<PAGE>
As filed with the Securities and Exchange Commission on July 3, 1996
Registration No. 33-83852
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 11 TO
FORM S-11
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------------------------------
WELLS REAL ESTATE FUND VIII, L.P.
and
WELLS REAL ESTATE FUND IX, L.P.
(Exact name of registrant as specified in governing instruments)
3885 Holcomb Bridge Road
Norcross, Georgia 30092
(Address of principal executive offices)
Donald Kennicott, Esq.
Rosemarie A. Thurston, Esq.
Holland & Knight
Suite 2000, One Atlantic Center
1201 West Peachtree Street, N.E.
Atlanta, Georgia 30309-3400
(Name and address of agent for service)
-------------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable following effectiveness of this Registration Statement.
-------------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Amount Being Offering Price Aggregate Amount of
Securities Being Registered/(1)/ Registered Per Unit Offering Price Registration Fee
<S> <C> <C> <C> <C>
Class A Status Units of Limited
Partnership Interest
$70,000,000 $10.00 $70,000,000 $34,483
Class B Status Units of Limited
Partnership Interest
======================================================================================================
</TABLE>
(1) Class A Status Units and Class B Status Units will be offered in
combination, such that the aggregate dollar amount of Units sold will not
exceed $70,000,000.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
In compliance with the undertaking set forth in Item 36 of the Form S-11
Registration Statement of the Registrant, the Registrant hereby files this Post-
Effective Amendment No. 11, including Supplement No. 2 dated June 28, 1996 to
the Prospectus.
[THE FOLLOWING IS TEXT TO A STICKER TO BE ATTACHED ON THE FRONT COVER PAGE OF
THE PROSPECTUS IN A MANNER THAT WILL NOT OBSCURE THE RISK FACTORS:]
SUPPLEMENTAL INFORMATION - The Prospectus of Wells Real Estate Fund IX,
L.P. consists of this sticker, the Prospectus dated January 5, 1996, Supplement
No. 1 dated April 24, 1996 and Supplement No. 2 dated June 28, 1996 (the
Supplements are contained inside the back cover page of the Prospectus).
Supplement No. 1 includes updated financial statements and Prior Performance
Tables. Supplement No. 2 describes the acquisition by a joint venture between
Wells Real Estate Fund IX, L.P. and Wells Real Estate Fund VIII, L.P. of a
property in Madison, Wisconsin.
<PAGE>
CROSS REFERENCE SHEET PURSUANT TO RULE 404(A)
<TABLE>
<CAPTION>
Form Number and Caption Location of Heading in Prospectus
------------------------------------------------ ----------------------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Facing Page, Cover Page
2. Inside Front and Outside Back Cover Pages of Inside Front Cover and Outside Back Cover Page of Prospectus
Prospectus......................................
3. Summary Information, Risk Factors and Ratio of Outside Front Cover Page; Summary of the Offering; Risk
Earnings to Fixed Charges....................... Factors; Compensation of the General Partners and Affiliates;
Estimated Use of Proceeds
4. Determination of Offering Price................. Risk Factors
5. Dilution........................................ Risk Factors
6. Selling Security Holders........................ *
7. Plan of Distribution............................ Outside Front Cover Page; Summary of the Offering; Estimated
Use of Proceeds; Plan of Distribution
8. Use of Proceeds................................. Estimated Use of Proceeds; Investment Objectives and Criteria
9. Selected Financial Data......................... *
10. Management's Discussion and Analysis of Management's Discussions and Analysis of Financial Conditions
Financial Condition and Results of Operations... and Results of Operations
11. General Information as to Registrant............ Summary of the Offering; Summary of Partnership Agreement;
Management
12. Policy with Respect to Certain Activities....... Investment Objectives and Criteria; Reports to Investors
13. Investment Policies of Registrant............... Investment Objectives and Criteria; Real Property Investments;
Conflicts of Interest
14. Description of Real Estate...................... Investment Objectives and Criteria; Real Property Investments
15. Operating Data.................................. *
16. Tax Treatment of Registrant and its Security Federal Income Tax Consequences; Investment by Tax-Exempt
Holders......................................... Entities and ERISA Considerations
17. Market Price of and Dividends on the *
Registrant's Common Entry and Related
Stockholder Matters.............................
18. Description of Registrant's Securities.......... Description of the Units; Distributions and Allocations;
Summary of the Partnership Agreement
19. Legal Proceedings............................... *
20. Security Ownership of Certain Beneficial Owners Management; Compensation of the General Partners and Affiliates
and Management..................................
21. Directors and Executive Officers................ Management
22. Executive Compensation.......................... Conflicts of Interest; Compensation of the General Partners and
Affiliates; Management
23. Certain Relationships and Related Transactions.. Conflicts of Interest; Compensation of the General Partners and
Affiliates; Management
24. Selection, Management and Custody of Management; Compensation of the General Partners and
Registrant's Investments........................ Affiliates; Conflicts of Interest; Custodial Agency Agreement;
Investment Objectives and Criteria; Real Property Investments
25. Policies with Respect to Certain Transactions... Conflicts of Interest; Compensation of the General Partners and
Affiliates; Management
26. Limitations of Liability........................ Fiduciary Duty of the General Partners; Summary of Partnership
Agreement
27. Financial Statements and Information............ Appendix I; Exhibit A
28. Interests of Named Experts and Counsel.......... Conflicts of Interest, Experts, Legal Opinions
29. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.. Fiduciary Duty of the General Partners
*Not Applicable.
</TABLE>
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
$1,250,000 MINIMUM OFFERING
--------------------------------------------
Class A and Class B Status Units
at a purchase price of $10.00 per Unit
--------------------------------------------
Wells Real Estate Fund IX, L.P. (the "Partnership") is a Georgia limited
partnership formed to acquire and operate commercial and industrial properties
on an all cash basis, including properties which are under development or
construction, are newly constructed or have been constructed and have operating
histories. The General Partners of the Partnership are Leo F. Wells, III
("Wells") and Wells Partners, L.P., a Georgia limited partnership ("Wells
Partners"; Wells and Wells Partners are collectively referred to as the "General
Partners").
The Partnership will have the purpose, business plan, investment objectives
and management and be organized and conduct its business pursuant to its limited
partnership agreement, a form of which is included in this Prospectus as Exhibit
"B."
The Partnership hereby offers for sale to the public 3,500,000 units of
limited partnership interest (the "Units") with respect to which each holder
thereof may elect to have treated as Class A Status Units (entitled to
distributions of cash flow from operations) or Class B Status Units (entitled to
a higher percentage of appreciation of the Partnership's real property
investments and tax allocations). The Partnership will offer the Class A Status
Units and Class B Status Units in combination, such that the Partnership will
not sell more than an aggregate of 3,500,000 Units. The minimum purchase is 100
Units ($1,000) (except in certain states as described herein). The purchasers
of the Units will become the Limited Partners of the Partnership. It is
estimated that approximately 81% of the proceeds from the sale of Units will be
used to acquire properties and the balance will be used to pay fees and
expenses.
AN INVESTMENT IN UNITS INVOLVES SIGNIFICANT RISKS INCLUDING THE FOLLOWING:
. The Partnership Agreement imposes restrictions on transfers of Units. No
public market for the Units currently exists or is likely to develop. If
investors are able to sell their Units at all, they will likely be able to
sell their Units only at a discount. (See "SUMMARY OF PARTNERSHIP
AGREEMENT -- Transferability of Units.")
. The number of properties that the Partnership will acquire and
diversification of its investments will be reduced to the extent that less
than the maximum number of Units are sold.
. This Offering involves payment of substantial fees to the General Partners
and their Affiliates, which will be payable regardless of the success or
failure of the Partnership.
. Certain real estate programs previously sponsored by the General Partners
and their Affiliates have experienced fluctuating financial performance.
. The Partnership does not own any real property, and the General Partners
have not identified any properties in which there is a reasonable
probability that the Partnership will invest. Accordingly, investors will
not have the opportunity to evaluate the properties that the Partnership
will acquire and must rely totally upon the ability of the General Partners
with respect to the acquisition of properties. The unspecified nature of
the offering may impair the ability of investors to make an informed
decision as to whether to elect Class A Status or Class B Status for their
Units in light of the different features of Class A Status Units and Class
B Status Units.
. There are no restrictions as to the mix of Class A Status Units and Class B
Status Units, and accordingly holders of Class A Status Units may receive
lower cash distributions than otherwise anticipated if the percentage of
Class A Status Units outstanding is substantially greater than the
percentage of Class B Status Units, and holders of Class B Status Units may
receive smaller tax allocations and a lesser amount of appreciation on
investments than otherwise anticipated if the percentage of Class B Status
Units outstanding is substantially greater than the percentage of Class A
Status Units.
. Some or all of the proceeds available for investment in real properties may
be invested in the acquisition and construction of undeveloped properties,
which would involve risks relating to the builder's ability to control
construction costs, failure to perform, or failure to build in conformity
with plan specifications and timetables.
. The General Partners are involved in other partnerships and activities, and
as such will face certain conflicts of interest in managing the
Partnership's operations.
FOR A DISCUSSION OF THE RISK FACTORS CONCERNING THIS INVESTMENT, SEE "RISK
FACTORS."
WELLS REAL ESTATE FUND IX, L.P. IS NOT A MUTUAL FUND OR ANY OTHER TYPE OF
INVESTMENT COMPANY AND IS NOT REGISTERED OR SUBJECT TO REGULATION UNDER THE
INVESTMENT COMPANY ACT OF 1940.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
===============================================================================================================
SELLING
COMMISSIONS
PRICE TO AND DEALER PROCEEDS TO
PUBLIC (1) MANAGER FEE (1) PARTNERSHIP (2)
---------- --------------- ---------------
<S> <C> <C> <C>
PER UNIT......................................$10.00 $1.00 $9.00
TOTAL MINIMUM (3)......................$1,250,000.00 $125,000.00 $1,125,000.00
TOTAL MAXIMUM.........................$35,000,000.00 $3,500,000.00 $31,500,000.00
===============================================================================================================
</TABLE>
(See footnotes on following page)
---------------------------------------------
WELLS INVESTMENT SECURITIES, INC.
---------------------------------------------
THE DATE OF THIS PROSPECTUS IS JANUARY 5, 1996.
<PAGE>
(Cover Page Continued From Previous Page)
Footnotes:
(1) Price to Public and Selling Commissions may be reduced in connection with
certain large volume purchases; however, in no event will the proceeds to
the Partnership be reduced thereby. In addition to Selling Commissions
in the amount of up to 8% of the Gross Offering Proceeds, the Partnership
will pay a dealer manager fee in the amount of 2% of the Gross Offering
Proceeds and may reimburse nonaffiliated broker-dealers participating in
this Offering expenses paid for due diligence purposes up to a maximum of
.5% of the Gross Offering Proceeds. Selling commissions are payable to
Wells Investment Securities, Inc., the Dealer Manager of the offering and
an Affiliate of the General Partners, except to the extent reallowed to
other broker-dealers participating in the offering. (See "PLAN OF
DISTRIBUTION.")
(2) These figures are before deducting other expenses of the Offering to be
paid by the Partnership in the estimated amount of $1,225,000, assuming
the sale of all 3,500,000 Units. The General Partners or their
Affiliates will pay Organization and Offering Expenses (not including
underwriting compensation) in excess of 5% of Gross Offering Proceeds.
(See "ESTIMATED USE OF PROCEEDS" and footnote 3 thereto.)
(3) The offering of Units of the Partnership will commence upon the effective
date of this Prospectus and will continue until and terminate upon the
earlier of (i) January 4, 1997, or (ii) the date on which all $35,000,000
in Units of the Partnership have been sold. Subscription proceeds will
be placed in an interest-bearing escrow account with The Bank of New
York, Atlanta, Georgia until subscriptions aggregating at least
$1,250,000 (125,000 Units) have been received and accepted by the General
Partners, at which time the proceeds will be released to the Partnership
to be held in trust for the benefit of investors.
PROSPECTIVE INVESTORS ARE ENCOURAGED TO READ THE ENTIRE PROSPECTUS WHICH
CONTAINS A COMPLETE COPY OF THE PARTNERSHIP AGREEMENT AND WHICH INCLUDES THE
CURRENT SUPPLEMENT, IF ANY, INSIDE THE BACK COVER PAGE.
THE USE OF PROJECTIONS OR FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO
THE AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX
CONSEQUENCE WHICH MAY FLOW FROM AN INVESTMENT IN THIS PROGRAM ARE NOT
PERMITTED.
FOR FLORIDA RESIDENTS
DISTRIBUTION REINVESTMENT PLAN. UNITS PURCHASED PURSUANT TO THE
------------------------------
DISTRIBUTION REINVESTMENT PLAN WHICH ARE UNITS OF A SUBSEQUENT REAL ESTATE
LIMITED PARTNERSHIP MUST BE REGISTERED OR EXEMPT FROM REGISTRATION IN FLORIDA.
OFFERS AND SALES OF SUCH UNITS MUST BE CONDUCTED THROUGH BROKER-DEALERS WHICH
ARE REGISTERED IN FLORIDA OR EXEMPT FROM REGISTRATION IN FLORIDA. (SEE
"SUMMARY OF PARTNERSHIP AGREEMENT -- DISTRIBUTION REINVESTMENT PLAN.")
INDETERMINATE MIX OF UNITS. LIMITED PARTNERS MUST ELECT TO HAVE EACH
--------------------------
UNIT TREATED EITHER AS A CLASS A STATUS UNIT OR CLASS B STATUS UNIT. THERE
ARE NO RESTRICTIONS AS TO THE MIX OF THE CLASS A STATUS UNITS AND CLASS B
STATUS UNITS AND, THEREFORE, THERE CAN BE NO ASSURANCE AS TO THE ACTUAL IMPACT
OF THE SPECIAL RIGHTS AND PRIORITIES TO WHICH HOLDERS OF THE TWO CLASSES OF
UNITS ARE RESPECTIVELY ENTITLED. THE EFFECT OF ANY ADVANTAGE ASSOCIATED WITH
THE ELECTION OF CLASS A OR CLASS B STATUS UNITS MAY BE SIGNIFICANTLY REDUCED
(OR ELIMINATED), DEPENDING UPON THE RATIO OF CLASS A STATUS UNITS TO CLASS B
STATUS UNITS WHICH ARE OUTSTANDING. (SEE "RISK FACTORS.")
FOR PENNSYLVANIA RESIDENTS
BECAUSE THE MINIMUM OFFERING IS LESS THAN $5,000,000, YOU ARE CAUTIONED
TO CAREFULLY EVALUATE THE PARTNERSHIP'S ABILITY TO FULLY ACCOMPLISH ITS STATED
OBJECTIVES AND INQUIRE AS TO THE CURRENT DOLLAR VOLUME OF PARTNERSHIP
SUBSCRIPTIONS.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
SUMMARY OF THE OFFERING...................................... 1 Environmental Matters...................... 14
RISK FACTORS................................................. 8 Federal Income Tax Risks.............................. 14
Investment Risks...................................... 8 Risk of Failure of Counsel to
Limited Transferability and Lack Form an Opinion on Certain Material
of Liquidity of the Units................ 8 Tax Issues............................... 15
Risks Regarding Reliance on the Potential Adverse Income Tax
General Partners......................... 9 Effects relating to Limited Partners
Limited and Illiquid Net Worth holding Class A Status Units............. 15
of the General Partners.................. 9 Risk of Loss of Partnership Tax
Limitations of Rights of the Status................................... 15
Limited Partners......................... 9 Risk of Publicly Traded
Possible Lack of Diversification Partnership Classification............... 15
Resulting from Subscriptions Limitations on Deductibility of
for Less than the Maximum Number Losses................................... 16
of Units................................. 9 Risk of Challenge to Allocations
Potential Conflict Relating to the of Profit and Loss....................... 16
General Partners' Right to Risk of Potential Dealer Status............ 16
Purchase Units........................... 9 Risks Regarding Deductibility of
Restrictions and Limitations on Fees and Expenses Paid by
Repurchase Reserve....................... 10 the Partnership.......................... 16
Potential Liability of Limited Risk of Taxable Income Without
Partners................................. 10 Cash Distributions....................... 16
Offering Price Arbitrarily Risks Regarding Characterization
Established.............................. 10 of Sale-Leaseback Transactions........... 16
Risks Relating to Management Risk of Applicability of
Compensation............................. 10 Anti-Abuse Rules......................... 17
Risks Relating to Cash Risk of Applicability of
Distributions............................ 11 Alternative Minimum Tax.................. 17
Risk of Lack of Sources for Audit Risk, Interest and
Funding of Future Capital Needs.......... 11 Penalties................................ 17
Risks Relating to Joint Ventures........... 11 Risks Regarding State and Local
Special Risks Regarding Classes of Units.............. 11 Taxation and Requirements to
Special Risks Relating to an Withhold State Taxes..................... 17
Election of Class A Status Units......... 11 Risk of Legislative or Regulatory
Special Risks Relating to an Action................................... 17
Election of Class B Status Units......... 12 Risks Relating to Retirement Plan Investors........... 18
Effect of Unspecified Nature of Plan Assets Risk........................... 18
Offering on Relative Performance Risks Relating to Minimum
of Class A Status Units and Distribution Requirements................ 19
Class B Status Units..................... 12 Unrelated Business Taxable
Risks Regarding Indeterminate Income ("UBTI").......................... 19
Ratio of Class A Status Units WHO SHOULD INVEST - SUITABILITY
to Class B Status Units.................. 12 STANDARDS................................................ 19
Real Estate Risks..................................... 12 DESCRIPTION OF THE UNITS................................... 23
Fluctuating Financial Election of Class A Status or Class B Status.......... 23
Performance of Previously Summary of Distributions.............................. 23
Sponsored Partnerships................... 12 Summary of Allocations................................ 25
Risks of Real Property Class A Status Units.................................. 25
Ownership................................ 13 Class B Status Units.................................. 26
Risks Relating to an Unspecified Effect of Change of Status of Units................... 26
Property Offering........................ 13 ESTIMATED USE OF PROCEEDS.................................. 27
Risks Regarding Development COMPENSATION OF THE GENERAL PARTNERS
and Construction of Unimproved AND AFFILIATES........................................... 28
Properties............................... 13 CONFLICTS OF INTEREST...................................... 30
Risks Resulting from Competition........... 13 FIDUCIARY DUTY OF THE GENERAL
Potential Adverse Effects of PARTNERS................................................. 34
Delays in Investments.................... 14 PRIOR PERFORMANCE SUMMARY.................................. 35
Uncertainty of Market Conditions Publicly Offered Unspecified Property
on Future Disposition of Properties...... 14 Partnerships........................................ 36
MANAGEMENT................................................. 39
The General Partners.................................. 39
1
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Management....................................... 41 Nonassessability of Units...................... 75
INVESTMENT OBJECTIVES AND CRITERIA.................... 43 Voting Rights of the Limited Partners............ 76
General.......................................... 43 Mergers and Consolidations....................... 76
Acquisition and Investment Policies.............. 43 Special Partnership Provisions................... 76
Development and Construction of Removal of General Partners...................... 77
Properties..................................... 45 Assignability of General Partners' Interests..... 77
Terms of Leases and Lessee Books and Records; Rights to Information;
Creditworthiness............................... 46 Annual Audits.................................. 77
Borrowing Policies............................... 46 Meetings of Limited Partners..................... 77
Joint Venture Investments........................ 47 Transferability of Units......................... 78
Disposition Policies............................. 48 Partnership Borrowing............................ 78
Other Policies................................... 49 Repurchase of Units.............................. 79
CUSTODIAL AGENCY AGREEMENT............................ 50 Distribution Reinvestment Plan................... 80
REAL PROPERTY INVESTMENTS............................. 51 Proxy to Liquidate............................... 82
MANAGEMENT'S DISCUSSION AND ANALYSIS Dissolution and Termination...................... 82
OF FINANCIAL CONDITION AND DISTRIBUTIONS AND ALLOCATIONS......................... 83
RESULTS OF OPERATIONS............................... 51 Distributions of Net Cash From Operations........ 83
INVESTMENT BY TAX-EXEMPT ENTITIES AND Distribution of Net Sale Proceeds................ 83
ERISA CONSIDERATIONS................................ 52 Liquidating Distributions........................ 84
Plan Assets - Generally.......................... 53 Return of Unused Capital Contributions........... 84
Plan Assets - Current Law........................ 53 Partnership Allocations.......................... 85
Exemptions Under Plan Asset Regulations.......... 54 Monthly Distributions............................ 87
Plan Asset Consequences - REPORTS TO INVESTORS.................................. 88
Prohibited Transaction Excise Tax.............. 55 PLAN OF DISTRIBUTION.................................. 89
Annual Valuation................................. 56 SUPPLEMENTAL SALES MATERIAL........................... 93
FEDERAL INCOME TAX CONSEQUENCES....................... 57 LEGAL OPINIONS........................................ 93
Tax Opinion...................................... 57 EXPERTS............................................... 93
Partnership Status Generally..................... 59 AUDITORS.............................................. 94
Publicly Traded Partnerships..................... 60 ADDITIONAL INFORMATION................................ 94
General Principles of Partnership Taxation....... 61 GLOSSARY.............................................. 94
Anti-Abuse Rules................................. 62
Basis Limitations................................ 63 ______________________
Passive Loss Limitations......................... 63
At Risk Limitations.............................. 64 FINANCIAL STATEMENTS...........................APPENDIX I
Allocations of Profit and Loss................... 64 PRIOR PERFORMANCE TABLES........................EXHIBIT A
Risk of Taxable Income Without Cash FORM OF AMENDED AND RESTATED
Distributions.................................. 66 AGREEMENT OF LIMITED PARTNERSHIP
Investment by Qualified Plans and Other OF WELLS REAL ESTATE
Tax-Exempt Entities............................ 66 FUND IX, L.P..................................EXHIBIT B
Depreciation and Cost Recovery................... 67 FORM OF SUBSCRIPTION AGREEMENT
Syndication and Organizational Expenses.......... 68 AND SUBSCRIPTION AGREEMENT
Activities Not Engaged in for Profit............. 68 SIGNATURE PAGE................................EXHIBIT C
Federal Income Tax Consequences Relating
to the Custodial Agency Agreement and
Other Potential Uses of Nominee Corporations... 69
Characterization of Leases....................... 69
Property Held Primarily for Sale................. 70
Sales of Partnership Properties.................. 70
Sales of Limited Partnership Units............... 71
Dissolution and Liquidation of the
Partnership.................................... 71
Capital Gains and Losses......................... 71
Election for Basis Adjustments................... 71
Alternative Minimum Tax.......................... 72
Penalties...................................... 72
Tax Shelter Registration......................... 72
Audits........................................... 73
Foreign Investors as Limited Partners............ 73
Proposed Tax Legislation and Regulatory
Proposals...................................... 74
State and Local Taxes............................ 74
SUMMARY OF PARTNERSHIP AGREEMENT...................... 75
Powers of the General Partners................... 75
Liabilities of the Limited Partners.............. 75
Other Activities of the General Partners......... 75
Rights and Obligations of Limited Partners;
</TABLE>
(II)
<PAGE>
SUMMARY OF THE OFFERING
THIS SECTION SUMMARIZES CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND IS INTENDED FOR QUICK REFERENCE ONLY. THIS IS NOT A COMPLETE
DESCRIPTION OF THE INVESTMENT. POTENTIAL INVESTORS MUST READ AND EVALUATE THE
FULL TEXT OF THIS PROSPECTUS AND ALL SUPPORTING DOCUMENTS ATTACHED AS EXHIBITS
HERETO IN ORDER TO EVALUATE AN INVESTMENT IN THE PARTNERSHIP. THE FOLLOWING
SUMMARY THEREFORE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THIS PROSPECTUS AND THE SUPPORTING DOCUMENTS. TERMS THAT APPEAR WITH AN INITIAL
CAPITAL LETTER ARE MORE FULLY DEFINED IN THE GLOSSARY.
THE PARTNERSHIP: The Partnership is a Georgia limited partnership
whose principal place of business and registered
office is located at the office of its General
Partners, 3885 Holcomb Bridge Road, Norcross,
Georgia 30092. (Telephone: 770-449-7800 or 800-448-
1010 - outside of Georgia.)
GENERAL PARTNERS: Leo F. Wells, III and Wells Partners, L.P., a
Georgia limited partnership, are the General
Partners and will make all investment decisions for
the Partnership. (See "MANAGEMENT -- The General
Partners.") For information regarding the previous
experience of the General Partners and their
Affiliates in the management of real estate limited
partnerships, see "PRIOR PERFORMANCE SUMMARY."
SECURITIES OFFERED: A minimum of 125,000 Units (the "Minimum Offering")
and a maximum of 3,500,000 Units in the Partnership
are being offered at $10 per Unit. Upon subscription
for Units, investors will elect to have their Units
treated as either Class A Status Units or Class B
Status Units. Class A Status Units and Class B
Status Units are entitled to different rights and
priorities as to allocations of depreciation,
amortization, cost recovery and net loss deductions
and cash distributions. Holders of Class A Status
Units will be entitled to receive annual
distributions of operating cash flow but will be
allocated a lower percentage return on the potential
appreciation of the Partnership's real estate
investments. However, since Class A Status Units
will be allocated substantially all of the
Partnership's net income without being allocated any
deductions for depreciation, amortization, cost
recovery or net losses, it is expected that Limited
Partners holding Class A Status Units will be
allocated taxable income in excess of distributions
of cash flow from operations received. Although
holders of Class B Status Units will not be
allocated any current cash distributions, they will
be allocated a disproportionately larger share of
the Partnership's deductions for depreciation,
amortization, cost recovery and net loss, and will
be allocated a higher percentage return on the
potential appreciation of the Partnership's real
estate investments. However, since all such losses
allocated to holders of Class B Status Units will be
treated as "passive" losses, which may only be used
to offset "passive" income and, thus, may not be
used to offset active or portfolio income, such
allocation of losses may have no current benefit to
holders of Class B Status Units unless such holders
of Class B Status Units are being allocated passive
income from other sources with respect to such year.
Limited Partners will have the right to change their
prior election to have some or all of their Units
treated as Class A Status Units or Class B Status
Units one time during each accounting period, unless
prohibited by applicable state law. Any such changed
election shall be effective commencing as of the
first day of the next succeeding accounting period
following notice to the Partnership. Limited
Partners converting from Class A Status to Class B
Status will be entitled from the effective date of
the changed election to deductions for depreciation,
amortization, cost recovery and net losses but no
distributions of cash flow from operations, and
Limited Partners converting from Class B Status to
Class A Status will be entitled from the effective
date of the changed election to receive annual
distributions of net cash flow from operations.
Distributions of proceeds from the sale of
properties will be prorated to Limited Partners
based on the number of days during which such Units
were treated as Class A Status Units and the number
of days during
1
<PAGE>
which such Units were treated as Class B Status
Units (Class B Status Units being allocated a higher
percentage return on the potential appreciation of
the Partnership's real estate investments). (See
"DESCRIPTION OF THE UNITS," "RISK FACTORS" and
"DISTRIBUTIONS AND ALLOCATIONS.")
RISK FACTORS: Investment in the Units involves various risks
including the following:
. The Partnership Agreement imposes
restrictions on transfers of Units. No public
market for the Units currently exists or is
likely to develop. If investors are able to
sell their Units at all, they will likely be
able to sell their Units only at a discount.
(See "SUMMARY OF PARTNERSHIP AGREEMENT --
Transferability of Units.")
. Limited Partners will have limited have
minimal control over the voting rights and,
therefore, will Partnership's operations.
. The Limited Partners must rely on the General
Partners and their Affiliates, who will have
full responsibility for the day-to-day
management of the Partnership.
. The net worth of the General Partners is
limited in amount, substantially illiquid and
not readily marketable. Accordingly, there
can be no guarantee that the General Partners
will be able to fulfill their financial
obligations and responsibilities to the
Partnership.
. The number of properties that the Partnership
will acquire and diversification of its
investments will be reduced to the extent
that less than the maximum number of Units
are sold. Lack of diversification of the
Partnership's investments will have the
effect of increasing the risks associated
with an investment in the Units.
. This Offering involves payment of substantial
fees to the General Partners and their
Affiliates, which will be payable regardless
of the success or failure of the Partnership.
. Holders of Class A Status Units will be
allocated substantially all of the
Partnership's net income, while substantially
all deductions for depreciation,
amortization, cost recovery and net losses
will be allocated to holders of Class B
Status Units. As a result, it is expected
that Limited Partners holding Class A Status
Units will be allocated taxable income in
excess of distributions of Cash Flow From
Operations received, although the General
Partners expect that cash distributions will
be sufficient to cover the income tax
liability resulting from such allocations.
. Potential investors who plan to elect Class B
Status for their Units should be aware that
they will not receive any distributions of
Cash Flow From Operations from the
Partnership, but will be allocated a
disproportionately larger share of the
Partnership's deductions for depreciation,
amortization, cost recovery and net losses.
. Certain real estate programs previously
sponsored by the General Partners and their
Affiliates have experienced fluctuating
financial performance, and there are no
assurances that properties acquired by the
Partnership will be profitable.
. The Partnership will be subject to market
risks associated with investments in real
estate, which means that both the amount of
cash the Partnership will receive from the
lessees of its properties and the future
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value of its properties cannot be predicted.
Accordingly, the extent to which investors
will receive cash distributions and realize
potential appreciation on real estate
investments will be dependent upon
fluctuating market conditions.
. The Partnership does not own any real
property and the General Partners have not
identified any properties in which there is a
reasonable probability that the Partnership
will invest. Accordingly, investors will not
have the opportunity to evaluate the
properties that the Partnership will acquire
and must rely totally upon the ability of the
General Partners with respect to the
acquisition of properties.
. Some or all of the proceeds available for
investment in real properties may be invested
in the acquisition and construction of
undeveloped properties, which would involve
risks relating to the builder's ability to
control construction costs, failure to
perform, or failure to build in conformity
with plan specifications and timetables, thus
potentially subjecting the Partnership to
cost overruns and time delays for properties
under construction. Increased costs of newly
constructed properties may have the effect of
reducing returns to Limited Partners, while
construction delays may have the effect of
delaying distributions of cash flow from
operations.
. As a result of the fact that the General
Partners are also general partners of other
real estate limited partnerships and that
they will continue to engage in other
business activities, the General Partners
will have conflicts of interest in allocating
their time between the Partnership and other
partnerships and activities. They will also
have conflicts of interest when evaluating
potential investments for the Partnership in
deciding which entity will acquire a
particular property, and in leasing
properties in the event that the Partnership
and another program managed by the General
Partners were to compete for the same tenants
in negotiating leases.
. The Partnership is authorized to borrow
amounts up to 25% of the total purchase price
of Partnership Properties in order to finance
the maintenance and repair or improvement of
Partnership Properties under certain
conditions; provided, however, that (i) the
Partnership will be acquiring properties only
on an all cash basis and the General Partners
do not intend to cause the Partnership to
borrow any funds and (ii) the Partnership
will not borrow any funds until it first
obtains an opinion of counsel that more
likely than not the indebtedness to be
obtained will not cause its income to be
taxed as unrelated business taxable income
(UBTI). (See "INVESTMENT OBJECTIVES AND
CRITERIA -- Borrowing Policies.")
See the "RISK FACTORS" section of this Prospectus
for a discussion of the risk factors relating to an
investment in the Units.
TERMS OF THE OFFERING: The offering of Units of the Partnership will
commence upon the effective date of this Prospectus
and will continue until and terminate upon the
earlier of (i) January 4, 1997, or (ii) the date on
which all $35,000,000 in Units of the Partnership
have been sold. Subscription proceeds will be held
in escrow until subscriptions for at least
$1,250,000 (125,000 Units) have been received and
accepted by the General Partners.
PROPERTIES: The Partnership will seek to acquire and operate
commercial and industrial properties, including
without limitation, office buildings, shopping
centers, business and industrial parks and other
commercial and industrial properties, on
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an all cash basis, including properties which are
under construction or development, are newly
constructed, or have been constructed and have
operating histories. All such properties may be
acquired, developed and operated by the Partnership
alone or jointly with another party. The Partnership
is likely to enter into one or more joint ventures
with Affiliated entities for the acquisition of
properties. In this connection, the Partnership may
enter into joint ventures for the acquisition of
properties with prior or future real estate limited
partnership programs sponsored by the General
Partners or their Affiliates. As of the date of this
Prospectus, the Partnership has neither purchased
nor contracted to purchase any properties, nor have
the General Partners identified any properties in
which there is a reasonable probability that the
Partnership will invest. (See "REAL PROPERTY
INVESTMENTS," "INVESTMENT OBJECTIVES AND CRITERIA"
and "CONFLICTS OF INTEREST.")
ESTIMATED USE OF It is anticipated that approximately 81% of the
PROCEEDS OF OFFERING: proceeds of this Offering will actually be invested
in Partnership Properties, and the remainder will be
used to pay selling commissions and fees and
expenses relating to the selection and acquisition
of properties and the cost of organizing the
Partnership and the Offering. (See "ESTIMATED USE OF
PROCEEDS" for a breakdown of the Partnership's
estimated use of the capital raised in the Offering.
See also "COMPENSATION OF THE GENERAL PARTNERS AND
AFFILIATES" regarding the compensation and fees to
be paid to the General Partners and their
Affiliates.)
INVESTMENT OBJECTIVES: The Partnership's objectives are: (i) to maximize
Net Cash From Operations; (ii) to preserve, protect
and return the Capital Contributions of the
Partners; and (iii) to realize capital appreciation
upon the ultimate sale of Partnership Properties.
These investment objectives may not be changed
except upon approval of a majority in interest of
the Limited Partners. Although certain real estate
programs previously sponsored by the General
Partners and their Affiliates have experienced
fluctuating financial performance, as shown in the
tables included in Exhibit "A" hereto, such prior
programs, each of which have investment objectives
similar to those of the Partnership, have generally
been successful to date in achieving their objective
of providing distributions of Net Cash From
Operations to their limited partners. However, these
prior programs have not yet sold any real property
investments and thus no evaluation can be made as to
whether these prior programs will achieve their
objective of realizing capital appreciation upon the
sale of such properties. (See "INVESTMENT OBJECTIVES
AND CRITERIA" and "PRIOR PERFORMANCE SUMMARY.")
CONFLICTS OF INTEREST: The General Partners and their Affiliates will
experience conflicts of interest in connection with
the management of the Partnership, including the
following:
. The General Partners and their Affiliates are
also general partners of other real estate
limited partnerships and expect that they
will organize additional real estate
partnerships in the future. As a result,
investors should be aware that the General
Partners and their Affiliates will have to
allocate their time between the Partnership
and other such partnerships and activities
and may have conflicts of interest in
deciding which partnership will acquire a
particular property.
. The Partnership may acquire properties in the
same geographic areas where other properties
owned or managed by the General Partners and
their Affiliates are located, resulting in
potential conflicts in the leasing or resale
of the Partnership's properties in the event
that the Partnership and another program
managed by the General Partners or their
Affiliates were to attempt to compete for the
same tenants in negotiating leases or to sell
similar properties at the same time.
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. Since it is anticipated that the
Partnership's properties will be managed by
an Affiliate of the General Partners, the
Partnership will not have the benefit of
independent property management, and
investors must rely on the General Partners
and their Affiliates for management of the
Partnership's properties.
. The Partnership is likely to enter into one
or more joint ventures for the acquisition
and operation of specific properties with
Affiliates of the General Partners, resulting
in potential conflicts of interest in
determining which partnership should enter
into a particular joint venture, in
structuring the terms of the relationship and
in managing the joint venture.
. Fees payable to the General Partners and
their Affiliates in connection with
Partnership transactions involving the
purchase, management and sale of Partnership
Properties are not the result of arm's-length
negotiations and will be payable regardless
of the quality of the property acquired or
the services provided to the Partnership.
See the "CONFLICTS OF INTEREST" section of
this Prospectus for a discussion of the
various conflicts of interest relating to an
investment in the Units.
PRIOR OFFERING SUMMARY: The General Partners and their Affiliates have
previously sponsored nine publicly offered real
estate limited partnerships on an unspecified
property or "blind pool" basis. The total amount of
funds raised from the approximately 20,235 investors
in these limited partnerships as of November 30,
1995 was approximately $199,956,166. Certain of
these previously sponsored real estate programs have
experienced fluctuating financial performance in
recent years. The "PRIOR PERFORMANCE SUMMARY"
section of this Prospectus contains a discussion of
the public as well as private real estate limited
partnerships sponsored by the General Partners and
their Affiliates during the past ten years. Certain
statistical data relating to prior public limited
partnerships with investment objectives similar to
those of the Partnership are contained in the "PRIOR
PERFORMANCE TABLES" included as Exhibit "A" to this
Prospectus.
COMPENSATION TO GENERAL The General Partners and their Affiliates will
PARTNERS AND AFFILIATES: receive compensation and fees in connection with
this Offering and their services in connection with
the investment and management of the Partnership's
assets which are not the result of arm's-length
negotiations and will be paid regardless of the
quality of the property acquired or the services
provided to the Partnership. The most significant
items of compensation are:
Offering Stage: Sales commissions of 8% of Gross
Offering Proceeds, all or a part of which may be
reallowed to participating broker-dealers; a dealer
manager fee of 2% of Gross Offering Proceeds, a
portion of which may be reallowed to participating
broker-dealers as a marketing fee; and up to 5% of
Gross Offering Proceeds as a reimbursement of costs
and expenses of organizing the Partnership,
including legal, accounting, printing, marketing and
other offering expenses, a majority of which will be
paid to third parties unaffiliated with the General
Partners.
Acquisition Stage: A fee of up to 5% of Gross
Offering Proceeds in connection with the selection,
valuation and acquisition of properties (subject to
certain
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overall limitations), which is payable regardless of
the quality of the properties acquired by the
Partnership; and reimbursement of costs and expenses
for the acquisition of properties.
Operational Stage: A property management and
leasing fee in the amount of up to 6% of gross
revenues plus a one-time initial rent-up or leasing-
up fee for the leasing of newly constructed
properties, in an amount not to exceed the customary
fee payable in an arm's-length transaction; and,
after Limited Partners holding Class A Status Units
have received cash distributions equal to 10% of
their remaining capital invested in the Partnership,
10% of current cash flow distributions of the
Partnership.
Liquidation Stage: After (i) Limited Partners
holding Units which at any time have been treated as
Class B Status Units have received amounts necessary
to make up for the priority cash distributions
previously paid to Limited Partners holding Units
which at all times have been treated as Class A
Status Units, (ii) Limited Partners have received a
return of their invested capital, and (iii) Limited
Partners holding Class A Status Units have received
a 10% per annum return on their invested capital and
Limited Partners holding Class B Status Units have
received a 15% per annum return on their invested
capital, then the General Partners are entitled to
receive the following amounts of Nonliquidating Net
Sale Proceeds and Liquidating Distributions: (a) an
amount equal to their Capital Contributions plus, in
the event that Limited Partners have received
aggregate distributions from the Partnership over
the life of their investment in excess of their Net
Capital Contributions plus their Preferential
Limited Partner Return, then, and only in such
event, an amount equal to 25% of any such excess,
and (b) 20% of remaining amounts of Nonliquidating
Net Sale Proceeds and Liquidating Distributions
available for distribution; provided, however, that
in no event will the General Partners receive in the
aggregate more than 15% of such proceeds remaining
after Limited Partners have received a return of
their remaining capital invested in the Partnership
plus a 6% per annum return on their remaining
capital invested in the Partnership; and a real
estate brokerage commission of up to 3% of the sale
price of properties sold by the Partnership, the
payment of which is subordinated to distributions to
Limited Partners in aggregate amounts so that
Limited Partners will receive a return of their
remaining capital invested in the Partnership plus a
6% per annum return on their remaining capital
invested in the Partnership.
There may be a number of other smaller items of
incidental expense reimbursement that the General
Partners and their Affiliates may receive during the
operation and liquidation stages of the Partnership.
(See "COMPENSATION OF THE GENERAL PARTNERS AND
AFFILIATES" and "CONFLICTS OF INTEREST.")
DEPRECIATION AND COST For income tax purposes, the Partnership intends to
RECOVERY METHOD: use the straight-line method of depreciation for the
real properties to be acquired. (See "FEDERAL INCOME
TAX CONSEQUENCES.")
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PARTNERSHIP TERM: The Partnership was formed on August 15, 1994, and
will continue in existence until all the
Partnership's properties have been sold or the
occurrence of certain other events but, in any
event, will terminate no later than December 31,
2024. (See "SUMMARY OF PARTNERSHIP AGREEMENT --
Dissolution and Termination.")
REPURCHASE RESERVE: One year following the termination of this Offering,
the General Partners will have the option, in their
sole discretion, of establishing a Repurchase
Reserve in an amount of up to 5% of Cash Flow on an
annual basis, pursuant to which the Limited Partners
may be able to resell their Units to the Partnership
at a discount. The General Partners may also
terminate the Repurchase Reserve at any time in
their sole discretion. (See "SUMMARY OF PARTNERSHIP
AGREEMENT.")
DISTRIBUTION The General Partners may establish a Distribution
REINVESTMENT PLAN: Reinvestment Plan which will be available for
Limited Partners who wish to participate, pursuant
to which distributions of Net Cash From Operations
from the Partnership may be automatically invested
in (a) Units of the Partnership during the Offering
period of the Partnership, or (b) units of
subsequent real estate limited partnerships
sponsored by the General Partners or their
Affiliates which have substantially identical
investment objectives as the Partnership following
the expiration of the Offering period. The General
Partners in their discretion may elect not to
provide a Distribution Reinvestment Plan. Limited
Partners who participate in the Distribution
Reinvestment Plan will be allocated their share of
the Partnership's taxable income even though such
Partners will receive no cash distributions from the
Partnership, which may result in tax liability for
such participants even though they would receive no
cash distributions with which to pay such tax
liability. (See "SUMMARY OF PARTNERSHIP AGREEMENT --
Distribution Reinvestment Plan" and "RISK FACTORS --
Federal Income Tax Risks.")
DISTRIBUTIONS AND See the "DESCRIPTION OF THE UNITS" and
ALLOCATIONS: "DISTRIBUTIONS AND ALLOCATIONS" sections of this
Prospectus for a description of the allocation and
distribution of current cash flow from operations
and the net proceeds from the sale or exchange of
Partnership Properties and the allocation of taxable
income and loss of the Partnership.
Distributions of cash flow from operations to
Limited Partners holding Class A Status Units are
expected to commence no later than the end of the
sixth full quarter of Partnership operations. No
distributions of cash flow from operations will be
allocated to Limited Partners holding Class B Status
Units.
PARTNERSHIP AGREEMENT: The respective rights and obligations of the
Partners and the relationship between the Limited
Partners and the General Partners will be governed
by the Partnership's Amended and Restated Agreement
of Limited Partnership (the "Partnership
Agreement"). Some of the significant features of the
Partnership Agreement include the following:
. Voting Rights. Limited Partners owning a
majority of the Units may vote to: (a) amend
the Partnership Agreement, subject to certain
limitations, (b) change the business purpose
or investment objectives of
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the Partnership, and (c) remove a General
Partner. In the event of any such vote,
Limited Partners not voting with the majority
will nonetheless be bound by the majority
vote.
. Mergers and Consolidations. The Partnership
Agreement prohibits the General Partners from
initiating any transaction wherein the
Partnership is merged or consolidated with
any other partnership or corporation, and the
General Partners are not authorized to merge
or consolidate the Partnership with any other
partnership or corporation unless such action
is approved by Limited Partners owning a
majority of the Units.
. Restrictions on Transferability of Units.
While the Partnership Agreement does allow
certain transfers, there are a number of
significant restrictions on the
transferability of Units, including: (a)
securities laws restrictions, (b) the
application of suitability standards to the
proposed transferees of Units, (c)
restrictions regarding the potential of the
Partnership becoming a "publicly traded
partnership" (generally a partnership whose
interests are publicly traded or frequently
transferred), and (d) restrictions regarding
potential termination of the Partnership for
tax purposes. No public market for the Units
currently exists or is expected to develop.
For a more detailed discussion concerning the terms
of the Partnership Agreement, please refer to the
"SUMMARY OF PARTNERSHIP AGREEMENT" section of this
Prospectus. All statements made herein and elsewhere
in this Prospectus are qualified in their entirety
by reference to the Partnership Agreement which is
set forth in its entirety as Exhibit "B" to this
Prospectus.
GLOSSARY: Certain terms which have initial capital letters in
this Prospectus are defined under the caption
"GLOSSARY."
RISK FACTORS
The purchase of Units involves a number of risk factors. In addition to
the factors set forth elsewhere in this Prospectus, prospective investors should
consider specifically the following:
INVESTMENT RISKS
LIMITED TRANSFERABILITY AND LACK OF LIQUIDITY OF THE UNITS. Except for
intra-family transfers by gift or inheritance, the Units have limited
transferability, including transfer limitations under the provisions of the
Partnership Agreement relating to the Repurchase Reserve. The Partnership and
certain state regulatory agencies have imposed certain restrictions relating to
the number of Units which may be transferred by a Limited Partner and, with the
exception of intra-family transfers or transfers made by gift, inheritance or
family dissolution, the suitability standards applied to initial purchasers of
the Units may also be applied to assignees as a condition to their substitution
as Limited Partners. It is not anticipated that a public trading market will
develop for the Units and, in fact, the Partnership Agreement restricts the
ability of the Partnership to participate in a public trading market or the
substantial equivalent thereof. Specifically, the Partnership Agreement provides
that any transfer which may cause the Partnership to be classified as a
"publicly traded partnership" shall be deemed void and shall not be recognized
by the Partnership. Because of the fact that the classification of the
Partnership as a "publicly traded partnership" would significantly decrease the
value of the Units, the General Partners intend to exercise fully their
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rights to prohibit transfers of Units which could cause the Partnership to be
classified as a "publicly traded partnership." Limited Partners may not,
therefore, be able to liquidate their investment in the event of an emergency,
and the Units may not be readily accepted as collateral for a loan.
Consequently, Units in the Partnership should be considered only as a long-term
investment. (See "SUMMARY OF PARTNERSHIP AGREEMENT -- Transferability of Units."
RISKS REGARDING RELIANCE ON THE GENERAL PARTNERS. All decisions with
respect to the management of the Partnership will be made exclusively by the
General Partners. The Limited Partners will have no right or power to take part
in the management of the Partnership except through the exercise of their voting
rights, which are limited. The General Partners may be removed under certain
conditions, as set forth in the Partnership Agreement, subject to their receipt
of payment equal to the fair market value of their interests in the Partnership.
(See "SUMMARY OF PARTNERSHIP AGREEMENT.")
LIMITED AND ILLIQUID NET WORTH OF THE GENERAL PARTNERS. The General
Partners have represented that, as of August 31, 1995, they have a combined net
worth on an estimated fair market value basis in excess of $2,470,000 (exclusive
of home, automobiles and home furnishings). When the net worth of Wells Partners
is calculated on a generally accepted accounting principles (GAAP) basis (i.e.
Wells Partners' investments are valued at cost instead of estimated fair market
value) as of August 31, 1995, the combined net worth of the General Partners, is
approximately $1,429,000. The net worth of the General Partners, however,
consists primarily of interests in real estate, interests in retirement plans
and closely-held businesses, and thus such net worth is substantially illiquid
and not readily marketable. The limited net worth of the General Partners and
illiquid nature of such net worth, together with the other commitments of the
General Partners, may be relevant in evaluating the ability of the General
Partners to fulfill their financial obligations and responsibilities to the
Partnership, including but not limited to, the General Partners' obligation to
advance on an interest-free basis an amount of up to 1% of Gross Offering
Proceeds for maintenance and repairs of Partnership Properties to the extent
that the Partnership has insufficient funds for such purposes. Such commitments
include those relating to other limited partnerships which have been formed in
the past and other limited partnerships which the General Partners may organize
in the future. (See "CONFLICTS OF INTEREST -- Interests in Other Partnerships,"
"PRIOR PERFORMANCE SUMMARY" and "MANAGEMENT.")
LIMITATIONS OF RIGHTS OF THE LIMITED PARTNERS. The Partnership is a
limited partnership formed under the Georgia Revised Uniform Limited Partnership
Act ("GRULPA"), and accordingly, the rights of the Limited Partners are limited
to rights provided either under GRULPA or contained in the Partnership
Agreement. In this regard, the Partnership Agreement provides that Limited
Partners owning a majority of the outstanding Units may exercise certain voting
rights, including the right to amend the Partnership Agreement, to change the
business purpose or investment objectives of the Partnership, to remove the
General Partners, or to authorize a merger or a consolidation of the Partnership
under certain circumstances. Because Limited Partners owning a majority of the
Units may approve any of the foregoing actions, Limited Partners not voting with
the majority will nonetheless be bound by the majority vote. (See "SUMMARY OF
LIMITED PARTNERSHIP AGREEMENT.")
POSSIBLE LACK OF DIVERSIFICATION RESULTING FROM SUBSCRIPTIONS FOR LESS THAN
THE MAXIMUM NUMBER OF UNITS. To the extent that less than the maximum number of
Units are sold, the diversification of the Partnership's investments will be
decreased and the extent to which the Partnership's profitability will be
affected by any one of its investments will increase. For example, in the event
that the gross proceeds from the Offering of Units of the Partnership total only
$1,250,000 (the minimum amount needed for the Partnership to release initial
funds from escrow and commence operations), the Partnership may acquire an
interest in only one property and, therefore, would not achieve diversification
of its investments. Lack of diversification of the Partnership's investments
will have the effect of increasing the risks associated with an investment in
the Units.
POTENTIAL CONFLICT RELATING TO THE GENERAL PARTNERS' RIGHT TO PURCHASE
UNITS. Pursuant to the terms of the Offering, the General Partners or their
Affiliates may purchase Units for their own account. In addition, as set
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forth above, the General Partners have broad discretion in choosing between
investments in various types of income-producing and non-income-producing
properties, which will affect the relative performance between the Class A
Status Units and the Class B Status Units. Units acquired and held by the
General Partners or their Affiliates shall at all times be treated as Class A
Status Units. Accordingly, in the event the General Partners or their Affiliates
do purchase Units, they would then have an incentive to acquire properties which
would produce more favorable results for the Class A Status Units, which could
adversely affect Limited Partners electing Class B Status for their Units. (See
"INVESTMENT OBJECTIVES AND CRITERIA" and "PLAN OF DISTRIBUTION.")
RESTRICTIONS AND LIMITATIONS ON REPURCHASE RESERVE. The Partnership may
establish a Repurchase Reserve of up to 5% of Cash Flow annually, whereby the
Partnership may, in the sole discretion of the General Partners and upon the
request of a Limited Partner, repurchase the Units held by such Limited Partner.
The Repurchase Reserve may be established only after the expiration of one year
following the termination of the Offering, and if established, the Repurchase
Reserve may be terminated at any time in the sole discretion of the General
Partners. Since the establishment of a Repurchase Reserve is in the sole
discretion of the General Partners, the Partnership is under no obligation to
establish a Repurchase Reserve or to repurchase Units from any Limited Partner.
In addition, even if a Repurchase Reserve is established, the Partnership
Agreement limits repurchases out of the Repurchase Reserve to an aggregate of
not more than 2% of Gross Offering Proceeds throughout the life of the
Partnership (excluding repurchases relating to death or legal incapacity of the
owner and repurchases relating to a substantial reduction in the owner's net
worth or income). Accordingly, in considering an investment in the Partnership,
prospective investors should not assume that they will be able to sell any of
their Units back to the Partnership. However, in the event that the Partnership
does establish a Repurchase Reserve, the purchase price per Unit will be equal
to 85% of the fair market value of the Units until three years from the
effective date of the Registration Statement and 90% of the fair market value of
the Units thereafter. Fair market value will be determined by the General
Partners based upon an estimate of the amount the Limited Partners would receive
if the Partnership's real estate investments were sold for their estimated value
and if such proceeds were distributed in a liquidation of the Partnership.
Accordingly, Limited Partners liquidating their Units by selling them back to
the Partnership may receive less than they would receive if the Partnership's
real estate investments were sold for their estimated value and such proceeds
were distributed in a liquidation of the Partnership. (See "SUMMARY OF
PARTNERSHIP AGREEMENT - Repurchase of Units.")
POTENTIAL LIABILITY OF LIMITED PARTNERS. A Limited Partner's liability, in
general, will be limited to the amount he agrees to contribute to the capital of
the Partnership plus his share of any undistributed profits and assets. While
GRULPA provides that Limited Partners would retain their limited liability even
if they exercise their rights under the Partnership Agreement, including without
limitation, the right to vote on certain matters such as the right to remove
General Partners and elect successor general partners, this provision of GRULPA
has not yet been interpreted by a court, and accordingly, no assurance can be
given that courts will ultimately uphold the limited liability of Limited
Partners in this regard. (See "SUMMARY OF PARTNERSHIP AGREEMENT - Voting Rights
of the Limited Partners.")
OFFERING PRICE ARBITRARILY ESTABLISHED. The selling price of the Units
offered hereby was determined arbitrarily by the General Partners and bears no
relationship to any established criteria for valuing issued or outstanding units
of limited partnership interest or other ownership interests at the present
time.
RISKS RELATING TO MANAGEMENT COMPENSATION. The General Partners and their
Affiliates will perform services for the Partnership in connection with the
offer and sale of Units, the selection and acquisition of the Partnership's
properties, and the management and leasing of the Partnership's properties, and
will receive substantial compensation from the Partnership in consideration for
these services. The amount of such compensation has not been determined in
arm's-length negotiations, and such amounts will be payable regardless of the
quality of services provided to the Partnership and prior to any distributions
to Limited Partners. (See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES"
and "CONFLICTS OF INTEREST.")
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RISKS RELATING TO CASH DISTRIBUTIONS. There is no assurance as to when or
whether sufficient cash will be available for distributions to the Limited
Partners from either Net Cash From Operations or Sale Proceeds. The Partnership
bears all expenses incurred in its operations, which are deducted from cash
funds generated by operations prior to computing the amount of Net Cash From
Operations to be distributed to the General and Limited Partners. In addition,
the General Partners, in their discretion, may retain any portion of such funds
for working capital purposes of the Partnership. Although gains from the sales
of properties typically represent a substantial portion of any profits
attributable to a real estate investment, there can be no assurance as to the
ability of the Partnership to realize gains on the resales of its properties,
and, in any event, distribution of such proceeds should not be expected to occur
during the early years of Partnership operations. Sales of properties developed
by the Partnership generally will not occur until after completion of the
development and construction of the properties and a period of ownership of at
least eight years thereafter. Further, receipt of the full proceeds of such
sales may be extended over a substantial period of time following the sales.
Taxes required to be paid by a Limited Partner with respect to the sale of a
Partnership Property could exceed the cash proceeds received from such sale.
(See "INVESTMENT OBJECTIVES AND CRITERIA -- Sale of Properties" and "FEDERAL
INCOME TAX CONSEQUENCES -- Sales of Partnership Property.")
RISK OF LACK OF SOURCES FOR FUNDING OF FUTURE CAPITAL NEEDS. As the
Partnership raises capital from investors, substantially all of the gross
proceeds of the Offering will be used for investment in Partnership Properties
and for payment of various fees and expenses. (See "ESTIMATED USE OF PROCEEDS.")
In addition, it is not anticipated that the Partnership will maintain any
permanent working capital reserves. Accordingly, in the event that the
Partnership develops a need for additional capital in the future for the
improvement of its properties or for any other reason, no sources for such
funding have been identified, and no assurance can be made that such sources of
funding will be available to the Partnership for potential capital needs in the
future.
RISKS RELATING TO JOINT VENTURES. The Partnership is likely to enter into
one or more joint ventures with Affiliated entities for the acquisition,
development or improvement of properties. In this regard, the Partnership may
enter into joint ventures with future programs sponsored by the General Partners
or their Affiliates or Prior Wells Public Programs. The Partnership may purchase
and develop properties in joint ventures or in partnerships, co-tenancies or
other co-ownership arrangements with Affiliates of the General Partners, the
sellers of the properties, affiliates of the sellers, developers or other
persons. Such investments may under certain circumstances involve risks not
otherwise present, including, for example, the possibility that the
Partnership's co-venturer, co-tenant or partner in an investment might become
bankrupt, that such co-venturer, co-tenant or partner may at any time have
economic or business interests or goals which are inconsistent with the business
interests or goals of the Partnership, or that such co-venturer, co-tenant or
partner may be in a position to take action contrary to the instructions or the
requests of the Partnership or contrary to the Partnership's policies or
objectives. Actions by such a co-venturer, co-tenant or partner might have the
result of subjecting the property to liabilities in excess of those contemplated
and may have the effect of reducing returns to Limited Partners. In addition,
since there is no requirement that any joint venture partner, co-tenant or other
co-owner of properties purchased jointly with the Partnership be subject to a
custodial agency agreement, such investments may not be afforded the same
protections as investments in properties made directly by the Partnership or in
joint ventures with Affiliates of the General Partners. Under certain joint
venture arrangements, neither co-venturer may have the power to control the
venture, and an impasse could be reached regarding matters pertaining to the
joint venture, possibly detrimentally impacting the success of the joint venture
and decreasing potential returns to Limited Partners. In the event a co-venturer
has a right of first refusal to buy out the other co-venturer, it may be unable
to finance such buy-out at the time. It may also be difficult for the
Partnership to sell its interest in any such joint venture or partnership or as
a co-tenant in property. In addition, to the extent that the Partnership's co-
venturer or partner is an Affiliate of the General Partners, certain conflicts
of interest will exist. (See "CONFLICTS OF INTEREST -- Joint Ventures with
Affiliates of the General Partners.")
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SPECIAL RISKS REGARDING CLASSES OF UNITS
SPECIAL RISKS RELATING TO AN ELECTION OF CLASS A STATUS UNITS. Since
holders of Class A Status Units will be allocated substantially all of the
Partnership's net income, while substantially all deductions for depreciation,
amortization, cost recovery and net losses will be allocated to holders of Class
B Status Units, it is expected that Limited Partners holding Class A Status
Units will be allocated taxable income in excess of distributions of cash flow
from operations received. However, while there is no assurance that cash flow
will be available for distribution to Class A Limited Partners in any year,
based upon the cash distributions and taxable income allocations to Class A
Limited Partners in Prior Wells Public Programs, the General Partners expect
that cash distributions to Limited Partners holding Class A Status Units will be
sufficient to cover the income tax liability resulting from allocations of
taxable income of the Partnership. In addition, potential investors who plan to
elect Class A Status for their Units should be aware that, in the event that the
Partnership sells substantially more Class A Status Units than Class B Status
Units, Limited Partners purchasing Class A Status Units in the Partnership may
not receive appreciably greater cash flow distributions from the Partnership due
to the capital raised from the sale of Class B Status Units. There are no
restrictions as to the mix between Class A Status Units and Class B Status
Units, and the General Partners will not attempt to establish or maintain any
particular ratio between Class A Status Units and Class B Status Units.
SPECIAL RISKS RELATING TO AN ELECTION OF CLASS B STATUS UNITS. Potential
investors who plan to elect Class B Status for their Units should be aware that
they will not receive any distributions of cash flow from operations from the
Partnership. Further, although Limited Partners holding Class B Status Units
will be allocated a disproportionately larger share of the Partnership's
deductions for depreciation, amortization, cost recovery and net losses, all
such losses will be treated as "passive" losses, which may only be used to
offset "passive" income and may not be used to offset active or portfolio
income. Accordingly, a Class B Status Limited Partner's pro rata share of the
Partnership's passive losses may have no current benefit to such Class B Status
Limited Partner unless he is being allocated passive income from other sources
with respect to such year.
EFFECT OF UNSPECIFIED NATURE OF OFFERING ON RELATIVE PERFORMANCE OF CLASS
A STATUS UNITS AND CLASS B STATUS UNITS. As set forth above, the General
Partners have not identified any properties in which there is a reasonable
probability that the Partnership will invest. In addition, the General Partners
have broad discretion in choosing between investments in various types of
income-producing and non-income-producing properties, which will have an effect
on the relative performance between Class A Status Units and Class B Status
Units. It is anticipated that holders of Class A Status Units would potentially
benefit to a greater extent than holders of Class B Status Units if the majority
of the Partnership's investments are in properties which generate relatively
high cash flows but have lower potential for appreciation; conversely, a greater
percentage of investments in properties generating less current cash flow but
having greater potential for appreciation in value may benefit holders of Class
B Status Units to a greater extent than holders of Class A Status Units. The
unspecified nature of the Offering may impair the ability of investors to make
an informed decision as to whether to elect Class A Status or Class B Status in
light of the different features of Class A Status Units and Class B Status
Units. (See "INVESTMENT OBJECTIVES AND CRITERIA.")
RISKS REGARDING INDETERMINATE RATIO OF CLASS A STATUS UNITS TO CLASS B
STATUS UNITS. Class A Status Units and Class B Status Units each entitle the
holder thereof to different rights and priorities as to allocation of
depreciation, amortization and cost recovery deductions and as to Net Cash From
Operations. However, the effect of any advantage associated with the election of
Class A Status or Class B Status may be significantly reduced (or eliminated),
depending upon the ratio of Class A Status Units to Class B Status Units
outstanding during any given period. There are no restrictions as to the mix of
Class A Status Units to Class B Status Units, and the General Partners will not
attempt to establish or maintain any particular ratio. Therefore, there can be
no assurance as to the actual impact of the special rights and priorities to
which holders of the two classes of Units are respectively entitled.
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REAL ESTATE RISKS
FLUCTUATING FINANCIAL PERFORMANCE OF PREVIOUSLY SPONSORED PARTNERSHIPS.
The real properties in which partnerships previously sponsored by the General
Partners and their Affiliates have invested have experienced the same economic
problems as other real estate investments in recent years, including without
limitation, general over-building and an excess of supply in many markets, along
with increased operating costs and a general downturn in the real estate
industry. The historical fluctuations in net income of partnerships previously
sponsored by the General Partners and their Affiliates were primarily due to
tenant turnover, resulting in increased vacancies and the requirement to expend
funds for tenant refurbishments, and increases in administrative and other
operating expenses. There are no assurances that properties acquired by the
Partnership will not also experience fluctuating financial performance. (See
"PRIOR PERFORMANCE SUMMARY.")
RISKS OF REAL PROPERTY OWNERSHIP. The Partnership will be subject to risks
generally incident to the ownership of real estate, including changes in general
economic or local conditions, changes in supply of or demand for similar or
competing properties in an area, changes in interest rates and availability of
permanent mortgage funds which may render the sale of a property difficult or
unattractive, and changes in tax, real estate, environmental and zoning laws.
Periods of high interest rates and tight money supply may make the sale of
properties more difficult. For these and other reasons, no assurance of
profitable operation or realization of gains from the sales of Partnership
Properties can be given.
RISKS RELATING TO AN UNSPECIFIED PROPERTY OFFERING. The General Partners
have not identified any properties in which there is a reasonable probability
that the Partnership will invest. Investors must rely upon the ability of the
General Partners with respect to the investment and management of the
unspecified properties and will not have an opportunity to evaluate for
themselves the relevant economic, financial and other information regarding the
specific properties in which the proceeds of this Offering will be invested.
Accordingly, the risk of investing in the Units may be increased. While the
Partnership is required to obtain an independent appraisal for each property
purchased reflecting an appraised value at least equal to the purchase price
paid for such property, it should be noted that appraisals are merely estimates
of value and should not be relied upon as precise measures of true worth or
realizable value. No assurance can be given that the Partnership will be
successful in obtaining suitable investments or that, if investments are made,
the objectives of the Partnership will be achieved.
RISKS REGARDING DEVELOPMENT AND CONSTRUCTION OF UNIMPROVED PROPERTIES. The
Partnership may invest some or all of the net proceeds available for investment
in the acquisition and development of properties upon which it will develop and
construct improvements at a fixed contract price, provided that the Partnership
may not invest more than 15% of the net offering proceeds available for
Investment in Properties in properties which are not expected to produce income
within two years of their acquisition. In this regard, the Partnership will be
subject to risks relating to the builder's ability to control construction costs
or to build in conformity with plans, specifications and timetables. The
builder's failure to perform may necessitate legal action by the Partnership to
rescind its purchase or the construction contract or to compel performance.
Performance may also be affected or delayed by conditions beyond the builder's
control. Delays in completion of construction could also give lessees the right
to terminate preconstruction leases for space at a newly developed project.
Additional risks may be incurred where the Partnership makes periodic progress
payments or other advances to such builders prior to completion of construction.
However, the Partnership will make such payments only after having received a
certification from an independent architect or an independent engineer, or both,
as to the percentage of the project which has been completed and as to the
dollar amount of the construction then completed. Factors such as those
discussed above can result in increased costs of a project and a corresponding
depletion of the Partnership's working capital reserves or loss of the
Partnership's investment. In addition, the Partnership will be subject to normal
lease-up risks relating to newly constructed projects. Furthermore, the price to
be paid for a property upon which improvements are to be constructed or
completed, which price is normally agreed upon at the time of acquisition, of
necessity must be based upon projections of rental income and expenses or fair
market value of the property upon completion of construction which are not
certain until after a number of months of actual operation.
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RISKS RESULTING FROM COMPETITION. The Partnership will experience
competition for real property investments from individuals, corporations and
bank and insurance company investment accounts, as well as other real estate
investment partnerships and other entities engaged in real estate investment
activities. Competition for investments may have the effect of increasing costs
and reducing returns to Limited Partners.
POTENTIAL ADVERSE EFFECTS OF DELAYS IN INVESTMENTS. Delays which may take
place in the selection, acquisition and development of properties could
adversely affect the return to an investor as a result of corresponding delays
in the commencement of distributions to Limited Partners holding Class A Status
Units and in the availability to the holders of Class B Status Units of income
tax deductions for depreciation, amortization and cost recovery. Also, where
properties are acquired prior to the commencement of construction or during the
early stages of construction, it will typically take several months to complete
construction and rent available space.
UNCERTAINTY OF MARKET CONDITIONS ON FUTURE DISPOSITION OF PROPERTIES.
The General Partners intend to sell properties acquired for development after
holding such properties for a minimum period of eight years from the date the
development is completed, and intend to sell existing income-producing
properties within eight to twelve years after their acquisition, or as soon
thereafter as market conditions permit. It is impossible to predict with any
certainty the various market conditions affecting real estate investments which
will exist at any particular time in the future. Due to the uncertainty of
market conditions which may affect the future disposition of the Partnership's
properties, there are no assurances that the Partnership will be able to sell
its properties at a profit in the future. Accordingly, the extent to which
Limited Partners will receive cash distributions and realize potential
appreciation on real estate investments will be dependent upon fluctuating
market conditions.
ENVIRONMENTAL MATTERS. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the cost of removal or remediation
of hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances.
Environmental laws also may impose restrictions on the manner in which property
may be used or businesses may be operated, and these restrictions may require
expenditures. Environmental laws provide for sanctions in the event of
noncompliance and may be enforced by governmental agencies or, in certain
circumstances, by private parties. In connection with the acquisition and
ownership of the Partnership Properties, the Partnership may be potentially
liable for such costs. The cost of defending against claims of liability, of
compliance with environmental regulatory requirements or of remediating any
contaminated property could materially adversely affect the business, assets or
results of operations of the Partnership and, consequently, amounts available
for distribution to the Limited Partners.
FEDERAL INCOME TAX RISKS
An investment in Units involves certain material income tax risks, the
character and extent of which are, to some extent, a function of whether an
investor elects Class A Status or Class B Status. Each prospective purchaser of
Units is urged to consult with his own tax advisor with respect to the federal
(as well as state and foreign) tax consequences of an investment in either class
of Units. The Partnership will not seek any rulings from the Internal Revenue
Service (the "IRS") regarding any of the tax issues discussed herein. Although,
as described in the "FEDERAL INCOME TAX CONSEQUENCES" section of this
Prospectus, the Partnership has obtained an opinion from Branch, Pike & Ganz and
a supplemental opinion (as supplemented, the "Tax Opinion") from Holland &
Knight (successor by merger to Branch, Pike & Ganz) ("Counsel") regarding the
material federal income tax issues relating to an investment in the Partnership,
investors should be aware that an opinion of Counsel represents only Counsel's
best legal judgment. The Tax Opinion has no binding effect on the IRS or any
court, is based upon representations and assumptions referred to therein and is
conditioned upon the existence of certain facts. No assurance can be given that
the conclusions reached in the Tax Opinion, if contested, would be sustained by
any court. In addition, as set forth below, Counsel in the Tax Opinion is unable
to form an opinion as to the probable outcome of certain material tax aspects of
the transactions described in this Prospectus if challenged by the IRS,
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litigated and judicially decided. Moreover, Counsel in the Tax Opinion gives no
opinion or conclusion as to the tax consequences to Limited Partners with regard
to tax issues which impact at the individual or partner level. Accordingly,
potential investors are urged to consult with and rely upon their own tax
advisors with respect to tax issues which impact at the partner or individual
level. (For a more complete discussion of the tax risks and tax consequences
associated with an investment in the Partnership, see "FEDERAL INCOME TAX
CONSEQUENCES.")
RISK OF FAILURE OF COUNSEL TO FORM AN OPINION ON CERTAIN MATERIAL TAX
ISSUES. As set forth above, Counsel in the Tax Opinion is unable to form an
opinion as to the probable outcome of certain material tax aspects of the
transactions described in this Prospectus if challenged by the IRS, litigated
and judicially decided, including (i) the deductibility of and timing of
deductions for certain payments made by the Partnership, (ii) the issue of
whether the Partnership will be considered to hold any or all of its properties
primarily for sale to customers in the ordinary course of business, and (iii)
whether the Partnership will be classified as a "tax shelter" for purposes of
determining certain potential exemptions from the applicability of the accuracy-
related penalty provisions of the Code. An adverse outcome of an IRS challenge
to one or more of the foregoing material tax issues attributable to the
transactions contemplated by the Partnership could have the effect of reducing
returns to Limited Partners from an investment in the Partnership.
POTENTIAL ADVERSE INCOME TAX EFFECTS RELATING TO LIMITED PARTNERS HOLDING
CLASS A STATUS UNITS. Since items of depreciation, amortization and cost
recovery will be specially allocated to Limited Partners holding Class B Status
Units, while Partnership Net Income (defined in the Partnership Agreement to
mean generally the net income of the Partnership for federal income tax
purposes, including any income exempt from tax, but excluding all deductions for
depreciation, amortization and cost recovery and Gain on Sale) in excess of
distributions of Net Cash From Operations will be allocated to the Limited
Partners on a per Unit basis, Limited Partners holding Class A Status Units may
be allocated Net Income, and thus be subject to income tax liability, without
receiving any distributions of Net Cash From Operations from the Partnership.
Furthermore, it is likely that Limited Partners holding Class A Status Units
will be allocated taxable Net Income in excess of any distributions of Net Cash
From Operations to such Limited Partners. Such adverse income tax effects to
Limited Partners holding Class A Status Units may vary significantly depending
on the ratio of Class A Status Units to Class B Status Units outstanding. As set
forth above, there are no restrictions as to the mix of Class A Status Units to
Class B Status Units, and the General Partners will not attempt to establish or
maintain any particular ratio.
RISK OF LOSS OF PARTNERSHIP TAX STATUS. Even though Counsel in the Tax
Opinion has given its opinion that it is more likely than not that the
Partnership will be classified as a partnership for federal income tax purposes
and not as an association taxable as a corporation, this opinion is based upon
certain representations made by the General Partners and other matters, and it
is possible that the IRS could challenge the conclusion that the Partnership
should be treated as a partnership for tax purposes. Any contest by the
Partnership of such an IRS determination may impose representation expenses
payable from Partnership funds otherwise available for investment or
distribution to Limited Partners. The ability to obtain the income tax
attributes anticipated from an investment in Units of the Partnership depends
upon the classification of the Partnership as a partnership for federal income
tax purposes and not as an association taxable as a corporation. If the
Partnership were reclassified as an association taxable as a corporation, its
net income would be taxable (at rates up to 35% under current tax law), all
items of income, gain, loss, deduction and credit would be reflected only on its
tax returns and would not be passed through to the Limited Partners, and
distributions to the Limited Partners would be treated as ordinary dividend
income to the extent of earnings and profits of the Partnership. In such event,
cash distributions to Limited Partners would be reduced and the potential tax
liability of Limited Partners with respect to distributions received from the
Partnership would be increased.
RISK OF PUBLICLY TRADED PARTNERSHIP CLASSIFICATION. Even though Counsel in
the Tax Opinion has given its opinion that it is more likely than not that the
Partnership will not be classified as a "publicly traded partnership" (generally
a partnership whose interests are publicly traded or frequently transferred)
based in part upon certain
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representations of the General Partners and the provisions in the Partnership
Agreement attempting to comply with certain safe harbor provisions adopted by
the IRS, due to the complex nature of such safe harbor provisions and the lack
of interpretive guidance with respect to such provisions and because any
determination in this regard will necessarily be based upon future facts not yet
in existence at this time, no assurances can be given that the IRS will not
challenge this conclusion in the future or that the Partnership will not, at
some time in the future, be treated as a publicly traded partnership.
Classification of the Partnership as a "publicly traded partnership" could
result in the Partnership being taxable as a corporation and the treatment of
net income of the Partnership as portfolio income rather than passive income.
LIMITATIONS ON DEDUCTIBILITY OF LOSSES. Provisions of the Code enacted as
part of the Tax Reform Act of 1986 limit the allowance of deductions for losses
attributable to "passive activities" (generally activities in which the taxpayer
does not materially participate). Since tax losses from the Partnership, if any,
allocated to Limited Partners holding Class B Status Units will be characterized
as passive losses, the deductibility of such losses will be subject to these and
other limitations.
RISK OF CHALLENGE TO ALLOCATIONS OF PROFIT AND LOSS. Even though Counsel
in the Tax Opinion has given its opinion that it is more likely than not that
Partnership items of income, gain, loss, deduction and credit will be allocated
among the General Partners and the Limited Partners substantially in accordance
with the allocation provisions of the Partnership Agreement, no assurance can be
given that the IRS will not successfully challenge the allocations in the
Partnership Agreement and reallocate items of income, gain, loss, deduction and
credit in a manner which reduces the anticipated tax benefits to Limited
Partners electing Class B Status or increases the income allocated to Limited
Partners electing Class A Status.
RISK OF POTENTIAL DEALER STATUS. In the event the Partnership were deemed
for tax purposes to be a "dealer" (one who holds property primarily for sale to
customers in the ordinary course of business) with respect to one or more
Partnership Properties, any gain recognized upon a sale of such real property
would be taxable as ordinary income and would constitute UBTI to Limited
Partners who are tax-exempt entities. Because the issue is dependent upon facts
which will not be known until the time a property is sold or held for sale,
Counsel in the Tax Opinion is unable to render an opinion as to whether the
Partnership will be considered to hold any or all of its properties primarily
for sale to customers in the ordinary course of business.
RISKS REGARDING DEDUCTIBILITY OF FEES AND EXPENSES PAID BY THE PARTNERSHIP.
Disallowance by the IRS of any material portion of the fees and expenses payable
by the Partnership would result in an increase in the taxable income of the
Partnership and its Partners with no associated increase in Net Cash From
Operations. Since the appropriate classification of fees and expenses paid by
the Partnership into proper categories and the determination of whether certain
fees and expenses are ordinary and necessary and reasonable in amount depends
upon facts relating to and existing at the times the services are to be rendered
to the Partnership, Counsel in the Tax Opinion is unable to render an opinion as
to the probable outcome if the IRS were to challenge the deductibility or timing
of deduction or amortization of those fees and expenses.
RISK OF TAXABLE INCOME WITHOUT CASH DISTRIBUTIONS. A partner in a
partnership is required to report his allocable share of the partnership's
taxable income on his personal income tax return regardless of whether or not he
has received any cash distributions from the partnership. For example, a Limited
Partner electing Class A Status who participates in the Distribution
Reinvestment Plan will be allocated his share of the Partnership's Net Income
and Gain on Sale (including Net Income and Gain on Sale allocable to Units
acquired pursuant to the Distribution Reinvestment Plan) even though such
Partner would receive no cash distributions from the Partnership.
RISKS REGARDING CHARACTERIZATION OF SALE-LEASEBACK TRANSACTIONS. In the
event that the Partnership enters into any sale-leaseback transaction which is
characterized as a financing, the Partnership would likely lose depreciation and
cost recovery deductions with respect to the property purchased and income
generated from such property would be deemed portfolio income which could not be
offset by passive losses. Although the General
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Partners will use their best efforts to structure any such sale-leaseback
transaction such that the lease will be characterized as a "true lease" and the
Partnership will be treated as the owner of the property in question for federal
income tax purposes, the Partnership will not seek an advance ruling from the
IRS or obtain an opinion of counsel that it will be treated as the owner of any
leased properties for federal income tax purposes. Accordingly, no assurance can
be given that any such transaction would not be recharacterized as a financing
transaction for federal income tax purposes, which would have the result of
depriving Limited Partners holding Class B Status Units of potential deductions
for depreciation and cost recovery with respect to the property in question.
RISK OF APPLICABILITY OF ANTI-ABUSE RULES. In December 1994, the IRS
adopted Regulations setting forth "anti-abuse" rules under Code provisions
applicable to partnerships which rules authorize the Commissioner of Internal
Revenue to recast transactions involving the use of partnerships to either
reflect the underlying economic arrangement or to prevent the use of a
partnership to circumvent the intended purpose of a provision of the Code. These
rules generally apply to all transactions relating to a partnership occurring on
and after May 12, 1994, and thus would be applicable to the Partnership's
activities. In this regard, the General Partners are unaware of any facts or
circumstances which would cause the IRS to exercise its authority to recast any
transaction entered into by the Partnership; however, the applicability of such
rules to the Partnership's activities is very uncertain, and no assurance can be
given that the Commissioner would not, in the future, attempt to recast or
restructure certain of the Partnership's activities or transactions.
RISK OF APPLICABILITY OF ALTERNATIVE MINIMUM TAX. The application of the
alternative minimum tax to a Limited Partner could reduce certain tax benefits
associated with the purchase of Units in the Partnership. The effect of the
alternative minimum tax upon a Limited Partner depends upon his particular
overall tax situation, and each Limited Partner should consult with and must
rely upon his own tax advisor with respect to the possible application of the
alternative minimum tax provisions of the Code.
AUDIT RISK, INTEREST AND PENALTIES. The federal income tax returns of the
Partnership may be audited by the IRS. In this regard, the Commissioner of
Internal Revenue has recently announced that increased emphasis is being placed
on partnership audit activities. Any audit of the Partnership could also result
in an audit of a Limited Partner's own tax return causing adjustments of items
unrelated to an investment in the Partnership, as well as an adjustment to
various Partnership items. In the event of any such adjustments, a Limited
Partner might incur attorneys' fees, court costs and other expenses contesting
protested deficiencies asserted by the IRS, in addition to interest on the
underpayment and certain penalties from the date the tax originally was due. In
addition, in the event of an audit, the tax treatment of all Partnership items
would be determined at the Partnership level in a single proceeding rather than
in separate proceedings with each Partner, and the General Partners are
primarily responsible for contesting federal income tax adjustments proposed by
the IRS. In this connection, the General Partners may extend the statute of
limitations as to all Partners and, in certain circumstances, may bind the
Limited Partners to a settlement with the IRS.
RISKS REGARDING STATE AND LOCAL TAXATION AND REQUIREMENTS TO WITHHOLD
STATE TAXES. The state in which a Limited Partner is a resident may impose an
income tax upon his share of taxable income of the Partnership. Further, states
in which the Partnership will own Partnership Properties may impose income taxes
upon a Limited Partner's share of the Partnership's taxable income allocable to
any Partnership Property located in that state. In addition, many states have
implemented or are implementing programs to require partnerships to withhold and
pay state income taxes owed by non-resident partners relating to income-
producing properties located in their states, and the Partnership may be
required to withhold state taxes from cash distributions otherwise payable to
Limited Partners. In the event the Partnership is required to withhold state
taxes from cash distributions otherwise payable to Limited Partners, the amount
of the Net Cash From Operations otherwise payable to such Limited Partners may
be reduced. In addition, such collection and filing requirements at the state
level may result in increases in the Partnership's administrative expenses which
would have the effect of reducing cash available for distribution to the Limited
Partners. Prospective Limited Partners are urged to consult with their own tax
advisors with respect to the impact of applicable state and local taxes and
state tax withholding requirements on an investment in the Partnership.
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RISK OF LEGISLATIVE OR REGULATORY ACTION. In recent years, numerous
legislative, judicial and administrative changes have been made in the
provisions of the federal income tax laws applicable to investments similar to
an investment in Units in the Partnership. Such changes are likely to continue
to occur in the future, and no assurances can be given that any such changes
will not adversely affect the taxation of a Limited Partner.
Any such changes could have an adverse effect on an investment in
Units in the Partnership. In addition, any legislative, regulatory or
administrative changes or proposals for change could adversely impact the market
value and the resale potential of Partnership Properties. Each potential
investor is urged to consult with his own tax advisor with respect to the status
of legislative, regulatory or administrative developments and proposals and
their potential effect on an investment in the Units. It should also be noted
that the Tax Opinion assumes that no legislation will be enacted which will be
applicable to an investment in Units in the Partnership. Prospective Limited
Partners should be aware that legislation could be enacted which would have the
effect of reducing the value of properties acquired by the Partnership and,
consequently, adversely affecting the value of an investment in Units.
RISKS RELATING TO RETIREMENT PLAN INVESTORS
In considering an investment in Units of a portion of the assets of a
Retirement Plan, the plan fiduciary should consider applicable provisions of the
Code and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including in particular the following factors: (i) whether the
investment is made in accordance with the plan documents and instruments
governing such plan, and the plan's investment policy; (ii) whether the
investment satisfies the prudence and diversification requirements of Sections
404(a)(1)(B) and 404(a)(1)(C) of ERISA; (iii) whether the investment will result
in sufficient liquidity for the plan; (iv) the need to value the assets of the
plan annually; and (v) whether the investment would constitute a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code. For a more
complete discussion of the foregoing issues and other risks associated with an
investment in the Units by Retirement Plans, see "INVESTMENT BY TAX-EXEMPT
ENTITIES AND ERISA CONSIDERATIONS."
PLAN ASSETS RISK. While the General Partners do not intend that the assets
of the Partnership will be deemed to be assets of the Qualified Plans investing
as Limited Partners ("Plan Assets") and have used their best efforts to
structure the Partnership so that the assets of the Partnership will not be
deemed to be Plan Assets, in the event that the assets of the Partnership were
deemed to be Plan Assets, the General Partners would be considered to be plan
fiduciaries and certain contemplated transactions described herein may be deemed
to be "prohibited transactions" subject to excise taxation under the Code.
Additionally, if the assets of the Partnership were deemed to be Plan Assets,
the standards of prudence and other provisions of ERISA would extend (as to all
plan fiduciaries) to the General Partners with respect to investments made by
the Partnership. The Partnership has not requested an opinion of counsel
regarding whether or not the assets of the Partnership would constitute Plan
Assets under ERISA nor has it obtained or sought any rulings from the U.S.
Department of Labor regarding classification of the Partnership's assets as Plan
Assets. However, existing U.S. Department of Labor Regulations defining Plan
Assets for purposes of ERISA contain exemptions from the treatment of assets of
a limited partnership as Plan Assets. While there can be no assurance that the
Agreement and the Offering have been structured so that the exemptions in such
regulations would apply to the Partnership, the General Partners intend to use
their best efforts to take such actions as may be required to insure that the
assets of the Partnership will not be deemed to be Plan Assets. Accordingly, an
investment by a Qualified Plan in Units should not be deemed an investment in
the assets of the Partnership, but no representations or warranties of any kind
can be made regarding the consequences of an investment in Units by Qualified
Plans in this regard. Plan fiduciaries are urged to consult with and rely upon
their own advisors with respect to ERISA issues which, if decided adversely to
the Partnership, could result in prohibited transactions, the imposition of
excise taxation and the imposition of co-fiduciary liability under the
provisions of ERISA in the event of actions undertaken by the Partnership which
are deemed to be non-prudent investments or prohibited transactions. In the
event the Partnership's assets constitute Plan Assets or certain transactions of
the Partnership constitute "prohibited transactions" under ERISA or the Code and
no exemption for such transactions is obtainable by the Partnership, the General
Partners have the right, but not the obligation (upon notice to all
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Limited Partners, but without the consent of any Limited Partner), to terminate
the Offering of Units or to compel a termination and dissolution of the
Partnership or restructure the Partnership's activities to the extent necessary
to comply with any exception in the Department of Labor Regulations or any
prohibited transaction exemption granted by the Department of Labor or any
condition which the Department of Labor might impose as a condition to granting
a prohibited transaction exemption. (See "INVESTMENT BY TAX-EXEMPT ENTITIES AND
ERISA CONSIDERATIONS.")
RISKS RELATING TO MINIMUM DISTRIBUTION REQUIREMENTS. Any potential
investor who intends to purchase Units in his Individual Retirement Account
("IRA") and any trustee of an IRA or other fiduciary of a Retirement Plan
considering an investment in Units should consider particularly the limited
liquidity of an investment in the Units as it relates to applicable minimum
distribution requirements under the Code. If the Units are still held and the
Partnership Properties have not yet been sold at such time as mandatory
distributions are required to commence to an IRA beneficiary or Qualified Plan
participant, applicable provisions of the Code and Regulations will likely
require that a distribution in kind of the Units be made to the IRA beneficiary
or Qualified Plan participant. Any such distribution in kind of Units must be
included in the taxable income of the IRA beneficiary or Qualified Plan
participant for the year in which the Units are received at the fair market
value of the Units without any corresponding cash distributions with which to
pay the income tax liability arising out of any such distribution.
UNRELATED BUSINESS TAXABLE INCOME ("UBTI"). The Partnership will under no
circumstances incur indebtedness to acquire Partnership Properties. Accordingly,
it is not intended or anticipated that the Partnership will generate income
derived from an unrelated trade or business, which is generally referred to as
"UBTI." Notwithstanding the foregoing, the General Partners have limited
authority to borrow funds deemed necessary to finance improvements of its
properties to protect capital previously invested in a property, to protect the
value of the Partnership's investment in a property, or to make a property more
attractive for sale or lease; however, the General Partners have represented
that they will not cause the Partnership to incur indebtedness unless the
Partnership obtains an opinion of counsel that the proposed indebtedness more
likely than not will not cause the income of the Partnership to be characterized
as UBTI. It should be noted, however, that an opinion of counsel has no binding
effect on the IRS or any court and, accordingly, although the General Partners
will use their best efforts to avoid characterization of the Partnership's
income as UBTI, some risk remains that the Partnership may generate UBTI in
connection with any such financing (or in the event that the Partnership were
deemed to be a "dealer" in real property (one who holds real estate primarily
for sale to customers in the ordinary course of business)). (See "FEDERAL INCOME
TAX CONSEQUENCES -- Investment by Qualified Plans and Other Tax-Exempt
Entities.")
WHO SHOULD INVEST -- SUITABILITY STANDARDS
Investment in the Partnership involves some degree of risk. It may be
difficult to resell Units due to the restrictions on transferability contained
in the Partnership Agreement and because no public market for the Units
currently exists or is likely to develop. Investors who are able to sell their
Units at all will likely be able to sell such Units only at a discount. (See
"SUMMARY OF THE PARTNERSHIP AGREEMENT -- Limited Transferability of Units.") In
addition, it is contemplated that properties to be purchased by the Partnership
will be held for at least eight years. Accordingly, the Units are suitable only
for persons who have adequate financial means and desire a relatively long-term
investment with respect to which they do not anticipate any need for immediate
liquidity. Further, because the Class A Status Units and the Class B Status
Units have different rights and priorities with respect to tax allocations and
cash distributions from operations and on sale of the Partnership Properties,
prospective investors should consider carefully the information set forth under
"DESCRIPTION OF THE UNITS" in determining whether to elect Class A Status or
Class B Status, or some combination of each, with respect to the Units to be
purchased.
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<PAGE>
If the investor is an individual (including an individual beneficiary of a
purchasing IRA), or if the investor is a fiduciary (such as a trustee of a trust
or corporate pension or profit sharing plan, or other tax-exempt organization,
or a custodian under a Uniform Gifts to Minors Act), such individual or
fiduciary, as the case may be, must represent that he meets certain
requirements, as set forth in the Subscription Agreement attached as Exhibit "C"
to this Prospectus, including the following:
(i) that such individual (or, in the case of a fiduciary, that the
fiduciary account or the donor who directly or indirectly supplies the funds to
purchase the Units) has a minimum annual gross income of $45,000 and a net worth
(excluding home, furnishings and automobiles) of not less than $45,000; or
(ii) that such individual (or, in the case of a fiduciary, that the
fiduciary account or the donor who directly or indirectly supplies the funds to
purchase the Units) has a net worth (excluding home, furnishings and
automobiles) of not less than $150,000.
Transferees will also be required to comply with applicable standards,
except for intra-family transfers and transfers made by gift, inheritance or
family dissolution. In the case of purchases of Units by fiduciary accounts in
California, the suitability standards must be met by the beneficiary of the
account or, in those instances where the fiduciary directly or indirectly
supplies the funds for the purchase of Units, by such fiduciary.
The minimum purchase is 100 Units ($1,000) (except in certain states as
described below). No transfers will be permitted of less than the minimum
required purchase, nor (except in very limited circumstances) may an investor
transfer, fractionalize or subdivide such Units so as to retain less than such
minimum number thereof. For purposes of satisfying the minimum investment
requirement for Retirement Plans, unless otherwise prohibited by state law, a
husband and wife may jointly contribute funds from their separate Individual
Retirement Accounts ("IRAs"), provided that each such contribution is made in
increments of at least $25. It should be noted, however, that an investment in
the Partnership will not, in itself, create a Retirement Plan for any investor
and that, in order to create a Retirement Plan, an investor must comply with all
applicable provisions of the Code. Except in Maine, Minnesota and Washington,
investors who have satisfied the minimum purchase requirements and have
purchased units in Prior Wells Public Programs may purchase less than the
minimum number of Units set forth above, but in no event less than 2.5 Units
($25). After an investor has purchased the minimum investment, any additional
investments must be made in increments of at least 2.5 Units ($25), except for
(i) those made by investors in Maine, who must still meet the minimum investment
requirement for Maine residents of $1,000 for IRAs and $2,500 for non-IRAs, and
(ii) purchases of Units pursuant to the Distribution Reinvestment Plan, which
may be in lesser amounts.
Various states have established suitability standards for individual
investors and subsequent transferees different from those set by the
Partnership. Those requirements are set forth below.
ARIZONA - Investors shall have either (i) a net worth (excluding home,
furnishings and automobiles) of at least $225,000, or (ii) a net worth
(excluding home, furnishings and automobiles) of at least $60,000 and current
annual gross income of at least $60,000.
CALIFORNIA - California requires the following legend to be placed on
each certificate evidencing the Units:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
20
<PAGE>
IOWA - A husband and wife may not jointly contribute funds from their
separate IRAs in satisfaction of the minimum investment requirement. IRAs
investing in the Partnership must purchase a minimum of 250 Units ($2,500).
MAINE - Investors shall have either (i) current annual gross income of at
least $50,000 and a net worth (excluding home, furnishings and automobiles) of
at least $50,000, or (ii) a net worth (excluding home, furnishings and
automobiles) of at least $200,000.
A husband and wife may not jointly contribute funds from separate IRAs in
satisfaction of the minimum investment requirement. Investors must satisfy the
minimum purchase requirements whether or not they were also investors in Prior
Wells Public Programs.
Investors other than IRAs must purchase a minimum of 250 Units ($2,500).
MASSACHUSETTS - Investors shall have either (i) a net worth (excluding
home, furnishings and automobiles) of at least $225,000, or (ii) a net worth
(excluding home, furnishings and automobiles) of at least $60,000 and current
annual gross income of at least $60,000.
MICHIGAN - An investor may not invest in excess of 10% of his, her or its
net worth (excluding home, furnishings and automobiles).
MINNESOTA - A husband and wife may not jointly contribute funds from their
separate IRAs in satisfaction of the minimum investment requirement. Investors
must satisfy the minimum purchase requirements whether or not they were also
investors in Prior Wells Public Programs.
Investors other than IRAs and Qualified Plans must purchase a minimum of
250 Units ($2,500). IRAs and Qualified Plans must purchase a minimum of 200
Units ($2,000).
MISSISSIPPI - Investors shall have either (i) current annual gross income
of at least $60,000 and a net worth (excluding home, furnishings and
automobiles) of at least $60,000, or (ii) a net worth (excluding home,
furnishings and automobiles) of at least $225,000.
MISSOURI - Investors shall have either (i) current annual gross income of
at least $60,000 and a net worth (excluding home, furnishings and automobiles)
of at least $60,000, or (ii) a net worth (excluding home, furnishings and
automobiles) of at least $225,000. A husband and wife may not jointly contribute
funds from their separate IRAs in satisfaction of the minimum investment
requirement.
NEBRASKA - Investors other than IRAs, Keogh and Qualified Plans must
purchase a minimum of 500 Units ($5,000). Investments in additional Units
pursuant to the Distribution Reinvestment Plan must be made in minimum amounts
of $50 in any one year and must be made through a Nebraska registered broker-
dealer.
Investors who require assistance in completing the Subscription Agreement
should not contact Wells Investment Securities, Inc., as directed on page C-6 of
the Subscription Agreement, but should contact a Nebraska registered broker-
dealer.
NEW HAMPSHIRE - Investors shall have either (i) a net worth (excluding
home, furnishings and automobiles) of at least $250,000, or (ii) a net worth
(excluding home, furnishings and automobiles) of at least $125,000 and current
annual gross income of at least $50,000.
NEW YORK - No subscription proceeds from New York investors will be
released from the escrow account until $2,500,000 has been raised in the
Offering. Investors shall have either (i) a net worth (excluding home,
furnishings and automobiles) of at least $50,000 and an annual gross income of
at least $50,000, or (ii) irrespective of annual gross income, a net worth
(excluding home, furnishings and automobiles) of at least $150,000.
21
<PAGE>
The proceeds of this Offering will be received and held in trust for the
benefit of purchasers of Units and will be retained in trust after closing to be
used only for the purposes set forth in the "ESTIMATED USE OF PROCEEDS" section.
Investors other than IRAs must purchase a minimum of 250 Units ($2,500).
NORTH CAROLINA - Investors other than IRAs, Keogh and Qualified Plans must
purchase a minimum of 250 Units ($2,500).
OHIO - Investors other than IRAs must purchase a minimum of 250 Units
($2,500).
OKLAHOMA - A husband and wife may not jointly contribute funds from their
separate IRAs in satisfaction of the minimum investment requirement.
PENNSYLVANIA - Each Pennsylvania investor must meet the added suitability
requirement that such investor has a net worth of ten times the amount of his,
her or its investment in the Partnership. In addition, subscriptions for Units
from Pennsylvania investors will be held in escrow until the Partnership has
raised $2,500,000 from all sources including Pennsylvania investors, and
subscriptions held in such escrow more than 120 days will be returned to
investors unless an investor at the end of each 120 day period chooses to
reinvest.
SOUTH CAROLINA - Investors shall have either (i) a net worth (excluding
home, furnishings and automobiles) of at least $150,000, or (ii) state and
federal income subject to the maximum rate of income tax.
Investors other than IRAs, Keogh and Qualified Plans must purchase a
minimum of 250 Units ($2,500).
SOUTH DAKOTA - Investors shall have either (i) current annual gross
income of at least $60,000 and a net worth (excluding home, furnishings and
automobiles) of at least $60,000, or (ii) a net worth (excluding home,
furnishings and automobiles) of at least $225,000.
TENNESSEE - Investors shall have either (i) current annual gross income
of at least $60,000 and a net worth (excluding home, furnishings and
automobiles) of at least $60,000, or (ii) a net worth (excluding home,
furnishings and automobiles) of at least $225,000.
TEXAS - Investments in additional Units pursuant to the Distribution
Reinvestment Plan must be made through a Texas registered broker-dealer.
WASHINGTON - Investors must satisfy the minimum purchase requirements
whether or not they were also investors in Prior Wells Public Programs.
WISCONSIN - A husband and wife may not jointly contribute funds from
their separate IRAs in satisfaction of the minimum investment requirement.
NET WORTH IN ALL CASES EXCLUDES HOME, FURNISHINGS AND AUTOMOBILES.
By executing the Subscription Agreement and Subscription Agreement
Signature Page (collectively, the "Subscription Agreement"), which is attached
as Exhibit "C" to this Prospectus, an investor represents to the General
Partners that he meets the foregoing applicable suitability standards for the
state in which he resides. The General Partners will not accept subscriptions
from any person or entity which does not represent that it meets such standards.
The General Partners have the unconditional right to accept or reject any
subscription in whole or in part.
22
<PAGE>
The General Partners and each person selling Units on behalf of the
Partnership are required to (i) make reasonable efforts to assure that each
person purchasing Units in the Partnership is suitable in light of such person's
age, educational level, knowledge of investments, financial means and other
pertinent factors and (ii) maintain records for at least six years of the
information used to determine that an investment in Units is suitable and
appropriate for each investor. The agreements with the selling broker-dealers
require such broker-dealers to (i) make inquiries diligently as required by law
of all prospective investors in order to ascertain whether a purchase of the
Units is suitable for the investor, and (ii) transmit promptly to the
Partnership all fully completed and duly executed Subscription Agreements.
DESCRIPTION OF THE UNITS
ELECTION OF CLASS A STATUS OR CLASS B STATUS
Upon subscription for Units being offered hereby, investors must elect
whether such Units will be initially treated as Class A Status Units or Class B
Status Units. Regardless of which class status is selected for the Unit, each
Unit shall have a purchase price of $10.00 per Unit. Class A Status Units and
Class B Status Units entitle the holders thereof to different rights and
priorities as to cash distributions and liquidating distributions and as to the
allocation of deductions for depreciation, amortization, cost recovery and Net
Losses. In all other respects, the Units have the same rights and privileges.
Each Unit, when issued, will be fully paid and nonassessable.
Limited Partners' elections of Class A Status or Class B Status made in
the initial Subscription Agreements shall be effective immediately upon
acceptance. Thereafter, unless prohibited by applicable state law, Limited
Partners have the right to change their prior election to have some or all of
their Units treated as Class A Status Units or Class B Status Units one time
during each quarterly accounting period by mailing or delivering written notice
to the Partnership (executed by the trustee or authorized agent in the case of
Retirement Plans). Any such changed election shall be effective commencing as of
the first day of the next succeeding accounting period following the receipt by
the Partnership of written notice of such election. Any election to have Units
treated as Class A Status Units or Class B Status Units shall be binding upon
the Limited Partner's successors and assigns. Units acquired and held by the
General Partners or their Affiliates shall at all times be treated as Class A
Status Units, and neither the General Partners nor their Affiliates shall have
the right to make an election to have Units beneficially owned by them treated
as Class B Status Units.
As set forth below, holders of Class A Status Units will be entitled to
receive annual distributions of Net Cash From Operations generated by the
Partnership following the payment of certain fees and expenses to the General
Partners and their Affiliates. Because deductions for depreciation,
amortization, cost recovery and Net Losses will initially be allocated to
holders of Class B Status Units, Class A Status Units will be generally more
suitable for investors which are Retirement Plans, including IRAs, or are
otherwise not income tax sensitive and are primarily interested in current
distributions of Net Cash From Operations and the potential appreciation in
value of the Partnership's real estate investments.
Although holders of Class B Status Units will not be allocated any Net
Cash From Operations, they will be allocated a disproportionately larger share
of the Partnership's deductions for depreciation, amortization, cost recovery
and Net Losses, and will be allocated a higher percentage return on the
potential appreciation of the Partnership's real estate investments.
