire and
extended coverage insurance policy, together with insurance
against sprinkler damage (but Landlord makes no representation
that the Premises are equipped with a sprinkler system),
vandalism and malicious mischief;
(c) plate glass insurance covering all plate glass, if
any, in the Premises other than interior display cases; and
(d) such other insurance against other insurable hazards
as Landlord may from time to time be required to maintain by
any law, ordinance or regulation affecting the Premises.
All policies of insurance described in the foregoing paragraph
shall be issued in form acceptable to Landlord by insurance
companies acceptable to Landlord and qualified to do business in
the State of Tennessee. Each such policy shall be issued in the
names of Tenant, Landlord and any other party in interest from time
to time designated by written notice by Landlord to Tenant, as
their respective interests may appear. Such policies shall be for
the mutual and joint benefit and protection of Tenant, Landlord
and any such other party in interest, and executed copies of each
such policy of insurance or a certificate thereof shall be
delivered to each of Landlord and such other parties in interest
within ten (10) days after delivery of possession of the Premises
to Tenant and thereafter within thirty (30) days prior to the
expiration of each such policy. If any such policy shall expire or
terminate, a renewal or additional policy shall be procured and
maintained by Tenant in like manner and to like extent. All such
policies shall contain a provision that the company writing said
policy will give to Landlord and such other parties in interest at
least thirty (30) days notice in writing in advance of any
cancellation, lapse, or the effective date of any reduction in the
amount of insurance. In addition, Tenant shall furnish Landlord a
copy of the policy (policies) within five (5) days after request
therefor by Landlord. All such public liability, property damage
and other casualty policies shall be written as primary policies
which do not contribute to and are not in excess of coverage which
Landlord may carry. All such public liability and property damage
-7-
policies shall contain a provision that Landlord and any such other
parties in interest, although named as an insured, shall
nevertheless be entitled to recover under said policies for any
loss occasioned to Landlord or any such other parties in interest,
or to any of their respective servants, agents or employees by
reason of the negligence of Tenant. If Tenant fails to have a
certificate of such policy on deposit with Landlord at all times
during the Lease Term (and prior thereto in the event of any entry
into possession by Tenant prior to the Commencement Date of the
term hereof or subsequent to the date of termination hereof in the
event of a holdover) and fails to furnish a certificate of such
policy within five (5) days after receipt of Landlord's written
request therefor, then Landlord shall have the right (but no
obligation) to take out and maintain such an insurance policy, and
if Landlord does so and gives notice thereof to Tenant, then Tenant
shall be obligated to pay Landlord the amount of the premium
applicable to such policy of insurance within five (5) days
following any such notice from Landlord. Any failure of Tenant to
make such payment to a Landlord may be treated by Landlord as a
default hereunder.
8.3 Notwithstanding any provision herein contained to the
contrary, if Landlord obtains insurance on the Premises and by the
nature of Tenant's business, Landlord's insurance rate on the
Premises is higher than the normal insurance rate being charged for
any coverage carried by Landlord, Tenant, at its sole cost and
expense, shall pay the difference between the rate being charged
for such insurance and the normal stipulated rate to the extent
that such increase is attributable to Tenant's business.
8.4 In the event that Tenant fails to timely provide Landlord
with copies of any insurance policies which Tenant is required to
carry hereunder and such failure continues for fifteen days, Tenant
shall, at the request of Landlord, pay to Landlord in monthly
installments on or before the first day of each calendar month, in
advance, without demand, an amount determined by Landlord to be
sufficient to enable Landlord to pay all insurance premiums for the
insurance required of Tenant hereunder. In the event the actual
amount paid by Landlord for such insurance exceeds or is less than
the amounts paid by Tenant hereunder, Tenant shall pay any
deficiency or any excess sums shall be credited, off-set or
refunded in the manner provided in Section 14.3 concerning taxes.
ARTICLE IX. NON-LIABILITY FOR CERTAIN DAMAGES.
9.1 Landlord shall not be liable to Tenant, Tenant's agents,
employees or invitees for any injury to person or damage to
property caused by the Premises becoming out of repair or by gas,
water, steam, electricity or oil leaking or escaping into the
Premises, nor shall Landlord be liable to Tenant, Tenant's agents,
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employees or invitees for any loss or damage that may be occasioned
by or through the acts or omissions of any other persons
whatsoever, except willful acts of only duly authorized employees,
contractors and agents of Landlord. All property left, stored or
maintained within the Premises shall be at Tenant's sole risk.
9.2 Unless caused by the act or omission of Landlord, no
diminution or shutting off of light, air or other effect on the
Premises by any structure or condition now or hereafter erected or
existing shall affect this Lease, abate Rent or otherwise impose
any liability on Landlord or relieve Tenant of any of its
obligations hereunder.
ARTICLE X. ACCESS TO PREMISES.
10.1 After giving reasonable advance notice thereof (except in
the case of an emergency), Landlord and its agents, employees and
contractors shall have the right to enter upon the Premises at all
reasonable business hours for the purpose of inspecting them,
making repairs to them (provided Landlord shall have no obligation
to repair), showing the Premises to prospective tenants (only
during the last 9 months of the Lease Term), lenders or purchasers,
removing any improvements or property placed in the Premises in
violation of this Lease, carrying out any other provision of this
Lease, and curing any default of Tenant hereunder that Landlord
elects to cure. Tenant shall permit Landlord, at any time within
sixty days prior to the expiration of the Lease, to place upon the
Premises any usual or ordinary "For Lease" signs.
ARTICLE XI. DAMAGE BY CASUALTY.
11.1 Tenant shall give immediate written notice to Landlord of
any damage caused to the Premises by fire or other casualty.
11.2 Notwithstanding any provision in this Lease to the
contrary, in the event the Premises are damaged or destroyed by
fire or other casualty insured or insurable under standard fire and
extended coverage insurance and the Premises cannot be
reconstructed and/or repaired to habitable condition within two
hundred seventy (270) days after the date of the casualty, either
party may terminate this Lease without any liability to the other
party except for Tenant's obligation to pay Rent through the date
of the casualty and all insurance proceeds to be paid to the
parties as their interest may appear. In the event that the
Premises can be repaired to habitable condition in such period and
there are insurance proceeds sufficient to effect such repair,
Landlord shall proceed with reasonable diligence, and at its cost
and expense, to rebuild and repair the Premises as set forth in
paragraph 11.3 hereof, but in no event would Tenant pay more than
the insurance proceeds which would be payable under the insurance
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provided by Tenant hereunder. Tenant shall pay on demand all costs
and expenses which exceed the cost incurred by Landlord in meeting
its obligation to rebuild the building as provided in paragraph
ll.3 below.
11.3 Notwithstanding any provisions herein to the contrary,
Landlord's obligation to rebuild and repair under this Article XI
shall be limited to construction of the building, including, but
not limited to, all mechanical, electrical, plumbing, HVAC systems
and roof, ordinary wear and tear excepted. Further, Landlord shall
have no obligation to repair and rebuild the Premises unless and
until adequate insurance proceeds are made available therefor by
all insurance companies with policies on the Premises or the
building in which the Premises are located. Promptly after
completion by Landlord of such construction Tenant will proceed
with due diligence, and at its sole cost and expense, to rebuild,
restore and repair its signs, fixtures, equipment and other items
and to restore the leasehold improvements of the Premises to a
condition similar to its condition prior to the casualty, normal
wear and tear excepted.
11.4 During any period of reconstruction or repair of the
Premises, this Lease shall continue in full force and effect,
except that Rent, commencing with the date of the casualty, shall
be abated for the length of time necessary for the reconstruction
or repairs, and it shall be abated in proportion to the amount of
floor area of the Premises rendered unusable; provided, however,
that such abatement shall not operate to extend the Lease Term. If
the damage to the Premises is caused by the willful act or
negligence of Tenant, its agents, employees, contractors or
invitees, however, no item of Rent shall abate. Except as provided
in this Lease, to the extent not prohibited by applicable law,
Tenant waives the provisions of any rule of law or statute now or
hereafter in force giving Tenant any right to terminate this Lease
or abate Rent hereunder or claim partial or total (constructive or
actual) eviction because of fire or other casualty or any other
peril against which Landlord is required to carry insurance.
11.5 Neither Landlord nor Tenant shall be liable (by way of
subrogation or otherwise) to the other party (or to any insurance
company insuring the other party) for any loss or damage to any of
the property of Landlord or Tenant, as the case may be, covered by
insurance even though such loss or damage might have been caused by
the negligence of the Landlord or Tenant or their respective
employees, agents, servants or invitees. This provision shall be
in effect only so long as the applicable insurance policies contain
a clause or endorsement to the effect that the aforementioned
waiver shall not affect the right of the insured to recover under
such policies; and each party shall use reasonable efforts
(including payment of an additional premium) to have its insurance
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policies contain a waiver of subrogation clause. In the event any
insurance carrier of Landlord or Tenant declines to include in such
carrier's policy a waiver of subrogation clause, Landlord or
Tenant, as the case may be, shall promptly notify the other party.
ARTICLE XII. EMINENT DOMAIN.
12.1 If the whole or any part of the Premises should be taken
for any public or quasi-public use under any governmental law,
ordinance or regulation or by right of eminent domain or by private
purchase in lieu thereof and thereby render the Premises
untenantable for Tenant's business, this Lease shall be cancelled
and both parties shall be relieved of all obligations herein
imposed. Should this Lease be so cancelled, then Tenant shall have
no claim against Landlord and shall not have any claim or right to
any portion of the amount that may be awarded as damages or paid as
a result of such involuntary conversion whether brought about by
suit or agreement for the cancellation of such lease or for
Tenant's leasehold interest; any and all of such amounts shall
belong to Landlord and all rights of Tenant to damages therefor, if
any, are hereby assigned by Tenant to Landlord. Tenant shall,
however, have the right to claim and recover from the condemning
authority, but not from Landlord, and only to the extent that such
recovery by Tenant shall not diminish the amounts recoverable by
Landlord, such compensation as may be separately awarded or
recoverable by Tenant in Tenant's own right on account of any and
all damage to Tenant's business by reason of the condemnation and
for or on account of any cost or loss which Tenant might incur in
removing Tenant's merchandise, furniture, fixtures, leasehold
improvements or equipment.