Accordingly, Class B Status Units will be generally more suitable for investors
who are not seeking current cash flow distributions but have a desire to
participate to a greater extent in "passive" losses expected to be generated by
the Partnership's operations or have a desire to participate to a greater extent
in the potential appreciation of the Partnership's real estate investments. (See
"FEDERAL INCOME TAX CONSEQUENCES - Passive Loss Limitations.") Each prospective
investor should carefully consider the following information in the context of
his own particular financial situation in determining whether to elect Class A
Status or Class B Status, or some combination of each.
23
<PAGE>
SUMMARY OF DISTRIBUTIONS
Following is a summary of the Partnership's allocation of current cash
flow distributions and the net proceeds from the sale or exchange of
Partnership Properties:
CASH DISTRIBUTIONS. Distributions of Net Cash From Operations (defined
generally as the Partnership's cash flow from operations less any reserves and
after payment of the 6% property management and leasing fees to Affiliates of
the General Partners) will be distributed as follows:
1. First, to Limited Partners holding Class A Status Units until they
have received distributions in each year equal to 10% of their Net Capital
Contributions (defined in the Partnership Agreement to mean generally Capital
Contributions less prior distributions of Sale Proceeds);
2. Next, to the extent any Net Cash From Operations remains available
for distribution, to the General Partners until they receive an amount equal to
one-tenth of the total amount of Net Cash From Operations distributed in such
year; and
3. Although there can be no assurance that Net Cash From Operations will
be sufficient to make additional distributions, any remaining Net Cash From
Operations will be distributed 90% to Limited Partners holding Class A Status
Units and 10% to the General Partners.
No Net Cash From Operations will be distributed with respect to Class B
Status Units. (See "SUMMARY OF PARTNERSHIP AGREEMENT," "DISTRIBUTIONS AND
ALLOCATIONS" and "RISK FACTORS.")
SALE PROCEEDS. Sale Proceeds (generally the net proceeds from any sale
or exchange of Partnership Properties) will be distributed as follows:
1. First, to Limited Partners holding Units which at any time have been
treated as Class B Status Units in an amount necessary to make up for the
priority distributions of Net Cash From Operations previously paid to Limited
Partners holding Units which at all times have been treated as Class A Status
Units;
2. Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received an amount equal to his Net Capital Contribution (defined in
the Partnership Agreement to mean generally Capital Contributions less prior
distributions of Sale Proceeds);
3. Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received aggregate distributions equal to a cumulative
(noncompounded) 10% per annum return on his Net Capital Contribution;
4. Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received aggregate distributions equal to his Preferential Limited
Partner Return (defined as the sum of (a) a 10% per annum cumulative
(noncompounded) return on his Net Capital Contribution for all periods during
which such Unit was treated as a Class A Status Unit and (b) a 15% per annum
cumulative (noncompounded) return on his Net Capital Contribution for all
periods during which such Unit was treated as a Class B Status Unit);
5. Then, to the General Partners until they have received an amount
equal to their Capital Contributions plus, in the event that Limited Partners
have received aggregate distributions from the Partnership over the life of
their investment in excess of their Net Capital Contributions plus their
Preferential Limited Partner Return, then and only in such event, the General
Partners shall receive an additional amount equal to 25% of any such excess; and
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<PAGE>
6. Then, to the extent any Sale Proceeds remain, 80% to the Limited
Partners on a per Unit basis and 20% to the General Partners. (However, in no
event shall the General Partners receive in the aggregate in excess of 15% of
Sale Proceeds remaining after payments to Limited Partners from such proceeds of
amounts equal to the sum of their Net Capital Contributions plus a 6% per annum
return on their Net Capital Contributions calculated on a cumulative
(noncompounded) basis. Any such excess amounts otherwise distributable to the
General Partners would instead be reallocated and distributed to the Limited
Partners on a per Unit basis.)
Notwithstanding the foregoing, the amount of Sale Proceeds distributable
to the Limited Partners holding Class B Status Units may be adjusted in favor of
Limited Partners holding Class A Status Units in the event that the Partnership
sells any Partnership Property at a sale price which is less than the purchase
price originally paid for such property. (See "SUMMARY OF PARTNERSHIP
AGREEMENT," "DISTRIBUTIONS AND ALLOCATIONS," "RISK FACTORS" and "FEDERAL INCOME
TAX CONSEQUENCES - Allocations of Profit and Loss.")
NO ASSURANCE CAN BE GIVEN AS TO THE TIMING OR AMOUNT OF ANY CASH
DISTRIBUTIONS TO THE LIMITED PARTNERS. (SEE "RISK FACTORS" and "DISTRIBUTIONS
AND ALLOCATIONS.")
SUMMARY OF ALLOCATIONS
Following is a summary of the allocation of the Partnership's taxable
income, loss and gain on sale of Partnership Properties:
NET INCOME. The Partnership's Net Income (defined generally as the net
income of the Partnership for federal income tax purposes, including any income
exempt from tax, but excluding all deductions for depreciation, amortization and
cost recovery and any net gain on the sale of assets) will be allocated each
year in the same proportions that Net Cash From Operations is distributed to the
Partners. To the extent the Partnership's Net Income in any year exceeds Net
Cash From Operations, such excess Net Income will be allocated 99% to Limited
Partners holding Class A Status Units during such year and 1% to the General
Partners. (See "DISTRIBUTIONS AND ALLOCATIONS" and "FEDERAL INCOME TAX
CONSEQUENCES - Allocations of Profit and Loss.")
NET LOSS, DEPRECIATION, AMORTIZATION AND COST RECOVERY DEDUCTIONS.
Deductions for depreciation, amortization and cost recovery and the
Partnership's Net Loss (defined generally as the net loss of the Partnership for
federal income tax purposes, but excluding all deductions for depreciation,
amortization and cost recovery) for each fiscal year will be allocated as
follows:
1. 99% to Limited Partners holding Class B Status Units during such year
and 1% to the General Partners until their Capital Accounts (defined generally
as the sum of Capital Contributions and income allocated to a Partner less the
sum of distributions paid and losses allocated to a Partner) are reduced to
zero;
2. Then, to any Partner having a positive balance in his Capital Account
in an amount not to exceed such positive balance; and
3. Thereafter, all such deductions will be allocated to the General
Partners, who, at that time, would be the only Partners having any economic risk
of loss. (See "DISTRIBUTIONS AND ALLOCATIONS" and "FEDERAL INCOME TAX
CONSEQUENCES - Allocations of Profit and Loss.")
GAIN ON SALE. Gain on Sale (defined generally as the taxable income or
gain from a sale or exchange of Partnership Properties) will be allocated,
first, pursuant to the qualified income offset provision contained in the
Partnership Agreement, if applicable, then, to Partners having negative capital
accounts, if any, until negative capital
25
<PAGE>
accounts have been restored to zero, and, thereafter, generally in accordance
with the priorities for the distribution of Sale Proceeds, as described above.
(See "DISTRIBUTIONS AND ALLOCATIONS.")
CLASS A STATUS UNITS
As set forth above, Class A Status Limited Partners are entitled to an
annual 10% noncumulative distribution preference as to distributions of Net Cash
From Operations. However, holders of Class A Status Units will, except in
limited circumstances, be allocated none of the Partnership's Net Loss,
depreciation, amortization and cost recovery deductions for tax purposes. Thus,
tax benefits resulting from deductions for Net Loss, depreciation, amortization
and cost recovery will not be available to holders of Class A Status Units
during the initial period of Partnership operations.
On distributions of Sale Proceeds, Class B Status Limited Partners are
first entitled to amounts necessary to make up for the distributions of Net Cash
From Operations previously paid to the holders of Class A Status Units. Then,
both Class A Status Limited Partners and Class B Status Limited Partners are
entitled to an amount equal to their Net Capital Contributions. Then, Class A
Status Limited Partners are entitled to a 10% cumulative (noncompounded) return
on their Net Capital Contributions (as opposed to the 15% cumulative return on
Net Capital Contributions payable to Class B Status Limited Partners). (See
"DISTRIBUTIONS AND ALLOCATIONS.")
CLASS B STATUS UNITS
Class B Status Limited Partners will receive a disproportionately larger
share of Partnership income tax deductions because all of the Limited Partners'
share of Partnership Net Loss, depreciation, amortization and cost recovery
deductions will be allocated to holders of Class B Status Units until their
Capital Account balances have been reduced to zero. Since the allocations of Net
Loss, depreciation, amortization and cost recovery deductions to holders of
Class B Status Units will reduce their Capital Account balances, and since
liquidation proceeds of the Partnership will be distributed among the Partners
in accordance with their Capital Account balances, holders of Class B Status
Units bear substantially greater risk of loss of their Capital Contributions
than do holders of Class A Status Units.
Class B Status Limited Partners will not receive any Net Cash From
Operations. On distributions of Sale Proceeds, since the preferential allocation
of Net Cash From Operations to holders of Class A Status Units is intended to be
a timing preference only, holders of Class B Status Units are entitled to a
preference on the distribution of Sale Proceeds to the extent necessary to make
up for the distributions of Net Cash From Operations previously paid to the
holders of Class A Status Units. Following such distributions to holders of
Class B Status Units, both Class A Status Limited Partners and Class B Status
Limited Partners are entitled to a return of their Net Capital Contributions.
Then, Class B Status Limited Partners are entitled to a 15% cumulative
(noncompounded) return on their Net Capital Contributions (as opposed to the 10%
cumulative return on Net Capital Contributions payable to Class A Limited
Partners). (See "DISTRIBUTIONS AND ALLOCATIONS.")
EFFECT OF CHANGE OF STATUS OF UNITS
As described above, Limited Partners shall have the right to change their
prior election to have some or all of their Units treated as Class A Status
Units or Class B Status Units one time during each accounting period, unless
prohibited by applicable state law. Any such changed election shall be effective
commencing as of the first day of the next succeeding accounting period
following receipt by the Partnership of written notice of such election. A
Limited Partner who changes his Units from Class A Status to Class B Status
will, upon the effective date of such change and until the Limited Partner
changes back to Class A Status, be entitled to a disproportionately larger share
of the Partnership's deductions for depreciation, amortization, cost recovery
and Net Losses, and no longer be entitled to receive annual distributions of Net
Cash From Operations during such period. A Limited Partner who changes his Units
from Class B Status to Class A Status will, from the effective date of such
change until the Limited Partner changes back to Class B Status, be entitled to
receive annual distributions of Net Cash From
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<PAGE>
Operations and no longer be allocated deductions for depreciation, amortization
and cost recovery and Net Loss. Distributions of Sale Proceeds will be prorated
to each Limited Partner based on the number of days during which his Units were
treated as Class A Status Units (and entitled to a return of 10% per annum on
his Net Capital Contribution) and the number days during which such Units were
treated as Class B Status Units (and entitled to a return of 15% per annum on
his Net Capital Contribution).
ESTIMATED USE OF PROCEEDS
The following table sets forth information concerning the estimated use of
the gross proceeds of the Offering of Units made hereby. Many of the figures set
forth below represent the best estimate of the General Partners since they
cannot be precisely calculated at this time. The percentage of the gross
proceeds of the Offering of Units to be invested in Partnership Properties is
estimated to be approximately 81%.
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
---------------- ----------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Gross Offering Proceeds (1) $1,250,000 100% $35,000,000 100%
Less Public Offering Expenses:
Selling Commissions and Dealer Manager Fee (2) 125,000 10% 3,500,000 10%
Organization and Offering Expenses (3) 62,500 5% 1,225,000 3.5%
---------- ---- ----------- -----
Amount Available for Investment (4) $1,062,500 85% $30,275,000 86.5%
========== ==== =========== =====
Acquisition and Development:
Acquisition and Advisory Fees (5) $ 43,750 3.5% $ 1,750,000 5%
Acquisition Expenses (6) 6,250 .5% 175,000 .5%
Initial Working Capital Reserve (7) (7) - (7) -
Amount Invested in Properties (4)(8) $1,012,500 81% $28,350,000 81%
========== ==== =========== =====
</TABLE>
_____________________
(Footnotes to "ESTIMATED USE OF PROCEEDS")
(1) The amounts shown for Gross Offering Proceeds do not reflect the possible
discounts in commissions and other fees as described in "PLAN OF
DISTRIBUTION."
(2) Includes Selling Commissions equal to 8% of aggregate Gross Offering
Proceeds (which commissions may be reduced under certain circumstances) and
a dealer manager fee equal to 2% of aggregate Gross Offering Proceeds, both
of which are payable to the Dealer Manager, an Affiliate of the General
Partners. The Dealer Manager, in its sole discretion, may reallow Selling
Commissions of up to 8% of Gross Offering Proceeds to other broker-dealers
participating in this Offering attributable to the Units sold by them and
may reallow out of its dealer manager fee up to 1% of Gross Offering
Proceeds in marketing fees to broker-dealers participating in this Offering
based on such factors as the volume of Units sold by such participating
broker-dealers, marketing support provided by such participating broker-
dealers and bona fide conference fees incurred. In no event shall the total
underwriting compensation, including Selling Commissions, the dealer
manager fee and expense reimbursements, exceed 10% of Gross Offering
Proceeds, except for an additional .5% of Gross Offering Proceeds which may
be paid as a reimbursement of expenses incurred for due diligence purposes
and which is included in the Organization and Offering Expenses described
in Footnote 3 below. (See "PLAN OF DISTRIBUTION.")
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<PAGE>
(3) Organization and Offering Expenses consist of estimated legal, accounting,
printing and other accountable offering expenses (other than Selling
Commissions and the dealer manager fee) and reimbursements to the General
Partners and their Affiliates for payments to nonaffiliated broker-dealers
of certain bona fide due diligence expenses in an amount not to exceed .5%
of Gross Offering Proceeds. The General Partners and their Affiliates will
be responsible for the payment of Organization and Offering Expenses (other
than Selling Commissions and the dealer manager fee) to the extent they
exceed 5% of Gross Offering Proceeds without recourse against or
reimbursement by the Partnership.
(4) Until required in connection with the acquisition and development of
properties, substantially all of the net proceeds of the Offering and,
thereafter, the working capital reserves of the Partnership, may be
invested in short-term, highly-liquid investments including government
obligations, bank certificates of deposit, short-term debt obligations and
interest-bearing accounts.
(5) The Partnership will pay Acquisition and Advisory Fees to the General
Partners or their Affiliates in connection with the acquisition of the
Partnership's Properties up to a maximum amount of 5% of Gross Offering
Proceeds, provided that the Partnership shall in no event commit less than
80% of Capital Contributions to Investment in Properties, as required under
the NASAA Guidelines.
(6) Includes legal fees and expenses, travel and communication expenses, costs
of appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, title insurance premiums and other closing
costs and miscellaneous expenses relating to the selection, acquisition and
development of Partnership Properties. It is anticipated that substantially
all of such items will be directly related to the acquisition of specific
Partnership Properties and will be capitalized rather than currently
deducted by the Partnership.
(7) Because the Partnership will purchase properties on an all cash basis and
the vast majority of leases for the properties acquired by the Partnership
will provide for tenant reimbursement of operating expenses, it is not
anticipated that a permanent reserve for maintenance and repairs of
Partnership Properties will be established. However, to the extent that the
Partnership has insufficient funds for such purposes, the General Partners
will advance to the Partnership on an interest-free basis an aggregate
amount of up to 1% of Gross Offering Proceeds for maintenance and repairs
of Partnership Properties. The General Partners also may, but are not
required to, establish reserves from Gross Offering Proceeds, out of Cash
Flow generated by operating properties or out of Nonliquidating Net Sale
Proceeds.
(8) Includes amounts anticipated to be invested in Partnership Properties net
of fees and expenses. In no event shall the Partnership commit less than
80% of Capital Contributions to Investment in Properties, as required under
the NASAA Guidelines.
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<PAGE>
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES
The following table summarizes and discloses all of the compensation and
fees (including reimbursement of expenses) to be paid by the Partnership to the
General Partners and their Affiliates during the various phases of the
organization and operation of the Partnership.
<TABLE>
<CAPTION>
Form of Compensation Determination Estimated Maximum
and Entity Receiving of Amount Dollar Amount (1)
- -------------------- --------- -----------------
<S> <C> <C>
Organizational and Offering Stage
Selling Commissions - Up to 8% of Gross Offering Proceeds before reallowance of commissions earned $2,800,000
The Dealer Manager by participating broker-dealers. The Dealer Manager intends to reallow 100% ($100,000 in the
of commissions earned by participating broker-dealers. event the Partner-
ship sells only the
minimum of
125,000 Units)
Dealer Manager Fee - Up to 2% of Gross Offering Proceeds before reallowance to participating $700,000
The Dealer Manager broker-dealers. The Dealer Manager, in its sole discretion, may reallow a ($25,000 in the
portion of its dealer manager fee of up to 1% of the Gross Offering Proceeds event the Partner-
to be paid to such participating broker-dealers as a marketing fee, based on ship sells only the
such factors as the volume of Units sold by such participating minimum of
broker-dealers, marketing support and bona fide conference fees incurred. 125,000 Units)
Reimbursement of Up to 5% of Gross Offering Proceeds. All Organization and Offering Expenses $1,225,000
Organization and Offering (excluding Selling Commissions and the dealer manager fee) will be advanced ($62,500 in the
Expenses - The General by the General Partner and their Affiliates and reimbursed by the event the Partner-
Partners and their Partnership.(2) ship sells only the
Affiliates minimum of
125,000 Units)
Acquisition and Development Stage
Acquisition and Advisory For the review and evaluation of potential real property acquisitions, a fee $1,750,000
Fees - The General Partners of up to 5% of Gross Offering Proceeds, plus reimbursement of costs and (A maximum of
or their Affiliates expenses for the acquisition of properties. $62,500 in the
event the
Partnership sells
only the minimum
of 125,000 Units)
Operational Stage
Property Management and For supervising the management of the Partnership Properties, a fee equal to Actual amounts are
Leasing Fees - Wells the lesser of: (A)(i) in the case of industrial and commercial properties dependent upon
Management Company, which are leased for less than ten years, 3% of the gross revenues for results of operations
Inc. management and 3% of the gross revenues for leasing (aggregate maximum of and therefore
6%), and (ii) in the case of industrial and commercial properties which are cannot be
leased on a long-term net basis (ten or more years), 1% of the gross revenues determined at
plus, in the case of leases to new tenants, initial leasing fees equal to 3% the present time.
of the gross revenues over the first five years of the lease term, or (B) the
amounts charged by unaffiliated persons rendering comparable services in the
same geographic area; plus, a separate fee for the one-time initial rent-up
or leasing-up of newly constructed properties in an amount not to exceed the
fee customarily charged in arm's-length transactions by others rendering
similar services in the same geographic area for similar properties.
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
Share of Net Cash From A noncumulative amount equal to one-tenth of Net Cash From Operations Actual amounts are
Operations - The subordinated in each fiscal year to distributions of Net Cash From Operations dependent upon
General Partners to Limited Partners holding Class A Status Units equal to 10% of their Net results of operations
Capital Contributions. and therefore
cannot be
determined at
the present time.
Liquidation Stage
Subordinated Participation After (i) Limited Partners holding Units which at any time have been treated Actual amounts are
in Nonliquidating Net Sale as Class B Status Units have received amounts necessary to make up for the dependent upon
Proceeds and Liquidating priority distributions of Net Cash From Operations previously paid to Limited results of operations
Distributions - The Partners holding Units which at all times have been treated as Class A Status and therefore
General Partners Units, (ii) Limited Partners have received a return of their Net Capital cannot be
Contributions, and (iii) Limited Partners have received their Preferential determined at
Limited Partner Return, then the General Partners are entitled to receive the the present time.
following amounts: (a) an amount equal to their Capital Contributions, plus
in the event that Limited Partners have received aggregate distributions from
the Partnership over the life of their investment in excess of their Net
Capital Contribution plus their Preferential Limited Partner Return, then and
only in such event, an amount equal to 25% of any such excess, and (b) 20% of
remaining Residual Proceeds available for distribution; provided, however,
that in no event will the General Partners receive in the aggregate more than
15% of Sale Proceeds remaining after Limited Partners have received a return
of their Net Capital Contributions plus a 6% per annum cumulative
(noncompounded) return on their Net Capital Contributions. (See Sections
9.2, 9.3 and 9.4 of the Partnership Agreement.)
Real Estate Commissions - In connection with the sale of Partnership Properties, an amount not Actual amounts are
The General Partners or exceeding the lesser of: (A) 50% of the reasonable, customary and dependent upon
Their Affiliates competitive real estate brokerage commissions customarily paid for the sale results of operations
of a comparable property in light of the size, type and location of the and therefore
property, or (B) 3% of the gross sales price of each property, subordinated cannot be
to distributions to Limited Partners from Sale Proceeds of an amount which, determined at
together with prior distributions to the Limited Partners, will equal (i) the present time.
100% of their Capital Contributions plus (ii) a 6% per annum cumulative
(noncompounded) return on their Net Capital Contributions. (See Section 12.6
of the Partnership Agreement.)
</TABLE>
____________________
(Footnotes to "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES")
(1) The estimated maximum dollar amounts are based on the sale of a maximum
of 3,500,000 Units.
(2) Wells Real Estate Fund VIII, L.P. ("Wells Fund VIII") and the Partnership
registered with the Securities and Exchange Commission and certain states
under the same Registration Statement, and in connection therewith, Wells
Fund VIII has previously paid certain organization, registration and
offering expenses relating to both offerings. Accordingly, it is
anticipated that the Partnership will reimburse Wells Fund VIII for its pro
rata share of such expenses, subject to the 5% of Gross Offering Proceeds
limitation.
In addition, the General Partners and their Affiliates will be reimbursed
only for the actual cost of goods, services and materials used for or by the
Partnership as set forth in Section 11.4 of the Partnership Agreement. The
General Partners may be reimbursed for the administrative services necessary to
the prudent operation of the Partnership provided that the reimbursement shall
be at the lower of the General Partners' actual cost or the amount the
Partnership would be required to pay to independent parties for comparable
administrative services in the same geographic location. No payment or
reimbursement will be made for services for which the General Partners are
entitled to compensation by way of a separate fee. Excluded from allowable
reimbursement shall be: (i) rent or depreciation, utilities, capital equipment,
other administrative items; and (ii) salaries, fringe benefits, travel expenses
30
<PAGE>
and other administrative items incurred by or allocated to any controlling
persons of the General Partners or their Affiliates.
Since the General Partners and their Affiliates are entitled to differing
levels of compensation for undertaking different transactions on behalf of the
Partnership, such as the property management fees for operating the Partnership
Properties and the subordinated participation in proceeds from the sale of
Partnership Properties, the General Partners have the ability to affect the
nature of the compensation they receive by undertaking different transactions.
However, the General Partners are obligated to exercise good faith and integrity
in all their dealings with respect to Partnership Affairs pursuant to their
fiduciary duties to the Limited Partners. (See "FIDUCIARY DUTY OF THE GENERAL
PARTNERS.") As noted above, there are ceilings on certain categories of fees or
expenses payable to the General Partners and their Affiliates. Because these
fees or expenses are payable only with respect to certain transactions or
services, they may not be recovered by the General Partners or their Affiliates
by reclassifying them under a different category.
CONFLICTS OF INTEREST
The Partnership is subject to various conflicts of interest arising out of
its relationship with the General Partners and their Affiliates, including
conflicts related to the arrangements pursuant to which the General Partners and
their Affiliates will be compensated by the Partnership. (See "COMPENSATION OF
THE GENERAL PARTNERS AND AFFILIATES.")
The General Partners of the Partnership are Leo F. Wells, III and Wells
Partners, L.P., a Georgia limited partnership having Wells Capital, Inc., a
Georgia corporation, as its sole general partner. Leo F. Wells, III owns all of
the outstanding capital stock of Wells Capital, Inc., Wells Investment
Securities, Inc. (the Dealer Manager), and Wells Management Company, Inc. (the
Property Manager). (See "MANAGEMENT.")
The following chart indicates the relationship between the General Partners
and their Affiliates which will be providing services to the Partnership.
================================================================================
LEO F. WELLS, III
(GENERAL PARTNER)
================================================================================
100% 100% 100%
=================== ========================= ================================
WELLS CAPITAL, INC. WELLS INVESTMENT WELLS MANAGEMENT
SECURITIES, INC. COMPANY, INC.
(DEALER MANAGER) (PROPERTY MANAGER)
=================== ========================= ===============================
General Partner
=========================
WELLS PARTNERS, L.P.
(GENERAL PARTNER)
=========================
Because the Partnership was organized and will be operated by the
General Partners, these conflicts will not be resolved through arm's-length
negotiations but through the exercise of the General Partners' judgment
31
<PAGE>
consistent with their fiduciary responsibility to the Limited Partners and the
Partnership's investment objectives and policies. (See "FIDUCIARY DUTY OF THE
GENERAL PARTNERS" and "INVESTMENT OBJECTIVES AND CRITERIA.") These conflicts
include, but are not limited to, the following:
1. INTERESTS IN OTHER PARTNERSHIPS. The General Partners and their
Affiliates are also general partners of other real estate limited partnerships,
including partnerships which have investment objectives similar to those of the
Partnership, and it is expected that they will organize other such partnerships
in the future. The General Partners and such Affiliates have legal and financial
obligations with respect to these other partnerships which are similar to their
obligations to the Partnership. As general partners, they may have contingent
liability for the obligations of such partnerships as well as those of the
Partnership which, if such obligations were enforced against the General
Partners, could result in substantial reduction of the net worth of the General
Partners.
As described in the "PRIOR PERFORMANCE SUMMARY," the General Partners have
sponsored the following nine other public partnerships with substantially
identical investment objectives as those of the Partnership: (i) Wells Real
Estate Fund I ("Wells Fund I"), (ii) Wells Real Estate Fund II ("Wells Fund
II"), (iii) Wells Real Estate Fund II-OW ("Wells Fund II-OW"), (iv) Wells Real
Estate Fund III, L.P. ("Wells Fund III"), (v) Wells Real Estate Fund IV, L.P.
("Wells Fund IV"), (vi) Wells Real Estate Fund V, L.P. ("Wells Fund V"), (vii)
Wells Real Estate Fund VI, L.P. ("Wells Fund VI"), (viii) Wells Real Estate Fund
VII, L.P. ("Wells Fund VII") and (ix) Wells Real Estate Fund VIII, L.P. ("Wells
Fund VIII"). All of the proceeds of the offerings of Wells Fund I, Wells Fund
II, Wells Fund II-OW, Wells Fund III, Wells Fund IV and Wells Fund V available
for investment in real properties have been invested. In addition, all of the
proceeds of the offerings of Wells Fund VI and Wells Fund VII available for
investment in real properties have either been invested in properties or are
currently committed for investment in properties. As of October 31, 1995,
approximately 50% of the proceeds of the offering of Wells Fund VIII available
for investment in real properties had either been invested in properties or were
committed for investment in properties.
In the event that the Partnership, the General Partners or any Affiliate or
any entity formed or managed by the General Partners or their Affiliates is in
the market for similar properties, the General Partners will review the
investment portfolio of the Partnership and each such affiliated entity and will
decide which entity will acquire a particular property on the basis of such
factors as, among others, cash flow, the effect of the purchase on
diversification of the portfolio of each such entity, the estimated income tax
effects of the purchase on each such entity, the amount of funds available to
each and the length of time such funds have been available for investment. The
General Partners may acquire, for their own account or for private placement,
properties which they deem not suitable for purchase by the Partnership, whether
because of the greater degree of risk, the complexity of structuring inherent in
such transactions, financing considerations or for other reasons.
2. OTHER ACTIVITIES OF THE GENERAL PARTNERS AND THEIR AFFILIATES. The
Partnership will rely on the General Partners and their Affiliates for the day-
to-day operation of the Partnership and the management of its assets. As a
result of their interests in other partnerships and the fact that they have also
engaged and will continue to engage in other business activities, the General
Partners and their Affiliates will have conflicts of interest in allocating
their time between the Partnership and other partnerships and activities in
which they are involved. However, the General Partners believe that they and
their Affiliates have sufficient personnel to discharge fully their
responsibilities to all partnerships and ventures in which they are involved.
The Partnership will not purchase or lease any property in which the
General Partners or any of their Affiliates have an interest; provided, however,
that the General Partners or any of their Affiliates may temporarily enter into
contracts relating to investment in properties to be assigned to the Partnership
prior to closing or may purchase property in their own name and temporarily hold
title for the Partnership, provided that such property is purchased by the
Partnership at a price no greater than the cost of such property (including
acquisition and carrying costs) to the General Partners or the Affiliate, and
further provided that the General Partners or such Affiliate may not hold title
to any such property on behalf of the Partnership for more than 12 months, that
the General Partners
32
<PAGE>
or their Affiliates shall not sell property to the Partnership if the cost of
the property exceeds the funds reasonably anticipated to be available for the
Partnership to purchase any such property, and that all profits and losses
during the period any such property is held by the General Partners or the
Affiliate will accrue to the Partnership. In no event may the Partnership (i)
sell or lease real property to the General Partners or any of their Affiliates;
(ii) loan Partnership funds to the General Partners or any of their Affiliates;
(iii) obtain appraisals of real properties from the General Partners or any of
their Affiliates; or (iv) enter into agreements with the General Partners or
their Affiliates for the provision of insurance covering the Partnership or any
Partnership Property.
3. COMPETITION. Conflicts of interest will exist to the extent that the
Partnership may acquire properties in the same geographic areas where other
properties owned by the General Partners and their Affiliates are located. In
such a case, a conflict could arise in the leasing of Partnership Properties in
the event that the Partnership and another program managed by the General
Partners or their Affiliates were to compete for the same tenants in negotiating
leases, or a conflict could arise in connection with the resale of Partnership
Properties in the event that the Partnership and another program managed by the
General Partners or their Affiliates were to attempt to sell similar properties
at the same time. Conflicts of interest may also exist at such time as the
Partnership or Affiliates of the General Partners managing property on behalf of
the Partnership seek to employ developers, contractors or building managers as
well as under other circumstances. The General Partners will seek to reduce
conflicts relating to the employment of developers, contractors or building
managers by making prospective employees aware of all such properties seeking to
employ such persons. In addition, the General Partners will seek to reduce
conflicts which may arise with respect to properties available for sale or rent
by making prospective purchasers or lessees aware of all such properties.
However, these conflicts cannot be fully avoided in that the General Partners
may establish differing compensation arrangements for employees at different
properties or differing terms for resales or leasing of the various properties.
4. AFFILIATED DEALER MANAGER. Since Wells Investment Securities, Inc.,
the Dealer Manager, is an Affiliate of the General Partners, the Partnership
will not have the benefit of an independent due diligence review and
investigation of the type normally performed by an unaffiliated, independent
underwriter in connection with the offering of securities. (See "PLAN OF
DISTRIBUTION.")
5. AFFILIATED PROPERTY MANAGER. Since it is anticipated that Partnership
Properties will be managed and leased by Wells Management Company, Inc., an
Affiliate of the General Partners, the Partnership will not have the benefit of
independent property management. (See "MANAGEMENT" and "COMPENSATION OF THE
GENERAL PARTNERS AND AFFILIATES.")
6. LACK OF SEPARATE REPRESENTATION. Holland & Knight is counsel to the
Partnership, the General Partners, the Dealer Manager and their Affiliates in
connection with this Offering and may in the future act as counsel to the
Partnership, the General Partners, the Dealer Manager and their Affiliates.
There is a possibility that in the future the interests of the various parties
may become adverse. In the event that a dispute were to arise between the
Partnership, the General Partners, the Dealer Manager or their Affiliates, the
General Partners will cause the Partnership to retain separate counsel for such
matters as and when appropriate.
7. JOINT VENTURES WITH AFFILIATES OF THE GENERAL PARTNERS. The
Partnership is likely to enter into one or more joint venture agreements with
Affiliates of the General Partners for the acquisition, development or
improvement of properties. (See "INVESTMENT OBJECTIVES AND CRITERIA -- Joint
Venture Investments.") The General Partners and their Affiliates may have
conflicts of interest in determining which partnerships should enter into any
joint venture agreement. Should any such joint venture be consummated, the
General Partners may face a conflict in structuring the terms of the
relationship between the interest of the Partnership and the interest of the
affiliated co-venturer. Since the General Partners and their Affiliates will
control both the Partnership and the affiliated co-venturer, agreements and
transactions between the co-venturers with respect to any such joint venture
will not have the benefit of arm's-length negotiation of the type normally
conducted between unrelated co-venturers.
33
<PAGE>
8. RECEIPT OF FEES AND OTHER COMPENSATION BY GENERAL PARTNERS AND
AFFILIATES. Partnership transactions involving the purchase and sale of
Partnership Properties may result in the receipt of commissions, fees and other
compensation by the General Partners and their Affiliates, including Acquisition
and Advisory Fees, the dealer manager fee, property management and leasing fees,
real estate brokerage commissions, and participation in distributions of Net
Cash From Operations, Nonliquidating Net Sale Proceeds and Liquidating
Distributions. However, the fees and compensation payable to the General
Partners and their Affiliates relating to sale of Partnership Properties are
subordinated to the return to the Limited Partners of their Capital
Contributions plus cumulative returns thereon. Subject to their fiduciary duties
and specific restrictions set forth in the Partnership Agreement, the General
Partners have considerable discretion with respect to all decisions relating to
the terms and timing of all Partnership transactions. Therefore, the General
Partners may have conflicts of interest concerning certain actions taken on
behalf of the Partnership, particularly due to the fact that such fees will
generally be payable to the General Partners and their Affiliates regardless of
the quality of the Partnership Properties acquired or the services provided to
the Partnership. (See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES.")
The agreements and arrangements among the Partnership, the General Partners
and their Affiliates have been established by the General Partners, and the
General Partners believe the amounts to be paid thereunder to be reasonable and
customary under the circumstances. In an effort to establish standards for
minimizing and resolving these potential conflicts, the General Partners have
agreed to the guidelines and limitations set forth in Section 11.3 of the
Partnership Agreement entitled "Limitations on Powers of the General Partners"
and in Article XIII of the Partnership Agreement entitled "Transactions Between
General Partners and the Partnership." Among other things, these provisions (i)
set forth the specific conditions under which the Partnership may own or lease
property jointly or in a partnership with an Affiliate of the General Partners,
(ii) prohibit the Partnership from purchasing or leasing an investment property
from the General Partners or their Affiliates, (iii) prohibit loans by the
Partnership to the General Partners or their Affiliates, (iv) prohibit the
commingling of Partnership funds, and (v) prohibit the General Partners from
merging or consolidating the Partnership with another partnership or a
corporation or converting the Partnership to a real estate investment trust
unless the transaction complies with certain terms and conditions (including
first obtaining a Majority Vote of the Limited Partners). In addition, as
described below, the General Partners have a fiduciary obligation to act in the
best interests of both the Limited Partners and the investors in other programs
in which they act as general partners and will use their best efforts to assure
that the Partnership will be treated at least as favorably as any other such
program.
FIDUCIARY DUTY OF THE GENERAL PARTNERS
The General Partners will be accountable to the Partnership as
fiduciaries and, consequently, will be required to exercise good faith and
integrity in all their dealings with respect to Partnership affairs. Where the
question has arisen, courts have held that a limited partner may institute legal
action on behalf of himself or all other similarly situated limited partners (a
class action) to recover damages for a breach by a general partner of his
fiduciary duty or on behalf of the partnership (a partnership derivative action)
to recover damages from third parties. The Georgia Revised Uniform Limited
Partnership Act ("GRULPA") specifically permits a limited partner of a Georgia
limited partnership to bring a derivative action on behalf of the partnership if
(i) the general partner or partners of the partnership have refused to bring the
action on behalf of the partnership or it is apparent that an effort to cause
such general partner or partners to bring the action would not be likely to
succeed, and (ii) the limited partner was a partner at the time the transaction
complained of occurred or such partner became a partner by operation of law or
pursuant to the terms of the partnership agreement by assignment from a person
who was a partner at the time of such transaction.
Under GRULPA, a general partner of a Georgia limited partnership has the
same liabilities to the partnership and the other partners as a partner in a
partnership without limited partners. Accordingly, in any action alleging a
breach of fiduciary duty by the General Partners to either the Limited Partners
or the Partnership, it is
34
<PAGE>
not anticipated that the General Partners would be able to successfully assert
as a defense the general presumption which is often referred to as the "business
judgment rule" that actions taken by the directors of a corporation on behalf of
the corporation are reasonable. However, since any such action would involve a
rapidly developing and changing area of the law, investors who believe that a
breach of fiduciary duty by the General Partners may have occurred should
consult with their own counsel.
Under GRULPA, except to the extent of acceptable limitations in the
partnership agreement, a general partner of a limited partnership generally owes
a duty of loyalty and a duty of care to his partners. The Partnership Agreement
provides that the General Partners shall not be liable to the Partnership or any
Partner arising out of any act or failure to act which the General Partners in
good faith determined was in the best interest of the Partnership, provided that
the General Partners shall be liable for any liabilities resulting from a
General Partner's (i) own fraud, negligence, misconduct or knowing violation of
law, (ii) breach of fiduciary duty to the Partnership or any Partner, or (iii)
breach of the Partnership Agreement, regardless of whether or not any such act
was first determined by such General Partner, in good faith, to be in the best
interest of the Partnership. Since absent limitations in the Partnership
Agreement such as the foregoing, a General Partner of a limited partnership
would generally be liable under state law for damages caused by breach of
fiduciary duty or a breach of the Partnership Agreement, regardless of whether
or not such person received any personal benefit therefrom, Limited Partners may
have a more limited right of action than they would otherwise have absent the
foregoing provisions in the Partnership Agreement.
In addition, the Partnership Agreement provides that the Partnership shall
indemnify the General Partners and their Affiliates from and against liabilities
and related expenses (including attorneys' fees) incurred in dealing with third
parties while acting on behalf of or performing services for the Partnership
arising out of any act or failure to act which the General Partners in good
faith determined was in the best interest of the Partnership, provided that the
General Partners shall not be indemnified by the Partnership for any liabilities
resulting from a General Partner's (i) own fraud, negligence, misconduct or
knowing violation of law, (ii) breach of fiduciary duty to the Partnership or
any Partner, or (iii) breach of the Partnership Agreement, regardless of whether
or not any such act was first determined by such General Partner, in good faith,
to be in the best interest of the Partnership. Any indemnification of the
General Partners is recoverable only out of the assets of the Partnership and
not from the Limited Partners. The indemnification provisions contained in the
Partnership Agreement are generally consistent with the provisions of GRULPA,
and the General Partners will not be indemnified for a violation of the duty of
care to their Partners to the extent any such violation constitutes negligence
or misconduct.
Notwithstanding the foregoing, the Partnership will not indemnify the
General Partners or any person acting as a broker-dealer with respect to the
Units from any liabilities incurred by them arising under federal and state
securities laws unless (i) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as to the
particular person seeking indemnification, or (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular person seeking indemnification, or (iii) a court of competent
jurisdiction approves a settlement of the claims against the particular person
seeking indemnification and finds that indemnification of the settlement and
related costs should be made. In addition, prior to seeking a court approval for
indemnification, the General Partners are required to apprise the court of the
position of the Securities and Exchange Commission and various securities
regulatory authorities with respect to indemnification for securities
violations.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION
FOR LIABILITIES ARISING OUT OF THE SECURITIES ACT OF 1933 IS AGAINST PUBLIC
POLICY AND IS THEREFORE UNENFORCEABLE.
35
<PAGE>
PRIOR PERFORMANCE SUMMARY
THE INFORMATION PRESENTED IN THIS SECTION REPRESENTS THE HISTORICAL
EXPERIENCE OF REAL ESTATE PROGRAMS MANAGED BY THE GENERAL PARTNERS AND THEIR
AFFILIATES. INVESTORS IN THE PARTNERSHIP SHOULD NOT ASSUME THAT THEY WILL
EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN SUCH
PRIOR REAL ESTATE PROGRAMS.
The individual General Partner, Leo F. Wells, III, has served as a
general partner of a total of nine real estate limited partnerships for which
offerings have been completed within the last 10 years. These nine limited
partnerships and the year in which their offerings were completed are:
1. Wells Real Estate Fund I (1986)
2. Wells Real Estate Fund II (1988)
3. Wells Real Estate Fund II-OW (1988)
4. Wells Real Estate Fund III, L.P. (1990)
5. Wells Real Estate Fund IV, L.P. (1992)
6. Wells Real Estate Fund V, L.P. (1993)
7. Wells Real Estate Fund VI, L.P. (1994)
8. Wells Real Estate Fund VII, L.P. (1995)
9. Wells Real Estate Fund VIII, L.P. (1996)
The tables included in Exhibit "A" attached hereto set forth
information as of the dates indicated regarding certain of these prior programs
as to (i) experience in raising and investing funds (Table I); (ii) compensation
to sponsor (Table II); and (iii) annual operating results of prior programs
(Table III). No information is given as to results of completed programs or
sales or disposals of property because, to date, none of the prior programs have
sold any of their properties.
PUBLICLY OFFERED UNSPECIFIED PROPERTY PARTNERSHIPS
The General Partners and their Affiliates have previously sponsored
nine publicly offered real estate limited partnerships which were offered on an
unspecified property or "blind pool" basis: Wells Fund I, Wells Fund II, Wells
Fund II-OW, Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI, Wells
Fund VII and Wells Fund VIII. The total amount of funds raised from investors in
the offerings of these nine publicly offered partnerships, as of November 30,
1995, was approximately $199,956,166, and the total number of investors in such
partnerships was approximately 20,235.
The investment objectives of Wells Fund I, Wells Fund II, Wells Fund
II-OW, Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund
VII and Wells Fund VIII are substantially identical to the investment objectives
of the Partnership. All of the proceeds of the offerings of Wells Fund I, Wells
Fund II, Wells Fund II-OW, Wells Fund III, Wells Fund IV and Wells Fund V
available for investment in real properties have been invested in properties. In
addition, all of the proceeds of the offerings of Wells Fund VI and Wells Fund
VII available for investment in real properties have either been invested or are
committed for investment in properties. As of October 31, 1995, approximately
50% of the proceeds of the offering of Wells Fund VIII available for investment
in real properties had either been invested in properties or were committed for
investment in properties. For the fiscal year ended December 31, 1994,
approximately three-quarters of the aggregate gross rental income of these nine
publicly offered partnerships was derived from tenants which are U.S.
corporations, each of which has net worth of at least $100,000,000 or whose
lease obligations are guaranteed by another corporation with a net worth of at
least $100,000,000. Although certain real estate programs previously sponsored
by the General Partners and their Affiliates have experienced fluctuating
financial performance, as indicated in the prior performance tables included in
Exhibit "A" hereto, the prior programs have generally to date achieved their
investment objective of
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<PAGE>
providing distributions of net cash from operations to limited partners. While
the General Partners believe that the prior programs' investments in real
properties will enable such programs to return the limited partners' capital
contributions and to realize capital appreciation upon the ultimate sale of the
programs' real properties, none of these prior programs has liquidated or sold
any of its real properties to date and, accordingly, no assurance can be made
that the prior programs will ultimately be successful in meeting such
objectives.
The aggregate dollar amount of the acquisition and development costs
of the properties purchased by these nine publicly offered partnerships, as of
November 30, 1995, was approximately $152,445,014, of which $13,555,378 (or
approximately 8.9 percent) had not yet been expended on the development of
certain of the projects which are still under construction. Of the aggregate
amount, approximately 59% was or will be spent on acquiring or developing office
buildings, and approximately 41% was or will be spent on acquiring or developing
shopping centers. Of the aggregate amount, approximately 2% was or will be spent
on new properties, 44% on existing or used properties and 54% on construction
properties. Following is a table showing a breakdown of the aggregate amount of
the acquisition and development costs of the properties purchased by these nine
publicly offered partnerships as of November 30, 1995:
<TABLE>
<CAPTION>
Type of Property New Used Construction
---------------- --- ---- ------------
<S> <C> <C> <C>
Office Buildings 2% 29% 28%
Shopping Centers 0% 15% 26%
</TABLE>
Wells Fund I terminated its offering on September 5, 1986, and
received gross proceeds of $35,321,000 representing subscriptions from 4,895
limited partners. $24,679,000 of the gross proceeds were attributable to sales
of Class A Units, and $10,642,000 of the gross proceeds were attributable to
sales of Class B Units. Limited partners in Wells Fund I have no right to change
the status of their Units from Class A to Class B or vice versa. Wells Fund I
owns interests in the following properties: (i) a medical office building in
Atlanta, Georgia; (ii) two commercial office buildings in Atlanta, Georgia;
(iii) a shopping center in DeKalb County, Georgia; (iv) a shopping center in
Knoxville, Tennessee; (v) a shopping center in Cherokee County, Georgia; and
(vi) a project consisting of seven office buildings and a shopping center in
Tucker, Georgia. All of the foregoing properties were acquired or developed on
an all cash basis.
Wells Fund II and Wells Fund II-OW terminated their offerings on
September 7, 1988, and received aggregate gross proceeds of $36,870,250
representing subscriptions from 4,659 limited partners. $28,829,000 of the gross
proceeds were attributable to sales of Class A Units, and $8,041,250 of the
gross proceeds were attributable to sales of Class B Units. Limited partners in
Wells Fund II and Wells Fund II-OW have no right to change the status of their
Units from Class A to Class B or vice versa. Wells Fund II and Wells Fund II-OW
own all of their properties through a joint venture, which owns interests in the
following properties: (i) a shopping center in Cherokee County, Georgia; (ii) a
project consisting of seven office buildings and a shopping center in Tucker,
Georgia; (iii) a two story office building in Charlotte, North Carolina; (iv) a
four story office building in Houston, Texas; and (v) a tract of land in
Roswell, Georgia, a portion of which has been developed as a restaurant and the
remainder of which is being developed as a combined retail and office
development. All of the foregoing properties were acquired or developed on an
all cash basis.
Wells Fund III terminated its offering on October 23, 1990, and
received gross proceeds of $22,206,310 representing subscriptions from 2,700
limited partners. $19,661,770 of the gross proceeds were attributable to sales
of Class A Units, and $2,544,540 of the gross proceeds were attributable to
sales of Class B Units. Limited partners in Wells Fund III have no right to
change the status of their Units from Class A to Class B or vice versa. Wells
Fund III owns interests in the following properties: (i) a four story office
building in Houston, Texas; (ii) a tract of land in Roswell, Georgia, a portion
of which has been developed as a restaurant and the remainder of which is being
developed as a combined retail and office development; (iii) a two story office
building in Greenville,
37
<PAGE>
North Carolina; (iv) a shopping center in Stockbridge, Georgia; and (v) a two
story office building in Richmond, Virginia. All of the foregoing properties
were acquired or developed on an all cash basis. Wells Fund III recognized net
income of $377,494 in 1989 (at which time it only owned an interest in the
office building in Houston, Texas), $789,654 in 1990, $768,513 in 1991, $812,188
in 1992, $1,087,637 in 1993, and $1,130,464 in 1994.
Wells Fund IV terminated its offering on February 29, 1992, and
received gross proceeds of $13,614,655 representing subscriptions from 1,286
limited partners. $13,229,150 of the gross proceeds were attributable to sales
of Class A Units, and $385,505 of the gross proceeds were attributable to sales
of Class B Units. Limited partners in Wells Fund IV have no right to change the
status of their Units from Class A to Class B or vice versa. Wells Fund IV owns
interests in the following properties: (i) a shopping center in Stockbridge,
Georgia; (ii) a four story office building in Jacksonville, Florida; (iii) a two
story office building in Richmond, Virginia; and (iv) two two-story office
buildings in Stockbridge, Georgia. All of the foregoing properties were acquired
or developed on an all cash basis. Wells Fund IV recognized net income of
$10,045 in 1991 (at which time it had not invested in any property), $200,942 in
1992 (at which time it only owned interests in the shopping center in
Stockbridge, Georgia, the property in Jacksonville, Florida which was under
construction, and the first office building in Stockbridge, Georgia which was
under construction), $496,911 in 1993 (at which time the second office building
in Stockbridge, Georgia was under construction) and $605,011 in 1994.
Wells Fund V terminated its offering on March 3, 1993, and received
gross proceeds of $17,006,020 representing subscriptions from 1,667 limited
partners. $15,209,666 of the gross proceeds were attributable to sales of Class
A Units, and $1,796,354 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund V who purchased Class B Units are
entitled to change the status of their Units to Class A, but limited partners
who purchased Class A Units are not entitled to change the status of their Units
to Class B. After taking into effect conversion elections made by limited
partners subsequent to their subscription for Units, as of November 30, 1995,
$15,410,165 of Units of Wells Fund V were treated as Class A Units, and
$1,595,855 of Units were treated as Class B Units. Wells Fund V owns interests
in the following properties: (i) a four story office building in Jacksonville,
Florida; (ii) two two-story office buildings in Stockbridge, Georgia; (iii) a
four story office building in Hartford, Connecticut; (iv) two restaurants in
Stockbridge, Georgia; and (v) a three story office building in Appleton,
Wisconsin. All of the foregoing properties were acquired or are being developed
on an all cash basis. Wells Fund V experienced an operating loss of $18,089 in
1992 (at which time it only owned interests in the Jacksonville, Florida
property which was under construction and the first office building in
Stockbridge, Georgia which was under construction), recognized net income of
$354,999 in 1993 (at which time it had also acquired an interest in the
Hartford, Connecticut property and the second office building in Stockbridge,
Georgia was under construction) and recognized net income of $561,721 in 1994
(at which time it owned interests in all of the properties listed above for
which it currently holds an ownership interest, with the exception that only one
of the two restaurants had been developed on the tract of land in Stockbridge,
Georgia).
Wells Fund VI terminated its offering on April 4, 1994, and received
gross proceeds of $25,000,000 representing subscriptions from 1,793 limited
partners. $19,332,176 of the gross proceeds were attributable to sales of Class
A Units, and $5,667,824 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund VI are entitled to change the
status of their Units from Class A to Class B and vice versa. After taking into
effect conversion elections made by limited partners subsequent to their
subscription for Units, as of November 30, 1995, $20,483,570 of Units of Wells
Fund VI were treated as Class A Units, and $4,516,430 of Units were treated as
Class B Units. Wells Fund VI owns interests in the following properties: (i) a
four story office building in Hartford, Connecticut; (ii) two restaurants in
Stockbridge, Georgia; (iii) another restaurant and a retail building in
Stockbridge, Georgia; (iv) a shopping center in Stockbridge, Georgia; (v) a
three story office building in Appleton, Wisconsin; (vi) a shopping center in
Cherokee County, Georgia; (vii) a tract of land in Roswell, Georgia, which is
being developed as a combined retail and office development; (viii) a tract of
land in Jacksonville, Florida upon which a four story office building is being
constructed; and (ix) a tract of land in Clemmons, North Carolina upon which a
shopping center is being developed. All of the foregoing properties were
acquired or are being developed on an all cash basis. Wells Fund VI recognized
net income of $31,428 in 1993
38
<PAGE>
(at which time it only owned an interest in the Hartford, Connecticut property)
and $667,682 in 1994 (at which time it owned only interests in (i) the four
story office building in Hartford, Connecticut; (ii) the retail building and an
undeveloped tract of land in Stockbridge, Georgia; and (iii) the three story
office building in Appleton, Wisconsin).
Wells Fund VII terminated its offering on January 5, 1995 and received
gross proceeds of $24,180,174 representing subscriptions from 1,910 limited
partners. $16,788,095 of the gross proceeds were attributable to sales of Class
A Units, and $7,392,079 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund VII are entitled to change the
status of their Units from Class A to Class B and vice versa. After taking into
effect conversion elections made by limited partners subsequent to their
subscriptions for Units, as of November 30, 1995, $16,862,904 of Units in Wells
Fund VII were treated as Class A Units, and $7,317,270 of Units were treated as
Class B Units. Wells Fund VII owns interests in the following properties: (i) a
three story office building in Appleton, Wisconsin; (ii) a restaurant and a
retail building in Stockbridge, Georgia; (iii) a shopping center in Stockbridge,
Georgia; (iv) a shopping center in Cherokee County, Georgia; (v) a tract of land
in Roswell, Georgia, which is being developed as a combined retail and office
development; (vi) a tract of land in Alachua County, Florida near Gainesville,
upon which a two story office building is being constructed; (vii) a tract of
land in Jacksonville, Florida, upon which a four story office building is being
constructed; and (viii) a tract of land in Clemmons, North Carolina upon which a
shopping center is being developed. Wells Fund VII recognized net income of
$203,263 in 1994 (at which time it only owned an interest in the three story
office building in Appleton, Wisconsin and an undeveloped tract of land in
Stockbridge, Georgia).
Wells Fund VIII commenced its offering on January 6, 1995 and
terminated its offering on January 4, 1996. As of December 15, 1995, Wells Fund
VIII had received gross proceeds of approximately $27,432,220 (2,743,222 Units)
representing subscriptions from in excess of 1,919 limited partners,
approximately $22,098,100 of which were attributable to sales of Class A Status
Units (2,209,810 Class A Status Units), and approximately $5,334,120 of which
were attributable to sales of Class B Status Units (533,412 Class B Status
Units). Wells Fund VIII owns interests in the following properties: (i) a tract
of land in Alachua County, Florida near Gainesville, upon which a two story
office building is being constructed; (ii) a tract of land in Jacksonville,
Florida, upon which a four story office building is being constructed; and (iii)
a tract of land in Clemmons, North Carolina, upon which a shopping center is
being developed. As of November 30, 1995, an aggregate of $3,477,298 of fees
were paid to the General Partners of Wells Fund VIII or their Affiliates out of
Wells Fund VIII's net offering proceeds, including $901,522 of Acquisition and
Advisory Fees and $2,575,776 of selling commissions and dealer manager fees
(substantially all of which were reallocated and paid to participating broker-
dealers).
The foregoing properties in which the above nine limited partnerships
have invested have all been acquired on an all cash basis.
The General Partners of the Partnership, Leo F. Wells, III and Wells
Partners, L.P. ("Wells Partners"), are also the general partners of Wells Fund
IV, Wells Fund V, Wells Fund VI, Wells Fund VII and Wells Fund VIII. Wells
Capital, Inc., the general partner of Wells Partners, and Leo F. Wells, III are
the general partners of Wells Fund I, Wells Fund II, Wells Fund II-OW and Wells
Fund III.
The real properties in which partnerships previously sponsored by the
General Partners and their Affiliates have invested have experienced the same
economic problems as other real estate investments in recent years, including
without limitation, general over-building and an excess supply in many markets,
along with increased operating costs and a general downturn in the real estate
industry. In this regard, certain of the public partnerships previously
sponsored by the General Partners and their Affiliates have experienced
fluctuations in expenses and net income. These fluctuations were primarily due
to tenant turnover, resulting in increased vacancies and the requirement to
expend funds for tenant refurbishments, and increases in administrative and
other operating expenses. (See the "PRIOR PERFORMANCE TABLES" included as
Exhibit "A" hereto.) Additionally, while overall occupancy rates have not
decreased significantly at the properties owned by partnerships sponsored by the
General Partners and their Affiliates, some of these properties have experienced
high tenant turnover, and the partnerships
39
<PAGE>
owning these properties have generally been unable to raise rental rates and
have been required to make expenditures for tenant improvements and to grant
free rent and other concessions in order to attract new tenants.
Potential investors are encouraged to examine the Prior Performance
Tables attached as Exhibit "A" hereto for more detailed information regarding
the prior experience of the General Partners. In addition, upon request,
prospective investors may obtain from the General Partners without charge copies
of offering materials and any reports prepared in connection with these
partnerships, including a copy of the most recent Annual Report on Form 10-K
filed by the public partnerships with the Securities and Exchange Commission.
Any such request should be directed to the General Partners. Additionally, Table
VI contained in Part II of the Registration Statement (which is not part of this
Prospectus) gives certain additional information relating to properties acquired
by prior partnerships affiliated with the General Partners. The Partnership will
furnish, without charge, copies of such table upon request.
THE INFORMATION SET FORTH ABOVE SHOULD NOT BE CONSIDERED INDICATIVE OF
RESULTS TO BE EXPECTED FROM THE PARTNERSHIP.
MANAGEMENT
THE GENERAL PARTNERS
The General Partners of the Partnership are: Wells Partners, L.P., a
Georgia limited partnership, and Mr. Leo F. Wells, III, individually.
WELLS PARTNERS, L.P. Wells Partners, L.P. ("Wells Partners") has Wells
Capital, Inc. ("Wells Capital"), a Georgia corporation formed in April 1984, as
its sole general partner. The executive offices of both Wells Partners and Wells
Capital are located at 3885 Holcomb Bridge Road, Norcross, Georgia 30092.
Financial statements of Wells Partners and Wells Capital are included in this
Prospectus at Appendix I. Leo F. Wells, III is the sole shareholder, sole
Director and the President of Wells Capital. (See "CONFLICTS OF INTEREST.")
As of August 31, 1995, the net worth of Wells Partners was in excess
of $1,170,000 on an estimated fair market value basis, and in excess of $129,000
on a generally accepted accounting principles (GAAP) basis; however, the net
worth of Wells Partners consists almost entirely of partnership interests in
real estate limited partnerships and, therefore, does not represent liquid
assets.
The principal officers and directors of Wells Capital are as follows:
<TABLE>
<CAPTION>
Name Positions
- ---- ---------
<S> <C>
Leo F. Wells, III President and Sole Director
Donald L. Thomas, Jr. Vice President of Property Management and
Leasing
Brian M. Conlon Vice President and National Marketing Director
William R. J. Veringa, CPA Vice President and Chief Financial Officer
William L. O'Callaghan, Jr. Vice President and General Counsel
Edna B. King Vice President of Investor Services
</TABLE>
40
<PAGE>
LEO F. WELLS, III (age 51) is the President and sole Director of Wells
Capital. In addition, he is President of Wells & Associates, Inc., a real estate
brokerage and investment company formed in 1976 and incorporated in 1978, for
which he serves as principal broker. He is also the sole Director and President
of Wells Management Company, Inc., a property management company he founded in
1983, and Wells Advisors, Inc., a company he organized in 1991 to act as a non-
bank custodian for IRAs. Mr. Wells was a real estate salesman and property
manager from 1970 to 1973 for Roy D. Warren & Company, an Atlanta real estate
company, and he was associated from 1973 to 1976 with Sax Gaskin Real Estate
Company, during which time he became a Life Member of the Atlanta Board of
Realtors Million Dollar Club. From 1980 to February 1985, he served as Vice-
President of Hill-Johnson, Inc., a Georgia corporation engaged in the
construction business. Mr. Wells holds a Bachelor of Business Administration
degree in Economics from the University of Georgia. Mr. Wells is also a member
of the National Association of Realtors, the Georgia Association of Realtors and
the International Association for Financial Planning. Mr. Wells is a registered
NASD principal.
Mr. Wells has over 20 years of experience in real estate sales,
management and brokerage services. He is currently a co-general partner in a
total of 24 real estate limited partnerships formed for the purpose of
acquiring, developing and operating office buildings and other commercial
properties, a majority of which are located in suburban areas of metropolitan
Atlanta, Georgia. As of December 31, 1994, these 24 real estate limited
partnerships represented investments totaling approximately $180,895,783 from
approximately 18,818 investors. (See "PRIOR PERFORMANCE SUMMARY.")
As of August 31, 1995, Mr. Wells' net worth (exclusive of home,
automobiles and home furnishings) was approximately $1,300,000 on an estimated
fair market value basis. Mr. Wells' net worth consists principally of
investments in real estate, interests in retirement plans, notes receivable and
his stock in Wells Capital and other closely held corporations and, therefore,
does not represent liquid assets or assets which are readily marketable. (See
"RISK FACTORS.")
The combined net worth of the General Partners, on an estimated fair
market value basis, currently exceeds $2,470,000. When the net worth of Wells
Partners is calculated on a generally accepted accounting principles (GAAP)
basis (i.e. Wells Partners' investments are valued at cost instead of estimated
fair market value), the combined net worth of the General Partners is
approximately $1,429,000. However, the General Partners' net worth consists
primarily of interests in real estate and closely-held businesses, and thus such
net worth is substantially illiquid and not readily marketable. (See "RISK
FACTORS.")
DONALD L. THOMAS, JR. (age 52) is Vice President of Property
Management and Leasing of Wells Capital. As such, he is responsible for
overseeing the approximately 1,500,000 square foot portfolio of office and
retail properties of the Wells Real Estate Funds. Mr. Thomas has served
previously as Leasing Manager for Noro Realty Services, a Dutch-owned property
management firm, where he was responsible for leasing a 2.5 million square foot
portfolio of office, retail and industrial space. Mr. Thomas received a Bachelor
of Science degree from Corpus Christi State University in Corpus Christi, Texas
and holds a Georgia real estate license.
BRIAN M. CONLON (age 37) is Vice President and National Marketing
Director of Wells Capital. As such, he is responsible for sales and marketing of
the Wells Real Estate Funds. Mr. Conlon joined Wells Capital in 1985 as a
Regional Vice President and assumed his current position in 1991. Previously,
Mr. Conlon was Director of Business Development for Tishman Midwest Management &
Leasing Services Corp. where he was responsible for marketing the firm's
property management and leasing services to institutions. Mr. Conlon has also
spent two years as an Investment Property Specialist with Carter & Associates
where he specialized in acquisitions and dispositions of office and retail
properties for institutional clients. Mr. Conlon received a Bachelor of Business
Administration degree from Georgia State University and a Master of Business
Administration degree from the University of Dallas. Mr. Conlon is a general
securities principal and a Georgia real estate broker. Mr. Conlon also has the
certified commercial investment member (CCIM) designation of the Commercial
Investment Real Estate Institute.
41
<PAGE>
WILLIAM R. J. VERINGA, CPA (age 35) is Vice President and Chief Financial
Officer of Wells Capital. As such, he is responsible for overseeing and
coordinating partnership and property management accounting. Previously, Mr.
Veringa was the Controller for Tishman Midwest Management & Leasing Corp. where
he was responsible for implementing its computer management accounting and
financial reporting system. Mr. Veringa has also practiced as a certified public
accountant with Ernst & Whinney (now known as Ernst & Young). Mr. Veringa holds
a Bachelor of Business Administration degree from Duquesne University in
Pittsburgh, Pennsylvania.
WILLIAM L. O'CALLAGHAN, JR. (age 54) is Vice President and General Counsel
for Wells Capital. As such, Mr. O'Callaghan is responsible for coordinating
securities, tax and real estate counsel for the Wells Real Estate Funds. Mr.
O'Callaghan is also a partner in the law firm of O'Callaghan & Stumm,
specializing in the area of real estate law. Previously, Mr. O'Callaghan was a
partner in the law firm of Branch, Pike, Ganz & O'Callaghan, also specializing
in the area of real estate law. Mr. O'Callaghan holds a Bachelor of Business
Administration degree from the University of Georgia, a Juris Doctorate from the
University of Georgia School of Law and an LL.M. in taxation from the Georgetown
University Law Center.
EDNA B. KING (age 60) is the Vice President of Investor Services for Wells
Capital. As such, she is responsible for processing new investments, sales
reporting and communications with investors. Prior to joining Wells Capital in
1985, Ms. King served as the Southeast Service Coordinator for Beckman
Instruments and an office manager for a regional office of Commerce Clearing
House. Ms. King holds an Associate Degree in Business Administration from DeKalb
Community College in Dunwoody, Georgia and has completed various courses at the
University of North Carolina at Wilmington.
MANAGEMENT
The General Partners of the Partnership, Mr. Wells and Wells Partners, will
be responsible for the direction and management of the Partnership, including
acquisition, construction and property management. Any action required to be
taken by the General Partners shall be taken only if it is approved, in writing
or otherwise, by both General Partners, unless the General Partners agree
between themselves to a different arrangement for the approval of action of the
General Partners. The powers and duties of the General Partners are described in
Article XI of the Partnership Agreement. The compensation payable to the General
Partners for performance of their duties is set forth in "COMPENSATION OF THE
GENERAL PARTNERS AND AFFILIATES."
A change in management of the Partnership may be accomplished by removal of
the General Partners or the designation of a successor or additional General
Partner, in each case in accordance with the provisions of the Partnership
Agreement. The Partnership Agreement provides that a General Partner may be
removed and a new General Partner elected upon the written consent or
affirmative vote of Limited Partners owning more than 50% of the Units. The
Partnership Agreement further provides that a General Partner may designate a
successor or additional General Partner with the consent of all other General
Partners and Limited Partners holding more than 50% of the Units, after
providing 90 days written notice to the General Partners and Limited Partners
and provided that the interests of the Limited Partners are not affected
adversely thereby. Generally, except in connection with such a designation, no
General Partner shall have the right to retire or withdraw voluntarily from the
Partnership or to sell, transfer or assign his or its interest without the
consent of the Limited Partners holding more than 50% of the Units. (See
"SUMMARY OF PARTNERSHIP AGREEMENT.")
PROPERTY MANAGER. Partnership Properties will be managed and leased
initially by Wells Management Company, Inc., a Georgia corporation which is
owned by Mr. Wells. Its compensation for management of commercial and industrial
properties will be a 3% leasing fee and a 3% management fee (totalling 6% of the
gross revenues from the operations of each property). A special one-time leasing
fee may be paid on the first leases for newly constructed properties. This fee
must be competitive, and the amount of this fee received by Wells Management
Company, Inc. will be reduced by any amount paid to an outside broker. The
General Partners believe these terms are no less favorable to the Partnership
than those customary for similar services in the relevant
42
<PAGE>
geographic area. Depending upon the location of certain Partnership Properties
and other circumstances, unaffiliated property management companies may be
retained to render property management services for some Partnership Properties.
(See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES.")
In the event that Wells Management Company, Inc. assists a tenant with
tenant improvements, a separate fee may be charged to the tenant and paid by the
tenant. This fee will not exceed 5% of the cost of the tenant improvements.
Wells Management Company, Inc. is engaged in the business of real estate
management. It was organized and commenced active operations in 1983 to lease
and manage real estate projects which the General Partners and their Affiliates
operate or in which Mr. Wells owns an interest. Wells Management Company, Inc.
currently manages over 1,500,000 square feet of office buildings and shopping
centers and 6,000 square feet of residential units.
Mr. Wells is the sole shareholder, sole Director and President of Wells
Management Company, Inc. (See "CONFLICTS OF INTEREST.") Donald L. Thomas, Jr.
serves as Vice President of Wells Management Company, Inc.
The property manager will hire, direct and establish policies for the
Partnership's employees who will have direct responsibility for each property's
operations, including resident managers and assistant managers, as well as
building and maintenance personnel. Some or all of the other Partnership
employees may be employed on a part-time basis and may also be employed by one
or more of the following: (i) the General Partners; (ii) the property manager;
(iii) other partnerships organized by the General Partners and their Affiliates;
and (iv) other persons or entities owning properties managed by the property
manager. The property manager will also direct the purchase of equipment and
supplies and will supervise all maintenance activity.
The management fees to be paid to Wells Management Company, Inc. will
cover, without additional expense to the Partnership, the property manager's
general overhead costs such as its expenses for rent and utilities. However,
certain salaries and other employee-related expenses, travel and other out-of-
pocket expenses of personnel of Wells Management Company, Inc. (other than
controlling persons of the General Partners or their Affiliates) may be
reimbursed by the Partnership to the extent such expenses are directly related
to the management of a specific Partnership Property.
The principal office of Wells Management Company, Inc. is located at 3885
Holcomb Bridge Road, Norcross, Georgia 30092.
DEALER MANAGER. Wells Investment Securities, Inc. (the "Dealer Manager"),
a member firm of the NASD, was organized in May 1984 for the purpose of
participating in and facilitating the distribution of securities of real estate
limited partnerships which may from time to time be sponsored by the General
Partners and their Affiliates.
The Dealer Manager will provide certain wholesaling, sales promotional and
marketing assistance services to the Partnership in connection with the
distribution of the Units offered hereby. It may also sell a limited number of
Units at the retail level. (See "PLAN OF DISTRIBUTION.")
Mr. Wells is the sole shareholder, the sole Director and President of Wells
Investment Securities, Inc. (See "CONFLICTS OF INTEREST.") Donald L. Thomas, Jr.
and Brian M. Conlon serve as Vice President and Secretary, respectively, of
Wells Investment Securities, Inc.
IRA CUSTODIAN. Wells Advisors, Inc. was organized in 1991 for the purpose
of acting as a non-bank custodian for IRAs investing in the securities of real
estate limited partnerships sponsored by the General Partners and their
Affiliates. Wells Advisors, Inc. charges no fees for such services. Wells
Advisors, Inc. was approved
43
<PAGE>
by the Internal Revenue Service to act as a qualified non-bank custodian for
IRAs on March 20, 1992. In circumstances where Wells Advisors, Inc. acts as an
IRA custodian, the authority of Wells Advisors, Inc. is limited to holding the
Units on behalf of the beneficiary of the IRA and making distributions or
reinvestments in Units solely at the discretion of the beneficiary of the IRA.
Wells Advisors, Inc. is not authorized to vote any of the Units held in any IRA
except in accordance with the written instructions of the beneficiary of the
IRA. Mr. Wells is the sole Director and President and owns 50% of the common
stock and all of the preferred stock of Wells Advisors, Inc.
INVESTMENT OBJECTIVES AND CRITERIA
GENERAL
The Partnership is a limited partnership which was organized to invest in
commercial and industrial properties, including properties which are under
development or construction, are newly constructed or have been constructed and
have operating histories. The Partnership's objectives are: (i) to maximize Net
Cash From Operations; (ii) to preserve, protect and return the Capital
Contributions of the Partners; and (iii) to realize capital appreciation upon
the ultimate sale of Partnership Properties. No assurance can be given that
these objectives will be attained or that the Partnership's capital will not
decrease. The investment objectives of the Partnership may not be changed except
upon approval of a majority-in-interest of the Limited Partners.
Decisions relating to the purchase or sale of Partnership Properties will
be made by the General Partners. See "MANAGEMENT" for a description of the
background and experience of the General Partners.
ACQUISITION AND INVESTMENT POLICIES
The Partnership will seek to invest substantially all of the net Offering
proceeds available for investment on an all cash basis in the acquisition of
commercial and industrial properties, which are under development or
construction, are newly constructed or which have been previously constructed
and have operating histories. While not limited to such investments, the General
Partners will generally seek to invest in commercial properties such as office
buildings, shopping centers and industrial properties which are less than five
years old, the space in which has been leased or preleased to one or more large
corporate tenants who satisfy the General Partners' standards of
creditworthiness. It is anticipated that a majority of the tenants of the
Partnership Properties will be top U.S. corporations or other entities each of
which has a net worth in excess of $100,000,000 or whose lease obligations are
guaranteed by another corporation or entity with a net worth in excess of
$100,000,000. The Partnership may, however, invest in office buildings, shopping
centers or industrial properties which are not preleased to such tenants or in
other types of commercial or industrial properties such as hotels, motels or
business or industrial parks. Notwithstanding the foregoing, the Partnership
will not be actively engaged in the business of operating hotels, motels or
similar properties.
While the Partnership will seek to invest in properties that will satisfy
the primary objective of providing distributions of current cash flow to
investors, due to the fact that a significant factor in the valuation of income-
producing real properties is their potential for future income, the General
Partners anticipate that the majority of properties acquired by the Partnership
will satisfy both attributes of providing potential for capital appreciation and
providing distributions of current cash flow to investors. To the extent
feasible, the General Partners will strive to invest in a diversified portfolio
of properties that will satisfy the Partnership's investment objectives of
maximizing Net Cash From Operations, preserving investors' capital and realizing
capital appreciation upon the ultimate sale of Partnership Properties.
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It is anticipated that approximately 81% of the proceeds from the sale of
Units will be used to acquire Partnership Properties and the balance will be
used to pay various fees and expenses. (See "ESTIMATED USE OF PROCEEDS.")
Unimproved or non-income producing property shall not be acquired except in
amounts and on terms which can be financed by the Offering proceeds or Cash
Flow. Investment in unimproved or non-income producing property may not exceed
15% of the net offering proceeds available for Investment in Properties. A
property which is expected to produce income within two years of its acquisition
will not be considered a non-income producing property. The Partnership will not
acquire property in exchange for Units. Notwithstanding the foregoing, the
Partnership will not be actively engaged in the business of operating hotels,
motels or similar properties.
Investment in property generally will take the form of fee title or of a
leasehold estate having a term, including renewal periods, of at least 40 years,
and may be made either directly or indirectly through investments in joint
ventures, general partnerships, co-tenancies or other co-ownership arrangements
with the developers of the properties, Affiliates of the General Partners or
other persons. (See "Joint Venture Investments" below.) In addition, the
Partnership may purchase properties and lease them back to the sellers of such
properties. While the General Partners will use their best efforts to structure
any such sale-leaseback transaction such that the lease will be characterized as
a "true lease" and so that the Partnership will be treated as the owner of the
property for federal income tax purposes, no assurance can be given that the IRS
will not challenge such characterization. In the event that any such sale-
leaseback transaction is recharacterized as a financing transaction for federal
income tax purposes, deductions for depreciation and cost recovery relating to
such property would be disallowed or significantly reduced. (See "FEDERAL INCOME
TAX CONSEQUENCES -- Characterization of Leases.")
The Partnership is not limited as to the geographic area where it may
conduct its operations, but the General Partners intend to invest in properties
located in the United States.
There are no specific limitations on the number or size of properties to be
acquired by the Partnership or on the percentage of net proceeds of this
Offering which may be invested in a single property. The number and mix of
properties acquired will depend upon real estate and market conditions and other
circumstances existing at the time the Partnership is acquiring its properties
and the amount of the net proceeds of this Offering.
In making investment decisions for the Partnership, the General Partners
will consider relevant real property and financial factors, including the
location of the property, its suitability for any development contemplated or in
progress, its income-producing capacity, the prospects for long-range
appreciation, its liquidity and income tax considerations. In this regard, the
General Partners will have substantial discretion with respect to the selection
of specific Partnership investments.
The Partnership will obtain independent appraisals for each property in
which it invests, and the purchase price of each such property will not exceed
its appraised value. However, the General Partners will rely on their own
independent analysis and not on such appraisals in determining whether to invest
in a particular property. It should be noted that appraisals are estimates of
value and should not be relied upon as measures of true worth or realizable
value. Copies of these appraisals will be available for review and duplication
by Limited Partners at the office of the Partnership and will be retained for at
least five years.
The Partnership's obligation to close the purchase of any investment will
generally be conditioned upon the delivery and verification of certain documents
from the seller or developer, including, where appropriate, plans and
specifications, environmental reports, surveys, evidence of marketable title
(subject only to such liens and encumbrances as are acceptable to the General
Partners), audited financial statements covering recent operations of any
properties having operating histories (unless such statements are not required
to be filed with the Securities and Exchange Commission and delivered to
investors), title and liability insurance policies and opinions of counsel in
certain circumstances. The Partnership will not close the purchase of any
property unless and until it obtains an
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environmental assessment (a minimum of a Phase I review) for each property
purchased and the General Partners are generally satisfied with the
environmental status of the property.
The Partnership may also enter into arrangements with the seller or
developer of a property whereby the seller or developer agrees that if during a
stated period the property does not generate a specified cash flow, the seller
or developer will pay in cash to the Partnership a sum necessary to reach the
specified cash flow level, subject in some cases to negotiated dollar
limitations.
In determining whether to purchase a particular property, the Partnership
may, in accordance with customary practices, obtain an option on such property.
The amount paid for an option, if any, is normally surrendered if the property
is not purchased and is normally credited against the purchase price if the
property is purchased.
In purchasing, leasing and developing real properties, the Partnership will
be subject to risks generally incident to the ownership of real estate,
including changes in general economic or local conditions, changes in supply of
or demand for similar or competing properties in an area, changes in interest
rates and availability of permanent mortgage funds which may render the sale of
a property difficult or unattractive, and changes in tax, real estate,
environmental and zoning laws. Periods of high interest rates and tight money
supply may make the sale of properties more difficult. The Partnership may
experience difficulty in keeping the properties fully leased due to tenant
turnover, general overbuilding or excess supply in the market area. Development
of real properties is subject to risks relating to the builders' ability to
control construction costs or to build in conformity with plans, specifications
and timetables. (See "RISK FACTORS -- Real Estate Risks.")
DEVELOPMENT AND CONSTRUCTION OF PROPERTIES
The Partnership may invest substantially all of the net proceeds available
for investment in properties on which improvements are to be constructed or
completed although the Partnership may not invest in excess of 15% of the net
offering proceeds available for Investment in Properties in properties which are
not expected to produce income within two years of their acquisition. To help
ensure performance by the builders of properties which are under construction,
completion of properties under construction shall be guaranteed at the price
contracted either by an adequate completion bond or performance bond, or, in
appropriate circumstances, the General Partners may rely upon the substantial
net worth of the contractor or developer or a personal guarantee accompanied by
financial statements showing a substantial net worth provided by an Affiliate of
the person entering into the construction or development contract as an
alternative to a completion bond or performance bond.
The Partnership may make periodic progress payments or other cash advances
to developers and builders of its properties prior to completion of construction
only upon receipt of an architect's certification as to the percentage of the
project then completed and as to the dollar amount of the construction then
completed. The Partnership intends to use such additional controls on its
disbursements to builders and developers as it deems necessary or prudent.
The Partnership may directly employ one or more project managers to plan,
supervise and implement the development of any unimproved properties which it
may acquire. Such persons would be compensated directly by the Partnership and,
other than through such employment, will not be affiliated with the General
Partners.
TERMS OF LEASES AND LESSEE CREDITWORTHINESS
The terms and conditions of any lease entered into by the Partnership with
regard to a tenant may vary substantially from those described herein. However,
a majority of leases are expected to be what is generally referred to as "triple
net" leases, which means that the lessee will be required to pay or reimburse
the Partnership for all real estate taxes, sales and use taxes, special
assessments, utilities, insurance and building repairs as well as lease
payments.
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The General Partners have developed specific standards for determining the
creditworthiness of potential lessees of Partnership Properties. While
authorized to enter into leases with any type of lessee, the General Partners
anticipate that a majority of the tenants of the Partnership Properties will be
top U.S. corporations or other entities each of which has a net worth in excess
of $100,000,000 or whose lease obligations are guaranteed by another corporation
or entity with a net worth in excess of $100,000,000.
BORROWING POLICIES
The Partnership will acquire properties on an all cash basis, and the
General Partners do not intend to cause the Partnership to borrow any funds.
However, in order to give the General Partners flexibility in the management of
the Partnership, the Partnership Agreement authorizes the Partnership to borrow
funds (a) for Partnership operating purposes in the event of unexpected
circumstances in which the Partnership's working capital reserves and other cash
resources available to the Partnership become insufficient for the maintenance
and repair of Partnership Properties or for the protection or replacement of the
Partnership's assets, and (b) in order to finance improvement of and
improvements to properties, when the General Partners deem such improvements to
be necessary or appropriate to protect the capital previously invested in the
properties, to protect the value of the Partnership's investment in a particular
property, or to make a particular property more attractive for sale or lease.
The Partnership cannot borrow funds for any other purposes. The aggregate amount
of Partnership borrowings at any given time may not exceed 25% of the total
purchase price of Partnership Properties. The General Partners have represented
that they will not cause the Partnership to incur indebtedness unless the
Partnership first obtains an opinion of counsel that the indebtedness to be
obtained more likely than not will not cause the income of the Partnership to be
characterized as UBTI. Investors should be aware, however, that an opinion of
counsel is based upon various representations and assumptions, and has no
binding effect on the IRS or any court. Accordingly, no assurance can be given
that the conclusions reached in any such opinion of counsel, if contested, would
be sustained by a court, or that any such indebtedness to be obtained by the
Partnership in the future would not cause the income allocated to Limited
Partners that are tax-exempt entities to be taxed as UBTI. (See "FEDERAL INCOME
TAX CONSEQUENCES -- Investment by Qualified Plans and Other Tax-Exempt
Entitles.")
If the Partnership does incur indebtedness the repayment of which is
secured by Partnership Properties, it intends to incur only non-recourse
indebtedness in connection with such borrowings, meaning that neither the
Partnership nor any Partner will be personally liable therefor. The lender's
rights on default generally would be limited to foreclosure on the property
which secured the obligation. There is no limitation on the maximum amount of
mortgage indebtedness which may be incurred with respect to any single property;
however, the Partnership anticipates that mortgage indebtedness with respect to
any single property would not exceed 10% of the property's fair market value and
that aggregate borrowings relating to all properties would not exceed 10% of
their combined fair market value. The Partnership will not incur debt to fund
distributions to Limited Partners. If the Partnership incurs mortgage
indebtedness, it would endeavor to obtain level payment financing, meaning that
the amount of debt service payable would be substantially the same each year,
although some mortgages might provide for a so-called "balloon" payment.
The Partnership may borrow funds from the General Partners or their
Affiliates in such situations only if the following qualifications are met: (a)
any such borrowing cannot constitute a "financing" as that term is defined under
the NASAA Guidelines, i.e., all indebtedness encumbering Partnership Properties
or incurred by the Partnership, the principal amount of which is scheduled to be
paid over a period of not less than 48 months, and not more than 50% of the
principal amount of which is scheduled to be paid during the first 24 months;
(b) interest and other financing charges or fees must not exceed the amounts
which would be charged by unrelated lending institutions on comparable financing
for the same purpose in the same locality as the Partnership's principal place
of business; and (c) no prepayment charge or penalty shall be required.
Except in connection with a potential borrowing as described above, the
Partnership will not issue senior securities.
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JOINT VENTURE INVESTMENTS
The Partnership is likely to enter into one or more joint ventures with
Affiliated entities for the acquisition, development or improvement of
properties, under the conditions described below. The Partnership may invest
some or all of the proceeds of the Offering in such joint ventures. In this
connection, the Partnership may enter into joint ventures with future programs
sponsored by the General Partners or their Affiliates or Prior Wells Public
Programs. The General Partners also have the authority to enter into joint
ventures, general partnerships, co-tenancies and other participations with real
estate developers, owners and others for the purpose of developing, owning and
operating properties in accordance with the Partnership's investment policies.
(See "RISK FACTORS" and "CONFLICTS OF INTEREST.") In determining whether to
invest in a particular joint venture, the General Partners will evaluate the
real property which such joint venture owns or is being formed to own under the
same criteria described herein for the selection of real property investments of
the Partnership. (See "Acquisition and Investment Policies," Development and
Construction of Properties," Terms of Leases and Lessee Creditworthiness," and
"Borrowing Practices.")
At such time as the General Partners believe that a reasonable probability
exists that the Partnership will enter into a joint venture with a Prior Wells
Public Program for the development of property, this Prospectus will be
supplemented to disclose the terms of such proposed investment transaction.
Based upon the General Partners' experience, in connection with the development
of a property which is currently owned by a Prior Wells Public Program, this
would normally occur upon the signing of legally binding leases with one or more
major tenants for commercial space to be developed on such property, but may
occur before or after any such signing, depending upon the particular
circumstances surrounding each potential investment. It should be understood
that the initial disclosure of any such proposed transaction cannot be relied
upon as an assurance that the Partnership will ultimately consummate such
proposed transaction nor that the information provided in any such Supplement to
this Prospectus concerning any such proposed transaction will not change after
the date of the Supplement.
The Partnership may enter into a partnership, joint venture or co-tenancy
with unrelated parties if (i) the management of such partnership, joint venture
or co-tenancy is under the control of the Partnership; (ii) the Partnership, as
a result of such joint ownership or partnership ownership of a property, is not
charged, directly or indirectly, more than once for the same services; (iii) the
joint ownership, partnership or co-tenancy agreement does not authorize or
require the Partnership to do anything as a partner, joint venturer or co-tenant
with respect to the property which the Partnership or the General Partners could
not do directly because of the Partnership Agreement; and (iv) the General
Partners and their Affiliates are prohibited from receiving any compensation,
fees or expenses which are not permitted to be paid under the Partnership
Agreement. In the event that any such co-ownership arrangement contains a
provision giving each party a right of first refusal to purchase the other
party's interest, the Partnership may not have sufficient capital to finance any
such buy-out. (See "RISK FACTORS.")
The Partnership intends to enter into joint ventures with other publicly
registered Affiliated entities for the acquisition of properties, but may only
do so provided that (i) each such co-venturer has substantially identical
investment objectives as those of the Partnership; (ii) the Partnership, as a
result of such joint ownership or partnership ownership of a property, is not
charged, directly or indirectly, more than once for the same services; (iii)
compensation payable to the Partnership by such Affiliate is substantially
identical to that payable to the General Partners by the Partnership; (iv) the
Partnership will have a right of first refusal to buy if such co-venturer elects
to sell its interest in the property held by the joint venture; and (v) the
investment by the Partnership and such Affiliate are on substantially the same
terms and conditions, and each such entity's ownership interest in such joint
venture or partnership shall be based upon the respective proportion of funds
invested in such joint venture or partnership by the Partnership and such
Affiliate. In the event that the co-venturer were to elect to sell property held
in any such joint venture, however, the Partnership may not have sufficient
funds to exercise its right of first refusal to buy the other co-venturer's
interest in the property held by the joint venture. In the event that any joint
venture with an Affiliated entity holds interests in more than one property, the
interest in each such property may be specially allocated based upon the
respective proportion of funds invested by each co-venturer in each such
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property. Entering into such joint ventures with Affiliated entities will result
in certain conflicts of interest. (See "RISK FACTORS" and "CONFLICTS OF
INTEREST -- Joint Ventures with Affiliates of the General Partners.")
DISPOSITION POLICIES
The Partnership anticipates that prior to its termination and dissolution,
all of the Partnership's properties will be sold. The Partnership intends to
hold the various real properties in which it invests until such time as sale or
other disposition appears to be advantageous to achieve the Partnership's
investment objectives or until it appears that such objectives will not be met.
In deciding whether to sell properties, the Partnership will consider factors
such as potential capital appreciation, Cash Flow and federal income tax
considerations, including possible adverse federal income tax consequences to
the Limited Partners. The General Partners anticipate that the Partnership will
sell existing income-producing properties within eight to 12 years after
acquisition and will sell property acquired for development within eight to 12
years from the date of completion of such development. However, the General
Partners may exercise their discretion as to whether and when to sell a
property, and the Partnership will have no obligation to sell properties at any
particular time, except in the event that Limited Partners holding a majority of
the Units vote to liquidate the Partnership in response to a formal proxy to
liquidate. (See "SUMMARY OF PARTNERSHIP AGREEMENT -- Proxy to Liquidate.")
Cash Flow will not be reinvested in Partnership Properties. In addition,
Sale Proceeds generally will not be reinvested but will be distributed to the
Partners. Thus, the Partnership is intended to be self-liquidating in nature.
However, Sale Proceeds need not be so distributed if such proceeds are, in the
discretion of the General Partners, (i) used to purchase land underlying any of
the Partnership's Properties, (ii) used to buy out the interest of any co-
venturer or joint venture partner in a property which is jointly owned, (iii)
held as working capital reserves, or (iv) used to make capital improvements in
existing Partnership Properties. Notwithstanding the above, reinvestment of Sale
Proceeds will not occur unless sufficient cash will be distributed to pay any
federal or state income tax (assuming Limited Partners will be subject to a 35%
combined federal and state tax bracket) created by the sale of the property.
Although not required to do so, the Partnership will generally seek to sell
its properties for all cash. The Partnership may, however, accept terms of
payment from a buyer which include purchase money obligations secured by
mortgages as partial payment, depending upon then prevailing economic conditions
customary in the area in which the property being sold is located, credit of the
buyer and available financing alternatives. In such event, the full distribution
by the Partnership of the net proceeds of any sale may be delayed until the
notes are paid, sold or financed. The Partnership expects that some properties
may be sold on the installment basis under which only a portion of the sales
price will be received in the year of sale, with subsequent payments spread over
a number of years. Other property sales may provide for the entire payment of
the principal as a balloon payment due at maturity.
OTHER POLICIES
The Partnership will not invest as a limited partner in other limited
partnerships.
Except in connection with sales of properties by the Partnership where
purchase money obligations may be taken by the Partnership as partial payment,
the Partnership will not make loans to any person, nor will the Partnership
underwrite securities of other issuers, offer securities (except potentially for
purchase money obligations to sellers) in exchange for property, or invest in
securities of other issuers for the purpose of exercising control.
Notwithstanding the foregoing, the Partnership may invest in joint ventures or
partnerships as described above and in a corporation where real estate is the
principal asset and its acquisition can best be effected by the acquisition of
the stock of such corporation, subject to the limitations set forth below.
In an attempt to comply with the "real estate operating company" exemption
under the Plan Asset Regulations (see "INVESTMENT BY TAX-EXEMPT ENTITIES AND
ERISA CONSIDERATIONS"), the General
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Partners intend to invest more than 50% of the Partnership's assets in real
estate which is managed or developed and with respect to which the Partnership
will have the right to participate substantially in the management or
development activities. Specifically, the General Partners intend to structure
the management and development activities of the Partnership such that at all
times more than 50% of the Partnership's assets are invested in multi-tenant
properties with individually negotiated leases whereby maintenance of the common
areas and general maintenance activities with respect to such properties will be
the Partnership's responsibility and not passed through to the lessees of such
properties.
In addition, in an attempt to qualify for the 90% qualified income
exception to the treatment of the Partnership as a publicly traded partnership
taxable as a corporation under Section 7704 of the Code, the General Partners
intend to operate the Partnership such that at all times more than 90% of the
gross income of the Partnership will be derived from interest, real property
rents (excluding rents which are contingent on the profits of the lessees and
rents from rental of personal property) and gains from the sale of real
property. (See "FEDERAL INCOME TAX CONSEQUENCES -- Publicly Traded
Partnerships.")
The Partnership will not: (i) issue any Units after the termination of the
Offering or issue Units in exchange for property; (ii) make investments in real
estate mortgages (except in connection with the sale or other disposition of a
property); (iii) make loans to the General Partners or their Affiliates; (iv)
invest in or underwrite the securities of other issuers, including any publicly
offered or traded limited partnership interests, except for permitted temporary
investments pending utilization of Partnership funds as described below in
"CUSTODIAL AGENCY AGREEMENT," provided that following one year after the
commencement of operations of the Partnership no more than 45% of the value of
the Partnership's total assets (exclusive of Government securities and cash
items) will consist of, and no more than 45% of the Partnership's net income
after taxes (for the last four fiscal quarters combined) will be derived from,
securities other than (i) Government securities, or (ii) securities in a
corporation where real estate is the principal asset and the acquisition of such
real estate can best be effected by the acquisition of the stock of such
corporation, provided that any such corporation is either (A) a corporation
which is a majority owned subsidiary of the Partnership and which is not an
investment company, or (B) a corporation which is controlled primarily by the
Partnership, through which corporation the Partnership engages in the business
of acquisition and operation of real estate and which is not an investment
company.
CUSTODIAL AGENCY AGREEMENT
The Partnership entered into a Custodial Agency Agreement dated November
30, 1995 (the "Custodial Agency Agreement") with NationsBank of Georgia, N.A.
(the "Agent"), whereby all proceeds of this Offering obtained from Limited
Partners, all Partnership Properties to be acquired by the Partnership, and the
net proceeds from any sale of a Partnership Property will be placed in the
custody of the Agent, which will hold such funds and properties as agent for the
Partnership. Effective December 4, 1995, the assets of the Corporate Trust
Department of NationsBank of Georgia, N.A. were acquired by The Bank of New York
which is now serving as the Agent pursuant to the Custodial Agency Agreement.
The purpose for entering into the Custodial Agency Agreement is to ensure that
Partnership funds and Partnership Properties are protected against fraud and
theft. The Agent is not in any way affiliated with the General Partners or their
Affiliates.
The Agent will initially act as the Escrow Agent until the closing of the
Minimum Offering. Thereafter, under the terms of the Custodial Agency Agreement,
cash obtained from investors representing proceeds of this Offering will
continue to be delivered to the Agent and will be deposited into a custodial
account. Twenty percent of such Offering proceeds (representing selling
commissions, organizational and offering expenses, acquisition advisory fees and
initial working capital reserves) will immediately be redeposited into a
separate account in the name of the Partnership. The remaining 80% of such
proceeds will be invested in certificates of deposit, short-term debt
obligations and interest-bearing accounts. All interest and other income earned
on the proceeds held by the
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Agent in the custodial account, less the applicable fees described below, will
accrue to the benefit of the Partnership and be deposited into the Partnership's
account on a monthly basis.
When a property to be acquired by the Partnership is identified, upon
written instructions from the Partnership and receipt of an appraisal from an
independent appraiser, the Agent is authorized and directed under the Custodial
Agency Agreement to disburse funds held in the custodial account for the
acquisition of such property. The purchase price for any property shall not
exceed its appraised value. Title to properties acquired on behalf of the
Partnership or, in certain instances, title to joint venture or partnership
interests in which the Partnership may invest, will be held in the name of the
Agent, as agent for the Partnership. Title to properties may be held in any
legally recognized form, including in fee simple, undivided interest, as a co-
tenant or as a lessee. There is no requirement that any joint venture partner,
co-tenant or other co-owner of properties purchased jointly with the Partnership
also be subject to a custodial agency agreement.
All properties acquired will be managed by Wells Management Company, Inc.
or by such other management companies that may be designated by the Partnership.
All rents, revenues and other income relating to Partnership Properties shall be
payable to the Partnership, and the Partnership will be responsible for paying
all operating expenses, maintenance, repairs, taxes, insurance and liabilities
relating to such properties and for making distributions of Net Cash From
Operations, if any.
When the Partnership decides to sell any of its properties, upon written
instruction from the Partnership and the receipt of an appraisal from an
independent appraiser evidencing that the sales price of the property to be sold
is not less than 90% of the appraised value of such property, the Agent will be
authorized to execute such real estate transfer documents as may be necessary to
effect any such sale of a Partnership property. After the closing, the
Partnership's allocable share of Sale Proceeds shall be paid to the Agent and
deposited into the custodial account. All such Sale Proceeds will be disbursed
to the Limited Partners and the General Partners of the Partnership directly by
the Agent upon receipt of and pursuant to a list obtained from the General
Partners setting forth the names, amounts to be disbursed and addresses of the
Limited Partners of the Partnership.
The Custodial Agency Agreement provides that the Agent shall in all
instances hold itself out as agent of the Partnership and not as principal in
all dealings with third parties. The Custodial Agency Agreement prohibits the
Agent from applying funds or properties held on behalf of the Partnership in any
manner except for the exclusive benefit of the Partnership. While the Agent will
have certain fiduciary duties to the Partnership pursuant to the Custodial
Agency Agreement, the General Partners will not be contracting away their
fiduciary duties under common law, and the existence of the Custodial Agency
Agreement between the Agent and the Partnership will not in any way reduce or
eliminate the fiduciary duties the General Partners have to the Partnership and
the Limited Partners. Under the Custodial Agency Agreement, the Partnership
agrees to indemnify and hold the agent harmless from any liabilities, losses,
claims, damages and expenses which the Agent might sustain as a result of acting
as agent for the Partnership, provided that any such liability is not the result
of gross negligence or willful misconduct by the Agent.
The Custodial Agency Agreement provides that the Agent shall be paid during
the term of the Custodial Agency Agreement an annual administrative fee equal to
five basis points ($500 per $1,000,000 held) and an automated cash management
fee of .25% per annum, each of which fees are calculated based on the market
value of assets held as agent for the Partnership.
REAL PROPERTY INVESTMENTS
As of the date of this Prospectus, the Partnership has not acquired nor
contracted to acquire any specific real properties. The General Partners are
continually evaluating various potential property investments and engaging in
discussions and negotiations with sellers, developers and potential tenants
regarding the purchase and development
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of properties for the Partnership and prior programs. At such time during the
negotiations for a specific property as the General Partners believe that a
reasonable probability exists that the Partnership will acquire such property,
this Prospectus will be supplemented to disclose the negotiations and pending
acquisition. Based upon the General Partners' experience and acquisition
methods, this will normally occur on the signing of a legally binding purchase
agreement for the acquisition of a specific property, but may occur before or
after such signing or upon the satisfaction or expiration of major contingencies
in any such purchase agreement, depending on the particular circumstances
surrounding each potential investment. A supplement to this Prospectus will
describe any improvements proposed to be constructed thereon and other
information considered appropriate for an understanding of the transaction.
Further data will be made available after any pending acquisition is
consummated, also by means of a supplement to this Prospectus, if appropriate.
IT SHOULD BE UNDERSTOOD THAT THE INITIAL DISCLOSURE OF ANY PROPOSED ACQUISITION
CANNOT BE RELIED UPON AS AN ASSURANCE THAT THE PARTNERSHIP WILL ULTIMATELY
CONSUMMATE SUCH PROPOSED ACQUISITION NOR THAT THE INFORMATION PROVIDED
CONCERNING THE PROPOSED ACQUISITION WILL NOT CHANGE BETWEEN THE DATE OF SUCH
SUPPLEMENT AND ACTUAL PURCHASE.
It is intended that the proceeds of this Offering will be invested in
properties in accordance with the Partnership's investment policies. In the
event that all of the Units offered hereby are sold, it is anticipated that the
Partnership will invest in four to six properties. Funds available for
investment in Partnership Properties which are not expended or committed to the
acquisition or development of specific real properties on or before the later of
the second anniversary of the effective date of the Registration Statement or
one year after the termination of the Offering and not reserved for working
capital purposes will be returned to the Limited Partners. (See "DISTRIBUTIONS
AND ALLOCATIONS" as to when funds shall be deemed committed for this purpose.)
Adequate insurance coverage will be obtained for all properties in which
the Partnership will invest.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of the date of this Prospectus, the Partnership had not yet commenced
active operations. The Partnership will not commence active operations until it
has received and accepted subscriptions for a minimum of 125,000 Units
($1,250,000).
Following achievement of such funding level, subscription proceeds may be
released to the Partnership from escrow and applied to the payment or
reimbursement of selling commissions and other Organization and Offering
Expenses, leaving estimated net proceeds available for investment and operations
of approximately $1,062,500. (See "ESTIMATED USE OF PROCEEDS.") Thereafter, the
Partnership will experience a relative increase in liquidity as additional
subscriptions for Units are received, and a relative decrease in liquidity as
net Offering proceeds are expended in connection with the acquisition,
development and operation of Partnership Properties.
As of the initial date of this Prospectus, the Partnership has not entered
into any arrangements creating a reasonable probability that any specific
property will be acquired by the Partnership. The number of Partnership
Properties to be acquired by the Partnership will depend upon the number of
Units sold and the resulting amount of the net proceeds available for investment
in properties available to the Partnership. (See "RISK FACTORS.")
The General Partners are not aware of any material trends or uncertainties,
favorable or unfavorable, other than national economic conditions affecting real
estate generally, which may be reasonably anticipated to have a material impact
on either capital resources or the revenues or income to be derived from the
operation of Partnership Properties.
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Until required for the acquisition, development or operation of properties,
net Offering proceeds will be kept in short-term, liquid investments. Because
the Partnership will purchase properties on an all cash basis and the vast
majority of leases for the properties acquired by the Partnership will provide
for tenant reimbursement of operating expenses, it is not anticipated that a
permanent reserve for maintenance and repairs of Partnership properties will be
established. However, to the extent that the Partnership has insufficient funds
for such purposes, the General Partners will advance to the Partnership an
aggregate amount of up to 1% of Gross Offering Proceeds for maintenance and
repairs of Partnership Properties. The General Partners also may, but are not
required to, establish reserves from Gross Offering Proceeds, out of Cash Flow
generated by operating properties or out of Nonliquidating Net Sale Proceeds.