ARTICLE XIII. ASSIGNMENT AND SUBLETTING; SALE OF PREMISES.
13.1 Tenant shall not assign, or in any manner transfer this
Lease without the prior written consent of Landlord, which consent
will not be unreasonably withheld of delayed. Tenant may sublet
portions of the Premises, less than the whole Premises, without
Landlord's consent. Tenant may also assign this Lease to any
health care entity affiliated with Tenant. Consent by Landlord to
one or more assignments shall not operate as a waiver of Landlord's
rights as to any subsequent assignments. Notwithstanding any
assignment or subletting, Tenant and Tenant's guarantor shall at
all times remain fully responsible and liable for the payment of
the Rent, additional rent, and other fees and charges herein
specified and for compliance with all its other obligations under
this Lease.
13.2 In the event of the transfer and assignment by Landlord
of its interest in this Lease and in the building containing the
Premises to a person, firm or corporation, assuming Landlord's
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obligations under this Lease, Landlord shall thereby be released
from further obligations hereunder, arising after the date of such
transfer and Tenant shall look solely to the responsibility of such
successor in interest of the Landlord for such obligations arising
after the date of such transfer. Any security given by Tenant to
secure performance of its obligations hereunder may be assigned and
transferred by Landlord to such successor in interest of Landlord
and Landlord shall thereby be discharged of any further obligation
relating thereto.
13.3 In the event of any sale of the Premises by Landlord,
Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations
contained in or derived from this Lease arising out of any act,
occurrence or omission occurring after the consummation of such
sale; and the purchaser at such sale or any subsequent sale of the
Premises shall be deemed, without any further agreement between the
parties or their successors in interest or between the parties and
any such purchaser, to have assumed and agreed to carry out any and
all of the covenants and obligations of the Landlord under this
Lease.
13.4 In the event of a transfer, assignment or sale pursuant
to paragraphs 13.2 or 13.3 above, Tenant agrees to be bound to
attorn to such transferee, assignee or purchaser as if such
transferee, assignee or purchaser were the original Landlord
hereunder.
ARTICLE XIV. TAXES.
14.1 Tenant shall pay, or cause to be paid, before the same
become delinquent, all general and special taxes and assessments
and all ad valorem real property taxes, including assessments for
local improvements and other governmental charges which may be
lawfully charged, assessed or imposed upon the Premises with
respect to such tax periods during the Lease Term, or any part
thereof and shall promptly provide to Landlord receipts evidencing
the payment of the foregoing taxes.
14.2 Tenant shall pay, as and when due, all taxes which may be
lawfully charged, assessed or imposed upon all fixtures, equipment
and other personal property of every type in the Premises with
respect to such tax periods during the Lease Term, and all license
fees which may be lawfully imposed upon the business of Tenant
conducted upon the Premises. Tenant shall pay to the appropriate
agency any sales taxes levied, imposed or assessed by any
governmental body or other lawful taxing authority upon the Minimum
Rent or other charges payable hereunder. If any such taxes for
which Tenant is liable are levied against Landlord or Landlord's
property and if Landlord elects to pay the same or if the assessed
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value of Landlord's property is increased by inclusion of personal
property and trade fixtures placed by Tenant in the Premises,
Tenant shall pay such taxes.