INVESTMENT BY TAX-EXEMPT ENTITIES AND
ERISA CONSIDERATIONS
While the General Partners have attempted to structure the Partnership in
such a manner that it will be an attractive investment vehicle for Qualified
Plans, IRAs and other tax-exempt entities, in considering an investment in the
Partnership of a portion of the assets of a Retirement Plan, the plan's
fiduciary should consider all applicable provisions of the Code and ERISA. In
this regard, IRAs which are not sponsored or endorsed by an employer or by an
employee organization and Keogh Plans under which only partners or a sole
proprietor are participants generally are not subject to the provisions of
ERISA; however, fiduciaries of such accounts should review carefully the
exceptions set forth below. In general, Qualified Plan fiduciaries should
consider: (i) whether the investment is in accordance with the documents and
instruments governing such Qualified Plan; (ii) whether the investment satisfies
the prudence and diversification requirements of Sections 404(a)(1)(B) and
404(a)(1)(C) of ERISA; (iii) whether the investment will result in UBTI to the
Qualified Plan (or to an investing IRA, Keogh Plan or other tax-exempt entity)
(see "FEDERAL INCOME TAX CONSEQUENCES -- INVESTMENT BY QUALIFIED PLANS AND OTHER
TAX-EXEMPT ENTITIES"); (iv) whether there is sufficient liquidity for the
Qualified Plan after taking this investment into account; (v) the need to value
the assets of the Qualified Plan annually; and (vi) whether the investment would
constitute or give rise to a prohibited transaction under either Section 406 of
ERISA or Section 4975 of the Code.
ERISA also requires generally that the assets of employee benefit plans be
held in trust and that the trustee, or a duly authorized investment manager
(within the meaning of Section 3(38) of ERISA), have exclusive authority and
discretion to manage and control the assets of the plan. Persons who are
fiduciaries of employee benefit plans subject to ERISA have certain duties
imposed on them by ERISA and, as noted above, certain transactions between an
employee benefit plan and the parties in interest with respect to such plan
(including fiduciaries) are prohibited. Similar prohibitions apply to Retirement
Plans under the Code, and IRAs and Keogh Plans covering only self-employed
individuals which are not subject to ERISA are, nevertheless, subject to the
prohibited transaction rules under the Code. For purposes of both ERISA and the
Code, any person who exercises any authority or control with respect to the
management or disposition of the assets of a Retirement Plan is considered to be
a fiduciary of such Retirement Plan (subject to certain exceptions not here
relevant).
Potential investors who intend to purchase Units in their IRAs and any
trustee of an IRA or other fiduciary of a Retirement Plan considering an
investment in Units should take into consideration the limited liquidity of an
investment in the Units as it relates to applicable minimum distribution
requirements under the Code for the IRA or other Retirement Plan. If the Units
are still held in the IRA or Retirement Plan and the Partnership Properties have
not yet been sold at such time as mandatory distributions are required to
commence to the IRA beneficiary or Qualified Plan participant, applicable
provisions of the Code and Regulations will likely require that a distribution
in kind of the Units be made to the IRA beneficiary or Qualified Plan
participant. Any such distribution in kind of Units must be included in the
taxable income of the IRA beneficiary or Qualified Plan participant for the year
in which the Units are received at the then current fair market value of the
Units without any corresponding cash
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distributions with which to pay the income tax liability arising out of any such
distribution. (See "RISK FACTORS.")
PLAN ASSETS - GENERALLY
ERISA provides a comprehensive statutory scheme regarding the investment in
and management of a plan's assets. While the General Partners have used their
best efforts to structure the Partnership so that the assets of the Partnership
will not be deemed to be assets of the Retirement Plans investing as Limited
Partners ("Plan Assets"), in the event that the assets of the Partnership were
deemed to be Plan Assets, the General Partners would be considered to be plan
fiduciaries under ERISA (and the Code), and certain contemplated transactions
between the Partnership and the General Partners may be deemed to be "prohibited
transactions." Additionally, if the assets of the Partnership are deemed to be
Plan Assets, the standards of prudence and other provisions of Title I of ERISA
applicable to investments by Retirement Plans would extend (as to all plan
fiduciaries) to the General Partners with respect to investments made by the
Partnership.
PLAN ASSETS - CURRENT LAW
The definition of Plan Assets was addressed initially by the Department of
Labor in 1975 by the adoption of Interpretive Bulletin 75-2, which provided that
the assets of a corporation or partnership in which an employee benefit plan
invested would not generally be treated as assets of such plan. The Department
stated that:
Generally, investment by a plan in securities (within the meaning
of section 3(20) of the Employee Retirement Income Security Act of
1974) of a corporation or partnership will not, solely by reason of
such investment, be considered to be an investment in the underlying
assets of such corporation or partnership so as to make such assets of
the entity "plan assets" and thereby make a subsequent transaction
between the party in interest and the corporation or partnership a
prohibited transaction under Section 406 of the Act.
On November 13, 1986, the Department of Labor issued final regulations (the
"Plan Asset Regulations") relating to the definition of Plan Assets, which
became effective generally for the characterization of assets in investments
made after March 13, 1987. The Plan Asset Regulations adopt the general
statement regarding Plan Assets set forth in Interpretive Bulletin 75-2;
however, the Plan Asset Regulations further provide that assets of investment
entities in which Retirement Plans make equity investments will be treated as
assets of such plans unless such investments are in publicly offered securities,
are in securities offered by an investment company registered under the
Investment Company Act of 1940, or come within one of the specific exemptions
set forth below. As the Partnership is not a registered investment company, the
exemptions contained in the Plan Asset Regulations which may apply to the
Partnership include: (i) investments in "publicly offered securities" (generally
interests which are freely transferable, widely-held and registered with the
Securities and Exchange Commission); (ii) investments in interests in "real
estate operating companies;" and (iii) investments in which equity participation
by "benefit plan investors" is not significant. The Plan Asset Regulations
provide that equity participation in an entity would be "significant" if at any
time 25% or more of the value of any class of equity interest is held by benefit
plan investors. The term "benefit plan investors" is broadly defined to include
any employee pension or welfare benefit plan, whether or not subject to ERISA,
any plan described in Section 4975(e)(1) of the Code and any entity whose
underlying assets include Plan Assets by reason of plan investment in the
entity. The General Partners do not anticipate that the Partnership will qualify
for the exemption described in (iii) above.
EXEMPTIONS UNDER PLAN ASSET REGULATIONS
As noted above, if a Retirement Plan acquires "publicly offered
securities," the assets of the issuer of the securities are not deemed to be
Plan Assets. Under the Plan Asset Regulations, the definition of publicly
offered securities requires that such securities must be "widely-held," "freely
transferable" and must satisfy certain registration requirements under federal
securities laws. Although the Partnership should satisfy the registration
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requirements under this definition, the determinations of whether a security is
"widely-held" and "freely transferable" are inherently factual matters. The Plan
Asset Regulations provide that a class of securities will be "widely-held" if it
is held by 100 or more persons. Accordingly, to preserve the ability of the
Partnership to qualify for this exemption, the General Partners may suspend the
offering of Units to Retirement Plans, if upon the closing of the Minimum
Offering less than 100 persons have acquired each class of Units and, in such
case, would continue the offering to Retirement Plans only after at least 100
persons have acquired each class of Units.
With respect to the "freely transferable" requirement, the Plan Asset
Regulations provide several examples of restrictions on transferability with
respect to offerings in which the minimum investment is $10,000 or less which,
absent unusual circumstances, will not, either alone or in any combination,
cause the rights of ownership to be considered not "freely transferable." The
allowed restrictions are based upon restrictions commonly found in public real
estate limited partnerships which are imposed to comply with state and federal
law, to assure continued eligibility for favorable tax treatment and to avoid
certain practical administrative problems. The Partnership Agreement is intended
to satisfy the freely transferable requirement with respect to the Units. It
should be noted in this regard, however, that because certain adverse tax
consequences can result if the Partnership were to be characterized as a
"publicly traded partnership" under Section 7704 of the Code (see "FEDERAL
INCOME TAX CONSEQUENCES -- PUBLICLY TRADED PARTNERSHIPS"), certain additional
restrictions on the transferability of Units have been incorporated into the
Partnership Agreement which are intended to prevent such reclassification of the
Partnership as a publicly traded partnership (the "Section 7704 Restrictions").
In this regard, the Plan Asset Regulations provide specifically that any
"restriction on, or prohibition against, any transfer or assignment which would
either result in a termination or reclassification of the entity for federal or
state tax purposes" will ordinarily not alone or in combination with other
restrictions affect a finding that securities are "freely transferable." The
Plan Asset Regulations were promulgated prior to the enactment of Section 7704
of the Code, however, and accordingly, the incorporation of the Section 7704
Restrictions into the Partnership Agreement may have the effect of making the
"publicly offered securities" exemption unavailable to the Partnership.
On the other hand, if the Department of Labor interprets the Section 7704
Restrictions in the Partnership Agreement consistently with the specific
exemption language in the Plan Asset Regulations set forth above, the
Partnership should qualify for the publicly offered securities exemption
contained in the Plan Asset Regulations. However, because of the factual nature
of the determination and lack of guidance as to the meaning of the term "freely
transferable," particularly in light of the Section 7704 Restrictions, there can
be no assurance that the Partnership will, in fact, qualify for this exemption.
Even if the Partnership were not to qualify for the "publicly offered
securities" exemption, the Plan Asset Regulations also provide an exemption from
the Plan Assets definition with respect to securities issued by a "real estate
operating company." An entity is a real estate operating company if, during the
relevant valuation periods defined in the Plan Asset Regulations, at least 50%
of its assets (other than short-term investments pending long-term commitment or
distribution to investors) valued at cost, are invested in real estate which is
managed or developed and with respect to which the Partnership has the right to
participate substantially in the management or development activities. The
Partnership intends to devote more than 50% of its assets to management and
development of real estate; however, an example contained in the Plan Asset
Regulations indicates that, although some management and development activities
may be performed by independent contractors rather than by the entity itself, if
over one-half of the entity's properties are acquired subject to long-term
leases under which substantially all management and maintenance activities with
respect to the properties are the responsibility of the lessees thereof, then
the entity is not eligible for the real estate operating company exemption.
In an attempt to comply with the real estate operating company exemption
under the Plan Asset Regulations, the General Partners intend to structure the
management and development activities of the Partnership such that at all times
more than 50% of the Partnership's assets are invested in multi-tenant
properties with individually negotiated leases whereby maintenance of the common
areas and general maintenance activities with respect to such properties will be
the Partnership's responsibility and not passed through to the lessees of such
properties. (See "INVESTMENT OBJECTIVES AND CRITERIA.") Due to the uncertainty
of the application of
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the standards set forth in the examples in the Plan Asset Regulations, however,
there can be no assurance as to the Partnership's ability to qualify for the
real estate operating company exemption.
PLAN ASSET CONSEQUENCES - PROHIBITED TRANSACTION EXCISE TAX
If the Partnership were deemed to hold Plan Assets, additional issues
relating to the "Plan Assets" and "prohibited transaction" concepts of ERISA and
the Code arise by virtue of the General Partners' ownership of interests in the
Partnership and the possible relationship between the General Partners or the
Partnership and any Retirement Plan which may purchase Units. Section 406 of
ERISA and Section 4975 of the Code prohibit Retirement Plans from engaging in
certain transactions with specified parties involving Plan Assets. These parties
are referred to as "parties in interest," as defined in Section 3(14) of ERISA,
and as "disqualified persons," as defined in Section 4975(e)(2) of the Code.
These definitions include "persons providing services to the plan" and certain
of their affiliates. Thus, if the General Partners' interest in the Partnership
were deemed to exceed certain threshold levels set forth in the Code and ERISA,
the Partnership, itself, could be deemed to be a disqualified person and an
investment in Units could be a prohibited transaction; however, the General
Partners do not believe such thresholds have been exceeded with respect to their
interest in the Partnership or that the Partnership should otherwise be deemed
to be a party in interest or a disqualified person. Further, any transaction
between the Partnership and a party in interest or disqualified person with
respect to an investing Retirement Plan could be a prohibited transaction if the
Partnership were deemed to hold Plan Assets.
In addition, if the Partnership is deemed to hold Plan Assets, each General
Partner could be characterized as a "fiduciary" with respect to such assets, and
would thus be a "party in interest" under ERISA and a "disqualified person"
under the Code with respect to investing Retirement Plans. If such relationship
were to exist, various transactions between the General Partners or their
Affiliates and the Partnership could constitute prohibited transactions because
a fiduciary may not deal with Plan Assets in its own interest or represent a
person whose interests are adverse to those of the plan in a transaction
involving Plan Assets. In addition, it could be argued that, because the General
Partners share in certain Partnership distributions and tax allocations in a
manner disproportionate to their Capital Contributions to the Partnership, the
General Partners are being compensated directly out of Plan Assets rather than
the Partnership assets in exchange for the provision of services, i.e.,
establishment of the Partnership and making it available as an investment to
Retirement Plans. If this were the case, absent a specific exemption applicable
to the transaction, a prohibited transaction could be deemed to have occurred
between investing Retirement Plans and the General Partners.
If it is determined by the Department of Labor or the IRS that a prohibited
transaction has occurred, the General Partners and any party in interest that
has engaged in any such prohibited transaction would be required to eliminate
the prohibited transaction by reversing the transaction and make good to the
Retirement Plan any loss resulting from the prohibited transaction. In addition,
each party in interest would be liable to pay an excise tax equal to 5% of the
amount involved in the transaction for each year in which the transaction
remains uncorrected. Moreover, if the fiduciary or party in interest does not
correct the transaction within a specified period, the party in interest could
also be liable for an additional excise tax in an amount equal to 100% of the
amount involved. Plan fiduciaries who make the decision to invest in Units
could, under certain circumstances, be liable as co-fiduciaries for actions
taken by the Partnership or the General Partners.
Special rules apply to an investing IRA. If the Partnership were deemed to
be a party in interest or disqualified person, as described above, the tax-
exempt status of the IRA could be lost by reason of such investment because a
transaction between the Partnership and the account would be deemed under
Section 4975 of the Code to constitute a prohibited transaction.
It should be noted that even if the assets of the Partnership are deemed,
as the General Partners anticipate, not to be Plan Assets under the Plan Asset
Regulations, Interpretive Bulletin 75-2 indicates that in certain circumstances
an investment in the Partnership by a Retirement Plan may still be a prohibited
transaction. For
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example, if a Retirement Plan may, by reason of its investment, compel the
Partnership to invest in a property or engage in transactions which such
Retirement Plan could not enter into directly under the prohibited transaction
rules, then the provisions of Interpretive Bulletin 75-2 and the Plan Asset
Regulations would not preclude recharacterization of such investment as a
prohibited transaction. The General Partners have represented in this regard
that no such arrangements will be entered into with investing Retirement Plans,
and therefore it is unlikely that these provisions of Interpretive Bulletin 75-2
would be invoked by the Department of Labor.
ANNUAL VALUATION
Fiduciaries of Retirement Plans are required to determine annually the fair
market value of the assets of such Retirement Plans, typically, as of the close
of a plan's fiscal year. To enable the fiduciaries of Retirement Plans subject
to the annual reporting requirements of ERISA to prepare reports relating to an
investment in the Partnership, Limited Partners will be furnished with an annual
statement of estimated Unit value. This annual statement will report the
estimated value of each Unit based upon the estimated amount a Unit holder would
receive if all Partnership assets were sold as of the close of the Partnership's
fiscal year for their estimated values and if such proceeds (without reduction
for selling expenses), together with the other funds of the Partnership, were
distributed in liquidation of the Partnership. Such estimated values will be
based upon annual appraisals of Partnership Properties performed by the General
Partners, and no independent appraisals will be obtained. However, the General
Partners are required to obtain the opinion of an independent third party
stating that their estimates of value are reasonable and were prepared in
accordance with appropriate methods for valuing real estate. For the first three
full fiscal years following the termination of the Offering, the value of a Unit
will be deemed to be $10.00, and no valuations will be performed. The estimated
value per Unit will be reported to Limited Partners in the Partnership's next
annual or quarterly report on Form 10-K or 10-Q sent to the Limited Partners for
the period immediately following completion of the valuation process. There can
be no assurance that: (i) the estimated value per Unit will actually be realized
by the Partnership or by the Limited Partners upon liquidation (in part because
estimates do not necessarily indicate the price at which properties could be
sold and because no attempt will be made to estimate the expenses of selling any
property); or (ii) Limited Partners could realize estimated net asset value if
they were to attempt to sell their Units, because no public market may exist for
such Units.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended to summarize all of the federal income
tax considerations material to an investment in the Partnership. This summary is
based upon the Code, Treasury Regulations (including Temporary and Proposed
Regulations) promulgated thereunder ("Regulations"), current positions of the
Internal Revenue Service (the "IRS") contained in revenue rulings and revenue
procedures, other current administrative positions of the IRS and existing
judicial decisions in effect as of the date of this Prospectus. Investors should
note that it is not feasible to comment on all aspects of federal, state and
local tax laws that may affect each Limited Partner in the Partnership. The
federal income tax considerations discussed below are necessarily general in
nature, and their application may vary depending upon a Limited Partner's
particular circumstances. No representations are made as to state and local tax
consequences. Further, the Partnership does not intend to request a ruling from
the IRS with respect to any of the federal income tax matters discussed below,
and on certain matters no ruling could be obtained even if requested.
Investors should also note that a great deal of uncertainty exists with
respect to certain recently enacted and amended provisions of the Code. There
can be no assurance that the present federal income tax laws applicable to
Limited Partners and the operation of the Partnership will not be further
changed prospectively or retroactively by additional legislation, by new
Regulations, by judicial decisions or by administrative interpretations, any of
which could adversely affect a Limited Partner, nor is there any assurance that
there will not be a difference of opinion as to the interpretation or
application of current federal income tax laws as discussed herein.
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FOR THE FOREGOING REASONS, EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT
WITH HIS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE AND LOCAL INCOME TAX
CONSEQUENCES ARISING FROM THE PURCHASE OF UNITS. NOTHING IN THIS PROSPECTUS (OR
ANY PRIOR OR SUBSEQUENT COMMUNICATION FROM THE GENERAL PARTNERS, THEIR
AFFILIATES, EMPLOYEES OR ANY PROFESSIONAL ASSOCIATED WITH THIS OFFERING) IS OR
SHOULD BE CONSTRUED AS LEGAL OR TAX ADVICE TO A POTENTIAL INVESTOR IN THE
PARTNERSHIP. INVESTORS SHOULD BE AWARE THAT THE IRS MAY NOT AGREE WITH ALL TAX
POSITIONS TAKEN BY THE PARTNERSHIP AND THAT LEGISLATIVE, ADMINISTRATIVE OR
JUDICIAL DECISIONS MAY REDUCE OR ELIMINATE ANTICIPATED TAX BENEFITS OF AN
INVESTMENT IN THE PARTNERSHIP.
IT IS NOT ANTICIPATED THAT LIMITED PARTNERS HOLDING CLASS A STATUS UNITS
WILL RECEIVE ANY TAX BENEFITS WHATSOEVER. THEREFORE, ANY DISCUSSION HEREIN OF
THE AVAILABILITY AND EXTENT OF INCOME TAX BENEFITS TO LIMITED PARTNERS WILL
APPLY PRINCIPALLY TO LIMITED PARTNERS HOLDING CLASS B STATUS UNITS.
PROSPECTIVE INVESTORS WHO ARE FIDUCIARIES OF RETIREMENT PLANS SHOULD
CAREFULLY READ "INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA CONSIDERATIONS" AND
"INVESTMENT BY QUALIFIED PLANS AND OTHER TAX-EXEMPT ENTITIES" IN THIS SECTION.
The discussion below is directed primarily to individual taxpayers who are
citizens of the United States. Accordingly, persons who are trusts, corporate
investors in general, corporate investors that are subject to specialized rules
(such as Subchapter S corporations) and any potential investor who is not a
United States citizen are cautioned to consult their own personal tax advisors
before investing in the Partnership.
TAX OPINION
The Partnership retained Branch, Pike & Ganz to render an opinion on
October 31, 1994 concerning the material federal income tax issues relating to
an investment in the Partnership, which opinion was supplemented by an opinion
of Holland & Knight (successor by merger to Branch, Pike & Ganz) ("Counsel") on
December 28, 1995 (as supplemented, the "Tax Opinion"). Potential investors
should be aware that the opinions of Counsel are based upon the accuracy of the
facts described in this Prospectus and facts represented to Counsel by the
General Partners, and assume that the Partnership will be operated strictly in
accordance with the Partnership Agreement. The accuracy of such facts and
representations is absolutely critical to the accuracy of the Tax Opinion, and
any alteration of the facts may adversely affect the opinions rendered.
Furthermore, the opinions of Counsel are based upon existing law, applicable
Regulations and current published administrative positions of the IRS contained
in revenue rulings, revenue procedures and judicial decisions, all of which are
subject to change either prospectively or retroactively. Changes in the Code and
the Regulations subsequent to the date of the Tax Opinion are not addressed
therein, and any such changes could have a material adverse effect upon the tax
treatment of an investment in the Partnership.
In reliance on certain representations and assumptions described herein and
in the Tax Opinion, and subject to the qualifications set forth herein and in
the Tax Opinion, Counsel in the Tax Opinion concludes that, in the aggregate,
substantially more than half of the material federal income tax benefits, in
terms of their financial impact on a typical investor, will more likely than not
be realized by an investor in the Partnership, and that the following material
tax issues are more likely than not to have a favorable outcome on the merits
for federal income tax purposes if challenged by the IRS, litigated and
judicially decided:
(1) The Partnership will be classified as a partnership for federal income
tax purposes and not as an association taxable as a corporation;
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(2) The Partnership will not be classified as a "publicly traded
partnership" under Section 7704 of the Code since the Partnership Agreement
limits transfers of Units, except for transfers of Units which satisfy
applicable safe harbors from "publicly traded partnership" status adopted by the
IRS;
(3) A Limited Partner's interest in the Partnership will be treated as a
passive activity;
(4) Partnership items of income, gain, loss, deduction and credit will be
allocated among the General Partners and the Limited Partners substantially in
accordance with the allocation provisions of the Partnership Agreement;
(5) The Partnership will be treated for income tax purposes as the owner
of Partnership Properties, title to which is held in the name of the Agent under
the terms of the Custodial Agency Agreement;
(6) The activities contemplated by the Partnership will be considered
activities entered into for profit by the Partnership; and
(7) The Partnership is not currently required to register as a tax shelter
with the IRS under Section 6111 of the Code prior to the offer and sale of the
Units based upon the General Partners' representation that the "tax shelter
ratio" (which is generally determined by dividing an investor's share of
aggregate deductions from the investment, determined without regard to income,
by the amount of the investor's capital contributions) with respect to an
investment in the Partnership will not exceed 2 to 1 for any investor as of the
close of any year in the Partnership's first five calendar years.
Investors should note that any statement that it is "more likely than not"
that a tax position would be sustained means that in Counsel's judgment at least
a 51% chance of prevailing exists if the IRS were to challenge the allowability
of such tax position and such challenge were to be litigated and judicially
decided.
It should be further noted that Counsel in the Tax Opinion is unable to
form opinions as to the probable outcome of certain material tax aspects of the
transactions described in this Prospectus if challenged by the IRS, litigated
and judicially decided, including (i) the deductibility of and timing of
deductions for certain payments made by the Partnership, including but not
limited to fees paid to the General Partners and their Affiliates, (ii) the
issue of whether the Partnership will be considered to hold any or all of its
properties primarily for sale to customers in the ordinary course of business,
and (iii) whether the Partnership will be classified as a "tax shelter" under
Section 6662(d) of the Code for purposes of determining certain potential
exemptions from the applicability of the accuracy-related penalty provisions.
(See "RISK FACTORS.")
In addition, potential investors should note that the IRS may also attempt
to disallow or limit some of the tax benefits derived from an investment in the
Partnership by applying certain provisions of the Code at the individual or
partner level rather than at the partnership level. In this connection, Counsel
in the Tax Opinion gives no opinion or conclusion as to the tax consequences to
Limited Partners with regard to any material tax issue which impacts at the
individual or partner level and is dependent upon an individual Limited
Partner's tax circumstances, including but not limited to, issues relating to
the alternative minimum tax, investment interest limitations or the application
of Section 183 of the Code at the partner level. Accordingly, potential
investors are urged to consult with and rely upon their own tax advisors with
respect to all tax issues which impact at the partner or individual level.
As of the date of the Tax Opinion, no properties have been acquired by the
Partnership, nor has the Partnership entered into any contracts to acquire any
properties. Therefore, it is impossible at this time for Counsel to opine on the
application of the federal income tax law to the specific facts which will exist
when properties are acquired by the Partnership.
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Neither the Tax Opinion nor this description of the tax consequences of an
investment in the Partnership is a guarantee of the tax results of an investment
in the Partnership, nor does either have any binding effect or official status
of any kind. No assurance can be given that the conclusions reached in the Tax
Opinion would be sustained by a court if such were contested by the IRS. The Tax
Opinion should not be viewed as a guarantee that the income tax effects
described in this Prospectus will be achieved or that a court would hold that
there is "substantial authority" for the positions taken by the Partnership with
respect to any income tax issues.
PARTNERSHIP STATUS GENERALLY
The ability to obtain the income tax attributes anticipated from an
investment in Units of the Partnership depends upon the classification of the
Partnership as a partnership for federal income tax purposes and not as an
association taxable as a corporation. The General Partners do not intend to
request a ruling from the IRS as to the classification of the Partnership as a
partnership for income tax purposes.
The current Regulations provide that an organization that qualifies as a
limited partnership under state law such as the Partnership will be classified
as a partnership unless it has more corporate characteristics than noncorporate
characteristics. For this purpose, four major corporate characteristics are
identified in applicable Regulations. Of these major corporate characteristics,
the Partnership will have the corporate characteristic of centralized
management; however, it should not be deemed to have the corporate
characteristics of: (i) continuity of life (because the retirement, withdrawal
or removal of both General Partners or the last remaining General Partner will
cause a dissolution of the Partnership unless a majority in interest of the
Limited Partners elect to continue the business of the Partnership); (ii)
limited liability (because the General Partners have "substantial assets" in
addition to their interests in the Partnership and will be exposed to general
liability to creditors of the Partnership); and (iii) free transferability of
interests (because the Partnership Agreement contains substantial restrictions
on the transferability of the Units, which are intended to avoid termination or
reclassification of the Partnership, to effect compliance with federal and state
securities laws and to facilitate administration of Partnership affairs).
Based upon the current Regulations, IRS rulings and judicial decisions
under Section 7701(a) of the Code, all of which are subject to change, and based
upon certain representations of the General Partners and other assumptions,
Counsel in the Tax Opinion has concluded that the Partnership will more likely
than not be treated as a partnership for federal income tax purposes and not as
an association taxable as a corporation, if such issue were challenged by the
IRS, litigated and judicially decided. In rendering such opinion, Counsel has
relied upon the fact that the Partnership is duly organized as a limited
partnership under the laws of the State of Georgia and upon the representation
by the General Partners that the Partnership will be organized and operated
strictly in accordance with the provisions of the Partnership Agreement.
In the event that the Partnership, for any reason, were to be treated for
federal income tax purposes as an association taxable as a corporation, the
Partners of the Partnership would be treated as stockholders with the following
results, among others: (i) the Partnership would become a taxable entity subject
to the federal income tax imposed on corporations; (ii) items of income, gain,
loss, deduction and credit would be accounted for by the Partnership on its
federal income tax return and would not flow through to the Partners; and (iii)
distributions of cash would generally be treated as dividends taxable to the
Partners at ordinary income rates, to the extent of current or accumulated
earnings and profits, and would not be deductible by the Partnership in
computing its income tax.
The remaining summary of federal income tax consequences in this Section
assumes that the Partnership will be classified as a partnership for federal
income tax purposes.
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PUBLICLY TRADED PARTNERSHIPS
Classification of the Partnership as a "publicly traded partnership" could
result in (a) the Partnership being taxable as a corporation (see "Partnership
Status Generally" above), and (b) the treatment of net income of the Partnership
as portfolio income rather than passive income (see "Passive Loss Limitations"
below).
A publicly traded partnership is generally defined as any partnership whose
interests are traded on an established securities market or are readily
tradeable on a secondary market or the substantial equivalent thereof. In this
regard, in June 1988, the IRS issued Notice 88-75 which provided certain safe
harbor exclusions from classification as a publicly traded partnership. On
November 29, 1995, the IRS issued Regulations under Section 7704 of the Code
(the "Section 7704 Regulations") giving further guidance on treatment as a
publicly traded partnership.
One of the safe harbors contained in Notice 88-75 provided generally that
interests in a partnership would not be considered readily tradeable on a
secondary market or the substantial equivalent thereof if the sum of the
partnership units that are sold or otherwise disposed of (including redemptions
or other purchases by a partnership of its own units but excluding certain
disregarded transfers) during any taxable year does not exceed 5% of the total
interest in the partnership's capital or profits (the "5% Safe Harbor").
Disregarded transfers include transfers by gift, transfers at death, transfers
between family members and distributions from a qualified retirement plan. In
addition, Notice 88-75 provided a second safe harbor (the "2% Safe Harbor") from
the definition of a publicly traded partnership containing certain additional
complex rules for avoiding treatment as a publicly traded partnership. The
Section 7704 Regulations contain definitions of what constitutes an established
securities market and a secondary market or the substantial equivalent thereof
and what transfers may be disregarded in determining whether such definitions
are satisfied with respect to the activities of a partnership. The Section 7704
Regulations further provide certain safe harbors (the "secondary market safe
harbors") which, after taking into consideration all transfers other than those
deemed disregarded, may be satisfied in order to avoid classification of such
transfers as being made on a secondary market or the substantial equivalent
thereof. One of the secondary market safe harbors provides that interests in a
partnership will not be considered tradeable on a secondary market or the
substantial equivalent thereof if the sum of the partnership interests
transferred during any taxable year, other than certain disregarded transfers,
does not exceed 2% of the total interest in the partnership's capital or
profits. Disregarded transfers include, among other things, transfers by gift,
transfers at death, transfers between family members, distributions from a
qualified retirement plan and block transfers, which are defined as transfers by
a partner during any 30 calendar day period of partnership units representing
more than 2% of the total interest in a partnership's capital or profits. The
Section 7704 Regulations are effective for taxable years beginning after
December 31, 1995; provided, however, that if a partnership is deemed to be
actively engaged in an activity before December 4, 1995, the Section 7704
Regulations would not apply to the partnership until taxable years beginning
after December 31, 2005. Under this transition rule, any such partnership may
continue to rely on the provisions of Notice 88-75 described above.
The General Partners do not believe that Units in the Partnership are
traded on an established securities market or a secondary market or a
substantial equivalent thereof as defined in the Section 7704 Regulations. The
General Partners have further represented that they do not intend to cause the
Units to be traded on an established securities market or a secondary market in
the future. Further, the Partnership Agreement limits Unit transfers of all
types to transfers of Units which satisfy either the 5% Safe Harbor or the 2%
Safe Harbor of Notice 88-75 or an applicable safe harbor contained in the
Section 7704 Regulations (or any other applicable safe harbor from "publicly
traded partnership" status which may be adopted by the IRS). The General
Partners have represented that the Partnership will be operated strictly in
accordance with the Partnership Agreement and that they will void any transfers
or assignments of Units if they believe that such transfers or assignments will
cause the Partnership to be treated as a publicly traded partnership, either
under Notice 88-75, the Section 7704 Regulations or any Regulations adopted by
the IRS in the future.
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Based upon representations of the General Partners, and assuming the
Partnership will be operated strictly in accordance with the terms of the
Partnership Agreement, Counsel in the Tax Opinion has concluded that it is more
likely than not the Partnership will not be classified as a publicly traded
partnership under Section 7704 of the Code, if such issue were challenged by the
IRS, litigated and judicially decided. However, due to the complex nature of the
safe harbor provisions contained in Notice 88-75 and the Section 7704
Regulations with respect to such provisions and because any determination in
this regard will necessarily be based upon future facts not yet in existence at
this time, no assurance can be given that the IRS will not challenge this
conclusion or that the Partnership will not, at some time in the future, be
deemed to be a publicly traded partnership.
Even if the Partnership were deemed to be a publicly traded partnership,
Section 7704(c) of the Code provides an exception to taxation of an entity as a
corporation if 90% or more of the gross income of such entity for each taxable
year consists of "qualifying income." Qualifying income includes interest, real
property rents and gain from the sale or other disposition of real property.
According to the legislative history of Section 7704, qualifying income does not
include real property rents which are contingent on the profits of the lessees
or income from the rental or lease of personal property. The General Partners
intend to operate the Partnership in such a manner as to qualify for the 90%
qualifying income exception. (See "INVESTMENT OBJECTIVES AND CRITERIA.")
Investors should note, however, that even if the Partnership satisfies the
qualifying income exception, being deemed to be a publicly traded partnership
would result in certain other material adverse tax consequences to Limited
Partners, including the treatment of net income of the Partnership as portfolio
income rather than passive income. (See "Passive Loss Limitations" below.)
GENERAL PRINCIPLES OF PARTNERSHIP TAXATION
Under the Code, no federal income tax is paid by a partnership.
Accordingly, if as anticipated the Partnership is treated as a partnership for
federal income tax purposes, the Partnership will not be treated as a separate
taxable entity subject to federal income tax, but instead each Partner will be
required to report on his federal income tax return for each year his
distributive share of the Partnership's items of income, gain, loss, deduction
or credit for that year, without regard to whether any actual cash distributions
have been made to him. Investors should note that a Partner's share of the
taxable income of the Partnership, and a Partner's income tax liability
resulting therefrom, may exceed a Partner's cash distributions from the
Partnership.
The Partnership will furnish to each Partner and any assignee of Units on
an annual basis the information necessary for preparation of his federal income
tax return. Investors should note that information returns filed by the
Partnership will be subject to audit by the IRS and that the Commissioner of the
IRS has announced that the IRS will devote greater attention to the proper
application of the tax laws to partnerships. (See "Audits" below.)
ANTI-ABUSE RULES
As noted under "General Principles of Partnership Taxation" above,
partnerships as such are not liable for income taxes imposed by the Code. In
December 1994, however, the IRS adopted final Regulations setting forth "anti-
abuse" rules under the Code provisions applicable to partnerships, which rules
authorize the Commissioner of Internal Revenue to recast transactions involving
the use of partnerships either to reflect the underlying economic arrangement or
to prevent the use of a partnership to circumvent the intended purpose of any
provision of the Code. These rules generally apply to all transactions relating
to a partnership occurring on or after May 12, 1994, and thus would be
applicable to the Partnership's activities. If any of the transactions entered
into by the Partnership were to be recharacterized under these rules, or the
Partnership, itself, were to be recast as a taxable entity under these rules,
material adverse tax consequences to all of the Partners would occur as
otherwise described herein. In this regard, the General Partners are not aware
of any fact or circumstance which could cause the IRS to exercise its authority
under these rules to recast any of the transactions to be entered into by the
Partnership or to restructure the Partnership itself.
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BASIS LIMITATIONS
A Limited Partner may not deduct his share of Partnership losses and
deductions in excess of the adjusted basis of his Partnership interest
determined as of the end of the taxable year. Losses which exceed a Limited
Partner's basis will not be allowed but may be carried over indefinitely and
claimed as a deduction in a subsequent year to the extent that such Limited
Partner's adjusted basis in his Units has increased above zero. A Limited
Partner's adjusted basis in his Units will include his cash investment in the
Partnership along with his pro rata share of any Partnership liabilities as to
which no Partner is personally liable. A Limited Partner's basis in his Units
will be increased by his distributive share of the Partnership's taxable income
and decreased (but not below zero) by his distributive share of the
Partnership's losses and by the amount of any cash distributions which are made
to him. A cash distribution to a Limited Partner will generally constitute a
return of capital to the extent of the basis of his Units but, in the event that
a Limited Partner has no remaining basis in his Units, will generally be taxable
to him as gain from the sale of his Units. (See "Sales of Limited Partnership
Units" below.)
PASSIVE LOSS LIMITATIONS
The Code substantially restricts the ability of many taxpayers (including
individuals, estates, trusts, certain closely-held corporations and certain
personal service corporations) to deduct losses derived from so-called "passive
activities." Passive activities generally include any activity involving the
conduct of a trade or business in which the taxpayer does not materially
participate (including the activity of a limited partnership in which the
taxpayer is a limited partner) and certain rental activities (including the
rental of real estate). In the opinion of Counsel, it is more likely than not
that a Limited Partner's interest in the Partnership will be treated as a
passive activity, if such issue were challenged by the IRS, litigated and
judicially decided. Accordingly, income and loss of the Partnership, other than
interest or other similar income earned on temporary investments and working
capital reserves (which would constitute portfolio income), will constitute
passive activity income and passive activity loss, as the case may be, to
Limited Partners.
Generally, losses from passive activities are deductible only to the extent
of a taxpayer's income or gains from passive activities and will not be allowed
as an offset against other income, including salary or other compensation for
personal services, active business income or "portfolio income," which includes
nonbusiness income derived from dividends, interest, royalties, annuities and
gains from the sale of property held for investment. Passive activity losses
that are not allowed in any taxable year are suspended and carried forward
indefinitely and allowed in subsequent years as an offset against passive
activity income in future years.
Upon a taxable disposition of a taxpayer's entire interest in a passive
activity to an unrelated party, suspended losses with respect to that activity
will then be allowed as a deduction against: (i) first, any remaining income or
gain from that activity including gain recognized on such disposition; (ii)
then, net income or gain for the taxable year from other passive activities; and
(iii) finally, any other non-passive income or gain. Temporary Regulations
provide, however, that similar undertakings which are under common control and
owned by pass-through entities such as partnerships are generally aggregated
into a single activity. Accordingly, it is unlikely that suspended passive
activity losses derived from a specific Partnership Property would be available
to Limited Partners to offset non-passive income from other sources until the
sale or other disposition of all Partnership Properties has been consummated.
The Code provides that the passive activity loss rules will be applied
separately with respect to items attributable to each publicly traded
partnership. Accordingly, if the Partnership were deemed to be a publicly traded
partnership, Partnership losses, if any, would be available only to offset
future non-portfolio income of the Partnership. In addition, if the Partnership
were deemed to be a publicly traded partnership which is not treated as a
corporation because of the qualifying income exception, Partnership income would
generally be treated as portfolio income rather than passive income. (See
"Publicly Traded Partnerships" above.)
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AT RISK LIMITATIONS
The deductibility of Partnership losses is limited further by the "at risk"
limitations in the Code. Limited Partners who are individuals, estates, trusts
and certain closely-held corporations are not allowed to deduct Partnership
losses in excess of the amounts which such Limited Partners are determined to
have "at risk" at the close of the Partnership's year. Generally, a Limited
Partner's amount "at risk" will include the amount of his cash Capital
Contribution to the Partnership. A Limited Partner's amount "at risk" will be
reduced by his allocable share of Partnership losses and by Partnership
distributions and increased by his allocable share of Partnership income. Any
deductions which are disallowed under this limitation may be carried forward
indefinitely and utilized in subsequent years to the extent that a Limited
Partner's amount "at risk" is increased in those years.
ALLOCATIONS OF PROFIT AND LOSS
Allocations of Net Income, Net Loss, depreciation, amortization and cost
recovery deductions and Gain on Sale are described in this Prospectus in the
Section entitled "DISTRIBUTIONS AND ALLOCATIONS." Investors should note in this
regard that the Partnership Agreement defines the terms "Net Income" and "Net
Loss" to mean the net income or loss realized or recognized by the Partnership
for a fiscal year, as determined for federal income tax purposes, including any
income exempt from tax, but excluding all deductions for depreciation,
amortization and cost recovery and Gain on Sale. (See "GLOSSARY.")
Generally, partnership items of income, gain, loss, deduction and credit
are allocated among partners as set forth in the relevant partnership agreement
pursuant to Section 704(a) of the Code. Section 704(b) provides, however, that
if an allocation to a partner under the partnership agreement of income, gain,
loss, deduction or credit (or items thereof) does not have substantial economic
effect, such allocation will instead be made in accordance with the partner's
interest in the partnership (determined by taking into account all facts and
circumstances).
The Partnership has not received an advance ruling with respect to whether
its allocations of profits and losses will be recognized for federal income tax
purposes, and the IRS may attempt to challenge the allocations of profits and
losses made by the Partnership, which challenge, if successful, could adversely
affect the Limited Partners by changing their respective shares of taxable
income or loss. No assurance can be given that the IRS will not challenge one or
more of the special allocation provisions contained in the Partnership
Agreement.
Regulations under Section 704(b) of the Code (the "Section 704(b)
Regulations") provide complex rules for determining whether allocations will be
deemed to have economic effect, whether the economic effect of allocations will
be deemed to be substantial and whether allocations not having substantial
economic effect will be deemed to be made in accordance with a partner's
interest in the partnership.
The relevant portions of the Section 704(b) Regulations provide generally
that an allocation will be considered to have economic effect if: (i) partners'
capital accounts are determined and maintained in accordance with the
Regulations; (ii) upon the liquidation of the partnership, liquidating
distributions are made in accordance with the positive capital account balances
of the partners after taking into account all capital account adjustments for
the year during which such liquidation occurs; and (iii) the partnership
agreement contains a "qualified income offset" provision and the allocation in
question does not cause or increase a deficit balance in a partner's capital
account at the end of the partnership's taxable year. A partnership agreement
contains a "qualified income offset" if it provides that a partner who
unexpectedly receives an adjustment, allocation or distribution of certain items
which causes a deficit or negative capital account balance (which means
generally that the sum of losses allocated and cash distributed to a partner
exceeds the sum of his capital contributions to the partnership and any income
allocated to such partner), will be allocated items of income and gain in an
amount and manner sufficient to eliminate the deficit balance as quickly as
possible.
The Partnership Agreement (i) provides for the determination and
maintenance of Capital Accounts pursuant to the Section 704(b) Regulations, (ii)
provides that liquidation proceeds are to be distributed in accordance
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with Capital Accounts, and (iii) contains a qualified income offset provision.
(See "DISTRIBUTIONS AND ALLOCATIONS.") The qualified income offset provision in
the Partnership Agreement has the effect of prohibiting a Limited Partner from
being allocated items of loss or deduction which would cause his Capital Account
to be reduced below zero.
It should be further noted, however, that the Partnership Agreement
contains a provision specially allocating deductions for depreciation,
amortization and cost recovery to Limited Partners holding Class B Status Units
up to the amount which would reduce their Capital Accounts to zero. In an
attempt to ensure that Limited Partners holding Class B Status Units will bear
the risk of actual economic loss in the event that a Partnership Property is
sold at a loss, the Partnership Agreement also provides for a special allocation
of Nonliquidating Net Sale Proceeds in favor of Limited Partners holding Class A
Status Units which applies only if a Partnership Property is sold for less than
its original purchase price. Under this provision, Limited Partners holding
Class A Status Units are allocated the first Sale Proceeds generated from any
such sale in an amount equal to the excess of the original purchase price of
such Partnership Property over the sale price of the Partnership Property sold
but not in excess of the amount of the special allocation to Limited Partners
holding Class B Status Units of deductions for depreciation, amortization and
cost recovery with respect to the specific Partnership Property sold.
A Limited Partner who acquires Units from a prior owner should note that
the foregoing allocation of Gain on Sale to Limited Partners holding Class B
Status Units in an amount equal to the deductions for depreciation, amortization
and cost recovery which were previously allocated to them could have the effect
of allocating substantial income to such Limited Partner upon a sale or other
disposition of a Partnership Property caused by the special allocation of
deductions for depreciation, amortization and cost recovery previously allocated
to the prior owner even though such new Limited Partner would not have received
any benefit from such prior allocation of deductions.
Even if the allocations of profits and losses of a partnership are deemed
to have economic effect under the Section 704(b) Regulations, however, an
allocation will not be upheld unless the economic effect of such allocation is
"substantial." In this regard, the Section 704(b) Regulations generally provide
that the economic effect of an allocation is "substantial" if there is a
reasonable possibility that the allocation will affect the dollar amounts to be
received by partners from a partnership, independent of tax consequences. The
economic effect of an allocation is presumed not to be substantial if there is a
strong likelihood that the net adjustments to the partner's capital account for
any taxable year will not differ substantially from the net adjustments which
would have been made for such year in the absence of such allocation and the
total tax liability of the partners for such year is less than it would have
been in the absence of such allocations. The economic effect will also be
presumed not to be substantial where: (i) the partnership agreement provides for
the possibility that the allocation will be largely offset by one or more other
allocations; (ii) the net adjustments to the partners' capital accounts for the
taxable years to which the allocations relate will not differ substantially from
the net adjustments which would have been recorded in such partners' respective
capital accounts for such years if the original allocations and the offsetting
allocations were not contained in the partnership agreement; and (iii) the total
tax liability of the partners for such year is less than it would have been in
the absence of such allocations. With respect to the foregoing provision, the
Section 704(b) Regulations state that original allocations and offsetting
allocations will not be deemed to not be substantial if, at the time the
allocations become part of the partnership agreement, there is a strong
likelihood that the offsetting allocations will not, in large part, be made
within five years after the original allocations are made. The Section 704(b)
Regulations further state that for purposes of testing substantiality, the
adjusted tax basis of partnership property will be presumed to be the fair
market value of such property, and adjustments to the adjusted tax basis of
partnership property (such as depreciation or cost recovery deductions) will be
presumed to be matched by corresponding changes in the property's fair market
value.
There are no assurances that the IRS will not challenge the special
allocation of Partnership deductions for depreciation, amortization and cost
recovery to Limited Partners holding Class B Status Units or other allocations
set forth in the Partnership Agreement on the basis that such allocations are
"insubstantial" within the meaning of the Section 704(b) Regulations or
otherwise fail to comply with the Section 704(b) Regulations.
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If the allocations of profits and losses set forth in a partnership
agreement are deemed not to have substantial economic effect, the allocations
are then to be made in accordance with the partners' interests in the
partnership as determined by taking into account all facts and circumstances.
The Section 704(b) Regulations provide in this regard that a partner's interest
in a partnership will be determined by taking into account all facts and
circumstances relating to the economic arrangement of the partners, including:
(i) the partners' relative contributions to the partnership; (ii) the interests
of the partners in economic profits and losses (if different from those in
taxable income or loss); (iii) the interests of the partners in cash flow and
other nonliquidating distributions; and (iv) the rights of the partners to
distributions of capital upon liquidation.
Since the Partnership Agreement: (i) provides for the determination and
maintenance of Capital Accounts in accordance with the Section 704(b)
Regulations; (ii) provides that liquidation proceeds will be distributed to the
Partners in accordance with Capital Accounts; (iii) contains a qualified income
offset provision; and (iv) shifts the economic risk of loss to the Limited
Partners holding Class B Status Units, assuming the allocations of deductions
for depreciation, amortization and cost recovery to such Limited Partners were
matched by corresponding reductions in the fair market value of the
Partnership's Property; and assuming the accuracy of the representations of the
General Partners, including that the Partnership will be operated strictly in
accordance with the terms of the Partnership Agreement, Counsel has concluded
that it is more likely than not that Partnership items of income, gain, loss,
deduction and credit will be allocated among the General Partners and the
Limited Partners substantially in accordance with the allocation provisions of
the Partnership Agreement, if such issue were challenged by the IRS, litigated
and judicially decided.
RISK OF TAXABLE INCOME WITHOUT CASH DISTRIBUTIONS
A partner in a partnership is required to report his allocable share of the
partnership's taxable income on his personal income tax return regardless of
whether or not he has received any cash distributions from the partnership. For
example, a Limited Partner electing Class A Status Units who participates in the
Distribution Reinvestment Plan will be allocated his share of the Partnership's
Net Income and Gain on Sale (including Net Income and Gain on Sale allocable to
Units acquired pursuant to the Distribution Reinvestment Plan) even though such
Partner would receive no cash distributions from the Partnership. The
Partnership Agreement also provides for a "qualified income offset," as
described hereinabove, which could result in the allocation of income or gain to
a Limited Partner in the absence of cash distributions from the Partnership.
There are no assurances that a Limited Partner will not be allocated items of
Partnership income or gain in an amount which gives rise to an income tax
liability in excess of cash, if any, received from the Partnership for the tax
year in question, and investors are urged to consult with their personal tax
advisors in this regard.
INVESTMENT BY QUALIFIED PLANS AND OTHER TAX-EXEMPT ENTITIES
Although the General Partners have used their best efforts in structuring
the Partnership to avoid having the Partnership's income characterized as UBTI,
any person who is a fiduciary of an IRA, Keogh Plan, Qualified Plan or other
tax-exempt entity (collectively referred to as "Exempt Organizations")
considering an investment in the Units should be aware that some risk remains
that income derived from ownership of Units may be subject to federal income tax
in the event that any portion of the Partnership's income is deemed to be UBTI
(generally defined as income derived from any unrelated trade or business
carried on by a tax-exempt entity or by a partnership of which it is a member).
A trustee of a charitable remainder trust should be aware that if any portion of
the income derived from its ownership of Units is deemed to be UBTI, the trust
will lose its exemption from income taxation with respect to all of its income
for the tax year in question. A tax-exempt Limited Partner (other than a
charitable remainder trust) which has UBTI in any tax year from all sources of
more than $1,000 will be subject to taxation on such income.
While the types of Partnership income and gain which should be realized by
investing Exempt Organizations would not generally constitute UBTI, such income
would constitute UBTI if the Partnership were to own "debt-financed property"
which is subject to "acquisition indebtedness." The portion of income or gain
from
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"debt-financed property" that will constitute UBTI is based on the ratio of the
"average acquisition indebtedness" to the basis of the property. In computing
the portion of gain from a sale which constitutes UBTI, "average acquisition
indebtedness" means the highest amount of the acquisition indebtedness with
respect to such property during the 12 month period ending on the date of sale
while, for determining the portion of income from sources other than a sale,
"average acquisition indebtedness" means the average monthly level of
acquisition indebtedness during the taxable year for the year in which such
income was recognized. Acquisition indebtedness includes: (i) indebtedness
incurred in acquiring or improving property; (ii) indebtedness incurred before
the acquisition or improvement of property if such indebtedness would not have
been incurred but for such acquisition or improvement; and (iii) indebtedness
incurred after the acquisition or improvement of property if such indebtedness
would not have been incurred but for such acquisition or improvement and the
incurrence of such indebtedness was reasonably foreseeable at the time of such
acquisition or improvement.
The Partnership will under no circumstances incur indebtedness to acquire
Partnership Properties. While the Partnership's ability to incur indebtedness
thereafter may be exercised only in limited circumstances, the General Partners
have the authority to incur indebtedness in the event that they deem such
borrowing necessary to finance improvements of its properties to protect the
capital previously invested in a property, to protect the value of the
Partnership's investment in a property, or to make a property more attractive
for sale or lease. (See "INVESTMENT OBJECTIVES AND CRITERIA -- Borrowing
Policies.") The General Partners have represented, however, that they will not
cause the Partnership to incur indebtedness unless the Partnership first
receives an opinion of counsel that the proposed indebtedness more likely than
not will not cause income of the Partnership to be characterized as UBTI.
Investors should be aware, however, that an opinion of counsel is based upon
various representations and assumptions, and has no binding effect on the IRS or
any court. Accordingly, no assurance can be given that the conclusions reached
in any such opinion of counsel, if contested, would be sustained by a court, or
that any such indebtedness to be obtained by the Partnership in the future would
not cause the income allocated to Limited Partners that are tax-exempt entities
to be taxed as UBTI.
Partnership income could also constitute UBTI if the Partnership were
deemed to hold Partnership Properties primarily for sale to customers in the
ordinary course of business. (See "Property Held Primarily for Sale" below.)
In addition, any person who is a fiduciary of an Exempt Organization
considering an investment in Units should consider the impact of minimum
distribution requirements under the Code. The Code provides that certain minimum
distributions from Retirement Plans must be made commencing no later than the
April 1st following the calendar year during which the recipient attains age 70
1/2. Accordingly, if Units are still held by Retirement Plans and Partnership
Properties have not yet been sold at such time as mandatory distributions are
required to commence to an IRA beneficiary or a Qualified Plan participant, it
is likely that a distribution in kind of the Units will be required to be made,
which distribution will be includable in the taxable income of said IRA
beneficiary or Qualified Plan participant for the year in which the Units are
received at the fair market value of the Units without any corresponding cash
distributions with which to pay the income tax liability arising out of any such
distribution. In certain circumstances, a distribution in kind of the Units may
be deferred beyond the date for required distributions, but only upon a showing
of compliance with the minimum distribution requirements of the Code by reason
of distributions from other Retirement Plans established for the benefit of the
recipient. Compliance with these requirements is complex, however, and potential
investors are urged to consult with and rely upon their individual tax advisors
with regard to all matters concerning the tax effects of distributions from
Retirement Plans. No assurances can be given that Partnership Properties will be
sold or otherwise disposed of in a fashion which would permit sufficient
liquidity in any Retirement Plan holding Units for the Retirement Plan to be
able to avoid making a mandatory distribution in kind of Units. ("See "RISK
FACTORS.")
DEPRECIATION AND COST RECOVERY
It is currently anticipated that the real property improvements acquired or
constructed by the Partnership and any personal property acquired by the
Partnership will be depreciated using the Alternative Depreciation System
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set forth in the Code for partnerships (such as the Partnership) having both
taxable and tax-exempt partners; i.e., real property improvements will be
depreciated on a straight-line basis over a recovery period of 40 years, and
personal property acquired by the Partnership will be depreciated over a
recovery period of 12 years on a straight-line basis.
SYNDICATION AND ORGANIZATIONAL EXPENSES
No deduction is allowed for expenses incurred in connection with organizing
the Partnership or syndicating the Partnership. Syndication expenses include
costs and expenses incurred in connection with promoting and marketing the Units
such as sales commissions, professional fees and printing costs and are neither
deductible nor amortizable. Amounts which qualify as organizational expenses,
however, as well as other start-up expenditures, may, if so elected, be
amortized ratably over 60 months. There are no assurances that the IRS will not
attempt to recharacterize as nondeductible syndication expenses certain costs
and expenses which the Partnership attempts to deduct or amortize over 60
months.
Since the appropriate classification of fees and expenses paid by the
Partnership into their proper categories and a determination of whether certain
fees and expenses are ordinary and necessary and reasonable in amount depends
upon facts relating to and existing at the time the services are to be rendered
to the Partnership, Counsel is unable to render an opinion as to the probable
outcome if the IRS were to challenge the deductibility or the timing of
deduction or amortization of those fees and expenses, if such challenge to any
or all of such fees and expenses were to be litigated and judicially decided.
Disallowance by the IRS of any of these fees and expenses would result in an
increase in the taxable income of the Partnership and its Partners with no
associated increase in Net Cash From Operations.
ACTIVITIES NOT ENGAGED IN FOR PROFIT
Section 183 of the Code provides for the disallowance of deductions
attributable to activities "not engaged in for profit." The term "not engaged in
for profit" is defined as any activity other than an activity that constitutes a
trade or business or an activity that is engaged in for the production or
collection of income. In general, an activity will be considered as entered into
for profit where there is a reasonable expectation of profit in the future. The
determination of whether an activity is engaged in for profit is based upon the
facts and circumstances of each case.
Based upon the investment objectives of the Partnership and the
representation of the General Partners that the Partnership will be operated in
a business-like manner in all material respects and strictly in accordance with
the Partnership Agreement and this Prospectus, and assuming the determination as
to whether the activities of the Partnership are activities entered into for
profit under Section 183 is made at the partnership level, Counsel in the Tax
Opinion has concluded that it is more likely than not that the activities
contemplated by the Partnership will be considered activities entered into for
profit by the Partnership, if such issue were challenged by the IRS, litigated
and judicially decided. However, the IRS may also apply Section 183 to Limited
Partners notwithstanding any determination made with respect to the Partnership
in this regard, and since the test of whether an activity is deemed to be
engaged in for profit is based upon facts and circumstances that exist from time
to time, no assurance can be given that Section 183 of the Code may not be
applied in the future to disallow deductions allocable to Limited Partners from
Partnership operations. Investors should also be aware that Counsel in the Tax
Opinion gives no opinion as to the application of Section 183 of the Code at the
partner level. Accordingly, prospective investors should consult with their own
tax advisors regarding the impact of Section 183 on their particular situations.
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FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE CUSTODIAL AGENCY AGREEMENT AND
OTHER POTENTIAL USES OF NOMINEE CORPORATIONS
As previously discussed, title to properties acquired on behalf of the
Partnership will be held in the name of The Bank of New York (the "Agent"), as
agent for the Partnership. (See "CUSTODIAL AGENCY AGREEMENT.") In addition, the
Partnership may be required to utilize other nominee corporations or land trusts
to hold title to property by reason of local, state or other jurisdiction's
laws. The use of the Agent to hold legal title to a Partnership Property and the
use of any other nominee corporation or land trust to hold legal title to
properties for the benefit of the Partnership will be with the intention that
for tax purposes the entity would be disregarded and the Partnership would be
treated as the owner of the property.
In the event the Partnership is not treated as the owner of a Partnership
Property, the Partnership would lose the benefit of depreciation and other
deductions ordinarily claimed by the equitable owner of a property. Accordingly,
a determination by the IRS that the Partnership is not the owner of a
Partnership Property for tax purposes could result in substantial adverse tax
consequences, including depriving Limited Partners holding Class B Status Units
of deductions for depreciation and cost recovery. In this connection, however,
recent judicial decisions have held that in instances where an agent, pursuant
to a written agency agreement, holds title to real property as an agent for
limited purposes, holds itself out as an agent and not as a principal in all
dealings with third parties, has no obligation to maintain the property, and is
indemnified and held harmless by the principal from and against liabilities
which it might sustain as agent, the principal rather than the agent will be
treated as the owner of the real property for federal income tax purposes.
Under the terms of the Custodial Agency Agreement, the Agent will hold
title to properties as agent for the Partnership, the Agent is required to hold
itself out as agent for the Partnership and not as principal in all dealings
with third parties, the Agent has no obligation to maintain Partnership
Properties, and the Partnership and the General Partners have agreed to
indemnify and hold the Agent harmless from and against liabilities which it
might sustain as agent under the Custodial Agency Agreement. Based upon
Counsel's review of the judicial decisions in this area and the Custodial Agency
Agreement between the Partnership and the Agent, Counsel has concluded that it
is more likely than not the Partnership will be treated for income tax purposes
as the owner of Partnership Properties, title to which is held in the name of
the Agent under the terms of the Custodial Agency Agreement, if such issue were
challenged by the IRS, litigated and judicially decided.
In other instances where nominee corporations are deemed necessary in
connection with a particular Partnership Property, it is the Partnership's
intention, if and to the extent practical, and on advice of counsel (although
the Partnership will not be required to obtain an opinion of counsel with
respect to such matter) (i) to contract on an arm's-length basis with the
nominee corporation which will not be controlled by either the Partnership or a
majority in interest of its Partners, and (ii) to seek to provide real estate
documentation of the arrangement between the nominee corporation and the
Partnership in a manner which, under applicable tax law principles, will result
in the Partnership being treated as the owner of the property for tax purposes.
No assurances can be given, however, that such efforts will be successful, and
in the event a nominee corporation or land trust is deemed to be the equitable
owner of a Partnership Property for tax purposes, items of income, gain, loss,
deduction or credit attributable to any such property would be required to be
reported by the corporation or trust and would not flow through to the Limited
Partners.
CHARACTERIZATION OF LEASES
The Partnership has the authority to purchase properties and lease them
back to the sellers of such properties pursuant to "sale-leaseback"
transactions as described in "INVESTMENT OBJECTIVES AND CRITERIA." The tax
benefits described herein associated with ownership of a property, such as
depreciation or cost recovery deductions, depend on having the lease in any
such leaseback transaction treated as a "true lease" under which the
Partnership is treated as the owner of the property for federal income tax
purposes, rather than
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having such transaction treated as a conditional sale of the property or a
financing transaction entered into with the seller.
While the General Partners will use their best efforts to structure any
such sale-leaseback transaction such that the lease will be characterized as a
"true lease" and so that the Partnership will be treated as the owner of the
property in question for federal income tax purposes, the Partnership will not
seek an advance ruling from the IRS or obtain an opinion of counsel that it will
be treated as the owner of any leased properties for federal income tax
purposes. A determination by the IRS that the Partnership is not the owner of
leased properties could result in substantial adverse tax consequences,
including depriving Limited Partners holding Class B Status Units of deductions
for depreciation and cost recovery. In addition, if a sale-leaseback transaction
is recharacterized as a financing for federal income tax purposes, any
Partnership income derived from such leaseback would be treated as interest
which is portfolio income, rather than passive activity income which can be
offset by passive activity losses generated by the Partnership or from
investments in other passive activities. (See "Passive Loss Limitations" above.)
PROPERTY HELD PRIMARILY FOR SALE
The Partnership has been organized for the purpose of acquiring and
developing real estate for investment and rental purposes. However, if the
Partnership were at any time deemed for tax purposes to be a "dealer" in real
property (one who holds real estate primarily for sale to customers in the
ordinary course of business), any gain recognized upon a sale of such real
property would be taxable as ordinary income rather than as capital gain and
would constitute UBTI to Limited Partners which are tax-exempt entities.
Under existing law, whether property is or was held primarily for sale to
customers in the ordinary course of business must be determined from all the
facts and circumstances surrounding the particular property and sale in
question. The Partnership intends to acquire real estate and construct
improvements thereon for investment and rental only and to engage in the
business of owning and operating such improvements. The Partnership will make
sales thereof only as, in the opinion of the General Partners, are consistent
with the Partnership's investment objectives. Although the General Partners do
not anticipate that the Partnership will be treated as a dealer with respect to
any of its properties, there is no assurance that the IRS will not take a
contrary position. Because the issue is dependent upon facts which will not be
known until the time a property is sold or held for sale and due to the lack of
judicial authority in this area, Counsel is unable to render an opinion as to
whether the Partnership will be considered to hold any or all of its properties
primarily for sale to customers in the ordinary course of business.
SALES OF PARTNERSHIP PROPERTIES
Upon the sale of Partnership Properties, the Partnership will recognize
gain or loss to the extent that the amount realized is more or less than the
adjusted basis of the Partnership Property sold. The amount realized upon the
sale of a Partnership Property will generally be equal to the sum of the cash
received plus the amount of indebtedness encumbering the property, if any,
assumed by the purchaser or to which the property remains subject upon the
transfer of the property to the purchaser. The adjusted basis of Partnership
Property will in general be equal to the original cost of the property less
depreciation and cost recovery allowances allowed to the Partnership with
respect to such property.
Assuming that the Partnership is not deemed to be a dealer with respect to
its properties (see "Property Held Primarily for Sale" above), such gain or loss
will generally be taxable under Section 1231 of the Code. A Limited Partner's
share of the gains or losses resulting from the sale of Partnership Properties
would generally be combined with any other Section 1231 gains or losses realized
by the Limited Partner in that year from sources other than the Partnership, and
the net Section 1231 gain or loss is generally treated as long-term capital gain
(subject to depreciation or cost recovery allowance recapture, if any) or
ordinary loss, as the case may be. Investors should be aware that taxes required
to be paid by a Limited Partner with respect to the sale of a Partnership
Property may exceed the cash proceeds received from such sale. (See "RISK
FACTORS.")
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SALES OF LIMITED PARTNERSHIP UNITS
A Limited Partner may be unable to sell any of his Units by reason of the
nonexistence of any market therefor. In the event that Units are sold, however,
the selling Limited Partner will realize gain or loss equal to the difference
between the gross sale price or proceeds received from sale and the Limited
Partner's adjusted tax basis in his Units. Assuming the Limited Partner is not a
"dealer" with respect to such Units and has held the Units for more than one
year, his gain or loss will be long-term capital gain or loss, except for that
portion of any gain attributable to such Limited Partner's share of the
Partnership's "unrealized receivables" and "substantially appreciated
inventory," as defined in Section 751 of the Code, which would be taxable as
ordinary income. The cost recovery allowance recapture on personal property
associated with Partnership Properties will be treated as "unrealized
receivables" for this purpose. The Code requires the Partnership to report any
sale of Units to the IRS if any portion of the gain arising upon such sale is
attributable to the transferor's share of the Partnership's Section 751
property.
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
The dissolution and liquidation of the Partnership will involve the
distribution to the Partners of the cash remaining after the sale of its assets,
if any, and after payment of all the Partnership's debts and liabilities. If a
Limited Partner receives cash in excess of the basis of his Units, such excess
will be taxable as a gain. If a Limited Partner were to receive only cash upon
dissolution and liquidation, he would recognize a loss to the extent, if any,
that the adjusted basis of his Units exceeded the amount of cash received. No
loss would be recognized if a Limited Partner were to receive property other
than money, unrealized receivables and inventory (as defined in Section 751 of
the Code). There are a number of exceptions to these general rules, including
but not limited to, the effect of a special basis election under Section 732(d)
of the Code for a Limited Partner who may have acquired his Partnership interest
within the two years prior to the dissolution, and the effects of distributing
one kind of property to some Partners and a different kind of property to others
under Section 751(b) of the Code.
CAPITAL GAINS AND LOSSES
Ordinary income for individual taxpayers is currently taxed at a maximum
marginal rate of 39.6%, while capital gains are currently taxed at a maximum
marginal rate of 28%. It should be noted in this regard, however, that the
phase-out of personal exemptions and itemized deductions for taxpayers having
adjusted gross incomes in excess of $100,000 ($50,000 in the case of a married
individual filing a separate return) may reduce the impact of such preferential
rate. Capital losses may generally be used to offset capital gains and, in
addition, may be deductible against ordinary income on a dollar-for-dollar basis
up to a maximum annual deduction of $3,000 ($1,500 in the case of a married
individual filing a separate return).
ELECTION FOR BASIS ADJUSTMENTS
Under Section 754 of the Code, partnerships may elect to adjust the basis
of partnership property upon the transfer of an interest in the partnership so
that the transferee of a partnership interest will be treated for purposes of
calculating depreciation and realizing gain as though he had acquired a direct
interest in the partnership's assets. However, as a result of the complexities
and added expense of the tax accounting required to implement such an election,
the General Partners do not intend to cause the Partnership to make any such
election on behalf of the Partnership. As a consequence, depreciation available
to a transferee of Units will be limited to the transferor's share of the
remaining depreciable basis of Partnership Properties, and upon a sale of a
Partnership Property, taxable income or loss to the transferee of the Units will
be measured by the difference between his share of the amount realized upon such
sale and his share of the Partnership's tax basis in the property, which may
result in greater tax liability to him than if a Section 754 election had been
made. In addition, the absence of such an election by the Partnership may result
in Limited Partners having greater difficulty in selling their Units.
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ALTERNATIVE MINIMUM TAX
Alternative minimum tax is payable to the extent that a taxpayer's
alternative minimum tax exceeds his regular federal income tax liability for the
taxable year. Alternative minimum tax for individual taxpayers is a percentage
of "alternative minimum taxable income" ("AMTI") in excess of certain exemption
amounts. The first $175,000 of AMTI in excess of the exemption amount is taxed
currently at 26%, and AMTI in excess of $175,000 over the exemption amount is
taxed currently at 28%. Alternative minimum taxable income is generally computed
by adding what are called "tax preference items" to the taxpayer's regular
taxable income, with certain adjustments. While it is not anticipated that an
investment in the Partnership will give rise to any specific tax preference
items, the amount of alternative minimum tax imposed depends upon various
factors unique to each particular taxpayer. Accordingly, each Limited Partner
should consult with his own personal tax advisor regarding the possible
application of the alternative minimum tax.
PENALTIES
Under Section 6662 of the Code, a 20% penalty is imposed on any portion of
an underpayment of tax attributable to a "substantial understatement of income
tax." In general, a "substantial understatement of income tax" will exist if the
actual income tax liability of the taxpayer exceeds the income tax liability
shown on his return by the greater of 10% of the actual income tax liability or
$5,000. Unless the understatement is attributable to a "tax shelter," the amount
of an understatement is reduced by any portion of such understatement which is
attributable to (i) the income tax treatment of any item shown on the return if
there is "substantial authority" for the taxpayer's treatment of such item on
his return or (ii) any item with respect to which the taxpayer adequately
discloses on his return the relevant facts affecting the item's income tax
treatment. In the case of a "tax shelter," which is defined in Section 6662 of
the Code as a partnership or other entity that has as its principal purpose the
avoidance or evasion of federal income tax, this reduction in the understatement
only will apply in cases where, in addition to having "substantial authority"
for treatment of the item in question, the taxpayer reasonably believed that the
income tax treatment of that item was more likely than not the proper treatment.
Although the Partnership is not intended to be a so-called "tax shelter,"
it is possible that it may be considered a tax shelter for purposes of Section
6662 of the Code and that certain Partnership tax items could be considered tax
shelter items within the meaning of Section 6662. The Regulations under Section
6662 provide that an entity will be deemed to be a tax shelter if the tax
avoidance or evasion motive exceeds all other motives. Based on the investment
objectives of the Partnership, the General Partners believe there are
substantial grounds for a determination that the Partnership does not constitute
a tax shelter; however, because the issue is dependent upon facts relating to
future Partnership operations, the acquisition and disposition of Partnership
Properties and other factual determinations which are not known at this time,
Counsel is unable to render an opinion as to whether an investment in the
Partnership will be considered a tax shelter for purposes of Section 6662 of the
Code.
In addition to the substantial understatement penalty, Section 6662 of the
Code also imposes a 20% penalty on any portion of an underpayment of tax (i)
attributable to any substantial valuation misstatement (generally where the
value or adjusted basis of a property claimed on a return is 200% or more of the
correct value or adjusted basis), or (ii) attributable to negligence, defined as
any failure to make a reasonable attempt to comply with the Code, or a careless,
reckless or intentional disregard of federal income tax rules or regulations.
TAX SHELTER REGISTRATION
Any entity deemed to be a "tax shelter," as defined in Section 6111 of the
Code, is required to register with the IRS. Regulations under Section 6111
define a "tax shelter" as an investment in connection with which an investor can
reasonably infer from the representations made that the "tax shelter ratio" may
be greater than 2 to 1 as of the close of any of the first five years ending
after the date in which the investment is offered for sale. The "tax shelter
ratio" is generally determined by dividing the investor's share of the aggregate
deductions derived from the investment, determined without regard to income, by
the amount of the investor's capital contributions.
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The Partnership is not intended to constitute a "tax shelter." Further, the
General Partners have represented that, in the absence of events which are
unlikely to occur, the aggregate amount of deductions derived from any Limited
Partner's investment in the Partnership, determined without regard to income,
will not exceed twice the amount of any such Limited Partner's investment in the
Partnership as of the close of any year in the Partnership's first five calendar
years.
Based upon the authority of the Regulations under Section 6111 and the
representations of the General Partners that, in the absence of events which are
unlikely to occur, the "tax shelter ratio" with respect to an investment in the
Partnership will not exceed 2 to 1 for any investor as of the close of any year
in the Partnership's first five calendar years, Counsel in the Tax Opinion has
concluded that it is more likely than not the Partnership is not currently
required to register as a tax shelter with the IRS under Section 6111 of the
Code prior to the offer and sale of the Units.
AUDITS
The IRS has recently undertaken an intensified audit program with respect
to partnerships and partnership returns. While this should generally not affect
Units which are being treated as Class A Status Units, prospective investors in
Class B Status Units should be aware that deductions which are claimed on the
Partnership's return may be challenged and disallowed by the IRS. Any such
disallowance may deprive Limited Partners holding Units treated as Class B
Status Units of some or all of the tax benefits incidental to an investment in
the Partnership.
In the event of an audit of the Partnership's tax return, the General
Partners will take primary responsibility for contesting federal income tax
adjustments proposed by the IRS, to extend the statute of limitations as to all
Partners and, in certain circumstances, to bind the Limited Partners to such
adjustments. Although the General Partners will attempt to inform each Limited
Partner of the commencement and disposition of any such audit or subsequent
proceedings, Limited Partners should be aware that their participation in
administrative or judicial proceedings relating to Partnership items will be
substantially restricted. An audit of the Partnership could result in
substantial legal and accounting fees required to be paid to substantiate the
reporting positions taken, and any such fees would reduce the cash otherwise
available for distribution to the Limited Partners. Any such audit may result in
adjustments to the tax returns of the Partnership which would require
adjustments to each Limited Partner's personal income tax return and may require
such Limited Partners to pay additional taxes plus interest, compounded daily.
In addition, any audit of a Limited Partner's return could result in adjustments
of other items of income and deductions not related to the Partnership.
FOREIGN INVESTORS AS LIMITED PARTNERS
As a general matter, foreign investors may purchase Units in the
Partnership. A foreign investor who purchases Units and becomes a Limited
Partner in the Partnership will generally be required to file a United States
tax return on which he must report his distributive share of the Partnership's
items of income, gain, loss, deduction and credit, and pay United States federal
income tax at regular United States tax rates on his share of any net income,
whether ordinary or capital gains. A foreign investor may also be subject to tax
on his distributive share of the Partnership's income and gain in his country of
nationality or residence or elsewhere. In addition, cash distributions of Net
Cash From Operations or Sale Proceeds otherwise payable to a foreign investor
from the Partnership or amounts payable upon the sale of a foreign investor's
Units may be reduced by United States tax withholdings made pursuant to
applicable provisions of the Code.
FOREIGN INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE
EFFECT OF BOTH THE UNITED STATES TAX LAWS AND FOREIGN LAWS ON AN INVESTMENT IN
THE PARTNERSHIP AND THE POTENTIAL THAT THE PARTNERSHIP WILL BE REQUIRED TO
WITHHOLD FEDERAL INCOME TAXES FROM AMOUNTS OTHERWISE PAYABLE TO FOREIGN
INVESTORS.
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PROPOSED TAX LEGISLATION AND REGULATORY PROPOSALS
Legislative proposals have been made which could significantly change the
federal income tax laws as they relate to an investment in the Partnership. It
is impossible at this time, however, to predict whether or in what form any such
legislation will be enacted. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT HIS
OWN TAX ADVISOR WITH RESPECT TO HIS OWN TAX SITUATION, THE EFFECT OF ANY
LEGISLATIVE, REGULATORY OR ADMINISTRATIVE DEVELOPMENTS OR PROPOSALS ON AN
INVESTMENT IN UNITS IN THE PARTNERSHIP, OR OTHER POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
STATE AND LOCAL TAXES
In addition to the federal income tax aspects described above, prospective
investors should consider potential state and local tax consequences of an
investment in the Partnership. This Prospectus makes no attempt to summarize the
state and local tax consequences to an investor in those states in which the
Partnership may own properties or carry on activities, and each investor is
urged to consult his own tax advisor on all matters relating to state and local
taxation, including the following: (i) whether the state in which he resides
will impose a tax upon his share of the taxable income of the Partnership, (ii)
whether an income tax or other return must also be filed in those states where
the Partnership will own properties, and (iii) whether he will be subject to
state income tax withholding in states where the Partnership will own
properties.
Because the Partnership will conduct its activities and own properties in
different taxing jurisdictions, an investment in the Partnership may impose upon
a Limited Partner the obligation to file annual tax returns in a number of
different states or localities, as well as the obligation to pay taxes to a
number of different states or localities. Additional costs incurred in having to
prepare various state and local tax returns, as well as the additional state and
local tax which may be payable, should be considered by prospective investors in
deciding whether to make an investment in the Partnership.
It should be noted that many states have implemented or are in the process
of implementing programs to require partnerships to withhold and pay state
income taxes owed by non-resident partners relating to income-producing
properties located in their states. Effective January 1, 1994, all partnerships
which own property or do business within the State of Georgia are subject to a
withholding tax in the amount of 4% of distributions paid to non-resident
partners receiving annual distributions of $1,000 or more. The new Georgia
withholding requirements apply to all cash distributions except distributions
constituting a return of capital and may have the effect of reducing the amount
of cash which the Partnership would otherwise be able to distribute to non-
resident Limited Partners receiving distributions from the Partnership. In
addition, the State of North Carolina has required certain of the Prior Wells
Public Programs to withhold and pay state taxes relating to income-producing
properties located in North Carolina. In the event that the Partnership is
required to withhold state taxes from cash distributions otherwise payable to
Limited Partners, the amount of the Net Cash From Operations otherwise payable
to such Limited Partners would likely be reduced. In addition, such collection
and filing requirements at the state level may result in increases in the
Partnership's administrative expenses which would likely have the effect of
reducing returns to the Limited Partners. (See "RISK FACTORS.")
EACH PROSPECTIVE PURCHASER OF UNITS IS URGED TO CONSULT WITH HIS OWN TAX
ADVISOR WITH RESPECT TO THE IMPACT OF APPLICABLE STATE AND LOCAL TAXES ON HIS
PROPOSED INVESTMENT IN THE PARTNERSHIP.
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SUMMARY OF PARTNERSHIP AGREEMENT
The Partnership is a Georgia limited partnership whose General Partners are
Leo F. Wells, III and Wells Partners, L.P., a Georgia limited partnership having
Wells Capital, Inc., a Georgia corporation, as its sole General Partner. (See
"MANAGEMENT.")
The rights and obligations of the Partners in the Partnership will be
governed by the Partnership Agreement, the form of which is set out in its
entirety as Exhibit "B" to this Prospectus. The Amended and Restated Agreement
of Limited Partnership of the Partnership will be executed and become effective
as of the effective date of this Prospectus. Prospective investors should study
carefully the Partnership Agreement before making any investment decision with
regard to the Units. The following statements are intended to supplement other
statements in this Prospectus concerning the Partnership Agreement and related
matters, are intended to be a summary only and, since they do not purport to be
complete, are qualified in their entirety by reference to the Partnership
Agreement.
POWERS OF THE GENERAL PARTNERS
The General Partners have full, exclusive and complete authority and
discretion in the management and control of the business of the Partnership.
Limited Partners have no right or power to take part in the management of, or to
bind, the Partnership. (Articles XI and XVI.)
LIABILITIES OF THE LIMITED PARTNERS
The Partnership was organized as a limited partnership under the Georgia
Revised Uniform Limited Partnership Act ("GRULPA"). Investors whose
subscriptions are accepted by the General Partners will be admitted as Limited
Partners. Under GRULPA, Limited Partners have no personal liability for
Partnership debts or obligations in excess of their Capital Contributions.
OTHER ACTIVITIES OF THE GENERAL PARTNERS
The General Partners may engage in or possess interests in other business
ventures of every kind and description for their own account, including, without
limitation, the syndication, ownership or management of other real estate. They
shall incur no liability to the Partnership, or to the Limited Partners, as a
result of engaging in any other business or venture.
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS;
NONASSESSABILITY OF UNITS
Limited Partners are not permitted to participate in the management and
control of the business of the Partnership and may not transact any business in
the name of the Partnership. Pursuant to the Partnership Agreement, each Limited
Partner appoints the General Partners, with full power and substitution, as his
lawful attorneys-in-fact to act in his name, place and stead: (i) to amend the
Certificate of Limited Partnership and the Partnership Agreement, including
amendments necessary to properly reflect allocations of profits and losses as
may be required for tax purposes; and (ii) to take any further action which the
General Partners deem necessary or advisable in connection with the foregoing.
Units acquired by Limited Partners pursuant to the Partnership Agreement
will be fully paid and nonassessable. (Section 8.5(d).) No Limited Partner has
the right to withdraw all or any portion of his Capital Contribution until the
full and complete winding up and liquidation of the business of the Partnership,
except as otherwise provided by law. (Section 8.10(b).) No Limited Partner will
be liable for any debts or obligations of the Partnership in excess of his
Capital Contribution. (Section 16.3.)
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VOTING RIGHTS OF THE LIMITED PARTNERS
Limited Partners may, with the affirmative vote of those holding more than
50% of the Units in the aggregate, take action on the following matters: (i) the
approval or disapproval of any sale, exchange or pledge of all or substantially
all of the Partnership's real properties; (ii) dissolution of the Partnership;
(iii) removal of a General Partner or any successor general partner; (iv)
election of a new General Partner upon the retirement, withdrawal or removal of
a General Partner or upon the death or the occurrence of another Event of
Withdrawal of a General Partner; (v) change in the business purpose or
investment objectives of the Partnership; and (vi) amendment to the Partnership
Agreement, except as to certain matters specified in Section 11.2(b) which the
General Partners alone may amend without a vote of the Limited Partners.
(Section 16.1.) In addition, Limited Partners holding a majority of the Units
have the right to authorize a proposed merger or consolidation of the
Partnership under certain circumstances. (Section 11.3(u).) Accordingly, Limited
Partners holding a majority of the Units may amend the Partnership Agreement,
change the business purpose or investment objectives of the Partnership, remove
a General Partner and authorize a merger or consolidation of the Partnership.
Except as otherwise provided in the Partnership Agreement in connection with a
"partnership roll-up" transaction as described below, Limited Partners not
voting with the majority on such transactions will nonetheless be bound by the
majority vote and will have no right to dissent from the majority vote and
obtain fair value for their Units. (See "RISK FACTORS.")
Notwithstanding the foregoing, the Partnership Agreement may not be amended
to change the limited liability of the Limited Partners without the vote or
consent of all Limited Partners or to diminish the rights or benefits to which
the General Partners or Limited Partners are entitled without the consent of the
Limited Partners holding a majority of the Units who would be adversely
effected, in the case of diminishing the rights or benefits of the Limited
Partners, or the majority vote of the General Partners, in the case of
diminishing the rights or benefits of the General Partners. (Section 16.2.)
Amendments to the Partnership Agreement receiving the requisite vote will
be executed by a General Partner on behalf of all Limited Partners acting
pursuant to the power of attorney contained in the Partnership Agreement.
(Section 19.1.)
MERGERS AND CONSOLIDATIONS
The Partnership Agreement prohibits the General Partners from initiating
any transaction wherein the Partnership is merged or consolidated with any other
partnership or corporation, which type of transaction is commonly referred to as
a "partnership roll-up," and further provides that the General Partners shall
not be authorized to merge or consolidate the Partnership with any other
partnership or corporation or to convert the Partnership into a real estate
investment trust, which is often referred to as an "REIT," unless Limited
Partners owning more than 50% of the Units consent in writing to such
transaction. (Section 11.3(u).)
In addition, the Partnership Agreement contains a further provision
prohibiting the General Partners from entering into any acquisition, merger,
conversion or consolidation unless the Partnership obtains a current appraisal
of the Partnership's assets by an independent appraiser and Limited Partners who
vote against or dissent from the proposal have the choice of: (a) accepting the
securities offered in the proposed roll-up; or (b) one of the following: (i)
remaining as Limited Partners in the Partnership and preserving their interests
in the Partnership on the same terms and conditions as existed previously, or
(ii) receiving cash in an amount equal to the Limited Partners' pro rata share
of the appraised value of the net assets of the Partnership. (Section 11.3(u).)
SPECIAL PARTNERSHIP PROVISIONS
Leo F. Wells, III, who owns 100% of the issued and outstanding common stock
of Wells Capital, Inc. ("Wells Capital"), the sole general partner of Wells
Partners, L.P., has agreed that he will not transfer, sell or otherwise
voluntarily convey a majority or controlling interest in the outstanding common
stock of Wells Capital
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unless Limited Partners owning more than 50% of the Units consent in writing to
any such transfer, sale or conveyance. (Section 17.1(a).)
The Partnership Agreement also prohibits the General Partners and their
Affiliates from receiving any rebates or give-ups or participating in any
reciprocal business arrangements which would circumvent the provisions of the
Partnership Agreement. (Section 12.7(a).)
REMOVAL OF GENERAL PARTNERS
The Partnership Agreement provides that a General Partner may be removed
and a new General Partner elected upon the written consent or affirmative vote
of Limited Partners owning more than 50% of the Units. (Section 17.1(d).) If a
General Partner is removed, the fair market value of the interest of the removed
General Partner in the Partnership will be determined by independent appraisers
and will be paid to him or it as provided in Section 20.4 of the Partnership
Agreement. Payment of this amount may be made by the delivery of a promissory
note of the Partnership for such fair market value payable in equal consecutive
annual installments over a period of not less than five years commencing on the
first anniversary of the date of such note. Such promissory note shall bear
interest at the rate of 9% per annum. Within 120 days after the determination of
the fair market value of the former General Partner's interest, the Partnership
may, with the consent of a majority in interest of the Limited Partners, sell
such interest to one or more persons who may be Affiliates of the remaining
General Partner or General Partners, and admit such person or persons to the
Partnership as substitute General Partners; provided, however, that the purchase
price to be paid to the Partnership for the Partnership interest of the former
General Partner shall not be less than its fair market value as determined by
the appraisal described above. Such substitute General Partner or Partners may
pay said purchase price in installments in the manner set forth above.
ASSIGNABILITY OF GENERAL PARTNERS' INTERESTS
With the consent of all other General Partners and Limited Partners holding
more than 50% of the Units, after providing 90 days written notice to the other
General Partners and Limited Partners, a General Partner may designate a
successor or additional general partner, in each case with such participation in
such General Partner's interest as such General Partner and such successor or
additional General Partner may agree upon, provided that the interests of the
Limited Partners are not adversely affected thereby. Generally, except in
connection with such a designation, no General Partner shall have the right to
retire or withdraw voluntarily from the Partnership or to sell, transfer or
assign his or its interest without the consent of the Limited Partners holding
more than 50% of the Units. (Section 17.1.)
BOOKS AND RECORDS; RIGHTS TO INFORMATION; ANNUAL AUDITS
The General Partners are required to maintain at the Partnership's
principal office full and accurate books and records for the Partnership. All
Limited Partners have the right to inspect, examine and obtain copies at their
reasonable cost of such books and records at all reasonable times. In addition,
an alphabetical list of the names, addresses and business telephone numbers of
all Limited Partners, along with the number of Units owned by each of them,
shall be available for inspection and copying by the Limited Partners or their
designated representatives. (Section 15.1.) Annual audits of the Partnership's
affairs will be conducted by such firm of independent certified public
accountants as may from time to time be engaged by the Partnership. (Section
15.2(b).)
MEETINGS OF LIMITED PARTNERS
There will generally be no annual or periodic meetings of Limited Partners.
However, the General Partners shall be required to call a meeting of the Limited
Partners upon the written request of Limited Partners holding 10% or more of the
outstanding Units. In such event, a detailed statement of the action proposed,
including a verbatim statement of the wording of any resolution proposed for
adoption by the Limited Partners and any proposed amendment to the Partnership
Agreement, shall be included with the notice of the meeting. (Section 16.4.)
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TRANSFERABILITY OF UNITS
There are a number of restrictions on the transferability of Units. Except
for intra-family transfers and transfers by gift, inheritance or family
dissolution, no Units may be transferred unless the proposed transferee meets
the minimum suitability standards set forth in this Prospectus. Investors
transferring less than all of their Units must transfer a number of Units such
that, after the transfer, both the transferor and transferee shall own no less
than the minimum number of Units required to be purchased by an investor, unless
such transfer is made on behalf of a Retirement Plan, or by gift, inheritance,
intra-family transfer, family dissolution or to an affiliate. Payment of a
transfer fee in an amount sufficient to cover transfer costs, as established by
the General Partners, is a condition to effectiveness of a transfer. All
transfers of Units must be pursuant to documentation satisfactory in form and
substance to the General Partners. Additional restrictions on transfers of Units
are imposed under the securities laws of various states upon the residents of
such states. No Unit may be sold, assigned or exchanged if the sale of such
Unit, when added to the total of all other sales or exchanges of Units within
the period of 12 consecutive months prior to the proposed date of sale or
exchange, would, in the opinion of counsel for the Partnership, result in the
termination of the Partnership under Section 708 of the Code (dealing with
transfers of 50% or more of the outstanding interests of a partnership) unless
the Partnership and the transferring holder shall have received a ruling by the
IRS that the proposed sale or exchange will not cause such termination. (Section
17.3(a).)
In addition to the foregoing restrictions, the Partnership Agreement
contains substantial restrictions on the transfer or assignment of Units in
order to prevent the Partnership from being deemed a "publicly traded
partnership." These restrictions are those described in IRS Notice 88-75 and the
Section 7704 Regulations, the most significant of which prohibits the transfer
during any taxable year of more than 2% of the total interest in the
Partnership's capital or profits excluding transfers by gift, transfers at
death, transfers between family members, distributions from a qualified
retirement plan and block transfers, which are defined as transfers by a partner
during any 30 calendar day period of partnership interests representing more
than 2% of the total interest in a partnership's capital or profits. Further,
the Partnership Agreement provides that any transfer or assignment of Units
which the General Partners believe will cause the Partnership to be treated as a
publicly traded partnership will be void ab initio and will not be recognized by
the Partnership. (See "FEDERAL INCOME TAX CONSEQUENCES -- Publicly Traded
Partnerships" and Section 17.3(g) of the Partnership Agreement.)
Transferees of Units are not eligible to participate in the Partnership's
Distribution Reinvestment Plan with respect to investment of their distributions
from the Partnership in additional Units of the same Partnership. However, such
transferees are not disqualified from participation in the Distribution
Reinvestment Plan with respect to investment of their distributions from the
Partnership in Units issued by subsequent limited partnerships sponsored by the
General Partners, if such Plan is established and the transferee meets the
Plan's requirements for participation. (See "Distribution Reinvestment Plan.")
An assignee of Units shall not become a substituted Limited Partner in
place of his assignor unless the assignee shall have expressly agreed to become
a party to the Partnership Agreement. (Section 17.4.) An assignee of Units who
does not become a substituted Limited Partner shall be entitled to receive
distributions attributable to the Units properly transferred to him (Section
17.5), but shall not have any of the other rights of a Limited Partner,
including the right to vote as a Limited Partner and the right to inspect and
copy the Partnership's books. Assignments of Units are restricted similarly to
transfers of Units.
PARTNERSHIP BORROWING
The General Partners are prohibited from borrowing to finance the
acquisition, construction or ownership of the Partnership's properties. However,
the Partnership may incur debt for the following limited purposes: (a) in the
event of unforseen circumstances in which the Partnership's working capital
reserves and other cash resources available to the Partnership are insufficient
for operating purposes; and (b) in order to finance property improvements, when
the General Partners deem such improvements to be necessary or appropriate to
protect the
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capital previously invested in the properties, to protect the value of the
Partnership's investment in a particular property, or to make a particular
property more attractive for sale or lease. The aggregate amount of
Partnership borrowings at any given time may not exceed 25% of the total
purchase price of Partnership Properties. (See "INVESTMENT OBJECTIVES AND
CRITERIA -- Borrowing Policies" and Section 11.3(e) of the Partnership
Agreement.)
REPURCHASE OF UNITS
After a period of one year following the termination of the Offering of
Units, the Partnership may establish a Repurchase Reserve of up to 5% of Cash
Flow in any year, subject to the various restrictions and limitations set forth
below. (Sections 8.11 and 11.3(h).) The establishment of the Repurchase Reserve
is in the sole discretion of the General Partners, and if established, the
Repurchase Reserve may be terminated at any time in the sole discretion of the
General Partners. The Partnership Agreement provides that under certain
circumstances the Partnership may, in the sole discretion of the General
Partners and upon the request of a Limited Partner, repurchase the Units held by
such Limited Partner, provided that no such repurchase may be made if either (i)
following the repurchase such Limited Partner's interests would not be fully
redeemed but such Limited Partner would hold less than the minimum investment in
the Offering (100 Units) or (ii) such repurchase would impair the capital or
operations of the Partnership. In no event will a Limited Partner be permitted
to have his Units repurchased prior to termination of the Offering. Units owned
by the General Partners or their Affiliates may not be repurchased by the
Partnership. Further, in order to prevent the classification of the Partnership
as an investment company under the Investment Company Act of 1940 and to prevent
the Partnership from being deemed a "publicly traded partnership" under the
Code, the opportunity of Limited Partners to have their Units repurchased has
been substantially restricted under the Partnership Agreement.
A Limited Partner wishing to have Units repurchased must mail or deliver a
written request to the Partnership, executed by his or its trustee or authorized
agent in the case of qualified profit sharing, pension and other retirement
trusts, indicating his or its desire to have such Units repurchased. Such
requests will be considered by the General Partners in the order in which they
are received. Except for the fact that the Repurchase Reserve will not be
established, if at all, until at least one year after the termination of the
Offering, Limited Partners are not required to hold Units for any specified
period of time prior to making such a redemption request.
In the event that the General Partners decide to honor a request, they will
notify the requesting Limited Partner in writing of such fact, of the purchase
price for the repurchased Units and of the effective date of the repurchase
transaction (which will be not less than 60 nor more than 75 calendar days
following the receipt of the written request by the Partnership) and will
forward to such Limited Partner the documents necessary to effect such
repurchase transaction. The purchase price per Unit will be equal to 85% of the
fair market value of the Units until three years from the effective date of the
Registration Statement and 90% of the fair market value of the Units thereafter.
Fair market value shall be determined by the General Partners based upon an
estimate of the amount the Limited Partners would receive if the Partnership's
real estate investments were sold for their estimated value and if such proceeds
were distributed in a liquidation of the Partnership. For the first three full
fiscal years following the year in which the Offering of Units terminates, the
fair market value of the Units will be deemed to be their initial purchase price
of $10.00. Thereafter, the fair market value will be based on annual appraisals
of Partnership Properties performed by the General Partners and not by an
independent appraiser. However, the General Partners will obtain an opinion of
an independent third party annually that their estimate of the fair market value
of each Unit for such year is reasonable and was prepared in accordance with
appropriate methods for valuing real estate. Fully executed documents must be
returned to the Partnership at least 30 days prior to the effective date. The
Partnership will, as soon as possible following return of such documents from
the Limited Partner, repurchase the Units of the Limited Partner, provided, that
if insufficient amounts are then available in the Repurchase Reserve to
repurchase all of such Units, only a portion of such Units will be repurchased;
and provided further, that the Partnership may not repurchase less than all of
the Units of such Limited Partner if as a result thereof the Limited Partner
would own less than the minimum investment in the Offering (100 Units). Units
repurchased by the Partnership will be canceled. In the event that insufficient
funds are available in the Repurchase
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Reserve to repurchase all of such Units, the Limited Partner will be deemed to
have priority for subsequent Partnership repurchases over other Limited
Partners who subsequently request repurchases.
In addition to the other restrictions described herein, the Partnership
Agreement provides that (i) repurchases out of the Repurchase Reserve may not
exceed in the aggregate more than 2% of total Gross Offering Proceeds throughout
the life of the Partnership excluding repurchases of Units relating to the death
or legal incapacity of the owner or a substantial reduction in the owner's net
worth or income (defined to mean an involuntary loss of not less than 50% in
income or net worth during the year in which such repurchase occurs), and (ii)
not more than 2% of the outstanding Units may be purchased in any year, provided
in each case that the Partnership has sufficient cash to make the purchase and
that the purchase will not be in violation of any other applicable legal
requirements. (Section 8.11(k).) Due to the various restrictions and limitations
relating to the potential establishment of a Repurchase Reserve by the
Partnership, in considering an investment in the Partnership, prospective
investors should not assume that they will be able to resell their Units to the
Partnership. (See "RISK FACTORS.") In addition, prospective investors should
consider that a resale of their Units to the Partnership may result in adverse
tax consequences to the Limited Partner. (See "FEDERAL INCOME TAX CONSEQUENCES
- -- Sales of Limited Partnership Units.")
DISTRIBUTION REINVESTMENT PLAN
It is anticipated that a Distribution Reinvestment Plan (the "Distribution
Reinvestment Plan") will be available which will be designed to enable Limited
Partners holding Class A Status Units to have their distributions of Net Cash
From Operations from the Partnership invested in additional Units of the
Partnership during the Offering or in units issued by subsequent limited
partnerships sponsored by the General Partners or their Affiliates which have
substantially identical investment objectives as the Partnership. (Section
8.15.) In addition, in the event the Distribution Reinvestment Plan is effected,
it is anticipated that Limited Partners in Wells Fund III and Limited Partners
holding Class A Units (or Class A Status Units) in Wells Fund IV, Wells Fund V,
Wells Fund VI, Wells Fund VII and Wells Fund VIII will have the opportunity to
have their distributions of Net Cash From Operations from Wells Fund III, Wells
Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII and Wells Fund VIII
invested in Units in the Partnership during the Offering period. The General
Partners in their discretion may elect not to provide a Distribution
Reinvestment Plan or to terminate any existing Distribution Reinvestment Plan.
Limited Partners will not be eligible to participate in the Distribution
Reinvestment Plan with respect to Class B Status Units since no distributions of
Net Cash From Operations are payable with respect to Class B Status Units.
Limited Partners who acquire their Units outside the Offering (i.e., transferees
of Units) may not participate in the Distribution Reinvestment Plan with respect
to Units in the Partnership in which they are Limited Partners, but may have
their distributions from the Partnership invested in Units of a subsequent
limited partnership sponsored by the General Partners or their Affiliates if
such a distribution reinvestment plan is made available by the General Partners
in their discretion.
Limited Partners participating in the Distribution Reinvestment Plan may
purchase fractional Units and shall not be subject to minimum investment
requirements, although the General Partners may, at their option, impose certain
minimum investment requirements and other restrictions with respect to purchases
of Units pursuant to the Distribution Reinvestment Plan. Limited Partners
electing to participate in the Distribution Reinvestment Plan will receive with
each confirmation a notice advising such Limited Partner that he is entitled to
change his election with respect to subsequent distributions by returning a
notice to the Partnership. If sufficient Units are not available for purchase
pursuant to the Distribution Reinvestment Plan, the Partnership will remit all
excess distributions of Net Cash From Operations to the participants.
Net Cash From Operations may only be reinvested in units issued by
subsequent limited partnerships sponsored by the General Partners or their
Affiliates if: (i) prior to the time of such reinvestment, the Limited Partner
has received the final prospectus (and any supplements thereto) offering
interests in the subsequent limited partnership and such prospectus allows
investment pursuant to a distribution reinvestment plan; (ii) a registration
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statement covering the interests in the subsequent limited partnership has
been declared effective under the Securities Act of 1933; (iii) the offer and
sale of such interests is qualified for sale under the applicable state
securities laws; (iv) the participant executes the subscription agreement
included with the prospectus for the subsequent limited partnership; (v) the
participant qualifies under applicable investor suitability standards as
contained in the prospectus for the subsequent limited partnership; and (vi)
the subsequent limited partnership has substantially identical investment
objectives as the Partnership.
EACH LIMITED PARTNER ELECTING TO PARTICIPATE IN THE DISTRIBUTION
REINVESTMENT PLAN AGREES THAT IF AT ANY TIME HE FAILS TO MEET THE APPLICABLE
REAL ESTATE LIMITED PARTNERSHIP INVESTOR SUITABILITY STANDARDS OR CANNOT MAKE
THE OTHER INVESTOR REPRESENTATIONS OR WARRANTIES SET FORTH IN THE THEN CURRENT
REAL ESTATE LIMITED PARTNERSHIP PROSPECTUS, THE SUBSCRIPTION AGREEMENT OR
PARTNERSHIP AGREEMENT RELATING THERETO, HE WILL PROMPTLY NOTIFY THE GENERAL
PARTNERS IN WRITING.
Subscribers should note that affirmative action must be taken to change or
withdraw from participation in the Distribution Reinvestment Plan. Change in or
withdrawal from participation in the Distribution Reinvestment Plan shall be
effective only with respect to distributions made more than 30 days following
receipt by the General Partners of written notice of such change or withdrawal.
In the event a Limited Partner transfers his Units, such transfer shall
terminate the Limited Partner's participation in the Distribution Reinvestment
Plan as of the first day of the quarter in which such transfer is effective.
Selling Commissions not to exceed 8% and dealer management fees not to
exceed 2% may be paid by the Partnership with respect to Units purchased
pursuant to the Distribution Reinvestment Plan. Payment of selling commissions
may be subject to certain minimum levels of additional investment. Each holder
of Units is permitted to identify, change or eliminate the name of his account
executive at a participating dealer. Identification of such account executive
may be retained, changed or eliminated for subsequent distributions. In the
event that no account executive is identified at any time during the Offering,
or in the event that the account executive is not employed by a broker-dealer
having a valid selling agreement with the Dealer Manager, no selling commission
will be paid with respect to distributions which are then being reinvested, and
the Partnership will retain for additional investments in real estate any
amounts otherwise payable as selling commissions. All holders of Units, based on
the number of Units owned by each of them, will receive the benefit of savings
realized by the Partnership from investors who do not identify account
executives. Accordingly, the economic benefit to investors who do not identify
account executives will be diluted and shared with all holders, including those
for whose contributions the Partnership has paid selling commissions.