14.3 If after notice to Tenant, Tenant fails to pay and
Landlord has previously paid any such taxes, Tenant shall pay to
Landlord as additional rent all ad valorem real property taxes
(including, but not limited to, assessments) which may be levied or
assessed by any lawful authority for each calendar year during the
term of this Lease against the land and buildings comprising the
Premises and which Landlord has paid. Should the State of
Tennessee or any political subdivision thereof or any governmental
authority having jurisdiction over the Premises impose a tax or
assessment (other than an income or franchise tax) either upon or
against the rentals payable by tenants in the Premises to Landlord
or upon or against the business of renting land or buildings,
either by way of substitution for the taxes and assessments levied
or assessed against such land and such buildings, or in addition
thereto, such tax or assessment shall be deemed to constitute a tax
or assessment against such land and such buildings for the purpose
of this Paragraph 14.3. In the event that Tenant requests Landlord
to seek a reduction in any taxes, assessments or other charges
levied against the Premises, Tenant shall also pay any costs
incurred by Landlord in connection with seeking any reductions in
the taxes, assessments or other charges levied, assessed or imposed
in connection with the Premises, including the cost of any third
party tax service. Following written notice to Landlord, Tenant
may seek a reduction of any taxes, assessments or other charges
levied against the Premises, provided, however, if Tenant so
elects, Tenant shall promptly reimburse Landlord for any reasonable
costs (including reasonable attorney's fees) incurred by Landlord
as a result of Tenant's actions. In the event that Tenant fails to
pay on or before the date they are due any taxes or assessments
against the Premises, Tenant's taxes and assessments during the
term of this Lease shall, at the written request of Landlord, be
paid to Landlord in monthly installments on or before the 1st day
of each calendar month, in advance, without demand, in an amount
estimated by Landlord; provided that in the event Landlord is
required under any mortgage encumbering the Premises to escrow real
estate taxes, Landlord may, but shall not be obligated to, use the
amount required to be so escrowed as a basis for its estimate of
the monthly installments due from Tenant hereunder. Upon the
written request by Tenant, Landlord shall furnish a letter setting
forth the amount of the real estate taxes, assessments,
governmental charges, use and occupancy charges, maintenance fees,
license and permit fees, municipal utility district charges,
quasi-governmental body charges or charges made by private
entities. Upon receipt of all tax bills and assessment bills
attributable to any calendar year during the term of this Lease,
Landlord shall furnish Tenant with a written statement of the
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actual amount of the taxes and assessments for such year. If the
total amount paid by Tenant under this Section for any calendar
year shall be less than the actual amount due from Tenant for such
year, as shown on such statement, Tenant shall pay to Landlord on
demand the difference between the amount paid by Tenant and the
actual amount due; and if the total amount paid by Tenant hereunder
for any such calendar year shall exceed such actual amount due from
Tenant for such calendar year, such excess shall be credited by
Landlord against Tenant's Rent due in the subsequent year (or if
there is no subsequent year remaining in the term of this Lease,
shall be off-set against any amounts then owing by Tenant to
Landlord and any remaining net surplus shall then be refunded by
Landlord to Tenant or, if such be the case, any amount still owing
by Tenant to Landlord, notwithstanding such off-set, shall be
promptly paid by Tenant to Landlord). All amounts due hereunder
shall be payable to Landlord at the place where the Rent is
payable. Tenant's liability for any taxes and assessments for the
first and last calendar years of this Lease shall be subject to a
pro rata adjustment based on the number of days of such calendar
years during which this Lease is in effect. A copy of a tax bill
or assessment bill submitted by Landlord to Tenant shall at all
times be sufficient evidence of the amount of taxes or assessments
assessed or levied against the property to which such bill relates.
ARTICLE XV. EVENTS OF DEFAULT AND REMEDIES.
15.1 Landlord has entered into this Lease upon the condition
that Tenant shall punctually and faithfully perform all of Tenant's
covenants, conditions and agreements. Each of the following events
shall be deemed to be an event of default of Tenant hereunder (each
of which is sometimes referred to herein as an "Event of Default"):
(a) failure of Tenant to pay any installment of Rent
hereunder when due, if such failure continues beyond ten (10)
days after Tenant's receipt of Landlord's notice of such
failure;
(b) the vacation or abandonment of the Premises by
Tenant;
(c) failure of Tenant to observe or perform any other
covenant, term or condition set forth in this Lease and such
failure continues for a period of ten (10) days from the date
of written notice thereof from Landlord to Tenant, provided
however, if such failure cannot be cured within such period,
Tenant begins to cure such failure in such period and
continues diligently to do so until the failure is cured, an
Event of Default shall not occur;
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(d) Tenant shall generally not pay its debts as they
become due or shall admit in writing its inability to pay its
debts, or shall make a general assignment for the benefit of
creditors; or Tenant shall commence any case, proceeding or
other action seeking to have an order for relief entered on
its behalf as debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts
under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of
a receiver, trustee, custodian or other similar official for
it or for all or any substantial part of its property; or
Tenant shall take any corporate action to authorize, or in
contemplation of, any of the actions set forth above in this
subsection (d); or
(e) any case, proceeding or other action against the
Tenant shall be commenced seeking to have an order for relief
entered against it as debtor or adjudicated a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts
under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of
a receiver, trustee, custodian or other similar official for
it or for all or any substantial part of its property, and
such case, proceeding or other action (i) results in the entry
of an order for relief against it which is not fully stayed
within seven (7) business days after the entry thereof, or
(ii) shall remain undismissed for a period of thirty (30)
days.