Unless the General Partners are otherwise notified in writing, Units issued
pursuant to the Distribution Reinvestment Plan will initially be treated as
Class A Status Units. Units purchased pursuant to the Distribution Reinvestment
Plan will entitle participants to the same rights and to be treated in the same
manner as Units issued pursuant to the Offering.
Following the reinvestment, each participant will be sent a statement and
accounting showing the distributions received, the number and price of Units
purchased, and the total amount of Units acquired under the Distribution
Reinvestment Plan. Taxable participants will incur tax liability for Partnership
income allocated to them even though they have elected not to receive their
distributions in cash but rather to have their distributions held in their
account under the Distribution Reinvestment Plan. (See "RISK FACTORS -- Federal
Income Tax Risks -- Risk of Taxable Income Without Cash Distributions.")
The Partnership reserves the right to amend any aspect of the Distribution
Reinvestment Plan effective with respect to any distribution paid subsequent to
the notice, provided that the notice is sent to participants in the Distribution
Reinvestment Plan at least ten days before the record date for a distribution.
The Partnership also
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reserves the right to terminate the Distribution Reinvestment Plan for any
reason at any time, by sending written notice of termination to all
participants.
Nothing contained herein shall be construed as obligating the General
Partners or their Affiliates to continue to offer units in subsequent real
estate limited partnerships or to include a distribution reinvestment plan as
part of the offering of such partnerships or to permit reinvestment of
distributions therein.
PROXY TO LIQUIDATE
At any time commencing eight years after the termination of the Offering,
if the General Partners receive written requests from Limited Partners holding
10% or more of the outstanding Units (the "Proxy Request") directing that the
General Partners formally proxy the Limited Partners to determine whether the
assets of the Partnership should be liquidated (the "Proxy to Liquidate"), the
General Partners will send a Proxy to Liquidate to each Limited Partner. The
General Partners shall not be required to send Proxies to Liquidate to the
Limited Partners more frequently than once during every two year period. If the
Proxy to Liquidate results in Limited Partners owing more than 50% of the Units
(without regard to Units owned or otherwise controlled by the General Partners)
voting in favor of a liquidation of the Partnership, the assets of the
Partnership will be fully liquidated within 30 months from the close of the 45-
day deadline applicable to the Proxy to Liquidate. (Section 20.2.)
DISSOLUTION AND TERMINATION
The Partnership is to continue until December 31, 2024, but may be
dissolved earlier as provided in the Partnership Agreement or by law. (Article
VI.) The Partnership will also be dissolved upon: (a) the decision by holders of
more than 50% of the Units to dissolve and terminate the Partnership; (b) the
retirement or withdrawal of a General Partner unless within 90 days from the
date of such event, (i) the remaining General Partner, if any, elects to
continue the business of the Partnership, or (ii) if there is no remaining
General Partner, a majority in interest of the Limited Partners elect to
continue the business of the Partnership; (c) the removal of a General Partner
unless within 90 days from the date of such removal, (i) the remaining General
Partner, if any, elects to continue the business of the Partnership, or (ii) if
there is no remaining General Partner, a majority in interest of the Limited
Partners elect to continue the business of the Partnership; (d) the sale or
disposition of all interests in real property and other assets of the
Partnership; (e) the effective date of the occurrence of an Event of Withdrawal
of the last remaining General Partner unless, within 120 days from such event, a
majority in interest of the Limited Partners elect to continue the business of
the Partnership; or (f) the happening of any other event causing the dissolution
of the Partnership under the laws of Georgia. (Section 20.1.) However, the
retirement or withdrawal of a General Partner will not dissolve the Partnership
if any remaining General Partner or General Partners, within 90 days of the date
of such event, elect to continue the business of the Partnership, or in the
event that there is no remaining General Partner within 120 days, a majority in
interest of the Limited Partners elect to continue the business of the
Partnership and elect a successor General Partner or General Partners. (Section
20.3.)
In addition to the foregoing events, the General Partners may also
terminate the Offering, compel a termination and dissolution of the Partnership,
or restructure the Partnership's affairs, upon notice to all Limited Partners
but without the consent of any Limited Partner, if upon the advice of counsel to
the Partnership, either (a) the Partnership's assets constitute "Plan Assets,"
as such term is defined for purposes of ERISA, or (b) any of the transactions
contemplated in the Partnership Agreement constitute "prohibited transactions"
under ERISA.
In the event the Partnership is dissolved, the assets of the Partnership
shall be converted to cash. The General Partners shall be given a reasonable
amount of time to collect any notes receivable with respect to the sale of
Partnership assets and to collect any other outstanding debts. All cash on hand
shall be distributed first to creditors to satisfy debts and liabilities of the
Partnership other than loans or advances made by Partners to the Partnership,
including the establishment of reserves deemed reasonably necessary to satisfy
contingent or unforeseen liabilities or obligations of the Partnership. Any
remaining cash will then be used to repay loans or advances made by any of the
Partners to the Partnership and to pay any fees due the General Partners. The
balance, if any, shall
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be distributed among the Partners in accordance with the positive balance in
their Capital Accounts as of the date of distribution. Upon completion of the
foregoing distributions, the Partnership shall be terminated. (Section 9.3.)
DISTRIBUTIONS AND ALLOCATIONS
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Net Cash From Operations (defined in the Partnership Agreement to mean
generally the Partnership's cash flow from operations, after payment of all
operating expenses and adjustments for reserves), if any, will be distributed in
each year as follows and in the following priority:
(i) First, to Limited Partners holding Class A Status Units on a per
Unit basis until they have received a 10% annual return on their Net Capital
Contributions (defined in the Partnership Agreement to mean generally the amount
of cash contributed to the Partnership reduced by prior distributions of net
proceeds from any sale or exchange of Partnership Properties);
(ii) Then, to the General Partners until they have received an amount
equal to 10% of the total amount thus far distributed; and
(iii) Then, 90% to the Limited Partners holding Class A Status Units and
10% to the General Partners.
No Net Cash From Operations will be distributed with respect to Class B
Status Units.
The Partnership Agreement prohibits the General Partners from making any
distributions of Net Cash From Operations out of Capital Contributions.
Distributions of Net Cash From Operations will be allocated among the Limited
Partners on a daily basis based on a ratio which the number of Units owned by
each Limited Partner as of the last day of the preceding quarter bears to the
total number of Units outstanding. A transferee of Units will be deemed the
owner as of the first day of the quarter following the quarter during which the
transfer occurred and, therefore, will not participate in distributions made
with respect to the quarter in which such transfer occurs. It is anticipated
that distributions of Net Cash From Operations will be made on a quarterly
basis, unless Limited Partners elect to receive distributions on a monthly
basis. (See "Monthly Distributions" below.)
DISTRIBUTION OF NET SALE PROCEEDS
Nonliquidating Net Sale Proceeds (defined in the Partnership Agreement to
mean generally the net proceeds from any sale or exchange of Partnership
Properties) will be distributed generally as follows and in the following
priority:
(i) First, to Limited Partners holding Units which have at any time been
treated as Class B Status Units, in amounts necessary to make up for the
priority distributions of Net Cash From Operations previously paid to Limited
Partners holding Units which at all times have been treated as Class A Status
Units;
(ii) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received an amount equal to his Net Capital Contribution;
(iii) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received aggregate distributions equal to a 10% per annum
cumulative (noncompounded) return on his Net Capital Contribution;
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(iv) Then, to Limited Partners on a per Unit basis until each Limited
Partner has received aggregate distributions equal to his Preferential Limited
Partner Return (defined as the sum of (a) a 10% per annum cumulative return on
his Net Capital Contribution with respect to such Unit for all periods during
which such Unit was treated as a Class A Status Unit, and (b) a 15% per annum
cumulative return on his Net Capital Contribution with respect to such Unit for
all periods during which such Unit was treated as a Class B Status Unit);
(v) Then, to the General Partners until they have received an amount
equal to their Capital Contributions plus, in the event that Limited Partners
have received aggregate distributions over the life of their investment in
excess of their Net Capital Contributions plus their Preferential Limited
Partner Return, then and in only such event, the General Partners shall receive
an additional amount equal to 25% of any such excess; and
(vi) Then, 80% to the Limited Partners on a per Unit basis and 20% to
the General Partners; provided, however, that in no event will the General
Partners receive in the aggregate in excess of 15% of aggregate Nonliquidating
Net Sale Proceeds and Liquidating Distributions remaining after payments to
Limited Partners from such proceeds of amounts equal to the sum of 100% of their
Net Capital Contributions plus a 6% per annum return on their Net Capital
Contributions, calculated on a cumulative (noncompounded) basis. Any such excess
amounts otherwise distributable to the General Partners will instead be
reallocated and distributed to the Limited Partners on a per Unit basis.
Potential investors should be aware that their share of distributions
of Sale Proceeds may be less than their Net Capital Contributions unless the
Partnership's aggregate Sale Proceeds are sufficient to fund the sum of the
required payments to Limited Partners holding Units which have been treated as
Class B Status Units in such amounts as may be necessary to make up for the
priority distributions of Net Cash From Operations previously paid to Limited
Partners holding Units which at all times were treated as Class A Status Units
plus the amount required to repay aggregate Net Capital Contributions to all
Limited Partners.
Notwithstanding the foregoing, in the event the Partnership sells any
Partnership Property at a net sale price which is less than the purchase price
originally paid for such property, prior to the foregoing distribution of
Nonliquidating Net Sale Proceeds, Limited Partners holding Class A Status Units
shall first receive distributions of Nonliquidating Net Sale Proceeds in an
amount equal to the following: the excess of the original purchase price of the
Partnership Property sold over the sale price of such Partnership Property, but
not greater than the amount of special allocations of deductions for
depreciation, amortization and cost recovery with respect to such Partnership
Property previously made to Limited Partners holding Class B Status Units. The
General Partners have included the foregoing provision in the Partnership
Agreement for distributions of Nonliquidating Net Sale Proceeds in favor of
Limited Partners holding Class A Status Units in order to ensure that Limited
Partners holding Class B Status Units will bear the actual economic risk of loss
in the event a Partnership Property is sold at a loss, in order to support the
allocation of depreciation, amortization and cost recovery deductions to such
Limited Partners.
LIQUIDATING DISTRIBUTIONS
Liquidating Distributions (defined in the Partnership Agreement to
mean generally the distribution of the net proceeds from a dissolution and
termination of the Partnership or from the sale of substantially all of the last
remaining assets of the Partnership) will be distributed among the General
Partners and the Limited Partners in accordance with each such Partner's
positive Capital Account balance, after the allocation of Gain on Sale and other
appropriate Capital Account adjustments.
RETURN OF UNUSED CAPITAL CONTRIBUTIONS
Funds not expended, committed or reserved for working capital purposes
by the later of the second anniversary of the effective date of the Registration
Statement or one year after the termination of the Offering will be returned to
Limited Partners, without reduction for Front-End Fees or Selling Commissions
relating to such uncommitted funds and without interest thereon. For purposes of
the foregoing, funds will be deemed to have been
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committed and will not be returned to the extent that such funds would be
required to complete the acquisition of Partnership Properties with respect to
which contracts, agreements in principle or letters of understanding have been
executed, regardless of whether such property is actually acquired. Any funds
reserved in order to make contingent payments in connection with the acquisition
of any Partnership Property will be treated as committed whether or not any such
payments are actually made.
PARTNERSHIP ALLOCATIONS
Since the Partnership does not intend to borrow funds, no Partner's
Capital Account will be allocated items that will cause it to have a deficit
balance. This means that, although holders of Class B Status Units may receive
allocations of certain deductions over the life of the Partnership equal to
their Capital Contributions, they cannot be allocated additional deductions.
NET LOSS. Net Loss (defined in the Partnership Agreement to mean
generally the net losses of the Partnership for federal income tax purposes, but
excluding deductions for depreciation, amortization and cost recovery, which
will be allocated separately as set forth below) for each fiscal year shall be
allocated as follows:
(i) 99% to Limited Partners holding Class B Status Units and 1% to
the General Partners until the Capital Accounts of all such Partners have been
reduced to zero ;
(ii) Then, to any Partner having a positive balance in his Capital
Account in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
(iii) Then, 100% to the General Partners.
Notwithstanding the foregoing, in any fiscal year with respect to
which the Partnership incurs an aggregate Net Loss, interest income of the
Partnership shall be specially allocated to Limited Partners holding Class A
Status Units and the Net Loss of the Partnership for such fiscal year shall be
determined without regard to such interest income.
All deductions for depreciation, amortization and cost recovery for
each fiscal year shall be allocated as follows:
(i) 99% to Limited Partners holding Class B Status Units and 1% to
the General Partners until the Capital Accounts of all such Partners have been
reduced to zero ;
(ii) Then, to any Partner having a positive balance in his Capital
Account in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
(iii) Then, 100% to the General Partners.
NET INCOME. Net Income (defined in the Partnership Agreement to mean
generally the net income of the Partnership for federal income tax purposes,
including any income exempt from tax, but excluding all deductions for
depreciation, amortization and cost recovery and Gain on Sale) for each fiscal
year shall be allocated as follows:
(i) To Limited Partners holding Class A Status Units and to the
General Partners in the same proportion as and to the extent that Net Cash From
Operations is distributed; and
(ii) To the extent Net Income exceeds Net Cash From Operations with
respect to such fiscal year, such excess Net Income shall be allocated 99% to
Limited Partners holding Class A Status Units and 1% to the General Partners.
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GAIN ON SALE. Gain on Sale (defined in the Partnership Agreement to
mean generally the taxable income or gain from the sale or exchange of
Partnership Properties) for each fiscal year shall be allocated as follows:
(i) First, pursuant to the qualified income offset provision
described below;
(ii) Then, to Partners having negative Capital Accounts until all
negative Capital Accounts have been restored to zero;
(iii) Then, to Limited Partners holding Units which at any time have
been treated as Class B Status Units, in amounts equal to the deductions for
depreciation, amortization and cost recovery previously allocated to them with
respect to the specific Partnership Property, the sale or other disposition of
which resulted in Gain on Sale being allocated, but not in excess of the amount
of Gain on Sale recognized by the Partnership pursuant to the sale or other
disposition of said Partnership Property;
(iv) Then, to the Limited Partners in amounts equal to the
deductions for depreciation, amortization and cost recovery previously allocated
to said Limited Partners with respect to the specific Partnership Property, the
sale or other disposition of which resulted in Gain on Sale being allocated;
(v) Then, to Limited Partners holding Units which at any time have
been treated as Class B Status Units, in an amount necessary to make up for the
priority distributions of Net Cash From Operations in favor of Limited Partners
holding Units which at all times have been treated as Class A Status Units;
(vi) Then, to Limited Partners on a per Unit basis in amounts equal
to the excess of each Limited Partner's Net Capital Contribution over all prior
distributions to such Limited Partner of net proceeds from the sale of
Partnership Properties;
(vii) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an amount equal to the excess of a 10%
cumulative (noncompounded) return on his Net Capital Contribution over prior
distributions to such Limited Partner of Net Cash From Operations;
(viii) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an aggregate amount equal to the excess of
his Preferential Limited Partner Return over prior distributions to such
Limited Partner of Net Cash From Operations;
(ix) Then, to the General Partners in an amount equal to their
Capital Contributions; plus, in the event that Limited Partners have received
aggregate distributions over the life of their investment in excess of their Net
Capital Contributions plus their Preferential Limited Partner Return, then, and
only in such event, an additional amount equal to 25% of any such excess over
prior distributions received by the General Partners of Nonliquidating Net Sale
Proceeds and Liquidating Distributions; and
(x) Then, 80% to the Limited Partners and 20% to the General
Partners; provided, however, that in no event will the General Partners be
allocated Gain on Sale which would result in distributions to the General
Partners in excess of 15% of aggregate Nonliquidating Net Sale Proceeds and
Liquidating Distributions remaining after payments to Limited Partners from such
proceeds of amounts equal to the sum of 100% of their Net Capital Contributions
plus a 6% per annum return on their Net Capital Contributions, calculated on a
cumulative (noncompounded) basis. Any such excess allocations of Gain on Sale
will instead be reallocated to the Limited Partners on a per Unit basis.
The Partnership Agreement contains a "qualified income offset"
provision which provides that in the event that any Partner receives an
adjustment, allocation or distribution of certain items which causes a deficit
or negative balance in such Partner's Capital Account, such Partner will be
allocated items of income or gain (consisting of a
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pro rata portion of each item of Partnership income, including gross income, and
gain for such year) in an amount and manner sufficient to eliminate such deficit
balance as quickly as possible. The intent of the foregoing provision is to
prohibit allocations of losses or distributions of cash to a Limited Partner
which would cause his Capital Account to become negative (which would occur in
the event that the aggregate amount of losses allocated and cash distributed to
such Limited Partner exceeded the sum of his Capital Contributions plus any
income allocated to him) or, in the event such allocation or distribution did
cause his Capital Account to become negative, such Limited Partner would be
allocated income or gain in an amount necessary to bring his Capital Account
back to zero. (See "FEDERAL INCOME TAX CONSEQUENCES -- Allocations of Profit and
Loss.")
THE QUALIFIED INCOME OFFSET PROVISION MAY RESULT IN INCOME BEING
SPECIALLY ALLOCATED TO LIMITED PARTNERS EVEN IN A FISCAL YEAR WHEN THE
PARTNERSHIP HAS A NET LOSS FROM OPERATIONS OR FROM THE SALE OF PROPERTY.
Income, losses and distributions of cash relating to Units which are
acquired directly from the Partnership during the Offering will be allocated
among the Limited Partners on a pro rata basis based on the number of days
such Units have been owned by such Limited Partner.
MONTHLY DISTRIBUTIONS
Limited Partners holding Class A Status Units may, at their option,
elect to receive distributions of Net Cash From Operations, if any, on a monthly
basis. This program is called the Monthly Distribution Option (the "MDO"). It
should be understood, however, that Limited Partners electing the MDO will in
all likelihood receive lower distributions per Unit, on an annual basis, than
Limited Partners receiving their distributions on a quarterly basis due to the
fact that income received by the Partnership during the early portion of a
quarter will be invested and will earn interest until distribution shortly after
the end of the quarter. This compounding effect will be available to Limited
Partners selecting the MDO to a lesser degree due to the greater frequency of
their distributions.
Limited Partners holding Class A Status Units that elect the MDO will
begin receiving their distributions on a monthly basis with respect to the
calendar quarter following the calendar quarter in which the General Partners
receive the Limited Partner's written election along with a check for the MDO
fee, described below. Monthly distributions will be paid to the Limited Partner
during the month following the month to which the distribution is attributable.
For example, if a Limited Partner elects the MDO during the first calendar
quarter of a year, his election is effective at the beginning of the second
calendar quarter (i.e., April 1). The Limited Partner will receive a
distribution, if at all, for the first calendar quarter of the year. Beginning
in April, the Limited Partner electing the MDO would receive monthly
distributions for the remainder of the year with the first monthly distribution
being paid during the month of May.
There is an annual fee of $20 per Limited Partner electing the MDO.
This annual fee is designed to cover additional administrative expenses, postage
and handling costs associated with more frequent distributions and will in no
event result in any additional compensation to the General Partners or their
Affiliates. In the event the actual administrative expenses, postage and
handling costs are less than $20 per Limited Partner per year, which is not
anticipated, any such savings will be reimbursed to Limited Partners electing
the MDO. The first fee payment is due at the time of the initial election, and
each subsequent fee payment is due by each December 31. Each Limited Partner
electing the MDO will receive a bill for the annual fee in conjunction with his
November distribution. Limited Partners may elect to have the Partnership deduct
subsequent annual MDO fees from the distributions.
A Limited Partner holding Class A Status Units may withdraw from the
MDO by either notifying the General Partners in writing or by simply failing to
pay the annual fee on a timely basis. A Limited Partner will then begin to
receive his distributions on a quarterly basis at the beginning of the following
calendar year. If payment is not received by the due date, then the MDO with
respect to that Limited Partner is canceled. To
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<PAGE>
reinstate the MDO, the Limited Partner may make his $20 payment, and the MDO
will again be effective at the beginning of the calendar quarter following the
calendar quarter in which payment is made. A Limited Partner holding Class A
Status Units may elect the MDO by sending a completed MDO form to the
Partnership (which form may be obtained by calling or writing the Partnership).
REPORTS TO INVESTORS
Within 75 days after the end of each fiscal year of the Partnership,
the General Partners will deliver to each Limited Partner and any assignee such
information as is necessary for the preparation of his federal income tax return
and state income or other tax returns with regard to jurisdictions in which
Partnership Properties are located. Within 120 days after the end of the
Partnership's fiscal year, the General Partners will deliver to each Limited
Partner and any assignee an annual report which includes financial statements of
the Partnership, audited by independent certified public accountants and
prepared in accordance with generally accepted accounting principles. Such
financial statements will include a profit and loss statement, a balance sheet
of the Partnership, a cash flow statement and a statement of changes in
Partners' capital. The notes to the annual financial statements will contain a
detailed reconciliation of the Partnership's net income for financial reporting
purposes to net income for tax purposes for the periods covered by the report.
The annual report for each year will report on the Partnership's activities for
that year, identify the source of Partnership distributions, set forth the
compensation paid to the General Partners and their Affiliates and a statement
of the services performed in consideration therefor, provide a category-by-
category breakdown of the general and administrative expenses incurred,
including a breakdown of all costs reimbursed to the General Partners and their
Affiliates in accordance with Section 11.4(b) of the Partnership Agreement, and
contain such other information as is deemed reasonably necessary by the General
Partners to advise the Limited Partners of the affairs of the Partnership.
For as long as the Partnership is required to file quarterly reports
on Form 10-Q with the Securities and Exchange Commission, financial information
substantially similar to the financial informed contained in each such report
shall be sent to the Limited Partners within 60 days after the end of such
quarter. Whether or not such reports are required to be filed, each Limited
Partner will be furnished, within 60 days after the end of each of the first
three quarters of the Partnership's fiscal year, an unaudited financial report
for that period including a profit and loss statement, a balance sheet and a
cash flow statement. The foregoing reports for any period in which fees are paid
to the General Partners or their Affiliates for services shall set forth the
fees paid and the services rendered. In addition, until all of the net proceeds
from the Offering are expended or committed (or used to establish a working
capital reserve) or returned to the Partners, each Limited Partner shall be
furnished, at least quarterly within 60 days after the end of each quarter
during which the Partnership has acquired real property, an acquisition report
describing the properties acquired since the prior special report and including
a description of locations and of the market upon which the General Partners are
relying in projecting successful operation of the properties. The acquisition
report shall include a description of the present or proposed use of the
property and its suitability or adequacy for such use and the terms of any
material lease affecting the property, a statement of the appraised value,
purchase price, terms of purchase, all costs related to the acquisition, and an
estimate of all proposed subsequent expenditures for development or other
improvements of the property, a statement that title insurance and any required
performance bonds or other assurances in accordance with Section 11.3(k) of the
Partnership Agreement with respect to builders have been or will be obtained on
the property, and a statement regarding the amount of proceeds (in both dollar
amount and as a percentage of the total amount of the Offering) to the
Partnership which remain unexpended or uncommitted. In addition, the acquisition
report will identify any real property which the General Partners presently
intend to be acquired by or leased to the Partnership, providing its location
and a description of its general character.
The appraisal received by the Partnership at the time of each
acquisition of property shall be maintained in its records for at least five
years thereafter and, during such time, shall be made available to the Limited
Partners for inspection and duplication at reasonable times.
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The Partnership will distribute annually to Limited Partners a report
on the estimated value of each Unit in the next annual or quarterly report on
Form 10-K or Form 10-Q sent to Limited Partners following the valuation process.
Such estimated value will be based upon annual appraisals of Partnership
Properties performed by the General Partners and not by an independent
appraiser. The General Partners are, however, required to obtain the opinion of
an independent third party that their estimate of the value of each Unit is
reasonable and was prepared in accordance with appropriate methods for valuing
real estate. For the first three full fiscal years following the year in which
the Offering of Units terminates, the value of the Units will be deemed to be
their initial purchase price of $10.00, and no valuation of Partnership
Properties will be performed. (See "INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA
CONSIDERATIONS -- Annual Valuation.")
In addition, upon request from any prospective investor or Limited
Partner, the Partnership will provide without charge a copy of the NASAA
Guidelines (as referred to elsewhere herein).
PLAN OF DISTRIBUTION
A minimum of 125,000 Units and a maximum of 3,500,000 Units are being
offered to the public through Wells Investment Securities, Inc. (the "Dealer
Manager"), a registered broker-dealer affiliated with the General Partners. (See
"CONFLICTS OF INTEREST" and "MANAGEMENT.") The Units are being offered at a per
Unit price of $10.00 per Unit on a "best efforts" basis (which means generally
that the Dealer Manager will be required to use only its best efforts to sell
the Units and has no firm commitment or obligation to purchase any of the
Units).
Except as provided below, the Dealer Manager will receive commissions
of 8% of the Gross Offering Proceeds. The Dealer Manager will also receive 2% of
the Gross Offering Proceeds in the form of a dealer manager fee as compensation
for acting as the Dealer Manager and for expenses incurred in connection with
coordinating sales efforts, training of personnel and generally performing
"wholesaling" functions. In addition, the Partnership may reimburse the expenses
incurred by nonaffiliated dealers for actual due diligence purposes in the
maximum amount of .5% of the Gross Offering Proceeds. The Partnership will not
pay referral or similar fees to any accountants, attorneys or other persons in
connection with the distribution of the Units. Limited Partners who elect to
participate in the Distribution Reinvestment Plan will be charged Selling
Commissions and dealer manager fees on Units purchased pursuant to the
Distribution Reinvestment Plan on the same basis as Limited Partners purchasing
Units other than pursuant to the Distribution Reinvestment Plan. Units issued by
the Partnership under the Distribution Reinvestment Plan will be available only
until the termination of the Offering, as described above.
The Dealer Manager may authorize certain other broker-dealers who are
members of the National Association of Securities Dealers, Inc. (the "NASD") to
sell Units. In the event of the sale of Units by such other broker-dealers, the
Dealer Manager may reallow its commissions in the amount of up to 8% of the
Gross Offering Proceeds to such participating broker-dealers. In addition, the
Dealer Manager, in its sole discretion, may reallocate to any broker-dealer
participating in the Offering a portion of its dealer manager fee in the
aggregate amount of up to 1% of Gross Offering Proceeds to be paid to such
participating broker-dealer as a marketing fee, based on such factors as the
number of Units sold by such participating broker-dealer, the assistance of such
participating broker-dealer in marketing the Offering and bona fide conference
fees incurred.
In no event shall the total underwriting compensation, including sales
commissions, the dealer manager fee and expense reimbursements, exceed 10% of
Gross Offering Proceeds, except for the additional .5% of Gross Offering
Proceeds which may be paid by the Partnership in connection with due diligence
activities.
The General Partners have agreed to indemnify the participating broke-
dealers, including the Dealer Manager, against certain liabilities arising under
the Securities Act of 1933, as amended.
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The broker-dealers are not obligated to obtain any subscriptions, and
there is no assurance that any Units will be sold.
The General Partners may at their option purchase Units offered hereby
at the public offering price, in which case they would expect to hold such Units
as Limited Partners for investment and not for distribution. Units purchased by
the General Partners or their Affiliates shall not be entitled to vote on any
matter presented to the Limited Partners for a vote. No selling commissions will
be payable by the Partnership in connection with any Units purchased by the
General Partners. (See "RISK FACTORS.")
Payment for Units should be made by check payable to "The Bank of New
York, as Agent." Subscriptions will be effective only upon acceptance by the
General Partners, and the General Partners reserve the right to reject any
subscription in whole or in part. In no event may a subscription for Units be
accepted until at least five business days after the date the subscriber
receives this Prospectus. Each subscriber will receive a confirmation of the
investor's purchase. Except for purchases pursuant to the Distribution
Reinvestment Plan, all accepted subscriptions will be for whole Units and for
not less than 100 Units ($1,000). (See "WHO SHOULD INVEST -- SUITABILITY
STANDARDS.") Except in Maine, Minnesota and Washington, investors who have
satisfied the minimum purchase requirement and have purchased units in Prior
Wells Public Programs may purchase less than the minimum number of Units
discussed above, provided that such investors purchase a minimum of 2.5 Units
($25). After investors have satisfied the minimum purchase requirement, minimum
additional purchases must be in increments of at least 2.5 Units ($25), except
for purchases pursuant to the Distribution Reinvestment Plan.
Subscription proceeds will be placed in an interest-bearing account
with The Bank of New York, Atlanta, Georgia (the "Escrow Agent") until such
subscriptions aggregating at least $1,250,000 (exclusive of any subscriptions
for Units by the General Partners or their Affiliates) have been received and
accepted by the General Partners (the "Minimum Offering"). Any Units purchased
by the General Partners or their Affiliates will not be counted in calculating
the Minimum Offering. Subscription proceeds held in the escrow account will be
invested in obligations of, or obligations guaranteed by, the United States
government or bank money-market accounts or certificates of deposit of national
or state banks that have deposits insured by the Federal Deposit Insurance
Corporation (including certificates of deposit of any bank acting as depository
or custodian for any such funds), as directed by the General Partners.
Subscribers may not withdraw funds from the escrow account.
Investors who desire to establish an IRA for purposes of investing in
Units may do so by having Wells Advisors, Inc., a qualified non-bank IRA
custodian affiliated with the General Partners, act as their IRA custodian. In
the event that an IRA is established having Wells Advisors, Inc. as the IRA
custodian, the authority of Wells Advisors, Inc. will be limited to holding the
Units on behalf of the beneficiary of the IRA and making distributions or
reinvestments in Units solely at the discretion of the beneficiary of the IRA.
Wells Advisors, Inc. will not have the authority to vote any of the Units held
in an IRA except strictly in accordance with the written instructions of the
beneficiary of the IRA. (See "MANAGEMENT.")
If the Minimum Offering has not been received and accepted by July 5,
1996, the Escrow Agent will promptly so notify the Partnership and this Offering
will be terminated. In such event, the Escrow Agent is obligated to use its best
efforts to obtain an executed IRS Form W-9 from each subscriber within thirty
(30) days of such notice and to promptly thereafter refund and return all monies
to subscribers and any interest earned thereon after deducting escrow expenses
(except for Maine, Missouri, Ohio and Pennsylvania residents). Any Units
purchased by the General Partners will not be counted for the purpose of
achieving the Minimum Offering. During the period in which subscription proceeds
are held in escrow, interest earned thereon will be allocated among subscribers
on the basis of the respective amounts of their subscriptions and the number of
days that such amounts were on deposit. Such interest net of escrow expenses
will be paid to subscribers upon the termination of the escrow period.
Initial subscribers may be admitted to the Partnership and the
payments transferred from escrow to the Partnership at any time after the
Partnership has received and accepted the Minimum Offering, except that
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subscribers residing in New York and Pennsylvania may not be admitted to the
Partnership until subscriptions have been received and accepted for 250,000
Units ($2,500,000) from all sources. The funds representing subscriptions for
Units from New York and Pennsylvania residents will not be released from the
escrow account until subscriptions for at least $2,500,000 have been received
from all sources. Subscriptions from New York residents may not be included in
determining whether subscriptions for the Minimum Offering have been obtained.
In addition, certain other states may impose different requirements than those
set forth herein. Any such additional requirements will be set forth in a
supplement to this Prospectus.
The offering of Units of the Partnership will commence upon the
effective date of this Prospectus and will continue until and terminate upon
the earlier of (i) January 4, 1997, or (ii) the date on which all $35,000,000
in Units of the Partnership have been sold.
The proceeds of this Offering will be received and held in trust for
the benefit of purchasers of Units and will be retained in trust after closing
to be used only for the purposes set forth in the "ESTIMATED USE OF PROCEEDS"
section. After the close of the Minimum Offering, subscriptions will be accepted
or rejected within 30 days of receipt by the Partnership, and if rejected, all
funds shall be returned to subscribers within 10 business days. Investors whose
subscriptions are accepted will be deemed admitted as Limited Partners of the
Partnership on the day on which their subscriptions are accepted.
The General Partners may sell Units to Retirement Plans of broker-
dealers participating in the Offering, to broker-dealers in their individual
capacities, to IRAs and Qualified Plans of their registered representatives or
to any one of their registered representatives in their individual capacities
for 92% of the Unit's public offering price in consideration of the services
rendered by such broker-dealers and registered representatives in the
distribution. The net proceeds to the Partnership from such sales will be
identical to the Partnership's net proceeds from other sales of Units.
In connection with sales of 25,000 or more Units ($250,000) to a
"purchaser" (as defined below), investors may agree with their registered
representatives to reduce the amount of selling commissions payable to
participating broker-dealers. Such reduction will be credited to the purchaser
by reducing the total purchase price payable by such purchaser. The following
table illustrates the various discount levels:
<TABLE>
<CAPTION>
DOLLAR NET
VOLUME SALES COMMISSIONS PURCHASE PROCEEDS TO
-------------------
OF UNITS PRICE PARTNERSHIP
PURCHASED PERCENT PER UNIT PER UNIT PER UNIT
--------- ------- -------- -------- --------
<S> <C> <C> <C> <C>
Under $250,000 8.0% $ 0.80 $ 10.00 $9.20
$250,000-$499,999 7.0% $0.6925 $9.8925 $9.20
$500,000-$749,999 6.0% $0.5872 $9.7872 $9.20
$750,000-$999,999 3.0% $0.2845 $9.4845 $9.20
$1,000,000-$1,999,99 1.0% $0.0929 $9.2929 $9.20
Over $2,000,000 0.5% $0.0462 $9.2462 $9.20
</TABLE>
For example, if an investor purchases 100,000 Units in the Partnership, he
could pay as little as $929,290 rather than $1,000,000 for the Units, in which
event the commission on the sale of such Units would be $9,290 ($0.0929 per
Unit), and the Partnership would receive net proceeds of $920,000 ($9.20 per
Unit). The net proceeds to the Partnership will not be affected by volume
discounts.
Because all investors will be deemed to have contributed the same
amount per Unit to the Partnership for purposes of tax allocations and
distributions of Net Cash From Operations and Sale Proceeds, an investor
qualifying for a volume discount will receive a higher return on his investment
in the Partnership than investors who do not qualify for such discount.
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Subscriptions may be combined for the purpose of determining the
volume discounts in the case of subscriptions made by any "purchaser," as that
term is defined below, provided all such Units are purchased through the same
broker-dealer. The volume discount shall be prorated among the separate
subscribers considered to be a single "purchaser." Any request to combine more
than one subscription must be made in writing, and must set forth the basis for
such request. Any such request will be subject to verification by the General
Partners that all of such subscriptions were made by a single "purchaser."
For the purposes of such volume discounts, the term "purchaser"
includes (i) an individual, his or her spouse and their children under the age
of 21 who purchase the Units for his, her or their own accounts; (ii) a
corporation, partnership, association, joint-stock company, trust fund or any
organized group of persons, whether incorporated or not; (iii) an employees'
trust, pension, profit sharing or other employee benefit plan qualified under
Section 401(a) of the Code; and (iv) all commingled trust funds maintained by a
given bank.
Notwithstanding the above, in connection with volume sales made to
investors in the Partnership, the General Partners may, in their sole
discretion, waive the "purchaser" requirements and aggregate subscriptions
(including subscriptions to Prior Wells Public Programs) as part of a combined
order for purposes of determining the number of Units purchased, provided that
any aggregate group of subscriptions must be received from the same broker-
dealer, including the Dealer Manager. Any such reduction in selling commission
will be prorated among the separate subscribers except that, in the case of
purchases through the Dealer Manager, the Dealer Manager may allocate such
reduction among separate subscribers considered to be a single "purchaser" as it
deems appropriate. An investor may reduce the amount of his purchase price to
the net amount shown in the foregoing table, if applicable. If such investor
does not reduce the purchase price, the excess amount submitted over the
discounted purchase price shall be returned to the actual separate subscribers
for Units. Except as provided in this paragraph, separate subscriptions will not
be cumulated, combined or aggregated.
In addition, in order to encourage purchases in amounts of 500,000 or
more Units, a potential purchaser who proposes to purchase at least 500,000
Units in the Partnership may agree with the General Partners and the Dealer
Manager to have the Acquisition and Advisory Fees payable to the General
Partners with respect to the sale of such Units reduced to 0.5%, to have the
dealer manager fee payable to the Dealer Manager with respect to the sale of
such Units reduced to 0.5%, and to have the selling commissions payable with
respect to the sale of such Units reduced to 0.5%, in which event the aggregate
fees payable with respect to the sale of such Units would be reduced by $1.35
per Unit, and the purchaser of such Units would be required to pay a total of
$8.65 per Unit purchased, rather than $10.00 per Unit. The net proceeds to the
Partnership would not be affected by such fee reductions. Of the $8.65 paid per
Unit, it is anticipated that approximately $8.15 per Unit (or approximately 94%)
will be used to acquire Partnership Properties and pay required acquisition
expenses relating to the acquisition of Partnership Properties. All such sales
must be made through registered broker-dealers.
California residents should be aware that volume discounts will not be
available in connection with the sale of Units made to California residents to
the extent such discounts do not comply with the provisions of Rule 260.140.51
adopted pursuant to the California Corporate Securities Law of 1968. Pursuant to
this Rule, volume discounts can be made available to California residents only
in accordance with the following conditions: (i) there can be no variance in the
net proceeds to the Partnership from the sale of the Units to different
purchasers of the same offering, (ii) all purchasers of the Units must be
informed of the availability of quantity discounts, (iii) the same volume
discounts must be allowed to all purchasers of Units which are part of the
offering, (iv) the minimum amount of Units as to which volume discounts are
allowed cannot be less than $10,000, (v) the variance in the price of the Units
must result solely from a different range of commissions, and all discounts
allowed must be based on a uniform scale of commissions, and (vi) no discounts
are allowed to any group of purchasers. Accordingly, volume discounts for
California residents will be available in accordance with the foregoing table of
uniform discount levels based on dollar volume of Units purchased, but no
discounts are allowed to any group of purchasers, and no subscriptions may be
aggregated as part of a combined order for purposes of determining the number of
Units purchased.
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Investors who, in connection with their purchase of Units, have
engaged the services of a registered investment advisor with whom the investor
has agreed to pay a fee for investment advisory services in lieu of normal
commissions based on the volume of securities sold may agree with the
participating broker-dealer selling such Units and the Dealer Manager to reduce
the amount of selling commissions payable with respect to such sale to zero. The
net proceeds to the Partnership will not be affected by eliminating the
commissions payable in connection with sales to investors purchasing through
such investment advisors. All such sales must be made through registered broker-
dealers.
Neither the Dealer Manager nor its Affiliates will directly or
indirectly compensate any person engaged as an investment advisor by a potential
investor as an inducement for such investment advisor to advise favorably for
investment in the Partnership.
SUPPLEMENTAL SALES MATERIAL
In addition to this Prospectus, the Partnership may utilize certain
sales material in connection with the Offering of the Units, although only when
accompanied by or preceded by the delivery of this Prospectus. In certain
jurisdictions, some or all of such sales material may not be available. This
material may include information relating to this Offering, the past performance
of the General Partners and their Affiliates, property brochures and articles
and publications concerning real estate. In addition, the sales material may
contain certain quotes from various publications without obtaining the consent
of the author or the publication for use of the quoted material in the sales
material.
The Partnership will use only sales material which has been approved
by such appropriate regulatory bodies as may be required. The Offering of Units
in the Partnership is made only by means of this Prospectus. Although the
information contained in such sales material does not conflict with any of the
information contained in this Prospectus, such material does not purport to be
complete, and should not be considered a part of this Prospectus or the
Registration Statement of which this Prospectus is a part, or as incorporated by
reference in this Prospectus or said Registration Statement or as forming the
basis of the Offering of the Units.
LEGAL OPINIONS
The legality of the Units being offered hereby has been passed upon
for the Partnership by Branch, Pike & Ganz, Atlanta, Georgia. The statements
under the caption "FEDERAL INCOME TAX CONSEQUENCES" as they relate to federal
income tax matters have been reviewed by Branch, Pike & Ganz and by Holland &
Knight (successor by merger to Branch, Pike & Ganz) ("Counsel"). Counsel has
represented the General Partners, as well as Affiliates of the General Partners,
in other matters and may continue to do so in the future. (See "CONFLICTS OF
INTEREST.")
EXPERTS
The balance sheet of the Partnership as of December 31, 1994, the
financial statements of Wells Partners, L.P. as of December 31, 1994 and 1993,
and for each of the years in the two year period ended December 31, 1994, andthe
financial statements of Wells Capital, Inc. as of December 31, 1994 and 1993,
and for each of the years in the two year period ended December 31, 1994,
included in Appendix I to this Prospectus, have been included herein in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing. The balance sheet of the Partnership as of August 31, 1995 and the
interim financial information of Wells Partners, L.P. and Wells Capital, Inc.
for the
93
<PAGE>
eight-month periods ended August 31, 1995 and 1994 included in Appendix I to
this Prospectus have not been audited.
INDEPENDENT AUDITORS
Effective September 11, 1995, each of the Partnership, Wells Partners
and Wells Capital dismissed KPMG Peat Marwick LLP ("KPMG"), the independent
accounting firm which was previously engaged as the principal accountant to
audit its financial statements. KPMG's report on the financial statements of
each of the Partnership, Wells Partners and Wells Capital did not contain, for
either of the past two years, an adverse opinion or a disclaimer of opinion, nor
was it qualified or modified as to uncertainty, audit scope, or accounting
principles. The Partnership's decision to change accountants was recommended and
approved by the General Partners and the board of directors of Wells Capital,
Wells Partners' decision to change accountants was recommended and approved by
Wells Capital and its board of directors, and Wells Capital's decision to change
accountants was recommended and approved by its board of directors. During the
two most recent fiscal years and all subsequent interim periods preceding KPMG's
dismissal, there was no disagreement between any of the Partnership, Wells
Partners or Wells Capital and KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of KPMG, would have caused
KPMG to make reference to the subject of the disagreement in connection with its
report. During the two most recent fiscal years and all subsequent interim
periods preceding KPMG's dismissal, no events occurred which would be required
to be disclosed in this Prospectus under applicable securities regulations in
connection with the change in accountants.
Effective September 11, 1995, each of the Partnership, Wells Partners
and Wells Capital engaged Arthur Andersen LLP ("Arthur Andersen") as the
principal accountant to audit its financial statements. During the two most
recent fiscal years and any subsequent interim periods prior to engaging Arthur
Andersen, none of the Partnership, Wells Partners or Wells Capital nor anyone on
their behalf consulted Arthur Andersen regarding any matter which would be
required to be disclosed in this Prospectus under applicable securities
regulations in connection with the change in accountants.
ADDITIONAL INFORMATION
The Partnership has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Units offered pursuant to this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits related thereto filed with the Securities and
Exchange Commission, reference to which is hereby made. Copies of the
Registration Statement and exhibits related thereto are on file at the offices
of the Securities and Exchange Commission in Washington, D.C. and may be
obtained upon payment of the fees prescribed by the Commission, or may be
examined at the offices of the Commission without charge.
GLOSSARY
The following are definitions of certain terms used in this Prospectus
and not otherwise defined herein or in the Partnership Agreement:
"ACQUISITION EXPENSES" means expenses incurred in connection with the
selection and acquisition of properties, whether or not acquired, including,
but not limited to, legal fees and expenses, travel and communications
expenses, costs of appraisals, nonrefundable option payments on property not
acquired, accounting
94
<PAGE>
fees and expenses and title insurance and other miscellaneous costs and
expenses relating to the selection and acquisition of properties.
"ACQUISITION FEES" means the total of all fees and commissions paid by
any party to any person in connection with the purchase, development or
construction of property by the Partnership, including Acquisition and Advisory
Fees payable to the General Partners or their Affiliates, real estate brokerage
commissions, investment advisory fees, finder's fees, selection fees,
development fees, construction fees, nonrecurring management fees, or any other
fees of a similar nature, however designated, except development fees and
construction fees paid to a person not affiliated with the Sponsor in connection
with the actual development or construction of a Partnership Property.
"AFFILIATE" means (i) any person directly or indirectly controlling,
controlled by or under common control with a General Partner, (ii) any person
owning or controlling 10% or more of the outstanding voting securities of a
General Partner, (iii) any officer, director or partner of a General Partner,
and (iv) if such other person is an officer, director or partner, any company
for which such person acts in any such capacity.
"CAPITAL ACCOUNT" means the account established for each Partner
pursuant to Section 8.1 of the Partnership Agreement. Each Partner's Capital
Account shall be determined in accordance with Treasury Regulations Section
1.704-1(b). Capital Accounts generally will be adjusted as follows. Each
Partner's Capital Account shall be credited with: (i) the amount of the cash
contributed to the Partnership by him, and (ii) his distributive share of
Partnership income and gain. Each Partner's Capital Account shall be debited
with: (iii) his distributive share of Partnership losses and deductions or
items thereof, and (iv) the cash distributed to him.
"CAPITAL CONTRIBUTION" means the amount of cash contributed to the
capital of the Partnership by a Partner.
"CASH FLOW" means cash funds from operations of the Partnership,
including without limitation interest and investment income but excluding
Capital Contributions and without deduction for depreciation or amortization,
after deducting funds used to pay or to provide for the payment of all operating
expenses of the Partnership and each Partnership Property and debt service, if
any, capital improvements and replacements.
"CLASS A STATUS UNIT" means a Unit with respect to which the Limited
Partner holding such Unit has made an effective election pursuant to Section
8.16 of the Partnership Agreement to be treated as a Class A Status Unit for
the applicable accounting period.
"CLASS B STATUS UNIT" means a Unit with respect to which the Limited
Partner holding such Unit has made an effective election pursuant to Section
8.16 of the Partnership Agreement to be treated as a Class B Status Unit for
the applicable accounting period.
"CODE" means the Internal Revenue Code of 1986, as amended.
"FRONT-END FEES" means fees and expenses paid by any party for any
services rendered during the Partnership's organizational or acquisition phase
including Organization and Offering Expenses, Acquisition Fees, Acquisition
Expenses, interest on deferred fees and expenses, if applicable, and any other
similar fees, however designated.
"GAIN ON SALE" means the taxable income or gain for federal income tax
purposes in the aggregate for each fiscal year from the sale or exchange of
all or any portion of a Partnership asset after netting losses from such sales
or exchanges against the gains from such transactions.
"GROSS OFFERING PROCEEDS" means the total gross proceeds from the sale
of the Units.
95
<PAGE>
"GRULPA" means the Georgia Revised Uniform Limited Partnership Act,
O.C.G.A. (S) 14-9-100, et seq.
"INITIAL LIMITED PARTNER" means Donald L. Thomas.
"INVESTMENT IN PROPERTIES" means the amount of Capital Contributions
actually paid or allocated to the purchase, development, construction or
improvement of properties acquired by the Partnership, including the purchase of
properties, working capital reserves allocable thereto (except that working
capital reserves in excess of 5% shall not be included) and other cash payments
such as interest and taxes, but excluding Front-End Fees.
"IRA" means an Individual Retirement Account established pursuant to
Section 408 of the Code.
"LIQUIDATING DISTRIBUTIONS" means the net cash proceeds received by
the Partnership from (a) the sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of substantially all of the assets of the
Partnership or the last remaining assets of the Partnership or (b) a liquidation
of the Partnership's assets in connection with a dissolution of the Partnership,
after (i) payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty, other disposition or liquidation, including real estate
commissions, if applicable, (ii) the payment of any outstanding indebtedness and
other liabilities of the Partnership, (iii) any amounts used to restore any such
assets of the Partnership, and (iv) any amounts set aside as reserves which the
General Partners in their sole discretion may deem necessary or desirable.
"MINIMUM OFFERING" means the receipt and acceptance by the General
Partners of subscriptions for Units aggregating at least $1,250,000 in
offering proceeds.
"NASAA GUIDELINES" means the Statement of Policy Regarding Real Estate
Programs of the North American Securities Administrators Association, Inc.
adopted on October 9 and 12, 1988, effective January 1, 1989, as amended.
"NET CAPITAL CONTRIBUTION" means, with respect to any Partner, the
Partner's Capital Contribution as reduced from time to time by distributions
constituting a return of unused capital or of Nonliquidating Net Sale Proceeds,
but not reduced by (i) distributions of Sale Proceeds made to Limited Partners
holding Units which at any time were treated as Class B Status Units in an
amount necessary to make up for the priority distributions of Net Cash From
Operations previously paid to Limited Partners holding Units which at all times
have been treated as Class A Status Units, or (ii) distributions of Net Cash
From Operations. (See "DISTRIBUTIONS AND ALLOCATIONS.")
"NET CASH FROM OPERATIONS" means Cash Flow, less adequate cash
reserves for other obligations of the Partnership for which there is no
provision and the Repurchase Reserve, if any.
"NET INCOME" or "NET LOSS" means the net income or loss realized or
recognized by the Partnership for a fiscal year, as determined for federal
income tax purposes, including any income exempt from tax, but excluding all
deductions for depreciation, amortization and cost recovery and Gain on Sale.
"NET WORTH" means, except where otherwise provided herein, the excess
of total assets over total liabilities as determined by generally accepted
accounting principles, except that if any of such assets have been depreciated,
then the amount of depreciation relative to any particular asset may be added to
the depreciated cost of such asset to compute total assets, provided that the
amount of depreciation may be added only to the extent that the amount resulting
after adding such depreciation does not exceed the fair market value of such
asset.
"NONLIQUIDATING NET SALE PROCEEDS" means the net cash proceeds
received by the Partnership from a sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of assets of the Partnership, which does
not constitute substantially all of the remaining assets of the Partnership,
after (i) the payment of all expenses
96
<PAGE>
of such sale, exchange, condemnation, eminent domain taking, casualty, sale or
other disposition, including real estate commissions, if applicable, (ii) the
payment of any outstanding indebtedness and other Partnership liabilities
relating to such assets, (iii) any amounts used to restore any such assets of
the Partnership, and (iv) any amounts set aside as reserves which the General
Partners in their sole discretion may deem necessary or desirable.
"OFFERING" means the offering and sale of the Units pursuant to the
terms and conditions of this Prospectus.
"ORGANIZATION AND OFFERING EXPENSES" means those expenses incurred in
connection with organizing the Partnership, preparing the Partnership for
registration and subsequently offering and distributing the Units to the
public, including without limitation, legal and accounting fees, sales
commissions paid to broker-dealers in connection with the distribution of the
Units and all advertising expenses.
"PARTNERS" means, collectively, the General Partners and the Limited
Partners.
"PARTNERSHIP" means Wells Real Estate Fund IX, L.P., the Georgia
limited partnership which will be organized pursuant to the Partnership
Agreement.
"PARTNERSHIP AGREEMENT" means the Amended and Restated Agreement of
Limited Partnership in the form attached hereto as Exhibit "B" entered into by
the General Partners and the Initial Limited Partner and to be adopted by the
Limited Partners.
"PARTNERSHIP PROPERTY" or "PARTNERSHIP PROPERTIES" means any and all
land and improvements as may be purchased or constructed by the Partnership
and all repairs, replacements or renewals thereof, together with all personal
property acquired by the Partnership which is from time to time located
thereon or specifically used in connection therewith.
"PREFERENTIAL LIMITED PARTNER RETURN" means with respect to each
Limited Partner Unit the sum of (i) a cumulative (noncompounded) 10% per annum
on a Limited Partner's Net Capital Contribution with respect to such Unit for
all periods during which such Unit was treated as a Class A Status Unit, and
(ii) a cumulative (noncompounded) 15% return on such Limited Partner's Net
Capital Contribution with respect to such Unit for all periods during which such
Unit was treated as a Class B Status Unit. Each Limited Partner's Preferential
Limited Partner Return shall be calculated from the date on which such Limited
Partner's Capital Contribution was made to the Partnership.
"PRIOR WELLS PUBLIC PROGRAMS" means the prior public real estate
limited partnership programs sponsored by the General Partners or their
Affiliates having substantially identical investment objectives as the
Partnership, specifically, Wells Real Estate Fund I, Wells Real Estate Fund II,
Wells Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real
Estate Fund IV, L.P., Wells Real Estate Fund V, L.P., Wells Real Estate Fund VI,
L.P., Wells Real Estate Fund VII, L.P. and Wells Real Estate Fund VIII, L.P.
"PROPERTY MANAGEMENT AND LEASING FEE" means the fee payable for day-to
day professional property management services in connection with the Partnership
Properties, initially payable to Wells Management Company, Inc.
"QUALIFIED PLAN" means a qualified sole proprietorship, partnership or
corporate pension or profit sharing plan established under Section 401(a) of
the Code.
"REGISTRATION STATEMENT" means the Registration Statement filed by the
Partnership with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, in order to register the Units for sale to
the public.
97
<PAGE>
"RESIDUAL PROCEEDS" means any Sale Proceeds available for distribution
to the Partners after the Limited Partners have first received distributions of
Sale Proceeds in an amount equal to 100% of their Capital Contributions plus
their Preferential Limited Partner Return (reduced by all prior distributions of
Net Cash From Operations) and after the General Partners have received
distributions of Sale Proceeds in an amount equal to 100% of their Capital
Contributions.
"RETIREMENT PLANS" means Individual Retirement Accounts ("IRAs")
established under Section 408 of the Code and Qualified Plans.
"SALE PROCEEDS" means, collectively, Nonliquidating Net Sale Proceeds
and Liquidating Distributions.
"SPONSOR" means any individual, partnership, corporation or other
legal entity which (i) is directly or indirectly instrumental in organizing,
wholly or in part, the Partnership, (ii) will manage or participate in the
management of the Partnership, and any Affiliate of any such person, other than
a person whose only relationship with the Partnership is that of an independent
property manager, whose only compensation is as such, (iii) takes the
initiative, directly or indirectly, in founding or organizing the Partnership,
either alone or in conjunction with one or more other persons, (iv) receives a
material participation in the Partnership in connection with the founding or
organizing of the business of the Partnership, in consideration of services or
property, or both services and property, (v) has a substantial number of
relationships and contacts with the Partnership, (vi) possesses significant
rights to control Partnership Properties, (vii) receives fees for providing
services to the Partnership which are paid on a basis that is not customary in
the industry, or (viii) provides goods or services to the Partnership on a basis
which was not negotiated at arm's-length with the Partnership. Based upon the
foregoing, Sponsors of the Partnership include the General Partners, Wells
Capital, Inc., Wells Investment Securities, Inc., Wells Management Company, Inc.
and Prior Wells Public Programs.
"UBTI" means unrelated business taxable income, as that term is
defined in Sections 511 through 514 of the Code.
"UNUSED CAPITAL CONTRIBUTIONS" means so much of the Capital
Contributions of Partners which are not required to acquire property and
improvements thereon with respect to which contracts, agreements in principle or
letters of understanding have been executed within the later of two years
following the effective date of the Registration Statement or one year after the
termination of the Offering of the Units.
"WELLS CAPITAL" means Wells Capital, Inc., a Georgia corporation which
is the sole general partner of Wells Partners, L.P.
"WELLS PARTNERS" means Wells Partners, L.P., a Georgia limited
partnership which has Wells Capital, Inc. as its sole general partner and is a
General Partner of the Partnership.
For additional definitions, see Article III of the Partnership
Agreement.
98
<PAGE>
APPENDIX I
FINANCIAL STATEMENTS
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WELLS PARTNERS, L.P.
Audited Financial Statements
Independent Auditor's Report I-1
Balance Sheets as of December 31, 1994 and 1993 I-2
Statements of Operations for the years ended December 31, 1994
and 1993 I-3
Statements of Partners' Capital for the years ended December 31,
1994 and 1993 I-4
Statements of Cash Flows for the years ended December 31, 1994
and 1993 I-5
Notes to Financial Statements I-6
WELLS CAPITAL, INC.
Audited Financial Statements
Independent Auditor's Report I-8
Balance Sheets as of December 31, 1994 and 1993 I-9
Statements of Earnings for the years ended December 31, 1994
and 1993 I-10
Statements of Stockholder's Equity for the years ended December 31,
1994 and 1993 I-11
Statements of Cash Flows for the years ended December 31, 1994
and 1993 I-12
Notes to Financial Statements I-13
WELLS REAL ESTATE FUND IX, L.P.
Audited Balance Sheet
Independent Auditor's Report I-16
Balance Sheets as of December 31, 1994 I-17
Notes to Balance Sheet I-18
</TABLE>
<PAGE>
[PEAT MARWICK LETTERHEAD APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
The Partners
Wells Partners, L.P.:
We have audited the accompanying balance sheets of Wells Partners, L.P., a
limited partnership, as of December 31, 1994 and 1993, and the related
statements of operations, partners' capital, and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Partners, L.P. as of
December 31, 1994 and 1993, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
January 13, 1995
I-1
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Balance Sheets
December 31, 1994 and 1993
<TABLE>
<CAPTION>
Assets 1994 1993
------ ---- ----
<S> <C> <C>
Cash
Investments in limited partnerships (note 2) $ 70 70
125,914 125,982
------- -------
Total assets $125,984 126,052
======= =======
Partners' Capital
-----------------
General partner $ 2,477 1,686
Limited partners 123,507 124,366
------- -------
Total partners' capital $125,984 126,052
======= =======
</TABLE>
See accompanying notes to financial statements.
I-2
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Statements of Operations
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Equity in loss of limited partnership (note 2) $ 868 792
Partnership administration - 15
--- ---
Net loss $ 868 807
=== ===
</TABLE>
See accompanying notes to financial statements.
I-3
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Statements of Operations
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Balance at December 31, 1992 $ 1,694 104,566 106,260
Capital contribution - 20,599 20,599
Net loss (8) (799) (807)
------ -------- --------
Balance at December 31, 1993 1,686 124,366 126,052
Capital contribution 800 - 800
Net loss (9) (859) (868)
------ -------- --------
Balance at December 31, 1994 $ 2,477 123,507 125,984
====== ======== ========
</TABLE>
See accompanying notes to financial statements.
I-4
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ 868 (807)
Adjustments to reconcile net loss to net cash used by
operating activities - equity in loss of limited partnership (868) 792
--- ------
Net cash used by operating activities - (15)
Cash flows used in investing activities - additional
investment in limited partnership (800) -
Cash flows provided by financing activities - General Partner
contributions 800 -
--- ------
Net decrease in cash - (15)
Cash at beginning of year 70 85
--- ------
Cash at end of year $ 70 70
=== ======
Supplemental schedule of noncash investing activities:
During 1993, a limited partner made a capital contribution in
the form of a 7.5% investment in the Beaver Ruin/Arc-Way,
Ltd. partnership $ - 20,599
=== ======
</TABLE>
See accompanying notes to financial statements.
I-5
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Notes to Financial Statements
December 31, 1994 and 1993
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
-------
Wells Partners, L.P. (the Partnership) is a limited partnership
organized under the laws of the State of Georgia. The General Partner
is Wells Capital, Inc., a Georgia corporation. The Partnership intends
to serve as the general partner in limited partnerships. The
Partnership is currently the general partner in Wells Real Estate Fund
IV, L.P. (Fund IV), Wells Real Estate Fund V, L.P. (Fund V), Wells
Real Estate Fund VI, L.P. (Fund VI), Wells Real Estate Fund VII, L.P.
(Fund VII), Wells Real Estate Fund VIII, L.P. (Fund VIII), and Real
Estate Fund IX, L.P.(Fund IX).
Although, as set forth above, the Partnership is a general partner in
Fund IV, Fund V, Fund VI, Fund VII, Fund VIII, and Fund IX, its
General Partner, Inc., has acted on behalf of the Partnership as the
general partner of such partnerships. Accordingly, all revenues and
expenses relating to the offerings of Fund IV, Fund V, Fund VI, Fund
VII, Fund VIII, and Fund IX limited partnership units were recorded by
Wells Capital, Inc.
(b) Investments in Partnerships
---------------------------
The Partnership has been assigned limited partnership interests in two
related entities (note 2). While the Partnership does not have
control, it has significant influence over the operations of the
investee entities. Accordingly, the Partnership records its investment
in these entities on the equity method. Initial capital contributions
of these investments by the limited partners were recorded at the
limited partners' cost.
(2) Investments in Partnerships
---------------------------
The cost and estimated market value (market) of the investments in
partnerships as of December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
-------------------- ------------------
Cost Market Cost Market
---- ------ ---- ------
<S> <C> <C> <C> <C>
19.2% and 11.3% ownership interest
in Beaver Ruin - Arc Way, Ltd. as
of December 31, 1994 and 1993,
respectively $ 77,452 869,000 78,381 869,000
51.27% ownership interest in
Carter Boulevard, Ltd. 45,976 299,000 46,866 299,000
Wells Real Estate Fund VI, L.P. 1,462 1,462 335 335
Wells Real Estate Fund VII, L.P. 224 224 400 400
Wells Real Estate Fund VIII, L.P. 400 400 - -
Wells Real Estate Fund IX, L.P. 400 400 - -
--------- --------- ------- ---------
$ 125,914 1,170,486 125,982 1,168,735
========= ========= ======= =========
</TABLE>
(Continued)
I-6
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Notes to Financial Statements
The assets of the Beaver Ruin - Arc Way, Ltd. and Carter Boulevard, Ltd.
partnerships are comprised primarily of an investment in a parcel of
undeveloped land. The market value of this land was based on an appraisal
dated June 1988, which was updated through December 1994 to reflect
estimated economic and market conditions.
Fund IV owns all of its properties through investments in two joint
ventures which, as of December 31, 1994, owned interests in a retail
shopping center, two commercial office buildings, and a medical center
development.
Fund V owns all of its properties through investments in three joint
ventures which, as of December 31, 1994, owned interests in two commercial
office buildings, a medical center development, and a parcel of land that
is currently under development.
Fund VI owns all of its properties through an investment in three joint
ventures which, as of December 31, 1994, owned an interest in two
commercial office buildings and two parcels of land that are currently
under development.
Fund VII owns all of its properties through investments in two joint
ventures which, as of December 31, 1994, owned an interest in a commercial
office building and a parcel of land that is currently under development.
The Partnership is entitled to share in the allocation of cash
distributions and net earnings (losses) based on percentages outlined in
the Partnership agreements.
(3) Income Taxes
------------
The Partnership will not request a ruling from the Internal Revenue Service
to the effect that it will be treated as a partnership and not an
association taxable as a corporation for Federal income tax purposes. No
provision for income taxes is recorded because any income tax liability is
the responsibility of the partners.
I-7
<PAGE>
[PEAT MARWICK LETTERHEAD APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wells Capital, Inc.:
We have audited the accompanying balance sheets of Wells Capital. Inc. as of
December 31, 1994 and 1993, and the related statements of earnings,
stockholder's equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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, the financial statements referred to above presently fairly, in
all material respects, the financial position of Wells Capital, Inc. as of
December 31, 1994 and 1993, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
January 13, 1995
I-8
<PAGE>
WELLS CAPITAL, INC.
Balance Sheets
December 31, 1994 and 1993
<TABLE>
<CAPTION>
Assets 1994 1993
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 3,863 52,113
Due from affiliates (note 3) 401,977 292,885
Other receivables 9,562 3,785
------- -------
Total current assets 415,402 348,783
Investments in partnerships (note 2) 20,035 24,799
------- -------
$ 435,437 373,582
======= =======
Liabilities and Stockholder's Equity
------------------------------------
Current liabilities - accounts payable $ 88,656 124,974
Stockholder's equity:
Common stock, $1 par value. Authorized 100,000
shares; issued 600 shares 600 600
Contributed capital 306,541 306,541
Retained earnings (accumulated deficit) 39,640 (58,533)
------- -------
Total stockholder's equity 346,781 248,608
Contingencies (notes 2 and 6)
------- -------
$ 435,437 373,582
======= =======
</TABLE>
See accompanying notes to financial statements.
I-9
<PAGE>
WELLS CAPITAL, INC.
Statements of Earnings
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Revenues - acquisition and advisory fees (note 4) $ 1,301,061 756,717
--------- -------
Expenses:
Salaries and wages (note 5) 953,999 233,392
Rent 26,484 43,944
General and administrative 217,093 179,386
Equity in loss of limited partnerships 5,312 6,433
Excess offering costs (note 2) - 290,647
--------- -------
Total expenses 1,202,888 753,802
--------- -------
Net earnings $ 98,173 2,915
========== =======
</TABLE>
See accompanying notes to financial statements.
I-10
<PAGE>
WELLS CAPITAL, INC.
Statements of Stockholder's Equity
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
Retained
earnings Total
Common Contributed (accumulated stockholder's
stock capital deficit) equity
----- ------- -------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $ 600 306,541 (61,448) 245,693
Net earnings - - 2,915 2,915
--- ------- ------- -------
Balance at December 31, 1993 600 306,541 (58,533) 248,608
Net earnings - - 98,173 98,173
--- ------- ------- -------
Balance at December 31, 1994 $ 600 306,541 39,640 346,781
=== ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
I-11
<PAGE>
WELLS CAPITAL, INC.
Statements of Cash Flows
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 98,173 2,915
------- -------
Adjustments to reconcile net earnings to net cash
used in operating activities:
Equity in loss from limited partnerships 5,312 6,433
Excess offering costs - 290,647
Changes in assets and liabilities:
Increase in due from affiliates (109,092) (414,415)
Increase in other receivables 5,777) (727)
Decrease in accounts payable (36,318) (2,633)
------- -------
Total adjustments (145,875) (120,695)
------- -------
Net cash used in operating activities (47,702) (117,780)
------- -------
Cash flows from investing activities:
Additional investment in limited partnerships (800) -
Distributions from limited partnerships 252 381
------- -------
Net cash (used in) provided by investing activities (548) 381
------- -------
Net decrease in cash (48,250) (117,399)
Cash at beginning of year 52,113 169,512
------- -------
Cash at end of year $ 3,863 52,113
======= =======
</TABLE>
See accompanying notes to financial statements.
I-12
<PAGE>
WELLS CAPITAL, INC.
Notes to Financial Statements
December 31, 1994 and 1993
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Organization
------------
Wells Capital, Inc. (Company) was organized on April 18, 1984 as a
corporation under the Georgia Business Corporation Code. The Company
is in the business of serving as general partner in limited
partnerships. The sole stockholder of the Company is Leo F. Wells,
III.
(b) Investments in Partnerships
---------------------------
Investments in partnerships are recorded on the equity basis.
(c) Income Taxes
------------
The Company elected to be treated as an S corporation effective
January 1, 1987. No provision for income taxes is recorded because any
income tax liability is the responsibility of the stockholder.
(2) Investments in Partnerships
---------------------------
The Company is a general partner in Wells Real Estate Fund I (Fund I),
Wells Real Estate Fund II (Fund II), Wells Real Estate Fund II-OW (Fund II-
OW), Wells Real Estate Fund III, L.P. (Fund III), and Wells Partners, L.P.
(Wells Partners), all of which are Georgia limited partnerships. Each of
the partnerships, except for Wells Partners, has been formed to acquire and
operate commercial and industrial real properties, including both
properties which are to be developed or are under development and
properties which are newly constructed or have operating histories. Wells
Partners was formed during 1990 to act as General Partner for Wells Real
Estate Fund IV, L.P. (Fund IV) and Wells Real Estate Fund V,L.P. (Fund V).
In December 1992, Wells Partners became the General Partner for Wells Real
Estate Fund VI, L.P. (Fund VI) and Wells Real Estate Fund VII, L.P. (Fund
VII). In August 1994, Wells Partners became the General Partner for Wells
Real Estate Fund VIII, L.P. (Fund VIII) and Wells Real Estate Fund IX, L.P.
(Fund IX). Funds IV, V, VI, VII, VIII, and IX have the same investment
objectives as Funds I, II, II-OW, and III. The Company's investment in each
partnership at December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Fund I $ 13,236 18,246
Fund II 4,322 4,854
Wells Partners 2,477 1,699
------ ------
$ 20,035 24,799
======= =======
</TABLE>
As of December 31, 1994, Fund I owned interests in a medical office
building, two commercial office buildings, three retail shopping centers,
and a project consisting of seven office buildings and a shopping center.
I-13
<PAGE>
WELLS CAPITAL, INC.
Notes to Financial Statements
Fund II and Fund II-OW own all of their properties through a joint venture,
which as of December 31, 1994, owned interests in a retail shopping center,
a project consisting of seven office buildings and a shopping center,two
office buildings, and a parcel of land upon part of which a restaurant has
been developed and the remainder of which is not yet developed.
As of December 31, 1994, Fund III owned interests in three office
buildings, a retail shopping center, and a parcel of land upon part of
which a restaurant has been developed and the remainder of which is not
yet developed.
The Company is entitled to share in the allocation of cash distributions
and net earnings (losses) based on percentages outlined in the partnership
agreements. The Company, as general partner, paid all the organizational
and offering expenses for Fund I, Fund II, Fund II-OW, and Fund III and was
reimbursed pursuant to the partnership agreements, which provided that the
partnerships could reimburse the Company up to 5% of total limited
partners' contributions in organizational and offering expenses. The
Company also paid or its currently paying on behalf of Wells Partners, L.P.
the offering and organizational expenses for Fund IV, Fund V,Fund VI, Fund
VII, Fund VIII, and Fund IX. Pursuant to the partnership agreements of Fund
IV and Fund V, these two partnerships can only pay up to 3% of total
limited partners' contributions in offering and organizational expenses.
Pursuant to the partnership agreements of Fund VI, Fund VII, Fund VIII, and
Fund IX, these partnerships can reimburse the Company up to 5% of total
limited partners' contributions in offering and organizational costs.
During the year ended December 31, 1994, the Company paid and was
reimbursed for organizational and offering costs related to Fund VI
totaling approximately $453,900 which did not exceed the 5% reimbursement
limitation. Fund VI ceased accepting limited partner contributions on April
4, 1994, after obtaining total limited partner contributions of
$25,000,000,
As of December 31, 1994, the Company paid organizational and offering
expenses related to Fund VII totaling $1,183,527. The Company expects to be
reimbursed for the remaining unreimbursed offering and organizational
expenses totaling $14,779. The Company's receivable for the aforementioned
expenses is included in due from affiliates (note 3).
As of December 31, 1994, the Company paid organizational and offering
expenses related to Fund VIII and Fund IX of $175,903. Fund VIII and Fund
IX filed a registration statement with the Securities and Exchange
Commission (SEC) for the offering and sale of its limited partnership
units, which became effective on January 6, 1995. In order for the Company
to be reimbursed for these expenses, Fund VIII and Fund IX will need to
receive approximately $3,518,000 in limited partners' contributions. At
this time, the Company believes that all of the foregoing organizational
and offering expenses will be reimbursed. The Company's receivable for the
aforementioned expenses is included in due from affiliates (note 3).
(Continued)
I-14
<PAGE>
WELLS CAPITAL, INC.
Notes to Financial Statements
As of December 31, 1993, the Company paid organizational and offering
expenses related to Fund VI totaling $973,887, which were expected to
exceed the 5% reimbursement limitation by $235,000. Accordingly, the
Company absorbed these excess organizational and offering costs and
expensed them in 1993.
During the year ended December 31, 1993, the Company paid organizational
and offering expenses related to Fund V totaling $186,885 which exceeded
the 3% reimbursement limitation by $55,647. Accordingly, the Company
absorbed these excess organizational and offering costs and expensed them
in 1993. Fund V ceased accepting limited partner contributions on March 3,
1993, obtaining total limited partner contributions of $17,006,021.
(3) Due from Affiliates
-------------------
Due from affiliates as of December 31, 1994 and 1993 consists of the
following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Fund VI $ - 97,060
Fund VII 14,829 71,365
Fund VIII 133,494 -
Fund IX 42,409 -
Wells Management Company, Inc. 209,137 111,587
Other Affiliates 2,108 12,885
------- -------
$ 401,977 292,885
======= =======
</TABLE>
Due from Fund VI, Fund VII, Fund VIII, and Fund IX as of December 31, 1994
and 1993 represents primarily organizational and offering expenses paid by
the Company on behalf of the Funds (note 2). The remaining due from
affiliates represents operating expenses paid by the Company on behalf of
the affiliates.
(4) Acquisition and Advisory Fees
-----------------------------
Acquisition and advisory fees were earned from Fund VI and Fund VII in 1994
and from Fund V and Fund VI in 1993. Pursuant to the partnership agreements
of Fund V, Fund VI, and Fund VII, total fees earned may not exceed 6.0% of
limited partner's contributions. As of December 31, 1994 and 1993, all fees
were collected for limited partners' contributions received by Fund V, Fund
VI, and Fund VII.
(5) Salaries and Wages
------------------
In 1993, certain salaries were paid and expensed by Wells Management
Company, Inc. In 1994, these salaries amounted to $235,300 and were paid
and expensed by the Company.
(6) Contingencies
-------------
The Company has guaranteed the indebtedness of an affiliate, Wells
Management Company, Inc. for an amount not to exceed $200,000.
I-15
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
The Partners
Wells Real Estate Fund IX, L.P.:
We have audited the accompanying balance sheet of Wells Real Estate Fund IX,
L.P., a limited partnership as of December 31, 1994. This financial statement is
the responsibility of the Partnership's management. Our responsibility is to
express as opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Wells Real Estate Fund IX, L.P. as
of December 31, 1994 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
January 13, 1995
I-16
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
(a Limited Partnership)
Balance Sheet
December 31, 1994
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Cash $ 600
Deferred offering costs (note 2) 42,409
------
Total assets $ 43,009
======
Liabilities and Partners' Capital
---------------------------------
Liabilities - due to affiliate (note 2) $ 42,409
------
General partners 500
Limited partners 100
------
Total partners' capital 600
------
Total liabilities and partners' capital $ 43,009
======
</TABLE>
See accompanying notes to balance sheet.
I-17
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
(a Limited Partnership)
Notes to Balance Sheet
December 31, 1994
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
-------
Wells Real Estate Fund IX, L.P. (the Partnership) is a limited
partnership organized on August 15, 1994 under the laws of the State
of Georgia. The general partners are Leo F. Wells, III and Wells
Partners, L.P. The Partnership offers for sale one class of limited
partnership Units. Upon subscription for Units, each limited partner
must elect whether to have their Units treated as Class A Status Units
(entitled to allocation of substantially all of Partnership's net
income without allocation any deductions for depreciation,
amortization, cost recovery, or net losses) or Class B Status Units
(entitled to a larger share of deduction for depreciation,
amortization, cost recovery and net loss, and higher percentage return
on appreciation of real estate investments, but no current cash
distributions). Thereafter, limited partners shall have the right to
change their prior election to have some or all of their Units treated
as Class A Status Units or Class B Status Units one time during each
quarterly accounting period. Limited partners owning a majority of the
Units may vote to, among other things: (a) amend the Partnership
agreement, subject to certain limitations, (b) change the business
purpose or investment objectives of the Partnership, and (c) remove of
general partner. Each limited partnership Unit has equal voting
rights, regardless of class. The Partnership had no operations as of
December 31, 1994.
The Partnership intends to acquire on an all cash basis and operate
commercial and industrial real properties, including both properties
which are to be developed or are under development or construction and
properties which are newly constructed or have operating histories.
(b) Distribution of Net Cash from Operations
----------------------------------------
Cash available for distribution, as defined by the Partnership
agreement, is to be distributed to the limited partners on a quarterly
basis. In accordance with the Partnership agreement, such distribution
first must go to limited partners holding Class A Status Units until
they have received a 10% annual return on their net capital
contributions, as defined. Then such distributions go to the general
partners until they have received 10% of the total amount thus far
distributed. Any remaining cash available for distribution is split
between the limited holding. Class A Status Units and the general
partners on a basis of 90% and 10%, respectively. No such
distributions will be made to the limited partners holding Class B
Status Units.
(c) Allocation of Net Income, Net Loss, and Gain on Sale
----------------------------------------------------
Net income of the Partnership will be allocated each year in the same
proportions that net cash from operations is distributed to the
partners. To the extent the Partnership's net income in any year
exceeds net cash from operations, it will be allocated 99% to the
limited partners holding Class A Status Units and 1% to the general
partners.
(Continued)
I-18
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
(a Limited Partnership)
Notes to Balance Sheet
Net loss, depreciation, amortization, and cost recovery deductions for
each fiscal year will be allocated as follows: (a) 99% to the limited
partners holding Class B Status Units and 1% to the general partners
until their capital accounts are reduced to zero; (b) then, to any
partner having a positive balance in his capital account in an amount
not to exceed such positive balance; and (c) thereafter, to the
general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such
sale are distributed to partners after the following allocations are
made, if applicable: (i) allocations made pursuant to the qualified
income offset provisions of the Partnership agreement; (ii)
allocations to partners having negative capital accounts until all
negative capital accounts have been restored to zero; and (iii)
allocations to limited partners holding Class B Status Units in
amounts equal to the deductions for depreciation, amortization, and
cost recovery previously allocated to them with respect to the
specific Partnership property sold, but not in excess of the amount of
gain on sale recognized by the Partnership with respect to the sale of
such property.
(d) Distribution of Sales Proceeds
------------------------------
Upon sales properties, the net sales proceeds are distributed in the
following order:
(1) To limited partners holding units which at any time have
been treated as Class B Status Units until they receive an
amount necessary to equal the net cash available for
distribution received by the limited partners holding Class
A Status units;
(2) To limited partners on a per Unit basis until each limited
partner has received 100% of their net capital contribution,
as defined;
(3) To all limited partners on a per Unit basis until they
receive a cumulative 2o% per annum return on their net
capital contribution, as defined;
(4) To limited partners on a per Unit basis until they receive
an amount equal to their Preferential Limited Partner Return
(defined as the sum of a 10% per annum cumulative return on
net capital contributions for all periods during which the
Units were treated as Class A Status Units and a 15% per
annum cumulative return on net capital contribution for all
periods during which the Units were treated as Class B
Status Units);
(5) To the general partners until each general partner has
received 100% of their capital contributions plus, in the
event that limited partners have received aggregate cash
distributions from the Partnership over the life of their
investment in excess of a return of their net capital
contributions plus their Preferential Partner Return, then
the general partners shall receive an additional sum equal
to 25% of such excess; and
(6) Thereafter, 80% to the limited partners on a per Unit basis
and 20% to the general partners.
(Continued)
I-19
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
(a Limited Partnership)
Notes to Balance Sheet
(2) Costs of Offering
-----------------
Organization and offering expenses, to the extent they exceed %5 of gross
proceeds, will be paid by Wells Capital, Inc. (the Company), the general
partner for Wells Partners, L.P., and not by the Partnership. Organization
and offering expenses do not include sales or underwriting commissions by
do include such costs as legal and accounting fees, printing costs, and
other offering expenses.
As of December 31, 1994, the Company paid organizational and offering
expenses related to the Partnership of $42,409. A registration statement
covering both the Partnership and Wells Real Estate Fund VIII, L.P. became
effective with the Securities and Exchange Commission (SEC) on January 6,
1995. The Partnership will file an amendment to its registration statement
with the SEC prior to commencing the offering and sale of its limited
partnership Units. In order for the Company to be reimbursed for these
expenses, the amendment to the registration statement of the Partnership
will have to be declared effective by the SEC and the Partnership will need
to receive approximately $848,000 in limited partners' contributions. At
this time, the general partners believe that the amendment to the
registration statement for the Partnership will declared effective and that
all of the foregoing organizational and offering expenses will be
reimbursed by the Partnership.
(3) Deferred Project Costs
----------------------
The Partnership will pay a percentage of limited partner contributions to
the general partners for acquisition and advisory services. These payments,
as stipulated by the Partnership agreement can be up to 5% of the limited
partner contributions, subject certain overall limitations set forth in the
Partnership agreement. These fees are allocated to specific properties as
they are purchased or developed.
(4) Related Party Transactions
--------------------------
The Partnership will enter into a property management agreement with Wells
Management Company, Inc., an affiliate of the general partners. In
consideration for supervising the management of the Partnership's
properties, the Partnership will generally pay Wells Management Company,
Inc. management and leasing fees equal to: (i) 3% of the gross revenues for
leasing (aggregate maximum of 6%) plus a separate fee for the one-time
initial rent-up or leasing-up of newly constructed properties in an amount
not to exceed the fee customarily charged in arm's-length transactions by
other rendering similar services in the same geographic area for similar
properties, and (ii) in the case of industrial and commercial properties
which are leased on a long-term net basis (ten or more years), 1% of the
gross revenues except for initial leasing fees equal to 3% of the gross
revenues over the first five years of the lease term.
(5) Income Taxes
------------
The Partnership will not request a ruling from the Internal Revenue Service
to the effect that it will be treated as a partnership and not an
association taxable as a corporation for Federal income tax purposes. The
Partnership has requested an opinion of legal counsel as to its tax status
prior to its effectiveness for the offering of limited partnership Units,
but such opinion is not binding upon the Internal revenue Service.
I-20
<PAGE>
INDEX TO UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
WELLS REAL ESTATE FUND IX, L.P.
Unaudited Balance Sheet
Balance Sheet as of August 31, 1995......................................................1-22
Notes to Balance Sheet...................................................................1-23
WELLS PARTNERS, L.P.
Unaudited Financial Statements
Balance Sheets as of August 31, 1995 and December 31, 1994...............................1-27
Statements of Operations for the eight months ended August 31, 1995 and 1994.............1-28
Statements of Cash Flows for the eight months ended August 31, 1995 and 1994.............1-29
Notes to Financial Statements............................................................1-30
WELLS CAPITAL, INC.
Unaudited Financial Statements
Balance Sheets as of August 31, 1995 and December 31, 1994...............................1-33
Statements of Earnings for the eight months ended August 31, 1995 and 1994...............1-34
Statements of Stockholder's Equity for the eight months ended August 31, 1995 and
the year ended December 31, 1994......................................................1-35
Statements of Cash Flows for the eight months ended August 31, 1995 and 1994.............1-36
Notes to Financial Statements............................................................1-37
</TABLE>
1-21
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
(a Limited Partnership)
Balance Sheet
(Unaudited)
August 31, 1995
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Cash $ 600
Deferred offering costs (note 2) 77,649
------
Total assets $ 78,249
======
Liabilities and Partners' Capital
---------------------------------
Liabilities - due to affiliate (note 2) $ 77,649
------
General partners 500
Limited partner 100
------
Total partners' capital 600
------
Total liabilities and partners' capital $ 78,249
======
</TABLE>
See accompanying notes to balance sheet.
I-22
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
(a limited Partnership)
(Unaudited)
Notes to Balance Sheet
August 31, 1995
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
-------
Wells Real Estate Fund IX, L.P. (the Partnership) is a limited partnership
organized on August 15, 1994, under the laws of the State of Georgia. The
general partners are Leo F. Wells, III and Wells Partners, L.P. The
Partnership offers for sale one class of limited partnership Units. Upon
subscription for Units, each limited partner must elect whether to have
their Units treated as Class A Status Units (entitled to allocation of
substantially all of the Partnership's net income without allocation of any
deductions for depreciation, amortization, cost recovery, or net losses) or
Class B Status Units (entitled to a larger share of deductions for
depreciation, amortization, cost recovery and net loss, and a higher
percentage return on appreciation of real estate investments, but no
current cash distribution). Thereafter, limited partners have the right to
change their prior election to have some or all of their Units treated as
Class A Status Units or Class B Status Units one time during each quarterly
accounting period. Limited partners owning a majority of the Units may vote
to, among other things: (a) amend the partnership agreement, subject to
certain limitations, (b) change the business purpose or investment
objectives of the Partnership, and (c) remove a general partner. Each
limited partnership Unit has equal voting rights, regardless of class. The
Partnership had no operations as of August 31, 1995.
The Partnership intends to acquire on an all cash basis and operate
commercial and industrial real properties, including both properties which
are to be developed or are under development or construction and properties
which are newly constructed or have operating histories.
(b) Distribution of Net Cash from Operations
----------------------------------------
Cash available for distribution, as defined by the partnership agreement,
is to be distributed to the limited partners on a quarterly basis. In
accordance with the partnership agreement, such distributions are made
first to limited partners holding Class A Status Units until they have
received a 10% annual return on their net capital contributions, as
defined. Then such distributions are made to the general partners until
they have received 10% of the total amount thus far distributed. Any
remaining cash available for distribution is split between the limited
partners holding Class A Status Units and the general partners on the basis
of 90% and 10%, respectively. No such distributions will be made to the
limited partners holding Class B Status Units.
I-23
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
(a Limited Partnership)
(Unaudited)
Notes to Balance Sheet
(c) Allocation of Net Income, Net Loss and Gain on Sale
---------------------------------------------------
Net income of the Partnership will be allocated each year in the same
proportions that net cash from operations in distributed to the partners. To
the extent the Partnership's net income in any year exceeds net cash from
operations, it will be allocated 99% to the limited partners holding Class A
Status Units and 1% to the general partners.
Net loss, depreciation, amortization, and cost recovery deductions for each
fiscal year will be allocated as follows: (a) 99% to the limited partners
holding Class B Status Units and 1% to the general partners until their capital
accounts are reduced to zero; (b) then, to any partner having a positive balance
in his capital account in an amount not to exceed such positive balance; and (c)
thereafter, to the general partners.
Gain on the sale or exchange of the Partnership's properties will be allocated
generally in the same manner that the net proceeds from such sale are
distributed to partners after the following allocations are made, if applicable:
(i) allocations made pursuant to the qualified income offset provisions of the
partnership agreement; (ii) allocations to partners having negative capital
accounts until all negative capital accounts have been restored to zero; and
(iii) allocations to limited partners holding Class B Status Units in amounts
equal to the deductions for depreciation, amortization, and cost recovery
previously allocated to them with respect to the specific Partnership property
sold, but not in excess of the amount of gain on sale recognized by the
Partnership with respect to the sale of such property.
(d) Distribution of Sales Proceeds
------------------------------
Upon sales of properties, the net sales proceeds are distributed in the
following order.
(1) To limited partners holding Units which at any time have been treated as
Class B Status Units until they receive an amount necessary to equal the
net cash available for distribution received by the limited partners
holding Class A Status Units;
(2) To limited partners on a per Unit basis until each limited partner has
received 100% of their net capital contribution, as defined;
(3) To all limited partners on a per Unit basis until they receive a cumulative
10% per annum return on their capital contribution, as defined;
I-24
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
(a Limited Partnership)
Notes to Balance Sheet
(4) To limited partners on a per Unit basis until they receive an amount equal
to their Preferential Limited Partner Return (defined as the sum of a 10%
per annum cumulative return on net capital contributions for all periods
during which the Units were treated as Class A Status Units and 15% per
annum cumulative return on net capital contributions for all periods during
which the units were treated as Class B Status Units);
(5) To the general partners until each general partner has received 100% of
their capital contributions plus, in the event that limited partners have
received aggregate cash distributions from the Partnership over the life of
their investment in excess of a return of their net capital contributions
plus their Preferential Partner Return, the general partners shall receive
an additional sum equal to 25% of such excess; and
(6) Thereafter, 80% to the limited partners on a per Unit basis and 20% to the
general partners.
(2) Costs of Offering
-----------------
Organization and offering expenses, to the extent they exceed 5% of gross
proceeds, will be paid by Wells Capital, Inc. (the Company), the general partner
for Wells Partners, L.P., and not by the Partnership. Organization and offering
expenses do not include sales or underwriting commissions but do include such
costs as legal and accounting fees, printing costs, and other offering expenses.
As of August 31, 1995, the Company paid organizational and offering expenses
related to the Partnership of $77,649. A registration statement covering both
the Partnership and Wells Real Estate Fund VIII, L.P. became effective with the
Securities and Exchange Commission (SEC) on January 6, 1995. The Partnership
will file an amendment to its registration statement with the SEC prior to
commencing the offering and sale of its limited partnership Units. In order for
the Company to be reimbursed for these expenses, the amendment to the
registration statement of the Partnership will have to be declared effective by
the SEC, and the Partnership will need to receive approximately $1,553,000 in
limited partners' contributions. At this time, the general partners of the
Partnership believe that the amendment to the registration statement for the
Partnership will be declared effective and that all of the foregoing
organizational and offering expenses will be reimbursed by the Partnership. It
is the Partnership's policy that the portion considered organizational expenses
will then be capitalized and amortized over a sixty month period beginning with
the effective date of the commencement of the Partnership's offering of Units.
1-25
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
(a Limited Partnership)
(Unaudited)
Notes to Balance Sheet
(3) Deferred Project Costs
----------------------
The Partnership will pay a percentage of limited partner contributions to the
general partners for acquisition and advisory services. These payments, as
stipulated by the partnership agreement, may be up to 5% of the limited partner
contributions, subject to certain overall limitations set forth in the
partnership agreement. These fees are allocated to specific properties as they
are purchased or developed.
(4) Related Party Transactions
--------------------------
The Partnership will enter into a property management agreement with Wells
Management Company, Inc., an affiliate of the general partners. In consideration
for supervising the management of the Partnership's properties, the Partnership
will generally pay Wells Management Company, Inc. management and leasing fees
equal to: (1) 3% of the gross revenues for management and 3% of the gross
revenues for leasing (aggregate maximum of 6%) plus a separate fee for the one-
time initial rent-up or leasing-up of newly constructed properties in an amount
not to exceed the fee customarily charged in arm's-length transactions by others
rendering similar services in the same geographic area for similar properties,
and (ii) in the case of industrial and commercial properties which are leased on
a long-term basis (ten or more years), 1% of the gross revenues except for
initial leasing fees equal to 3% of the gross revenues over the first five years
of the lease term.
(5) Income Taxes
------------
The Partnership will not request a ruling from the Internal Revenue Service to
the effect that it will be treated as a partnership and not an association
taxable as a corporation for Federal income tax purposes. The Partnership has
obtained an opinion of legal counsel as to its probable tax status, but such
opinion is not binding upon the Internal Revenue Service.
I-26
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (Audited)
Assets August 31, 1995 December 31, 1994
------ --------------- -----------------
<S> <C> <C>
Cash $ 70 $ 70
Investments in limited partnerships (Note 2) 129,355 125,914
------- -------
Total assets $ 129,425 $ 125,984
------- -------
Partners' Capital
-----------------
General partner $ 5,986 $ 2,477
Limited partners 123,439 123,507
------- -------
Total partners' capital $ 129,425 $ 125,984
------- -------
</TABLE>
See accompanying condensed notes to financial statements.
I-27
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Eight Months Ended
-----------------------------------
August 31, 1995 August 31, 1994
--------------- ---------------
<S> <C> <C>
Equity in loss of limited partnership
(Note 2) $ 70 $ 384
------ ------
Net loss $ 70 $ 384
------ ------
</TABLE>
See accompanying condensed notes to financial statements.
I-28
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Eight Months Ended
-----------------------------------
August 31, 1995 August 31, 1994
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (70) $ (384)
Adjustments to reconcile net loss to
net cash used by operating activities-
equity in loss of limited partnership 70 384
--- ----
Net cash used by operating activities 0 0
--- ----
Net decrease in cash 0 0
Cash at beginning of year 70 70
---- ----
Cash at end of year $ 70 $ 70
---- ----
</TABLE>
See accompanying condensed notes to financial statements.
I-29
<PAGE>
WELLS PARTNERS, L.P.
Condensed Notes to Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
-------
The financial statements of Wells Partners, L.P. (the Partnership) do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These interim
statements have not been examined by independent accountants, but in the
opinion of the General Partner of the Partnership, the statements for the
unaudited interim periods presented include only adjustments, which are of
a normal and recurring nature, necessary to present a fair presentation of
the results for such periods. For further information, refer to the
financial statements and footnotes included in the audited report of the
Partnership for the year ended December 31, 1994.
Although the Partnership is a general partner in Wells Real Estate Fund IV,
L.P. (Fund IV), Wells Real Estate Fund V, L.P. (Fund V), Wells Real Estate
Fund VI, L.P. (Fund VI), Wells Real Estate Fund VII, L.P. (Fund VII), Wells
Real Estate Fund VIII, L.P. (Fund VIII) and Wells Real Estate Fund IX, L.P.
(Fund IX), its general partner, Wells Capital, Inc., has acted on behalf of
the Partnership as the general partner of such partnerships. Accordingly,
all revenues and expenses relating to the offering of limited partnership
units of Fund IV, Fund V, Fund VI, Fund VII, Fund VIII and Fund IX were
recorded by Wells Capital, Inc.
(b) Investments in Partnerships
---------------------------
The Partnership has been assigned limited partnership interests in two
related entities (note 2). While the Partnership does not have control, it
has significant influence over the operations of the investee entities.
Accordingly, the Partnership records its investment in these entities on
the equity method. Initial capital contributions of these investments by
the limited partners were recorded at the limited partners' cost.
I-30
<PAGE>
WELLS PARTNERS, L.P.
Condensed Notes to Financial Statements
(Unaudited)
(2) Investments in Partnership
--------------------------
The cost and estimated market value (market) of the investments in
partnerships as of December 31, 1994 is as follows:
<TABLE>
<CAPTION>
1994
-------------
Cost Market
---- ------
<S> <C> <C>
19.2% ownership interest in Beaver Ruin - Arc
Way, Ltd. as of December 31, 1994 $ 77,452 869,000
51.27% ownership interest in Carter
Boulevard, Ltd. 45,976 299,000
Wells Real Estate Fund VI, L.P. 1,462 1,462
Wells Real Estate Fund VII, L.P. 224 224
Wells Real Estate Fund VIII, L.P. 400 400
Wells Real Estate Fund IX, L.P. 400 400
------- ---------
$125,914 1,170,486
======= =========
</TABLE>
The assets of the Beaver Ruin - Arc Way, Ltd. and Carter Boulevard, Ltd.
partnerships are comprised primarily of an investment in a parcel of
undeveloped land. The market value of this land was based on an appraisal
dated June 1988, which was updated through December 1994 to reflect
estimated economic and market conditions.
Fund IV owns all of its properties through investments in two joint
ventures which, as of December 31, 1994, owned interests in a retail
shopping center, two commercial office buildings, and a medical center
development.
Fund V owns all of its properties through investments in three joint
ventures which, as of December 31, 1994, owned an interest in two
commercial office buildings, a medical center development, and a parcel of
land that is currently under development.
Fund VI owns all of its properties through an investment in three joint
ventures which, as of December 31, 1994, owned an interest in two
commercial office buildings and two parcels of land that are currently
under development.
I-31
<PAGE>
Fund VII owns all of its properties through investments in two joint
ventures which, as of December 31, 1994, owned an interest in a commercial
office building and a parcel of land that is currently under development.
The Partnership is entitled to share in the allocation of cash
distributions and net earnings (losses) based on percentages outlined in
the Partnership agreements.
(3) Income Taxes
------------
The Partnership will not request a ruling from the Internal Revenue Service
to the effect that it will be treated as a partnership and not an
association taxable as a corporation for Federal income tax purposes. No
provision for income taxes is recorded because any income tax liability is
the responsibility of the partners.
I-32
<PAGE>
WELLS CAPITAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
Assets August 31, 1995 December 31, 1994
------ --------------- -----------------
<S> <C> <C>
Current assets:
Cash $ 49,269 $ 3,863
Due from affiliates 295,637 401,977
Other receivables 13,178 9,562
------- -------
Total current assets 358,084 415,402
------- -------
Investments in partnerships 19,791 20,035
------- -------
$ 377,875 $ 435,437
------- -------
Liabilities and Stockholder's Equity
------------------------------------
Current liabilities - accounts payable $ 112,636 $ 88,656
Stockholder's equity:
Common stock, $1 par value. Authorized
100,000 shares; issued 600 shares 600 600
Contributed capital 306,541 306,541
Accumulated deficit - retained earnings (41,902) 39,640
------- -------
Total stockholder's equity 265,239 346,781
------- -------
$ 377,875 $ 435,437
------- -------
</TABLE>
See accompanying condensed notes to financial statements.
I-33
<PAGE>
WELLS CAPITAL, INC.
Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Eight Months Ended
------------------
August 31, 1995 August 31, 1994
--------------- ---------------
<S> <C> <C>
Revenues - acquisition and advisory fees $ 618,696 $ 875,174
------- -------
Expenses:
Legal and accounting 606 9,837
Salaries and wages 521,520 472,231
Rent 15,449 15,449
General and administrative 162,663 125,594
------- -------
Total expenses 700,238 623,111
------- -------
Net (loss) earnings $ (81,542) $ 252,063
------- -------
</TABLE>
See accompanying condensed notes to financial statements.
I-34
<PAGE>
WELLS CAPITAL, INC.
Statement of Stockholder's Equity
(Unaudited)
For the Eight Months Ended August 31, 1995 and the Year Ended December 31, 1994
<TABLE>
<CAPTION> Total
Common Contributed Accumulated stockholder's
stock capital deficit equity
----- ------- ------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 600 306,541 (58,533) 248,608
Net earnings - - 98,173 98,173
----- ------- ------- ------
Balance at December 31, 1994 600 306,541 39,640 346,781
Net earnings - - (81,542) (81,542)
----- ------- -------- --------
Balance at August 31, 1995 $ 600 306,541 (41,902) 265,239
==== ======= ======== =======
</TABLE>
See accompanying condensed notes to financial
statements.
I-35
<PAGE>
WELLS CAPITAL, INC.
Statements of Cash flows
(Unaudited)
<TABLE>
<CAPTION>
Eight Months Ended
------------------
August 31,1995 August 31, 1994
-------------- ---------------
<S> <C> <C>
Cash flows from operating activites:
Net (loss) earnings $ (81,542) $ 252,063
--------- ----------
Adjustments to reconcile net earnings to net cash
provided by(used in) operating activites:
Changes in assets and liabilities:
Decrease (increase) in due from affiliates 106,340 (225,497)
Increase in other receivables (3,616) (887)
Increase in accounts payable 23,980 39,401
-------- --------
Total adjustments 126,704 (186,983)
-------- ----------
Net cash provided by operating
activities 45,162 65,080
-------- ----------
Cash flows from investing activities:
Additional investments in limited partnerships - (800)
Distributions from limited partnerships 244 -
-------- ----------
Net cash provided by(used in) investing
activities 244 (800)
-------- ----------
Net increase in cash 45,406 64,280
Cash at beginning of year 3,863 52,113
-------- ----------
Cash at end of period $ 49,269 $ 116,393
-------- ----------
Supplemental disclosures of cash flow information -
cash paid for interest during the year $ 2,895 $ -
======== =========
</TABLE>
See accompanying condensed notes to financial statements
I-36
<PAGE>
WELLS CAPITAL, INC.
Condensed Notes to Financial Statements
(Unaudited)
(1) General
-------
The financial statements of Wells Capital, Inc. (the Company) do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These interim
statements have not been examined by independent accountants, but in the
opinion of the management, the statements for the unaudited interim periods
presented include only adjustments, which are of a normal and recurring
nature, necessary to present a fair presentation of the results for such
periods. For further information, refer to the financial statements and
footnotes included in the audited report of the Company for the year ended
December 31, 1994.
The Company is a general partner in Wells Real Estate Fund I (Fund I),
Wells Real Estate Fund II (Fund II), Wells Real Estate Fund II-OW (Fund II-
OW), Wells Real Estate Fund III, L.P. (Fund III), and Wells Partners, L.P.,
each a Georgia limited partnership. The Company, as general partner, paid
all the organizational and offering expenses for Fund I, Fund II, Fund II-
OW, and Fund III and was reimbursed pursuant to such partnerships'
respective partnership agreements, each of which provided that the
partnerships could reimburse the Company up to 5% of total limited
partners' contributions in organizational and offering expenses. The
Company is the sole general partner of Wells Partners, L.P., which is a
general partner of Wells Real Estate Fund IV, L.P. (Fund IV), Wells Real
Estate Fund V, L.P. (Fund V), Wells Real Estate Fund VI, L.P. (Fund VI),
Wells Real Estate Fund VII, L.P. (Fund VII), Wells Real Estate Fund VIII,
L.P. (Fund VIII) and Wells Real Estate Fund IX, L.P. (Fund IX), and as
such, the Company also paid or is currently paying on behalf of Wells
Partners, L.P. the offering and organizational expenses for Fund IV, Fund
V, Fund VI, Fund VII, Fund VIII and Fund IX. Pursuant to the partnership
agreements of Fund IV and Fund V, these two partnerships can only reimburse
the Company for up to 3% of total limited partners' contributions in
offerings and organizational expenses. Pursuant to the Partnership
agreements of Fund VI, Fund VII, Fund VIII and Fund IX, these partnerships
can reimburse the Company for up to 5% of total limited partners'
contributions in offering and organizational expenses .