15.2 Upon the occurrence of any of such events of default,
Landlord shall have the option to pursue any one or more of the
following remedies without any notice or demand whatsoever:
(a) Terminate this Lease, whereupon Landlord shall have
the right to immediate possession of the Premises and may
reenter the Premises and remove all persons and property
therefrom using all lawful and peaceful force necessary for
this purpose without being guilty in any manner of trespass or
otherwise; and any and all damages to Tenant, or persons
holding under Tenant, by reason of such re-entry are hereby
expressly waived; and any such termination or re-entry on the
part of Landlord shall be without prejudice to any remedy
available to Landlord for arrears of Rent, breach of contract,
damages or otherwise, nor shall the termination of this Lease
by Landlord acting under this paragraph be deemed in any
manner to relieve Tenant from the obligation to pay the Rent
and all other amounts due or to become due as provided in this
Lease for and during the entire unexpired portion then
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remaining of the then current term provided for herein. In
the event of termination of this Lease by Landlord as provided
in this paragraph, Landlord, using reasonably commercial
standards, shall relet the Premises for the account of Tenant,
and in such event, Tenant shall pay to Landlord all reasonable
and actual costs of renovating and altering the Premises for
a new tenant or tenants, and Landlord shall credit Tenant only
for such amounts as are actually received from such reletting
during the then remaining term of this Lease. Alternatively,
at the election of Landlord, Tenant covenants and agrees to
pay as damages to Landlord, upon any such termination of this
Lease by Landlord, such sum as at the time of such termination
equals the amount of the excess, if any, of the sum of all the
rentals which would have been due and payable hereunder to
Landlord during the remainder of the full Lease Term (had
Tenant kept and performed all agreements and covenants of
Tenant set forth in this Lease) over and above the then
present rental value of the Premises for said remainder of the
then full current term of this Lease.
(b) Without terminating this Lease, enter upon the
Premises, by force if necessary, and without being guilty in
any manner of trespass or otherwise and without liability for
any damage to Tenant or persons holding under Tenant by reason
of such re-entry, all of which are hereby expressly waived,
and do or perform whatever Tenant is obligated hereunder to do
or perform under the terms of this Lease; and Tenant shall
reimburse Landlord on demand for any reasonable and actual
expenses or other sums which Landlord may incur or expend,
thus effecting compliance with the terms and provisions of
this Lease, and Landlord shall not be liable for any damages
resulting to Tenant from such action, unless caused by the
wilful misconduct of Landlord; provided, however, nothing in
this paragraph shall be deemed an obligation or undertaking by
Landlord to remedy any such defaults of Tenant.
(c) Pursuit of any of the foregoing remedies by Landlord
shall not preclude pursuit of any other remedies herein
provided Landlord or any other remedies provided by law or at
equity, nor shall pursuit of any of the other remedies herein
provided constitute a forfeiture or waiver of any Rent due
Landlord hereunder or of any damages accruing to Landlord by
reason of the violation of any of the terms, provisions and
covenants herein contained. Forbearance by Landlord to
enforce one or more of the remedies herein provided upon an
event of default shall not be deemed or construed to
constitute a waiver of such default.
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ARTICLE XVI. LANDLORD'S LIEN, SECURITY AGREEMENT
AND ATTORNEY'S FEES.
16.1 TO SECURE THE PAYMENT OF ALL RENT THAT MAY BECOME DUE TO
LANDLORD UNDER THE TERMS OF THIS LEASE, LANDLORD SHALL HAVE AND IS
HEREBY GIVEN AN EXPRESS, VALID, PREFERENCE LIEN AND SECURITY
INTEREST IN AND UPON ALL THE GOODS, WARES, MERCHANDISE, FURNITURE,
FIXTURES, MACHINERY AND EQUIPMENT OF TENANT IN THE PREMISES OR
THAT MAY BE PLACED IN DURING THE LEASE TERM, AND THIS EXPRESS LIEN
SHALL NOT BE CONSTRUED AS A WAIVER OF THE STATUTORY LANDLORD'S
LIEN, BUT IS CUMULATIVE THEREOF AND IN ADDITION THERETO. Upon
written request from Tenant or Tenant's lender, Landlord will
subordinate any lien granted to Landlord herein to any lien granted
by Tenant to secure the purchase of any goods, wares, merchandise,
furniture or medical equipment.
16.2 This instrument shall constitute a security agreement
under the Uniform Commercial Code of the State of Tennessee that
shall secure the lien and security interest ("lien") of the
Landlord herein retained, which lien shall at all times be a valid
lien for all rentals and other sums of money becoming due hereunder
from Tenant upon all inventory, goods, wares, equipment, fixtures,
furniture and other personal property of Tenant situated on the
above described Premises, and such property shall not be removed
therefrom without the consent of Landlord until all arrearages in
rent, as well as any and all other sums of money then due to
Landlord hereunder, shall first have been paid and discharged.
Tenant shall execute any instrument necessary to carry out the
terms of this paragraph. Landlord may file this Lease as a
non-conforming UCC-1 Financing Statement. Upon any occurrence of
an event of default by Tenant as hereinabove defined, Landlord
shall have the option, in addition to any other remedies provided
herein or by law, to enter upon the Premises with or without the
permission of Tenant and take possession of any and all inventory,
goods, wares, equipment, fixtures, furniture and other personal
property of Tenant situated on the Premises without liability for
trespass or conversion, to sell the same with or without notice at
private or public sale, with or without having such property at the
sale, at which Landlord or its assigns may purchase, and to apply
the proceeds thereof, less any and all expenses in connection with
the taking of possession and sale of the property, as a credit
against any sums due by Tenant to Landlord. Any surplus shall be
paid to Tenant, and Tenant agrees to pay any deficiency forthwith.
Alternatively, the lien hereby granted may be enforced by Landlord
in any other manner provided by law.
16.3 In the event of any Event of Tenant Default which Tenant
fails to cure within any cure period granted herein and Landlord
places the enforcement of this Lease, or any part thereof, or the
collection of any Rent due or to become due hereunder, or recovery
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of possession of the Premises in the hands of an attorney, or files
suit upon the same, Tenant agrees to pay to Landlord all costs of
suit and/or other enforcement of Landlord's rights hereunder,
including court costs and reasonable attorney's fee; and the
payment of the sums and amounts specified in this paragraph shall
be secured in like manner as is herein provided as to security for
Rent.
ARTICLE XVII. HOLDING OVER.
17.1 In the event Tenant remains in possession of the Premises
after the expiration of this Lease and without the execution of a
new lease, it shall be deemed to be occupying the Premises as a
tenant from day to day at a rent equal to the Rent herein provided
plus twenty-five percent of such amount, and otherwise subject to
all the conditions, provisions and obligations of this Lease.
Tenant shall pay to Landlord all reasonable attorney's fees and
expenses incurred by Landlord in enforcing its rights hereunder.
Tenant shall indemnify and hold harmless Landlord from and against
any and all claims, causes of action, costs, losses, damages and
expenses including attorney's fees incurred by or sought from
Landlord by any other tenant or prospective tenant caused by
Tenant's holding over.
ARTICLE XVIII. FINANCING SUBORDINATION AND ESTOPPEL CERTIFICATE.
18.1 Upon written request from time to time by Landlord,
Tenant shall execute and deliver an agreement subordinating this
Lease to any mortgage upon the Premises; provided, however, such
subordination shall be upon the express condition that the validity
of this Lease be recognized by the mortgagee and that,
notwithstanding any default by mortgagor with respect to said
mortgage or foreclosure thereof, Tenant's possession and right of
use under this Lease and the Demised Premises shall not be
disturbed by mortgagee unless and until Tenant shall breach any of
the provisions hereof and this Lease or Tenant's right of
possession hereunder shall have been terminated.
18.2 Subject to the provisions of this Section 18.2, Tenant
shall upon demand execute such further instruments subordinating
this Lease as Landlord may request. At any time and from time to
time, upon not less than ten (10) days' prior notice by Landlord,
Tenant shall execute, acknowledge and deliver to Landlord a
statement of the Tenant in writing certifying that this Lease is in
full force and effect (or if there have been modifications hereto,
that the same is in full force and effect as modified and stating
the modifications), and the dates to which the Rent has been paid
in advance, if any, stating whether or not, to the best knowledge
of Tenant, Landlord is in default in the keeping observance or
performance of any covenant, agreement, term, provision or
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condition contained in this Lease and, if so, specifying each such
default of which Tenant may have knowledge, and stating such other
matters as Landlord shall reasonably request, it being intended
that such statement may be relied upon by any prospective
purchaser, lessee, mortgagee or assignee of any mortgage of the
Premises or of the Landlord's interest therein.
18.3 Notwithstanding anything contained in this Lease to the
contrary, in the event of any default by Landlord in performing its
covenants or obligations hereunder, Tenant shall not exercise any
rights it may have on account of such default until (i) Tenant
gives written notice of such default (which notice shall specify
the exact nature of said default and how the same may be cured) to
the holder(s) of any such mortgage or deed of trust, if any, who
has theretofore notified Tenant in writing of its interest and the
address to which notices are to be sent, and (ii) said holder(s)
fail to cure or cause to be cured said default within thirty (30)
days from the giving of such notice by Tenant.
ARTICLE XIX. NOTICES.
19.1 Unless otherwise provided herein, all notices or requests
provided for herein must be in writing and must be given by
depositing the same in the United States mail, addressed to the
party to be notified, postpaid, and registered or certified with
return receipt requested or by delivery by a commercially
recognized overnight delivery service, such as Federal Express.
Notices given by mail shall be deemed received three (3) days after
mailing in accordance with the foregoing. Notices given by
overnight delivery service shall be deemed received three (3) days
after being placed in the custody of the delivery service. All
notices to be sent to either of the parties shall be sent to the
addresses hereinafter set out, or at any other address specified in
writing by the parties hereto.
19.2 If and when included with the term "Landlord," as used in
this instrument, there are more than one person, firm or
corporation, all shall jointly arrange among themselves for their
joint execution of such a notice specifying an individual at a
specific address for the receipt of notices and payments to
Landlord; if and when included within the term "Tenant," as used in
this instrument, there are more than one person, firm or
corporation, all shall jointly arrange among themselves for their
joint execution of such a notice specifying an individual at a
specific address for the receipt of notices and payments to Tenant.