I-37
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (the "Tables") provide information
relating to real estate investment programs sponsored by the General Partners or
their Affiliates ("Prior Programs") which have investment objectives similar to
the Partnership.
Prospective investors should read these Tables carefully together with the
summary information concerning the Prior Programs as set forth in "PRIOR
PERFORMANCE SUMMARY" elsewhere in this Prospectus.
INVESTORS IN THE PARTNERSHIP WILL NOT OWN ANY INTEREST IN THE PRIOR
PROGRAMS AND SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS, IF ANY,
COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE PRIOR PROGRAMS.
These Tables present actual results of Prior Programs that have investment
objectives similar to those of the Partnership. The Partnership's investment
objectives are to maximize Net Cash From Operations; to preserve original
Capital Contributions; and to realize capital appreciation over a period of
time. All of the General Partners' Prior Programs have used a substantial amount
of capital and not acquisition indebtedness to acquire their properties.
The General Partners are responsible for the acquisition, operation,
maintenance and resale of the Partnership Properties. The financial results of
the Prior Programs thus provide an indication of the General Partners'
performance of their obligations during the periods covered. However, general
economic conditions affecting the real estate industry and other factors
contribute significantly to financial results.
The following tables are included herein:
TABLE I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
TABLE II - Compensation to Sponsor (in Dollars)
TABLE III - Annual Operating Results of Prior Programs
TABLE IV (Results of completed programs) and TABLE V (sales or disposals of
property) have been omitted since none of the Prior Programs have sold any of
their properties to date.
Additional information relating to the acquisition of properties by the
Prior Programs is contained in TABLE VI, which is included in the Registration
Statement which the Partnership has filed with the Securities and Exchange
Commission. As described above, no Prior Program has sold or disposed of any
property held by it. Copies of any or all information will be provided to
prospective investors at no charge upon request.
The following are definitions of certain terms used in the Tables:
"ACQUISITION FEES" shall mean fees and commissions paid by a partnership in
connection with its purchase or development of a property, except development
fees paid to a person not affiliated with the partnership or with a general
partner of the partnership in connection with the actual development of a
project after acquisition of the land by the partnership.
"ORGANIZATION EXPENSES" shall include legal fees, accounting fees,
securities filing fees, printing and reproduction expenses and fees paid to the
general partners or their affiliates in connection with the planning and
formation of the partnership.
"UNDERWRITING FEES" shall include selling commissions and wholesaling fees
paid to broker-dealers for services provided by the broker-dealers during the
offering.
A-1
<PAGE>
TABLE I
(UNAUDITED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
This Table provides a summary of the experience of the General Partners and
their Affiliates in Prior Programs for which offerings have been completed since
December 31, 1990. Information is provided with regard to the manner in which
the proceeds of the offerings have been applied. Also set forth is information
pertaining to the timing and length of these offerings and the time period over
which the proceeds have been invested in the properties.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real
Estate Fund Estate Fund Estate Fund Estate Fund
IV, L.P. V, L.P. VI, L.P. VII, L.P.
-------- ------- -------- ---------
<S> <C> <C> <C> <C>
Dollar Amount Raised $13,614,655/(3)/ $17,006,020/(4)/ $25,000,000/(5)/ $23,374,961/(6)/
=========== =========== =========== ===========
Percentage Amount Raised 100.0%/(3)/ 100.0%/(4)/ 100.0%/(5)/ 100.0%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 10.0% 10.0%
Organizational Expenses 3.0% 3.0% 5.0% 5.0%
Reserves/(1)/ 1.0% 1.0% 1.0% 1.0%
---- ---- ---- ----
Percent Available for Investment 86.0% 86.0% 84.0% 84.0%
Acquisition and Development Costs
Prepaid Items and Fees related to Purchase of Property 0.2% 1.2% 0.0% 0.0%
Cash Down Payment 18.3% 36.1% 31.2% 14.5%
Acquisition Fees/(2)/ 5.5% 5.5% 3.7% 3.5%
Development and Construction Costs 62.0% 43.2% 4.9% 7.3%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0% 0.0%
---- ---- ---- ----
Total Acquisition and Development Cost 86.0% 86.0% 39.8% 25.3%
---- ---- ---- ----
Percent Leveraged 0.0% 0.0% 0.0% 0.0%
==== ==== ==== ====
Date Offering Began 03/04/91 03/06/92 04/05/93 04/24/94
Length of Offering 12 mo./(3)/ 12 mo./(4)/ 12 mo./(5)/ 12 mo.
Months to Invest 90% of Amount Available for
Investment (Measured from Beginning of Offering) 18 mo. 22 mo. /(7)/ /(8)/
Number of Investors 1,286 1,665 1,791 1,865
</TABLE>
__________________________
(1) Does not include General Partner contributions held as part of reserves.
(2) Includes development fees, real estate commissions, general contractor fees
and/or architectural fees paid to Affiliates of the General Partners.
(3) Total dollar amount registered and available to be offered was $25,000,000.
The Partnership closed its offering on February 29, 1992, and the total
dollar amount raised was $13,614,655.
(4) Total dollar amount registered and available to be offered was $25,000,000.
The Partnership closed its offering on March 3, 1993 and the total dollar
amount raised was $17,006,020.
(5) Total dollar amount registered and available to be offered was $25,000,000.
The Partnership closed its offering on April 4, 1994 and the total dollar
amount raised was $25,000,000.
(6) Total dollar amount registered and available to be offered was $25,000,000.
As of December 31, 1994, Wells Real Estate Fund VII, L.P. had not yet
completed its offering of Limited Partnership Units. The total dollar
amount received as of that date was $23,374,961.
(7) As of December 31, 1994, Wells Real Estate Fund VI, L.P. had not yet
invested 90% of the amount available for investment. The amount invested in
properties (including Acquisition Fees paid but not yet associated with a
specific property) at December 31, 1994 was 39% of the total dollar amount
raised.
(8) As of December 31, 1994, Wells Real Estate Fund VII, L.P. had not yet
invested 90% of the amount available for investment. The amount invested in
properties (including Acquisition Fees paid but not yet associated with a
specific property) at December 31, 1994 was 19% of the total dollar amount
raised.
A-2
<PAGE>
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by General Partners or
Affiliates of the General Partners, including compensation paid out of offering
proceeds and compensation paid in connection with the ongoing operations of
Prior Programs having similar or identical investment objectives the offerings
of which have been completed since December 31, 1991. These partnerships have
not sold or refinanced any of their properties to date. All figures are as of
December 31, 1994.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real Other
Estate Fund Estate Fund Estate Fund Estate Fund Public
IV, L.P. V, L.P. VI, L.P. VII, L.P. Programs/(1)/
-------- ------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
Date Offering Commenced 03/04/91 03/06/92 04/05/93 04/06/94
Dollar Amount Raised /(2)/ $ 13,614,655 $ 17,006,020 $ 25,000,000 $ 23,374,961 $ 94,397,560
to Sponsor from Proceeds of Offering:
Underwriting Fees/(3)/ $ 183,222 $ 200,432 $ 119,936 $ 174,426 --
Acquisition Fees
Real Estate Commissions -- -- -- -- --
Acquisition and Advisory Fees/(4)/ $ 749,720 $ 935,331 $ 932,216 $ 818,124 --
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor/(5)/ $ 1,925,454 $ 1,185,118 $ 531,432 $ 67,034 $ 17,636,051
Amount Paid to Sponsor from Operations:
Property Management Fee/(1)/ $ 140,168 $ 186,847 $ 9,150 $ 1,399 $ 511,860
Partnership Management Fee -- -- -- -- --
Reimbursements $ 243,677 $ 152,310 $ 41,006 $ 3,331 $ 1,082,489
Leasing Commissions $ 166,741 $ 68,885 $ 3,835 -- $ 655,218
General Partner Distributions -- -- -- -- --
Other -- -- -- -- --
Dollar Amount of Property Sales and Refinancing
Payments to Sponsors:
Cash -- -- -- -- --
Notes -- -- -- -- --
Amount Paid to Sponsor from Property Sales
and Refinancing:
Real Estate Commissions -- -- -- -- --
Incentive Fees -- -- -- -- --
Other -- -- -- -- --
</TABLE>
____________________
(1) Includes compensation paid to General Partners from Wells Real Estate Fund
I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW and Wells Real
Estate Fund III, L.P. during the past three years. General Partners of
Wells Real Estate Fund I are entitled to certain property management and
leasing fees but have elected to defer the payment of such fees until a
later year on properties owned by Fund I and properties owned jointly by
Fund I and Fund II. At December 31, 1994, the amount of such fees due the
General Partners totaled $1,493,049.
(2) Represents amount raised as of December 31, 1994. Wells Real Estate Fund
VII, L.P. had not yet completed its offering of Limited Partnership Units
as of that date.
(3) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offerings of Wells Real
Estate Funds IV, V, VI and VII, which were not reallowed to participating
broker-dealers.
(4) Fees paid to the General Partners or their Affiliates for acquisition
advisory services in connection with the review and evaluation of potential
real property acquisitions.
(5) Includes $80,550 in net cash used by operating activities, $1,455,418 in
distributions received from joint ventures and $550,586 in payments to
sponsors for Wells Real Estate Fund IV, L.P., $69,193 in net cash provided
by operating activities, $707,883 in distributions received from joint
ventures and $408,042 in payments to sponsor for Wells Real Estate Fund V,
L.P.; $273,898 in net cash provided by operating activities, $203,543 in
distributions received from joint ventures and $53,991 in payment to
sponsor for Wells Real Estate Fund VI, L.P.; $47,595 in net cash provided
by operating activities, $14,243 in distributions received from joint
ventures and $5,196 in payments to sponsor for Wells Real Estate Fund VII,
L.P.; and $4,687,687 in net cash provided by operating activities,
$10,698,797 in distributions received from joint ventures and $2,249,567 in
payment to sponsor for other public programs.
A-3
<PAGE>
TABLE III
(UNAUDITED)
The tables on the following four (4) pages set forth operating results of
prior programs sponsored by the General Partners the offerings of which have
been completed since December 31, 1989. The information relates only to public
programs with investment objectives similar to those of the Partnership. All
figures are as of December 31 of the year indicated.
A-4
<PAGE>
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND III, L.P.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,572,895 $ 1,528,968 $ 1,334,149 $ 1,152,331 $ 1,094,192
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 345,813 338,174 422,725 316,032 296,510
Depreciation and Amortization/(3)/ 96,618 103,157 99,236 67,786 8,028
------- ------- ------- ------- ------
Net Income GAAP Basis/(4)/ $ 1,130,464 $ 1,087,637 $ 812,188 $ 768,513 $ 789,654
========= ========= ======== ========= =======
Taxable Income: Operations $ 1,042,473 $ 1,104,262 $ 682,589 $ 703,923 $ 774,117
Cash Generated: ========= ========= ======== ========= ========
Operations
Joint Ventures 246,487 244,618 128,913 543,095 671,891
1,379,536 1,303,959 659,609 470,096 355,747
--------- --------- -------- -------- --------
$ 1,626,023 $ 1,548,577 $ 788,522 $ 1,013,191 $ 1,027,638
Less Cash Distributions to Investors:
Operating Cash Flow 1,568,752 1,509,545 788,522 961,640 741,991
Return of Capital -- -- -- -- --
Undistributed Cash Flow from Prior Year Operations -- -- 200,946 -- --
------- ------ ------ ------ -------
Cash Generated (Deficiency) after Cash Distributions $ 57,271 $ 39,032 $ (200,946) $ 51,551 $ 285,647
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- -- 9,555,778
------- ------ ------ ------ ---------
$ 57,271 $ 39,032 $ (200,946) $ 51,551 $ 9,841,425
Use of Funds:
Repurchase of Limited Partnership Units -- -- -- 17,830 5,515
Sales Commissions and Offering Expenses -- -- -- (38) 1,173,897
Property Acquisitions and Deferred Project Costs 51,984 76,431 4,404,103 7,106,029 2,829,958
------- ------- --------- --------- ---------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ 5,287 $ (37,399) $(4,605,049) $(7,072,270) $ 5,832,055
======= ======== =========== =========== =========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units $ 82 $ 83 $ 65 $ 52 $ 59
- Operations Class B Units (188) (211) (184) (103) (75)
Capital Gain (Loss) 0 0 0 0 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units $ 78 $ 84 $ 59 $ 49 $ 61
- Operations Class B Units (191) (211) (184) (102) (76)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 80 77 50 49 38
Source (on Cash Basis)
- Operations Class A Units 80 77 50 49 38
- Operations Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported
in the Table 100%
</TABLE>
_________________________
(1) Includes no revenue from operations, $308,548 in equity in earnings of
joint ventures and $785,649 from investment of reserve funds in 1990;
$334,272 revenue from operations, $336,969 in equity in earnings of joint
ventures and $481,090 from investment of reserve funds in 1991; $511,402
revenue from operations, $716,280 in equity in earnings of joint ventures,
and $106,467 from investment of reserve funds in 1992; $574,097 revenue
from operations, $938,344 in equity in earnings of joint ventures, and
$16,527 from investment of reserve funds in 1993; and $573,942 revenue from
operations, $984,287 in equity in earnings of joint ventures, and $14,666
from investment of reserve funds in 1994. At December 31, 1994, the
leasing status of all developed property was 100%.
(2) Includes partnership administrative expenses and property taxes.
(3) Included in equity in earnings of joint ventures in gross revenue is
depreciation and amortization of $153,283 for 1990, $176,753 for 1991,
$339,773 for 1992, $410,994 for 1993, and $410,204 for 1994.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated as follows: $950,965 to Class
A Limited Partners, $(161,311) to Class B Limited Partners for 1990;
$1,030,575 to Class A Limited Partners and $(262,062) to Class B Limited
Partners for 1991; $1,280,630 to Class A Limited Partners and $(468,442) to
Class B Limited Partners for 1992; $1,625,405 to Class A Limited Partners
and $(537,768) to Class B Limited Partners for 1993; and $1,608,929 to
Class A Limited Partners and $(478,465) to Class B Limited Partners for
1994.
A-5
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IV, L.P.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 678,591 $ 570,709 $ 421,532 $ 94,279 N/A
Profit on Sale of Properties -- -- -- --
Less: Operating Expenses/(2)/ 67,330 67,548 214,340 79,026
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 5,208
------- ------ ------- -------
Net Income GAAP Basis/(4)/ $ 605,011 $ 496,911 $ 200,942 $ 10,045
Taxable Income: Operations ======== ======== ======== =======
Cash Generated (Used By): $ 541,939 $ 420,649 $ 179,790 $ 12,983
Operations ======== ======== ======== =======
Joint Ventures
(58,610) (22,444) 29,139 (28,635)
864,771 465,951 124,696 --
Less Cash Distributions to Investors: ------- ------- ------- -----
Operating Cash Flow $ 806,161 $ 443,507 $ 153,835 $ (28,635)
Return of Capital
787,029 443,507 153,835 --
-- 20,271 80,567 --
----- ------ ------- -----
Cash Generated (Deficiency) after Cash Distributions $ 19,132 $ (20,271) $ (80,567) $ (28,635)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- 500
Increase in Limited Partner Contributions -- -- 4,572,355 9,042,297
----- ----- --------- ---------
$ 19,132 $ (20,271) $4,491,788 $9,014,162
Use of Funds:
Sales Commissions and Offering Expenses -- -- 667,701 1,067,372
Property Acquisitions and Deferred Project Costs 289,608 3,627,673 4,949,701 2,737,108
Cash Generated (Deficiency) after Cash Distributions and ------- --------- --------- ---------
Special Items
Net Income and Distributions Data per $1,000 Invested: $ (270,476) $(3,647,944) $1,125,614 $5,209,682
Net Income on GAAP Basis: ======== ========== ========= =========
Ordinary Income (Loss)
- Operations Class A Units
- Operations Class B Units
Capital Gain (Loss) 47 54 23 5
Tax and Distributions Data per $1,000 Invested: (27) (561) (262) (54)
Federal Income Tax Results: 0 0 0 0
Ordinary Income (Loss)
- Operations Class A Units
- Operations Class B Units
Capital Gain (Loss) 42 48 21 3
Cash Distributions to Investors: (11) (565) (262) (40)
Source (on GAAP Basis) -- -- -- --
- Investment Income Class A Units
- Return of Capital Class A Units
- Return of Capital Class B Units 47 35 18 --
Source (on Cash Basis) 13 -- -- --
- Operations Class A Units -- -- -- --
- Return of Capital Class A Units
- Operations Class B Units 60 33 12 --
-- 2 6 --
-- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in the
Table 100%
</TABLE>
____________________
(1) Includes $4,105 in equity in earnings of joint ventures and $90,174 from
investment of reserve funds in 1991; $194,776 in equity in earnings of
joint ventures and $226,756 from investment of reserve funds in 1992;
$522,210 in equity in earnings of joint ventures and $48,499 from
investment of reserve funds in 1993; and $668,076 in equity in earnings of
joint ventures and $10,515 from investment of reserve funds in 1994. At
December 31, 1994, the leasing status of all developed property was 95%
including developed property in initial lease-up.
(2) Includes partnership administrative expenses and property taxes.
(3) Included in equity in earnings of joint ventures in gross revenue is
depreciation and amortization of $5,484 for 1991, $95,155 for 1992,
$218,173 for 1993, and $309,421 for 1994.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated as follows: $20,738 to Class A
Limited Partners, $(10,586) to Class B Limited Partners and $(107) to
General Partners for 1991; $302,347 to Class A Limited Partners, $(101,012)
to Class B Limited Partners and $(393) to General Partners for 1992;
$713,069 to Class A Limited Partners and $(216,158) to Class B Limited
Partners for 1993; and $615,309 to Class A Limited Partners and $(10,298)
to Class B Limited Partners for 1994.
A-6
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IV, L.P.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 656,958 $ 458,213 $ 58,640 N/A N/A
Profit on Sale of Properties -- -- --
Less: Operating Expenses/(2)/ 88,987 96,964 71,521
Depreciation and Amortization/(3)/ 6,250 6,250 5,208
------- ------- --------
Net Income GAAP Basis/(4)/ $ 561,721 $ 354,999 $ (18,089)
======== ======== ========
Taxable Income: Operations $ 528,025 $ 280,000 $ (18,089)
======== ======== ========
Cash Generated (Used By):
Operations (10,395) 112,594) (33,006)
Joint Ventures 653,729 54,154 --
------- ------- ------
$ 643,334 $ 166,748 $ (33,006)
Less Cash Distributions to Investors:
Operating Cash Flow 643,334 151,336 --
Return of Capital 44,257 -- --
Undistributed Cash Flow from Prior Year Operations 15,412
------- ------ ------
Cash Generated (Deficiency) after Cash Distributions $ (59,669) $ 15,412 $ (33,006)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions -- 5,589,786 11,416,234
----- --------- ----------
$ (59,699) $ 5,605,198 $11,383,228
Use of Funds:
Sales Commissions and Offering Expenses -- 754,599 1,377,645
Return of Original Limited Partner's Investment -- -- 100
Property Acquisitions and Deferred Project Costs 2,366,507 7,755,116 4,181,338
--------- --------- ---------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(2,426,206) $(2,914,517) $ 5,824,145
========== ========== =========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 58 29 0
- Operations Class B Units (180) (54) (65)
Capital Gain (Loss) 0 0 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 55 36 --
- Operations Class B Units (181) (58) (21)
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 46 10 --
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 43 10 --
- Return of Capital Class A Units 3 -- --
- Operations Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
_______________________________
/(1)/ Includes $19,125 in equity in loss of joint ventures and $77,765 from
investment of reserve funds in 1992; $207,234 in equity in earnings of
joint ventures and $250,979 from investment of reserve funds in 1993; and
$592,902 in equity in earnings of joint ventures and $64,056 from
investment of resrve funds in 1994. At December 31, 1994, the leasing
status of all developed property was 93% including developed property in
initial lease-up.
/(2)/ Includes partnership administrative expenses.
/(3)/ Included in equity in earnings (loss) of joint ventures in gross revenue
is depreciation and amortization of $100,796 for 1993, and $324,578 for
1994.
/(4)/ In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated as follows: $(17,908) to Class
B Limited Partners and $(181) to General Partners for 1992; $442,135 to
Class A Limited Partners, $(87,868) to Class B Limited Partners and $732
to General Partners for 1993; and $879,232 to Class A Limited Partners,
$(316,460) to Class B Limited Partners and $(1,051) to General Partners
for 1994.
A-7
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND V, L.P.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 819,535 $ 82,723 N/A N/A N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 112,389 46,608
Depreciation and Amortization/(3)/ 6,250 4,687
------- -------
Net Income (Loss) GAAP Basis/(4)/ $ 700,896 $ 31,428
======== =======
Taxable Income (Loss): Operations $ 667,682 $ 31,428
======== =======
Cash Generated (Used By):
Operations 276,376 (2,478)
Joint Ventures 203,543 --
------- ------
$ 479,919 $ (2,478)
Less Cash Distributions to Investors:
Operating Cash Flow 245,800 --
Cash Generated (Deficiency) after Cash Distributions $ 234,119 $ (2,478)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- --
Increase in Limited Partner Contributions/(3)/ 12,163,461 12,836,539
---------- ----------
$12,397,580 $12,834,061
Use of Funds:
Sales Commissions and Offering Expenses 1,776,909 1,781,724
Return of Original Limited Partner's Investment -- 100
Property Acquisitions and Deferred Project Costs 5,912,454 3,856,239
--------- ---------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ 4,708,217 $ 7,195,998
========= =========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 43 9
- Operations Class B Units (12) (5)
Capital Gain (Loss) -- 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 41 1
- Operations Class B Units (22) --
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 14 --
- Return of Capital Class A Units -- --
- Return of Capital Class B Units -- --
Source (on Cash Basis)
- Operations Class A Units 14 --
- Operations Class B Units -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
____________________________
/(1)/ Includes $3,436 in equity in loss of joint ventures and $86,159 from
investment of reserve funds in 1993, and $285,711 in equity in earnings of
joint ventures and $533,824 from investment of reserve funds in 1994. At
December 31, 1994, the leasing status was 100%.
/(2)/ Includes partnership administrative expenses.
/(3)/ Included in equity in loss of joint ventures in gross revenues is
depreciation of $3,436 for 1993, and $107,807 for 1994.
/(4)/ In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $39,551 to Class A Limited
Partners, $(8,042) to Class B Limited Partners and $(81) to the General
Partner for 1993, and $762,218 to Class A Limited Partners, $(62,731) to
Class B Limited Partners and $1,409 to the General partners for 1994.
A-8
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 286,371 N/A N/A N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 78,420
Depreciation and Amortization/(3)/ 4,688
-------
Net Income GAAP Basis/(4)/ $ 203,263
Taxable Loss: Operations =======
Cash Generated (Used By): $ 195,067
Operations =======
Joint Ventures
47,595
14,243
Less Cash Distributions to Investors: -------
Operating Cash Flow $ 61,838
52,195
Cash Generated (Deficiency) after Cash Distributions
Special Items (not including sales and financing): $ 9,643
Source of Funds:
General Partner Contributions --
Increase in Limited Partner Contributions/(5)/ $23,374,961
Use of Funds: ----------
Sales Commissions and Offering Expenses
Return of Original Limited Partner's Investment 3,351,569
Property Acquisitions and Deferred Project Costs --
4,477,765
---------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $15,555,270
==========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 29
- Operations Class B Units 9
Capital Gain (Loss) --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 28
- Operations Class B Units 17
Capital Gain (Loss) --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 7
- Return of Capital Class A Units --
- Return of Capital Class B Units --
Source (on Cash Basis)
- Operations Class A Units 7
- Operations Class B Units --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
__________________________
(1) Includes $78,799 in equity in loss of joint ventures and $78,799 from
investment of reserve funds in 1994. At December 31, 1994, the leasing
status was 100%.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,468 for 1994.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $233,337 to Class A Limited
Partners, $(29,854) to Class B Limited Partners and $(220) to the General
Partner.
(5) At December 31, 1994, Wells Real Estate Fund VII, L.P. had not yet
completed its offering of Limited Partnership Units.
A-9
<PAGE>
EXHIBIT B
FORM OF AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
WELLS REAL ESTATE FUND IX, L.P.
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
TABLE OF CONTENTS TO PARTNERSHIP AGREEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I FORMATION.......................................................... B-1
II NAME............................................................... B-1
III DEFINITIONS........................................................ B-1
IV BUSINESS........................................................... B-7
V NAMES AND ADDRESSES OF PARTNERS.................................... B-7
VI TERM............................................................... B-8
VII PRINCIPAL AND REGISTERED OFFICE AND REGISTERED AGENT............... B-8
VIII CAPITAL CONTRIBUTIONS.............................................. B-8
IX DISTRIBUTIONS...................................................... B-13
X ALLOCATIONS........................................................ B-16
XI MANAGEMENT OF THE PARTNERSHIP...................................... B-19
XII SERVICES TO PARTNERSHIP BY GENERAL PARTNERS........................ B-29
XIII TRANSACTIONS BETWEEN GENERAL PARTNERS AND THE PARTNERSHIP.......... B-31
XIV INDEPENDENT ACTIVITIES OF PARTNERS................................. B-31
XV BOOKS, REPORTS, FISCAL AND TAX MATTERS............................. B-32
XVI RIGHTS AND LIABILITIES OF THE LIMITED PARTNERS..................... B-35
XVII WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS;
ASSIGNABILITY OF GENERAL PARTNERS'
AND LIMITED PARTNERS' INTERESTS.................................... B-37
XVIII LOANS TO PARTNERSHIP............................................... B-40
XIX POWER OF ATTORNEY, CERTIFICATES AND OTHER DOCUMENTS................ B-40
XX DISSOLUTION AND TERMINATION OF THE PARTNERSHIP..................... B-42
XXI DISTRIBUTION ON TERMINATION OF PARTNERSHIP......................... B-45
XXII GENERAL PROVISIONS................................................. B-46
</TABLE>
<PAGE>
FORM OF AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
WELLS REAL ESTATE FUND IX, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made and
entered into effective as of the 5th day of January, 1996, by and among LEO F.
WELLS, III, a Georgia resident, and WELLS PARTNERS, L.P., a Georgia limited
partnership, as the General Partners, and DONALD L. THOMAS, a Georgia resident,
as the Initial Limited Partner, and those parties who from time to time become
Limited Partners as provided in this Agreement, as the Limited Partners.
WHEREAS, on August 15, 1994, a Certificate of Limited Partnership was filed
with the Secretary of State of the State of Georgia, pursuant to which the
General Partners and the Initial Limited Partner formed a limited partnership
(the "Partnership") under the Georgia Revised Uniform Limited Partnership Act,
O.C.G.A. (S) 14-9-100, et seq. (the "Act"); and
WHEREAS, the parties hereto desire to amend, restate and supersede in its
entirety the original partnership agreement pursuant to the terms and provisions
of this Amended and Restated Agreement of Limited Partnership.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and conditions herein contained, the parties hereto hereby agree, and the
limited partnership agreement of the Partnership shall hereafter be restated and
amended in its entirety, as follows:
ARTICLE I
FORMATION
The General Partners have executed and filed a Certificate of Limited
Partnership dated August 15, 1994, with the Secretary of State of the State of
Georgia in accordance with the provisions of Section 14-9-201 of the Act,
pursuant to which the parties hereto have previously formed the Partnership.
ARTICLE II
NAME
The business of the Partnership shall be conducted under the name of "WELLS
REAL ESTATE FUND IX, L.P." or such other name as the General Partners shall
hereafter designate in their discretion from time to time.
ARTICLE III
DEFINITIONS
3.1 "ACT" shall mean the provisions of the Georgia Revised Uniform
Limited Partnership Act, O.C.G.A. (S)14-9-100, et seq.
3.2 "ACQUISITION EXPENSES" shall mean expenses, including, but not
limited to, legal fees and expenses, travel and communications expenses, costs
of appraisals, nonrefundable option payments on property not acquired,
accounting fees
<PAGE>
and expenses, title insurance and miscellaneous expenses related to selection
and acquisition of properties, whether or not acquired.
3.3 "ACQUISITION FEES" shall mean the total of all fees and commissions
paid by any party to any Person in connection with the purchase, development or
construction of property by the Partnership, including the Acquisition and
Advisory Fees payable to the General Partners or their Affiliates, real estate
brokerage commissions, investment advisory fees, finder's fees, selection fees,
Development Fees, Construction Fees, nonrecurring management fees, or any other
fees of a similar nature, however designated, but excluding any Development Fees
and Construction Fees paid to a Person not affiliated with the Sponsor in
connection with the actual development or construction of a property.
3.4 "ACQUISITION AND ADVISORY FEE" shall mean the fee payable to the
General Partners or their Affiliates pursuant to Section 12.1 hereof for
performing acquisition advisory services in connection with the review and
evaluation of potential real property acquisitions for the Partnership.
3.5 "ADDITIONAL LIMITED PARTNERS" shall refer to all persons who are
admitted as Limited Partners pursuant to the provisions hereof.
3.6 "AFFILIATE" shall mean (a) any Person directly or indirectly
controlling, controlled by or under common control with a General Partner, (b)
any Person owning or controlling 10% or more of the outstanding voting
securities of a General Partner, (c) any officer, director or partner of a
General Partner, and (d) if such other Person is an officer, director or
partner, any company for which a General Partner acts in any such capacity.
3.7 "AGREEMENT" shall mean this Agreement of Limited Partnership as
amended, modified or supplemented from time to time.
3.8 "ASSIGNEE" shall mean a Person who has acquired a Limited Partner's
beneficial interest in one or more Units and has not become a substituted
Limited Partner.
3.9 "CAPITAL ACCOUNT" shall mean the account established and maintained
for each Partner pursuant to Section 8.1 hereof.
3.10 "CAPITAL CONTRIBUTION" shall mean, in the case of the General
Partners, the aggregate amount of cash contributed by the General Partners to
the Partnership and, in the case of a Limited Partner, the gross amount of
investment in the Partnership by such Limited Partner, which shall be an amount
equal to $10.00 multiplied by the number of Units purchased by such Limited
Partner.
3.11 "CASH FLOW" shall mean cash funds from operations of the Partnership,
including without limitation interest and other investment income but excluding
Capital Contributions and without deduction for depreciation or amortization,
after deducting funds used to pay or to provide for the payment of all operating
expenses of the Partnership and each Partnership Property and debt service, if
any, capital improvements and replacements.
3.12 "CERTIFICATE" shall mean the Certificate of Limited Partnership filed
by the General Partners with the Secretary of State of Georgia dated August 15,
1994.
3.13 "CLASS A STATUS UNIT" shall mean a Unit with respect to which the
Limited Partner holding such Unit has made an effective election pursuant to
Section 8.16 hereof to be treated as a Class A Status Unit for the applicable
accounting period.
3.14 "CLASS B STATUS UNIT" shall mean a Unit with respect to which the
Limited Partner holding such Unit has made an effective election pursuant to
Section 8.16 hereof to be treated as a Class B Status Unit for the applicable
accounting period.
<PAGE>
3.15 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
3.16 "CONSTRUCTION FEES" shall mean any fees or other remuneration for
acting as general contractor and/or construction manager to construct, supervise
and/or coordinate improvements in connection with the actual development or
construction of a Partnership Property.
3.17 "DEVELOPMENT FEES" shall mean any fees or other remuneration for the
packaging of a Partnership Property, including negotiating and approving plans,
assisting in obtaining zoning and necessary variances for a specific property,
and related matters.
3.18 "DISSENTING LIMITED PARTNER" shall mean any Limited Partner who casts
a vote against a Roll-Up; except that, for purposes of a transaction
constituting a Roll-Up which involves an exchange or a tender offer, Dissenting
Limited Partner shall mean any person who files a dissent from the terms of the
transaction with the party responsible for tabulating the votes or tenders to be
received in connection with the transaction during the period in which the offer
is outstanding.
3.19 "DISTRIBUTION REINVESTMENT PLAN" shall mean the plan established
pursuant to Section 8.15 hereof.
3.20 "EVENT OF WITHDRAWAL" shall mean, as to the General Partners (a) the
dissolution, death or permanent disability of a General Partner; (b) if such
General Partner (i) makes an assignment for the benefit of the creditors; (ii)
files a voluntary petition in bankruptcy; (iii) is adjudicated a bankrupt or
insolvent; (iv) files a petition or answer speaking for himself or itself in the
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation; (v) files an answer or
other pleading admitting or failing to contest the material allegations of the
petition filed against him or it in any proceeding of this nature; (vi) seeks,
consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of such General Partner of all or a substantial part of his or its
property; or (c) upon (i) the filing of a certificate of dissolution of a
General Partner or the revocation of a General Partner's charter and lapse of 90
days after notice to the General Partner of revocation without reinstatement of
its charter; (ii) 120 days after the commencement of any proceeding against a
General Partner seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or regulation,
if the proceeding has not been dismissed; or (iii) the expiration of 90 days
after the appointment without such General Partner's consent or acquiescence of
a trustee, receiver or liquidator of such General Partner or of all or any
substantial part of its properties, the appointment of which is not vacated or
stayed within 90 days after the expiration of any stay or, if within 90 days
after the expiration of any stay the appointment is not vacated. If there is at
least one remaining General Partner, an Event of Withdrawal of a General Partner
shall be effective as of the date of any such event; however, if an Event of
Withdrawal shall occur with respect to the last remaining General Partner, the
Event of Withdrawal shall not be effective until 120 days after the event giving
rise to the Event of Withdrawal has occurred.
3.21 "EXPIRATION DATE" shall mean the date on which the Offering
terminates as provided in the Prospectus.
3.22 "FRONT-END FEES" shall mean fees and expenses paid by any party for
any services rendered during the Partnership's organizational or acquisition
phase including Organization and Offering Expenses, Acquisition Fees (including
Acquisition and Advisory Fees), Acquisition Expenses, interest on deferred fees
and expenses, if applicable, and any other similar fees, however designated.
3.23 "GAIN ON SALE" shall mean the taxable income or gain for federal
income tax purposes (including gain exempt from tax) in the aggregate for each
fiscal year from the sale, exchange or other disposition of all or any portion
of a Partnership asset after netting losses from such sales, exchanges or other
dispositions against the gains from such transactions.
3.24 "GENERAL PARTNERS" shall refer collectively to Leo F. Wells, III and
Wells Partners, or any other Person or Persons who succeed any or all of them in
that capacity.
<PAGE>
3.25 "GROSS REVENUES" shall mean all amounts actually collected as rents
or other charges for the use and occupancy of Partnership Properties, but shall
exclude interest and other investment income of the Partnership and proceeds
received by the Partnership from a sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of assets of the Partnership.
3.26 "IRS" means Internal Revenue Service.
3.27 "INITIAL LIMITED PARTNER" shall mean Donald L. Thomas.
3.28 "INDEPENDENT EXPERT" shall mean a Person with no material current or
prior business or personal relationship with the Sponsor who is engaged to a
substantial extent in the business of rendering opinions regarding the value of
assets of the type held by the Partnership and who is qualified to perform such
work.
3.29 "INVESTMENT IN PROPERTIES" shall mean the amount of Capital
Contributions actually paid or allocated to the purchase, development,
construction or improvement of properties acquired by the Partnership (including
the purchase of properties, working capital reserves allocable thereto [except
that working capital reserves in excess of 5% shall not be included] and other
cash payments such as interest and taxes, but excluding Front-End Fees).
3.30 "LIMITED PARTNERS" shall refer to the Initial Limited Partner, the
Additional Limited Partners and to all other Persons who are admitted to the
Partnership as additional or substituted Limited Partners.
3.31 "LIQUIDATING DISTRIBUTIONS" shall mean the net cash proceeds received
by the Partnership from (a) the sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of substantially all of the assets of the
Partnership or the last remaining assets of the Partnership or (b) a liquidation
of the Partnership's assets in connection with a dissolution of the Partnership,
after (i) payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty or other disposition or liquidation, including real
estate commissions, if applicable, (ii) the payment of any outstanding
indebtedness and other liabilities of the Partnership, (iii) any amounts used to
restore any such assets of the Partnership, and (iv) any amounts set aside as
reserves which the General Partners in their sole discretion may deem necessary
or desirable.
3.32 "MAJORITY VOTE" shall mean the affirmative vote or written consent of
Limited Partners then owning of record more than 50% of the outstanding Units of
the Partnership, without distinction as to the class of such Units; provided,
however, that any Units owned or otherwise controlled by the General Partners or
their Affiliates may not be voted and will not be included in the total number
of outstanding Units for purposes of this definition.
3.33 "MINIMUM GAIN" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(d).
3.34 "MINIMUM OFFERING" shall mean the receipt and acceptance by the
General Partners of subscriptions for Units aggregating at least $1,250,000 in
offering proceeds.
3.35 "MINIMUM OFFERING EXPIRATION DATE" shall mean six (6) months after
the commencement of the Offering of the Units.
3.36 "NASAA GUIDELINES" shall mean the Statement of Policy Regarding Real
Estate Programs of the North American Securities Administrators Association,
Inc. adopted on October 9 and 12, 1988, effective January 1, 1989, as amended.
3.37 "NET CAPITAL CONTRIBUTION" shall mean, with respect to any Partner,
the Partner's Capital Contribution as reduced from time to time by distributions
to such Partner constituting a return of unused capital pursuant to Section 8.10
hereof or by distributions to such Partner of Nonliquidating Net Sale Proceeds
and Liquidating Distributions pursuant to
<PAGE>
Sections 9.2 and 9.4 hereof, but excluding distributions made to Limited
Partners pursuant to Section 9.2(a) hereof, and without reduction for
distributions of Net Cash From Operations made pursuant to Section 9.1 hereof.
3.38 "NET CASH FROM OPERATIONS" shall mean Cash Flow, less adequate cash
reserves for other obligations of the Partnership for which there is no
provision and the Repurchase Reserve, if any.
3.39 "NET INCOME" or "NET LOSS" shall mean the net income or loss
realized or recognized by the Partnership for a fiscal year, as determined for
federal income tax purposes, including any income exempt from tax, but excluding
all deductions for depreciation, amortization and cost recovery and Gain on
Sale.
3.40 "NONLIQUIDATING NET SALE PROCEEDS" shall mean the net cash proceeds
received by the Partnership from a sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of assets of the Partnership, which does
not constitute substantially all of the remaining assets of the Partnership,
after (a) payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty or other disposition, including real estate commissions,
if applicable, (b) the payment of any outstanding indebtedness and other
Partnership liabilities relating to such assets, (c) any amounts used to restore
any such assets of the Partnership, and (d) any amounts set aside as reserves
which the General Partners in their sole discretion may deem necessary or
desirable.
3.41 "OFFERING" shall mean the offering and sale of Units to the public
pursuant to the terms and conditions set forth in the Prospectus.
3.42 "ORGANIZATION AND OFFERING EXPENSES" shall mean those expenses
incurred in connection with organizing the Partnership, preparing the
Partnership for registration and subsequently offering and distributing the
Units to the public, including without limitation, legal and accounting fees,
sales commissions paid to broker-dealers in connection with the distribution of
the Units and all advertising expenses.
3.43 "PARTICIPATING PERCENTAGE" shall mean at any given time, as to each
holder of a Unit or Units, the percentage of that Person's Unit or Units to the
total Units being measured and shall be determined by dividing the total number
of Units held by such Person by the total number of outstanding Units in the
class or classes being measured and multiplying the quotient thereof by 100.
3.44 "PARTNERS" shall refer collectively to the General Partners and to
the Limited Partners, and reference to a "Partner" shall be to any one of the
Partners.
3.45 "PARTNERSHIP" shall refer to the limited partnership created under
this Agreement.
3.46 "PARTNERSHIP PROPERTY" or "PARTNERSHIP PROPERTIES" shall mean any
and all land and improvements purchased or constructed by the Partnership and
all repairs, replacements or renewals thereof, together with all personal
property acquired by the Partnership which is from time to time located thereon
or specifically used in connection therewith.
3.47 "PERSON" shall mean any natural person, partnership, corporation,
association, or other legal entity, including without limitation, qualified
pension and profit sharing trusts.
3.48 "PREFERENTIAL LIMITED PARTNER RETURN" shall mean with respect to
each Limited Partner Unit the sum of (a) a cumulative (but not compounded) 10%
per annum return on a Limited Partner's Net Capital Contribution with respect to
such Unit for all periods during which such Unit was treated as a Class A Status
Unit, and (b) a cumulative (but not compounded) 15% per annum return on such
Limited Partner's Net Capital Contribution with respect to such Unit for all
periods during which such Unit was treated as a Class B Status Unit. Each
Limited Partner's Preferential Limited Partner Return shall be calculated from
the date on which such Limited Partner's initial Capital Contribution was made
to the Partnership.
<PAGE>
3.49 "PRIOR WELLS PUBLIC PROGRAMS" shall mean the prior public real
estate limited partnerships sponsored by the General Partners or their
Affiliates having substantially identical investment objectives as the
Partnership.
3.50 "PROSPECTUS" shall mean the prospectus used by the Partnership in
connection with its offer and sale of Units pursuant to a Registration Statement
filed under the Securities Act of 1933, as amended.
3.51 "PURCHASE PRICE" shall mean the sum of the prices paid for all
properties by the Partnership (including all Acquisition Fees, liens and
mortgages on the properties, but excluding points and prepaid interest) plus all
costs of improvements, if any, reasonably and properly allocable to the
properties.
3.52 "REGISTRATION STATEMENT" shall mean the registration statement filed
by the Partnership with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, in order to register the Units for sale to
the public.
3.53 "REPURCHASE RESERVE" shall mean the cash reserve established under
Section 11.3(h) hereof, which may be used to repurchase Units from the Limited
Partners in accordance with Section 8.11 hereof.
3.54 "RETIREMENT PLANS" shall mean Individual Retirement Accounts
established under Section 408 of the Code and Keogh or corporate pension or
profit sharing plans established under Section 401(a) of the Code.
3.55 "ROLL-UP" shall mean any transaction or series of transactions that
through acquisition or otherwise involves the combination, reorganization,
merger, conversion or consolidation, either directly or indirectly, of the
Partnership and either the offer, sale or issuance of securities of a Roll-Up
Entity or the acquisition of the Roll-Up Entity's securities by the Partnership;
provided, however, that such term does not include a transaction that (a)
involves securities of the Partnership that have been listed for at least 12
months on a national securities exchange or traded through the National
Association of Securities Dealers Automated Quotation National Market System; or
(b) involves the conversion to corporate, trust or association form of only the
Partnership if, as a consequence of the transaction, there will be no
significant adverse change in any of the following: (i) Limited Partners' voting
rights, (ii) the term of existence of the Partnership, (iii) compensation to the
General Partners or their Affiliates, or (iv) the Partnership's investment
objectives.
3.56 "ROLL-UP ENTITY" shall mean a partnership, real estate investment
trust, corporation, trust or other entity that would be created or would survive
after the successful completion of a proposed Roll-Up.
3.57 "ROLL-UP TRANSACTION COSTS" shall mean the costs of printing and
mailing the proxy, prospectus, or other documents; legal fees; financial
advisory fees; investment banking fees; appraisal fees; accounting fees;
independent committee expenses; travel expenses; and all other fees relating to
the preparatory work of the transaction, but not including costs that would have
otherwise been incurred by the subject limited partnerships in the ordinary
course of business.
3.58 "SALE DATE" shall mean the day on which the Partnership realizes any
gain or loss from the sale, exchange or other disposition of Partnership assets
which it is required to allocate to the Partners under Section 10.4 hereof.
3.59 "SPONSOR" shall mean any individual, partnership, corporation or
other legal entity which (i) is directly or indirectly instrumental in
organizing, wholly or in part, the Partnership, (ii) will manage or participate
in the management of the Partnership, and any Affiliate of any such Person,
other than a Person whose only relationship with the Partnership is that of an
independent property manager, whose only compensation is as such, (iii) takes
the initiative, directly or indirectly, in founding or organizing the
Partnership, either alone or in conjunction with one or more other Persons, (iv)
receives a material participation in the Partnership in connection with the
founding or organizing of the business of the Partnership, in consideration of
services or property, or both services and property, (v) has a substantial
number of relationships and contacts with the Partnership, (vi) possesses
significant rights to control Partnership Properties, (vii) receives fees for
providing services to the Partnership which are paid on a basis that is not
customary in the industry, or (viii) provides goods or services to the
Partnership on a basis which was not negotiated at arm's-length with the
Partnership.
<PAGE>
3.60 "TREASURY REGULATIONS" shall mean the Income Tax Regulations
promulgated under the Code by the United States Treasury Department.
3.61 "UNIT" shall mean the limited partnership interest entitling the
holder thereof to all rights and benefits under this Agreement including, but
not limited to, an interest in the income, loss, distributions and capital of
the Partnership to be allocated to holders of Units, as set forth in Articles IX
and X hereof. Limited Partners holding Units shall have the right to elect to
have their Units treated as Class A Status Units or Class B Status Units
pursuant to the provisions of Section 8.16 hereof. All Units, whether they be
treated as Class A Status Units or Class B Status Units, shall represent a
Capital Contribution of $10.00 each (irrespective of the fact that because of
discounts in sales commissions and other fees under certain circumstances,
certain Units may be sold and issued for a gross consideration of less than
$10.00 per Unit), shall be issued as fully paid and nonassessable and shall have
the same rights, privileges and preferences except as expressly provided herein.
3.62 "WELLS CAPITAL" shall mean Wells Capital, Inc., a Georgia
corporation.
3.63 "WELLS PARTNERS" shall mean Wells Partners, L.P., a Georgia limited
partnership.
ARTICLE IV
BUSINESS
4.1 PURPOSE. The principal purpose of the Partnership is to acquire,
-------
develop, construct, own, operate, improve, lease and otherwise manage for
investment purposes, either alone or in association with others, a diversified
portfolio of income-producing commercial or industrial properties as shall from
time to time be acquired by the Partnership and to engage in any or all general
business activities related to or incidental to such principal purpose.
4.2 OBJECTIVES. The business of the Partnership shall be conducted with
----------
the following objectives:
(a) To maximize Net Cash From Operations;
(b) To preserve, protect and return the Partners' investment in the
Partnership; and
(c) To realize appreciation in value of Partnership Properties.
ARTICLE V
NAMES AND ADDRESSES OF PARTNERS
The names of the General Partners are Wells Partners, L.P., a Georgia
limited partnership, and Leo F. Wells, III. The name of the Initial Limited
Partner is Donald L. Thomas. The business address of the General Partners and
the Initial Limited Partner is 3885 Holcomb Bridge Road, Norcross, Georgia
30092. The names and addresses of all the Additional Limited Partners shall be
set forth in the books and records of the Partnership.
<PAGE>
ARTICLE VI
TERM
The Partnership term commenced upon the filing of the Certificate and shall
continue until December 31, 2024, unless sooner terminated as hereinafter
provided.
ARTICLE VII
PRINCIPAL AND REGISTERED OFFICE AND REGISTERED AGENT
The principal and registered office of the Partnership shall be 3885
Holcomb Bridge Road, Norcross, Georgia 30092. The General Partners may from time
to time change the principal place of business and, in such event, shall notify
the Limited Partners in writing of the change and the effective date of such
change. The registered agent for the Partnership at such address shall be Wells
Capital, Inc.
ARTICLE VIII
CAPITAL CONTRIBUTIONS
8.1 CAPITAL ACCOUNTS. A separate Capital Account shall be maintained for
----------------
each Partner. The Capital Accounts of the Partners shall be determined and
maintained throughout the term of the Partnership in accordance with the capital
accounting rules of Treasury Regulations Section 1.704-1(b), as it may be
amended or revised from time to time.
8.2 GENERAL PARTNERS. The General Partners shall make Capital
----------------
Contributions to the Partnership as follows:
<TABLE>
<CAPTION>
Name Dollar Amount
---- -------------
<S> <C>
Wells Partners, L.P. $400
Leo F. Wells, III 100
----
Total $500
</TABLE>
8.3 GENERAL PARTNER PURCHASE OF UNITS. The Capital Contributions of the
---------------------------------
General Partners, together with the Capital Contribution of the Initial Limited
Partner, shall constitute the initial capital of the Partnership and shall not
entitle the General Partners to any Units. The General Partners may, in their
discretion, make additional Capital Contributions to the capital of the
Partnership in exchange for the purchase of Units. Any General Partner who
purchases Units shall continue, in all respects, to be treated as a General
Partner but shall receive the income, losses and cash distributions with respect
to any Units purchased by such General Partner on the same basis as other
Partners may receive with respect to their Units. Units purchased by the
General Partners or their Affiliates shall not be entitled to vote on any
transaction requiring Limited Partner approval.
8.4 INITIAL LIMITED PARTNER. The Initial Limited Partner shall
-----------------------
contribute $100 in cash to the Partnership and agrees that his interest shall
automatically be redeemed for $100 upon the admission of any Additional Limited
Partners to the Partnership.
8.5 LIMITED PARTNER CONTRIBUTIONS. The General Partners are authorized
-----------------------------
and directed to raise capital for the Partnership as provided in the Prospectus
by offering and selling not more than an aggregate of 3,500,000 Units as
follows:
<PAGE>
(a) Each Unit shall be issued for a purchase price of $10.00 less
any discounts authorized in the Prospectus.
(b) Except as set forth below, the minimum purchase of either class
or combination of Units shall be 100 Units (or such greater minimum number of
Units as may be required under applicable state or federal laws). Except in
certain states, subscribers who have satisfied the minimum purchase requirements
and have purchased units in Prior Wells Public Programs may purchase less than
the minimum number of Units described above, but in no event less than 2.5
Units. In addition, after subscribers have satisfied the minimum purchase
requirements, the minimum additional investment in the Partnership shall not be
less than 2.5 Units. Fractional Units may be sold at the discretion of the
General Partners. Notwithstanding the foregoing, the provisions set forth above
relating to the minimum number of Units which may be purchased shall not apply
to purchases of Units pursuant to the Distribution Reinvestment Plan described
in Section 8.15 hereof or a qualified Distribution Reinvestment Plan authorized
by the partnership agreement of one of the Prior Wells Public Programs. The
suitability standards set forth in the Prospectus will not be decreased with
respect to any investment in Units of the Partnership.
(c) The General Partners may refuse to accept subscriptions for
Units and contributions tendered therewith for any reason whatsoever.
Subscriptions shall be so accepted or rejected by the General Partners within 30
days of their receipt. If rejected, all funds will be returned to the subscriber
within ten business days. Once accepted, such subscription amounts shall be
deposited in escrow within 48 hours or deposited to the Partnership's account,
as may then be appropriate under this Agreement.
(d) Each Unit sold to a subscriber shall be fully paid and
nonassessable.
8.6 ADMISSION OF LIMITED PARTNERS. No action or consent by any Limited
-----------------------------
Partners shall be required for the admission of Additional Limited Partners to
the Partnership, provided that the Partnership may not issue more than 3,500,000
Units. Funds of subscribers for Units shall be held in the escrow account
described in Section 8.8 below. Such funds shall not be released from escrow,
and no subscribers for Units shall be admitted to the Partnership unless and
until the receipt and acceptance by the Partnership of the Minimum Offering. At
any time thereafter, the Capital Contributions of such subscribers may be
released directly to the Partnership, provided that such subscribers shall be
admitted to the Partnership within 15 days after such release. Subscriptions
from subsequent subscribers shall be accepted or rejected within 30 days of
receipt by the Partnership, and if rejected, all funds shall be returned to
subscribers within 10 business days. Subsequent subscribers shall be deemed
admitted as Limited Partners of the Partnership on the day on which the
subscriptions from such Persons are accepted by the Partnership.
No Person shall be admitted as a Limited Partner who has not executed and
delivered to the Partnership the Subscription Agreement specified in the
Prospectus, together with such other documents and instruments as the General
Partners may deem necessary or desirable to effect such admission, including,
but not limited to, the written acceptance and agreement by such Person to be
bound by the terms and conditions of this Agreement.
8.7 MINIMUM CAPITALIZATION. The Offering will terminate if the
----------------------
Partnership has not received and accepted subscriptions for the Minimum Offering
on or before the Minimum Offering Expiration Date.
8.8 ESCROW. Until subscriptions for the Minimum Offering are received
------
and accepted by the General Partners, or until the Minimum Offering Expiration
Date, whichever first occurs, all subscription proceeds shall be held in an
escrow account separate and apart from all other funds and invested in
obligations of, or obligations guaranteed by, the United States government, or
bank money-market accounts or certificates of deposit of national or state banks
that have deposits insured by the Federal Deposit Insurance Corporation
(including certificates of deposit of any bank acting as a depository or
custodian for any such funds), which mature on or before the Minimum Offering
Expiration Date, unless such instrument cannot be readily sold or otherwise
disposed of for cash by the Minimum Offering Expiration Date without any
dissipation of the subscription proceeds invested, all in the discretion of such
escrow agent or agents appointed by the General Partners. All moneys tendered by
Persons whose subscriptions are rejected shall be returned, without interest, to
such Persons
<PAGE>
promptly after such rejection. If subscriptions for the Minimum Offering are
not received and accepted before the Minimum Offering Expiration Date, those
subscriptions and funds in escrow on such date shall be returned to the
subscribers, together with any interest earned thereon after deducting escrow
expenses (except for Maine, Missouri, Ohio and Pennsylvania residents).
Notwithstanding the above, subscriptions from residents of New York and
Pennsylvania may not be released from escrow to the Partnership until the
receipt and acceptance by the General Partners of subscriptions from all sources
for not less than 250,000 Units.
8.9 PUBLIC OFFERING. Except as otherwise provided in this Agreement, the
---------------
General Partners shall have sole and complete discretion in determining the
terms and conditions of the offer and sale of Units and are hereby authorized
and directed to do all things which they deem to be necessary, convenient,
appropriate and advisable in connection therewith, including, but not limited
to, the preparation and filing of the Registration Statement with the Securities
and Exchange Commission and the securities commissioners (or similar agencies or
officers) of such jurisdictions as the General Partners shall determine, and the
execution or performance of agreements with selling agents and others concerning
the marketing of the Units, all on such basis and upon such terms as the General
Partners shall determine. The General Partners will not, directly or
indirectly, pay or award any compensation to a third party engaged as an
investment advisor by a potential investor as an inducement to advise favorably
toward the Partnership.
8.10 RETURN AND WITHDRAWAL OF CAPITAL.
--------------------------------
(a) Any proceeds of the Offering of the Units not invested or
committed to the acquisition or development of specific real properties within
the later of two years from the effective date of the Registration Statement or
one year after the termination of the Offering (except for necessary operating
expenses and any reserves under Section 11.3(h) of this Agreement) shall be
distributed pro rata to the Limited Partners as a return of capital. In such
event, the amount paid to the Limited Partners shall include Front-End Fees but
only to the extent such fees exceed the adjusted allowable Front-End Fees based
on the obligation of the General Partners pursuant to Section 12.2(b) hereof to
commit at least 80% of the remaining Capital Contributions to Investment in
Properties. For purposes of the foregoing, funds will be deemed to have been
committed and will not be distributed to the extent such funds would be required
to acquire property with respect to which contracts, agreements in principle or
letters of understanding have been executed, regardless of whether such property
is actually acquired, and to the extent such funds have been reserved to make
contingent payments in connection with the acquisition, development or
improvement of any property, whether or not any such payments are made. No such
return shall be made until this Agreement has been amended to reflect such
reduction of capital. Any distribution pursuant to this Section 8.10(a) shall be
deemed to have been consented to by the Limited Partners.
(b) No Partner, including a withdrawing Partner, shall have any
right to withdraw or make a demand for withdrawal of any such Partner's Capital
Contribution (or the capital interest reflected in such Partner's Capital
Account) until the full and complete winding up and liquidation of the business
of the Partnership unless such withdrawal is provided for herein.
8.11 REPURCHASE OF UNITS. After one year following the termination of the
-------------------
Offering of Units, the Partnership shall have the right, in the sole discretion
of the General Partners, to use funds held in the Repurchase Reserve to purchase
Units upon written request of a Limited Partner. The establishment of a
Repurchase Reserve is in the sole discretion of the General Partners, and if
established, the Repurchase Reserve may be terminated and/or reestablished at
any time in the sole discretion of the General Partners.
(a) In no event shall the Repurchase Reserve exceed 5% of the Cash
Flow in any given year.
(b) A Limited Partner wishing to have his Units repurchased must
mail or deliver a written request to the Partnership (executed by the trustee or
authorized agent in the case of Retirement Plans) indicating his desire to have
such Units repurchased. Such requests will be considered by the General Partners
in the order in which they are received.
<PAGE>
(c) In the event that the General Partners decide to honor a
request, they will notify the requesting Limited Partner in writing of such
fact, of the purchase price for the repurchased Units and of the effective date
of the repurchase transaction (which shall be not less than 60 nor more than 75
calendar days following the receipt of the written request by the Partnership)
and will forward to such Limited Partner the documents necessary to effect such
repurchase transaction.
(d) Fully executed documents to effect the repurchase transaction
must be returned to the Partnership at least 30 days prior to the effective date
of the repurchase transaction.
(e) The purchase price for the repurchased Units shall be
established by the Partnership no more often than on a quarterly basis.
(f) The purchase price for repurchased Units will be equal to 85% of
the fair market value of the Units until three years from the effective date of
the Registration Statement, and 90% of the fair market value of the Units
thereafter. Fair market value shall be determined by the General Partners based
upon an estimate of the amount the Limited Partners would receive if the
Partnership's real estate investments were sold for their estimated value and if
such proceeds were distributed in a liquidation of the Partnership.
(g) Only amounts then held in the Repurchase Reserve may be used to
repurchase Units.
(h) Upon receipt of the required documentation, the Partnership
will, on the effective date of the repurchase transaction, repurchase the Units
of the Limited Partner, provided that if sufficient amounts are not then
available in the Repurchase Reserve to repurchase all of such Units, only a
portion of such Units will be repurchased; and provided further, that the
Partnership may not repurchase any Units of such Limited Partner if, as a result
thereof, the Limited Partner would own less than the minimum investment. Units
repurchased by the Partnership pursuant to this Section 8.11 shall be promptly
canceled.
(i) In the event that insufficient funds are available in the
Repurchase Reserve to repurchase all of such Units, the Limited Partner will be
deemed to have priority for subsequent Partnership repurchases over Limited
Partners who subsequently request repurchases.
(j) Repurchases of Units out of the Repurchase Reserve shall be
subject to the restrictions set forth in Section 17.3(g) hereof.
(k) In addition to the restrictions set forth in Section 17.3(g)
hereof, (i) repurchase out of the Repurchase Reserve may not exceed in the
aggregate more than 2% of total Capital Contributions throughout the life of the
Partnership excluding repurchases of Units relating to the death or legal
incapacity of the owner or a substantial reduction in the owner's net worth or
income (defined to mean an involuntary loss of not less than 50% of income or
net worth during the year in which such repurchase occurs); and (ii) not more
than 2% of the outstanding Units may be purchased in any year, provided in each
case that the Partnership has sufficient cash to make the purchase and that the
purchase will not be in violation of any other applicable legal requirements.
(l) In no event shall Units owned by the General Partners or their
Affiliates be repurchased by the Partnership.
8.12 INTEREST ON CAPITAL CONTRIBUTIONS. No interest shall be paid on any
---------------------------------
Capital Contributions.
8.13 OWNERSHIP BY LIMITED PARTNER OF INTEREST IN AFFILIATES OF GENERAL
-----------------------------------------------------------------
PARTNERS. No Limited Partner (other than a General Partner, in the event that
- --------
he or it is also a Limited Partner) shall at any time, either directly or
indirectly, own any stock or other interest in any Affiliate of any General
Partner if such ownership, by itself or in conjunction with the stock or other
interest owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize
<PAGE>
the classification of the Partnership as a partnership for federal income tax
purposes. The General Partners shall be entitled to make such reasonable
inquiry of the Limited Partners and prospective Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section 8.13.
8.14 DEFICIT CAPITAL ACCOUNTS. The Limited Partners shall not be required
------------------------
to reimburse the Partnership or any other Partner for deficiencies in their
Capital Accounts. In addition, except as may be required under state law, the
General Partners shall not be required to reimburse the Partnership or the
Limited Partners for deficiencies in their Capital Accounts.
8.15 DISTRIBUTION REINVESTMENT PLAN.
------------------------------
(a) A Limited Partner who acquired his Units in the Offering may
elect to participate in a program for the reinvestment of his distributions (the
"Distribution Reinvestment Plan") and have his distributions of Net Cash From
Operations reinvested in Units of the Partnership during the offering period or
in units issued by a subsequent limited partnership sponsored by the General
Partners or their Affiliates which has substantially identical investment
objectives as the Partnership. A Limited Partner who acquired his Units by
transfer from a former Limited Partner is not eligible to have his distributions
of Net Cash From Operations reinvested in Units of the Partnership, but may
participate in the Distribution Reinvestment Plan with respect to reinvestment
in units issued by a subsequent limited partnership sponsored by the General
Partners or their Affiliates which has substantially identical investment
objectives as the Partnership. Limited Partners participating in the
Distribution Reinvestment Plan may purchase fractional Units and shall not be
subject to minimum investment requirements, although the General Partners may,
at their option, impose certain minimum investment requirements or restrictions
with respect to purchases of Units pursuant to the Distribution Reinvestment
Plan. Each Limited Partner electing to have such distributions of Net Cash From
Operations reinvested will receive, with each confirmation of distributions, a
notice advising such Limited Partner that he is entitled to change his election
with respect to subsequent distributions by return of a notice to the
Partnership by a date to be specified by the General Partners.
(b) If a Limited Partner withdraws from participation in the
Distribution Reinvestment Plan, such withdrawal shall be effective only with
respect to distributions made more than 30 days following receipt by the General
Partners of written notice of such withdrawal. In the event a Limited Partner
transfers his Units, such transfer shall terminate the Limited Partner's
participation in the plan as of the first day of the quarter in which such
transfer is effective.
(c) Distributions may be reinvested in a subsequent limited
partnership only if (i) prior to the time of such reinvestment, the Limited
Partner has received the final prospectus (and any supplements thereto) offering
interests in the subsequent limited partnership and such prospectus allows
investment pursuant to a distribution reinvestment plan; (ii) a registration
statement covering the interests in the subsequent limited partnership has been
declared effective under the Securities Act of 1933; (iii) the offer or sale of
such interests is qualified for sale under the applicable state securities laws;
(iv) the participant executes the subscription agreement included with the
prospectus for the subsequent limited partnership; (v) the participant qualifies
under the applicable investor suitability standards as contained in the
prospectus for the subsequent limited partnership; and (vi) the subsequent
limited partnership has substantially identical investment objectives as the
Partnership. If (A) any of the foregoing conditions are not satisfied at the
time of a distribution or (B) no interests are available to be purchased, such
distributions will be paid in cash.
(d) Each Limited Partner electing to participate in the Distribution
Reinvestment Plan hereby agrees that his investment in this Partnership or any
subsequent limited partnership sponsored by the General Partners or their
Affiliates shall be deemed to constitute his agreement to be a limited partner
of the partnership in which such investment is made and to be bound by the terms
and conditions of the agreement of limited partnership of such partnership, and
if, at any time, he fails to meet the applicable limited partnership investor
suitability standards or cannot make the other investor representations or
warranties set forth in the then current limited partnership prospectus,
partnership agreement or subscription agreement relating thereto, he will
promptly notify the General Partners in writing.
(e) The General Partners may, at their option, elect not to provide
the Distribution Reinvestment Plan or terminate any such plan at any time
without notice to the Limited Partners.
<PAGE>
8.16 CLASS A STATUS UNITS AND CLASS B STATUS UNITS. Upon subscription for
---------------------------------------------
Units, each Limited Partner shall elect to have his Units treated either as
Class A Status Units or Class B Status Units, or a combination thereof.
Elections to be treated as Class A Status Units or Class B Status Units will be
in effect for each fiscal year of the Partnership, or such shorter applicable
accounting period as the General Partners, in their sole discretion, may
determine and use for accounting purposes. Units with respect to which the
Limited Partner owning such Units has elected to be treated as Class A Status
Units with respect to an accounting period shall be referred to as herein as
"Class A Status Units" for such accounting period, and Units with respect to
which the Limited Partner owning such Units has elected to have treated as Class
B Status Units with respect to an accounting period shall be referred to herein
as "Class B Status Units" for such accounting period. Limited Partners holding
Class A Status Units and Limited Partners holding Class B Status Units shall
have such interests in the income, distributions, allocations and capital of the
Partnership as are described in Articles IX and X below. Except as specifically
described in Articles IX and X below, all Limited Partners shall have the same
rights under this Agreement as all other Limited Partners regardless of whether
their Units are treated as Class A Status Units or Class B Status Units.
Limited Partners shall initially elect to have their Units treated as Class A
Status Units or Class B Status Units in their Subscription Agreement for Units.
Thereafter, except where prohibited by applicable state law, Limited Partners
may change their election by mailing or delivering written notice to the
Partnership (executed by the trustee or authorized agent in the case of
Retirement Plans). Elections made in Subscription Agreements shall be effective
immediately upon acceptance. Thereafter, Limited Partners shall have the right
to change their prior election with respect to the Class A Status or Class B
Status treatment of their Units (except where prohibited by applicable state
law) one time during each accounting period, and any such election shall be
effective commencing as of the first day of the next succeeding accounting
period following the receipt by the Partnership of written notice of such
election. Any such election to be treated as Class A Status Units or Class B
Status Units shall remain in effect until the first day of the next succeeding
accounting period following receipt by the Partnership of written notice to
change such election, and all such elections shall be binding upon the Limited
Partner's successors and assigns. Notwithstanding anything to the contrary
contained herein, Units acquired and held by the General Partners or their
Affiliates shall at all times be treated as Class A Status Units, and neither
the General Partners nor their Affiliates shall have the right to make an
election to have Units beneficially owned by them treated as Class B Status
Units.
ARTICLE IX
DISTRIBUTIONS
9.1 NET CASH FROM OPERATIONS. Except as otherwise provided for in a
------------------------
liquidation in Sections 9.3 and 9.4 hereof, Net Cash From Operations for each
applicable accounting period shall be distributed to the Partners as follows:
(a) First, to the Limited Partners holding Class A Status Units on a
per Unit basis until each of such Limited Partners has received distributions of
Net Cash From Operations with respect to such fiscal year, or applicable portion
thereof, equal to 10% per annum of his Net Capital Contribution;
(b) Then, to the General Partners until they have received
distributions of Net Cash From Operations with respect to such fiscal year equal
to 10% of the total distributions under Section 9.1(a) above and this Section
9.1(b) with respect to such fiscal year; and
(c) Thereafter, 90% to the Limited Partners holding Class A Status
Units on a per Unit basis, and 10% to the General Partners.
The General Partners shall be prohibited from making any distributions of
Net Cash From Operations out of Capital Contributions, and distributions of Net
Cash From Operations shall not reduce Partners' Net Capital Contributions. No
distributions of Net Cash From Operations will be made with respect to Class B
Status Units.
<PAGE>
The General Partners shall not incur any liability as a result of their
determination to distribute Net Cash From Operations, even though such
distribution may result in the Partnership's retaining insufficient funds for
the operation of its business, provided their determination was made in good
faith and not as a result of their negligence or misconduct.
9.2 NONLIQUIDATING NET SALE PROCEEDS. Except as otherwise provided for
--------------------------------
in Sections 9.3 and 9.4 hereof and except for the potential reinvestment of
Nonliquidating Net Sale Proceeds as provided in Section 11.3(f) hereof,
Nonliquidating Net Sale Proceeds, after the payment of all Partnership debts and
liabilities and the establishment of any reserves which the General Partners in
their sole discretion may deem reasonably necessary or desirable, shall be
distributed to the Partners as follows:
(a) To Limited Partners holding Units which at any time have been treated
as Class B Status Units, such amounts as may be necessary to give each such
Limited Partner an amount of Nonliquidating Net Sale Proceeds which, when added
to distributions received by such Limited Partner with respect to any period
during which his Units were treated as Class A Status Units, would be equal on a
per Unit basis to the Net Cash From Operations allocated and distributed
pursuant to Section 9.1 hereof received by Limited Partners holding Units which
at all times have been treated as Class A Status Units, assuming such Limited
Partners purchased an equivalent number of Units on the same date (it being the
intent of the Partners that the distribution preference provided by Section 9.1
hereof be only a timing preference on distributions and that this provision have
the effect of equalizing distributions to Limited Partners on a per Unit basis
so that, after receipt of distributions under this Section 9.2(a), all Limited
Partners, to the extent possible, be in the receipt of the same aggregate amount
of distributions under this Article IX on a per Unit basis);
(b) Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received distributions under Section 8.10 hereof, this Section
9.2(b) and Section 9.4 hereof totalling 100% of his Net Capital Contribution;
(c) Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received aggregate distributions under Sections 9.1, 9.2(a) and this
9.2(c) equal to a cumulative (but not compounded) 10% per annum return on his
Net Capital Contribution;
(d) Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received aggregate distributions under Sections 9.1, 9.2(a), 9.2(c)
and this 9.2(d) equal to his Preferential Limited Partner Return, as defined in
Section 3.48 hereof;
(e) Then, to the General Partners until the General Partners have received
distributions totalling 100% of their Capital Contributions plus, in the event
that Limited Partners have received aggregate distributions over the life of
their investment in excess of their Net Capital Contributions plus their
Preferential Limited Partner Return, then and only in such event, the General
Partners shall receive an additional amount equal to 25% of any such excess; and
(f) Thereafter, 80% to the Limited Partners on a per Unit basis and 20% to
the General Partners; provided, however, that in no event will the General
Partners be allocated or receive distributions in excess of 15% of aggregate
Nonliquidating Net Sale Proceeds and Liquidating Distributions remaining after
payments to all Limited Partners from such proceeds of amounts equal to 100% of
their Net Capital Contributions plus amounts equal to a 6% per annum return on
their Net Capital Contributions, calculated on a cumulative (noncompounded)
basis. It is the intent of the foregoing proviso that the General Partners
receive no more of the net proceeds from the sale or financing of Partnership
Properties than is allowed pursuant to Article IV, Section E.2.b. of the NASAA
Guidelines, and in the event the allocations pursuant to this Article IX would
otherwise result in the General Partners receiving any such excess
distributions, such excess distributions otherwise distributable to the General
Partners will instead be reallocated in favor of and distributed to the Limited
Partners on a per Unit basis.
Notwithstanding the foregoing, in the event that the Partnership sells any
Partnership Property at a sale price which is less than the Purchase Price
originally paid for such Partnership Property, then prior to the distribution of
Nonliquidating Net Sale Proceeds under Section 9.2(a) above, the Limited
Partners holding Class A Status Units shall first receive
<PAGE>
distributions of Nonliquidating Net Sale Proceeds in an amount equal to the
excess of the original Purchase Price of such Partnership Property sold over the
sale price of such Partnership Property, but not in excess of the amount of the
special allocations of deductions for depreciation, amortization and cost
recovery with respect to such Partnership Property previously made to the
Limited Partners holding Class B Status Units made pursuant to Sections 10.2(a)
and 10.2(b) hereof.
9.3 DISSOLUTION. Upon dissolution, the Partnership shall proceed to
-----------
liquidate its assets as follows:
(a) Subject to any applicable limitations of law, upon dissolution
of the Partnership, the assets of the Partnership shall be converted to cash.
The Partnership shall be given adequate time to collect any notes received with
respect to the sale of such assets and collect any other debts outstanding. All
cash on hand, including all cash received after the happening of an event of
dissolution set forth in Section 20.1 hereof, shall be applied and distributed
as follows:
(i) All of the debts and liabilities of the Partnership,
except indebtedness to Partners, shall first be paid and satisfied or adequate
provision, including the setting up of any reserves which the General Partners
in their sole discretion deem reasonably necessary or desirable, shall be made
for the payment or satisfaction thereof;
(ii) All debts of the Partnership to Partners shall next be
paid on a pro rata basis without respect to the date on which such debts were
incurred;
(iii) Any fees due to the General Partners shall next be paid;
and (iv) The balance of the assets of the Partnership shall be distributed to
each Partner in accordance with the positive balance in his Capital Account as
of the date of distribution, as provided in Section 9.4 below.
(b) Upon dissolution, each Limited Partner shall look solely to the
assets of the Partnership for the return of his investment, and if the
Partnership Property remaining after payment or discharge of the debts and
liabilities of the Partnership, including debts and liabilities owed to one or
more of the Partners, is insufficient to return the aggregate Capital
Contributions of each Limited Partner, such Limited Partners shall have no
recourse against the General Partners or any other Limited Partner.
9.4 LIQUIDATING DISTRIBUTIONS. After the payment of all Partnership
-------------------------
debts and liabilities and the establishment of any reserves which the General
Partners in their sole discretion may deem reasonably necessary or desirable,
Liquidating Distributions shall be distributed to each Partner in accordance
with the positive balance in his Capital Account as of the date of distribution
(after allocation of the Gain on Sale as provided in Section 10.4 hereof).
9.5 DISTRIBUTION DATES. Partnership distributions under this Article IX
------------------
will be made at least quarterly, but no more often than monthly, in the
discretion of the General Partners (the "Distribution Period").
9.6 ALLOCATION AMONG GENERAL PARTNERS. All amounts distributed to the
---------------------------------
General Partners under this Article IX shall be apportioned among the General
Partners in such percentages as they may from time to time agree upon among
themselves.
9.7 ALLOCATION AMONG LIMITED PARTNERS. All allocations and distributions
---------------------------------
made to the Limited Partners pursuant to this Article IX shall be paid to those
Persons who were Limited Partners or Assignees as of the last day of the
Distribution Period preceding the time of the distribution (the "Allocation
Date") on a pro rata basis according to the number of Units held on the
Allocation Date; provided, however, with respect to any Unit issued by the
Partnership during such Distribution Period, allocations and distributions made
with respect to such Unit for such Distribution Period shall be equal to the pro
rata share for such Unit determined in accordance with the first clause of this
Section 9.7 multiplied by a fraction, the numerator of which is the number of
days contained in the Distribution Period during which the Unit in question was
issued, and the denominator of which is the total number of days contained in
such Distribution Period.
<PAGE>
ARTICLE X
ALLOCATIONS
10.1 NET LOSS. Net Loss for each applicable accounting period shall be
--------
allocated to the Partners as follows:
(a) 99% to the Limited Partners holding Class B Status Units with
respect to such accounting period on a per Unit basis, and 1% to the General
Partners until the Capital Accounts of all such Partners have been reduced to
zero;
(b) Then, to any Partner having a positive balance in his Capital
Account (in proportion to the aggregate positive balances in all Capital
Accounts) in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
(c) Then, 100% to the General Partners.
Notwithstanding the foregoing, in any fiscal year with respect to which the
Partnership incurs an aggregate Net Loss, interest income of the Partnership
shall be specially allocated to the Limited Partners holding Class A Status
Units with respect to such accounting period on a per Unit basis, and Net Loss
of the Partnership for such accounting period shall be determined without regard
to such interest income.
10.2 DEPRECIATION, AMORTIZATION AND COST RECOVERY DEDUCTIONS. All
-------------------------------------------------------
deductions for depreciation, amortization and cost recovery for each applicable
accounting period shall be allocated to the Partners as follows:
(a) 99% to the Limited Partners holding Class B Status Units with
respect to such accounting period on a per Unit basis, and 1% to the General
Partners until the Capital Accounts of all such Partners have been reduced to
zero;
(b) Then, to any Partner having a positive balance in his Capital
Account (in proportion to the aggregate positive balances in all Capital
Accounts) in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
(c) Then, 100% to the General Partners.
This Section 10.2 notwithstanding, all Net Loss and Net Income for each
fiscal year shall be allocated to the Partners in the manner provided in
Sections 10.1 and 10.3 hereof and shall be reflected in each Partner's Capital
Account as of the last day of such fiscal year before any allocation of
depreciation, amortization or cost recovery deductions is made to the Partners
under this Section 10.2.
10.3 NET INCOME. Subject to the Qualified Income Offset provisions of
----------
Section 10.5 hereof, Net Income for each applicable accounting period shall be
allocated to the Partners as follows:
(a) To the General Partners and the Limited Partners holding Class A
Status Units with respect to such accounting period on a per Unit basis, in the
same proportion as, and to the extent that, Net Cash From Operations is
distributed to them under Section 9.1 hereof with respect to such accounting
period; and
(b) Then, to the extent Net Income exceeds the actual distribution
of Net Cash From Operations with respect to such accounting period, such excess
Net Income shall be allocated 99% to the Limited Partners holding Class A Status
Units with respect to such accounting period on a per Unit basis, and 1% to the
General Partners.
<PAGE>
10.4 GAIN ON SALE. Gain on Sale for each applicable accounting period
------------
shall be allocated to the Partners as follows:
(a) First, to the extent applicable, pursuant to the Qualified
Income Offset provisions of Section 10.5 hereof;
(b) Then, to those Partners having negative Capital Accounts, if
any, in the ratio that the negative Capital Account of each Partner having a
negative Capital Account bears to the aggregate amount of negative Capital
Accounts of all such Partners until all negative Capital Accounts have been
restored to zero;
(c) Then, to Limited Partners holding Units which at any time have
been treated as Class B Status Units, in amounts equal to the deductions for
depreciation, amortization and cost recovery specially allocated to such Limited
Partners pursuant to Section 10.2(a) hereof, with respect to the specific
Partnership Property, the sale, exchange or other disposition of which resulted
in the allocation of Gain on Sale hereunder, but not in excess of the amount of
Gain on Sale recognized by the Partnership pursuant to the sale, exchange or
other disposition of said specific Partnership Property;
(d) Then, to the Limited Partners in amounts equal to the deductions
for depreciation, amortization and cost recovery allocated to such Limited
Partners pursuant to Section 10.2(b) hereof with respect to the specific
Partnership Property, the sale, exchange or other disposition of which resulted
in the allocation of Gain on Sale hereunder;
(e) Then, to Limited Partners holding Units which at any time have
been treated as Class B Status Units, such amounts as may be necessary to give
each such Limited Partner, after the allocation of Gain on Sale under this
Section 10.4(e), distributions which, when added to distributions received by
such Limited Partner with respect to any period during which his Units were
treated as Class A Status Units, would be equal on a per Unit basis to the Net
Cash From Operations allocated and distributed pursuant to Section 9.1 hereof
received by Limited Partners holding Units which at all times have been treated
as Class A Status Units, assuming said Limited Partners purchased an equivalent
number of Units on the same day (it being the intent of the Partners that the
distribution preference provided in Section 9.1 hereof be only a timing
preference on distributions and that Section 9.2(a) hereof and this provision
have the effect of equalizing distributions to Limited Partners on a per Unit
basis so that, after receipt of distributions under Section 9.2(a) hereof and
distributions resulting from the allocation of Gain on Sale pursuant to this
Section 10.4(e), all Limited Partners, to the extent possible, be in receipt of
the same aggregate amount of distributions under Article IX on a per Unit
basis);
(f) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an amount equal to the excess of each Limited
Partner's Net Capital Contribution over prior distributions received by such
Limited Partner under Sections 8.10, 9.2(b) and 9.4 hereof;
(g) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an amount equal to the excess of a cumulative
(but not compounded) 10% per annum return on his Net Capital Contribution over
prior distributions received by such Limited Partner under Sections 9.1, 9.2(a),
9.2(c), 9.2(d) and 9.4 hereof;
(h) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an aggregate amount equal to the excess of
his Preferential Limited Partner Return, as defined in Section 3.48 hereof, over
prior distributions received by each such Limited Partner under Sections 9.1,
9.2(a), 9.2(c), 9.2(d) and 9.4 hereof;
(i) Then, to the General Partners, until the General Partners have
been allocated amounts equal to the excess of 100% of their Capital
Contributions plus, in the event that Limited Partners have received aggregate
distributions over the life of their investment in excess of their Net Capital
Contributions plus their Preferential Limited Partner Return, then, and only in
such event, an additional amount equal to 25% of any such excess over prior
distributions received by the General Partners under Sections 9.2(e) and 9.4
hereof; and
<PAGE>
(j) Thereafter, 80% to the Limited Partners on a per Unit basis and
20% to the General Partners; provided, however, that in no event will the
General Partners be allocated Gain on Sale pursuant to this Section 10.4 which
would result in the General Partners receiving distributions in excess of 15% of
aggregate Nonliquidating Net Sale Proceeds and Liquidating Distributions
remaining after payment to all Limited Partners from such proceeds of amounts
equal to 100% of their Net Capital Contributions plus amounts equal to a 6% per
annum return on their Net Capital Contributions, computed on a cumulative
(noncompounded) basis. It is the intent of the foregoing proviso that the
General Partners receive no more of the net proceeds from the sale or financing
of Partnership Properties than is allowed pursuant to Article IV, Section E.2.b.
of the NASAA Guidelines, and in the event the allocations pursuant to this
Article X would otherwise result in the General Partners receiving any such
excess distributions, such excess allocations of Gain on Sale otherwise
allocable to the General Partners will instead be reallocated in favor of and to
the Limited Partners on a per Unit basis.
Notwithstanding the foregoing, in the event that the Partnership sells the
last remaining Partnership Property at a sale price which is less than the
Purchase Price originally paid for such Partnership Property, then, after the
allocation of Gain on Sale derived from any such sale pursuant to Sections
10.4(a) and 10.4(b) above, and prior to the allocation of Gain on Sale pursuant
to Section 10.4(c) above, Limited Partners holding Class A Status Units shall
first be allocated Gain on Sale derived from any such sale in an amount equal to
the excess of the original Purchase Price of such Partnership Property sold over
the sale price of such Partnership Property, but not in excess of the amount of
the special allocations of deductions for depreciation, amortization and cost
recovery with respect to such Partnership Property previously made to Limited
Partners holding Class B Status Units pursuant to Sections 10.2(a) and 10.2(b)
hereof.
10.5 QUALIFIED INCOME OFFSET. Notwithstanding any provision to the
-----------------------
contrary contained herein, in the event that any Partner receives an adjustment,
allocation or distribution described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6) which causes a deficit balance in such Partner's
Capital Account, such Partner will be allocated items of income or gain
(consisting of a pro rata portion of each item of Partnership income, including
gross income, and gain for such year) in an amount and manner sufficient to
eliminate such deficit balance as quickly as possible, all in accordance with
Treasury Regulations Section 1.704-1(b)(2)(ii)(d). (It is the intent of the
Partners that the foregoing provision constitute a "Qualified Income Offset," as
defined in Treasury Regulations Section 1.704-1(b)(2)(ii)(d), and the foregoing
provision shall in all events be interpreted so as to constitute a valid
"Qualified Income Offset.")
10.6 ALLOCATION AMONG LIMITED PARTNERS. Except as otherwise provided in
---------------------------------
this Article X, all allocations made to the Limited Partners as a group under
this Article X shall be apportioned among the Limited Partners according to each
Limited Partner's Participating Percentage. Except as otherwise provided in this
Article X, all allocations made among Limited Partners holding Class A Status
Units shall be apportioned according to a percentage, the numerator of which
shall be the number of Class A Status Units held by each such Limited Partner,
and the denominator of which shall be the total number of Class A Status Units
held by all Limited Partners, and all allocations made among Limited Partners
holding Class B Status Units shall be apportioned among such Limited Partners
according to a percentage, the numerator of which shall be the number of Class B
Status Units held by each such Limited Partner, and the denominator of which
shall be the total number of Class B Status Units held by all Limited Partners.
If, however, Limited Partners are admitted to the Partnership pursuant to
Article VIII on different dates during any fiscal year, such allocations under
this Article X for such fiscal year (and, if necessary, subsequent years) shall
be divided among the Persons who own Units from time to time during such year in
accordance with Section 706 of the Code, using any conventions permitted by law
and selected by the General Partners, in their sole discretion. In addition, if
elections to be treated as Class A Status Units or Class B Status Units are
deemed to be effective during any fiscal year, allocations under this Article X
for such fiscal year (and, if necessary, subsequent years) shall be divided
among the Limited Partners in accordance with Section 706 of the Code, using any
conventions permitted by law and selected by the General Partners, in their sole
discretion.
10.7 ALLOCATION AMONG GENERAL PARTNERS. All allocations made under this
---------------------------------
Article X to the General Partners shall be apportioned among the General
Partners in such percentages as they may from time to time agree among
themselves.
10.8 ITEM PRORATIONS. Any fiscal year of the Partnership in which the
---------------
Partnership realizes any Gain on Sale shall be divided into multiple accounting
periods, the first of which shall begin on the first day of such fiscal year and
shall
<PAGE>
end on the Sale Date, and the second of which shall begin on the day following
such Sale Date and shall end on the following Sale Date, if any, and if no
further Sale Date occurs, then on the last day of such fiscal year. Any Net
Income realized by the Partnership in any of such accounting periods shall be
allocated to the Partners in the manner provided in Section 10.3 hereof as if
such accounting period were a complete fiscal year of the Partnership. Any Net
Loss, depreciation, amortization or cost recovery deductions incurred by the
Partnership in any of such accounting periods shall be allocated to the Partners
in the manner provided in Sections 10.1 and 10.2 hereof as if such accounting
period were a complete fiscal year of the Partnership. The Net Income, Net
Loss, depreciation, amortization and cost recovery deductions so allocated to
the Partners shall be reflected in their respective Capital Accounts before any
Gain on Sale realized by the Partnership during such accounting period is
allocated to the Partners under Section 10.4 hereof.
10.9 ALLOCATIONS IN RESPECT TO TRANSFERRED UNITS. If any Units are
-------------------------------------------
transferred during any fiscal year, all items attributable to such Units for
such year shall be allocated between the transferor and the transferee by taking
into account their varying interests during the year in accordance with Section
706(d) of the Code, utilizing any conventions permitted by law and selected by
the General Partners, in their sole and absolute discretion. Solely for
purposes of making such allocations, the Partnership shall recognize the
transfer of such Units as of the end of the calendar quarter during which it
receives written notice of such transfer, provided that if the Partnership does
not receive a written notice stating the date such Units were transferred and
such other information as may be required by this Agreement or as the General
Partners may reasonably require within 30 days after the end of the year during
which the transfer occurs, then all such items shall be allocated to the Person
who, according to the books and records of the Partnership, on the last day of
the year during which the transfer occurs, was the owner of the Units. The
General Partners and the Partnership shall incur no liability for making
allocations in accordance with the provisions of this Section 10.9, whether or
not the General Partners or the Partnership have knowledge of any transfer of
ownership of any Units.
10.10 ALLOCATIONS IN RESPECT TO REPURCHASED UNITS. If any Units are
-------------------------------------------
repurchased pursuant to Section 8.11 hereof during any fiscal year, all items
attributable to such Units for such year shall be determined by the General
Partners (a) pro rata with respect to the number of months such Units were
outstanding during such year, (b) on the basis of an interim closing of the
Partnership books, or (c) in accordance with any other method established by the
General Partners in accordance with applicable provisions of the Code and
Treasury Regulations.
10.11 DISPUTES. Except with respect to matters as to which the General
--------
Partners are granted discretion hereunder, the opinion of the independent public
accountants retained by the Partnership from time to time shall be final and
binding with respect to all disputes and uncertainties as to all computations
and determinations required to be made under Articles IX and X hereof (including
but not limited to any computations and determinations in connection with any
distribution or allocation pursuant to a dissolution and liquidation).
ARTICLE XI
MANAGEMENT OF THE PARTNERSHIP
11.1 MANAGEMENT. The General Partners shall conduct the business of the
----------
Partnership, devoting such time thereto as they, in their sole discretion, shall
determine to be necessary to manage Partnership business and affairs in an
efficient manner. Any action required to be taken by the General Partners
pursuant to this Agreement shall be duly taken only if it is approved, in
writing or otherwise, by all the General Partners, unless the General Partners
agree among themselves to a different arrangement for said approval.
11.2 POWERS OF THE GENERAL PARTNERS. The General Partners shall have
------------------------------
full charge of overall management, conduct and operation of the Partnership, and
shall have the authority to act on behalf of the Partnership in all matters
respecting the Partnership, its business and its property, and, without limiting
in any manner the foregoing, authority:
<PAGE>
(a) To do on behalf of the Partnership all things which, in their
sole judgment, are necessary, proper or desirable to carry out the Partnership's
business, including, but not limited to, the right, power and authority: (i) to
execute all agreements and other documents necessary to implement the purposes
of the Partnership, to take such action as may be necessary to consummate the
transactions contemplated hereby and by the Prospectus, and to make all
reasonably necessary arrangements to carry out the Partnership's obligations in
connection therewith; (ii) to employ, oversee and dismiss from employment any
and all employees, agents, independent contractors, real estate managers,
contractors, engineers, architects, developers, designers, brokers, attorneys
and accountants; (iii) to sell, exchange or grant an option for the sale of all
or substantially all (subject to the requirement to obtain a Majority Vote of
the Limited Partners pursuant to Section 16.1 hereof with respect to a sale of
all or substantially all of the real properties acquired by the Partnership) or
any portion of the real and personal property of the Partnership, at such price
or amount, for cash, securities or other property and upon such other terms as
the General Partners, in their sole discretion, deem proper; (iv) to let or
lease all or any portion of the Partnership Properties for any purpose and
without limit as to the term thereof, whether or not such term (including
renewal terms) shall extend beyond the date of the termination of the
Partnership and whether or not the portion so leased is to be occupied by the
lessee or, in turn, subleased in whole or in part to others; (v) to create, by
grant or otherwise, easements and servitudes; (vi) to borrow money and incur
indebtedness; provided, however, the Partnership shall not be permitted to incur
any indebtedness except as authorized in Section 11.3(e) hereof; (vii) to draw,
make, accept, endorse, sign and deliver any notes, drafts or other negotiable
instruments or commercial paper; (viii) to execute such agreements and
instruments as may be necessary, in their discretion, to operate, manage and
promote the Partnership assets and business; (ix) to construct, alter, improve,
repair, raze, replace or rebuild all or any portion of the Partnership
Properties; (x) to submit to arbitration any claim, liability or dispute
involving the Partnership (provided that such claims will be limited to actions
against the Partnership not involving securities claims by the Limited Partners
and provided further that no claim, liability or dispute of a Limited Partner
will be subject to mandatory arbitration); (xi) to compromise any claim or
liability due to the Partnership; (xii) to execute, acknowledge or verify and
file any notification, application, statement and other filing which the General
Partners consider either required or desirable to be filed with any state or
federal securities administrator or commission; (xiii) to make any tax elections
to be made by the Partnership; (xiv) to place record title to any of its assets
in the name of a nominee, agent or a trustee; (xv) to do any or all of the
foregoing, discretionary or otherwise, through agents selected by the General
Partners, whether compensated or uncompensated by the Partnership; (xvi) to
execute and file of record all instruments and documents which are deemed by the
General Partners to be necessary to enable the Partnership properly and legally
to do business in the State of Georgia or any other jurisdiction deemed
advisable; (xvii) to monitor the transfer of Partnership interests to determine
if such interests are being traded on "an established securities market or a
secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code, and take (and cause Affiliates to take) all steps
reasonably necessary or appropriate to prevent any such trading of interests,
including without limitation, voiding transfers if the General Partners
reasonably believe such transfers will cause the Partnership to be treated as a
"publicly traded partnership" under the Code or Treasury Regulations thereunder;
(xviii) at the appropriate time, to register the Units with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934; and (xix)
to do any or all of the foregoing for such consideration and upon such other
terms or conditions as the General Partners, in their discretion, determine to
be appropriate; provided, however, in no event shall the General Partners or
their Affiliates receive compensation from the Partnership unless specifically
authorized by Article XII hereof, by Articles IX and X hereof or by the
"Compensation of the General Partners and Affiliates" section of the Prospectus.
(b) Notwithstanding anything contained herein to the contrary,
subject to the provisions contained in Section 16.2 hereof, to amend this
Agreement without the consent or vote of any of the Limited Partners: (i) to
reflect the addition or substitution of Limited Partners or the reduction of
Capital Accounts upon the return of capital to Partners; (ii) to add to the
representations, duties or obligations of the General Partners or their
Affiliates or surrender any right or power granted herein to the General
Partners or their Affiliates for the benefit of the Limited Partners; (iii) to
cure any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to add any other provision with
respect to matters or questions arising under this Agreement which will not be
inconsistent with the provisions of this Agreement; (iv) to delete or add any
provision from or to this Agreement requested to be so deleted or added by the
staff of the Securities and Exchange Commission or by the staff of any state
regulatory agency, the deletion or addition of which provision is deemed by the
staff of any such regulatory agency to be for the general benefit or protection
of the Limited Partners; and (v) to attempt to have the provisions of this
Agreement comply with federal income tax law and regulations thereunder.
<PAGE>
(c) To possess and exercise, as may be required, all of the rights
and powers of general partners as more particularly provided by the Act, except
to the extent that any of such rights may be limited or restricted by the
express provisions of this Agreement.
(d) To execute, acknowledge and deliver any and all instruments and
take such other steps as are necessary to effectuate the foregoing. Any such
instruments may be executed on behalf of the Partnership by either of the
General Partners, except that any instrument pursuant to which the Partnership
acquires or disposes of any interest in real property shall require the
signature, personally or by attorney-in-fact, of each of the General Partners.
11.3 LIMITATIONS ON POWERS OF THE GENERAL PARTNERS. The General Partners
---------------------------------------------
shall observe the following policies in connection with Partnership operations:
(a) Pending initial investment of its funds, or to provide a source
from which to meet contingencies, including, without limitation, the working
capital reserve and Repurchase Reserve, the Partnership may temporarily invest
its funds in short-term, highly liquid investments where there is appropriate
safety of principal, such as government obligations, bank or savings and loan
association certificates of deposit, short-term debt obligations and interest-
bearing accounts; provided that, following one year after the commencement of
the operations of the Partnership, no more than 45% of the value (as defined in
Section 2(a)(41) of the Investment Company Act of 1940, as amended) of the
Partnership's total assets (exclusive of government securities and cash items)
will consist of, and no more than 45% of the Partnership's net income after
taxes (for any four consecutive fiscal quarters combined) will be derived from,
securities other than (i) government securities; (ii) securities issued by
majority owned subsidiaries of the Partnership which are not investment
companies; and (iii) securities issued by companies, which are controlled
primarily by the Partnership, through which the Partnership engages in a
business other than that of investing, reinvesting, owning, holding or trading
in securities, and which are not investment companies.
(b) The Partnership shall not acquire unimproved or non-income
producing property, except in amounts and upon terms which can be financed by
the Offering proceeds or from Cash Flow and provided investment in such
properties shall not exceed 15% of net Offering proceeds available for
Investment in Properties. Properties shall not be considered non-income
producing if they are expected to produce income within two years after their
acquisition.
(c) All real property acquisitions must be supported by an appraisal
which shall be prepared by a competent, independent appraiser. The appraisal
shall be maintained in the Partnership's records for at least five years and
shall be available for inspection and duplication by any Limited Partner. The
Purchase Price paid by the Partnership for each property shall not exceed the
appraised value of such property.
(d) The General Partners shall not have the authority to incur
indebtedness which is secured by the Partnership Properties or assets, except as
specifically authorized pursuant to Section 11.3(e) below.
(e) The General Partners shall have the authority to borrow funds
(i) for Partnership operating purposes in the event of unforeseen or unexpected
circumstances in which the Partnership's working capital reserves and other cash
resources available to the Partnership are deemed insufficient for the
maintenance and repair of Partnership Properties or for the protection or
replacement of the Partnership's assets, and (ii) in order to finance
improvement of and improvements to Partnership Properties at such time as the
General Partners may deem such improvements to be necessary or appropriate to
protect capital previously invested in such Partnership Properties, to protect
the value of the Partnership's investment in a particular Partnership Property,
or to make a particular Partnership Property more attractive for sale or lease;
provided, however, that the aggregate amount of Partnership borrowings shall at
no time exceed 25% of the total purchase price of Partnership Properties. The
Partnership may borrow such funds from the General Partners, their Affiliates or
others, provided that if any such borrowing is from the General Partners or
their Affiliates, (i) such borrowing may not constitute a "financing" as that
term is defined under the NASAA Guidelines (i.e., all indebtedness encumbering
Partnership Properties or incurred by the Partnership, "the principal amount of
which is scheduled to be paid over a period of not less than 48 months, and not
more than 50 percent of the principal amount of which is scheduled to be paid
during the first 24
<PAGE>
months"); (ii) interest and other financing charges or fees charged on any such
borrowing may not exceed amounts which would be charged by unrelated lending
institutions on comparable financing for the same purpose in the same locality
as the Partnership's principal place of business; and (iii) no prepayment charge
or penalty shall be required with respect to any such borrowing.
(f) The Partnership shall not reinvest Cash Flow or any proceeds from
the sale of a Partnership Property in new properties except that if the
Partnership requires funds to exercise an option to acquire property under lease
or to purchase from any co-venturer an interest in a property that the
Partnership owns jointly with such Person, the Partnership may either distribute
the net proceeds of any sale of Partnership Property to the Partners or may
reinvest such proceeds for the aforementioned purposes; provided, however, that
in any event, a portion of such proceeds sufficient to cover any increase in
Limited Partners' federal and state income taxes attributable to the sale
(assuming a 35% combined federal and state tax bracket) shall be distributed in
time to pay such increase.
(g) The General Partners shall exercise their fiduciary duty for the
safekeeping and use of all funds and assets of the Partnership, whether or not
in their immediate possession or control, and shall not employ, or permit
another to employ, such funds or assets in any manner except for the exclusive
benefit of the Partnership. In addition, the Partnership shall not permit the
Partners to contract away the fiduciary duty owed to the Partners by the General
Partners under common law.
(h) The Partnership may maintain reasonable reserves for normal
repairs, replacements and contingencies in such amounts as the General Partners
in their sole and absolute discretion determine from time to time to be
adequate, appropriate or advisable in connection with the operations of the
Partnership. In the event expenditures are made from any such reserves, future
operating revenues may be allocated to such reserve to the extent deemed
necessary by the General Partners for the maintenance of reasonable reserves. In
addition, one year after the termination of the Offering, the Partnership may at
the sole discretion of the General Partners maintain a Repurchase Reserve of up
to 5% of Cash Flow in any year. Such funds may be used to repurchase Units as
described in Section 8.11 hereof.
(i) The Partnership shall not own or lease property jointly or in
partnership with unrelated entities except in general partnerships or joint
ventures which own and operate one or more particular properties, unless (i)
such unrelated entity has substantially identical investment objectives as those
of the Partnership; (ii) the management of such partnership or joint ownership
is under the control of the Partnership; (iii) the Partnership, as a result of
such joint ownership or partnership ownership of a property, is not charged,
directly or indirectly, more than once for the same services; (iv) the joint
ownership or partnership does not authorize or require the Partnership to do
anything as a partner or joint venturer with respect to the property which the
Partnership or the General Partners could not do directly because of this
Agreement; and (v) the General Partners and their Affiliates are prohibited from
receiving any compensation, fees or expenses which are not permitted to be paid
under this Agreement.
The Partnership may not own or lease property jointly or in a
partnership with an Affiliate of the General Partners unless such property is
owned or leased by a joint venture or general partnership with an affiliated
"program," as defined in the NASAA Guidelines, which is publicly registered, and
unless (i) such Affiliate has substantially identical investment objectives as
those of the Partnership; (ii) the Partnership, as a result of such joint
ownership or partnership ownership of a property, is not charged, directly or
indirectly, more than once for the same services; (iii) compensation payable to
the General Partners by such Affiliate is substantially identical to that
payable to the General Partners by the Partnership; (iv) the Partnership will
have a right of first refusal to buy the property held by such joint venture in
the event that such Affiliate elects to sell its interest in the joint venture;
and (v) the investment by the Partnership and such Affiliate are on
substantially the same terms and conditions, and each such entity's ownership
interest in such joint venture or partnership shall be based upon the respective
proportion of funds invested in such joint venture or partnership by the
Partnership and such Affiliate.