All parties included within the terms "Landlord" and "Tenant,"
respectively, shall be bound by notices given in accordance with
the provisions of this Article to the same effect as if each had
received such notice.
-19-
ARTICLE XX. MISCELLANEOUS.
20.1 Whenever herein the singular number is used, the same
shall include the plural, and the neuter gender shall include the
feminine and masculine genders.
20.2 Tenant shall not record this Lease. Any such recordation
shall constitute a default hereunder. If, however, Landlord or
Tenant shall request, the parties shall execute and deliver a
recordable short form lease as provided by Landlord reciting the
exact Commencement Date and termination date of this Lease, and
such other provisions of this Lease as either party may reasonably
request to include.
20.3 This Lease and the rights and obligations of the parties
hereto shall be interpreted, construed and enforced in accordance
with the laws of the State in which the Premises are located in
force from time to time. If any clause or provision of this Lease
is illegal, invalid or unenforceable under present or future laws
effective during the Lease Term, then and in that event, it is the
intention of the parties hereto that the remainder of this Lease
shall not be affected thereby, and the parties hereby declare that
this Lease would have been entered into without such unenforceable
portion.
20.4 This Lease may not be altered, changed or amended, except
by instrument in writing signed by both parties hereto. The terms,
provisions, covenants and conditions contained in this Lease shall
apply to, inure to the benefit of and be binding upon the parties
hereto and upon their respective successors in interest and legal
representatives, except as otherwise herein expressly provided.
20.5 The captions used in this Lease are for convenience only
and do not in any way limit or amplify the terms and provisions
thereof.
20.6 One or more waivers of any covenant, term or condition of
this Lease by either party shall not be construed as a waiver of a
subsequent breach of the same covenant, term or condition. The
consent or approval by either party to or of any act by the other
party requiring such consent or approval shall not be deemed to
waive or render unnecessary consent to or approval of any
subsequent or similar act.
20.7 Whenever a period of time is herein prescribed for action
to be taken by Landlord or Tenant, Landlord or Tenant, as the case
may be, shall not be liable or responsible for, and there shall be
excluded from the computation any such period of time, any delays
due to strikes, riots, acts of God, shortages of labor or
materials, war, governmental laws, regulations or restrictions, or
-20-
other causes of any kind whatsoever which are beyond the reasonable
control of Landlord or Tenant.
20.8 To the extent not already provided above, any exhibits or
addenda attached hereto shall be considered embodied herein and
made a part hereof, and the parties hereto shall be bound by all of
the terms thereof as if fully recited herein.
20.9 The voluntary or other surrender of this Lease by Tenant
or a mutual cancellation hereof shall not work a merger and shall,
at Landlord's option, terminate all or any existing subleases or
subtenancies, or may, at Landlord's option, operate as an
assignment to it of Tenant's interest in any or all such subleases
or subtenancies.
20.10 Tenant shall bear the cost of all utility and other
services, if any, used by Tenant on the Premises.
20.11 Any provision of this Lease to the contrary
notwithstanding, no personal liability of any kind or character
whatsoever now attaches or at any time hereafter under any
conditions shall attach to Landlord for payment of any amounts due
under this Lease or for the performance of any obligation under
this Lease. The exclusive remedies of Tenant for the failure of
Landlord to perform any of its obligations under this Lease shall
be to proceed against the interest of Landlord in and to the land
or Premises, it being understood that in no event shall a judgment
for any deficiency or monetary damage claim be sought, obtained or
enforced against Landlord personally under the terms hereof or
against any of the property of Landlord except the Premises.
20.12 On the last day of the Term of this Lease, or upon the
earlier termination of this Lease, Tenant shall peaceably and
quietly leave, surrender and yield to Landlord the Premises, free
of all claims, broom-clean and in good order and repair and in the
same condition as when delivered to Tenant, except for normal wear
and tear. Prior to surrender of the Premises to Landlord, Tenant,
at its sole cost and expense, shall remove all liens and other
encumbrances that have resulted from the acts or omissions of
Tenant. If Tenant fails to do any of the foregoing, Landlord, in
addition to other remedies available to it at law or in equity,
may, without notice, enter upon, reenter, possess and repossess
itself thereof by force, summary proceedings, adjudgment or
otherwise and may dispossess and remove Tenant and all persons and
property from the Premises; and Tenant waives any and all damages
or claims for damages as a result thereof. Such dispossession and
removal of Tenant shall not constitute a waiver by Landlord of any
claims by Landlord against Tenant. If the Tenant is not in default
hereunder, Tenant shall retain the ownership of all movable
-21-
equipment, furniture and supplies prior to termination of this
Lease if Tenant repairs any injury to the Premises resulting from
such removal. If Tenant does not move such movable medical or
health related equipment, furniture and supplies prior to such
termination, then, in addition to its other remedies at law or in
equity, Landlord shall have the right to have such items removed
and stored, and all damage to the Premises resulting therefrom
repaired at the cost of Tenant or elect that such movable
equipment, furniture and supplies automatically become the property
of the Landlord upon termination of this Lease, and Tenant shall
not have any further right with respect thereto or reimbursement
therefor.