The ownership of the common areas located on property through a
condominium association or other similar form of real property ownership shall
not be considered a joint ownership of property for purposes of this paragraph.
<PAGE>
(j) Investments by the Partnership in limited partnership interests
of other partnerships shall be prohibited.
(k) The completion of improvements which are to be constructed or are
under construction on Partnership Property shall be guaranteed at the price
contracted either by an adequate completion bond or by other satisfactory
assurances; provided, however, that such other satisfactory assurances shall
include at least one of the following: (i) a written personal guarantee of one
or more of the general contractor's principals accompanied by the financial
statements of such guarantor indicating a substantial net worth; (ii) a written
fixed price contract with a general contractor that has a substantial net worth;
(iii) a retention of a reasonable portion of the Purchase Price as a potential
offset to such Purchase Price in the event the seller does not perform in
accordance with the purchase and sale agreement; or (iv) a program of
disbursements control which provides for direct payments to subcontractors and
suppliers.
(l) The Partnership shall make no construction loans to builders of
Partnership Properties and shall make no periodic progress or other advance
payments to such builders unless the Partnership has first received an
architect's certification as to the percentage of the project which has been
completed and as to the dollar amount of the construction then completed.
(m) The Partnership shall not acquire property in exchange for Units.
(n) The Partnership shall not obtain nonrecourse financing from a
Limited Partner or any party affiliated with a Limited Partner.
(o) The Partnership shall not purchase a Partnership Property if (i)
the acquisition price of such Partnership Property is not a fixed amount
determined as of the date of acquisition; or (ii) any amount payable in
connection with such acquisition or the time for making payments thereunder is
dependent, in whole or in part, upon revenues, income or profits derived from
the Partnership Property.
(p) The Partnership shall not take back an "all-inclusive" or
"wraparound" note in connection with the sale or other disposition of a
Partnership Property.
(q) The Partnership's business purposes and objectives, as set forth
in Article IV, shall not be changed unless approved by a Majority Vote of the
Limited Partners.
(r) The Partnership shall not invest in junior trust deeds and other
similar obligations.
(s) The General Partners shall not have the authority on behalf of
the Partnership to:
(i) list, recognize or facilitate the trading of Units (or any
interest therein) on any "established securities market (or the equivalent
thereof)" within the meaning of Section 7704 of the Code, or permit any of their
Affiliates to take such actions, if as a result thereof, the Partnership would
be treated for federal income tax purposes as an association taxable as a
corporation or taxed as a "publicly traded partnership;" or
(ii) create for the Units (or any interest therein) a "secondary
market (or the equivalent thereof)" within the meaning of Section 7704 of the
Code or otherwise permit, recognize or facilitate the trading of any such Units
(or any interest therein) on any such market or permit any of their Affiliates
to take such actions, if as a result thereof, the Partnership would be treated
for federal income tax purposes as an association taxable as a corporation or
taxed as a "publicly traded partnership."
(t) The funds of the Partnership shall not be commingled with the
funds of any other Person, except in the case of making capital contributions to
a joint venture or partnership permitted pursuant to the provisions of Section
11.3(i) above.
<PAGE>
(u) The General Partners hereby agree that they shall not initiate a
transaction wherein the Partnership is merged or consolidated with another
partnership or corporation, and the General Partners shall not be authorized to
merge or consolidate the Partnership with any other partnership or corporation
or to convert the Partnership to a real estate investment trust unless first
obtaining a Majority Vote of the Limited Partners to any such transaction. In
addition, the General Partners shall not be authorized to enter into or effect
any Roll-Up unless such Roll-Up complies with the following terms and
conditions:
(i) An appraisal of all assets of the Partnership shall be
obtained from a competent Independent Expert. If the appraisal will be included
in a prospectus used to offer the securities of a Roll-Up Entity, the appraisal
shall be filed with the Securities and Exchange Commission and the states as an
exhibit to the registration statement for the offering. The assets of the
Partnership shall be appraised on a consistent basis. The appraisal shall be
based on an evaluation of all relevant information and shall indicate the
current value of the Partnership's assets as of a date immediately prior to the
announcement of the proposed Roll-Up. The appraisal shall assume an orderly
liquidation of the Partnership's assets over a 12 month period, shall consider
other balance sheet items, and shall be net of the assumed cost of sale. The
terms of the engagement of the Independent Expert shall clearly state that the
engagement is for the benefit of the Partnership and its Limited Partners. A
summary of the independent appraisal, indicating all material assumptions
underlying the appraisal, shall be included in a report to the Limited Partners
in connection with the proposed Roll-Up.
(ii) In connection with the proposed Roll-Up, the person
sponsoring the Roll-Up shall provide each Limited Partner with a document which
instructs the Limited Partner on the proper procedure for voting against or
dissenting from the Roll-Up and shall offer to Dissenting Limited Partners the
choice of: (A) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up which have substantially the same terms and conditions as the
security originally held, provided that the receipt or retention of that
security is not a step in a series of subsequent transactions that directly or
indirectly through acquisition or otherwise involves future contributions or
reorganizations involving the Roll-Up Entity; or (B) one of the following: (I)
remaining as Limited Partners in the Partnership and preserving their interests
therein on the same terms and conditions as existed previously, or (II)
receiving cash in an amount equal to the Limited Partners' pro rata share of the
appraised value of the net assets of the Partnership.
(iii) Securities of the Roll-Up Entity received in the Roll-Up
will be considered to have the same terms and conditions as the security
originally held if: (A) there is no material adverse change to Dissenting
Limited Partners' rights, including but not limited to, rights with respect to
voting, the business plan, or the investment, distribution, management
compensation and liquidation policies of the Roll-Up Entity; and (B) the
Dissenting Limited Partners receive the same preferences, privileges and
priorities as they had pursuant to the security originally held.
(iv) The Partnership may not participate in any proposed Roll-
Up in which any General Partner converts an equity interest in the Partnership
for which consideration was not paid and which was not otherwise provided for in
this Agreement and disclosed to the Limited Partners, into a voting interest in
the Roll-Up Entity, provided, however, an interest originally obtained in order
to comply with the provisions of IRS Revenue Procedure 89-12 may be converted
into a voting interest in the Roll-Up Entity not to exceed a one percent (1%)
interest in the assets and income of such entity.
(v) The Partnership may not participate in any proposed Roll-
Up in which a General Partner does not utilize an independent third party to
receive and tabulate all votes and dissents, and require that the third party
make the tabulation available to the General Partners and any Limited Partner
upon request at any time during and after voting occurs.
(vi) The Partnership may not participate in any proposed Roll-
Up which would result in the Limited Partners having (A) voting rights which do
not generally follow the voting rights of the Limited Partners pursuant to this
Agreement or (B) democracy rights in the Roll-Up Entity which are less than
those provided for under Sections VII.A. and VII.B. of the NASAA Guidelines. If
the Roll-Up Entity is a corporation, the voting rights shall correspond to the
voting rights provided for in the NASAA Guidelines to the greatest extent
possible.
<PAGE>
(vii) The Partnership may not participate in any proposed Roll-
Up which includes provisions which would otherwise materially impede or
frustrate the accumulation of shares by any purchaser of the securities of the
Roll-Up Entity (except to the minimum extent necessary to preserve the tax
status of the Roll-Up Entity). The Partnership may not participate in any
proposed Roll-Up which would limit the ability of a Limited Partner to exercise
the voting rights of his securities in the Roll-Up Entity on the basis of the
limited partnership interests or other indicia of ownership held by that Limited
Partner.
(viii) The Partnership may not participate in any proposed
Roll-Up in which the Limited Partners' rights of access to the records of the
Roll-Up Entity will be less than those provided for under Section VII.D. of the
NASAA Guidelines.
(ix) The Partnership may not participate in any proposed
Roll-Up in which any of the costs of the transaction would be borne by the
Partnership if the proposed Roll-Up is not approved by a Majority Vote of the
Limited Partners.
(x) The Partnership may not participate in any proposed
Roll-Up in which the rights of Limited Partners are not protected as to fees of
General Partners. The rights of Limited Partners shall be presumed not to be
protected as to fees of General Partners if: (A) General Partners are not
prevented from receiving both unearned management fees discounted to a present
value, if those fees were not previously provided for in this Agreement and
disclosed to Limited Partners, and new asset-based fees; (B) property management
fees and other management fees are not appropriate, not reasonable and greater
than what would be paid to third parties for performing similar services; or (C)
changes in fees which are substantial and adverse to Limited Partners are not
approved by an independent committee according to the facts and circumstances of
each transaction. For purposes of this provision, "management fee" means a fee
paid to the General Partners, their Affiliates, or other persons for management
and administration of the limited partnership Roll-Up Entity.
(xi) The Person proposing a Roll-Up shall pay all
solicitation expenses related to the transaction, including all preparatory work
related thereto, in the event the Roll-Up is not approved. For purposes of this
provision, "solicitation expenses" include direct marketing expenses such as
telephone calls, broker-dealer fact sheets, legal and other fees related to the
solicitation, as well as direct solicitation compensation to brokers and
dealers.
(xii) The Partnership may not participate in any proposed
Roll-Up in which a broker or dealer receives compensation for soliciting votes
or tenders from Limited Partners in connection with the Roll-Up unless that
compensation: (A) is payable and equal in amount regardless of whether the
Limited Partner votes affirmatively or negatively in the proposed Roll-Up; (B)
in the aggregate, does not exceed 2% of the exchange value of the newly created
securities; and (C) is paid regardless of whether the Limited Partners reject
the proposed Roll-Up.
11.4 EXPENSES OF THE PARTNERSHIP.
---------------------------
(a) Subject to Sections 11.4(b) and 11.4(c) below, the Partnership
shall reimburse the General Partners for (i) all Organization and Offering
Expenses incurred by them, and (ii) the actual cost to them of goods and
materials used for or by the Partnership and obtained from entities unaffiliated
with the General Partners.
(b) Except as provided below and in Sections 11.4(a) and 11.4(c), all
of the Partnership's expenses shall be billed directly to and paid by the
Partnership. The General Partners may be reimbursed for the administrative
services necessary to the prudent operation of the Partnership provided that the
reimbursement shall be at the lower of the General Partners' actual cost or the
amount the Partnership would be required to pay to independent parties for
comparable administrative services in the same geographic location. No payment
or reimbursement will be made for services for which the General Partners are
entitled to compensation by way of a separate fee. Excluded from allowable
reimbursements shall be: (i) rent or depreciation, utilities, capital equipment,
other administrative items; and (ii) salaries, fringe benefits, travel expenses
and other administrative items incurred by or allocated to any controlling
Persons of the General Partners or their
<PAGE>
Affiliates. A controlling Person, for purposes of this Section 11.4(b), shall
be deemed to include, but not be limited to, any Person, whatever his title, who
performs functions for the General Partners similar to those of: (A) chairman
or member of the Board of Directors; (B) executive management, including the
President, Vice President or Senior Vice President, Corporate Secretary and
Treasurer; (C) senior management, such as the Vice President of an operating
division who reports directly to executive management; or (D) those holding a 5%
or more equity interest in Wells Partners, L.P. or Wells Capital, Inc. or a
Person having the power to direct or cause the direction of the General
Partners, whether through the ownership of voting securities, by contract or
otherwise. It is not intended that every person who carries a title such as
vice president, secretary or treasurer be considered a controlling Person. The
General Partners believe that their employees and those of their Affiliates who
will perform services for the Partnership for which reimbursement is allowed
pursuant to this Section 11.4(b) have the experience and educational background,
in their respective fields of expertise, appropriate for the performance of such
services.
The annual report to investors shall include a breakdown of the costs
reimbursed to the General Partners pursuant to this subsection. Within the
scope of the annual audit of the General Partners' financial statements, the
independent certified public accountant must verify the allocation of such costs
to the Partnership. The method of verification shall at a minimum provide:
(I) A review of the time records of individual
employees, the cost of whose services were reimbursed; and
(II) A review of the specific nature of the work
performed by each such employee. The methods of verification shall be in
accordance with generally accepted auditing standards and shall, accordingly,
include such tests of the accounting records and such other auditing procedures
which the General Partners' independent certified public accountant considers
appropriate under the circumstances. The additional cost of such verification
will be itemized by said accountants on a program-by-program basis and may be
reimbursed to the General Partners by the Partnership in accordance with this
subsection only to the extent that such reimbursement when added to the cost for
services rendered does not exceed the allowable rate for such services as
determined above.
(c) The General Partners or their Affiliates shall pay, at no
additional cost to the Partnership (i) overhead expenses of the General Partners
and their Affiliates; (ii) expenses and salaries related to the performance of
those services for which the General Partners and their Affiliates are entitled
to compensation by way of Acquisition and Advisory Fees, Partnership and
property management fees or real estate brokerage commissions related to the
resale of Partnership Properties (provided, however, that the foregoing shall in
no way limit the payment or reimbursement of legal, travel, employee-related
expenses and other out-of-pocket expenses which are directly related to a
particular Partnership Property and not prohibited by Section 11.4(b) above);
and (iii) all other administrative expenses which are unrelated to the business
of the Partnership. The General Partners or their Affiliates shall pay, at no
additional cost to the Partnership, Partnership Organization and Offering
Expenses (other than commissions paid to broker-dealers and other underwriting
compensation) to the extent they exceed 5% of the gross proceeds of the Offering
of Units.
(d) Subject to the provisions of paragraphs (b) and (c) of this
Section 11.4, the Partnership shall pay the following expenses of the
Partnership:
(i) Partnership Organization and Offering Expenses (other than
commissions paid to broker-dealers and other underwriting compensation) which do
not exceed 5% of the gross proceeds of the Offering of Units;
(ii) underwriting compensation, including broker-dealer selling
commissions and the dealer manager fee, payable in an amount not to exceed 10%
of the gross proceeds of the Offering of Units, plus a maximum of .5% of the
gross proceeds of the Offering of Units for reimbursement of bona fide due
diligence expenses to be paid out of Organization and Offering Expenses subject
to the limitation of Section 11.4(d)(i) above.
<PAGE>
(iii) All operational expenses of the Partnership, which may
include, but are not limited to: (A) all costs of personnel employed by the
Partnership or directly involved in the business of the Partnership, including
Persons who may also be employees of the General Partners or their Affiliates,
including but not limited to, salaries and other employee-related expenses,
travel and other out-of-pocket expenses of such personnel which are directly
related to a particular Partnership Property; (B) all costs of borrowed money,
taxes and assessments on Partnership Properties and other taxes applicable to
the Partnership; (C) legal, accounting, audit, brokerage and other fees; (D)
fees and expenses paid to independent contractors, brokers and servicers,
leasing agents, consultants, on-site managers, real estate brokers, mortgage
brokers, insurance brokers and other agents; and (E) expenses in connection with
the disposition, replacement, alteration, repair, remodeling, refurbishment,
leasing and operation of Partnership Properties (including the costs and
expenses of foreclosures, legal and accounting fees, insurance premiums, real
estate brokerage and leasing commissions and maintenance connected with such
Property); and
(iv) All accounting, documentation, professional and
reporting expenses of the Partnership, which may include, but are not limited
to: (A) preparation and documentation of Partnership bookkeeping, accounting and
audits; (B) preparation and documentation of budgets, economic surveys, Cash
Flow projections and Repurchase Reserve and working capital requirements; (C)
preparation and documentation of Partnership federal and state tax returns; (D)
printing, engraving and other expenses and documents evidencing ownership of an
interest in the Partnership or in connection with the business of the
Partnership; (E) expenses of insurance as required in connection with the
business of the Partnership, including, without limitation, life and disability
insurance with respect to any individual General Partner; (F) expenses in
connection with distributions made by the Partnership to, and communications,
bookkeeping and clerical work necessary in maintaining relations with, Limited
Partners, including the costs of printing and mailing to such Persons
certificates for the Units and reports of the Partnership, and of preparing
proxy statements and soliciting proxies in connection therewith; (G) expenses in
connection with preparing and mailing reports required to be furnished to
Limited Partners for investing, tax reporting or other purposes, including
reports required to be filed with the Securities and Exchange Commission and
other federal or state regulatory agencies, or expenses associated with
furnishing reports to Limited Partners which the General Partners deem to be in
the best interests of the Partnership; (H) expenses of revising, amending,
converting, modifying or terminating the Partnership; (I) costs incurred in
connection with any litigation in which the Partnership is involved as well as
any examination, investigation or other proceedings conducted of the Partnership
by any regulatory agency, including legal and accounting fees incurred in
connection therewith; (J) costs of any computer equipment or services used for
or by the Partnership; (K) costs of any accounting, statistical or bookkeeping
equipment necessary for the maintenance of the books and records of the
Partnership; (L) costs of preparation and dissemination of information and
documentation relating to potential sale, financing or other disposition of
Partnership Properties; and (M) supervision and expenses of professionals
employed by the Partnership in connection with any of the foregoing, including
attorneys, accountants and appraisers.
11.5 LIMITATION ON LIABILITY OF THE GENERAL PARTNERS; INDEMNIFICATION OF
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THE GENERAL PARTNERS.
--------------------
(a) Neither the General Partners nor any of their Affiliates
(hereinafter, an "Indemnified Party") shall be liable, responsible or
accountable in damages or otherwise to any other Partner, the Partnership, its
receiver or trustee (the Partnership, its receiver or trustee are hereinafter
referred to as "Indemnitors") for, and the Indemnitors agree to indemnify, pay,
protect and hold harmless each Indemnified Party (on the demand of such
Indemnified Party) from and against any and all liabilities, obligations,
losses, damages, actions, judgments, suits, proceedings, reasonable costs,
reasonable expenses and disbursements (including, without limitation, all
reasonable costs and expenses of defense, appeal and settlement of any and all
suits, actions or proceedings instituted against such Indemnified Party or the
Partnership and all reasonable costs of investigation in connection therewith)
(collectively referred to as "Liabilities" for the remainder of this Section)
which may be imposed on, incurred by, or asserted against such Indemnified Party
or the Partnership in any way relating to or arising out of any action or
inaction on the part of the Partnership or on the part of such Indemnified Party
in connection with services to or on behalf of the Partnership (and with respect
to an Indemnified Party which is an Affiliate of the General Partners for an act
which the General Partners would be entitled to indemnification if such act were
performed by them) which such Indemnified Party in good faith determined was in
the best interest of the Partnership. Notwithstanding the foregoing, each
Indemnified Party shall be liable, responsible and accountable, and neither the
Partnership nor any Indemnitor shall be liable to an Indemnified Party, for any
portion of such Liabilities which resulted from such Indemnified
<PAGE>
Party's (i) own fraud, negligence, misconduct or knowing violation of law, (ii)
breach of fiduciary duty to the Partnership or any Partner, or (iii) breach of
this Agreement, regardless of whether or not any such act was first determined
by the Indemnified Party, in good faith, to be in the best interest of the
Partnership. If any action, suit or proceeding shall be pending against the
Partnership or any Indemnified Party relating to or arising out of any such
action or inaction, such Indemnified Party shall have the right to employ, at
the reasonable expense of the Partnership (subject to the provisions of Section
11.5(b) below), separate counsel of such Indemnified Party's choice in such
action, suit or proceeding. The satisfaction of the obligations of the
Partnership under this Section shall be from and limited to the assets of the
Partnership and no Limited Partner shall have any personal liability on account
thereof.
(b) Cash advances from Partnership funds to an Indemnified Party for
legal expenses and other costs incurred as a result of any legal action
initiated against an Indemnified Party by a Limited Partner are prohibited. Cash
advances from Partnership funds to an Indemnified Party for reasonable legal
expenses and other costs incurred as a result of any legal action or proceeding
are permissible if (i) such suit, action or proceeding relates to or arises out
of any action or inaction on the part of the Indemnified Party in the
performance of its duties or provision of its services on behalf of the
Partnership; (ii) such suit, action or proceeding is initiated by a third party
who is not a Limited Partner; and (iii) the Indemnified Party undertakes to
repay any funds advanced pursuant to this Section in the cases in which such
Indemnified Party would not be entitled to indemnification under Section 11.5(a)
above. If advances are permissible under this Section, the Indemnified Party
shall have the right to bill the Partnership for, or otherwise request the
Partnership to pay, at any time and from time to time after such Indemnified
Party shall become obligated to make payment therefor, any and all amounts for
which such Indemnified Party believes in good faith that such Indemnified Party
is entitled to indemnification under Section 11.5(a) above. The Partnership
shall pay any and all such bills and honor any and all such requests for payment
within 60 days after such bill or request is received. In the event that a final
determination is made that the Partnership is not so obligated for any amount
paid by it to a particular Indemnified Party, such Indemnified Party will refund
such amount within 60 days of such final determination, and in the event that a
final determination is made that the Partnership is so obligated for any amount
not paid by the Partnership to a particular Indemnified Party, the Partnership
will pay such amount to such Indemnified Party within 60 days of such final
determination.
(c) Notwithstanding anything to the contrary contained in Section
11.5(a) above, neither the General Partners nor any of their Affiliates nor any
Person acting as a broker-dealer with respect to the Units shall be indemnified
from any liability, loss or damage incurred by them arising due to an alleged
violation of federal or state securities laws unless (i) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the particular Indemnified Party, or (ii) such claims have
been dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular Indemnified Party, or (iii) a court of competent
jurisdiction approves a settlement of the claims against the particular
Indemnified Party and finds that indemnification of the settlement and related
costs should be made. Prior to seeking a court approval for indemnification, the
General Partners shall undertake to cause the party seeking indemnification to
apprise the court of the position of the Securities and Exchange Commission, the
California Commissioner of the Department of Corporations, the Massachusetts
Securities Division, the Missouri Securities Division, the Nebraska Bureau of
Securities, the Pennsylvania Securities Commission, the Tennessee Securities
Division, the Texas State Securities Board and the Oklahoma Department of
Securities with respect to indemnification for securities violations.
(d) The Partnership shall not incur the cost of the portion of any
insurance which insures any party against any liability as to which such party
is prohibited from being indemnified as set forth above.
(e) For purposes of this Section 11.5, an Affiliate of the General
Partner shall be indemnified by the Partnership only in circumstances where the
Affiliate has performed an act on behalf of the Partnership or the General
Partners within the scope of the authority of the General Partners and for which
the General Partners would have been entitled to indemnification had such act
been performed by them.
<PAGE>
ARTICLE XII
SERVICES TO PARTNERSHIP BY GENERAL PARTNERS
12.1 ACQUISITION AND ADVISORY SERVICES. The General Partners and their
---------------------------------
Affiliates shall perform acquisition and advisory services in connection with
the review and evaluation of potential real property acquisitions for the
Partnership, which services shall include, but shall not be limited to, an
analysis of: (a) the geographic market in which any such property is located,
including market demand analyses; (b) the physical condition of any existing
structures, appurtenances and service systems; (c) the availability of
contractors and engineers; (d) zoning and other governmental restrictions
applicable to the use or development of the property; and (e) income and expense
forecasts. In consideration for such services, including services rendered with
respect to properties which are considered for acquisition by the Partnership
but are not acquired, the General Partners and their Affiliates shall be paid
Acquisition and Advisory Fees in an amount of up to 5% of Capital Contributions,
provided that such amount does not exceed the limitations set forth in Section
12.2 hereof. The Acquisition and Advisory Fee shall be accrued as Units are
sold by the Partnership and shall be payable upon receipt by the Partnership of
such Capital Contributions, whether such fees relate to properties which are
acquired which are income-producing properties or raw land to be developed or to
properties which are not acquired. The General Partners shall refund to the
Partnership any such fees which are received in advance of the services to be
rendered and for which services are not subsequently rendered. In addition to
such fees, the Partnership shall bear any expenses of independent appraisers,
market analysts or other such Persons not affiliated with the General Partners
who may be engaged to evaluate potential real estate acquisitions and
developments by or on behalf of the Partnership.
12.2 LIMITATIONS ON ACQUISITION FEES.
-------------------------------
(a) Acquisition and Advisory Fees paid in connection with the
organization of the Partnership and the purchase and development of Partnership
Properties and with respect to each particular Partnership Property shall be
paid only for services actually rendered, and in no event will the total of all
Acquisition Fees, including the Acquisition and Advisory Fees paid to the
General Partners or their Affiliates, exceed the lesser of the compensation
customarily charged in arm's-length transactions by others rendering similar
services as an ongoing public activity in the same geographic location and for
comparable property or an amount equal to 18% of Capital Contributions. The
limitation imposed hereby will be complied with at any given time on an ongoing
basis. Within 30 days after completion of the last acquisition, the General
Partners shall forward to the California Commissioner of the Department of
Corporations a schedule, verified under penalties of perjury, reflecting:
(i) each acquisition made;
(ii) the purchase price paid;
(iii) the aggregate of all Acquisition Fees paid on each
transaction; and
(iv) a computation showing compliance with Rule 260.140.113.3
adopted pursuant to the California Corporate Securities Law of 1968.
(b) The General Partners intend to acquire Partnership Properties on
an all cash basis and shall commit a percentage of Capital Contributions to
Investment in Properties acquired by the Partnership in an amount which is equal
to at least 80% of Capital Contributions. For such purposes, working capital
reserves in an aggregate amount not in excess of 5% of Capital Contributions
shall be deemed to be committed to the purchase, development, construction or
improvement of properties acquired by the Partnership. Anything contained in
this Agreement to the contrary notwithstanding, at a minimum the General
Partners shall commit a percentage of the Capital Contributions to Investment in
Properties which is equal to at least 80% of the Capital Contributions.
<PAGE>
12.3 PROPERTY MANAGEMENT SERVICES. The General Partners shall cause the
----------------------------
Partnership to employ a property management company (which may be an Affiliate
of the General Partners) to perform professional property management services
for the Partnership. In the event the property management company is an
Affiliate of the General Partners, the compensation payable to such Affiliate
shall be equal to the lesser of (a) fees which would be charged by Persons who
are not affiliated with the General Partners rendering comparable services in
the same geographic area, or (b) 6% of the Gross Revenues of the properties
managed (with respect to industrial and commercial properties). The foregoing
limitation will include all leasing, re-leasing and leasing related services.
If such leasing, re-leasing and leasing related services are not provided by the
General Partners and their Affiliates, the maximum property management fees
payable to an Affiliate of the General Partners for such leases shall be 3% of
the Gross Revenues. In the case of industrial and commercial properties which
are leased on a long-term net basis (ten or more years), the maximum property
management fee from such leases shall be 1% of the Gross Revenues, except for a
one time initial leasing fee of 3% of the Gross Revenues on each lease payable
over the first five full years of the original term of the lease. Included
within such fees should be bookkeeping services and fees paid to non-related
Persons for property management services. In addition, in connection with the
initial lease-up of newly constructed properties, the Partnership may also pay a
separate competitive fee for the one time initial rent-up or leasing-up of a
newly constructed property, provided such services are not included in the
Purchase Price of the property.
12.4 INSURANCE SERVICES PROHIBITED. Neither the General Partners nor any
-----------------------------
of their Affiliates may receive an insurance brokerage fee or write any
insurance policy covering the Partnership or any Partnership Properties.
12.5 DEVELOPMENT AND CONSTRUCTION SERVICES PROHIBITED. Neither the General
------------------------------------------------
Partners nor any of their Affiliates (except any Persons affiliated with the
General Partners only through their employment by the Partnership) may receive
any development or construction fees or any other fees or other compensation
from the Partnership in connection with the development or construction of
Partnership Properties.
12.6 REAL ESTATE COMMISSIONS ON RESALE OF PROPERTIES. The General Partners
-----------------------------------------------
and their Affiliates may perform real estate brokerage services for the
Partnership in connection with the resale of property by the Partnership;
provided that the compensation therefor to the General Partners or their
Affiliates in connection with the sale of a particular property shall not exceed
the lesser of (a) 50% of the reasonable, customary and competitive real estate
brokerage commission normally and customarily paid for the sale of a comparable
property in light of the size, type and location of the property, or (b) 3% of
the gross sales price of the property; and provided, further, that payments of
said compensation shall be made only after the Partnership has distributed to
each Limited Partner or his Assignee from Nonliquidating Distributions or
Liquidating Distributions, as the case may be, an aggregate amount in cash which
is equal to 100% of his Capital Contribution (less all amounts, if any,
theretofore distributed as a return of unused capital pursuant to Section 8.10),
and has distributed to each Limited Partner or Assignee from all sources an
additional amount equal to a 6% per annum cumulative (but not compounded) return
on his Net Capital Contribution, calculated from the date of his admission into
the Partnership. The aggregate real estate commission paid to all parties
involved in the sale of a Partnership Property shall not exceed the lesser of:
(a) the reasonable, customary and competitive real estate brokerage commission
normally and customarily paid for the sale of a comparable property in light of
the size, type and location of the property, or (b) 6% of the gross sales price
of such property.
Notwithstanding the foregoing, neither the General Partners nor any of
their Affiliates shall be granted an exclusive right to sell or exclusive
employment to sell any property on behalf of the Partnership.
12.7 REBATES, GIVE-UPS AND RECIPROCAL ARRANGEMENTS.
---------------------------------------------
(a) No rebates or give-ups may be received by any of the General
Partners or their Affiliates nor may the General Partners or their Affiliates
participate in any reciprocal business arrangements which would circumvent the
provisions of this Agreement.
(b) None of the General Partners nor any of their Affiliates shall,
or shall knowingly permit any underwriter, dealer or salesman to, directly or
indirectly, pay or award any finder's fees, commissions or other compensation
<PAGE>
to any Person engaged by a potential investor for investment advice as an
inducement to such advisor to recommend the purchase of interests in the
Partnership; provided, however, that this clause shall not prohibit the normal
sales commissions payable to a registered broker-dealer or other properly
licensed Person (including the General Partners and their Affiliates) for
selling Partnership Units.
12.8 OTHER SERVICES. Other than as specifically provided in this Agreement
--------------
or in the Prospectus, neither the General Partners nor their Affiliates shall be
compensated for services rendered to the Partnership. The General Partners and
their Affiliates cannot receive any compensation from the Partnership except as
specifically provided for in this Article XII, in Articles IX and X hereof or in
the "Compensation of the General Partners and Affiliates" section of the
Prospectus.
ARTICLE XIII
TRANSACTIONS BETWEEN GENERAL PARTNERS AND THE PARTNERSHIP
13.1 SALES AND LEASES TO THE PARTNERSHIP. The Partnership shall not
-----------------------------------
purchase or lease investment properties, other than as provided in Section
11.3(i) hereof, in which any of the General Partners or their Affiliates have an
interest or from any entity in which the General Partners or their Affiliates
have an interest. The provisions of this Section 13.1 notwithstanding, the
General Partners or their Affiliates may temporarily enter into contracts
relating to investment properties to be assigned to the Partnership prior to
closing or may purchase property in their own names and temporarily hold title
thereto for the purpose of facilitating the acquisition of such property for the
Partnership, provided that such property is purchased by the Partnership for a
price no greater than the cost of such property to the General Partners or their
Affiliates (including closing and carrying costs), that the General Partners or
their Affiliates may not hold title to any such property for more than 12 months
on behalf of the Partnership, that the General Partners or their Affiliates
shall not sell property to the Partnership if the cost of the property exceeds
the funds reasonably anticipated to be available to the Partnership to purchase
such property, and that all profits and losses during the period any such
property is held by the General Partners or their Affiliates will accrue to the
Partnership; and provided further, that there is no other benefit to the General
Partners or any Affiliate of the General Partners apart from compensation
otherwise permitted by this Agreement.
13.2 SALES AND LEASES TO THE GENERAL PARTNERS. The Partnership shall not
----------------------------------------
sell or lease any Partnership Property to the General Partners or their
Affiliates.
13.3 LOANS. No loans may be made by the Partnership to any of the General
-----
Partners or their Affiliates.
13.4 DEALINGS WITH RELATED PROGRAMS. Except as permitted by Sections
------------------------------
11.3(i) and 13.1 hereof, the Partnership shall not acquire property from or sell
property to any Person in whom any of the General Partners or any of their
Affiliates have an interest.
13.5 COMMISSIONS ON REINVESTMENT OR DISTRIBUTION. The Partnership shall
-------------------------------------------
not pay, directly or indirectly, a commission or fee (except as permitted under
Article XII hereof) to a General Partner in connection with the reinvestment or
distribution of the proceeds of the sale, exchange or financing of Partnership
Properties.
ARTICLE XIV
INDEPENDENT ACTIVITIES OF PARTNERS
Any of the Partners may engage in or possess an interest in other business
ventures of every nature and description, independently or with others,
including, but not limited to, the ownership, financing, leasing, management,
syndication, brokerage and development of real property of any kind whatsoever
(including properties which may be similar to those owned by the Partnership),
and neither the Partnership nor any of the Partners shall have any right by
virtue of this
<PAGE>
Agreement in and to such independent ventures or to the income or profits
derived therefrom, provided that the General Partners shall in no way be
relieved of their fiduciary duty owed to the Partnership. In the event that the
Partnership, the General Partners or any Affiliate or any entity formed or
managed by the General Partners or their Affiliates is in the market for similar
properties, the General Partners will review the investment portfolio of each
partnership and each such affiliated entity and will decide which entity will
acquire a particular property on the basis of such factors as, among others,
anticipated cash flow, the effect of the purchase price on diversification of
the portfolio of each such entity, the estimated income tax effects of the
purchase on each such entity, the amount of funds which each such entity has
available for investment, and the length of time funds of each such entity have
been available for investment.
ARTICLE XV
BOOKS, REPORTS, FISCAL AND TAX MATTERS
15.1 BOOKS. The General Partners shall maintain full and complete books
-----
and records for the Partnership at its principal office, and all Limited
Partners and their designated representatives shall have the right to inspect,
examine and copy at their reasonable cost such books at reasonable times. The
books of account for financial accounting purposes shall be kept in accordance
with generally accepted accounting principles. The books of account for income
tax purposes shall be kept on a cash or an accrual basis, as determined in the
discretion of the General Partners. Limited Partner suitability records shall be
maintained for at least six years. In addition, the General Partners shall
maintain an alphabetical list of the names, addresses and business telephone
numbers of the Limited Partners of the Partnership along with the number of
Units held by each of them (the "Participant List") as a part of the books and
records of the Partnership which shall be available for inspection by any
Limited Partner or his designated representative at the home office of the
Partnership upon the request of the Limited Partner. The Participant List shall
be updated at least quarterly to reflect changes in the information contained
therein. A copy of the Participant List shall be mailed to any Limited Partner
requesting the Participant List within ten (10) days of the request. The copy of
the Participant List to be mailed to a Limited Partner shall be printed in
alphabetical order, on white paper, and in readily readable type size (in no
event smaller than 10-point type). A reasonable charge for copy work may be
charged by the Partnership. The purposes for which a Limited Partner may request
a copy of the Participant List include, without limitation, matters relating to
the Limited Partners' voting rights under this Agreement and the exercise of the
Limited Partners' rights under federal proxy laws. If the General Partners of
the Partnership neglect or refuse to exhibit, produce or mail a copy of the
Participant List as requested, they shall be liable to the Limited Partner
requesting the list for the costs, including attorneys' fees, incurred by that
Limited Partner for compelling the production of the Participant List and for
actual damages suffered by the Limited Partner by reason of such refusal or
neglect. It shall be a defense that the actual purpose and reason for a request
for inspection of or a request for a copy of the Participant List is to secure
such list of Limited Partners or other information for the purpose of selling
such list or copies thereof or for the purpose of using the same for a
commercial purpose other than in the interest of the applicant as a Limited
Partner relative to the affairs of the Partnership. The General Partners may
require any Limited Partner requesting the Participant List to represent that
the list is not requested for a commercial purpose unrelated to such Limited
Partner's interest in the Partnership. The remedies provided hereunder to
Limited Partners requesting copies of the Participant List are in addition to,
and shall not in any way limit, other remedies available to Limited Partners
under federal law or under the laws of any state.
15.2 REPORTS. The General Partners shall prepare or cause to be prepared
-------
the following reports:
(a) ACQUISITION REPORTS. At least quarterly within 60 days after the
-------------------
end of each quarter during which the Partnership has acquired real property, an
"Acquisition Report" of any real property acquisitions within the prior quarter
shall be sent to all Limited Partners. Such report shall describe the real
properties and all improvements contemplated to be developed thereon and include
a description of the geographic locale and of the market upon which the General
Partners are relying in projecting successful development and operation of the
properties. All facts which reasonably appear to the General Partners to
influence materially the value of the property shall be disclosed, including the
present or proposed use
<PAGE>
of the property and its suitability or adequacy for such use and the terms of
any material lease affecting the property. The Acquisition Report shall also
include, by way of illustration and not of limitation, a statement of the date
and amount of the appraised value, a statement of the actual Purchase Price
including terms of the purchase and an estimate of all proposed subsequent
expenditures for development or other improvement of the property, a statement
that title insurance and any required performance bonds or other assurances in
accordance with Section 11.3(k) hereof with respect to builders have been or
will be obtained on the property, a statement of the total amount of cash
expended by the Partnership to acquire each Partnership Property, and a
statement regarding the amount of proceeds of the Offering of Units (in both
dollar amount and as a percentage of the net proceeds of the Offering of Units
available for investment) which remain unexpended or uncommitted. In addition,
the Acquisition Report shall identify any real properties, by location and a
description of their general character, which the General Partners presently
intend to be acquired by or leased to the Partnership.
(b) ANNUAL REPORT. Within 120 days after the end of each fiscal
-------------
year, an annual report shall be sent to all the Limited Partners and Assignees
which shall include (i) a balance sheet as of the end of such fiscal year,
together with a profit and loss statement, a statement of cash flows and a
statement of Partners' capital for such year, which financial statements shall
be prepared in accordance with generally accepted accounting principles and
shall be accompanied by an auditor's report containing an opinion of the
independent certified public accountant for the Partnership; (ii) a Cash Flow
statement (which need not be audited); (iii) a report of the activities of the
Partnership for such year; (iv) a report on the distributions from (A) Cash Flow
during such period, (B) Cash Flow from prior periods, (C) proceeds from the
disposition of Partnership Property and investments, (D) reserves from the
proceeds of the Offering of Units, and (E) lease payments on net leases with
builders and sellers; and (v) a report setting forth the compensation paid to
the General Partners and their Affiliates during such year and a statement of
the services performed in consideration therefor. In addition, commencing eight
years after termination of the Offering, such annual report shall include a
notification to the Limited Partners of their right pursuant to Section 20.2
hereof to request that the General Partners formally proxy the Limited Partners
to determine whether the assets of the Partnership should be liquidated. Such
annual report shall also include such other information as is deemed reasonably
necessary by the General Partners to advise the Limited Partners of the affairs
of the Partnership.
(c) QUARTERLY REPORTS. If and for as long as the Partnership is
-----------------
required to file quarterly reports on Form 10-Q with the Securities and Exchange
Commission, financial information substantially similar to the financial
information contained in each such report for a quarter shall be sent to the
Limited Partners within 60 days after the end of such quarter. Whether or not
such reports are required to be filed, each Limited Partner will be furnished
within 60 days after the end of each of the first three quarters of each
Partnership fiscal year an unaudited financial report for that quarter including
a profit and loss statement, a balance sheet and a cash flow statement. Such
reports shall also include such other information as is deemed reasonably
necessary by the General Partners to advise the Limited Partners of the affairs
of the Partnership.
(d) REPORT OF FEES. The Partnership's annual and quarterly reports
--------------
on Form 10-K and 10-Q for any period during which the General Partners or any of
their Affiliates receive fees for services from the Partnership shall set forth
(i) a statement of the services rendered, and (ii) the amount of fees received.
(e) TAX INFORMATION. Within 75 days after the end of each fiscal
---------------
year (in the event that the fiscal year of the Partnership remains on a calendar
year basis, and within 120 days after the end of each fiscal year in the event
that the Partnership's fiscal year is changed to some annual period other than a
calendar year pursuant to Section 15.3 hereof), there shall be sent to all the
Limited Partners and Assignees all information necessary for the preparation of
each Limited Partner's federal income tax return and state income and other tax
returns in regard to jurisdictions where Partnership Properties are located.
(f) ERISA REPORT. The General Partners shall furnish each
------------
Limited Partner an annual statement of estimated Unit value. Such annual
statement shall report the value of each Unit based upon the General Partners'
estimate of the amount a holder thereof would receive if Partnership Properties
were sold as of the close of the Partnership's fiscal year and if the proceeds
therefrom (without reduction for selling expenses), together with any other
funds of the Partnership, were distributed in a liquidation of the Partnership
(provided that, with respect to the first three full fiscal years following
<PAGE>
termination of the Offering the value of a Unit shall be deemed to be $10.00).
In addition, the General Partners shall obtain the opinion of an independent
third party that their estimate of Unit value is reasonable and was prepared in
accordance with appropriate methods for valuing real estate. The estimated Unit
value shall be reported to the Limited Partners in the next annual or quarterly
report on Form 10-K or 10-Q sent to the Limited Partners following the
completion of the valuation process.
(g) PERFORMANCE REPORTING. The Partnership's annual and quarterly
---------------------
reports on Form 10-K and 10-Q shall set forth the year-to-date amount of cash
flow available for distribution, as such term is generally defined in existing
Guidelines for Partnership Agreement Provisions issued by the International
Association for Financial Planning, and shall contain a detailed reconciliation
of the Partnership's net income for financial reporting purposes to the
Partnership's cash flow available for distribution for the periods covered by
the report. In addition, the notes to the Partnership's financial statements
included in its annual reports on Form 10-K shall contain a detailed
reconciliation of the Partnership's net income for financial reporting purposes
to net income for tax purposes for the periods covered by the report.
(h) EXPENSE REPORTING. The notes to the Partnership's financial
-----------------
statements included in its annual reports on Form 10-K shall contain a category-
by-category breakdown of the general and administrative expenses incurred by the
Partnership for the periods covered by the report. This breakdown shall reflect
each type of general and administrative expense incurred by the Partnership
(e.g. investor relations, independent accountants, salaries, rent, utilities,
insurance, filing fees, legal fees, etc.) and the amount charged to the
Partnership for each category of expense incurred.
(i) OTHER REPORTS. The General Partners shall cause to be
-------------
prepared and timely filed with appropriate federal and state regulatory and
administrative bodies all reports to be filed with such entities under then
currently applicable laws, rules and regulations. Such reports shall be prepared
on the accounting or reporting basis required by such regulatory bodies. Any
Limited Partner shall be provided with a copy of any such report upon request
without expense to him.
(j) CESSATION OF REPORTS. In the event the Securities and
--------------------
Exchange Commission promulgates rules that allow a reduction in reporting
requirements, the Partnership may cease preparing and filing certain of the
above reports if the General Partners determine such action to be in the best
interests of the Partnership; provided, however, that the Partnership will
continue to file any reports mandated under state law.
15.3 FISCAL YEAR. The Partnership shall adopt a fiscal year beginning on
-----------
the first day of January and ending on the last day of December of each year;
provided, however, that the General Partners in their sole discretion may,
subject to approval by the IRS, at any time without the approval of the Limited
Partners, change the Partnership's fiscal year to a period to be determined by
the General Partners.
15.4 TAX ELECTIONS.
-------------
(a) No election shall be made by the Partnership or any Partner to be
excluded from the application of the provisions of Subchapter K of the Code or
from any similar provisions of state or local income tax laws.
(b) Upon the transfer of all or part of a Partner's or Assignee's
interest in the Partnership or upon the death of an individual Limited Partner
or Assignee, or upon the distribution of any property to any Partner or
Assignee, the Partnership, at the General Partners' option and in their sole
discretion, may file an election, in accordance with applicable Treasury
Regulations, to cause the basis of Partnership Property to be adjusted for
federal income tax purposes, as provided by Sections 734, 743 and 754 of the
Code; and similar elections under provisions of state and local income tax laws
may, at the General Partners' option, also be made.
15.5 BANK ACCOUNTS. The cash funds of the Partnership shall be deposited
-------------
in commercial bank account(s) at such banks or other institutions insured by the
Federal Deposit Insurance Corporation as the General Partners shall determine.
Disbursements therefrom shall be made by the General Partners in conformity with
this Agreement. The funds of the
<PAGE>
Partnership shall not be commingled with the funds of any other Person, except
in the case of funds held by a joint venture or partnership permitted pursuant
to the provisions of Section 11.3(i) above.
15.6 INSURANCE. The Partnership shall at all times maintain comprehensive
---------
insurance, including fire, liability and extended coverage insurance in amounts
determined by the General Partners to be adequate for the protection of the
Partnership. In addition, the Partnership shall carry appropriate workmen's
compensation insurance and such other insurance with respect to the real
property owned by it as shall be customary for similar property, similarly
located, from time to time.
15.7 TAXATION AS PARTNERSHIP. The General Partners, while serving as such,
-----------------------
agree to use their best efforts to cause compliance at all times with the
conditions to the continued effectiveness of any opinion of counsel obtained by
the Partnership to the effect that the Partnership will be classified as a
partnership for federal income tax purposes.
15.8 TAX MATTERS.
-----------
(a) The General Partners may or may not, in their sole and absolute
discretion, make any or all elections which they are entitled to make on behalf
of the Partnership and the Partners for federal, state and local tax purposes,
including, without limitation, any election, if permitted by applicable law: (i)
to extend the statute of limitations for assessment of tax deficiencies against
Partners with respect to adjustments to the Partnership's federal, state or
local tax returns; and (ii) to represent the Partnership and the Partners before
taxing authorities or courts of competent jurisdiction in tax matters affecting
the Partnership and the Partners in their capacity as Partners and to execute
any agreements or other documents relating to or settling such tax matters,
including agreements or other documents that bind the Partners with respect to
such tax matters or otherwise affect the rights of the Partnership or the
Partners.
(b) Wells Partners is designated as the "Tax Matters Partner" in
accordance with Section 6231(a)(7) of the Code and, in connection therewith and
in addition to all other powers given thereunder, shall have all other powers
needed to perform fully hereunder including, without limitation, the power to
retain all attorneys and accountants of its choice and the right to manage
administrative tax proceedings conducted at the partnership level by the IRS
with respect to Partnership matters. Any Partner has the right to participate in
such administrative proceedings relating to the determination of partnership
items at the Partnership level. Expenses of such administrative proceedings
undertaken by the Tax Matters Partner will be paid for out of the assets of the
Partnership. Each Limited Partner who elects to participate in such proceedings
will be responsible for any expense incurred by such Limited Partner in
connection with such participation. Further, the cost to a Limited Partner of
any adjustment and the cost of any resulting audit or adjustment of a Limited
Partner's return will be borne solely by the affected Limited Partner. The
designation made in this Section 15.8(b) is expressly consented to by each
Partner as an express condition to becoming a Partner. The Partnership hereby
indemnifies Wells Partners from and against any damage or loss (including
attorneys' fees) arising out of or incurred in connection with any action taken
or omitted to be taken by it in carrying out its responsibilities as Tax Matters
Partner, provided such action taken or omitted to be taken does not constitute
fraud, negligence, breach of fiduciary duty or misconduct. In the event the
Partnership should become required to register with the IRS as a tax shelter,
Wells Partners shall be the "designated organizer" of the Partnership and the
"designated person" for maintaining lists of investors in the Partnership, and
shall take such actions as shall be required to register the Partnership and to
maintain lists of investors in the Partnership as may be required pursuant to
Sections 6111 and 6112 of the Code.
ARTICLE XVI
RIGHTS AND LIABILITIES OF THE LIMITED PARTNERS
16.1 POWERS OF THE LIMITED PARTNERS. The Limited Partners shall take no
part in the management of the business or transact any business for the
Partnership and shall have no power to sign for or bind the Partnership;
provided, however, that the Limited Partners, by a Majority Vote, without the
concurrence of the General Partners, shall have the right to:
<PAGE>
(a) Amend this Agreement, but not as to the matters specified in
Section 11.2(b) hereof, which matters the General Partners alone may amend
without vote of the Limited Partners;
(b) Dissolve the Partnership;
(c) Remove a General Partner or any successor General Partner;
(d) Elect a new General Partner or General Partners upon the removal
of a General Partner or any successor General Partner, or upon the occurrence of
an Event of Withdrawal or death of a General Partner or any successor General
Partner;
(e) Approve or disapprove a transaction entailing the sale of all or
substantially all of the real properties acquired by the Partnership, except in
connection with the orderly liquidation and winding up of the business of the
Partnership upon its termination and dissolution; and
(f) Change the business purpose or investment objectives of the
Partnership.
16.2 RESTRICTIONS ON POWER TO AMEND. Notwithstanding Section 16.1 hereof,
------------------------------
this Agreement shall in no event be amended to change the limited liability of
the Limited Partners without the vote or consent of all of the Limited Partners,
nor shall this Agreement be amended to diminish the rights or benefits to which
any of the General Partners or Limited Partners are entitled under the
provisions of this Agreement, without the consent of a majority of the Units
held by the Partners who would be adversely affected thereby, and in the case of
the General Partners being singularly affected, then by a majority vote of the
General Partners.
16.3 LIMITED LIABILITY. No Limited Partner shall be liable for any debts
-----------------
or obligations of the Partnership in excess of his or its Capital Contribution.
16.4 MEETINGS OF, OR ACTIONS BY, THE LIMITED PARTNERS.
------------------------------------------------
(a) Meetings of the Limited Partners to vote upon any matters as to
which the Limited Partners are authorized to take action under this Agreement
may be called at any time by any of the General Partners and shall be called by
the General Partners upon the written request of Limited Partners holding 10% or
more of the outstanding Units by delivering written notice within ten days after
receipt of such written request, either in person or by certified mail, to the
Limited Partners entitled to vote at such meeting to the effect that a meeting
will be held at a reasonable time and place convenient to the Limited Partners
and which is not less than 15 days nor more than 60 days after the receipt of
such request; provided, however, that such maximum periods for the giving of
notice and the holding of meetings may be extended for an additional 60 days if
such extension is necessary to obtain qualification or clearance under any
applicable securities laws of the matters to be acted upon at such meeting or
clearance by the appropriate governing agency of the solicitation materials to
be forwarded to the Limited Partners in connection with such meeting. The
General Partners agree to use their best efforts to obtain such qualifications
and clearances. Included with the notice of a meeting shall be a detailed
statement of the action proposed, including a verbatim statement of the wording
on any resolution proposed for adoption by the Limited Partners and of any
proposed amendment to this Agreement. All expenses of the meeting and
notification shall be borne by the Partnership.
(b) A Limited Partner shall be entitled to cast one vote for each
Unit that he owns. Attendance by a Limited Partner at any meeting and voting in
person shall revoke any written proxy submitted with respect to action proposed
to be taken at such meeting. Any matter as to which the Limited Partners are
authorized to take action under this Agreement or under law may be acted upon by
the Limited Partners without a meeting and any such action shall be as valid and
effective as action taken by the Limited Partners at a meeting assembled, if
written consents to such action by the Limited Partners are signed by the
Limited Partners entitled to vote upon such action at a meeting who hold the
number of Units required to au thorize such action and are delivered to a
General Partner.
<PAGE>
(c) The General Partners shall be responsible for enacting all needed
rules of order for conducting all meetings and shall keep, or cause to be kept,
at the expense of the Partnership, an accurate record of all matters discussed
and action taken at all meetings or by written consent. The records of all said
meetings and written consents shall be maintained at the principal place of
business of the Partnership and shall be available for inspection by any Partner
at reasonable times.
ARTICLE XVII
WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS;
ASSIGNABILITY OF GENERAL PARTNERS'
AND LIMITED PARTNERS' INTERESTS
17.1 WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS; ADMISSION OF SUCCESSOR OR
--------------------------------------------------------------------
ADDITIONAL GENERAL PARTNERS.
- ---------------------------
(a) Except as provided in this Article XVII, until the dissolution of
the Partnership, neither General Partner shall take any voluntary step to
dissolve itself or to withdraw from the Partnership. In addition, Leo F. Wells,
III hereby agrees with the Partnership and its Partners that he will not
transfer, sell or otherwise voluntarily convey a majority or controlling
interest in the outstanding common stock of Wells Capital unless first obtaining
a Majority Vote of the Limited Partners to any such transfer, sale or
conveyance.
(b) With the consent of all the other General Partners and a Majority
Vote of the Limited Partners after being given 90 days written notice, any
General Partner may at any time designate one or more Persons to be additional
General Partners, with such participation in such General Partner's interest as
such General Partner and such successor or additional General Partners may agree
upon, provided that the interests of the Limited Partners shall not be affected
thereby.
(c) Except in connection with the admission of an additional General
Partner pursuant to paragraph (b) of this Section 17.1, no General Partner shall
have any right to retire or withdraw voluntarily from the Partnership, to
dissolve itself or to sell, transfer or assign the General Partner's interest
without the concurrence of the Limited Partners by a Majority Vote; provided,
however, that any General Partner may, without the consent of any other General
Partner or the Limited Partners to the extent permitted by law and consistent
with Section 17.1(a) hereof (i) substitute in its stead as General Partner any
entity which has, by merger, consolidation or otherwise, acquired substantially
all of such General Partner's assets, stock or other evidence of equity interest
and continued its business, and (ii) cause to be admitted to the Partnership an
additional General Partner or Partners if it deems such admission to be
necessary or desirable to enable the General Partner to use its best efforts to
maintain its net worth at a level sufficient to assure that the Partnership will
be classified as a partnership for federal income tax purposes; provided,
however, that such additional General Partner or Partners shall have no
authority to manage or control the Partnership under this Agreement, there is no
change in the identity of the persons who have authority to manage or control
the Partnership, and the admission of such additional General Partner or
Partners does not materially adversely affect the Limited Partners.
(d) A General Partner may be removed from the Partnership upon the
Majority Vote of the Limited Partners; provided, however, that if such General
Partner is the last remaining General Partner, such removal shall not be
effective until 90 days after the notice of removal has been sent to such
General Partner. In the event of the removal of the last remaining General
Partner, the Limited Partners may by Majority Vote elect a new General Partner
at any time prior to the effective date of the removal of said last remaining
General Partner.
(e) Any voluntary withdrawal by any General Partner from the
Partnership or any sale, transfer or assignment by such General Partner of his
interest in the Partnership shall be effective only upon the admission in
accordance with paragraph (b) of this Section 17.1 of an additional General
Partner.
<PAGE>
(f) A General Partner shall cease to be such upon the occurrence of
an Event of Withdrawal of such General Partner; provided, however, the last
remaining General Partner shall not cease to be a General Partner until 120 days
after the occurrence of an Event of Withdrawal.
17.2 LIMITED PARTNERS' INTEREST. Except as specifically provided in this
--------------------------
Article XVII, none of the Limited Partners shall sell, transfer, encumber or
otherwise dispose of, by operation of law or otherwise, all or any part of his
or its interest in the Partnership. No assignment shall be valid or effective
unless in compliance with the conditions contained in this Agreement, and any
unauthorized transfer or assignment shall be void ab initio.
17.3 RESTRICTIONS ON TRANSFERS.
-------------------------
(a) No Unit may be transferred, sold, assigned or exchanged if the
transfer or sale of such Unit, when added to the total of all other transfers or
sales of Units within the period of 12 consecutive months prior to the proposed
date of sale or exchange, would, in the opinion of counsel for the Partnership,
result in the termination of the Partnership under Section 708 of the Code
unless the Partnership and the transferring holder shall have received a ruling
from the IRS that the proposed sale or exchange will not cause such termination.
(b) No transfer or assignment may be made if, as a result of such
transfer, a Limited Partner (other than one transferring all of his Units) will
own fewer than the minimum number of Units required to be purchased under
Section 8.5(b) hereof, unless such transfer is made on behalf of a Retirement
Plan, or such transfer is made by gift, inheritance, intra-family transfer,
family dissolution or to an Affiliate.
(c) No transfer or assignment of any Unit may be made if counsel for
the Partnership is of the opinion that such transfer or assignment would be in
violation of any state securities or "Blue Sky" laws (including investment
suitability standards) applicable to the Partnership.
(d) All Units originally issued pursuant to qualification under the
California Corporate Securities Law of 1968 shall be subject to, and all
documents of assignment and transfer evidencing such Units shall bear, the
following legend condition:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
(e) No transfer or assignment of any interest in the Partnership
shall be made (i) in the case of Units subject to Section 17.3(d) hereof,
unless the transferor shall have obtained, if necessary, the consent of the
California Commissioner of the Department of Corporations to such transfer,
(ii) unless the transferee shall have paid or, at the election of the
General Partners, obligated himself to pay, all reasonable expenses
connected with such transfer, substitution and admission, including, but
not limited to, the cost of preparing an appropriate amendment to this
Agreement to effectuate the transferee's admission as a substituted Limited
Partner pursuant to Section 17.4 hereof, or (iii) where the assignor and
Assignee agree in connection therewith that the assignor shall exercise any
residual powers remaining in him as a Limited Partner in favor of or in the
interest or at the direction of the Assignee.
(f) With the exception of intra-family transfers or transfers
made by gift, inheritance or family dissolution, no transfer or assignment
of any interest in the Partnership shall be made unless the transferee has
either (i) a net worth of at least $45,000 and an annual gross income of at
least $45,000 or (ii) a net worth of at least $150,000 or (iii) satisfied
any higher suitability standards that may apply in the transferee's state
of primary residence. For purposes of the foregoing standards, net worth is
computed exclusive of home, furnishings and automobiles. Each transferee
will be required to represent that he complies with the applicable
standards, that he is purchasing in a fiduciary capacity for a Person
<PAGE>
meeting such standards, or that he is purchasing with funds directly or
indirectly supplied by a donor who meets such standards. No transfer may be
made to any Person who does not make such representation.
(g) No Limited Partner may transfer or assign any Units or beneficial
ownership interests therein (whether by sale, exchange, repurchase, redemption,
pledge, hypothecation or liquidation), and any such purported transfer shall be
void ab initio and shall not be recognized by the Partnership or be effective
for any purpose unless (i) the General Partners determine, in their sole
discretion, that the Partnership would be able to satisfy either the 5% or 2%
safe harbors contained in Sections II.C.1 and II.C.2 of IRS Notice 88-75 or an
applicable safe harbor contained in Treasury Regulations Section 1.7704-1 (or
any other applicable safe harbor from publicly traded partnership status which
may be adopted by the IRS) for the Partnership's taxable year in which such
transfer otherwise would be effective, or (ii) the Partnership has received an
opinion of counsel satisfactory to the General Partners or a favorable IRS
ruling that any such transfer will not result in the Partnership's being
classified as a publicly traded partnership for federal income tax purposes.
The Limited Partners agree to provide all information with respect to a proposed
transfer that the General Partners deem necessary or desirable in order to make
such determination, including but not limited to, information as to whether the
transfer occurred on a secondary market (or the substantial equivalent thereof).
(h) Any purported transfer or assignment not satisfying all of
the foregoing conditions shall be void ab initio, and no purported transfer
or assignment shall be of any effect unless all of the foregoing conditions
have been satisfied.
17.4 SUBSTITUTED LIMITED PARTNERS. Except as otherwise provided in this
----------------------------
Agreement, an Assignee of the whole or any portion of a Limited Partner's
interest in the Partnership shall not have the right to become a substituted
Limited Partner in place of his assignor unless (a) the assignment instrument
shall have been in form and substance satisfactory to the General Partners; (b)
the assignor and Assignee named therein shall have executed and acknowledged
such other instrument or instruments as the General Partners may deem necessary
or desirable to effectuate such admission, including but not limited to, a power
of attorney with provisions more fully described in this Agreement; (c) the
Assignee agrees in writing that he will not, directly or indirectly, create for
the Partnership, or facilitate the trading of such interest on, a secondary
market (or the substantial equivalent thereof) within the meaning of Section
7704 of the Code; and (d) the Assignee shall have accepted, adopted and approved
in writing all of the terms and provisions of this Agreement, as the same may
have been amended. Assignees of Units will be recognized by the Partnership as
substituted Limited Partners as of the commencement of the first fiscal quarter
of the Partnership following the fiscal quarter which includes the effective
date of the assignment and in which the foregoing conditions are satisfied,
notwithstanding the time consumed in preparing the documents necessary to
effectuate the substitution.
17.5 ASSIGNMENT OF LIMITED PARTNERSHIP INTEREST WITHOUT SUBSTITUTION.
---------------------------------------------------------------
Subject to the transfer restrictions of Section 17.3, a Limited Partner shall
have the right to assign all or part of such Limited Partner's interest in Units
by a written instrument of assignment. The assigning Limited Partner shall
deliver to the General Partners a written instrument of assignment in form and
substance satisfactory to the General Partners, duly executed by the assigning
Limited Partner or his personal representative or authorized agent, including an
executed acceptance by the Assignee of all the terms and provisions of this
Agreement and the representations of the assignor and Assignee that the
assignment was made in accordance with all applicable laws and regulations
(including investment suitability requirements). Said assignment shall be
accompanied by such assurance of genuineness and effectiveness and by such
consents or authorizations of any governmental or other authorities as may be
reasonably required by the General Partners. The Partnership shall recognize
any such assignment not later than the last day of the calendar month following
receipt of notice of the assignment and all required documentation, and an
Assignee shall be entitled to receive distributions and allocations from the
Partnership attributable to the Partnership interest acquired by reason of any
such assignment from and after the first day of the fiscal quarter following the
fiscal quarter in which the assignment of such interest takes place. The
Partnership and the General Partners shall be entitled to treat the assignor of
such Partnership interest as the absolute owner thereof in all respects, and
shall incur no liability for distributions made in good faith to such assignor,
until such time as the written instrument of assignment has been received by the
Partnership and recorded on its books.
<PAGE>
17.6 WITHDRAWAL OF LIMITED PARTNER. Except as otherwise specifically
-----------------------------
permitted by this Agreement, no Limited Partner shall be entitled to withdraw or
retire from the Partnership.
17.7 DEATH, LEGAL INCOMPETENCY OR DISSOLUTION OF LIMITED PARTNER. Upon
-----------------------------------------------------------
the death, legal incompetency or dissolution of a Limited Partner, the
estate, personal representative, guardian or other successor in interest of
such Limited Partner shall have all of the rights and be liable for all the
obligations of the Limited Partner in the Partnership to the extent of such
Limited Partner's interest therein, subject to the terms and conditions of
this Agreement, and, with the prior written consent of the General
Partners, which may be withheld at their sole discretion, may be
substituted for such Limited Partner.
17.8 ELIMINATION OR MODIFICATION OF RESTRICTIONS. Notwithstanding any
-------------------------------------------
of the foregoing provisions of this Article XVII, the General Partners may
amend this Agreement to eliminate or modify any restriction on substitution
or assignment at such time as the restriction is no longer necessary.
ARTICLE XVIII
LOANS TO PARTNERSHIP
18.1 AUTHORITY TO BORROW. The General Partners shall cause the Partnership
-------------------
to purchase and own all Partnership Properties on an unleveraged basis, and the
Partnership shall not incur any indebtedness except for loans which are
authorized pursuant to Section 11.3(e) hereof.
18.2 LOANS FROM PARTNERS. If any Partner shall make any loan or loans
-------------------
to the Partnership or advance money on its behalf pursuant to Section
11.3(e) hereof, the amount of any such loan or advance shall not be deemed
to be an additional Capital Contribution by the lending Partner or entitle
such lending Partner to an increase in his share of the distributions of
the Partnership, or subject such Partner to any greater proportion of the
losses which the Partnership may sustain. The amount of any such loan or
advance shall be a debt due from the Partnership to such lending Partner
repayable upon such terms and conditions and bearing interest at such rates
as shall be mutually agreed upon by the lending Partner and the General
Partners; provided, however, that a General Partner as a lending Partner
may not receive interest and other financing charges or fees in excess of
the amount which would be charged by unrelated banks on comparable loans
for the same purpose in the same area. No prepayment charge or penalty
shall be required by a General Partner on a loan to the Partnership.
Notwithstanding the foregoing, (a) no Partner shall be under any obligation
whatsoever to make any such loan or advance to the Partnership, and (b)
neither the General Partners nor any of their Affiliates shall provide
permanent financing to the Partnership.
ARTICLE XIX
POWER OF ATTORNEY, CERTIFICATES AND OTHER DOCUMENTS
19.1 POWER OF ATTORNEY. Each Limited Partner, by becoming a Limited
-----------------
Partner and adopting this Agreement, constitutes and appoints the General
Partners and each of them and any successor to the General Partners as his
true and lawful attorney-in-fact, in his name, place and stead, from time
to time:
(a) To execute, acknowledge, swear to, file and/or record all
agreements amending this Agreement that may be appropriate:
(i) To reflect a change of the name or the location of the
principal place of business of the Partnership;
<PAGE>
(ii) To reflect the disposal by any Limited Partner of
his interest in the Partnership, or any Units constituting a part thereof,
in any manner permitted by this Agreement, and any return of the Capital
Contribution of a Limited Partner (or any part thereof) provided for by
this Agreement;
(iii) To reflect a Person's becoming a Limited Partner of
the Partnership as permitted by this Agreement;
(iv) To reflect a change in any provision of this
Agreement or the exercise by any Person of any right or rights hereunder
not requiring the consent of said Limited Partner;
(v) To reflect the addition or substitution of Limited
Partners or the reduction of Capital Accounts upon the return of capital to
Partners;
(vi) To add to the representations, duties or obligations
of the General Partners or their Affiliates or surrender any right or power
granted to the General Partners or their Affiliates herein for the benefit
of the Limited Partners;
(vii) To cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with law or with any other
provision herein, or to make any other provision with respect to matters or
questions arising under this Agreement which will not be inconsistent with
law or with the provisions of this Agreement;
(viii) To delete, add or modify any provision to this
Agreement required to be so deleted, added or modified by the staff of the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc. or by a State Securities Commissioner or similar such
official, which addition, deletion or modification is deemed by such
Commission or official to be for the benefit or protection of the Limited
Partners;
(ix) To make all filings as may be necessary or proper to
provide that this Agreement shall constitute, for all purposes, an
agreement of limited partnership under the laws of the State of Georgia as
they may be amended from time to time;
(x) Upon notice to all Limited Partners, to amend the
provisions of Article X of this Agreement, or any other related provision
of this Agreement (provided, however, the General Partners shall first have
received an opinion of counsel to the Partnership that such amendment will
not materially adversely diminish the interests of the Limited Partners) to
ensure that (A) the allocations and distributions contained in Article X
comply with Treasury Regulations relating to Section 704 of the Code or any
other statute, regulation or judicial interpretation relating to such
allocations, or (B) the periodic allocations set forth in Article X will be
respected under Section 706 of the Code or any other statute, regulation or
judicial interpretation relating to such periodic allocations, or (C) the
provisions of this Agreement will comply with any applicable federal or
state legislation enacted after the date of this Agreement; to take such
steps as the General Partners determine are advisable or necessary in order
to preserve the tax status of the Partnership as an entity which is not
taxable as a corporation for federal income tax purposes including, without
limitation, to compel a dissolution and termination of the Partnership; to
terminate the Offering of Units; to compel a dissolution and termination of
the Partnership or to restructure the Partnership's activities to the
extent the General Partners deem necessary (after consulting with counsel)
to comply with any exemption in the "plan asset" regulations adopted by the
Department of Labor in the event that either (I) the assets of the
Partnership would constitute "plan assets" for purposes of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or (II) the
transactions contemplated hereunder would constitute "prohibited
transactions" under ERISA or the Code and an exemption for such
transactions is not obtainable or not sought by the General Partners from
the United States Department of Labor; provided, the General Partners are
empowered to amend such provisions only to the minimum extent necessary (in
accordance with the advice of accountants and counsel) to comply with any
applicable federal or state legislation, rules, regulations or
administrative interpretations thereof after the date of this Agreement,
and that any such amendment(s) made by the General Partners shall be deemed
to be made pursuant to the fiduciary obligations of the General Partners to
the Partnership; and
<PAGE>
(xi) To eliminate or modify any restriction on
substitution or assignment contained in Article XVII at such time as the
restriction is no longer necessary.
(b) To execute, acknowledge, swear to, file or record such
certificates, instruments and documents as may be required by, or may be
appropriate under, the laws of any state or other jurisdiction, or as may
be appropriate for the Limited Partners to execute, acknowledge, swear to,
file or record to reflect:
(i) Any changes or amendments of this Agreement, or
pertaining to the Partnership, of any kind referred to in paragraph (a) of
this Section 19.1; or
(ii) Any other changes in, or amendments of, this
Agreement, but only if and when the consent of a Majority Vote or other
required percentage of the Limited Partners has been obtained.
Each of such agreements, certificates, instruments and documents shall
be in such form as the General Partners and legal counsel for the
Partnership shall deem appropriate. Each Limited Partner hereby authorizes
the General Partners to take any further action which the General Partners
shall consider necessary or convenient in connection with any of the
foregoing, hereby giving said attorney-in-fact full power and authority to
do and perform each and every act and thing whatsoever requisite, necessary
or convenient to be done in and about the foregoing as fully as said
Limited Partner might or could do if personally present and hereby ratifies
and confirms all that said attorney-in-fact shall lawfully do or cause to
be done by virtue hereof. The power hereby conferred shall be deemed to be
a power coupled with an interest, in recognition of the fact that each of
the Partners under this Agreement will be relying upon the power of the
General Partners to act as contemplated by this Agreement in any filing and
other action by them on behalf of the Partnership, and shall survive the
bankruptcy, death, adjudication of incompetence or insanity, or dissolution
of any Person hereby giving such power and the transfer or assignment of
all or any part of the Units of such Person; provided, however, that in the
event of the transfer by a Limited Partner of all of his Units, the
foregoing power of attorney of a transferor Limited Partner shall survive
such transfer only until such time as the transferee shall have been
admitted to the Partnership as a substituted Limited Partner and all
required documents and instruments shall have been duly executed, sworn to,
filed and recorded to effect such substitution.
19.2 REQUIRED SIGNATURES. Any writing to amend this Agreement to
-------------------
reflect the addition of a Limited Partner need be signed only by a General
Partner, by the Limited Partner who is disposing of his interest in the
Partnership, if any, and by the Person to be substituted or added as a
Limited Partner. The General Partners, or either of them, may sign for
either or both of said Limited Partners as their attorney-in-fact pursuant
to paragraph (a) of Section 19.1 hereof. Any writing to amend this
Agreement to reflect the removal or withdrawal of a General Partner in the
event the business of the Partnership is continued pursuant to the terms of
this Agreement need be signed only by a remaining or a new General Partner.
19.3 ADDITIONAL DOCUMENTS. Each Partner, upon the request of the others,
--------------------
agrees to perform any further acts and execute and deliver any further documents
which may be reasonably necessary to carry out the provisions of this Agreement.
ARTICLE XX
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
20.1 DISSOLUTION. Except as otherwise provided in this Section 20.1, no
-----------
Partner shall have the right to cause dissolution of the Partnership before the
expiration of the term for which it is formed. The Partnership shall be
dissolved and terminated upon the happening of any of the following events:
(a) The expiration of the term of the Partnership as specified
in Article VI hereof;
<PAGE>
(b) The decision by Majority Vote of the Limited Partners to dissolve
and terminate the Partnership;
(c) The entry of a decree of judicial dissolution by a court of
competent jurisdiction, provided that the foregoing shall not apply if the
Partnership files a voluntary petition seeking reorganization under the
bankruptcy laws;
(d) The retirement or withdrawal of a General Partner unless (i) the
remaining General Partner, if any, elects to continue the business of the
Partnership within 90 days from the date of such event, or (ii) if there is no
remaining General Partner, the Limited Partners, within 120 days from the date
of such event, elect by Majority Vote to continue the business of the
Partnership and elect a new General Partner pursuant to Section 20.3 below;
(e) The effective date of the removal of a General Partner unless (i)
the remaining General Partner, if any, elects to continue the business of the
Partnership within 90 days from the date of such event, or (ii) if there is no
remaining General Partner, Limited Partners, prior to the effective date of such
removal, elect by Majority Vote to continue the business of the Partnership and
elect a new General Partner pursuant to Section 20.3 below;
(f) The effective date of an Event of Withdrawal of a General Partner
unless (i) the remaining General Partner, if any, elects to continue the
business of the Partnership within 90 days from the date of such Event of
Withdrawal, or (ii) if there is no remaining General Partner, the Limited
Partners, within 120 days from the date of such Event of Withdrawal, elect by
Majority Vote to continue the business of the Partnership and elect a new
General Partner pursuant to Section 20.3 below;
(g) The sale or other disposition of all of the interests in real
estate (including, without limitation, purchase money security interests and
interests in joint ventures or other entities owning interests in real estate)
of the Partnership; or
(h) The electionn by the General Partners to terminate the
Partnership, without the consent of any Limited Partner, in the event that
either (i) the Partnership's assets constitute "plan assets," as such term is
defined for purposes of ERISA, or (ii) any of the transactions contemplated by
this Agreement constitute a "prohibited transaction" under ERISA or the Code and
no exemption for such transaction is obtainable from the United States
Department of Labor or the General Partners determine in their discretion not to
seek such an exemption.
In the Event of Withdrawal of a General Partner resulting in only one
General Partner remaining, such remaining General Partner shall be obligated to
elect to continue the business of the Partnership within 90 days from the date
of such Event of Withdrawal.
The Partnership shall not be dissolved or terminated by the admission of
any new Limited Partner or by the withdrawal, expulsion, death, insolvency,
bankruptcy or disability of a Limited Partner.
20.2 PROXY TO LIQUIDATE. At any time commencing eight years after the
------------------
termination of the Offering, upon receipt by the General Partners of written
requests from Limited Partners holding 10% or more of the outstanding Units (the
"Proxy Request") directing that the General Partners formally proxy the Limited
Partners to determine whether the assets of the Partnership should be liquidated
(the "Proxy to Liquidate"), the General Partners shall send a Proxy to Liquidate
to each Limited Partner within 60 days of receipt of the Proxy Request, or as
soon as reasonably practicable thereafter following the receipt of independent
appraisals of Partnership Properties which the Partnership shall obtain as part
of this proxy process, and the filing and review of such Proxy to Liquidate by
the Securities and Exchange Commission. The General Partners shall not be
required to send Proxies to Liquidate to Limited Partners more frequently than
once during every two (2) year period. To insure that Limited Partners are
adequately informed when casting their votes, the Proxy to Liquidate furnished
to each Limited Partner shall include financial information setting forth per
Unit pro forma tax and financial projections which assume that all Partnership
Properties will be sold immediately at prices consistent with their appraised
values, or such other information as the General Partners deem appropriate and
informative, provided in all such cases that the furnishing of such information
to Limited Partners shall not contravene applicable law or applicable rules and
regulations
<PAGE>
of the Securities and Exchange Commission regarding the solicitation of proxies.
The Proxy to Liquidate shall contain a 45 day voting deadline, and the actual
voting results shall be tabulated by the Partnership's independent accountants
who will receive the votes directly from the Limited Partners. The General
Partners shall disclose the complete voting results for the Proxy to Liquidate
in the Partnership's next annual or quarterly report on Form 10-K or 10-Q sent
to the Limited Partners for the period following the date on which voting was
completed. If a Majority Vote of the Limited Partners is cast, in favor of a
liquidation of the Partnership, the assets of the Partnership shall be fully
liquidated within 30 months from the close of the voting deadline applicable to
the Proxy to Liquidate. Under no circumstances, however, shall the General
Partners direct the Partnership to make distributions "in kind" of any
Partnership Properties to the Limited Partners.
20.3 LIMITED PARTNERS' RIGHT TO CONTINUE THE BUSINESS OF THE PARTNERSHIP.
-------------------------------------------------------------------
Upon the occurrence of an event specified in paragraphs (d), (e) or (f) of
Section 20.1 above, occurring with respect to the last remaining General
Partner, Limited Partners shall have a right prior to the effective date of the
occurrence of any such event to elect to continue the business of the
Partnership pursuant to the provisions of this Section 20.3. The effective date
of the events specified in paragraphs (d), (e) and (f) of Section 20.1 above
with respect to the last remaining General Partner shall be 120 days after the
date of any such event. In the case of the occurrence of an event specified in
paragraphs (d), (e) or (f) of Section 20.1 above, Limited Partners by Majority
Vote may, within 120 days from the date of such event, elect to continue the
business of the Partnership and elect one or more new General Partners. The new
General Partner or General Partners so elected shall execute, deliver,
acknowledge and record an amendment to the Certificate and such other documents
and instruments as may be necessary or appropriate to effect such change.
20.4 PAYMENT TO WITHDRAWN OR REMOVED GENERAL PARTNER. Upon the removal
-----------------------------------------------
or withdrawal of a General Partner, the Partnership shall be required to pay
such General Partner any amounts then accrued and owing to such General Partner
under this Agreement. The method of payment to the removed or withdrawn General
Partner must be fair and must protect the solvency and liquidity of the
Partnership.
In addition, the Partnership shall have the right, but not the obligation,
to terminate such General Partner's interest in Partnership income, losses,
distributions and capital upon payment to him of an amount equal to the value of
his interest in Partnership income, losses, distributions and capital on the
date of such removal or withdrawal. Such interest shall be computed taking into
account the General Partner's economic interest in the Partnership under
Articles IX and X hereof, and shall be based upon the market value of the assets
of the Partnership determined as if such assets were sold on the date of such
removal or withdrawal. In the event such General Partner (or his representative)
and the Partnership cannot mutually agree upon such value within 90 days
following such removal or withdrawal, such value shall be determined by
arbitration before a panel of three appraisers, one of whom shall be selected by
such General Partner (or his representative) and one by the Partnership, and the
third of whom shall be selected by the two appraisers so selected by the
parties. Such arbitration shall take place in Atlanta, Georgia and shall be in
accordance with the rules and regulations of the American Arbitration
Association then in force and effect. The expense of arbitration shall be borne
equally by such General Partner and the Partnership. Payment to such General
Partner of the value of his interest in Partnership income, losses,
distributions and capital shall be made by the delivery of a promissory note (i)
if the termination was voluntary, being unsecured, bearing no interest and
having principal payable, if at all, from distributions which the General
Partner would have otherwise received under this Agreement had the General
Partner not terminated; or (ii) if the termination was involuntary, coming due
in not less than five years and bearing interest at the rate of 9% per annum,
with principal and interest, payable annually in equal installments.
In addition, within 120 days after the determination of the fair market
value of the former General Partner's interest, the Partnership may, upon the
vote of a majority of the Limited Partners, sell such interest to one or more
Persons who may be Affiliates of the remaining General Partner or General
Partners, and admit such Person or Persons to the Partnership as substitute
General Partner or Partners; provided, however, that the purchase price to be
paid to the Partnership for the Partnership interest of the former General
Partner shall not be less than its fair market value as determined by the
appraisal described above. Such substitute General Partner or Partners may pay
said purchase price in installments in the manner set forth above.
<PAGE>
20.5 TERMINATION OF EXECUTORY CONTRACTS. Upon the removal or occurrence
----------------------------------
an Event of Withdrawal of a General Partner, all executory contracts between the
Partnership and such General Partner or any Affiliate thereof (unless such
Affiliate is also an Affiliate of a remaining or new General Partner or General
Partners) may be terminated and canceled by the Partnership without prior notice
or penalty. Such General Partner or any Affiliate thereof (unless such Affiliate
is also an Affiliate of a remaining or new General Partner or General Partners)
may also terminate and cancel any such executory contract effective upon 60 days
prior written notice of such termination and cancellation to the remaining or
new General Partner or General Partners, if any, or to the Partnership.
ARTICLE XXI
DISTRIBUTION ON TERMINATION OF PARTNERSHIP
21.1 LIQUIDATION DISTRIBUTION. Upon a dissolution and final termination
------------------------
of the Partnership, the General Partners (or in the event of a General
Partner's removal or termination and, if there is no remaining General Partner,
any other Person selected by the Limited Partners) shall take account of the
Partnership assets and liabilities, and the assets shall be liquidated as
promptly as is consistent with obtaining the fair market value thereof, and the
proceeds therefrom, to the extent sufficient therefor, shall be applied and
distributed in accordance with Section 9.4 hereof.
21.2 TIME OF LIQUIDATION. A reasonable time shall be allowed for the
-------------------
orderly liquidation of the assets of the Partnership and the discharge of
liabilities to creditors so as to enable the General Partners to minimize the
losses upon a liquidation.
21.3 LIQUIDATION STATEMENT. Each of the Partners shall be furnished with
---------------------
a statement prepared or caused to be prepared by the General Partners, which
shall set forth the assets and liabilities of the Partnership as of the date of
complete liquidation. Upon compliance with the foregoing distribution plan, the
Limited Partners shall cease to be such, and the General Partners, as the sole
remaining Partners of the Partnership, shall execute, acknowledge and cause to
be filed a Certificate of Cancellation of the Partnership.
21.4 NO LIABILITY FOR RETURN OF CAPITAL. The General Partners shall not
----------------------------------
be personally liable for the return of all or any part of the Capital
Contributions of the Limited Partners. Any such return shall be made solely from
Partnership assets.
21.5 NO RIGHT OF PARTITION. The Partners and Assignees shall have
---------------------
no right to receive Partnership Property in kind, nor shall such Partners or
Assignees have the right to partition the Partnership Property, whether or not
upon the dissolution and termination of the Partnership.
21.6 PRIORITY; RETURN OF CAPITAL. Except as provided in this Agreement,
---------------------------
no Limited Partner shall have priority over any other Limited Partner either as
to the return of Capital Contributions or as to allocations of income and losses
or payments of distributions. Other than upon the dissolution and termination of
the Partnership as provided by this Agreement, there has been no time agreed
upon when the Capital Contribution of each Limited Partner is to be returned.
21.7 ESCHEAT OF DISTRIBUTIONS. If, upon termination and dissolution of
------------------------
the Partnership, there remains outstanding on the books of the Partnership
(after a reasonable period of time determined in the sole discretion of the
General Partners) a material amount of distribution checks which have not been
negotiated for payment by the Limited Partners, the General Partners may, if
deemed to be in the best interest of the Partnership, cause such amounts to be
redistributed pro rata to Limited Partners of record on such final distribution
date who have previously cashed all of their distribution checks; provided,
however, that neither the General Partners nor the Partnership shall be liable
for any subsequent claims for payment of such redistributed distributions. The
General Partners are not required to make such a redistribution, in which case
such amounts may eventually escheat to the appropriate state. Notwithstanding
the foregoing, the proceeds of distribution checks payable to Ohio residents
which have not been negotiated for payment within one year of the distribution
<PAGE>
date shall be submitted to the Ohio Division of Unclaimed Funds in accordance
with the Ohio Unclaimed Funds statute, Chapter 169 of the Ohio Revised Code.
ARTICLE XXII
GENERAL PROVISIONS
22.1 NOTICES. Except as otherwise provided herein, any notice, payment,
-------
distribution or other communication which shall be required to be given to any
Limited Partner in connection with the business of the Partnership shall be duly
given if in writing and delivered personally to the Limited Partner to whom it
is authorized to be given at the time of such delivery, or if sent by mail or
telegraph, to the last address furnished by such Limited Partner for such
purpose as of the time of such mailing; and if to a General Partner or the
Partnership, shall be given when actually received at the principal office of
the Partnership, or at such other address as such General Partner may hereafter
specify in a notice duly given as provided herein.
22.2 SURVIVAL OF RIGHTS. This Agreement shall be binding upon and inure
------------------
to benefit of the Partners and their respective heirs, legatees, legal
representatives, successors and assigns.
22.3 AMENDMENT. Except as specifically provided herein, following the
---------
admission of Additional Limited Partners to the Partnership, this Agreement may
be amended, modified and changed only after obtaining a Majority Vote of the
Limited Partners. When voting on whether to approve or reject proposed changes
to this Agreement, Limited Partners shall be permitted to vote separately on
each significant proposed change.
22.4 HEADINGS. The captions of the articles and sections of this
--------
Agreement are for convenience only and shall not be deemed part of the text of
this Agreement.
22.5 AGREEMENT IN COUNTERPARTS. This Agreement, or any amendment hereto,
-------------------------
may be executed in counterparts each of which shall be deemed an original
Agreement, and all of which shall constitute one agreement, by each of the
Partners hereto on the dates respectively indicated in the acknowledgements of
said Partners, notwithstanding that all of the Partners are not signatories to
the original or the same counterpart, to be effective as of the day and year
first above written.
22.6 GOVERNING LAW. This Agreement shall be governed and construed
-------------
according to the laws of the State of Georgia governing partnerships.
22.7 TIME. Time is of the essence in this Agreement.
----
22.8 PRONOUNS. All pronouns and any variations thereof shall be deemed to
--------
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the Person or Persons may require.
22.9 SEPARABILITY OF PROVISIONS. Each provision of this Agreement shall
--------------------------
be considered separable and if for any reason any provision or provisions hereof
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation, or affect those portions, of this
Agreement which are valid.
22.10 NO MANDATORY ARBITRATION OF DISPUTES. Except as may be permitted
------------------------------------
or required pursuant to Section 20.4 hereof, nothing in this Agreement or the
Subscription Agreement to be executed by each Limited Partner shall be deemed to
require the mandatory arbitration of disputes between a Limited Partner and the
Partnership or any Sponsor. Nothing contained in this Section 22.10 is intended
to apply to preexisting contracts between broker-dealers and Limited Partners.
<PAGE>
IN WITNESS WHEREOF, the undersigned hereby execute this Amended and
Restated Agreement of Limited Partnership under seal as of the date and year
first above written.
INITIAL LIMITED PARTNER:
__________________________________(SEAL)
DONALD L. THOMAS
GENERAL PARTNERS:
WELLS PARTNERS, L.P.
A Georgia Limited Partnership
By: WELLS CAPITAL, INC.
A Georgia Corporation
Attest: (As General Partner)
By:______________________________
By:____________________________ Leo F. Wells,III
Name:___________________ President
Title:__________________
__________________________________(SEAL)
LEO F. WELLS, III
<PAGE>
EXHIBIT C
FORM OF SUBSCRIPTION AGREEMENT AND
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
<PAGE>
EXHIBIT "C"
SUBSCRIPTION AGREEMENT
To: WELLS REAL ESTATE FUND IX, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Ladies and Gentlemen:
The undersigned, by signing and delivering a copy of the attached
Subscription Agreement Signature Page, hereby tenders this subscription and
applies for the purchase of the number of units of limited partnership interest
("Units") in Wells Real Estate Fund IX, L.P., a Georgia limited partnership (the
"Partnership"), set forth on such Subscription Agreement Signature Page. Payment
for the Units is hereby made by check payable to "The Bank of New York, as
Agent."
Payments for Units will be held in escrow until the Partnership has
received and accepted subscriptions for 125,000 Units ($1,250,000), except with
respect to residents of the States of New York and Pennsylvania, whose payments
for Units will be held in escrow until the Partnership has received and accepted
subscriptions for 250,000 Units ($2,500,000) from all investors.
I hereby acknowledge receipt of the Prospectus of the Partnership dated
January 5, 1996 (the "Prospectus"), which includes the Agreement of Limited
Partnership of the Partnership (the "Partnership Agreement") in the form
attached as Exhibit B to the Prospectus.
I agree that if this subscription is accepted, it will be held, together
with the accompanying payment, on the terms described in the Prospectus and
that, if admitted to the Partnership, I shall be bound by the terms and
conditions of the Partnership Agreement, including the power of attorney granted
to the General Partners in Section 19.1 thereof. Subscriptions may be rejected
in whole or in part by the General Partners in their sole and absolute
discretion.
Prospective investors are hereby advised of the following:
(a) The assignability and transferability of the Units is restricted and
will be governed by the Partnership Agreement and all applicable laws as
described in the Prospectus.
(b) Prospective investors should not invest in Units unless they have an
adequate means of providing for their current needs and personal contingencies
and have no need for liquidity in this investment.
(c) There will be no public market for the Units, and accordingly, it may
not be possible to readily liquidate an investment in the Partnership.
I hereby constitute and appoint Wells Partners, L.P. and Leo F. Wells, III,
and each of them acting singly, with full power of substitution, my true and
lawful attorney-in-fact in my name, place and stead and for my use and benefit
(a) to sign, execute, deliver, certify, acknowledge, file and record a
Partnership Agreement in substantially the form attached as Exhibit B to the
Prospectus; and (b) to sign, execute, certify, acknowledge, swear to, file,
record and publish any other certificates, instruments and documents which may
be required of the Partnership under the laws of the State of Georgia or the
laws of any state or any governmental agency, or which such attorney-in-fact
deems necessary or advisable to file, record, publish, or deliver. The
foregoing grant of authority (a) is a special power of attorney coupled with an
interest, (b) is irrevocable and shall survive my death or disability, and (c)
may be exercised by such attorney-in-fact by listing my name along with the
names of all other persons for whom such attorney-in-fact is acting and
executing the Partnership Agreement and such other certificates, instruments and
documents with the single signature of a duly-authorized officer or agent of
such attorney-in-fact for all of the persons whose names are so listed.
<PAGE>
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
CONDITIONS RESTRICTING TRANSFER OF
LIMITED PARTNERSHIP UNITS
260.141.11 RESTRICTIONS ON TRANSFER.
------------------------
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 of the Rules
(the "Rules") adopted under the California Corporate Securities Law (the "Code")
shall cause a copy of this section to be delivered to each issuee or transferee
of such security at the time the certificate evidencing the security is
delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of the Rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section 25102
of the Code or Section 260.105.14 of the Rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities is not
in violation of any securities laws of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code provided that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled or actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another state;
<PAGE>
(15) by the State Controller pursuant to the Unclaimed Property Law
or by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the Commissioner of the
name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
[Last amended effective January 21, 1988.]
<PAGE>
STANDARD REGISTRATION REQUIREMENTS
The following requirements have been established for the various forms of
registration. Accordingly, complete Subscription Agreements and such supporting
material as may be necessary must be provided.
TYPE OF OWNERSHIP AND SIGNATURE(S) REQUIRED
1. INDIVIDUAL: One signature required.
2. JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: All parties must sign.
3. TENANTS IN COMMON: All parties must sign.
4. COMMUNITY PROPERTY: Only one investor signature required.
5. PENSION OR PROFIT SHARING PLANS: The trustee signs the Signature Page.
6. TRUST: The trustee signs the Signature Page. Provide the name of the
trust, the name of the trustee and the name of the beneficiary.
7. PARTNERSHIP: Identify whether the entity is a general or limited
partnership. The general partners must be identified and their signatures
obtained on the Signature Page. In the case of an investment by a general
partnership, all partners must sign (unless a "managing partner" has been
designated for the partnership, in which case he may sign on behalf of the
partnership if a certified copy of the document granting him authority to
invest on behalf of the partnership is submitted).
8. CORPORATION: The Subscription Agreement must be accompanied by (1) a
certified copy of the resolution of the Board of Directors designating the
officer(s) of the corporation authorized to sign on behalf of the
corporation and (2) a certified copy of the Board's resolution authorizing
the investment.
9. IRA AND IRA ROLLOVERS: Requires signature of authorized signer (e.g., an
officer) of the bank, trust company, or other fiduciary. The address of
the trustee must be provided in order for the trustee to receive checks and
other pertinent information regarding the investment.
10. KEOGH (HR 10): Same rules as those applicable to IRAs.
11. UNIFORM GIFT TO MINORS ACT (UGMA) or UNIFORM TRANSFERS TO MINORS ACT
(UTMA): The required signature is that of the custodian, not of the parent
(unless the parent has been designated as the custodian). Only one child
is permitted in each investment under UGMA or UTMA. In addition, designate
the state under which the gift is being made.
<PAGE>
INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO WELLS REAL ESTATE FUND IX, L.P. SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
INVESTOR PLEASE FOLLOW THESE INSTRUCTIONS CAREFULLY. FAILURE
INSTRUCTIONS TO DO SO MAY RESULT IN THE REJECTION OF YOUR
SUBSCRIPTION. ALL INFORMATION ON THE SUBSCRIPTION
AGREEMENT SIGNATURE PAGE SHOULD BE COMPLETED AS
FOLLOWS:
- --------------------------------------------------------------------------------
1. INVESTMENT A minimum investment of $1,000 (100 Units) is
required, except for certain states which require a
higher minimum investment. A CHECK FOR THE FULL
PURCHASE PRICE OF THE UNITS SUBSCRIBED FOR SHOULD
BE MADE PAYABLE TO THE ORDER OF "THE BANK OF NEW
YORK, AS AGENT." Investors who have satisfied the
minimum purchase requirements in Wells Real Estate
Fund I, Wells Real Estate Fund II, Wells Real
Estate Fund II-OW, Wells Real Estate Fund III,
L.P., Wells Real Estate Fund IV, L.P., Wells Real
Estate Fund V, L.P., Wells Real Estate Fund VI,
L.P., Wells Real Estate Fund VII, L.P. or Wells
Real Estate Fund VIII, L.P. may invest as little as
$25 (2.5 Units) except for residents of Maine,
Minnesota or Washington. Units may be purchased
only by persons meeting the standards set forth
under the Section of the Prospectus entitled "WHO
SHOULD INVEST - SUITABILITY STANDARDS". Please
indicate the state in which the sale was made.
- --------------------------------------------------------------------------------
2. CLASS STATUS OF Please check the appropriate box to identify the
UNITS status of Units (Class A or Class B) desired. These
classes of Units entitle holders to different
rights under the Partnership Agreement. For a more
complete description of the differences between the
two classes of Units, see "DESCRIPTION OF THE
UNITS" in the Prospectus. If electing Class A
Status for some Units and Class B Status for the
remaining Units being purchased, please complete a
separate Subscription Agreement Signature Page for
each class of Units.
- --------------------------------------------------------------------------------
3. TYPE OF OWNERSHIP Please check the appropriate box to indicate the
type of entity or type of individuals subscribing.
- --------------------------------------------------------------------------------
4. REGISTRATION NAME AND Please enter the exact name in which the Units are
ADDRESS to be held. For joint tenants with right of
survivorship or tenants in common, include the
names of both investors. In the case of
partnerships or corporations, include the name of
an individual to whom correspondence will be
addressed. Trusts should include the name of the
trustee. All investors must complete the space
provided for taxpayer identification number or
social security number. By signing in Section 6,
the investor is certifying that this number is
correct. Enter the mailing address and telephone
numbers of the registered owner of this investment.
In the case of a Qualified Plan or trust, this will
be the address of the trustee. Indicate the
birthdate and occupation of the registered owner
unless the registered owner is a partnership,
corporation or trust.
- --------------------------------------------------------------------------------
5. INVESTOR NAME AND Complete this Section only if the investor's name
ADDRESS and address is different from the registration name
and address provided in Section 4. If the Units are
registered in the name of a trust, enter the name,
address, telephone number, social security number,
birthdate and occupation of the beneficial owner of
the trust.
- --------------------------------------------------------------------------------
6. SUBSCRIBER SIGNATURES Please separately initial each representation made
by the investor where indicated. Except in the case
of fiduciary accounts, the investor may not grant
any person a power of attorney to make such
representations on his or her behalf. Each investor
must sign and date this Section. If title is to be
held jointly, all parties must sign. If the
registered owner is a partnership, corporation or
trust, a general partner, officer or trustee of the
entity must sign. PLEASE NOTE THAT THESE SIGNATURES
DO NOT HAVE TO BE NOTARIZED.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
7. ADDITIONAL Please check if you plan to make one or more
INVESTMENTS additional investments in the Partnership. All
additional investments must be in increments of at
least $25 and, unless otherwise indicated on a new
Subscription Agreement Signature Page, you will be
deemed to have elected the same status of Units
(Class A or Class B) you check in Section 2.
Additional investments by residents of Maine must
be for the minimum amounts stated under "WHO SHOULD
INVEST- SUITABILITY STANDARDS" in the Prospectus,
and residents of Maine must execute a new
Subscription Agreement Signature Page to make
additional investments in the Partnership. If
additional investments in the Partnership are made,
the investor agrees to notify the General Partners
and the Broker-Dealer named on the Subscription
Agreement Signature Page in writing if at any time
he fails to meet the applicable suitability
standards or he is unable to make any other
representations or warranties set forth in the
Prospectus or the Subscription Agreement. The
investor acknowledges that the Broker-Dealer named
in the Subscription Agreement Signature Page may
receive a commission not to exceed 8% of any such
additional investments in the Partnership.
- -------------------------------------------------------------------------------
8. DISTRIBUTIONS a. DISTRIBUTION REINVESTMENT PLAN: By electing
the Distribution Reinvestment Plan, the
investor elects to reinvest all distributions
of Net Cash From Operations in the
Partnership and to have the option in the
future to invest Net Cash From Operations in
limited partnerships sponsored by the General
Partners or their Affiliates which have
substantially identical investment objectives
as the Partnership. Unless the General
Partners are otherwise notified in writing,
Units purchased pursuant to the Distribution
Reinvestment Plan will initially be treated
as Class A Status Units. The investor agrees
to notify the General Partners and the
Broker-Dealer named on the Subscription
Agreement Signature Page in writing if at any
time he fails to meet the applicable
suitability standards or he is unable to make
any other representations and warranties
Affiliates. The investor acknowledges that
the Broker-Dealer named in the Subscription
Agreement Signature Page may receive a
commission not to exceed 8% of any reinvested
distributions.
b. DISTRIBUTION ADDRESS: If cash distributions
are to be sent to an address other than that
provided in Section 5 (i.e., a bank,
brokerage firm or savings and loan, etc.),
please provide the name, account number and
address.
- --------------------------------------------------------------------------------
9. BROKER-DEALER This Section is to be completed by the Registered
Representative. Please insert the Broker-Dealer
number, the Registered Representative number and
the Account number on the first page of the
Subscription Agreement Signature Page and complete
all BROKER-DEALER information contained in Section
9 including suitability certification. SIGNATURE
PAGE MUST BE SIGNED BY AN AUTHORIZED
REPRESENTATIVE.
- --------------------------------------------------------------------------------
The Subscription Agreement Signature Page, which has been delivered with
this Prospectus, together with a check for the full purchase price, should be
delivered or mailed to your Broker-Dealer. Only original, completed copies of
Subscription Agreements can be accepted. Photocopied or otherwise duplicated
Subscription Agreements cannot be accepted by the Partnership.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-800-448-1010
<PAGE>
[SAMPLE OF INDIVIDUAL]
[SAMPLE OF IRA, IRA, ROLLOVER, KEOGHS]
<PAGE>
[SAMPLE OF JTWROS JT IN COMMON COMMUNITY PROPERTY]
[SAMPLE OF PENSION PROFIT PLANS]
<PAGE>
[SAMPLE OF TRUSTS]
[SAMPLE OF UNIFORM GIFTS TO MINORS]
<PAGE>
SEE PAGES C-5 THROUGH C-9
FOR INSTRUCTIONS
[CORPORATE LOGO]
WELLS REAL ESTATE FUND IX, L.P.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
<TABLE>
<CAPTION>
1. ======== INVESTMENT =============================================================================================================
<S> <C>
_________________________________________________________ MAKE INVESTMENT CHECK PAYABLE TO:
THE BANK OF NEW YORK,
AS AGENT
__________________________ ___________________________ __________________________________________________________________
[_] of Units Total $ Invested [_] Initial Investment (Minimum $1,000)
(# Units x $10 = $ Invested) [_] Additional Investment (Minimum $25.00)
Minimum purchase $1,000 or 100 Units State in which sale was made_______________________________
_________________________________________________________ ______________________________________________________________________
2.=========CLASS STATUS OF UNITS====================================================================================================
Check appropriate box.
If electing both Class A Status and Class B Status, please complete a separate Signature page for each type of investment.
[_] CLASS A [_] CLASS B
(Entitled to first priority on distributions of cash flow from (Allocated certain deductions but no distribution of cash flow
operations) from operations)
3.=========TYPE OF OWNERSHIP========================================================================================================
[_] IRA (06) [_] Individual (01)
[_] Keogh (10) [_] Joint Tenants With Right of Survivorship (02)
[_] Qualified Pension Plan (11) [_] Community Property (03)
[_] Qualified Profit Sharing Plan (12) [_] Tenants in Common (04)
[_] Other Trust________________________________________ [_] Custodian: A Custodian for_____________________under
For the Benefit of_________________________________ the Uniform Gift to Minors Act of the State of_____(08)
[_] Partnership (15) [_] Other__________________________________________________
4.===========REGISTRATION NAME AND ADDRESS==========================================================================================
Please print name(s) in which Units are to be registered. Include trust name if applicable.
[_] Mr [_] Mrs [_] Ms [_] MD [_] PhD [_] DDS [_] Other _______________ Taxpayer Identification Number
_____________________________________________________________________________________ ___ ___ ___ ___ ___ ___ ___ ___ ___
--
_____________________________________________________________________________________ ___ ___ ___ ___ ___ ___ ___ ___ ___
Social Security Number
_____________________________________________________________________________________ ___ ___ ___ ___ ___ ___ ___ ___
-- --
___ ___ ___ ___ ___ ___ ___ __
___________________________________________________________________________________________________________________
Street Address
or P.O. Box ___________________________________________________________________________________________________________________
City ______________________________________________ State ______________________________ Zip Code _______________
______________________________________________ ________________________________________________
Home ( ) Business ( )
Telephone No. ______________________________________________ Telephone No. ________________________________________________
______________________________________________ ________________________________________________
Birthdate ______________________________________________ Occupation ________________________________________________
5. ===========INVESTER NAME AND ADDRESS=============================================================================================
(Complete only if different from registration name and address
[_]Mr [_]Mrs [_]Ms [_]MD [_]Phd [_]DDS [_]Other___________
Name Social Security Number
__________________________________________________________________________________ ___ ___ ___ ___ ___ ___ ___ ___ ___
-- --
__________________________________________________________________________________ ___ ___ ___ ___ ___ ___ ___ ___ ___
_______________________________________________________________________________________________________________
Street Address Home
or P.O. Box _______________________________________________________________________________________________________________
City ________________________________________ State __________________________ Zip _____________________________
_________________________________________ ____________________________________________________
Home ( ) Business ( )
Telephone No. _________________________________________ Telephone No. ____________________________________________________
_________________________________________ ____________________________________________________
Birthdate _________________________________________ Occupation ____________________________________________________
====================================================================================================================================
</TABLE>
(REVERSE SIDE MUST BE COMPLETED)
<PAGE>
<TABLE>
<CAPTION>
6.=======SUBSCRIBER SIGNATURES======================================================================================================
Please separately initial each of the representations below. Except in the case of fiduciary accounts, you may not grant any
person a power of attorney to make such representations on your behalf. In order to induce the General Partners to accept this
subscription, I hereby represent and warrant to you as follows:
(REVERSE SIDE MUST BE COMPLETED)
<S> <C> <C>
(a) I have received the Prospectus and the Partnership Agreement. ________ ________
Initials Initials
(b) I accept and agree to be bound by the terms and conditions of the Partnership Agreement. ________ ________
Initials Initials
(c) I have (i) a net worth (exclusive of home, home furnishings and automobiles) of $150,000 or ________ ________
more; or (ii) a net worth (as described above) of at least $45,000 and had during the last tax Initials Initials
year or estimate that I will have during the current tax year a minimum of $45,000 annual gross
income, or that I meet the higher suitability requirements imposed by my state of primary
residence as set forth in the Prospectus under "WHO SHOULD INVEST A SUITABILITY STANDARDS."
(d) If I am a California resident or if the Person to whom I subsequently propose to assign or ________ ________
transfer any Units is a California resident, I may not consummate a sale or transfer of my Initials Initials
Units, or any interest therein, or receive any consideration therefor, without the prior
consent of the Commissioner of the Department of Corporations of the State of California,
except as permitted in the Commissioner's Rules, and I understand that my Units, or any
document evidencing my Units, will bear a legend reflecting the substance of the foregoing
understanding.
(e) ARKANSAS AND TEXAS RESIDENTS ONLY: I am purchasing the Units for my own account and acknowledge ________ ________
that the investment is not liquid. Initials Initials
I declare that the information supplied above is true and correct and may be relied upon by the General Partners in connection
with my investment as a Limited Partner in the Partnership. Under penalties of perjury, by signing this Signature Page, I hereby
certify that (a) I have provided herein my correct Taxpayer Identification Number, and (b) I am not subject to back-up withholding
as a result of a failure to report all interest or dividends, or the Internal Revenue Service has notified me that I am no longer
subject to back-up withholding.
_______________________________________________ _______________________________________________ _________________________
_______________________________________________ _______________________________________________ _________________________
Signature of Investor or Trustee Signature of Joint Owner, if applicable Date
(MUST BE SIGNED BY TRUSTEE(S) IF IRA, KEOGH OR QUALIFIED PLAN.)
7.=========ADDITIONAL INVESTMENTS===================================================================================================
Please check if you plan to make additional investments in the Partnership: [_]
[If additional investments are made, please include social security number or other taxpayer identification number on your check.]
[All additional investments must be made in increments of at least $25.]
8.=========DISTRIBUTIONS===========================================================================================================
8a. Check the following box to participate in the Distribution
Reinvestment Plan:
8b. Complete the following section only to direct distributions to a party other than registered owner:
_________________________________________________________________________________________________________________
Name
_________________________________________________________________________________________________________________
Account Number
_________________________________________________________________________________________________________________
Street Adress
or P.O. Box _________________________________________________________________________________________________________________
City ______________________________________________ State __________________________ Zip Code _________________
9. ========BROKER-DEALER============================================================================================================
(TO BE COMPLETED BY REGISTERED REPRESENTATIVE)
The Broker-Dealer or authorized representative must sign below to complete order. Broker-Dealer warrants that it is a duly
licensed Broker-Dealer and may lawfully offer Units in the state designated as the investor's address or the state in which the
sale was made, if different. The Broker-Dealer or authorized representative warrants that he has reasonable grounds to believe
this investment is suitable for the subscriber as defined in Section 3(b) of Appendix F and that he has informed subscriber of
all aspects of liquidity and marketability of this investment as required by Section 4 of Appendix F (Attachment No. 1 to Dealer
Agreement).
________________________________________________________ ___________________________________
Broker-Dealer Name Telephone No. ( )
___________________________________________________________________________________________________________
Broker-Dealer Street
Address or P.O. Box ___________________________________________________________________________________________________________
City _________________________________________________ State ________________ Zip Code ______________________
________________________________________________________ _______________________________
Registered Telephone No. ( )
Representative Name ___________________________________________________________________________________________________________
Reg. Rep. Street
Address or P.O. Box ___________________________________________________________________________________________________________
City _________________________________________________ State ________________ Zip Code ______________________
_________________________________________________________________ ________________________________________________________
_________________________________________________________________ ________________________________________________________
Broker-Dealer Signature, if required Registered Representative Signature
Please mail completed Subscription Agreement (with all signatures) and check(s) made payable to
The Bank of New York, as Agent to:
WELLS INVESTMENT SECURITIES, INC.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
800-448-1010 or 770-449-7800
FOR GENERAL PARTNER USE ONLY:
_________________________________________________________________________________________________________________________________
ACCEPTANCE BY GENERAL PARTNERS Amount_________________Date____________________________________________________
Received and Subscription Accepted: Check No. _____________________ Certificate No.
By: _____________________________________ Wells Real Estate Fund IX, L.P.
__________________________________________ ___________________________________________________ _________________________________
Broker-Dealer # Registered Representative # Account #
____________________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
ALPHABETICAL INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information...............................94
Compensation of the General Partners and Affiliates..28
Conflicts of Interest................................30
Custodial Agency Agreement...........................50
Description of the Units.............................23
Distributions and Allocations........................83
Estimated Use of Proceeds............................27
Experts..............................................93
Federal Income Tax Consequences......................57
Fiduciary Duty of the General Partners...............34
Glossary.............................................94
Independent Auditors.................................94
Investment by Tax-Exempt Entities and ERISA
Considerations......................................52
Investment Objectives and Criteria...................43
Legal Opinions.......................................93
Management...........................................39
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................51
Plan of Distribution.................................89
Prior Performance Summary............................35
Real Property Investments............................51
Reports to Investors.................................88
Risk Factors......................................... 8
Summary of the Offering.............................. 1
Summary of Partnership Agreement.....................75
Supplemental Sales Material..........................93
Who Should Invest - Suitability Standards............19
</TABLE>
UNTIL APRIL 4, 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS SOLICITING DEALERS.
____________________
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS UNLESS
PRECEDED OR ACCOMPANIED BY THIS PROSPECTUS, NOR HAS ANY PERSON BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE PARTNERSHIP OR THE GENERAL
PARTNERS SINCE THE DATE HEREOF. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE
THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE
AMENDED OR SUPPLEMENTED ACCORDINGLY.
______________________
WELLS REAL ESTATE FUND IX, L.P.
MINIMUM OFFERING OF $1,250,000
______________________
PROSPECTUS
______________________
WELLS INVESTMENT
SECURITIES, INC.
JANUARY 5, 1996
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
SUPPLEMENT NO. 1 DATED APRIL 24, 1996 TO THE PROSPECTUS
DATED JANUARY 5, 1996
This document supplements, and should be read in conjunction with, the
Prospectus of Wells Real Estate Fund IX, L.P. dated January 5, 1996 (the
"Prospectus"). Unless otherwise defined herein, capitalized terms used in this
Supplement shall have the same meanings as in the Prospectus.
The purpose of this Supplement is to describe the following:
(i) The status of the offering of units of limited partnership
interest (the "Units") in Wells Real Estate Fund IX, L.P. (the "Partnership");
(ii) Revisions to the Financial Statements contained in Appendix I to
the Prospectus and the Prior Performance Tables included as Exhibit A to the
Prospectus; and
(iii) Revisions to the "EXPERTS" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" sections of the
Prospectus.
STATUS OF THE OFFERING
Pursuant to the Prospectus, the offering of Units in the Partnership
commenced January 5, 1996. The Partnership commenced operations on February 12,
1996, upon the acceptance of subscriptions for the minimum offering of
$1,250,000 (125,000 Units). As of March 31, 1996, the Partnership had raised a
total of $4,768,003 in offering proceeds (476,800 Units), comprised of
$3,659,863 raised from the sale of Class A Status Units (365,986 Units) and
$1,108,140 raised from the sale of Class B Status Units (110,814 Units).
FINANCIAL STATEMENTS AND PRIOR PERFORMANCE TABLES
Financial statements of Wells Real Estate Fund IX, L.P., Wells Partners,
L.P. and Wells Capital, Inc., as of December 31, 1995 and 1994, and for each of
the years in the two-year period ended December 31, 1995, are included as
Appendix I to this Supplement.
Prior Performance Tables dated as of December 31, 1995 are included as
Exhibit A to this Supplement.
EXPERTS
The information contained on pages 93 and 94 of the Prospectus in the
"EXPERTS" section of the Prospectus is revised as of the date of this Supplement
by the insertion of the following sentence at the end of the paragraph:
The financial statements of Wells Real Estate Fund IX, L.P., Wells
Partners, L.P. and Wells Capital, Inc. included in Appendix I to Supplement
No. 1 to this Prospectus, to the extent and for the periods indicated in
their reports, have been audited by Arthur Andersen LLP and KPMG Peat
Marwick LLP, independent public accountants, and are included herein in
reliance upon the authority of said firms as experts in giving said
reports.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information contained on page 52 of the Prospectus in the "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
section of the Prospectus is revised as of the date of this Supplement by the
deletion of the first paragraph of that section and the insertion of the
following paragraph in lieu thereof:
The Partnership commenced operations on February 12, 1996, upon the
acceptance of subscriptions for the minimum offering of $1,250,000 (125,000
Units). As of March 31, 1996, the Partnership had raised a total of $4,768,003
in offering proceeds (476,800 Units), comprised of $3,659,863 raised from the
sale of Class A Status Units (365,986 Class A Status Units) and $1,108,140
raised from the sale of Class B Status Units (110,814 Class B Status Units).
After the payment of $166,880 in Acquisition and Advisory Fees, payment of
$715,200 in selling commissions and organizational and offering expenses, as of
March 31, 1996, the Partnership was holding net offering proceeds of $3,885,923
available for investment in properties.
2
<PAGE>
APPENDIX I
FINANCIAL STATEMENTS
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
WELLS PARTNERS, L.P.
Audited Financial Statements
Independent Auditors' Reports I-1
Balance Sheets as of December 31, 1995 and 1994 I-3
Statements of Operations for the years ended December 31, 1995 and 1994 I-4
Statements of Partners' Capital for the years ended December 31, 1995 and 1994 I-5
Statements of Cash Flows for the years ended December 31, 1995 and 1994 I-6
Notes to Financial Statements I-7
WELLS CAPITAL, INC.
Audited Financial Statements
Independent Auditors' Reports I-10
Balance Sheets as of December 31, 1995 and 1994 I-12
Statements of Income for the years ended December 31, 1995 and 1994 I-13
Statements of Stockholder's Equity for the years ended December 31, 1995 and 1994 I-14
Statements of Cash Flows for the years ended December 31, 1995 and 1994 I-15
Notes to Financial Statements I-16
WELLS REAL ESTATE FUND IX, L.P.
Audited Balance Sheets
Independent Auditors' Reports I-20
Balance Sheets as of December 31, 1995 and 1994 I-22
Notes to Financial Statements I-23
</TABLE>
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Partners, L.P.:
We have audited the accompanying balance sheet of WELLS PARTNERS, L.P. (a
Georgia limited partnership) as of December 31, 1995 and the related statement
of operations, partners' capital, and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Partners, L.P. as of
December 31, 1995 and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 12, 1996
I-1
<PAGE>
[LETTER HEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' REPORT
The Partners
Wells Partners, L.P.:
We have audited the accompanying balance sheet of Wells Partners, L.P., a
limited partnership, as of December 31, 1994, and the related statements of
operations, partners' capital, and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Partners, L.P. as of
December 31, 1994, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
January 13, 1995
I-2
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
---------- ----------
<S> <C> <C>
CASH $ 70 $ 70
INVESTMENT IN PARTNERSHIPS (NOTE 2) 128,944 125,914
---------- ----------
Total assets $129,014 $125,984
========== ==========
PARTNERS' CAPITAL
GENERAL PARTNER $ 5,982 $ 2,477
GENERAL PARTNERS 123,032 123,507
---------- ----------
Total partners' capital $129,014 $125,984
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
I-3
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
EQUITY IN LOSS OF PARTNERSHIPS AND NET LOSS (NOTE 2) $480 $868
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
I-4
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $1,686 $124,366 $126,052
Capital contribution 800 0 800
Net loss (9) (859) (868)
--------- ---------- ----------
BALANCE AT DECEMBER 31, 1994 2,477 123,507 125,984
Capital contribution 3,510 0 3,510
Net loss (5) (475) (480)
--------- ---------- ----------
BALANCE AT DECEMBER 31, 1995 $5,982 $123,032 $129,014
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
I-5
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ 480 $868
Adjustment to reconcile net loss to net cash used by operating
activities:
Equity in loss of partnership (480) (868)
-------- ---------
Net cash used by operating activities 0 0
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in limited partnership (3,510) (800)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
General partner contributions 3,510 800
-------- ---------
Net change in cash 0 0
CASH AT BEGINNING OF YEAR 70 70
-------- ---------
CASH AT END OF YEAR $ 70 $ 70
======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
I-6
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Partners (the "Partnership") is a limited partnership under the laws of
the state of Georgia. The general partner is Wells Capital, Inc., a Georgia
corporation. The Partnership serves as the general partner in several
affiliated limited partnerships. The Partnership is currently a general
partner in Wells Real Estate Fund IV, L.P. ("Fund IV"), Wells Real Estate
Fund V, L.P. ("Fund V"), Wells Real Estate Fund VI, L.P. ("Fund VI"), Wells
Real Estate Fund VII, L.P. ("Fund VII"), Wells Real Estate Fund VIII, L.P.
("Fund VIII"), and Wells Real Estate Fund IX, L.P. ("Fund IX"), collectively
referred to as the "Funds". The Partnership also owns limited partnership
interests in Beaver Ruin--Arc Way, Ltd. ("Beaver Ruin") and Carter Boulevard,
Ltd. ("Carter Boulevard").
Although, as set forth above, the Partnership is a general partner in the
Funds, the Partnership's general partner, Wells Capital, Inc., has acted as
the general partner for the Funds on behalf of the Partnership.
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.
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective share of
profits and losses in their individual income tax returns.
2. INVESTMENT IN PARTNERSHIPS
The Partnership does not control the Funds, Beaver Ruin, or Carter Boulevard;
however, it does exercise significant influence. Accordingly, investments in
partnerships are recorded using the equity method of accounting. Each of the
partnerships, except for Beaver Ruin
I-7
<PAGE>
and Carter Boulevard, has been formed to acquire and operate commercial real
properties, including both properties which are to be developed or are under
development and properties which are newly constructed or have operating
histories. Beaver Ruin and Carter Boulevard were formed to acquire and
eventually sell the Beaver Ruin and Carter Boulevard properties. The
Partnership's investment in partnerships at December 31, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
19.2% ownership interest in Beaver Ruin $ 81,910 $ 77,452
51.27% ownership interest in Carter Boulevard 46,284 45,976
Wells Real Estate Fund VI 0 1,462
Wells Real Estate Fund VII 0 224
Wells Real Estate Fund VIII 350 400
Wells Real Estate Fund IX 400 400
---------- ----------
$128,944 $125,914
========== ==========
</TABLE>
The assets of Beaver Ruin and Carter Boulevard are comprised primarily of an
investment in a parcel of undeveloped land. The general partner of the
Partnership is also the general partner of Beaver Ruin.
Fund VI owns all of its properties through an investment in five joint
ventures which, as of December 31, 1995, owned an interest in three
commercial office buildings, a shopping center, four retail buildings, two
retail centers under construction, and an office/retail center under
construction.
Fund VII owns a retail/office building directly. In addition, Fund VII owns
properties through investments in five joint ventures which, as of December
31, 1995, owned an interest in two commercial office buildings, a shopping
center, two retail buildings, two retail centers under construction, and an
office/retail center under construction.
In addition, the Partnership owns interests in Fund IV and Fund V. Fund IV
owns all of its properties through investments in two joint ventures which,
as of December 31, 1995, owned interests in a retail shopping center, two
commercial office buildings, and a medical center development. Fund V owns
all of its properties through investments in three joint ventures which, as
of December 31, 1995, owned interests in three commercial office buildings,
two retail buildings, and a medical center development. The Partnership's
investments in Fund IV and Fund V were $0 at December 31, 1995 and 1994.
The Partnership is entitled to share in the allocation of cash distributions
and net income (losses) based on ownership percentages outlined in the
partnership agreements.
3. INCOME TAXES
The Partnership will not request a ruling from the Internal Revenue Service
to the effect that it will be treated as a partnership and not an association
taxable as a corporation for federal income tax purposes. The Partnership
has requested an opinion of legal counsel as to its tax status but such an
opinion is not binding upon the Internal Revenue Service.
I-8
<PAGE>
4. COMMITMENTS AND CONTINGENCIES
Management, after consultation with counsel, is not aware of any significant
litigation or claims against the Partnership. In the normal course of
business, the Partnership may be subject to litigation or claims.
I-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
Wells Capital, Inc.:
We have audited the accompanying balance sheet of WELLS CAPITAL, INC. (a Georgia
corporation) as of December 31, 1995 and the related statements of income,
stockholder's equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Capital, Inc. as of
December 31, 1995 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Arthur Anderson LLP
Atlanta, Georgia
January 12, 1996
I-10
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wells Capital, Inc.:
We have audited the accompanying balance sheet of Wells Capital, Inc. as of
December 31, 1994, and the related statements of earnings, stockholder's equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.]
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Capital, Inc. as of
December 31, 1994, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
January 13, 1995
I-11
<PAGE>
WELLS CAPITAL, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $130,457 $ 3,863
Due from affiliates (Note 2) 306,229 401,977
Other receivables 8,533 9,562
---------- ----------
Total current assets 445,219 415,402
INVESTMENT IN PARTNERSHIPS (NOTE 3) 16,483 20,035
---------- ----------
Total assets $461,702 $435,437
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
ACCOUNTS PAYABLE $ 84,893 $ 88,656
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 100,000 shares
authorized, 600 shares issued 600 600
Contributed capital 306,541 306,541
Retained earnings 69,668 39,640
---------- ----------
Total stockholder's equity 376,809 346,781
---------- ----------
Total liabilities and stockholder's equity $461,702 $435,437
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
I-12
<PAGE>
WELLS CAPITAL, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
REVENUES:
Acquisition and advisory fees (Note 4) $1,083,281 $1,301,061
Equity in income of limited 11,984 0
partnerships (Note 3) ------------ ------------
1,095,265 1,301,061
------------ ------------
EXPENSES:
Salaries and wages 725,274 953,999
Occupancy 26,484 26,484
General and administrative 313,479 217,093
Equity in loss of limited partnerships (Note 3) 0 5,312
------------ ------------
1,065,237 1,202,888
------------ ------------
NET INCOME $ 30,028 $ 98,173
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
I-13
<PAGE>
WELLS CAPITAL, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
(ACCUMULATED
DEFICIT) TOTAL
COMMON CONTRIBUTED RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $600 $306,541 $(58,533) $248,608
Net income 0 0 98,173 98,173
------------ ------------- -------------- ---------------
BALANCE, DECEMBER 31, 1994 600 306,541 39,640 346,781
Net income 0 0 30,028 30,028
------------ ------------- -------------- ---------------
BALANCE, DECEMBER 31, 1995 $600 $306,541 $ 69,668 $376,809
============ ============= ============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
I-14
<PAGE>
WELLS CAPITAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,028 $ 98,173
------------ -------------
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Equity in (income) loss from
limited partnerships (11,984) 5,312
Changes in assets and liabilities:
Due from affiliates 95,748 (109,092)
Other receivables 1,029 (5,777)
Accounts payable (3,763) (36,318)
------------ -------------
Total adjustments 81,030 (145,875)
------------ -------------
Net cash provided by (used in)
operating activities 111,058 (47,702)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investment in limited
partnerships 0 (800)
Distributions from limited partnerships 15,536 252
------------ -------------
Net cash provided by (used in)
investing activities 15,536 (548)
------------ -------------
Net increase (decrease) in cash 126,594 (48,250)
CASH AT BEGINNING OF YEAR 3,863 52,113
------------ -------------
CASH AT END OF YEAR $130,457 $ 3,863
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
I-15
<PAGE>
WELLS CAPITAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Capital, Inc. (the "Company") was organized on April 18, 1984 as a
corporation under the Georgia Business Corporation Code. The Company is in
the business of serving as a general partner in public limited partnerships.
As a general partner, the Company performs certain administrative services
for the Wells Real Estate funds, such as accounting and other administration,
and incurs the related expenses. Such expenses are allocated among the
various Wells Real Estate funds based on time spent on each fund by
individual administrative personnel. The sole stockholder of the Company is
Leo F. Wells III.
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.
INCOME TAXES
The Company elected to be treated as an S corporation effective January 1,
1987. No provision for income taxes is recorded, because any income tax
liability is the responsibility of the stockholder.
2. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1995 and 1994 represents primarily
organizational and offering expenses paid by the Company on behalf of the
Wells Real Estate Funds VII, L.P., VIII, L.P. and IX, L.P. The remaining due
from affiliates represents operating expenses paid by the Company on behalf
of the affiliates. The following is a detail of due from affiliates:
I-16
<PAGE>
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Wells Real Estate Fund VII, L.P. $ 0 $ 14,829
Wells Real Estate Fund VIII, L.P. 136,436 133,494
Wells Real Estate Fund IX, L.P. 142,229 42,409
Wells Management Company, Inc. 6,709 209,137
Other affiliates 20,855 2,108
-------- --------
$306,229 $401,977
======== ========
</TABLE>
Offering costs paid by the Company on behalf of and reimbursed by Wells Real
Estate Fund VIII, L.P. of approximately $126,000 were paid to related
parties.
3. INVESTMENT IN PARTNERSHIPS
The following is a reconciliation of the Company's investment in partnerships
as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Investment in partnerships, beginning of period $ 20,035 $24,799
Contribution to partnerships 0 800
Equity in income (loss) of partnerships 11,984 (5,312)
Distributions from partnerships (15,536) (252)
--------- --------
Investment in partnerships, end of period $ 16,483 $20,035
========= ========
</TABLE>
The Company is a general partner in Wells Real Estate Fund I ("Fund I"),
Wells Real Estate Fund II ("Fund II"), Wells Real Estate Fund II-OW ("Fund
II-OW"), and Wells Real Estate Fund III, L.P. ("Fund III"), all of which are
Georgia public limited partnerships and Wells Partners, L.P. ("Wells
Partners"), a Georgia limited partnership. The Company does not have control
over the operations of the partnerships; however, it does exercise
significant influence. Accordingly, the investment in the partnerships is
recorded using the equity method of accounting. Each of the partnerships,
except for Wells Partners, has been formed to acquire and operate commercial
real properties, including both properties which are to be developed or are
under development and properties which are newly constructed or have
operating histories. Wells Partners was formed during 1990 to act as a
general partner for Wells Real Estate Fund IV, L.P. ("Fund IV") and Wells
Real Estate Fund V, L.P. ("Fund V"). In December 1992, Wells Partners became
the general partner for Wells Real Estate Fund VI, L.P. ("Fund VI") and Wells
Real Estate Fund VII, L.P. ("Fund VII"). In August 1994, Wells Partners
became the general partner for Wells Real Estate Fund VIII, L.P. ("Fund
VIII") and Wells Real Estate Fund IX, L.P. ("Fund IX"). Funds IV, V, VI, VII,
VIII, and IX have the same investment objectives as Funds I, II, II-OW, and
III. The Company's investment in each partnership at December 31, 1995 and
1994 is as follows:
I-17
<PAGE>
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Fund I $11,027 $13,236
Fund II 3,096 4,322
Wells Partners 2,360 2,477
------- -------
$16,483 $20,035
======= =======
</TABLE>
As of December 31, 1995, Fund I owned interests in a medical office building,
two commercial office buildings, three retail shopping centers, and a project
consisting of seven office buildings and a shopping center.
Fund II and Fund II-OW own all of their properties through a joint venture,
which, as of December 31, 1995, owned interests in a retail shopping center,
a project consisting of seven office buildings and a shopping center, two
office buildings, a parcel of land upon which a restaurant was developed and
a retail shopping center is currently under development. The Partnership's
investment in Fund II-OW was $0 at December 31, 1995 and 1994.
As of December 31, 1995, Fund III owned interests in three office buildings,
a retail shopping center, a parcel of land upon part of which a restaurant
was developed and a retail shopping center is currently under development.
The Partnership's investment in Fund III was $0 at December 31, 1995 and
1994.
The Company is entitled to share in the allocation of cash distributions and
net income (loss) based on percentages outlined in the partnership
agreements. The Company, as general partner, paid all the organization and
offering expenses for Fund I, Fund II, Fund II-OW, and Fund III and was
reimbursed pursuant to the partnership agreements, which provided that the
partnerships could reimburse the Company up to 5% of total limited partners'
contributions in organization and offering expenses. The Company also paid,
or is currently paying, on behalf of Wells Partners the organization and
offering expenses for Fund IV, Fund V, Fund VI, Fund VII, Fund VIII, and Fund
IX. Pursuant to the partnership agreements of Fund IV and Fund V, these two
partnerships can only pay up to 3% of total limited partners' contributions
in organization and offering expenses. Pursuant to the partnership agreements
of Fund VI, Fund VII, Fund VIII, and Fund IX, these partnerships can
reimburse the Company up to 5% of total limited partners' contributions in
organization and offering costs.
During the year ended December 31, 1995, the Company paid and was reimbursed
for organization and offering costs related to Fund VII totaling
approximately $40,260, which did not exceed the 5% reimbursement limitation.
During 1995, the Company expensed approximately $40,432 of organizational and
offering costs related to Fund VII, which exceeded the 5% reimbursement
limitation.
As of December 31, 1995, the Company had a receivable for unreimbursed
organization and offering costs related to Fund VIII totaling $96,972 which
is included in due from affiliates (Note 2). During 1995, the Company
expensed approximately $38,000 of organization and offering costs related to
Fund VIII which exceeded the 5% reimbursement limitation.
I-18
<PAGE>
As of December 31, 1995, the Company paid organizational and offering costs
related to Fund IX of $142,229. Fund IX filed a registration statement with
the Securities and Exchange Commission for the offering and sale of its
limited partnership units, which became effective on January 6, 1995. In
order for the Company to be reimbursed for these expenses, Fund IX will need
to receive approximately $1,250,000 in limited partners' contributions. At
this time, the Company believes that all of the foregoing organization and
offering expenses will be reimbursed. The Company's receivable for the
aforementioned expenses is included in due from affiliates (Note 2).
4. ACQUISITION AND ADVISORY FEES
Acquisition and advisory fees were earned from Fund VII and Fund VIII in 1995
and from Fund VI and Fund VII in 1994. Pursuant to the partnership agreements
of Fund VI, Fund VII, and Fund VIII, total fees earned may not exceed 3 1/2%
of limited partners' contributions. As of December 31, 1995 and 1994, all
fees were collected for limited partners' contributions received by Fund VI,
Fund VII, and Fund VIII.
5. COMMITMENTS AND CONTINGENCIES
The Company has guaranteed the indebtedness of an affiliate, Wells Management
Company, Inc., for an amount not to exceed $200,000.
Management, after consultation with counsel, is not aware of any significant
litigation or claims against the Company. In the normal course of business,
the Company may be subject to litigation or claims.
I-19
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Real Estate Fund IX, L.P.:
We have audited the accompanying balance sheet of WELLS REAL ESTATE FUND IX,
L.P. (a Georgia public limited partnership) as of December 31, 1995. This
financial statement is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this financial statement based on our
audit. The balance sheet of Wells Real Estate Fund IX, L.P. as of December 31,
1994 was audited by other auditors, whose report dated January 13, 1995,
expressed an unqualified opinion on this statement.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Wells Real Estate Fund IX, L.P.
as of December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 12, 1996
I-20
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' REPORT
The Partners
Wells Real Estate Fund IX, L.P.:
We have audited the accompanying balance sheet of Wells Real Estate Fund IX,
L.P., a limited partnership, as of December 31, 1994. This financial statement
is the responsibility of the Partnership's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Wells Real Estate Fund IX, L.P. as
of December 31, 1994 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
January 13, 1995
I-21
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
(A Georgia Public Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
-------- -------
<S> <C> <C>
CASH $ 600 $ 600
DEFERRED OFFERING COSTS (Note 2) 142,229 42,409
-------- -------
Total assets $142,829 $43,009
======== =======
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES, due to affiliate (Note 2) $142,229 $42,409
-------- -------
COMMITMENTS AND CONTINGENCIES (Note 5)
PARTNERS' CAPITAL:
GENERAL PARTNERS 500 500
LIMITED PARTNER 100 100
-------- -------
Total partners' capital 600 600
-------- -------
Total liabilities and partners' capital $142,829 $43,009
======== =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
I-22
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund IX, L.P. (the "Partnership") is a public limited
partnership organized on August 15, 1994, under the laws of the State of
Georgia. The general partners are Leo F. Wells III and Wells Partners, L.P.,
a Georgia nonpublic limited partnership. The Partnership has one class of
limited partnership units. Upon subscription for units, each limited partner
must elect whether to have their units treated as Class A Status Units
(entitled to allocation of substantially all of the Partnership's net income
without allocation of any deductions for depreciation, amortization, cost
recovery, or net losses) or Class B Status Units (entitled to a larger share
of deductions for depreciation, amortization, cost recovery and net loss, and
a higher percentage return on appreciation (if any) of real estate
investments, but no current cash distributions). Thereafter, limited partners
shall have the right to change their prior election to have some or all of
their Units treated as Class A Status Units or Class B Status Units one time
during each quarterly accounting period. Limited partners owning a majority
of the Units may vote to, among other things: (a) amend the Partnership
agreement, subject to certain limitations, (b) change the business purpose or
investment objectives of the Partnership, and (c) remove a general partner.
Each limited partnership unit has equal voting rights, regardless of class.
The Partnership had no operations as of December 31, 1995.
The Partnership intends to acquire on an all cash basis and operate
commercial real properties, including both properties which are either to be
developed, currently under development or construction, newly constructed, or
have operating histories.
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.
I-23
<PAGE>
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective share of
profits and losses in their individual income tax returns.
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Cash available for distribution, as defined by the Partnership agreement,
will be distributed to the limited partners on a quarterly basis. In
accordance with the Partnership agreement, such distributions first are paid
to limited partners holding Class A Status Units until they have received a
10% annual return on their net capital contributions, as defined. Then such
distributions are paid to the general partners until they have received 10%
of the total amount thus far distributed. Any remaining cash available for
distribution is split between the limited partners holding Class A Status
Units and the general partners on a basis of 90% and 10%, respectively. No
such distributions will be made to the limited partners holding Class B
Status Units.
ALLOCATION OF NET INCOME, NET LOSS, AND GAIN ON SALE
Net income of the Partnership will be allocated each year in the same
proportions that net cash from operations is distributed to the partners. To
the extent the Partnership's net income in any year exceeds net cash from
operations, it will be allocated 99% to the limited partners holding Class A
Status Units and 1% to the general partners.
Net loss, depreciation, amortization, and cost recovery deductions for each
fiscal year will be allocated as follows: (a) 99% to the limited partners
holding Class B Status Units and 1% to the general partners until their
capital accounts are reduced to zero; (b) then to any partner having a
positive balance in his capital account in an amount not to exceed such
positive balance; and (c) thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable: (i) allocations made pursuant to the qualified income offset
provisions of the Partnership agreement; (ii) allocations to partners having
negative capital accounts until all negative capital accounts have been
restored to zero; and (iii) allocations to limited partners holding Class B
Status Units in amounts equal to the deductions for depreciation,
amortization, and cost recovery previously allocated to them with respect to
the specific Partnership property sold, but not in excess of the amount of
gain on sale recognized by the Partnership with respect to the sale of such
property.
DISTRIBUTION OF SALES PROCEEDS
Upon sales of properties, the net sales proceeds will be distributed in the
following order:
. To limited partners holding units which at any time have been treated
as Class B Status Units until they receive an amount necessary to
equal the net cash available for distribution received by the limited
partners holding Class A Status Units;
I-24
<PAGE>
. To limited partners on a per unit basis until each limited partner
has received 100% of their net capital contribution, as defined;
. To all limited partners on a per unit basis until they receive a
cumulative 10% per annum return on their net capital contribution, as
defined;
. To limited partners on a per unit basis until they receive an amount
equal to their Preferential Limited Partner Return (defined as the
sum of a 10% per annum cumulative return on net capital contributions
for all periods during which the units were treated as Class A Status
Units and a 15% per annum cumulative return on net capital
contributions for all periods during which the units were treated as
Class B Status Units);
. To all general partners until they have received 100% of their
capital contributions plus, in the event that limited partners have
received aggregate cash distributions from the Partnership over the
life of their investment in excess of a return of their net capital
contributions plus their Preferential Partner Return, then the
general partners shall receive an additional sum equal to 25% of such
excess; and
. Thereafter 80% to the limited partners on a per unit basis and 20% to
the general partners.
2. DEFERRED OFFERING COSTS
Organization and offering expenses, to the extent they exceed 5% of gross
proceeds, will be paid by Wells Capital, Inc. (the "Company"), an affiliate
of the general partners, and not by the Partnership. Organization and
offering expenses do not include sales or underwriting commissions but do
include such costs as legal and accounting fees, printing costs, and other
offering expenses.
As of December 31, 1995 and 1994, the Company paid organization and offering
expenses related to the Partnership of $142,229 and $42,409, respectively. A
registration statement covering both the Partnership and Wells Real Estate
Fund VIII, L.P. became effective with the Securities and Exchange Commission
("SEC") on January 6, 1995. The Partnership will file an amendment to its
registration statement with the SEC prior to commencing the offering and sale
of its limited partnership units. In order for the Company to be reimbursed
for these expenses, the amendment to the registration statement of the
Partnership will have to be declared effective by the SEC, and the
Partnership will need to receive approximately $1,250,000 in limited
partners' contributions. At this time, the general partners believe that the
amendment to the registration statement for the Partnership will be declared
effective and that all of the foregoing organizational and offering expenses
will be reimbursed by the Partnership.
3. RELATED-PARTY TRANSACTIONS
The Partnership will enter into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. In
I-25
<PAGE>
consideration for supervising the management of the Partnership's properties,
the Partnership will generally pay Wells Management management and leasing
fees equal to: (a) 3% of the gross revenues for management and 3% of the
gross revenues for leasing (aggregate maximum of 6%) plus a separate fee for
the on-time initial lease-up of newly constructed properties, and (b) in the
case of commercial properties which are leased on a long-term net basis (ten
or more years), 1% of the gross revenues except for initial leasing fees
equal to 3% of the gross revenues over the first five years of the lease
term.
The general partners are also general partners in other Wells Real Estate
funds. As such, there may exist conflicts of interest where the general
partners while serving in the capacity as general partners for other Wells
Real Estate funds may be in competition with the Partnership for tenants in
similar geographic markets.
4. INCOME TAXES
The Partnership will not request a ruling from the Internal Revenue Service
to the effect that it will be treated as a partnership and not an association
taxable as a corporation for Federal income tax purposes. The Partnership has
requested an opinion of legal counsel as to its tax status prior to its
effectiveness for the offering of limited partnership units, but such an
opinion is not binding upon the Internal Revenue Service.
5. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Company. In the normal course of
business, the Company may become subject to such litigation or claims.
I-26
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (the "Tables") provide information
relating to real estate investment programs sponsored by the General Partners or
their Affiliates ("Prior Programs") which have investment objectives similar to
the Partnership.
Prospective investors should read these Tables carefully together with the
summary information concerning the Prior Programs as set forth in "PRIOR
PERFORMANCE SUMMARY" elsewhere in this Prospectus.
INVESTORS IN THE PARTNERSHIP WILL NOT OWN ANY INTEREST IN THE PRIOR
PROGRAMS AND SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS, IF ANY,
COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE PRIOR PROGRAMS.
These Tables present actual results of Prior Programs that have investment
objectives similar to those of the Partnership. The Partnership's investment
objectives are to maximize Net Cash From Operations; to preserve original
Capital Contributions; and to realize capital appreciation over a period of
time. All of the General Partners' Prior Programs have used a substantial
amount of capital and not acquisition indebtedness to acquire their properties.
The General Partners are responsible for the acquisition, operation,
maintenance and resale of the Partnership Properties. The financial results of
the Prior Programs thus provide an indication of the General Partners'
performance of their obligations during the periods covered. However, general
economic conditions affecting the real estate industry and other factors
contribute significantly to financial results.
The following tables are included herein:
TABLE I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
TABLE II - Compensation to Sponsor (in Dollars)
TABLE III - Annual Operating Results of Prior Programs
TABLE IV (Results of completed programs) and TABLE V (sales or disposals of
property) have been omitted since none of the Prior Programs have sold any of
their properties to date.
Additional information relating to the acquisition of properties by the
Prior Programs is contained in TABLE VI, which is included in the Registration
Statement which the Partnership has filed with the Securities and Exchange
Commission. As described above, no Prior Program has sold or disposed of any
property held by it. Copies of any or all information will be provided to
prospective investors at no charge upon request.
The following are definitions of certain terms used in the Tables:
"ACQUISITION FEES" shall mean fees and commissions paid by a partnership in
connection with its purchase or development of a property, except development
fees paid to a person not affiliated with the partnership or with a general
partner of the partnership in connection with the actual development of a
project after acquisition of the land by the partnership.
"ORGANIZATION EXPENSES" shall include legal fees, accounting fees,
securities filing fees, printing and reproduction expenses and fees paid to the
general partners or their affiliates in connection with the planning and
formation of the partnership.
"UNDERWRITING FEES" shall include selling commissions and wholesaling fees
paid to broker-dealers for services provided by the broker-dealers during the
offering.
<PAGE>
TABLE I
(UNAUDITED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
This Table provides a summary of the experience of the General Partners and
their Affiliates in Prior Programs for which offerings have been completed since
December 31, 1992. Information is provided with regard to the manner in which
the proceeds of the offerings have been applied. Also set forth is information
pertaining to the timing and length of these offerings and the time period over
which the proceeds have been invested in the properties.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real
Estate Fund Estate Fund Estate Fund Estate Fund
V, L.P. VI, L.P. VII, L.P. VIII, L.P.
------- -------- --------- ----------
<S> <C> <C> <C> <C>
Dollar Amount Raised $17,006,020/(3)/ $25,000,000/(4)/ $23,374,961/(5)/ $30,144,542/(6)/
================ ================ ================ ================
Percentage Amount Raised 100.0%/(3)/ 100.0%/(4)/ 100.0%/(5)/ 100.0%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 10.0% 10.0%
Organizational Expenses 3.0% 5.0% 5.0% 5.0%
Reserves/(1)/ 1.0% 1.0% 1.0% 0.0%
---- ---- ---- ----
Percent Available for Investment 86.0% 84.0% 84.0% 85.0%
Acquisition and Development Costs
Prepaid Items and Fees related to Purchase
of Property 1.2% 0.3% 0.0% 0.0%
Cash Down Payment 36.1% 40.4% 16.3% 0.0%
Acquisition Fees/(2)/ 5.5% 3.7% 3.5% 3.5%
Development and Construction Costs 43.2% 39.6% 64.2% 24.2%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0% 0.0%
---- ---- ---- ----
Total Acquisition and Development Cost 86.0% 84.0% 84.0% 27.7%
---- ---- ---- ----
Percent Leveraged 0.0% 0.0% 0.0% 0.0%
==== ===== ==== ====
Date Offering Began 03/06/92 04/05/93 04/24/94 01/06/95
Length of Offering 12 mo./(3)/ 12 mo./(4)/ 12 mo. 12 mo.
Months to Invest 90% of Amount Available for
Investment (Measured from Beginning of Offering) 22 mo. 15 mo. 12 mo. /(7)/
Number of Investors 1,665 1,791 1,865
</TABLE>
___________________________________
(1) Does not include General Partner contributions held as part of reserves.
(2) Includes development fees, real estate commissions, general contractor fees
and/or architectural fees paid to Affiliates of the General Partners.
(3) Total dollar amount registered and available to be offered was $25,000,000.
Wells Real Estate Fund V.L.P closed its offering on March 3, 1993 and the
total dollar amount raised was $17,006,020.
(4) Total dollar amount registered and available to be offered was $25,000,000.
Wells Real Estate Fund VI.L.P. closed its offering on April 4, 1994 and the
total dollar amount raised was $25,000,000.
(5) Total dollar amount registered and available to be offered was $25,000,000.
Wells Real Estate Fund VII.L.P. closed its offering on January 5, 1995 and
the total dollar amount raised was $24,180,174.
(6) Total dollar amount registered and available to be offered was $35,000,000.
As of December 31, 1995, Wells Real Estate Fund VIII, L.P. had not yet
completed its offering. The total dollar amount received as of that date
was $30,144,542.
(7) As of December 31, 1995, Wells Real Estate Fund VIII, L.P. had not yet
invested 90% of the amount available for investment. The amount invested in
properties (including Acquisition Fees paid but not yet associated with a
specific property) at December 31, 1995 was 23% of the total dollar amount
raised.
A-2
<PAGE>
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by General Partners or
Affiliates of the General Partners, including compensation paid out of offering
proceeds and compensation paid in connection with the ongoing operations of
Prior Programs having similar or identical investment objectives the offerings
of which have been completed since December 31, 1992. These partnerships have
not sold or refinanced any of their properties to date. All figures are as of
December 31, 1995.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real Other
Estate Fund Estate Fund Estate Fund Estate Fund Public
V, L.P. VI, L.P. VII, L.P. VIII, L.P. Programs/(1)/
------- -------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Date Offering Commenced 03/06/92 04/05/93 04/06/94 01/06/95
Dollar Amount Raised /(2)/ $ 17,006,020 $ 25,000,000 $ 24,180,174 $ 30,144,542 --
to Sponsor from Proceeds of Offering:
Underwriting Fees/(3)/ $ 200,432 $ 119,936 $ 178,122 $ 172,929 --
Acquisition Fees
Real Estate Commissions -- -- -- -- --
Acquisition and Advisory Fees/(4)/ $ 935,331 $ 932,216 $ 846,306 $ 1,055,059 --
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor/(5)/ $ 2,272,483 $ 1,644,885 $ 971,752 $ 236,953 $ 21,059,211
Amount Paid to Sponsor from Operations:
Property Management Fee/(1)/ $ 238,457 $ 36,712 $ 15,574 $ 373 $ 682,201
Partnership Management Fee -- -- -- -- --
Reimbursements $ 168,481 $ 70,146 $ 31,674 $ 11,130 $ 1,095,919
Leasing Commissions $ 80,793 $ 15,646 $ 6,634 373 $ 785,840
General Partner Distributions -- -- -- -- 15,205
Other -- -- -- -- --
Dollar Amount of Property Sales and Refinancing
Payments to Sponsors:
Cash -- -- -- -- --
Notes -- -- -- -- --
Amount Paid to Sponsor from Property Sales
and Refinancing:
Real Estate Commissions -- -- -- -- --
Incentive Fees -- -- -- -- --
Other -- -- -- -- --
</TABLE>
_________________________
(1) Includes compensation paid to General Partners from Wells Real Estate Fund
I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW Wells Real
Estate Fund III, L.P. and Wells Real Estate Fund IV.L.P. during the past
three years. General Partners of Wells Real Estate Fund I are entitled to
certain property management and leasing fees but have elected to defer the
payment of such fees until a later year on properties owned by Fund I and
properties owned jointly by Fund I and Fund II. At December 31, 1995, the
amount of such fees due the General Partners totaled $1,170,611.
(2) Represents amount raised as of December 31, 1995. Wells Real Estate Fund
VII, L.P. had not yet completed its offering of Limited Partnership Units
as of that date.
(3) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offerings of Wells Real
Estate Funds V, VI, VII and VII, which were not reallowed to participating
broker-dealers.
(4) Fees paid to the General Partners or their Affiliates for acquisition
advisory services in connection with the review and evaluation of potential
real property acquisitions.
(5) Includes $38,628 in net cash used by operating activities, $1,823,380 in
distributions paid to limited partners and $487,731 in payments to sponsors
for Wells Real Estate Fund V, L.P.; $15,549 in net cash provided by
operating activities, $1,506,832 in distributions paid to limited partners
and $122,504 in payments to sponsor for Wells Real Estate Fund VI, L.P.;
$22,064 in net cash used by operating activities, $939,934 in distributions
paid to limited partners and $53,882 in payments to sponsor for Wells Real
Estate Fund VII, L.P.; $225,077 in net cash provided by operating
activities and $11,876 in payments to sponsor for Wells Real Estate Fund
VII, L.P.; and $1,140,651 in net cash provided by operating activities,
$17,339,395 in distributions paid to limited partners and $2,579,165 in
payments to sponsor for other public programs.
A-3
<PAGE>
TABLE III
(UNAUDITED)
The tables on the following five (5) pages set forth operating results of
prior programs sponsored by the General Partners the offerings of which have
been completed since December 31, 1990. The information relates only to public
programs with investment objectives similar to those of the Partnership. All
figures are as of December 31 of the year indicated.
A-4
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IV, L.P.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 694,521 $ 678,591 $ 570,709 $ 421,532 $ 94,279
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 64,404 67,330 67,548 214,340 79,026
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250 5,208
------ ------ ------ ------- ------
Net Income GAAP Basis/(4)/ $ 623,867 $ 605,011 $ 496,911 $ 200,942 $ 10,045
======= ======= ======= ======= =======
Taxable Income: Operations $ 655,474 $ 541,939 $ 420,649 $ 179,790 $ 12,983
======= ======= ======= ======= =======
Cash Generated(Used By):
Operations (56,817) (58,610) (22,444) 29,139 (28,635)
Joint Ventures 975,911 864,771 465,951 124,696 --
------- ------- ------- ------- ------
$ 919,094 $ 806,161 $ 443,507 $ 153,835 $ (28,635)
Less Cash Distributions to Investors:
Operating Cash Flow 919,094 787,029 443,507 153,835 --
Return of Capital -- -- 20,271 80,567 --
Undistributed Cash Flow from Prior Year Operations 3,613 -- -- --
-------
Cash Generated (Deficiency) after Cash Distributions $ (3,613) $ 19,132 $ (20,271) $ (80,567) $ (28,635)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- 500
Increase in Limited Partner Contributions -- -- -- 4,572,355 9,042,297
------ ------ ------- --------- ---------
$ (3,613) $ 19,132 $ (20,271) $ 4,491,788 $ 9,014,162
Use of Funds:
Sales Commissions and Offering Expenses -- -- 667,701 1,067,372
Property Acquisitions and Deferred Project Costs 13,541 289,608 3,627,673 4,949,701 2,737,108
------ ------- --------- --------- ---------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (17,154) $(270,476) $(3,647,944) $ 1,125,614 $ 5,209,682
======= ======== ========== ========= =========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 47 47 54 23 5
- Operations Class B Units 0 (27) (561) (262) (54)
Capital Gain (Loss) 0 0 0 0 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 53 42 48 21 3
- Operations Class B Units (126) (11) (565) (262) (40)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 47 47 35 18 --
- Return of Capital Class A Units 23 13 -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 70 60 33 12 --
- Return of Capital Class A Units -- -- 2 6 --
- Operations Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in the
Table 100%
</TABLE>
_______________
(1) Includes $4,105 in equity in earnings of joint ventures and $90,174 from
investment of reserve funds in 1991; $194,776 in equity in earnings of
joint ventures and $226,756 from investment of reserve funds in 1992;
$552,210 in equity in earnings of joint ventures, and $10,515 from
investment of reserve funds in 1994; $663,934 in equity in earnings of
joint ventures and $10,587 from investment of reserve funds in 1995. At
December 31, 1995, the leasing status of all developed property was 93.17%
including developed property in initial lease-up.
(2) Includes partnership administrative expenses and property taxes.
(3) Included in equity in earnings of joint ventures in gross revenue is
depreciation and amortization of $5,484 for 1991, $95,155 for 1992,
$218,173 for 1993, $309,421 for 1994, and $368,943 for 1995.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated as follows: $20,738 to Class A
Limited Partners, $(10,586) to Class B Limited Partners and $(107) to
General Partners for 1991; $302,347 to Class A Limited Partners and
$(101,012) to Class B Limited Partners and $(393) to General Partners for
1992; $713,069 to Class A Limited Partners and $(216,158) to Class B
Limited Partners for 1993; $615,309 to Class A Limited Partners and
$(10,298) to Class B Limited Partners for 1994; and $623,867 to Class A
Limited Partners, $0 to Class B Limited Partners and $0 to General Partners
for 1995.
A-5
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND V, L.P.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 764,624 $ 656,958 $ 458,213 $ 58,640 N/A
Profit on Sale of Properties -- -- -- --
Less: Operating Expenses/(2)/ 68,735 88,987 96,964 71,521
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 5,208
------- ------- ------- -------
Net Income GAAP Basis/(4)/ $ 689,639 $ 561,721 $ 354,999 $ (18,089)
======= ======= ======= =======
Taxable Income (Loss): Operations $ 676,367 $ 528,025 $ 280,000 $ (18,089)
======= ======= ======= =======
Cash Generated (Used By):
Operations (46,235) (10,395) 112,594 (33,006)
Joint Ventures 1,020,905 653,729 54,154 --
--------- ------- ------- ------
$ 974,670 $ 643,334 $ 166,748 $ (33,006)
Less Cash Distributions to Investors:
Operating Cash Flow 969,011 643,334 151,336 --
Return of Capital -- 44,257 -- --
Undistributed Cash Flow from Prior Year Operations -- 15,412
------ ------- ------ ------
Cash Generated (Deficiency) after Cash Distributions $ 5,659 $ (59,669) $ (15,412) $ (33,006)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- --
Increase in Limited Partner Contributions -- -- 5,589,786 11,416,234
---- ----- --------- ----------
$ 5,659 $ (59,699) $ 5,605,198 $ 11,383,228
Use of Funds:
Sales Commissions and Offering Expenses -- -- 764,599 1,377,645
Return of Original Limited Partner's Investment -- -- -- 100
Property Acquisitions and Deferred Project Costs (233,501) 2,366,507 7,755,116 4,181,338
-------- --------- --------- ---------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (227,842) $(2,426,206) $(2,914,517 $ 5,824,145
========= =========== ========== ==========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 73 58 29 0
- Operations Class B Units (272) (180) (54) (65)
Capital Gain (Loss) 0 0 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 69 55 36 --
- Operations Class B Units (246) (181) (58) (21)
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 63 46 10 --
- Return of Capital Class A Units 13 -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 63 43 10 --
- Return of Capital Class A Units -- 3 -- --
- Operations Class B Units -- -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
___________________________
(1) Includes $19,125 in equity in loss of joint ventures and $77,765 from
investment of reserve funds in 1992; $207,234 in equity in earnings of
joint ventures and $250,979 from investment of reserve funds in 1993;
$592,902 in equity in earnings of joint ventures and $64,056 from
investment of reserve funds in 1994; and $745,173 in equity in earnings of
joint ventures and $19,451 from investment of reserve funds in 1995. At
December 31, 1995, the leasing status of all developed property was 92.32%
including developed property in initial lease-up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings (loss) of joint ventures in gross revenue is
depreciation and amortization of $100,796 for 1993, $324,578 for 1994,
$440,333 for 1995.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated as follows: $(17,908) to Class
B Limited Partners and $(181) to General Partners for 1992; $442,135 to
Class A Limited Partners, $(87,868) to Class B Limited Partners and $732 to
General Partners for 1993; $879,232 to Class A Limited Partners and
$(316,460) to Class B Limited Partners and $(1,051) to General Partners for
1994; and $1,124,203 to Class A Limited Partners and $(434,564) to Class B
Limited Partners and $0 for 1995.
A-6
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VI, L.P.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,002,567 $ 819,535 $ 82,723 N/A N/A
Profit on Sale of Properties -- -- --
Less: Operating Expenses/(2)/ 94,489 112,389 46,608
Depreciation and Amortization/(3)/ 6,250 6,250 4,687
-------- ------ ------
Net Income GAAP Basis/(4)/ $ 901,828 $ 700,896 $ 31,428
======== ======= =======
Taxable (Loss): Operations $ 916,531 $ 667,682 $ 31,428
======== ======= =======
Cash Generated (Used By):
Operations 278,728 276,376 (2,478)
Joint Ventures 766,212 203,543 --
------- ------- -----
$ 1,044,940 $ 479,919 $ (2,478)
Less Cash Distributions to Investors:
Operating Cash Flow 1,044,940 245,800 --
Return of Capital -- -- --
Undistributed Cash Flow from Prior Year Operations 216,092 -- --
--------- ------- -------
Cash Generated (Deficiency) after Cash Distributions $ (216,092) $ 234,119 $ (2,478)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions -- 12,163,461 12,836,539
-------- ---------- ----------
$ -- $12,397,580 $12,834,061
Use of Funds:
Sales Commissions and Offering Expenses -- 1,776,909 1,781,724
Return of Original Limited Partner's Investment -- -- 100
Property Acquisitions and Deferred Project Costs 10,721,376 5,912,454 3,856,239
---------- --------- ---------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(10,937,468) $ 4,708,217 $ 7,195,998
=========== ========= =========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 57 43 9
- Operations Class B Units (60) (12) (5)
Capital Gain (Loss) -- -- 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 56 41 1
- Operations Class B Units (51) (22) --
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 57 14 --
- Return of Capital Class A Units 4 -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 61 14 --
- Operations Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
_______________________________
(1) Includes $3,436 in equity in loss of joint ventures and $86,159 from
investment of reserve funds in 1993; $285,711 in equity in earnings of
joint ventures and $533,834 from investment of reserve funds in 1994; and
$681,033 in equity in earnings of joint ventures and $321,534 from
investment of reserve funds in 1995. At December 31, 1995, the leasing
status was 94%.
(2) Includes partnership administrative expenses.
(3) Included in equity in (loss) of joint ventures in gross revenues is
depreciation of $3,436 for 1993, and $107,807 for 1994 and $264,866 for
1995.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $39,551 to Class A Limited
Partners, $(8,042) to Class B Limited Partners and $(81) to the General
Partners for 1993; $762,218 to Class A Limited Partners, $(62,731) to Class
B Limited Partners and $1,409 to General Partners for 1994; and $1,172,944
to Class A Limited Partners, $(269,288) to Class B Limited Partners and
$(1,828) to General Partners for 1995.
A-7
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 925,246 $ 286,371 N/A N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 114,953 78,420
Depreciation and Amortization/(3)/ 6,250 4,688
------ -----
Net Income GAAP Basis/(4)/ $ 804,043 $ 203,263
======= =======
Taxable Loss: Operations $ 812,402 $ 195,067
======= =======
Cash Generated (Used By):
Operations 431,728 47,595
Joint Ventures 424,304 14,243
------- -------
$ 856,032 $ 61,838
Less Cash Distributions to Investors:
Operating Cash Flow 856,032 52,195
Return of Capital 22,064 --
Undistributed Cash Flow from Prior Year Operations 9,643 --
------- ------
Cash Generated (Deficiency) after Cash Distributions $ (31,707 $ 9,643
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- --
Increase in Limited Partner Contributions $ 805,212 $23,374,961
------- ----------
$ 773,505 $23,384,604
Use of Funds:
Sales Commissions and Offering Expenses 244,207 3,351,569
Return of Original Limited Partner's Investment 100 --
Property Acquisitions and Deferred Project Costs 14,971,002 4,477,765
---------- ----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(14,441,804 $15,555,270
=========== ==========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 57 29
- Operations Class B Units (20) 9
Capital Gain (Loss) --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 55 28
- Operations Class B Units (16) 17
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 52 7
- Return of Capital Class A Units -- --
- Return of Capital Class B Units -- --
Source (on Cash Basis)
- Operations Class A Units 51 7
- Return of Capital Class A Units 1 --
- Operations Class B Units -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
______________________________
(1) Includes $78,799 in equity in earnings of joint ventures and $207,572 from
investment of reserve funds in 1994, and $403,325 in equity in earnings of
joint ventures and $521,921 from investment of reserve funds in 1995. At
December 31, 1995, the leasing status was 89.6%.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,468 for 1994, and $140,533 for 1995.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $233,337 to Class A Limited
Partners, $(29,854) to Class B Limited Partners and $(220) to the General
Partner for 1994; and $950,826 to Class A Limited Partners, $(146,503) to
Class B Limited Partners and $(280) to the General partners for 1995.
A-8
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 402,428 N/A N/A N/A N/A
Profit on Sale of Properties
Less: Operating Expenses/(2)/ 122,264
Depreciation and Amortization/(3)/ 6,250
-------
Net Income GAAP Basis/(4)/ $ 273,914
Taxable Loss: Operations =======
Cash Generated (Used By): $ 404,348
=======
Operations 204,790
Joint Ventures 20,287
=======
$ 225,077
Less Cash Distributions to Investors:
Operating Cash Flow --
-------
Cash Generated (Deficiency) after Cash Distributions $ 225,077
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions
Increase in Limited Partner Contributions/(5)/ 30,144,542
----------
$30,369,619
Use of Funds:
Sales Commissions and Offering Expenses 4,310,028
Return of Original Limited Partner's Investment --
Property Acquisitions and Deferred Project Costs 6,618,273
----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $19,441,318
==========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 28
- Operations Class B Units (7)
Capital Gain (Loss)
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 17
- Operations Class B Units (3)
Capital Gain (Loss)
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units --
- Return of Capital Class A Units --
- Return of Capital Class B Units --
Source (on Cash Basis)
- Operations Class A Units --
- Operations Class B Units --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
______________________________
(1) Includes $28,377 in equity in earnings of joint ventures and $374,051 from
investment of reserve funds in 1995. At December 31, 1995, the leasing
status was 93.7%.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $14,058 for 1995.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $294,221 to Class A Limited
Partners, $(20,104) to Class B Limited Partners and $(203) to the General
Partners for 1995.
(5) At December 31, 1995, Wells Real Estate Fund VIII, L.P. had not yet
completed its offering of Limited Partnership Units.
A-9
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
SUPPLEMENT NO. 2 DATED JUNE 28, 1996 TO THE PROSPECTUS
DATED JANUARY 5, 1996
This document supplements, and should be read in conjunction with, the
Prospectus of Wells Real Estate Fund IX, L.P. dated January 5, 1996 and
Supplement No. 1 thereto dated April 24, 1996 (collectively, the "Prospectus").
Unless otherwise defined herein, capitalized terms used in this Supplement shall
have the same meanings as in the Prospectus.
The purpose of this Supplement is to describe the following:
(i) The status of the offering of units of limited partnership interest
(the "Units") in Wells Real Estate Fund IX, L.P. (the "Partnership");
(ii) The Joint Venture Agreement entered into between the Partnership
and Wells Real Estate Fund VIII, L.P. ("Wells Fund VIII");
(iii) The acquisition by the Joint Venture of real property in Madison,
Wisconsin (the "Property");
(iv) Revisions to the "MANAGEMENT" section of the Prospectus; and
(v) Revisions to the "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" section of the Prospectus.
STATUS OF THE OFFERING
Pursuant to the Prospectus, the offering of Units in the Partnership
commenced January 5, 1996. The Partnership commenced operations on February 12,
1996, upon the acceptance of subscriptions for the minimum offering of
$1,250,000 (125,000 Units). As of June 24, 1996, the Partnership had raised a
total of $12,570,080 in offering proceeds (1,257,008 Units), comprised of
$9,872,260 raised from the sale of Class A Status Units (987,226 Units) and
$2,697,820 raised from the sale of Class B Status Units (269,782 Units).
JOINT VENTURE AGREEMENT
On June 10, 1996, the Partnership formed a joint venture with Wells Fund
VIII, a Georgia limited partnership having Leo F. Wells, III and Wells Partners,
L.P. as general partners, known as Fund VIII and Fund IX Associates (the "Joint
Venture"). The investment objectives of Wells Fund VIII are substantially
identical to those of the Partnership.
The Joint Venture was formed for the purpose of acquiring a 7.09 acre
tract of real property located in Madison, Wisconsin (the "Property") and
constructing thereon a four-story office building containing approximately
96,750 rentable square feet (the "Project"). Westel-Milwaukee Company, Inc.
d/b/a Cellular One ("Cellular One") has agreed to lease approximately 75,000
rentable square feet of the Project pursuant to the Agreement to Lease described
below.
All income, profit, loss, cash flow, resale gain, resale loss and sale
proceeds of the Joint Venture will be allocated and distributed between Wells
Fund VIII and the Partnership based on their respective capital contributions to
the Joint Venture.
As of June 24, 1996, Wells Fund VIII and the Partnership had each
invested $487,444 in the Joint Venture and owned a 50% equity interest in the
Joint Venture. It is anticipated that the ultimate percentage ownership in the
Joint Venture to be owned by each of the respective partnerships will remain at
50% as further contributions are made to the Joint Venture to fund the Project.
1
<PAGE>
Wells Fund VIII will act as the initial Administrative Venturer of the
Joint Venture and, as such, will be responsible for establishing policies and
operating procedures with respect to the business and affairs of the Joint
Venture. However, approval of each of Wells Fund VIII and the Partnership is
required for any major decision or any action which materially affects the Joint
Venture or the Property.
No payment will be made by the Joint Venture to any of Wells Fund VIII,
the Partnership or any Affiliate, or partners or employees of any of Wells Fund
VIII or the Partnership for the services of any such party, other than under
management agreements and leasing and tenant coordinating agreements with Wells
Management Company, Inc., an Affiliate of the General Partners, as manager and
agent, which agreements concern the management and leasing of the Project to be
owned and operated by the Joint Venture. The Partnership will pay fees and
expenses to the General Partners and their Affiliates as described in the
section of the Prospectus entitled "COMPENSATION OF THE GENERAL PARTNERS AND
AFFILIATES."
JOINT VENTURE'S INVESTMENT
Purchase of the Property. Wells Capital, Inc., an Affiliate of the
------------------------
General Partners, entered into an Agreement for the Purchase and Sale of Real
Property dated April 23, 1996 (the "Purchase Agreement") with American Family
Mutual Insurance Company (the "Seller") for the acquisition of a 7.09 acre tract
of real property located in Madison, Wisconsin (the "Property") for a purchase
price of $833,941. The Seller is not affiliated with the Joint Venture, Wells
Fund VIII, the Partnership or their General Partners.
Under the Purchase Agreement, the purchaser was granted an initial
inspection period in order to determine the suitability of the Property for
acquisition and the right to terminate the Purchase Agreement at any time during
the inspection period. The acquisition of the Property was also subject to
certain conditions, including the execution of a lease or an enforceable
agreement to enter into a lease with Cellular One, the receipt of all approvals
to permit the construction of the Project, the receipt of a satisfactory
appraisal showing the value of the Property together with the commercial office
building and other improvements contemplated thereon. An independent appraisal
of the Property was prepared by The David L. Beale Company, Real Estate
Appraisers and Consultants, as of June 17, 1996, pursuant to which the market
value of the land and the leased fee interest in the Property subject to the
Agreement to Lease was estimated to be at least $10,400,000 in 1998 dollars.
This value estimate was based upon a number of assumptions, including (i) that
the Project will be finished in accordance with plans and specifications
provided, and (ii) that the building will be operating at a stabilized level
within one year of completion with Cellular One occupying 78% of the rentable
area and other tenants occupying 90% of the remaining rentable area.
Wells Capital, Inc. assigned its interest in the Purchase Agreement to
the Joint Venture on June 17, 1996, and the Joint Venture purchased the Property
from the Seller on June 19, 1996 pursuant to the terms of the Purchase
Agreement. On or about the date of the closing, Wells Fund VIII assigned its
interest in the Architect's Agreement to the Joint Venture, and the Joint
Venture entered into the Development Agreement and the Construction Contract
(all described below). In accordance with the terms of the Custodial Agency
Agreement dated November 15, 1994 between Wells Fund VIII and The Bank of New
York (as successor-in-interest to NationsBank of Georgia, N.A.) (the "Agent"),
and the Amended and Restated Custodial Agency Agreement dated November 30, 1995
between the Partnership and the Agent, legal title to the Property is being held
by the Agent as agent for the Joint Venture.
At closing, the Seller paid real estate commissions of approximately
$83,394. The Joint Venture paid attorneys fees of $25,000 and title insurance
and other closing costs of approximately $7,000 in connection with the closing
of the acquisition of the Property. The amount payable to the appraiser for the
appraisal report has not yet been invoiced, but is estimated to total
approximately $5,000.
Location of the Property. The Property is located in an office park
------------------------
development known as The American Center, which includes more than 800 acres in
Madison, Wisconsin. More than 400 acres of the site are reserved for corporate
office and commercial development. A portion of the site has been fully
developed, with the majority of the site currently in the planning stages. The
American Center includes the new national headquarters facility of American
Family Mutual Insurance Company containing approximately 840,000 rentable square
feet. American Family Mutual Insurance Company is an insurance and financial
services company with in excess of $5 billion in assets, which owns and is
developing The American Center. The American Center includes on-site services
and
2
<PAGE>
amenities for use by all tenants of buildings located in the office park,
including a business services complex, childcare center, banking facilities,
lodging and conference facilities, restaurants and specialty retail shops. The
development features attractive entry treatments, walking and biking paths,
professionally landscaped grounds and a number of scenic ponds. Design
guidelines and protective covenants are in place to ensure standards of quality
and appearance for development within The American Center.
The American Center is located on the east side of Madison, at the
junction of Interstate 90/94 and U.S. Highway 151 which links the Center to
major metropolitan cities in the Midwest. The site is minutes from Madison's
Dane County Airport, which provides commercial service to regional and national
destinations; one hour from Milwaukee's Mitchell Airport; two hours from
Chicago's O'Hare International Airport; and four hours from Minneapolis/St.
Paul. The American Center is conveniently accessible to all parts of the
metropolitan Madison, Wisconsin area, including the state capital, downtown
Madison and the University of Wisconsin campus, each of which destinations can
be reached within a 15-minute drive.
The American Center is close to all necessary services, such as
lodging, retail, automotive service and restaurants, yet is designed to stand
alone to support a corporate office environment. The development has also been
designed to accommodate the future needs of its business tenants with all sites
having access to fiber-optic communication cables and roadway systems which are
planned to accommodate long-range traffic needs.
Wisconsin has experienced significant economic growth during the latter
half of the last decade. Projections by the Wisconsin Department of
Administration forecast an 18% population growth for Dane County (in which
Madison is located) between 1980 and the year 2000. According to the U.S.
Census, the population in 1990 for the City of Madison was 191,262, and 367,085
for Dane County.
The Joint Venture will experience competition for tenants from owners
and managers of various other office buildings located in the immediate area of
the Project which could adversely affect the Joint Venture's ability to attract
and retain tenants.
Development Agreement. On June 18, 1996, the Joint Venture entered into
---------------------
a Development Agreement (the "Development Agreement") with ADEVCO Corporation, a
Georgia corporation (the "Developer"), as the exclusive development manager to
supervise, manage and coordinate the planning, design, construction and
completion of the Project.
The Developer is an Atlanta based real estate development and management
company formed in 1990 which specializes in the development of office buildings.
The Developer has previously developed four office buildings for Affiliates of
the General Partners. In this regard, the Developer entered into (i) a
development agreement with Wells Real Estate Fund III, L.P. ("Wells Fund III"),
a public real estate program previously sponsored by the General Partners and
their Affiliates, for the development of a two-story office building containing
approximately 34,300 rentable square feet located in Greenville, North Carolina
(the "Greenville Project"), (ii) a development agreement with Fund IV and Fund V
Associates, a joint venture between Wells Fund III and Wells Real Estate Fund
IV, L.P., a public real estate program previously sponsored by the General
Partners and their Affiliates, for the development of a four-story office
building located in Jacksonville, Florida containing approximately 87,600
rentable square feet (the "Jacksonville IBM Project"), (iii) a development
agreement with the Fund VII-VIII Joint Venture, a joint venture between Wells
Real Estate Fund VII, L.P.("Wells Fund VII"), a public real estate program
previously sponsored by the General Partners and their Affiliates, and Wells
Fund VIII, for the development of a two-story office building containing
approximately 62,000 rentable square feet located in Alachua County, near
Gainesville, Florida (the "Gainesville Project"), and (iv) a development
agreement with Fund VI, Fund VII and Fund VIII Associates, a joint venture among
Wells Real Estate Fund VI, L.P., a public real estate program previously
sponsored by the General Partners and their Affiliates, Wells Fund VII and Wells
Fund VIII, for the development of a four-story office building containing
approximately 92,964 rentable square feet located in Jacksonville, Florida (the
"BellSouth Project"). The Greenville Project was completed on schedule, and
International Business Machines Corporation ("IBM"), which leased approximately
23,312 rentable square feet of the building, took possession under its lease on
April 16, 1991. The Jacksonville IBM Project was also completed on schedule,
and IBM, which leased approximately 68,100 rentable square feet of the building,
took possession under its lease on June 1, 1993. The Gainesville Project was
completed in advance of schedule, and CH2M Hill,
3
<PAGE>
Inc., which leased approximately 50,000 rentable square feet of the building,
took possession under its lease on December 18, 1995. The BellSouth Project was
also completed in advance of schedule, and BellSouth, which leased approximately
64,558 rentable square feet of the building, took possession under its lease on
May 20, 1996.
The President of the Developer is David M. Kraxberger. Mr. Kraxberger
has been in the real estate business for over 17 years. Since 1984, and prior
to becoming President of the Developer, Mr. Kraxberger served as Senior Vice
President of office development for The Oxford Group, Inc., an Atlanta based
real estate company with operations in seven southeastern states. Mr.
Kraxberger holds a Masters Degree in Business Administration from Pepperdine
University in Los Angeles, California, and is a member of the Urban Land
Institute and the National Association of Industrial Office Parks. Mr.
Kraxberger also holds a Georgia real estate license. Pursuant to the terms of a
Guaranty Agreement, Mr. Kraxberger has personally guaranteed the performance of
the Developer under the Development Agreement. Neither the Developer nor Mr.
Kraxberger are affiliated with the Joint Venture, Wells Fund VIII, the
Partnership or their General Partners.
The primary responsibilities of the Developer under the Development
Agreement include (i) the supervision, coordination, administration and
management of the work, activities and performance of the architect, Strang,
Inc., under the Architect's Agreement (as described below) and the contractor,
Kraemer Brothers, Inc., under the Construction Contract (as described below);
(ii) the implementation of a development budget (the "Development Budget")
setting forth an estimate of all expenses and costs to be incurred with respect
to the planning, design, development and construction of the Project; (iii) the
review of all applications for disbursement made by or on behalf of the Joint
Venture under the Architect's Agreement and the Construction Contract; (iv) the
supervision and management of tenant build-out at the Project; and (v) the
negotiation of contracts with, supervision of the performance of, and review and
verification of applications for payment of the fees, charges and expenses of
such design and engineering professionals, consultants and suppliers as the
Developer deems necessary for the design and construction of the Project in
accordance with the Development Budget.
The Developer will also perform other services typical of development
managers including, but not limited to, arranging for preliminary site plans,
surveys and engineering plans and drawings, overseeing the selection by the
Contractor of major subcontractors and reviewing all applicable building codes,
environmental, zoning and land use laws and other applicable local, state and
federal laws, regulations and ordinances concerning the development, use and
operation of the Project or any portion thereof. The Developer is required to
advise the Joint Venture on a weekly basis as to the status of the Project and
submit to the Joint Venture monthly reports with respect to the progress of
construction, including a breakdown of all costs and expenses under the
Development Budget. The Developer is required to obtain prior written approval
from the Joint Venture before incurring and paying any costs which will result
in aggregate expenditures under any one category or line item in the Development
Budget exceeding the amount budgeted therefor. If the Developer determines at
any time that the Development Budget is not compatible with the then prevailing
status of the Project and will not adequately provide for the completion of the
Project, the Developer will prepare and submit to the Joint Venture for approval
an appropriate revision of the Development Budget.
In discharging its duties and responsibilities under the Development
Agreement, the Developer has full and complete authority and discretion to act
for and on behalf of the Joint Venture. The Developer has agreed to indemnify
the Joint Venture from any and all claims, demands, losses, liabilities,
actions, lawsuits, and other proceedings, judgments and awards, and any costs
and expenses arising out of the negligence, fraud or any willful act or omission
by the Developer. The Joint Venture has agreed to indemnify the Developer from
and against any and all claims, demands, losses, liabilities, actions, lawsuits
and other proceedings, judgments and awards, and any costs and expenses arising
out of (i) any actions taken by the Developer within the scope of its duties or
authority, excluding negligence, fraud or willful acts of the Developer, and
(ii) the negligence, fraud or any willful act or omission on the part of the
Joint Venture.
It is anticipated that the funds to be expended by the Joint Venture for
the development and construction of the Project will be paid out of investor
capital contributions of Wells Fund VIII and the Partnership, which are
currently being held by the Agent pursuant to each partnership's respective
Custodial Agency Agreement, with payments to be made after the Joint Venture has
approved appropriate draw requests and submitted such requests to the Agent for
payment. However, the Joint Venture may elect to provide funds to the Developer
so that the
4
<PAGE>
Developer can pay Joint Venture obligations with respect to the construction and
development of the Project directly. All such funds of the Joint Venture which
may be received by the Developer with respect to the development or construction
of the Project will be deposited in a bank account approved by the Joint
Venture. If at any time there are in the bank account funds of the Joint
Venture temporarily exceeding the immediate cash needs of the Project, the
Developer may invest such excess funds in savings accounts, certificates of
deposit, United States Treasury obligations and commercial paper as the
Developer deems appropriate or as the Joint Venture may direct, provided that
the form of any such investment is consistent with the Developer's need to be
able to liquidate any such investment to meet the cash needs of the Project.
The Developer will not be required to advance any of its own funds for the
payment of any costs or expenses incurred by or on behalf of the Joint Venture
in connection with the development of the Project. The Developer shall be
reimbursed for all advances, costs and expenses paid for and on behalf of the
Joint Venture. The Developer will not be reimbursed, however, for its own
administrative costs or for costs relating to travel and lodging incurred by its
employees and agents.
As compensation for the services to be rendered by the Developer under
the Development Agreement, the Joint Venture will pay a development fee of
$250,000. The fee will be due and payable ratably (on the basis of the
percentage of construction completed) as the construction and development of the
Project is completed.
The Joint Venture will also pay the Developer a "Cellular One Work Fee"
of $250,000. The Cellular One Work Fee is for services rendered by the
Developer with respect to the supervision and management of tenant build-out.
The fee is due and payable in one lump sum upon the completion of the
construction of the Project and the tenant improvements under the Cellular One
Lease, provided that Cellular One has executed the Cellular One Lease described
below and the term of the Cellular One Lease has commenced.
The Developer may also receive additional fees in the event the
Developer serves as the construction manager with respect to the supervision and
management of tenant build-out relating to any rentable area of the Project
which is not initially leased by Cellular One. Such fee shall be an amount
equal to $2.30 multiplied by the number of square feet of rentable space built
out. The Development Agreement also contains a provision appointing the
Developer as the Joint Venture's non-exclusive agent during development and
construction of the Project to offer for lease space which is not currently
leased by Cellular One. The Developer will receive certain performance based
lease-up fees equal to 5% of all gross base rents (excluding escalations in
operating costs) actually paid by the tenant to the Joint Venture during each
month of the initial term of such tenant's lease should the Developer lease
space to additional tenants at the Project during the development and
construction of the Project. The Joint Venture's obligation to pay these lease-
up fees to the Developer would terminate ten years after the commencement date
of the tenant's lease, even if the lease is extended beyond a ten year period.
It is anticipated that the aggregate of all costs and expenses to be
incurred by the Joint Venture with respect to the acquisition of the Property,
the planning, design, development, construction and completion of the Project
and the build-out of tenant improvements under the Cellular One Lease and tenant
improvements for the premises not leased initially by Cellular One will total
approximately $10,364,184, comprised of the following expenditures:
<TABLE>
<CAPTION>
<S> <C>
Construction Contract $6,048,350
Cellular One Tenant Improvements 1,500,000
Tenant Improvements - Additional Space 435,000
Land 833,941
Closing Costs 32,000
Leasing Concessions 150,000
Architectural Fees and Space Planning 406,054
Signage 20,000
Tenant Construction Fee 250,000
Development Fee 250,000
Developer Overhead 75,000
Marketing 34,300
Survey and Engineering 16,950
Landscaping 132,798
Appraisal Fee 5,000
Contingency 174,791
</TABLE>
5
<PAGE>
The total of all the foregoing expenses anticipated to be incurred by the Joint
Venture with respect to the Project, exclusive of costs relating to marketing,
closing costs and tenant improvements for the premises not leased initially by
Cellular One, will total approximately $9,891,919. Under the terms of the
Development Agreement, the Developer has agreed that in the event that the total
of all such costs and expenses exceeds $9,891,919, the amount of fees payable to
the Developer shall be reduced by the amount of any such excess. Unless the
fees otherwise payable to the Developer are reduced as set forth above, it is
estimated that the total sums due and payable to the Developer under the
Development Agreement will be approximately $500,000 (plus any fees earned
relating to the lease-up of space not initially leased by Cellular One).
In the event the Developer should for any reason cease to manage the
development of the Project, the Joint Venture would have to locate a suitable
successor development manager. No assurances can be given as to whether a
suitable successor development manager could be found, or what the contractual
terms or arrangement with any such successor would be.
Construction Contract. The Joint Venture entered into a construction
---------------------
contract (the "Construction Contract") on June 18, 1996 with the general
contracting firm of Kraemer Brothers, Inc. (the "Contractor") for the
construction of the Project. The Contractor is a Wisconsin corporation founded
in 1948 specializing in commercial, industrial and institutional building.
Based in Plain, Wisconsin, the Contractor has been ranked among the 300 largest
contracting firms in the nation, and utilizes a work force of approximately 250
employees. The Contractor works with a variety of clients primarily in the
midwest. The Contractor anticipates that it will complete the construction of
office buildings totalling over $70 million in value in 1996. The Contractor
reported net worth as of December 31, 1995 of approximately $19,300,000.
According to information provided by the Contractor, the Contractor's key
management team and key field personnel have an average tenure with the
Contractor of over 17 years. The Contractor has not performed services with
respect to any project previously developed by the General Partners or their
Affiliates, and it not affiliated with the Joint Venture, Wells Fund VIII, the
Partnership or the General Partners.
Under the terms of the Construction Contract, the Contractor is responsible
for the construction of the Project which will consist of a four-story steel
framed office building with reflective insulated glass and brick exterior
containing approximately 106,238 gross square feet. The Project site will have
approximately 400 paved parking spaces. The Property is currently zoned to
permit the intended development and operation of the Project as a commercial
office building and has access to all utilities necessary for the development
and operation of the Project, including water, electricity, sanitary sewer and
telephone.
The Construction Contract provides that the Joint Venture will pay the
Contractor a fixed sum of $6,048,350 for the construction of the Project,
excluding tenant improvements. The Contractor will be responsible for all costs
of labor, materials, construction equipment and machinery necessary for
completion of the Project. In addition, the Contractor will be required to
secure and pay for any additional business licenses, tap fees and building
permits which may be necessary for construction of the Project.
The Joint Venture will make monthly progress payments to the Contractor
which will be calculated based upon the portion of the contract sum properly
allocable to the work completed, including allocable materials and equipment,
less a retainage of 5%. The Joint Venture will pay the entire unpaid balance
when the Project has been substantially completed, less such amounts as the
Architect shall determine to be withheld for incomplete work and unsettled
claims.
The Contractor is required to work expeditiously and diligently to maintain
progress in accordance with the construction schedule and to achieve substantial
completion of the Project within the contract time. The Contractor is required
to employ all such additional labor, services and supervision, including such
extra shifts and overtime, as may be necessary to maintain progress in
accordance with the construction schedule. It is anticipated that the Project
will be completed on or before June 15, 1997. As described below, in the event
the Project is not completed by December 31, 1997, Cellular One has the right to
terminate the Agreement to Lease and would be under no obligation to enter into
a lease.
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<PAGE>
The Contractor will be responsible to the Joint Venture for the acts or
omissions of its subcontractors and suppliers of materials and of persons either
directly or indirectly employed by them. The Construction Contract also
requires the Contractor to obtain and maintain, until completion of the Project,
adequate insurance coverage relating to the Project, including insurance for
workers' compensation, personal injury and property damage.
Although completion or performance bonds are often obtained in connection
with the development and construction of commercial properties such as the
Project to reduce the risk of non-performance and to assure compliance with
approved plans and specifications, due to the financial condition and historical
performance of the Contractor, the General Partners have determined that the
risks of non-performance by the Contractor do not justify the cost required to
obtain a completion or performance bond with respect to the Project.
The Construction Contract does not provide for the construction of the
tenant improvements to be constructed pursuant to the Cellular One Lease. The
Development Budget provides that construction costs with respect to the tenant
improvements for the Cellular One Lease are budgeted at $1,500,012. The
Cellular One Lease provides that Cellular One shall be responsible for the
payment of all costs of the tenant improvements to the extent such costs exceed
$1,500,000. The Developer will accept and award bids for the construction of
the tenant improvements as soon as the architectural plans and specifications
are completed for the construction of the tenant improvements, which bids are
required to be provided to Cellular One on or before November 14, 1996 pursuant
to the Cellular One Lease. If the contract for the construction of the tenant
improvements is awarded to the Contractor, the parties will enter into a change
order to add such construction work to the obligations of the Contractor under
the Construction Contract.
Architect's Agreement. Strang, Inc. (the "Architect") will be the
---------------------
architect for the Project pursuant to the Architect's Agreement entered into
with Wells Fund VIII and assigned pursuant to the terms of the Joint Venture to
the Joint Venture. Architect is based in Madison, Wisconsin, was founded in
1935 and specializes in architecture, engineering and interior design services.
The Architect has designed over 3,000 projects including facilities for
corporate and commercial offices, research and development laboratories,
education institutions, healthcare providers, and municipal, state and federal
government agencies. The Architect has not performed services with respect to
any project previously developed by the General Partners or their Affiliates,
and is not affiliated with the Joint Venture, Wells Fund VIII, the Partnership
or the General Partners.
The Architect's basic services under the Architect's Agreement include the
schematic design phase, the design development phase, the construction documents
phase, the bidding or negotiation phase and the construction phase. During the
schematic design phase, the Architect will prepare schematic design documents
consisting of drawings and other documents illustrating the scale and
relationship of Project components. The Architect will be paid a fee of $44,100
for such services. During the design development phase, the Architect will
prepare design development documents consisting of drawings and other documents
to fix and describe the size and character of the entire Project as to
architectural, structural, mechanical and electrical systems, materials and such
other elements as may be appropriate. The Architect will be paid $56,700 for
these services. During the construction documents phase, the Architect will
prepare construction documents consisting of drawings and specifications setting
forth in detail the requirements for the construction of the Project. The
Architect will be paid $77,700 for these services. During the bidding or
negotiation phase, the Architect will assist the Joint Venture in obtaining bids
or negotiated proposals and assist in awarding and preparing contracts for
construction. The Architect will be paid $4,200 for these services. During the
construction phase, the Architect is to provide administration of the
Construction Contract and advise and consult with the Developer and the Joint
Venture concerning various matters relating to the construction of the Project.
The Architect is required to visit the Project site at intervals appropriate to
the stage of construction and to become generally familiar with the progress and
quality of the work and to determine if, in general, the work is proceeding in
accordance with the contract schedule. The Architect is required to keep the
Joint Venture informed of the progress and quality of the work. The Architect
is also required to determine the amounts owing to the Contractor based on
observations of the site and evaluations of the Contractor's application for
payment and shall issue certificates for payment in amounts determined in
accordance with the Construction Contract described above. The Architect will
also conduct inspections to determine the date of completion of the Project and
shall issue a final certificate for payment. The Architect will be paid $27,300
for its services performed during the construction phase.
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<PAGE>
The total amount of fees payable to the Architect under the Architect's
Agreement is $210,000. Payments will be paid to the Architect on a monthly
basis in proportion to the services performed within each phase of service. In
addition, the Architect and its employees and consultants will be reimbursed for
expenses including, but not limited to, transportation in connection with the
Project, living expenses in connection with out-of-town travel, long distance
communications and fees paid for securing approval of authorities having
jurisdiction over the Project. It is estimated that the reimbursable expenses
in connection with the development of the Project will be approximately $37,554.
Agreement to Lease. On June 18, 1996, the Joint Venture entered into an
------------------
Agreement to Lease with Cellular One (the "Agreement to Lease") pursuant to
which Cellular One agreed to enter into a lease in the form attached to and
incorporated in the Agreement to Lease (the "Cellular One Lease") within 10
business days of the completion of the Project for 75,000 rentable square feet
of the Project, comprising approximately 78% of the Project.
Cellular One is a subsidiary of BellSouth Corporation and is a major
nationwide provider of wireless communication services. Cellular One will
utilize its leased office space in the Project as its Regional Headquarters
Office for approximately 300 employees. Cellular One reported a net worth at
December 31, 1995 of in excess of $150,000,000 and net income in excess of
$10,000,000 in fiscal years 1994 and 1995, and recently projected that net
income for fiscal 1996 would also be in excess of $10,000,000. BellSouth
Corporation is a telecommunications company which reported in its consolidated
financial statements for 1995 operating revenues of approximately $17.9 billion,
net income of approximately $2.23 billion and net worth as of December 31, 1995
of approximately $11.8 billion.
The initial term of the Cellular One Lease will be 9 years and 11 months to
commence 15 days after the Project is substantially completed and the Joint
Venture delivers possession of the leased premises to Cellular One, which is
expected to be approximately June 15, 1997. Cellular One has the option to
extend the initial term of the Cellular One Lease for two successive five year
periods. Each extension option must be exercised, if at all, no less than 12
months prior to the expiration of the then current lease term.
The annual base rent payable under the Cellular One Lease will be $862,500
payable in equal monthly installments of $71,875 during the first five years of
the initial term, and $975,000 payable in equal monthly installments of $81,250
during the last four years and 11 months of the initial term. The annual base
rent for each extended term under the Cellular One Lease will be the market
rental rate for the period covered by the extended term. The term "market
rental rate" is defined in the Cellular One Lease as the annual rental rate per
square foot of rentable area then being charged by landlords under new leases of
office space in the metropolitan Madison, Wisconsin market for similar space in
a building of comparable quality with comparable parking and other amenities.
The Cellular One Lease provides that if the parties cannot agree on the
appropriate market rental rate, the market rental rate shall be established by
using the average of three appraisals. In addition to the base rent, Cellular
One is required to pay additional rent equal to its share of all "operating
expenses" during the lease term. "Operating expenses" is defined to include all
expenses, costs and disbursements (excluding specific costs billed to specific
tenants of the building) of every kind and nature, relating to or incurred or
paid in connection with the ownership, management, operation, repair and
maintenance of the Project, including compensation of employees engaged in the
operation, management or maintenance of the Project, supplies, equipment and
materials, utilities, repairs and general maintenance, insurance, a management
fee in the amount of 3% of the gross rental income from the Project (exclusive
of sales tax on rental income or management fees collected with respect thereto)
and all taxes and governmental charges attributable to the Project or its
operation (excluding taxes imposed or measured on or by the income of the Joint
Venture from the operation of the Project).
Under the terms of the Cellular One Lease, the Joint Venture is responsible
for a tenant improvement allowance of $1,500,000 (calculated at the rate of
$20.00 per square foot of the rentable floor area to be leased to Cellular One).
In addition, the Joint Venture has agreed to provide Cellular One an allowance
of $5,000 for exterior identification signage.
The terms of the Cellular One Lease provide that Cellular One has a right
of first refusal for the lease of any space in the building not initially leased
by Cellular One. In the event that the Joint Venture has secured a
8
<PAGE>
potential tenant for such space, the Joint Venture has agreed to give Cellular
One 10 business days to exercise its right on the terms and conditions proposed
by the new potential tenant.
Under the terms of the Cellular One Lease, Cellular One has an option,
exercisable by providing at least five months notice to the Joint Venture, to
lease from the Joint Venture for the balance of the lease term, all rentable
floor area on the second floor of the building as of the exercise of the
expansion option, except for such rentable floor area which has been leased by
the Joint Venture to Cellular One or a third party for a term extending beyond
the commencement of the sixth year of the lease term. Cellular One shall
specify in its notice of exercise of the expansion option the portion of the
available space to be leased by Cellular One, and in the event Cellular One
exercises the expansion option with respect to less than all of the then-
existing available space, the expansion space must have a configuration which is
commercially usable, and any portion of the available space not so leased by
Cellular One must have a configuration which is commercially usable. In the
event Cellular One exercises its expansion option, the Joint Venture will be
required to provide a tenant improvement allowance of $10.00 per square foot of
rentable floor area of the expansion space which has not previously been
improved for any other tenant and $8.00 per square foot of rentable floor area
for any portion of the expansion space which has been previously improved for
another tenant. Cellular One shall be responsible for all costs of tenant
improvements which exceed such amounts to be paid by the Joint Venture. The
expansion space shall be leased by Cellular One from the Joint Venture on the
terms and conditions of the Cellular One Lease then in effect, including
Cellular One's obligation to pay base rental at the then-applicable base rental
rate and to pay Cellular One's share of operating expenses as additional rent.
The commencement of the lease of the expansion space shall be the earlier to
occur of 60 days after the Joint Venture makes the expansion space available to
Cellular One for the commencement of tenant improvements or the date Cellular
One actually occupies any portion of the expansion space.
Under the terms of the Agreement to Lease, if for any reason other than
certain excusable delays, the Joint Venture fails to complete construction of
the Project on or before August 31, 1997, the Joint Venture shall have an
additional 30 days until September 30, 1997 to complete the Project, during
which time the Joint Venture shall reimburse Cellular One for the difference in
the rent that would have been charged under the Cellular One Lease and the
amount of rent actually incurred by Cellular One as a result of the Joint
Venture's failure to complete the Project. In addition, Cellular One has the
right to terminate the Agreement to Lease and would be under no obligation to
execute the Cellular One Lease if the Joint Venture has not completed the
Project by December 31, 1997. Accordingly, in the event that the Contractor
fails to complete construction of the Project by such date, Cellular One will
have the right to terminate the Agreement to Lease and would be under no
obligation to execute the Cellular One Lease. If this were to occur, no
assurances can be given that the Joint Venture would be able to locate or obtain
other suitable tenants for the Project.
Property Management Fees. Following construction and completion of the
------------------------
Project, property management and leasing services will be performed by Wells
Management Company, Inc. (the "Property Manager"), a Georgia corporation
affiliated with the General Partners. As compensation for its services, the
Property Manager will receive fees equal to 3% of the gross revenues for
property management services and 3% of the gross revenues for leasing services
with respect to the Project. In addition, the Property Manager will receive a
one-time initial lease-up fee relating to the Cellular One Lease equal to the
first month's rent plus 5% of the gross revenues over the initial term of the
Cellular One Lease. In addition, the Property Manager may also receive initial
lease-up fees relating to the lease-up of space not initially leased by Cellular
One, as provided in the Prospectus.
Lease-Up Risk. As set forth above, Cellular One has agreed to lease
-------------
approximately 78% of the Project. However, since the Joint Venture has not yet
obtained any leases for the remaining approximately 22% of office space at the
Project, the Joint Venture will be subject to the normal lease-up risks of a new
commercial office building with respect to the unleased portion of the Project.
No assurances can be given that the Joint Venture will be able to attract or
obtain suitable tenants for the remaining approximately 22% of space at the
Project or that it will be able to attract or obtain suitable tenants for the
space initially leased by Cellular One upon the expiration of its lease.
9
<PAGE>
MANAGEMENT
The information contained on pages 40-44 of the Prospectus in the
"MANAGEMENT" section of the Prospectus is revised as of the date of this
Supplement by deletion of such section and insertion of the following section in
lieu thereof:
MANAGEMENT
THE GENERAL PARTNERS
The General Partners of the Partnership are: Wells Partners, L.P., a
Georgia limited partnership, and Mr. Leo F. Wells, III, individually.
WELLS PARTNERS, L.P. Wells Partners, L.P. ("Wells Partners") has Wells
Capital, Inc. ("Wells Capital"), a Georgia corporation formed in April 1984, as
its sole general partner. The executive offices of both Wells Partners and
Wells Capital are located at 3885 Holcomb Bridge Road, Norcross, Georgia 30092.
Financial statements of Wells Partners and Wells Capital are included in this
Prospectus at Appendix I. Leo F. Wells, III is the sole shareholder, sole
Director and the President of Wells Capital. (See "CONFLICTS OF INTEREST.")
As of December 31, 1995, the net worth of Wells Partners was in excess of
$1,170,000 on an estimated fair market value basis, and in excess of $129,000 on
a generally accepted accounting principles (GAAP) basis; however, the net worth
of Wells Partners consists almost entirely of partnership interests in real
estate limited partnerships and, therefore, does not represent liquid assets.
The principal officers and directors of Wells Capital are as follows:
Name Positions
- ---- ---------
Leo F. Wells, III President and Sole Director
Brian M. Conlon Executive Vice President
Louis A. Trahant Vice President of Sales and Operations
Edna B. King Vice President of Investor Services
Luther M. Boggs, Jr. Vice President of Marketing
LEO F. WELLS, III (age 52) is the President and sole Director of Wells
Capital. In addition, he is President of Wells & Associates, Inc., a real
estate brokerage and investment company formed in 1976 and incorporated in 1978,
for which he serves as principal broker. He is also the sole Director and
President of Wells Management Company, Inc., a property management company he
founded in 1983; Wells Investment Securities, Inc., a registered securities
broker-dealer formed in 1984; and Wells Advisors, Inc., a company he organized
in 1991 to act as a non-bank custodian for IRAs. Mr. Wells was a real estate
salesman and property manager from 1970 to 1973 for Roy D. Warren & Company, an
Atlanta real estate company, and he was associated from 1973 to 1976 with Sax
Gaskin Real Estate Company, during which time he became a Life Member of the
Atlanta Board of
10
<PAGE>
Realtors Million Dollar Club. From 1980 to February 1985, he served as Vice-
President of Hill-Johnson, Inc., a Georgia corporation engaged in the
construction business. Mr. Wells holds a Bachelor of Business Administration
degree in Economics from the University of Georgia. Mr. Wells is a member of
the International Association for Financial Planning and a registered NASD
principal.
Mr. Wells has over 25 years of experience in real estate sales, management
and brokerage services. He is currently a co-general partner in a total of 23
real estate limited partnerships formed for the purpose of acquiring, developing
and operating office buildings and other commercial properties, a majority of
which are located in suburban areas of metropolitan Atlanta, Georgia. As of May
31, 1996, these 23 real estate limited partnerships represented investments
totaling approximately $224,219,656 from approximately 22,113 investors. (See
"PRIOR PERFORMANCE SUMMARY.")
As of December 31, 1995, Mr. Wells' net worth (exclusive of home,
automobiles and home furnishings) was approximately $1,498,000 on an estimated
fair market value basis. Mr. Wells' net worth consists principally of
investments in real estate, interests in retirement plans, notes receivable and
his stock in Wells Capital and other closely held corporations and, therefore,
does not represent liquid assets or assets which are readily marketable. (See
"RISK FACTORS.")
The combined net worth of the General Partners as of December 31, 1995, on
an estimated fair market value basis, was in excess of $2,668,000. When the net
worth of Wells Partners is calculated on a generally accepted accounting
principles (GAAP) basis (i.e. Wells Partners' investments are valued at cost
instead of estimated fair market value), the combined net worth of the General
Partners as of December 31, 1995 was approximately $1,627,000. However, the
General Partners' net worth consists primarily of interests in real estate and
closely-held businesses, and thus such net worth is substantially illiquid and
not readily marketable. (See "RISK FACTORS.")
BRIAN M. CONLON (age 38) is the Executive Vice President of Wells Capital.
Mr. Conlon joined Wells Capital in 1985 as a Regional Vice President, served as
Vice President and National Marketing Director from 1991 until April 1996 when
he assumed his current position. Previously, Mr. Conlon was Director of
Business Development for Tishman Midwest Management & Leasing Services Corp.
where he was responsible for marketing the firm's property management and
leasing services to institutions. Mr. Conlon also spent two years as an
Investment Property Specialist with Carter & Associates where he specialized in
acquisitions and dispositions of office and retail properties for institutional
clients. Mr. Conlon received a Bachelor of Business Administration degree from
Georgia State University and a Master of Business Administration degree from the
University of Dallas. Mr. Conlon is a member of the International Association
for Financial Planning (IAFP), a general securities principal and a Georgia real
estate broker. Mr. Conlon also holds the certified commercial investment member
(CCIM) designation of the Commercial Investment Real Estate Institute and the
certified financial planner (CFP) designation of the Certified Financial Planner
Board of Standards, Inc.
11
<PAGE>
LOUIS A. TRAHANT (age 50) is Vice President of Sales and Operations for
Wells Capital. He is responsible for the internal sales support provided to
regional vice presidents and to registered representatives of broker-dealers
participating in offerings of the public partnerships. Mr. Trahant is also
responsible for statistical analysis of sales-related activities, development of
office and communication systems, and hiring of administrative personnel. Mr.
Trahant joined Wells Capital in 1993 as Vice President for Marketing of the
Southern Region and assumed his current position in 1995. Prior to joining
Wells Capital, Mr. Trahant had extensive sales and marketing experience in the
commercial lighting industry. He is a graduate of Southeastern Louisiana
University, a member of the International Association for Financial Planning
(IAFP) and holds a Series 22 license.