20.13 Landlord and Tenant represent and warrant to each other
that each has not dealt with any real estate agent or broker in
connection with this transaction other than Commercial Tennessee,
Inc. ("Broker") and agree to indemnify and save each other harmless
from and against all loss, cost and expense incurred by reason of
the breach of such representation and warranty. Landlord agrees to
pay Broker any commissions owing in connection with this
transaction pursuant to a separate written agreement.
20.14 Landlord represents and warrants that it is the fee
simple owner and record title holder of the Premises and that
Tenant, upon the payment of the Minimum Rent and performance of the
covenants and obligations hereunder, shall and may peaceably and
quietly have, hold and enjoy the Premises during the Lease Term and
any extension thereof.
20.15 Each of the parties represents to the other that the
persons signing this Lease on behalf of each of the parties has the
authority to do so and to bind that party.
ARTICLE XXI. EXTENSION OF LEASE TERM.
Provided that Tenant is not in material default under any of
the terms or conditions of this Lease at the time of exercise of
the following options, Tenant shall have the option (the "Renewal
Options") to renew this Lease and extend the Lease Term for two
additional terms of five (5) years each. In order to effectively
exercise the Renewal Options, Tenant must provide Landlord with
written notice of such exercise no later than nine (9) months
before the expiration of the original term or the first extension
term, as the case may be. In the event that Tenant renews this
Lease for the first additional term, the Minimum Rent for the
period September 1, 2007 thought August 31, 2009 shall be
$20,234.83; the Minimum Rent for the period September 1, 2009
through August 31, 2012 shall be $22,055.96. In the event that
Tenant renews this Lease for the second additional term, the
Minimum Rent for the period September 1, 2012 through August 31,
-22-
2015 shall be $24,041.00; and the Minimum rent for the period
September 1, 2015 through August 31, 2017 shall be 26,204.69.
ARTICLE XXII. ENTIRE AGREEMENT.
This Lease contains the entire agreement of the parties hereto
and supersedes all prior oral or written and contemporaneous oral
agreements of the parties hereto.
EXECUTED as of the 11th day of September, 1997.
LANDLORD:
AAA NET REALTY FUND IX, LTD., a Nebraska
limited partnership
By: American Asset Advisers Management
Corporation IX, a Nebraska
corporation, its General Partner
By: /s/ H. Kerr Taylor
H. Kerr Taylor, President
ADDRESS FOR NOTICE:
8 Greenway Plaza, Suite 824
Houston, Texas 77046
TENANT:
BAPTIST MEMORIAL HEALTH SERVICES, INC., a
Tennessee non-profit corporation
By: /s/ John T. Hutton
Name: John T. Hutton
Title: Vice President
ADDRESS FOR NOTICE:
6800 Poplar Avenue, Suite 200
Memphis, Tennessee 38138
and
899 Madison Avenue
Memphis, Tennessee 38146
Attn: Charles Baker
-23-
EXHIBIT "A"
Parcel 3 of Trinity Investment Property No. 1 tract as recorded in
deed reference U7-2758 and Plat Book 134, Page 58 of the Register's
Office of Shelby County, Tennessee, and being more particularly
described as follows:
Beginning at a point in the east right-of-way line of Germantown
Parkway (160-foot ROW), said point of beginning being 520.14 feet south
of the south right-of-way line of Trinity Road (106-foot ROW); thence
northwardly on a bearing of North 05 degrees 27 minutes 34 seconds East
a distance of 201.13 feet to a point of curvature; thence continuing
northwardly on a curve to the left an arc distance of 15.22 feet with a
radius of 11,539.16 feet to a point of tangency; thence eastwardly on a
bearing of South 87 degrees 09 minutes 00 seconds East a distance of
284.28 feet to a point; thence southwardly on a bearing of South 02 degrees
51 minutes 00 seconds West a distance of 218.68 feet to a point; thence
westwardly on a bearing of North 86 degrees 39 minutes 10 seconds West
a distance of 294.00 feet to the point of beginning.
EXHIBIT "B"
1. Subdivision Restrictions and Building Lines and Easements of
Record in Plat Book 128, Page 76, Plat Book 130, Page 45 and
Plat Book 134, Page 58, in the Register's Office of Shelby
County, Tennessee.
2. Declaration of Covenants, Conditions, Restrictions and
Easements of record under Register's No. BJ 1321, as amended
by Second Amendment to Declaration of Covenants, Conditions,
Restrictions and Easements of record under Register's No. BK
3686, and as amended by Third Amendment to Declaration of
Covenants, Conditions, Restrictions and Easements of record
under Register's No. CE 6645, in the Register's Office of
Shelby County, Tennessee.
3. Easements of Record under Register's No. AB 8231, in the
Register's Office of Shelby County, Tennessee.
</TABLE>
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0
0
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