EDNA B. KING (age 60) is the Vice President of Investor Services for Wells
Capital. She is responsible for processing new investments, sales reporting and
investors communications. Prior to joining Wells Capital in 1985, Ms. King
served as the Southeast Service Coordinator for Beckman Instruments and an
office manager for a regional office of Commerce Clearing House. Ms. King holds
an Associate Degree in Business Administration from DeKalb Community College in
Atlanta, Georgia and has completed various courses at the University of North
Carolina at Wilmington.
LUTHER M. BOGGS, JR. (age 28) is Vice President of Marketing for Wells
Capital. He coordinates the development of marketing and sales materials
promoting the public partnerships. Prior to joining Wells Capital in 1995, Mr.
Boggs was a marketing and public relations consultant. He is a graduate of the
University of Georgia and completed a post-graduate course of study at Ohio
University.
MANAGEMENT
The General Partners of the Partnership, Mr. Wells and Wells Partners, will
be responsible for the direction and management of the Partnership, including
acquisition, construction and property management. Any action required to be
taken by the General Partners shall be taken only if it is approved, in writing
or otherwise, by both General Partners, unless the General Partners agree
between themselves to a different arrangement for the approval of action of the
General Partners. The powers and duties of the General Partners are described
in Article XI of the Partnership Agreement. The compensation payable to the
General Partners for performance of their duties is set forth in "COMPENSATION
OF THE GENERAL PARTNERS AND AFFILIATES."
A change in management of the Partnership may be accomplished by removal of
the General Partners or the designation of a successor or additional General
Partner, in each case in accordance with the provisions of the Partnership
Agreement. The Partnership Agreement provides that a General Partner may be
removed and a new General Partner elected upon the written consent or
affirmative vote of Limited Partners owning more than 50%
12
<PAGE>
of the Units. The Partnership Agreement further provides that a General Partner
may designate a successor or additional General Partner with the consent of all
other General Partners and Limited Partners holding more than 50% of the Units,
after providing 90 days written notice to the General Partners and Limited
Partners and provided that the interests of the Limited Partners are not
affected adversely thereby. Generally, except in connection with such a
designation, no General Partner shall have the right to retire or withdraw
voluntarily from the Partnership or to sell, transfer or assign his or its
interest without the consent of the Limited Partners holding more than 50% of
the Units. (See "SUMMARY OF PARTNERSHIP AGREEMENT.")
PROPERTY MANAGER. Partnership Properties will be managed and leased
initially by Wells Management Company, Inc., a Georgia corporation which is
owned by Mr. Wells. Its compensation for management of commercial and
industrial properties will be a 3% leasing fee and a 3% management fee
(totalling 6% of the gross revenues from the operations of each property). A
special one-time leasing fee may be paid on the first leases for newly
constructed properties. This fee must be competitive, and the amount of this
fee received by Wells Management Company, Inc. will be reduced by any amount
paid to an outside broker. The General Partners believe these terms will be no
less favorable to the Partnership than those customary for similar services in
the relevant geographic area. Depending upon the location of certain
Partnership Properties and other circumstances, unaffiliated property management
companies may be retained to render property management services for some
Partnership Properties. (See "COMPENSATION OF THE GENERAL PARTNERS AND
AFFILIATES.")
In the event that Wells Management Company, Inc. assists a tenant with
tenant improvements, a separate fee may be charged to the tenant and paid by the
tenant. This fee will not exceed 5% of the cost of the tenant improvements.
Wells Management Company, Inc. is engaged in the business of real estate
management. It was organized and commenced active operations in 1983 to lease
and manage real estate projects which the General Partners and their Affiliates
operate or in which Mr. Wells owns an interest. Wells Management Company, Inc.
currently manages in excess of 1,500,000 square feet of office buildings and
shopping centers.
Mr. Wells is the sole shareholder, sole Director and President of Wells
Management Company, Inc. (See "CONFLICTS OF INTEREST.") The other principal
officers of Wells Management Company, Inc. are Michael C. Berndt, Vice President
and Chief Financial Officer, Annakay Warden, Vice President and Director of
National Leasing and Tenant Relations, M. Scott Meadows, Vice President of
Property Management, Robert H. Stroud, Vice President of Leasing, and Michael L.
Watson, Vice President of Development.
The property manager will hire, direct and establish policies for the
Partnership's employees who will have direct responsibility for each property's
operations, including resident managers and assistant managers, as well as
building and maintenance personnel. Some or all of the other Partnership
employees may be employed on a part-time basis and may also be employed by one
or more of the following: (i) the General Partners; (ii) the property manager;
(iii) other partnerships organized by the General Partners and their Affiliates;
and (iv) other persons or entities owning properties managed by the property
manager. The property manager will also direct the purchase of equipment and
supplies and will supervise all maintenance activity.
The management fees to be paid to Wells Management Company, Inc. will
cover, without additional expense to the Partnership, the property manager's
general overhead costs such as its expenses for rent and utilities. However,
certain salaries and other employee-related expenses, travel and other out-of-
pocket expenses of personnel of Wells Management Company, Inc. (other than
controlling persons of the General Partners or their Affiliates) may be
reimbursed by the Partnership to the extent such expenses are directly related
to the management of a specific Partnership Property.
The principal office of Wells Management Company, Inc. is located at 3885
Holcomb Bridge Road, Norcross, Georgia 30092.
DEALER MANAGER. Wells Investment Securities, Inc. (the "Dealer Manager"),
a member firm of the NASD, was organized in May 1984 for the purpose of
participating in and facilitating the distribution of securities of real estate
limited partnerships which may from time to time be sponsored by the General
Partners and their Affiliates.
13
<PAGE>
The Dealer Manager will provide certain wholesaling, sales promotional and
marketing assistance services to the Partnership in connection with the
distribution of the Units offered hereby. It may also sell a limited number of
Units at the retail level. (See "PLAN OF DISTRIBUTION.")
Mr. Wells is the sole shareholder, the sole Director and President of Wells
Investment Securities, Inc. (See "CONFLICTS OF INTEREST.") Brian M. Conlon
serves as Vice President of Wells Investment Securities, Inc.
IRA CUSTODIAN. Wells Advisors, Inc. was organized in 1991 for the purpose
of acting as a non-bank custodian for IRAs investing in the securities of real
estate limited partnerships sponsored by the General Partners and their
Affiliates. Wells Advisors, Inc. charges no fees for such services. Wells
Advisors, Inc. was approved by the Internal Revenue Service to act as a
qualified non-bank custodian for IRAs on March 20, 1992. In circumstances where
Wells Advisors, Inc. acts as an IRA custodian, the authority of Wells Advisors,
Inc. is limited to holding the Units on behalf of the beneficiary of the IRA and
making distributions or reinvestments in Units solely at the discretion of the
beneficiary of the IRA. Wells Advisors, Inc. is not authorized to vote any of
the Units held in any IRA except in accordance with the written instructions of
the beneficiary of the IRA. Mr. Wells is the sole Director and President and
owns 50% of the common stock and all of the preferred stock of Wells Advisors,
Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information contained on page 52 of the Prospectus in the "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
section of the Prospectus is revised as of the date of this Supplement by the
deletion of the first paragraph of that section and the insertion of the
following paragraph in lieu thereof:
The Partnership commenced operations on February 12, 1996, upon the
acceptance of subscriptions for the minimum offering of $1,250,000 (125,000
Units). As of June 24, 1996, the Partnership had raised a total of $12,570,080
in offering proceeds (1,257,008 Units), comprised of $9,872,260 raised from the
sale of Class A Status Units (987,226 Class A Status Units) and $2,697,820
raised from the sale of Class B Status Units (269,782 Class B Status Units).
After the payment of $439,953 in Acquisition and Advisory Fees, payment of
$1,885,512 in selling commissions and organizational and offering expenses, the
investment of $487,444 in the Joint Venture, as of June 24, 1996, the
Partnership was holding net offering proceeds of $9,757,171 available for
investment in properties.
14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Items 30 through 35(a) of Part II are incorporated by reference to the
Registrant's Registration Statement, as amended to date, Commission File No. 33-
83852.
Item 35(b) Exhibits (See Exhibit Index):
----------------------------
Exhibit No. Description
- ----------- -----------
1/*/ Dealer Manager Distribution Agreement between Registrant and Wells
Investment Securities, Inc.
3(a) Form of Amended and Restated Agreement of Limited Partnership of
Wells Real Estate Fund IX, L.P. (included as Exhibit B to
Prospectus)
3(b)/*/ Certificate of Limited Partnership of Wells Real Estate Fund VIII,
L.P. dated August 15, 1994
3(c)/*/ Certificate of Limited Partnership of Wells Real Estate Fund IX,
L.P. dated August 15, 1994
4 Form of Subscription Agreement and Subscription Agreement
Signature Page (included as Exhibit C to Prospectus)
5(a)/*/ Opinion of Branch, Pike & Ganz regarding the legality of the
securities of Wells Real Estate Fund VIII, L.P. to be offered
5(b)/*/ Opinion of Branch, Pike & Ganz regarding the legality of the
securities of Wells Real Estate Fund IX, L.P. to be offered
8/*/ Opinion of Branch, Pike & Ganz regarding tax matters
8(a)/*/ Supplemental Opinion of Holland & Knight regarding tax matters
10(a)/*/ Escrow Agreement between Wells Real Estate Fund IX, L.P. and
NationsBank of Georgia, N.A.
10(b)/*/ New York Escrow Agreement between Wells Real Estate Fund IX, L.P.
and NationsBank of Georgia, N.A.
10(c)/*/ Pennsylvania Escrow Agreement between Wells Real Estate Fund IX,
L.P. and NationsBank of Georgia, N.A.
10(d)/*/ Form of Leasing and Tenant Coordinating Agreement between
Registrant and Wells Management Company, Inc.
10(e)/*/ Form of Management Agreement between Registrant and Wells
Management Company, Inc.
10(f)/*/ Amended and Restated Custodial Agency Agreement between Wells Real
Estate Fund IX, L.P. and NationsBank of Georgia, N.A.
- -------
/*/ Incorporated by reference to the Registrant's Registration
Statement, as amended to date, Commission File No. 33-83852.
II-1
<PAGE>
10(g)/*/ Fund VII and Fund VIII Associates Joint Venture Agreement dated
February 10, 1995, between Wells Real Estate Fund VII, L.P. and Wells
Real Estate Fund VIII, L.P.
10(h)/*/ Agreement for the Purchase and Sale of Real Property, dated March
31, 1994, between James D. Henderson, II, and Frederick L. Henderson,
as Co-Trustees under that certain Trust Agreement, dated May 29, 1959,
and known as Prairie View Trust ("Sellers") and Wells & Associates,
Inc.
10(i)/*/ Letter Agreement amending Agreement for the Purchase and Sale of
Real Property, dated July 27, 1994, between Sellers and Wells &
Associates, Inc.
10(j)/*/ Letter Agreement amending Agreement for the Purchase and Sale of
Real Property, dated October 27, 1994, between Sellers and Wells &
Associates, Inc.
10(k)/*/ Lease Agreement, dated September 20, 1994, between NationsBank of
Georgia, N.A., as Agent for Wells Real Estate Fund VII, L.P., as
Landlord, and CH2M Hill, Inc., as Tenant
10(l)/*/ First Amendment to Lease Agreement, dated November 14, 1994, between
NationsBank of Georgia, N.A., as Agent for Wells Real Estate Fund VII,
L.P., as Landlord, and CH2M Hill, Inc., as Tenant
10(m)/*/ Second Amendment to Lease Agreement, dated January 12, 1994,
between NationsBank of Georgia, N.A., as Agent for Wells Real Estate
Fund VII, L.P., as Landlord, and CH2M Hill, Inc., as Tenant
10(n)/*/ Development Agreement, dated February 2, 1995, between Wells Real
Estate Fund VII, L.P., and ADEVCO Corporation
10(o)/*/ Owner-Contractor Agreement, dated January 11, 1995, between Wells
Real Estate Fund VII, L.P., as Owner, and Integra Construction, Inc.,
as Contractor
10(p)/*/ Architect's Agreement, dated as of July 15, 1994, between Wells Real
Estate Fund VII, L.P., as Owner, and Smallwood, Reynolds, Stewart,
Stewart & Associates, Inc., as Architect
10(q)/*/ Joint Venture Agreement of Fund VI, Fund VII and Fund VIII
Associates, dated April 17, 1995, among Wells Real Estate Fund VI,
L.P., Wells Real Estate Fund VII, L.P. and Wells Real Estate Fund
VIII, L.P.
10(r)/*/ Agreement for the Purchase and Sale of Real Property, dated February
13, 1995, between G.L. National, Inc. and Wells Capital, Inc.
10(s)/*/ Agreement to Lease, dated February 15, 1995, between NationsBank of
Georgia, N.A., as Agent for Wells Real Estate Fund VII, L.P. and
BellSouth Advertising & Publishing Corporation
10(t)/*/ Development Agreement, dated April 25, 1995, between Fund VI, Fund
VII and Fund VIII Associates and ADEVCO Corporation
10(u)/*/ Owner-Contractor Agreement, dated April 24, 1995, between Fund VI,
Fund VII and Fund VIII Associates, as Owner, and McDevitt Street
Bovis, Inc., as Contractor
- ---------------
/*/ Incorporated by reference to the Registrant's Registration Statement, as
amended to date, Commission File No. 33-83852.
II-2
<PAGE>
10(v)/*/ Architect's Agreement, dated February 15, 1995, between Wells Real
Estate Fund VII, L.P., as Owner, and Mayes, Suddereth & Etheredge,
Inc., as Architect
10(w)/*/ First Amendment to Joint Venture Agreement of Fund VI, Fund VII and
Fund VIII Associates, dated May 30, 1995, among Wells Real Estate Fund
VI, L.P., Wells Real Estate Fund VII, L.P. and Wells Real Estate Fund
VIII, L.P.
10(x)/*/ Real Estate Purchase Agreement, dated April 13, 1995, among E.
Vernon Ferrell, Jr., and E. Vernon Ferrell, Jr., as Attorney-in-Fact
for the individual sellers named therein, and Wells Real Estate Fund
VII, L.P.
10(y)/*/ Lease Agreement, dated February 27, 1995, between NationsBank of
Georgia, N.A., as agent for Wells Real Estate Fund VII, L.P. and
Harris Teeter, Inc.
10(z)/*/ Development Agreement, dated May 31, 1995, between Fund VI, Fund VII
and Fund VIII Associates and Norcom Development, Inc.
10(aa) Joint Venture Agreement, dated June 10, 1996, between Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P.
10(bb) Agreement for the Purchase and Sale of Real Property, dated April 23,
1996, between American Family Mutual Insurance Company and Wells
Capital, Inc.
10(cc) Agreement to Lease, dated June 18, 1996, between Fund VIII and IX
Associates and Westel-Milwaukee, Inc., d/b/a Cellular One
10(dd) Development Agreement, dated June 18, 1996, between Fund VIII and Fund
IX Associates and ADEVCO Corporation
10(ee) Owner-Contractor Agreement, dated June 18, 1996, between Wells Real
Estate Fund VIII, L.P. and Kraemer Brothers, Inc.
23(a)/*/ Consent of KPMG Peat Marwick LLP - Wells Real Estate Fund VIII, L.P.
23(b) Consent of KPMG Peat Marwick LLP - Wells Real Estate Fund IX, L.P.
23(c) Consent of KPMG Peat Marwick LLP - Wells Partners, L.P.
23(d) Consent of KPMG Peat Marwick LLP - Wells Capital, Inc.
23(e)/*/ Consent of Branch, Pike & Ganz (included in Exhibits 5(a), 5(b) and 8)
23(f)/*/ Letter of KPMG Peat Marwick LLP to Securities and Exchange
Commission regarding Wells Real Estate Fund IX, L.P.
23(g)/*/ Consent of Holland & Knight (included in Exhibit 8(a))
23(h) Consent of Arthur Andersen LLP - Wells Real Estate Fund IX, L.P.
23(i) Consent of Arthur Andersen LLP - Wells Partners, L.P.
- ----------
/*/ Incorporated by reference to the Registrant's Registration Statement, as
amended to date, Commission File No. 33-83852.
II-3
<PAGE>
23(j) Consent of Arthur Andersen LLP - Wells Capital, Inc.
Items 36 and 37 of Part II are incorporated herein by reference to the
Registrant's Registration Statement, as amended to date, Commission File No. 33-
83852.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-11 and has duly caused this Post-Effective
Amendment No. 11 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, and State of
Georgia, on the 28th day of June, 1996.
WELLS REAL ESTATE FUND VIII, L.P.
(Registrant)
By: Wells Partners, L.P.
General Partner
By: Wells Capital, Inc.
General Partner
By: /s/ Leo F. Wells, III
-------------------------------------
Leo F. Wells, III
President
By: /s/ Leo F. Wells, III
------------------------------------------
Leo F. Wells, III
General Partner
WELLS REAL ESTATE FUND IX, L.P.
(Registrant)
By: Wells Partners, L.P.
General Partner
By: Wells Capital, Inc.
General Partner
By: /s/ Leo F. Wells, III
--------------------------------
Leo F. Wells, III
President
By: /s/ Leo F. Wells, III
------------------------------------------
Leo F. Wells, III
General Partner
99
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 11 to Registration Statement has been signed by the
following person in the capacity and on the date indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Leo F. Wells, III President (Chief Executive Officer), June 28, 1996
- ---------------------- Treasurer (Principal Financial Officer)
Leo F. Wells, III and Sole Director of Wells Capital,
Inc., the sole general partner
of Wells Partners, L.P.
100
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequential Sequential
Exhibit No. Page No.
- --------------- ----------
<S> <C> <C>
1/*/ Dealer Manager Distribution Agreement between Registrant and N/A
Wells Investment Securities, Inc.
3(a) Form of Amended and Restated Agreement of Limited N/A
Partnership of Wells Real Estate Fund IX, L.P. (included as
Exhibit B to Prospectus)
3(b)/*/ Certificate of Limited Partnership of Wells Real Estate Fund N/A
VIII, L.P. dated August 15, 1994
3(c)/*/ Certificate of Limited Partnership of Wells Real Estate Fund IX, N/A
L.P. dated August 15, 1994
4 Form of Subscription Agreement and Subscription Agreement N/A
Signature Page (included as Exhibit C to Prospectus)
5(a)/*/ Opinion of Branch, Pike & Ganz regarding the legality of the N/A
securities of Wells Real Estate Fund VIII, L.P. to be offered
5(b)/*/ Opinion of Branch, Pike & Ganz regarding the legality of N/A
securities of Wells Real Estate Fund IX, L.P. to be offered
8/*/ Opinion of Branch of Branch, Pike & Ganz regarding tax matters N/A
8(a)/*/ Supplemental Opinion of Holland & Knight regarding tax matters N/A
10(a)/*/ Escrow Agreement between Wells Real Estate Fund IX, L.P. and N/A
NationsBank of Georgia, N.A.
10(b)/*/ New York Escrow Agreement between Wells Real Estate Fund N/A
IX, L.P. and NationsBank of Georgia, N.A.
10(c)/*/ Pennsylvania Escrow Agreement between Wells Real Estate Fund N/A
IX, L.P. and NationsBank of Georgia, N.A.
10(d)/*/ Form of Leasing and Tenant Coordinating Agreement between N/A
Registrant and Wells Management Company, Inc.
10(e)/*/ Form of Management Agreement between Registrant and Wells N/A
Management Company, Inc.
10(f)/*/ Amended and Restated Custodial Agency Agreement between N/A
Wells Real Estate Fund IX, L.P. and NationsBank of Georgia,
N.A.
10(g)/*/ Fund VII and Fund VIII Associates Joint Venture Agreement N/A
dated February 10, 1995, between Wells Real Estate Fund VII,
L.P. and Wells Real Estate Fund VIII, L.P.
10(h)/*/ Agreement for the Purchase and Sale of Real Property, dated N/A
March 31, 1994, between James D. Henderson, II, and Frederick
L. Henderson, as Co-Trustees under that certain Trust
Agreement, dated May 29, 1959, and known as Prairie View
Trust ("Sellers") and Wells & Associates, Inc.
</TABLE>
- ----------
* Incorporated herein by reference to the Exhibit with the same description
to the Registrant's Registration Statement on Form S-11, File No. 33-83852, as
amended to date.
<PAGE>
<TABLE>
<CAPTION>
Sequential Sequential
Exhibit No. Page No.
----------- ----------
<S> <C> <C>
10(i)/*/ Letter Agreement amending Agreement for the Purchase and Sale N/A
of Real Property, dated July 27, 1994, between Sellers and Wells
& Associates, Inc.
10(j)/*/ Letter Agreement amending Agreement for the Purchase and Sale N/A
of Real Property, dated October 27, 1994, between Sellers and
Wells & Associates, Inc.
10(k)/*/ Lease Agreement, dated September 20, 1994, between N/A
NationsBank of Georgia, N.A., as Agent for Wells Real Estate
Fund VII, L.P., as Landlord, and CH2M Hill, Inc., as Tenant
10(l)/*/ First Amendment to Lease Agreement, dated November 14, N/A
1994, between NationsBank of Georgia, N.A., as Agent for
Wells Real Estate Fund VII, L.P., as Landlord, and CH2M Hill,
Inc., as Tenant
10(m)/*/ Second Amendment to Lease Agreement, dated January 12, N/A
1994, between NationsBank of Georgia, N.A., as Agent for
Wells Real Estate Fund VII, L.P., as Landlord, and CH2M Hill,
Inc., as Tenant
10(n)/*/ Development Agreement, dated February 2, 1995, between Wells N/A
Real Estate Fund VII, L.P. and ADEVCO Corporation
10(o)/*/ Owner-Contractor Agreement, dated January 11, 1995, between N/A
Wells Real Estate Fund VII, L.P., as Owner, and Integra
Construction, Inc., as Contractor
10(p)/*/ Architect's Agreement, dated as of July 15, 1994, between Wells N/A
Real Estate Fund VII, L.P., as Owner, and Smallwood,
Reynolds, Stewart, Stewart & Associates, Inc., as Architect
10(q)/*/ Joint Venture Agreement of Fund VI, Fund VII and Fund VIII N/A
Associates, dated April 17, 1995, among Wells Real Estate Fund
VI, L.P., Wells Real Estate Fund VII, L.P. and Wells Real
Estate Fund VIII, L.P.
10(r)/*/ Agreement for the Purchase and Sale of Real Property, dated N/A
February 13, 1995, between G.L. National, Inc. and Wells
Capital, Inc.
10(s)/*/ Agreement to Lease, dated February 15, 1995, between N/A
NationsBank of Georgia, N.A., as Agent for Wells Real Estate
Fund VII, L.P. and BellSouth Advertising & Publishing
Corporation
10(t)/*/ Development Agreement, dated April 25, 1995, between Fund N/A
VI, Fund VII and Fund VIII Associates and ADEVCO
Corporation
10(u)/*/ Owner-Contractor Agreement, dated April 24, 1995, between N/A
Fund VI, Fund VII and Fund VIII Associates, as Owner, and
McDevitt Street Bovis, Inc., as Contractor
</TABLE>
- ----------
* Incorporated herein by reference to the Exhibit with the same description to
the Registrant's Registration Statement on Form S-11, File No. 33-83852, as
amended to date.
2
<PAGE>
<TABLE>
<CAPTION>
Sequential Sequential
Exhibit No. Page No.
------------ ----------
<S> <C> <C>
10(v)/*/ Architect's Agreement, dated February 15, 1995, between Wells N/A
Real Estate Fund VII, L.P., as Owner, and Mayes, Suddereth &
Etheredge, Inc., as Architect
10(w)/*/ First Amendment to Joint Venture Agreement of Fund VI, Fund N/A
VII and Fund VIII Associates, dated May 30, 1995, among Wells
Real Estate Fund VI, L.P., Wells Real Estate Fund VII, L.P.
and Wells Real Estate Fund VIII, L.P.
10(x)/*/ Real Estate Purchase Agreement, dated April 13, 1995, among N/A
E. Vernon Ferrell, Jr., and E. Vernon Ferrell, Jr., as Attorney-
in-Fact for the individual sellers named therein, and Wells Real
Estate Fund VII, L.P.
10(y)/*/ Lease Agreement, dated February 27, 1995, between N/A
NationsBank of Georgia, N.A., as agent for Wells Real Estate
Fund VII, L.P. and Harris Teeter, Inc.
10(z)/*/ Development Agreement, dated May 31, 1995, between Fund N/A
VI, Fund VII and Fund VIII Associates and Norcom
Development, Inc.
10(aa) Joint Venture Agreement, dated June 10, 1996, between Wells
Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX,
L.P.
10(bb) Agreement for the Purchase and Sale of Real Property, dated
April 23, 1996, between American Family Mutual Insurance
Company and Wells Capital, Inc.
10(cc) Agreement to Lease, dated June 18, 1996, between Fund VIII
and IX Associates and Westel-Milwaukee, Inc., d/b/a Cellular
One
10(dd) Development Agreement, dated June 18, 1996, between Fund
VIII and Fund IX Associates and ADEVCO Corporation
10(ee) Owner-Contractor Agreement, dated June 18, 1996, between
Wells Real Estate Fund VIII, L.P. and Kraemer Brothers, Inc.
23(a)/*/ Consent of KPMG Peat Marwick LLP - Wells Real Estate Fund N/A
VIII, L.P.
23(b) Consent of KPMG Peat Marwick LLP - Wells Real Estate Fund
IX, L.P.
23(c) Consent of KPMG Peat Marwick LLP - Wells Partners, L.P.
23(d) Consent of KPMG Peat Marwick LLP - Wells Capital, Inc.
23(e)/*/ Consent of Branch, Pike & Ganz (included in Exhibits 5(a), 5(b) N/A
and 8)
23(f)/*/ Letter of KPMG Peat Marwick LLP to Securities and Exchange N/A
Commission regarding Wells Real Estate Fund IX, L.P.
23(g)/*/ Consent of Holland & Knight (included in Exhibit 8(a)) N/A
- ----------
* Incorporated herein by reference to the Exhibit with the same description
to the Registrant's Registration Statement on Form S-11, File No. 33-83852, as
amended to date.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Sequential Sequential
Exhibit No. Page No.
----------- ----------
<S> <C>
23(h) Consent of Arthur Andersen LLP - Wells Real Estate
Fund IX, L.P.
23(i) Consent of Arthur Andersen LLP - Wells Partners, L.P.
23(j) Consent of Arthur Andersen LLP - Wells Capital, Inc.
</TABLE>
4
<PAGE>
EXHIBIT 10(AA)
JOINT VENTURE AGREEMENT, DATED JUNE 10, 1996,
BETWEEN WELLS REAL ESTATE FUND VIII, L.P.
AND WELLS REAL ESTATE FUND IX, L.P.
<PAGE>
FUND VIII AND FUND IX ASSOCIATES
A GEORGIA JOINT VENTURE
<PAGE>
FUND VIII AND FUND IX ASSOCIATES
JOINT VENTURE AGREEMENT
TABLE OF CONTENTS
-----------------
Title Page
------- ----
1. DEFINITIONS.......................................... 1
-----------
1.1 [Intentionally omitted]
1.2 "Administrative Venturer"........................ 1
1.3 "Agreed Value"................................... 1
1.4 "Approve," "Approved" or "Approval".............. 1
1.5 "Bankrupt" or "Bankruptcy"....................... 1
1.6 "Capital Account"................................ 2
1.7 "Capital Contributions".......................... 2
1.8 "Contributed Property"........................... 2
1.9 "Defaulting Venturer"............................ 2
1.10 "Distribution Percentage Interests".............. 2
1.11 "Entity"......................................... 2
1.12 "Extraordinary Receipts"......................... 2
1.13 "Fiscal Year".................................... 3
1.14 "I.R.C."......................................... 3
1.15 "Lease".......................................... 3
1.16 "Leasing Agreements"............................. 3
1.17 "Major Decisions"................................ 3
1.18 "Management Agreements".......................... 3
1.19 "Manager"........................................ 4
1.20 "Net Cash Flow".................................. 4
1.21 "Nondefaulting Venturer"......................... 4
1.22 "Notice"......................................... 4
1.23 "Prime Rate"..................................... 4
1.24 "Property"....................................... 4
1.25 "Properties"..................................... 4
1.26 "Purchasing Party"............................... 4
1.27 "Selling Party".................................. 4
1.28 "Venture"........................................ 5
1.29 "Venturer" or "Venturers"........................ 5
1.30 Other Terms...................................... 5
2. THE VENTURE............................................ 5
2.1 Formation of Venture............................. 5
2.2 Purposes and Scope of Venture.................... 5
2.3 Name of Venture.................................. 5
2.4 Scope of Authority............................... 6
-i-
<PAGE>
2.5 Principal Place of Business...................... 6
2.6 Representations, Warranties and Indemnity........ 6
(a) Authorization............................. 6
(b) Claims.................................... 6
(c) Conflicts................................. 6
(d) Investment Objectives..................... 6
(e) Charges to the Venturer................... 6
2.7 Term of Venture.................................. 7
(a) Commencement.............................. 7
(b) Dissolution and Termination............... 7
3. FINANCIAL STRUCTURE.................................... 7
3.1 Capital Contributions............................ 7
3.2 Distribution Percentage Interest................. 7
3.3 Allocations and Distributions.................... 8
(a) Allocation of Tax Items................... 8
(b) Net Cash Flow............................. 8
(c) Extraordinary Receipts.................... 8
(i) Distributions Not in Connection With
Dissolution.......................... 8
(ii) Distributions in Connection With
Dissolution.......................... 8
(d) Compliance with Section 704(c)............ 8
(e) Qualified Income Offset................... 9
3.4 Income Taxes and Accounting...................... 9
(a) Income Tax Returns........................ 9
(b) Elections................................. 9
(c) Fiscal Year............................... 9
(d) Books of Account.......................... 9
(e) Reports................................... 10
(f) Records................................... 10
(g) Audits.................................... 10
3.5 Banking.......................................... 10
4. MANAGEMENT............................................. 10
4.1 Authority of Administrative Venturer.............. 10
4.2 Administrative Venturer........................... 11
(a) Records................................... 11
(b) Property Taxes and Licenses............... 11
(c) Leases.................................... 11
(d) Indemnity................................. 11
4.3 Compensation of Venturers......................... 12
4.4 Defaulting Venturer............................... 12
-ii-
<PAGE>
(a) Equitable Relief......................... 12
(b) Damages.................................. 12
(c) Dissolution.............................. 12
(d) Additional Remedies...................... 13
4.5 Limitation on Authority.......................... 13
5. INSURANCE............................................. 13
5.1 Minimum Insurance Requirements................... 13
(a) Liability Insurance....................... 13
(b) Other Insurance........................... 13
5.2 Insureds......................................... 13
6. TRANSFERS AND OTHER DISPOSITIONS...................... 13
6.1 Prohibited Transfers............................. 13
6.2 Exceptions....................................... 14
6.3 Notice........................................... 14
6.4 Right of First Refusal........................... 14
(a) Certification............................. 14
(b) Purchasing Party's Rights................. 14
(c) Notice of Election........................ 15
(d) Power of Attorney......................... 15
7. DISSOLUTION AND TERMINATION........................... 16
8. MISCELLANEOUS PROVISIONS.............................. 16
8.1 Notices......................................... 16
8.2 Governing Law................................... 17
8.3 Fees and Commissions............................ 17
8.4 Waiver.......................................... 17
8.5 Severability.................................... 17
8.6 Status Reports.................................. 18
8.7 Entire Agreement - Amendment.................... 18
8.8 Terminology..................................... 18
8.9 Counterparts.................................... 18
8.10 Successors and Assigns.......................... 18
-iii-
<PAGE>
JOINT VENTURE AGREEMENT
OF
FUND VIII AND FUND IX ASSOCIATES
THIS JOINT VENTURE AGREEMENT (the "Agreement") is made as of the 10th day
of June, 1996, by and between WELLS REAL ESTATE FUND VIII, L.P., a Georgia
limited partnership having Leo F. Wells, III and Wells Partners, L.P., a Georgia
limited partnership, as general partners ("Fund VIII"), and WELLS REAL ESTATE
FUND IX, L.P., a Georgia limited partnership having Leo F. Wells, III and Wells
Partners, L.P., a Georgia limited partnership, as general partners ("Fund IX").
Each of the parties may also be referred to herein as a "Venturer" and together
as the "Venturers."
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Venturers desire to joint venture the acquisition,
development, operation and sale of real properties according to the terms and
conditions set forth herein;
NOW, THEREFORE, for and in consideration of the mutual covenants
hereinafter set forth, the parties hereto covenant and agree as follows:
1. DEFINITIONS.
-----------
For the purposes of this Agreement, the following defined terms shall
have the meanings ascribed thereto.
1.1 "Administrative Venturer" means the Entity responsible for the
-----------------------
conduct of the ordinary and usual business of the Venture and the implementation
of the decisions of the Venturers, all as is more fully set forth in Subsection
4.2 hereof. The initial Administrative Venturer shall be Fund VIII.
1.2 "Agreed Value" means with respect to Contributed Property the
------------
fair market value of such property as of the date of contribution to the Venture
as determined by the general partners of the Venturers.
1.3 "Approve," "Approved" or "Approval" means, as to the subject
------- -------- --------
matter thereof and as the context may require, an express consent evidenced by
and contained in a written statement signed by the approving Entity. A copy of
each such written statement shall be kept at the office of the respective
Venturer and shall be available for inspection by the other Venturer upon
request.
<PAGE>
1.4 "Bankrupt" or "Bankruptcy" means the occurrence of one or more of
-------- ----------
the following events:
(i) The appointment of a permanent or temporary receiver of the assets
and properties of the Venture or a Venturer, and the failure to secure the
removal thereof within 60 days after such appointment;
(ii) The adjudication of the Venture or a Venturer as bankrupt or
the commission by the Venture or a Venturer of an act of bankruptcy;
(iii) The making by the Venture or a Venturer of an assignment for
the benefit of creditors;
(iv) The levying upon or attachment by process of the assets and
properties of the Venture or a Venturer; or
(v) The use by the Venture or a Venturer, whether voluntary or
involuntary, of any debt or relief proceedings under the present or future law
of any state or of the United States.
1.5 "Capital Account" means a separate account maintained for each
---------------
Venturer in a manner which complies with Treasury Regulation Section 1.704-1(b),
as may be amended or revised from time to time.
1.6 "Capital Contributions" means the aggregate contributions to the
---------------------
capital of the Venture made by the Venturers as Capital Contributions pursuant
to Subsection 3.1 hereof.
1.7 "Contributed Property" means the interest of each Venturer
--------------------
contributing property (excluding cash or cash equivalents) to the Venture in
such property.
1.8 "Defaulting Venturer" means any Venturer failing to perform any
-------------------
of the obligations of such Venturer under this Agreement or violating the
provisions of this Agreement.
1.9 "Distribution Percentage Interests" means collectively the
---------------------------------
interests in the income, gains, losses, deductions, credits, Net Cash Flow,
Extraordinary Receipts, as determined by Subsection 3.2 hereof, as such may be
adjusted from time to time as provided in this Agreement.
1.10 "Entity" means any person, corporation, partnership (general or
------
limited), joint venture, association, joint stock company, trust or other
business entity or organization.
1.11 "Extraordinary Receipts" means those funds of the Venture which
----------------------
are derived from (i) the net proceeds of any casualty insurance insuring any of
the Properties or any
2
<PAGE>
portion thereof, to the extent not applied to the repair, restoration or
replacement of the Properties or any portion thereof as may be Approved by the
Venturers; (ii) the net proceeds of any condemnation, or any taking by eminent
domain, or any transfer in lieu thereof, of any of the Properties, or any
portion thereof, to the extent not applied to the repair, restoration or
reconstruction of any remaining portion of the Properties as may be Approved by
the Venturers; (iii) the net proceeds of any sale of any of the Properties, or
any portion thereof; and (iv) the net proceeds of any indebtedness (or any
refinancing of such indebtedness) secured in whole or in part by any of the
Properties or any portion thereof.
1.12 "Fiscal Year" means the fiscal year of the Venture established
-----------
under Subsection 3.4(c) hereof.
1.13 "I.R.C." means the Internal Revenue Code of 1986, as amended.
------
1.14 "Lease" means a lease or rental agreement now or hereafter
-----
existing between the Venture, as lessor or landlord (whether initially or by
assignment) and an Entity.
1.15 "Leasing Agreements" means, collectively, those certain Leasing
------------------
and Tenant Coordinating Agreements between the Venturers as "Owner" and Wells
Management Company, Inc. as "Agent" therein, concerning the leasing of the
Properties.
1.16 "Major Decisions" means any decision or action to (i) convey by
---------------
the Venture substantially all the assets of the Venture; (ii) acquire any
Properties; (iii) finance or borrow or execute any promissory note or other
obligation (other than a Lease) or mortgage or other encumbrance in the name of
or on behalf of the Venture; (iv) retain the services of a manager other than
Wells Management Company, Inc.; (v) approve each construction and architectural
contract and all architectural plans, specifications and drawings and all
revisions or changes thereof in connection with the development and construction
of any improvements for the Properties; (vi) reduce any portion of the insurance
program for the Properties or the Venture; (vii) determine any fee or other
amount to be paid to either Venturer or any affiliate of a Venturer; (viii) make
any expenditure or incur any obligation by or on behalf of the Venture involving
a sum in excess of $15,000 for any transaction or group of similar transactions
except for expenditures made and obligations incurred pursuant to and
specifically set forth in a budget Approved by the Venturers; (ix) adjust,
settle or compromise any claim, obligation, debt, demand, suit or judgment
against the Venture or any Venturer in its capacity as a Venturer, or waive any
breach of or default in any monetary or non-monetary obligation owed to the
Venture, involving singly or in the aggregate an amount in excess of $15,000, or
in the initiation of any such claim or suit for the benefit of the Venture; (x)
convey or sell any Properties or authorize the conveyance or sale of all
Properties; and (xi) make any other decision or action which by the provisions
of this Agreement is required to be Approved by the Venturers or which in a
material respect affects the Venture or any of the assets or operations thereof.
All Major Decisions shall be made by the Venturers in a timely manner with due
regard for the necessity of obtaining and evaluating the information necessary
for making such Major Decisions.
3
<PAGE>
1.17 "Management Agreements" means, collectively, those certain
---------------------
Management Agreements between the Venturers as "Owner" and Wells Management
Company, Inc. as "Manager" therein, concerning the management of the Property.
1.18 "Manager" means Wells Management Company, Inc.
-------
1.19 "Net Cash Flow" means for a given fiscal period, those funds of
-------------
the Venture constituting the gross cash receipts of the Venture from the
operation of the Properties (including interest and proceeds from business
interruption or rent insurance) for such period exclusive of Capital
Contributions by the Venturers and Extraordinary Receipts, which are available
for distribution to the Venturers following (i) the payment of all operating,
fixed cost and capital expenditures of the Venture, for which no reserves have
been established, applicable to such period; (ii) the payment of all principal
and interest with respect to any debt secured by any mortgage permitted by this
Agreement applicable to such period; and (iii) the establishment by the
Venturers of appropriate reserves for taxes, debt service, maintenance, repairs
and other expenses and working capital requirements of the Venture including,
without limitation, accruals for real estate taxes, insurance and other annual
expense items (unless and to the extent the same are escrowed with a mortgagee).
1.20 "Nondefaulting Venturer" in the context wherein one or more
----------------------
Venturers become a Defaulting Venturer, means the remaining Venturers (provided
the remaining Venturers are not also Defaulting Venturers).
1.21 "Notice" means a written advice or notification required or
------
permitted by this Agreement, as more particularly provided in Subsection 8.1
hereof.
1.22 "Prime Rate" means the rate of interest announced from time to
----------
time by NationsBank of Georgia, N.A. as its prime rate. In the event the prime
rate of NationsBank of Georgia, N.A. is hereafter discontinued or becomes
unascertainable, the Administrative Venturer shall designate a comparable
reference rate to be the Prime Rate.
1.23 "Property" means any particular tract of land (and all rights and
--------
appurtenances incident thereto) owned or to be owned by the Venture and all
improvements located, constructed or developed thereon or to be constructed or
developed thereon, as more particularly described on Exhibit "A" hereto, as may
be amended from time to time, including that certain real property located in
Dane County, Wisconsin, as more particularly described on Exhibit "A" to this
Joint Venture Agreement.
1.24 "Properties" means, collectively, all Property of the Venture at
----------
any given time.
1.25 "Purchasing Party" means the Venturer other than the Selling
----------------
Party in the event of a proposed transfer described in Subsection 6.4 hereof.
4
<PAGE>
1.26 "Selling Party" means the Venturer desiring to transfer its
-------------
interest in a transaction described in Subsection 6.4 hereof.
1.27 "Venture" means the joint venture formed pursuant to the laws of
-------
the State of Georgia by this Agreement.
1.28 "Venturer" or "Venturers" means the party or parties to this
-------- ---------
Agreement and all permitted successors and assigns thereof.
1.29 Other terms defined in this Agreement:
Term Section
---- -------
"Assignment" 6.1
"Right of First Refusal" 6.2
"Certification" 6.4(a)
2. THE VENTURE.
-----------
2.1 Formation of Venture. The Venturers hereby enter into and form
--------------------
the Venture as a joint venture for the limited purposes and scope set forth
herein. The rights and obligations of the Venturers and the status,
administration and termination of the Venture shall be governed by the laws of
the State of Georgia. The Venture is being formed for the sole purpose of
acquiring, owning, developing, operating and eventually selling the Properties.
2.2 Purposes and Scope of Venture. Subject to the provisions of this
-----------------------------
Agreement, the activities of the Venture shall be limited strictly to the
acquisition, ownership, financing, development, leasing, operation, sale and
management of the Properties for the production of income and profit, including
all activities reasonably necessary or desirable to accomplish such purposes,
and shall not be extended by implication or otherwise unless Approved by all
venturers. The Properties to be owned and operated by the Venture shall be set
forth on Exhibit "A" hereto, as may be amended from time to time. Nothing in
this Agreement shall be deemed to restrict in any way the freedom of any
Venturer to conduct any other business or activity whatsoever (including,
without limitation, the acquisition, development, leasing, sale, operation and
management of other real property) without any accountability to the Venture or
any other Venturer, even if such business or activity competes with the business
of the Venture, it being understood by each Venturer that the other Venturer may
be interested directly or indirectly in various other businesses and
undertakings not included in the Venture.
2.3 Name of Venture. The business and affairs of the Venture shall
---------------
be conducted solely under the name "Fund VIII and Fund IX Associates" (or such
other names as shall be approved by both Venturers), and such name shall be used
at all times in connection with the business and affairs of the Venture. The
Venturers shall execute any assumed or
5
<PAGE>
fictitious name certificate or certificates required by law to be filed in
connection with the formation of the Venture and shall cause such certificate or
certificates to be filed in the appropriate records.
2.4 Scope of Authority. Except as otherwise expressly and
------------------
specifically provided in this Agreement, no Venturer shall have any authority to
act for, or assume any obligations or responsibility on behalf of, any other
Venturer or the Venture.
2.5 Principal Place of Business. The principal place of business and
---------------------------
initial office of the Venture shall be located at 3885 Holcomb Bridge Road,
Norcross, Georgia 30092, and may be relocated as may be from time to time
Approved by the Venturers.
2.6 Representations, Warranties and Indemnity. In order to induce
-----------------------------------------
the other Venturer to enter into this Agreement, each Venturer does hereby make
to each other Venturer the representations and warranties hereinafter set forth,
and does hereby agree to indemnify and hold each other Venturer harmless from
any and all loss, expense or liability any other Venturer may suffer as a result
of any inaccuracy as of the date hereof in any representation and warranty set
forth below:
(a) Authorization. The execution and delivery of this Agreement has
-------------
been duly authorized by the agreements by which each Venturer was either created
or currently governed.
(b) Claims. There is no claim, litigation, proceeding or governmental
------
investigation pending, or, so far as is known to each Venturer, threatened,
against or relating to each Venturer, or the transactions contemplated by this
Agreement which does or would reasonably be expected materially and adversely to
affect the ability of each Venturer to enter into this Agreement or to carry out
its obligations hereunder, and there is not any basis for any such claim,
litigation, proceeding or governmental investigation.
(c) Conflicts. Neither the consummation of the transactions
---------
contemplated by this Agreement to be performed, nor the fulfillment of the
terms, conditions and provisions of this Agreement, conflict with or will result
in the breach of any of the terms, conditions or provisions of, or constitute a
default under, the agreements by which each Venturer was created or is currently
governed or any material agreement, indenture, instrument or undertaking to
which each Venturer is a party.
(d) Investment Objectives. The investment objectives of each Venturer
---------------------
with respect to the Properties and the objectives of the Venture are: (i) to
maximize Net Cash Flow; (ii) to preserve, protect and return the Venturers'
investment in the Venture; and (iii) to realize appreciation upon the sale of
the Properties.
(e) Charges to the Venturer. Neither Venturer will be charged,
-----------------------
directly or indirectly, more than once for the same services.
6
<PAGE>
2.7 Term of Venture.
---------------
(a) Commencement. The Venture term shall begin on the date of this
------------
Agreement as set forth above and end upon dissolution of the Venture.
(b) Dissolution and Termination. Dissolution shall occur upon the
---------------------------
occurrence of any of the events described in Section 7 of this Agreement. Upon
dissolution, the assets shall be liquidated in due course and distributed as
provided in Subsection 3.3(c)(i) hereof. The Venture shall continue until
termination in accordance with the relevant dissolution and termination
provisions of the Georgia Uniform Partnership Act.
3. FINANCIAL STRUCTURE.
-------------------
3.1 Capital Contributions. The Venturers shall make such Capital
---------------------
Contributions to the Venture to fund the acquisition and development of the
Property as are agreed to by the Venturers.
3.2 Distribution Percentage Interest. The Distribution Percentage
--------------------------------
Interest of each of the Venturers shall be equal to the percentage equivalent
(rounded to the nearest one-hundredth of a percent) of a fraction, the numerator
---------
of which is the aggregate of all Capital Contributions (or the Agreed Value
thereof) made by the Venturer pursuant to Subsection 3.1 hereof, and the
denominator of which is the aggregate amount of all Capital Contributions (or
- -----------
the Agreed Value thereof) made by all of the Venturers pursuant to Subsection
3.1 hereof. Each Venturer's interest in the Venture shall always be
proportional to its Capital Contributions.
Each Venturer (the "First Venturer") does hereby agree to indemnify
and hold the other Venturer (the "Second Venturer") harmless from and against
any claim, action, liability, loss, damage, cost or expense, including, without
limitation, attorney's fees and expenses incurred by the Second Venturer by
reason of (i) any act or omission of the First Venturer in connection with the
operation of the Venture and the Properties, or (ii) the claims made by third
parties to the extent that the Second Venturer's percentage share of the total
liability, loss, damage, cost or expense incurred by the Venture and the
Venturers in connection with such claims exceeds its Distribution Percentage
Interest at the time such liability, loss, damage, cost or expense is suffered
or incurred. Upon dissolution, each Venturer shall look solely to the assets of
the Venture for the return of its investment, and if the Venture Property
remaining after payment or discharge of the debts and liabilities of the
Venture, including debts and liabilities owed to one or more of the Venturers,
is insufficient to return the aggregate Capital Contributions of each Venturer,
such Venturers shall have no recourse against the Venture or any other Venturer.
3.3 Allocations and Distributions. Allocations for accounting
-----------------------------
purposes and for federal, state and local income tax purposes of each item of
income, loss, deduction and gain,
7
<PAGE>
and distributions of Net Cash Flow and Extraordinary Receipts shall be allocated
among the Venturers as follows:
(a) Allocation of Tax Items. For federal, state and local income tax
-----------------------
purposes and for purposes of maintaining the Venturers' Capital Accounts, except
as otherwise provided herein, each item of income, gain, loss and deduction of
the Venture for each tax year shall be allocated to the Venturers in accordance
with their Distribution Percentage Interests.
(b) Net Cash Flow. All distributions of Net Cash Flow shall be made
-------------
in accordance with the Venturers' Distribution Percentage Interests and shall be
made at such intervals as may be approved by the Venturers, but in no event less
frequently than quarterly.
(c) Extraordinary Receipts. Distributions of Extraordinary
----------------------
Receipts shall be made as follows:
(i) Distributions Not in Connection With Dissolution. Distribution of
------------------------------------------------
Extraordinary Receipts not generated in connection with an event of dissolution
shall be made as follows: first, to the establishment of any reserve approved
-----
by the Venturers; and second, to the Venturers based on their respective
------
Distribution Percentage Interests.
(ii) Distributions in Connection With Dissolution. Distribution of
--------------------------------------------
Extraordinary Receipts generated in connection with an event of dissolution (as
well as the other assets of the Venture) shall be made as follows: first, to
-----
the payment of debts and liabilities of the Venture to creditors (including all
mortgages, but excluding any other debts or liabilities to Venturers or
affiliates of Venturers), and to the expenses of liquidation; second, to the
------
establishment of such reserves as the Venturers may deem reasonably necessary
for contingent or unforeseen liabilities or obligations of the Venture, which
may be held in escrow for a reasonable period of time and then distributed
pursuant to the remainder of this Subsection; third, to the repayment of any
-----
remaining debts and obligations of the Venture to the Venturers or affiliates of
the Venturers; and fourth, to the Venturers in accordance with the positive
------
balances in their respective Capital Accounts.
(d) Compliance with Section 704(c). To comply with Section 704(c) of
------------------------------
the I.R.C., items of income, gain, loss, depreciation and cost recovery
deductions attributable to Contributed Property shall be allocated for federal
income tax purposes among the Venturers in the manner provided under Section
704(c) of the I.R.C. taking into account the variation, if any, between the
Agreed Value of such Property and its adjusted tax basis at the time of
contribution.
(e) Qualified Income Offset. Notwithstanding any provision to the
-----------------------
contrary contained herein, in the event that any Venturer receives an
adjustment, allocation or distribution described in Treasury Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which causes a deficit balance in
such Venturer's Capital Account, such Venturer will be allocated items of income
or gain (consisting of a pro rata portion of each item of partnership income,
8
<PAGE>
including gross income, and gain for such year) in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible, all in
accordance with Treasury Regulations Section 1.704-1(b)(2)(ii)(d). (It is the
intent of the Venturers that the foregoing provision constitute a "Qualified
Income Offset," as defined in Treasury Regulations Section 1.704-1(b)(2)(ii)(d),
and the foregoing provision shall in all events be interpreted so as to
constitute a valid "Qualified Income Offset.")
3.4 Income Taxes and Accounting.
---------------------------
(a) Income Tax Returns. All income tax returns of the Venture shall
------------------
be prepared on an accrual basis (except to the extent as may otherwise be
Approved by all Venturers or be required by law, statute or regulation governing
such tax and returns).
(b) Elections. Any provision of this Agreement to the contrary
---------
notwithstanding, solely for federal income tax purposes, each of the Venturers
hereby recognizes that the Venture will be subject to all provisions of
Subchapter X of Chapter 1 of Subtitle A of the I.R.C.; provided, however, that
the filing of U.S. Partnership Returns of Income shall not be construed to
extend the purposes of the Venture or expand the obligations or liabilities of
the Venturers. The Venture shall file an election under Section 754 of the
I.R.C. only in the event of a transfer or proposed transfer by any one or more
Venturers of all or any part of their interest or interests in the Venture to
any Entity. Such election shall be filed by the Venture upon the request of any
Venturer made with respect to the income tax return for the period which
includes the date of transfer of such interest in the Venture; such request
shall be in writing and shall be made not less than 60 days prior to the initial
date established by law for filing such income tax return.
(c) Fiscal Year. The Venture shall operate on a calendar year basis.
------------
(d) Books of Account. The books of account of the Venture and the
----------------
Venturer's Properties shall be kept and maintained at all times by the
Administrative Venturer or the delegated representative thereof at the principal
place of business of the Administrative Venturer. .The books of account shall
be maintained on an accrual basis, unless otherwise determined by the
Administrative Venturer, in accordance with generally accepted accounting
principles, consistently applied, and shall show all items of income and expense
relating to the Venture and the Properties.
(e) Reports. The Administrative Venturer shall cause to be prepared
-------
at the expense of the Venture and furnished to each of the Venturers the
information and data with respect to the Venture during the Fiscal Year as shall
enable each Venturer on a timely basis to prepare or cause to be prepared the
reports required under their respective partnership agreements to be made to
their partners. In addition, within 60 days after the end of each Fiscal Year,
the Administrative Venturer shall use its best efforts to cause to be prepared
and to deliver to each Venturer a report setting forth in sufficient detail all
such information and data with respect to business transactions effected by or
involving the Venture during such Fiscal Year as
9
<PAGE>
shall enable the Venture and each Venturer to prepare its federal, state and
local income tax returns on a timely basis in accordance with the laws, rules
and regulations then prevailing. The Administrative Venturer shall cause to be
prepared federal, state and local tax returns required of the Venture and submit
such returns to the Venturers no later than 30 days prior to the date required
for the filing thereof and shall file the same.
(f) Records. Any Venturer shall have the right at all reasonable
-------
times during usual business hours to audit, examine and make copies of the books
of account of the Venture. Such right may be exercised through any agent or
employee of such Venturer designated by such Venturer or by an independent
certified public accountant designated by such Venturer. Any Venturer shall
bear all expenses incurred in any examination or audit made for such Venturer's
account.
(g) Audits. In the event that the Internal Revenue Service or any
------
other governmental agency with jurisdiction shall conduct, commence or give
notification of intent to conduct or commence any audit or other investigation
of the books, records, tax returns or other affairs of the Venture, the
Administrative Venturer shall immediately advise the Venturers thereof by
Notice. The Administrative Venturer shall be the "tax matters partner," as that
term is defined by I.R.C., if one is needed for the Venture.
3.5 Banking. Funds of the Venture shall be deposited in an account
-------
or accounts of a type, in form and name and in a bank or banks selected by the
Administrative Venturer. No funds other than Venture funds shall be deposited
in any such account. Withdrawals from bank accounts shall be made by the
Administrative Venturer and by such other parties as may be designated by the
Venturers.
4. MANAGEMENT.
----------
4.1 Authority of Administrative Venturer. The overall management and
------------------------------------
control of the business and affairs of the Venture shall be vested in the
Venturers, collectively, acting by and through the Administrative Venturer. The
Administrative Venturer shall have responsibility for establishing the policies
and operating procedures with respect to the business and affairs of the Venture
and for making all decisions, except as otherwise provided herein and except
Major Decisions, as to all matters which the Venture has authority to perform,
as fully as if the Venturers were themselves making such decisions. All
decisions, other than Major Decisions, with respect to the management and
control of the Venture made by the Administrative Venturer shall be binding on
the Venture and all Venturers. The Administrative Venturer shall be responsible
for performing, or for causing to be performed, all acts necessary to accomplish
the purposes of the Venture. No act shall be taken, sum expended, decision made
or obligation incurred by the Venture, or any Venturer, with respect to a matter
within the scope of any of the Major Decisions, unless such matter has been
Approved by all of the Venturers. Except as otherwise expressly provided for in
this Agreement, documents executed by or behalf of the Venture shall be executed
only with the Approval of the Administrative Venturer.
10
<PAGE>
4.2 Administrative Venturer. The initial Administrative Venturer
-----------------------
shall be Fund VIII. The Administrative Venturer shall, at the expense of the
Venture, discharge or cause the discharge of the duties of the Administrative
Venturer unless and until (i) the Administrative Venturer resigns as the
Administrative Venturer, or (ii) the Administrative Venturer becomes a
Defaulting Venturer. In the event of an occurrence described in either clause
(i) or (ii) of the immediately preceding sentence, the then current
Administrative Venturer shall thereupon be relieved from any further performance
of the functions of the Administrative Venturer under this Agreement and a
replacement for the Administrative Venturer shall be Fund IX or shall be
appointed by Fund IX. In the event an Entity not a Venturer shall be appointed
to be Administrative Venturer, such Entity shall discharge the functions of the
Administrative Venturer under this Agreement but shall not be entitled to any of
the rights, titles or interests of a Venturer. The breach or violation by the
Administrative Venturer of any provision of this Subsection, or of any other
duty or obligation imposed upon the Administrative Venturer by this Agreement,
shall subject to the Administrative Venturer to the provisions of Subsection 4.4
hereof as a Defaulting Venturer (provided the Administrative Venturer is then
also a Venturer) only if such breach or violation by the Administrative Venturer
involves fraud, negligence or willful misconduct. Furthermore, the
Administrative Venturer shall be liable to the Venture and to the Venturers for
any breach or violation of the Administrative Venturer's duties and obligations
under this Subsection only if such breach or violation involves fraud,
negligence or willful misconduct.
(a) Records. The Administrative Venturer shall maintain or cause to
-------
be maintained at the expense of the Venture, books of account as described in
Subsection 3.4(d) hereof.
(b) Property Taxes and Licenses. The Administrative Venturer shall
---------------------------
cause to be filed each year timely ad valorem tax returns for the Properties.
(c) Leases. The Administrative Venturer is authorized to negotiate
------
and execute Leases on behalf of the Venture without further Approval of the
Venturers and is authorized to delegate this responsibility pursuant to a
management agreement. Initially, this responsibility will be delegated to the
Manager under the Management Agreements and Leasing Agreements by and between
the Venturers and the Manager.
(d) Indemnity. The Venture shall indemnify and hold the
---------
Administrative Venturer harmless against all claims, actions, liability, loss,
damage, cost or expense, including attorney's fees and expenses, by reason of
any act or omission of the Administrative Venturer that is duly authorized and
performed in accordance with the terms and provisions of this Agreement.
However, any Entity which is both the Administrative Venturer and a Venturer
shall be responsible as a Venturer, to the extent of the proportionate liability
thereof, for such obligation for the Venture to so indemnify and hold harmless
the Administrative Venturer. The liability of the Venturers under this
Subsection shall be several, and not joint, and shall be shared in proportion to
the Distribution Percentage Interests of the Venturers.
11
<PAGE>
4.3 Compensation of Venturers. No payment will be made by the
-------------------------
Venture to any Venturer for the services of such Venturer or any affiliate,
partner or employee of any Venturer, other than as provided in the Management
Agreements and the Leasing Agreements.
4.4 Defaulting Venturer. If any Venturer fails to perform any of its
-------------------
obligations under this Agreement or violates the terms of this Agreement, such
Venturer shall be a Defaulting Venturer and the Nondefaulting Venturer shall
have the right to give such Defaulting Venturer a Notice specifically setting
forth the nature of the default and stating that such Defaulting Venturer shall
have a period of 15 days to pay any sums of money specified therein as due and
owing to the Venture or to any Venturer, or 30 days (or such longer period as is
specified in the next succeeding sentence) to cure any other default specified
in such Notice. If the monies specified are not paid within such 15 day period
or such Defaulting Venturer does not cure all other defaults within such 30 day
period, or, if the defaults are not capable of being cured within such 30 day
period, such Defaulting Venturer has not commenced in good faith the curing of
such defaults within such 30 days period and does not thereafter prosecute to
completion with diligence and continuity the curing thereof, the Nondefaulting
Venturer shall have all rights provided in Subsections 4.4(a) through 4.4(c)
below, in addition to any other rights it may have under the Georgia Uniform
Partnership Act. If a Defaulting Venturer completely cures all of such defaults
within the aforesaid cure periods, then such defaults shall be deemed no longer
to exist and such Venturer shall be deemed no longer to constitute a Defaulting
Venturer unless and until another default by such Venturer occurs. A Defaulting
Venturer shall have no power or authority to bind the Venture or the Venturers
but shall cooperate with and, to the extent requested, assist the Nondefaulting
Venturers in every way possible.
(a) Equitable Relief. The Nondefaulting Venturer may bring any
----------------
proceeding in the nature of injunction, specific performance or other equitable
remedy, it being acknowledged by each of the Venturers that damages at law may
be an inadequate remedy for a default or threatened breach of this Agreement.
(b) Damages. The Nondefaulting Venturer may bring any action at law
-------
by or on behalf of itself or the Venture as may be permitted in order to recover
damages.
(c) Dissolution. The Nondefaulting Venturer may institute such
-----------
proceedings as may be appropriate to secure an accounting and to dissolve, wind
up and terminate the Venture.
(d) Additional Remedies. The rights and remedies of the Venturers
-------------------
under this Agreement shall not be mutually exclusive; that is, the exercise of
one or more of the provisions hereof shall not preclude the exercise of any
other provisions hereof, except as may be expressly provided in this Agreement.
Each of the Venturers confirms that damages at law may be an inadequate remedy
for a breach or threatened breach of this Agreement and agrees that, in the
event of a breach or threatened breach of any provision hereof, the respective
rights and obligations hereunder shall be enforceable by specific performance,
injunction or other
12
<PAGE>
equitable remedy, but nothing herein contained is intended to, nor shall it,
limit or affect any right or rights at law or by statute or otherwise of any
Venturer aggrieved as against any other Venturer for breach or threatened breach
of any provisions of this Agreement, it being the intention of this Subsection
to make clear the Agreement of the Venturers that the respective rights and
obligations of the Venturers under this Agreement shall be enforceable in equity
as well as at law or otherwise.
4.5 Limitation on Authority. Notwithstanding any provision of this
-----------------------
Agreement to the contrary, neither Venturer shall have the authority to take any
action which, if taken singularly by such Venturer separate from the Venture,
would be prohibited by such Venturer's governing documents.
5. INSURANCE.
---------
5.1 Minimum Insurance Requirements. The Venture shall carry and
------------------------------
maintain in force the insurance hereinafter described, the premiums for which
shall be a cost and expense of the Venture.
(a) Liability Insurance. Comprehensive general liability insurance
-------------------
for the benefit of the Venture and the Venturers as named insureds against
claims for "personal injury" liability.
(b) Other Insurance. Such other insurance as the Venturers may
---------------
reasonably deem to be necessary or as may be required by any mortgagee of any
Property of the Venture.
5.2 Insureds. All of the policies of insurance described in
--------
Subsection 5.1 shall name the Venture and each of the Venturers as named
insureds, as their respective interests may appear. All such insurance shall be
effected under policies issued by insurers and be in forms and for amounts
Approved by both Venturers.
6. TRANSFERS AND OTHER DISPOSITIONS.
--------------------------------
6.1 Prohibited Transfers. No Venturer may sell, transfer, assign,
--------------------
mortgage, pledge, hypothecate or otherwise dispose of, encumber or permit or
suffer any encumbrance on (all referred to as "Assignment"), all or any part of
the interest of such Venturer in the Venture or in the Properties (including,
but not limited to, the right to receive any distributions under this Agreement)
unless such an Assignment is Approved by all Venturers, provided that this
restriction on Assignment shall not apply to the Assignment of units of
partnership interests or beneficial interests in a Venturer. Any Assignment
made in violation of this Section 6 shall be void.
6.2 Exceptions. The prohibition in Subsection 6.1 hereof shall not
----------
apply to an Assignment permitted under Subsection 6.4 hereof ("Right of First
Refusal").
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<PAGE>
6.3 Notice. Each Venturer shall promptly by Notice inform the other
------
Venturer of the occurrence of any disposition not required to have been Approved
by the other Venturer.
6.4 Right of First Refusal. If any Selling Party shall desire to
----------------------
transfer (for the purposes of this Subsection the terms "transfer" and
"transferred" include any and all types of disposition) all or any portion of
its interest in the Venture to any Entity, such Selling Party may consummate
such transfer only if (i) such sale is a sale of Selling Party's interest in the
Venture separate and distinct from any other property, (ii) the consideration
payable is cash and/or note(s) and not an interest in other property, and (iii)
the provisions and conditions of Subsections (a) through (d) hereof have been
complied with.
(a) Certification. The Selling Party shall deliver to the Purchasing
-------------
Party a written certification ("Certification") reflecting (i) the name of the
prospective transferee of the entire interest of the Selling Party in the
Venture; (ii) the price for which, and the terms upon which, the Selling Party
is willing to transfer and such prospective transferee is willing to buy the
entire interest of the Selling Party in the Venture (which price and terms shall
be based either upon preliminary discussions and negotiations, evidenced in a
writing signed by the prospective transferee, between the Selling Party and such
prospective transferee or upon a fully negotiated and executed purchase
agreement, a copy of which shall be furnished to the Purchasing Party); and
(iii) whether the Selling Party has any interest, financial or otherwise, in the
prospective transferee and whether, to the best knowledge of the Selling Party,
there exists any other contract or offer for the purchase of all or any portion
of the Properties or of the Selling Party's interest in the Venture. Such
Certification shall be accompanied by a request (in the form of a Notice) by the
Selling Party to the Purchasing Party to either Approve such transfer and
prospective transferee or to purchase the Selling Party's interest in the
Venture for the price and upon the terms provided in such Certification. The
Selling Party may transfer the interest of the Selling Party in the Venture only
to such prospective transferee or to the Purchasing Party. The Purchasing Party
must either approve such prospective transferee or purchase the interest of the
Selling Party in the Venture.
(b) Purchasing Party's Rights. The Purchasing Party shall have the
-------------------------
right either (i) to allow the Selling Party to transfer the interest of the
Selling Party in the Venture for a price and upon terms no more favorable than
those reflected, and to the prospective transferee named in the Certification,
or (ii) to purchase the Selling Party's entire interest in the Venture at the
price contained in the Certification and on the other terms and conditions of
the Certification. The price for which, and the terms upon which, the Selling
Party shall transfer its interest in the Venture shall, by way of illustration
and not limitation, be deemed "more favorable" than those reflected in the
Certification if (i) the total actual transfer price is lower than that set
forth in such Certification, (ii) a lesser portion of the price is paid in cash
at the time of the transfer than that set forth in such Certification, or (iii)
the portion of the price not paid in cash at the time of the transfer is payable
over a longer period of time, at a lower interest rate or with lower or less
frequent periodic payments than those set forth in such Certification.
14
<PAGE>
(c) Notice of Election. The Purchasing Party shall have a period of
------------------
60 days after receipt of the Selling Party's Certification specified in
Subsection 6.4(a) hereof to serve upon the Selling Party a Notice which shall
specify whether such Purchasing Party will Approve a transfer to such
prospective transferee, or whether the Purchasing Party shall purchase the
entire interest of the Selling Party as provided in Subsection 6.4(b) hereof.
If the Purchasing Party fails to give such Notice within the allocated time, the
Purchasing Party shall be deemed to have approved the transfer of the interest
to such prospective transferee, and the Purchasing Party shall, if requested by
the Selling Party, execute, acknowledge and deliver such documents, or cause the
same to be executed, acknowledged and delivered, including without limitation,
the rights and restrictions contained in this Section 6 with respect to further
transfers. Any such new Venturer shall execute and deliver to the other
Venturers such documents as the other Venturers may reasonably request
confirming the assumption by such new Venturer of the obligations of the Selling
Party under this Agreement. At the time of closing of a transfer to a third
party transferee pursuant to this Subsection 6.4, the Purchasing Party shall
execute and deliver to the Selling Party and such transferee a written estoppel
certificate in recordable form pursuant to which the Purchasing Party shall
certify and agree that to the best of the Purchasing Party's knowledge and
belief the pending transfer is permitted pursuant to this Subsection (provided,
that to the best of the Purchasing Party's knowledge and belief such transfer
is, in fact, permitted by this Subsection). In such estoppel certificate, the
Purchasing Party shall waive any further right whatsoever to attempt to force a
rescission or setting aside of such transfer; provided, however, the Purchasing
Party shall expressly reserve any rights thereafter to pursue any action for
damages against both the Selling Party and the transferee should the Purchasing
Party thereafter determine that, contrary to the Purchasing Party's earlier best
knowledge and belief, the transfer was in fact not consummated in strict
accordance with the terms of this Section 6.
(d) Power of Attorney. In the event that either (i) the Purchasing
-----------------
Party shall have failed to respond, in the manner and within the time required
by Subsection 6.4(c) hereof, to the Selling Party's Certification specified in
Subsection 6.4(a) hereof, or (ii) the Purchasing Party shall have served upon
the Selling Party a Notice specifying that the Purchasing Party has approved a
transfer to a prospective transferee of the Selling Party as contemplated by
Subsection 6.4(c) hereof, and the Purchasing Party shall have thereafter failed
or refused, within ten days after receipt of a Notice from the other Venturer
requesting same, to execute, acknowledge and deliver such documents, or cause
the same to be done, as shall be required to effectuate a transfer of such
interest in accordance with the Certification, then, and in either of such
events, the Selling Party may execute, acknowledge and deliver such documents
for, on behalf of and in the stead of the Purchasing Party, and such execution,
acknowledgment and delivery by the Selling Party shall be for all purposes as
effective against and binding upon the Purchasing Party as though such
execution, acknowledgment and delivery had been by the Purchasing Party;
provided, however, that no such documents executed by the Selling Party shall
contain any undertaking on behalf of the Purchasing Party beyond the scope of
the undertakings necessary for the Selling Party to effectuate such transfer.
Each Venturer does hereby irrevocably constitute and appoint each other Venturer
as the true and lawful attorney in fact of such Venture and the successors and
assigns thereof, in the name, place and stead of such
15
<PAGE>
Venturer or the successors or assigns thereof, as the case may be, to execute,
acknowledge and deliver such documents in the event such Venturer shall be the
Purchasing Party under the circumstances contemplated by this Subsection 6.4(d).
It is expressly understood, intended and agreed by each Venturer, for such
Venturer and the successors and assigns thereof, that the grant of the power of
attorney to each other Venturer pursuant to this Subsection 6.4(d) is coupled
with an interest, is irrevocable and shall survive the death, termination or
legal incompetency of such granting Venturer, as the case may be, or the
assignment of the interest of such granting Venturer in the Venture, or the
dissolution of the Venture.
7. DISSOLUTION AND TERMINATION.
---------------------------
The Venture shall dissolve on December 31, 2026, or upon the
occurrence of any of the following:
(i) A decree of a court of competent jurisdiction declaring
dissolution;
(ii) Sale of all or substantially all of the assets of the Venture;
(iii) The Venture or either Venturer is adjudicated insolvent or
bankrupt;
(iv) Termination of either of the Venturers; or
(v) Unanimous consent of the Venturers.
Upon the occurrence of any of the events set forth in this Section 7, Notice
thereof shall be given to all of the Venturers by the Administrative Venturer
and the Administrative Venturer shall, as required by Subsection 2.7(b) hereof,
proceed to terminate and wind up the Venture and shall distribute the
Extraordinary Receipts (and the other assets of the Venture) resulting therefrom
in accordance with Subsection 3.3(c) hereof.
8. MISCELLANEOUS PROVISIONS.
------------------------
8.1 Notices. Notices given under this Agreement shall be in writing
-------
and shall be deemed to have been properly given or served by the deposit of such
with the United States Postal Service, or any official successor thereto,
designated as registered or certified mail, return receipt requested, bearing
adequate postage and addressed as hereinafter provided. The time period in
which a response to any such Notice must be given or any action taken with
respect thereto, however, shall commence to run from the date of receipt on the
return receipt of the Notice. Rejection or other refusal to accept or the
inability to deliver because of changed address or status of which no Notice was
given to the Administrative Venturer shall be deemed to be receipt of the Notice
sent. In the event that registered or certified mail is not being accepted for
prompt delivery, each Notice may then be served by personal service addressed as
hereinafter provided. By giving to the other Venturer at least 30 days' Notice
thereof, any Venturer shall have the right from time to time during the term of
this Agreement to change his
16
<PAGE>
Notice address(es) and to specify as his Notice address(es) any other
address(es) within the continental United States of America. Each Notice to the
Venturers shall be sent to the addresses set forth below (unless such Notice
address is properly changed):
Wells Real Estate Fund VIII, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Wells Real Estate Fund IX, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
8.2 Governing Law. This Agreement and the obligations of the
-------------
Venturers hereunder shall be interpreted, construed and enforced in accordance
with the laws of the State of Georgia, including the Georgia Uniform Partnership
Act.
8.3 Fees and Commissions. Except as may otherwise be provided
--------------------
herein, each Venturer hereby represents to each other Venturer that there are no
claims for brokerage or other commissions or finder's or other similar fees in
connection with the transactions contemplated by this Agreement insofar as such
claims shall be based on arrangements or agreements made by or on behalf of the
Venturer so representing, and each Venturer so representing hereby indemnifies
and agrees to hold harmless each other Venturer from and against all
liabilities, cost, damages and expenses from any such claims.
8.4 Waiver. No consent or waiver, express or implied, by any
------
Venturer to or of any breach or default by any other Venturer in the performance
by such other Venturer of the obligations thereof under this Agreement shall be
deemed or construed to be a consent or waiver to or of any other breach or
default in the performance by such other Venturer of the same or any other
obligations of such other Venturer under this Agreement. Failure on the part of
any Venturer to complain or any act or failure to act of any other Venturer or
to declare any other Venturer in default, irrespective of how long such failure
continues, shall not constitute a waiver of such Venturer of the rights thereof
under this Agreement.
8.5 Severability. If any provision of this Agreement or the
------------
application thereof to any Entity or circumstances shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to any other Entity or circumstance shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
8.6 Status Reports. Recognizing that each Venturer may find it
--------------
necessary from time to time to establish to third parties such as accountants,
banks, mortgagees or the like, the then current status of performance hereunder,
upon the written request of any other Venturer, made from time to time by
Notice, each Venturer shall furnish promptly a written statement (in recordable
form, if requested) on the status of any matter pertaining to this Agreement to
the best of the knowledge and belief of the Venturer making such statement.
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<PAGE>
8.7 Entire Agreement - Amendment. This Agreement constitutes the
----------------------------
entire agreement of the Venturers with respect to the subject matter hereof.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the Venturer against whom enforcement of the change, waiver, discharge or
termination is sought. The execution of any amendment to this Agreement, or the
execution of any other agreement or amendment thereto, by all Venturers shall
establish that such execution was made in accordance with any applicable
requirements for Approval.
8.8 Terminology. All personal pronouns used in this Agreement,
-----------
whether used in the masculine, feminine or neuter gender, shall include all
other genders; the singular shall include the plural; and the plural shall
include the singular. Titles of Sections, Subsections and Paragraphs in this
Agreement are for convenience only, and neither limit nor amplify the provisions
of this Agreement, and all references in this Agreement to Sections, Subsections
or Paragraphs shall refer to the Section, Subsection or Paragraph of this
Agreement unless specific reference is made to another document or instrument.
8.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall comprise but a single instrument.
8.10 Successors and Assigns. Subject to the restrictions on transfers
----------------------
and encumbrances set forth herein, this Agreement shall inure to the benefit of
and be binding upon the Venturers and their respective heirs, executors, legal
representatives, successors and assigns. Whenever in this Agreement a reference
to any Entity or Venturer is made, such reference shall be deemed to include a
reference to the heirs, executors, legal representatives, successors and assigns
of such Entity or Venturer.
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<PAGE>
IN WITNESS WHEREOF, the undersigned Venturers have executed this Joint
Venture Agreement under seal as of the day and year first above written.
WELLS REAL ESTATE FUND VIII, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(As General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
Signed, sealed and delivered By: /s/ Leo F. Wells
in the presence of: ---------------------------
/s/ Caryl Jamieson Leo F. Wells, III
- -------------------------------- President
Unofficial Witness
/s/ Martha Jean Cory [Corporate Seal]
- --------------------------------
Notary Public
Signed, sealed and delivered By: /s/ Leo F. Wells (SEAL)
in the presence of: ----------------------
/s/ Caryl Jamieson Leo F. Wells, III
- -------------------------------- General Partner
Unofficial Witness
/s/ Martha Jean Cory
- --------------------------------
Notary Public
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<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(As General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
Signed, sealed and delivered By: /s/ Leo F. Wells
in the presence of: -------------------------------
/s/ Caryl Jamieson Leo F. Wells, III
- -------------------------------- President
Unofficial Witness
/s/ Martha Jean Cory [Corporate Seal]
- --------------------------------
Notary Public
Signed, sealed and delivered By: /s/ Leo F. Wells (SEAL)
in the presence of: -----------------------
/s/ Caryl Jamieson Leo F. Wells, III
- -------------------------------- General Partner
Unofficial Witness
/s/ Martha Jean Cory
- --------------------------------
Notary Public
20
<PAGE>
EXHIBIT A
---------
Legal Description
-----------------
Lot Twenty-Two (22) and that part of Lot Twenty-One (21), lying between
the Easterly and Westerly lines of said Lot 22 as extended in a Southerly
direction to the Southerly line of said Lot 21, The American Center Plat Terrace
First Addition, in the City of Madison, Dane County, Wisconsin. This real estate
is also described as follows:
Beginning at the Northeast corner of said Lot 22; thence S06 degrees
36'29"W, 693.50 feet; thence N73 degrees 59'24"W, 476.50 feet; thence N06
degrees 36'29"E, 584.18 feet; thence N67 degrees 00'00"E, 138.76 feet;
thence along the arc of a curve concave northerly, having a radius of
335.00 feet and whose chord bears S68 degrees 04'00"E, 141.93 feet; thence
S80 degrees 17'48"E, 100.00 feet; thence along the arc of a curve concave
northerly, having a radius of 535.00 feet and whose chord bears S86 degrees
21'06"E, 112.87 feet to the point of beginning. Parcel contains 308,977.27
square feet or 7.09 acres. Parcel subject to easements of record.
21
<PAGE>
EXHIBIT 10(BB)
AGREEMENT FOR THE PURCHASE AND SALE OF REAL PROPERTY,
DATED APRIL 23, 1996,
BETWEEN AMERICAN FAMILY MUTUAL INSURANCE COMPANY
AND WELLS CAPITAL, INC.
<PAGE>
AGREEMENT FOR THE PURCHASE
AND SALE OF REAL PROPERTY
-------------------------
THIS AGREEMENT, made and entered into by and between AMERICAN FAMILY MUTUAL
INSURANCE COMPANY, a Wisconsin Mutual Insurance Corporation, whose address is
6000 American Parkway, Madison, WI 53783 (hereinbelow referred to as "Seller")
and WELLS CAPITAL, INC., a Georgia corporation whose address is 3885 Holcomb
Bridge Road, Norcross, Georgia 30092 (hereinbelow referred to as "Purchaser").
W I T N E S S E T H:
--------------------
WHEREAS, Seller now owns and desires to sell to Purchaser and Purchaser
desires to acquire from Seller certain real property in Dane County, Wisconsin,
more particularly hereinafter described upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements herein set forth, the sum of Ten and No/100 Dollars
($10.00) in hand paid by each party hereto to the other, at and before the
sealing and delivery of these presents and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
expressly acknowledged by the parties hereto, Seller and Purchaser do hereby
covenant and agree as follows:
1. Agreement to Buy and Sell. Upon the terms and conditions set forth in
-------------------------
this Agreement, Purchaser agrees to buy from Seller and Seller agrees to sell to
Purchaser that certain real property shown or described on Exhibit "A" attached
------------
hereto and by reference made a part hereof [the "Land"; the portion of the Land
located within Lot 22 is herein called the "Lot 22 Land" and the portion of the
Land located outside of Lot 22 and outside of the "Purchasable Common Area" (as
hereinafter defined) is herein called the "Outside Land"], together with and
subject to all appurtenances, easements and privileges thereto belonging,
including without limitation all right, title and interest of Seller in and to
any streets or ways adjoining the Property, and including without limitation a
Common Area Usage Easement in favor of all Owners of Record and Users (as those
terms are defined in Sections 3.24 and 3.31 respectively of the Declarations of
Protective Covenants and Conditions recorded in Vol. 19688 of Records, page 1-
49, as Document No. 2379020, hereinafter referred to as the "Declaration"), over
the Perimeter Corridor as defined in the Declaration, including without
limitation that tract of land approximately 100 feet in width lying to the
immediate south of the Property as more particularly shown on Exhibit "A"
-----------
attached hereto and by reference made a part hereof (herein the "Purchasable
Common Area") (the portion of the Land located within the Purchasable Common
Area shall be subject to an easement in favor of Seller and the Association for
the construction, management and maintenance of the Common Area Features and any
other improvements, including without limitation landscaping, in connection with
the development and use of the Purchasable Common Area for the purposes
contemplated by the Declaration and any master plan thereunder; and all costs,
expenses, liabilities, and obligations arising out of or connected with the
construction, management or maintenance of the Common Area Features and such
other improvements shall be costs, expenses, liabilities and obligations solely
of Seller and the Association and not of Purchaser), a non-exclusive permanent
easement upon, over, under and through The American
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<PAGE>
Center (as defined in the Declaration) to connect onto, use, maintain and repair
underground gas, electric, water, sewer and other similar utility services,
telephone, television, and other voice, visual and data communication supply and
transmission lines (including without limitation coaxial and fiber optic cables
and other high speed transmission lines), storm water retention and detention
drainage facilities (the Land, together with all such appurtenances, easements
and privileges, hereinafter collectively referred to as the "Property"; the Lot
22 Land, together with an exclusive, perpetual easement in favor of Purchaser
upon, over, across, under and through the Outside Land, for the benefit of
Purchaser and the Lot 22 Land, to construct, maintain, renew, replace, add onto,
use, remove, demolish, and reconstruct improvements, including without
limitation buildings, parking lots, driveways, accessways, and utility lines,
which easement shall contain the obligation of Seller to apply for and
diligently pursue obtaining the approval from all appropriate governmental
authorities of the subdivision plat for the Outside Land (the "Outside Land
Plat"), such that no further plats or approvals are necessary in order for fee
simple title in and to the Outside Land to be conveyed by Seller to Purchaser,
and which easement shall contain the right and option of Purchaser to purchase
fee simple title to the Outside Land, free and clear of all liens, special
assessments, easements, reservations, restrictions and encumbrances whatsoever,
excepting only the Permitted Exceptions, for $1.00 at any time after the Outside
Land Plat is obtained, together with all such appurtenances, easements and
privileges, hereinafter collectively the "Initial Property").
2. Earnest Money. Within ten (10) business days following the effective
-------------
date of this Agreement, Purchaser shall deliver to Chicago Title Insurance
Company ("Escrow Agent") Purchaser's check in the amount of Twenty Five Thousand
and No/100 ($25,000.00) as earnest money for the purposes of this Agreement (the
"Earnest Money"). The Earnest Money shall be held and disbursed by Escrow Agent
pursuant to a written Escrow Agreement, a copy of which is attached hereto as
Exhibit "B" and by reference made a part hereof. Any interest or other income
- -----------
earned on the Earnest Money shall accrue and be disbursed by the Escrow Agent to
the party entitled to receive the Earnest Money pursuant to the terms of this
Agreement. The Earnest Money shall be applied as a credit against the Purchase
Price or otherwise held and disbursed in accordance with the terms and
provisions of this Agreement and the Escrow Agreement. If Purchaser does not so
deliver the Earnest Money to Escrow Agent within ten (10) business days after
the Effective Date, this Agreement shall be terminated and, except as expressly
set forth herein, this Agreement shall be of no further force and effect and
neither Seller nor Purchaser shall have any further rights, liabilities, duties
or obligations hereunder. Escrow Agent shall place any Escrow Money received in
one or more interest bearing accounts at federally insured institutions with
which Escrow Agent has an established banking relationship, or in such other
accounts and institutions as shall be directed in writing by both Seller and
Purchaser.
3. Purchase Price. At Closing, Purchaser shall pay to Seller, in
--------------
consideration of the conveyance of the Property to Purchaser, the purchase price
(the "Purchase Price") of $3.10 per square foot contained within the Lot 22 Land
and the Outside Land as shown by the "Survey" (as hereinafter defined) and $.50
per square foot contained within that portion of the Property which is located
within the Purchasable Common Area as shown by the Survey. The Purchase Price
shall be paid by Purchaser to Seller, at Closing, by cashier's check, cash, or
by
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<PAGE>
wire transfer of immediately available federal funds, subject to the adjustments
and prorations set forth in this Agreement.
4. Tests and Engineering. Purchaser shall at all times before Closing
---------------------
have the privilege of going upon the Property with its agents or engineers as
needed to inspect, examine, survey and otherwise do whatever Purchaser deems
necessary in the purchase, engineering and planning for development of the
Property. Said privilege shall include the right, at Purchaser's sole expense,
to make soil tests, borings, environmental audits, percolation tests and tests
to obtain other information necessary to determine surface, subsurface and
topographic conditions. Purchaser hereby indemnifies and agrees to hold Seller
harmless from and against any claims or damages incurred by Seller as a result
of persons or firms entering the Property on Purchaser's behalf pursuant to the
privilege granted under this Paragraph. Prior to entry upon the Property to
perform any testing under this Paragraph 4, Purchaser shall notify Seller by
calling Richard Wilberg (608-242-4100 extension 30387). In the event Purchaser
does not purchase the Property, Purchaser shall return the Property to its
condition prior to Purchaser's entry (to the extent such changes in condition
were caused by Purchaser's entry upon the Property pursuant to this Paragraph
4); provided, however, Seller acknowledges that some cutting or trimming of
trees and other vegetation, and some coring and sampling, may be required in
connection with such tests, and shall not be required to be restored by
Purchaser.
5. Title to Property. Seller represents and warrants to Purchaser that
-----------------
Seller owns marketable fee simple record title to the Property free and clear of
all liens, special assessments, easements, encroachments, reservations,
restrictions and encumbrances except only real property ad valorem taxes not yet
due and payable, the Declaration, and the other matters, if any, specified in
this Agreement (collectively, the "Initial Exceptions"). The Initial Exceptions
include, but are not limited to, the storm water easement currently under
negotiation between Seller and the City of Madison, Wisconsin, the current draft
of which is attached hereto as Exhibit "D" and by reference made a part hereof,
-----------
riparian rights in and to storm water easement areas and any retention or
detention ponds, and rights and easements in favor of the City of Madison,
Wisconsin, to construct and maintain bicycle and pedestrian paths in any or all
of the storm water easement areas, the Purchasable Common Area, or the interior
corridors shown on Exhibit "E" attached hereto and by reference made a part
-----------
hereof.
Within fifteen (15) days after the effective date of this Agreement, Seller
shall cause the Madison, Wisconsin branch of Chicago Title Insurance Company
(the "Title Company") to deliver to Purchaser its commitment (hereinafter
referred to as the "Title Commitment") to issue to Purchaser upon the recording
of the deed conveying title to the Property from Seller to Purchaser, the
payment of the Purchase Price, and the payment to the Title Company (or its
agent) of the policy premium therefor, an ALTA (Form B) owner's policy of title
insurance insuring good and marketable fee simple record title to the Property
and the easements appurtenant thereto. The Title Commitment shall not contain
any standard exceptions, including any exception for defects, liens or
encumbrances not shown by the public records, any exception for mechanic's or
materialmen's liens, any exception for unpaid taxes (other than an exception for
taxes for the year of Closing and subsequent years not yet due or payable) or
any exception for rights of
-3-
<PAGE>
parties in possession. If the Title Commitment shall contain an exception for
the state of facts which would be disclosed by a survey of the Property or an
"area and boundaries" exception, the Title Commitment shall provide that such
exception will be deleted upon the presentation of a current survey, in which
case the Title Commitment shall be amended to contain an exception only for the
matters shown on the Survey obtained by Purchaser. The Title Commitment shall
be issued in an amount equal to $833,000.00, the approximate amount of the
Purchase Price of the Property (calculated using the square footage set forth on
Exhibit "A" hereto, and shall be adjusted to reflect the actual Purchase Price
- -----------
of the Property determined in accordance with this Agreement) together with the
anticipated cost of Purchaser's intended improvements to the Property.
Purchaser shall have until the date which is twenty (20) days after Purchaser's
receipt of the Title Commitment and true and complete copies of all matters
disclosed therein to advise Seller in writing of any defects or objections
(which may include, without limitation, the Initial Exceptions) affecting the
title to the Property or the use thereof by Purchaser ("Title Defects")
disclosed by the Title Commitment. Seller shall, at Seller's sole cost and
expense, cause a survey to be made of the Property by a Wisconsin Registered
Land Surveyor, showing the square footage thereof (and of the portion thereof
within the Lot 22 Land, of the portion thereof within the Outside Land, and of
the portion thereof within the Purchasable Common Area) to the nearest square
foot, which survey shall be certified in favor of Title Company, Seller and
Purchaser (and such others as Purchaser shall designate), which survey shall be
sufficient to meet Title Company's requirements for removal of the standard
exceptions from the Title Commitment, and which survey shall, on or before the
date fifteen (15) days after the Effective Date, be submitted to Purchaser for
review solely with respect to the location of the boundary lines and the square
footage of the Property and of the Purchasable Common Area. Seller and
Purchaser shall cooperate in good faith to resolve any disputes regarding the
location of the boundary lines and the square footage of the Property and of the
Purchasable Common Area. The survey which has been approved by Purchaser is
herein called the "Survey". Purchaser shall further have until the later of the
date of expiration of the Inspection Period or the date twenty (20) days after
the Survey is approved during which to advise Seller in writing of any Title
Defects disclosed by the Survey.
Upon receipt by Seller from Purchaser of any written notice of Title
Defects, Seller shall then have ten (10) days after receipt of such notice of
Title Defects from Purchaser to advise Purchaser in writing which of such Title
Defects Seller intends to satisfy or cure; provided, however, Seller hereby
agrees that Seller shall satisfy or cure any Title Defects consisting of taxes,
mortgages, deeds of trust, mechanic's or materialmen's liens or other such
monetary encumbrances. In the event Seller fails to give such written advice to
Purchaser within such ten (10) day period, Seller shall be deemed to have
elected to satisfy and cure all of the Title Defects set forth in Purchaser's
notice. Seller shall have until Closing to satisfy or cure all such Title
Defects which Seller agreed (or is deemed to have agreed) to satisfy or cure as
provided above. If, within such ten (10) day period, Seller shall elect by
written notice to Purchaser as aforesaid not to cure any such Title Defects,
then Purchaser shall, within ten (10) days after the expiration of such ten (10)
day period, elect either (a) to terminate this Agreement by giving written
notice to Seller and Escrow Agent, in which event Escrow Agent shall return the
Earnest Money to Purchaser and, except as expressly set forth herein, this
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<PAGE>
Agreement shall be of no further force and effect and neither Seller nor
Purchaser shall have any further rights, liabilities, duties or obligations
hereunder or (b) to accept conveyance of the Property subject to such Title
Defects as Seller shall have elected not to cure without reduction in the
Purchase Price, in which event such Title Defects which Seller elected not to
cure shall for all purposes be deemed Permitted Exceptions. In the event
Purchaser fails to give written notice of such election to Seller within such
ten (10) day period, Purchaser shall be deemed to have elected option (b). From
time to time, Purchaser may obtain an update to the effective date of the Title
Commitment or may update the date of the Survey and give notice to Seller of all
Title Defects appearing subsequent to the effective date of the Title Commitment
(or previous update thereof) or Survey, as the case may be. Such matters as are
disclosed by the Title Commitment and/or Survey and not objected to by Purchaser
are herein referred to as the "Permitted Exceptions". Purchaser shall have the
right from time to time, at Purchaser's expense, to cause the effective date of
the Title Commitment to be updated. Seller shall cure all Title Defects
appearing subsequent to the effective date of the Title Commitment (or previous
update thereof) or Survey, as the case may be. Seller shall have until the date
of Closing to cure all such subsequent Title Defects.
In the event Seller fails or refuses to cure any Title Defects prior to the
Closing which Seller elected (or was deemed to have elected or was required) to
cure, then, at the option of Purchaser, (i) Purchaser may terminate this
Agreement, in which event the Earnest Money shall be immediately refunded to
Purchaser, and this Agreement shall be deemed null and void and of no force and
effect and Purchaser and Seller shall have no further rights, obligations or
liabilities hereunder, (ii) Purchaser may cure such Title Defect, in which event
the Purchase Price payable pursuant to Paragraph 3 hereof shall be reduced by an
amount equal to the actual cost and expense incurred by Purchaser in connection
with the curing of such Title Defect, (iii) Purchaser may accept title to the
Property subject to such Title Defects, or (iv) any combination of items (ii)
and (iii). In the event Purchaser elects to cure any such Title Defects
pursuant to item (ii) hereof, Purchaser at its option, upon giving notice to
Seller, may extend the date of Closing until the curing of such Title Defects or
objections or the date sixty (60) days from and after the date on which Closing
would have occurred but for such extension, whichever shall first occur. If any
defect or objection shall not have been cured within such period, Purchaser may
exercise its option under either item (i) or (iii) hereof.
6. Closing and Closing Date. The consummation of the sale by Seller and
------------------------
the purchase by Purchaser of the Property (herein referred to as "Closing")
shall be held on or before May 31, 1996, at an office in Madison, Wisconsin, at
such specific place, time and date as shall be mutually agreed upon by Purchaser
and Seller. In the event Purchaser and Seller do not agree upon a specific
place, time and date for Closing, the Closing shall occur at the office of the
Title Company in Madison, Wisconsin, at two o'clock p.m. on May 31, 1996.
Notwithstanding the foregoing, Purchaser and Seller agree that Purchaser and
Seller shall use all reasonable efforts to effect the Closing without
necessitating the presence of either party at a formal meeting in Wisconsin so
that Seller will deliver all documents required to be delivered by Seller in
escrow to a mutually acceptable escrow agent in Wisconsin and Purchaser will
deliver all documents and funds required to be delivered by Purchaser in escrow
to such escrow agent (Purchaser and Seller hereby acknowledging that Title
Company or any nationally recognized
-5-
<PAGE>
title insurance company having an office in Madison, Wisconsin, would be an
acceptable escrow agent), each such delivery to be under terms which will allow
and provide for the release from escrow and delivery for recordation or to the
appropriate party of all documents so held and the disbursement of all funds so
held upon delivery to Purchaser of an owner's title insurance policy from Title
Company in accordance with the Title Commitment, insuring Purchaser's fee simple
title to the Property without any exception to such title except for the
Permitted Exceptions, and any other matters acceptable to Purchaser.
At Closing, Seller shall execute and deliver to Purchaser (a) a General
Warranty Deed conveying fee simple marketable record title to the Initial
Property to Purchaser free and clear of all liens, special assessments,
easements, reservations, restrictions and encumbrances whatsoever, excepting
only the Permitted Exceptions, and with the description being based upon the
Survey and the Plat (as hereinafter defined), (b) an Affidavit of Seller which
has as its subject matter averments that, with respect to the Property, there
are no rights or claims of parties in possession not shown by the public records
and that there are no liens, or rights to a lien, for services, labor or
materials furnished and/or imposed by law and not shown by the public records,
(c) an Affidavit of Seller stating that the Seller is not a "foreign person", as
that term is defined in 7 C.F.R. Section 781.2 of the Rules and Regulations
promulgated under the Agricultural Foreign Investment Disclosure Act of 1978 and
is not required to file any reports under said Act and its supporting Rules and
Regulations, and further stating that the Seller is not a "foreign person", as
that term is defined in Section 1445 of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder, and otherwise in form and
content sufficient to eliminate Purchaser's withholding obligations under said
Section 1445 with respect to the sale and purchase of the Property, (d) such
affidavits and other documentation as Purchaser may reasonably request in order
for Purchaser to comply with any applicable state or federal law relating to
withholding tax on transfers of real property and related tangible personal
property, or to determine what is necessary for such compliance or both; (e) an
estoppel certificate, in recordable form, from Declarant (as defined in the
Declaration) or if appropriate the Association (as defined in the Declaration)
certifying that (i) all assessments and other charges due under the Declaration
with respect to the Property have been paid through the date of Closing, (ii) as
of the date of Closing there are no violations of the terms, provisions,
covenants, restrictions and agreements set forth in the Declaration as the same
apply to the Property, to Seller as owner of the Property, or to Seller as
"Declarant" under the Declaration, (iii) the provisions of the second sentence
of Section 6.4(b) referring to "the written approval of the Committee or its
designee" refer to the written approval of the Use and Development Application
applicable to such Lot, and that if no change in such application is
contemplated in connection with a sale or lease of such Lot, no approval is
needed under such Section 6.4(b) in connection with such sale or lease, (iv) in
taking any action or refraining from any action under the Declaration with
respect to the Property or Purchaser, the Committee shall act in good faith, and
(v) if the Development, Design, and Control Committee passes a resolution to
such effect, that any right to repurchase under Section 7.5 of the Declaration
must be exercised, if at all, on or before the date sixty (60) days after such
right to repurchase could have been exercised, and the purchase price payable in
connection with such right to repurchase shall be the sum of the Purchase Price
plus all other verifiable costs and expenses, incurred and paid by
-6-
<PAGE>
Purchaser relating to the planning, designing and constructing of the
improvements on the Land, including without limitation engineering fees,
architectural fees, costs of permits, tap fees and impact fees, less any unpaid
real estate taxes for years subsequent to the year of Closing and with taxes for
the year of such repurchase prorated between Purchaser and Seller, (f) a
corporate resolution of Seller as to the due execution, authorization and
delivery of all documents to be executed by Seller at Closing, or such other
evidence as may be satisfactory to Title Company to satisfy the requirements of
the Title Commitment with respect to the due authorization, execution and
delivery of such documents, and (g) any and all other documents deemed
reasonably necessary by Purchaser or Seller to consummate the transaction
contemplated herein in accordance with the terms of this Agreement.
7. Expenses and Prorations. All real property ad valorem taxes
-----------------------
applicable to the Property shall be prorated as of the date of Closing between
Seller and Purchaser, said proration to be based upon the most recently
available tax rate and valuation with respect to the Property; provided,
however, that upon the issuance of the tax bills for such taxes for the year of
Closing, Purchaser and Seller shall promptly make such adjustments as may be
necessary to insure that the actual amount of such taxes for the year of Closing
shall be prorated between Purchaser and Seller as of the date of Closing.
Seller shall, at the Closing, pay all transfer taxes, documentary taxes and
documentary stamps due and payable in connection with the conveyance of the
Property or the recording of the Warranty Deed from Seller to Purchaser, and a
portion of the owner's title insurance premium for the policy insuring
Purchaser's title in and to the Property equal to the premium otherwise payable
had Purchaser not increased the coverage in excess of the Purchase Price, and
Seller's attorneys' fees and expenses. Purchaser shall, at Closing, pay the
recording fees with respect to the deed from Seller to Purchaser, Purchaser's
attorneys' fees and expenses, and the portion of the title premium attributable
to the amount of title insurance coverage in excess of the Purchase Price.
Purchaser shall, at Closing, pay all recording costs with respect to the
Warranty Deed from Seller to Purchaser. If, at Closing, any special assessment
or assessments (which shall not include any Regular Assessments for the year of
Closing under and as defined in the Declaration, which Regular Assessments shall
be prorated between Purchaser and Seller as of the day of Closing) for
improvements shall be or shall have been made against the Property, or any
portion or portions thereof, then, whether or not any such assessment is then a
lien on the Property, or any portion or portions thereof, or is payable prior to
or at Closing, all unpaid installments of any such assessment (including those
which are to become due and payable after Closing) shall be deemed due and
payable prior to Closing and shall not be apportioned between Seller and
Purchaser and shall be paid and discharged by Seller. In addition, if after
Closing there is an adjustment or reassessment by any governmental authority
with respect to, or affecting, any ad valorem taxes for the Property for the
year of Closing or any prior year, any additional tax payment for the Property
required to be paid with respect to the year of Closing shall be prorated
between Purchaser and Seller and any such additional tax payment for the
Property for any year prior to the year of Closing shall be paid by Seller.
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<PAGE>
8. Warranties and Representation of Seller. To induce Purchaser to enter
---------------------------------------
into this Agreement and to purchase the Property as herein provided, Seller does
hereby expressly warrant and represent to Purchaser the following:
(a) At Closing, there shall be no actions, suits or proceedings of any kind
or nature whatsoever, legal or equitable, pending or threatened against Seller
or the Property, or any portion or portions thereof, or relating to or arising
out of the ownership of the Property, in any court or before or by any federal,
state, county or municipal department, commission, board, bureau or agency or
other governmental instrumentality, including, without limitation, any
condemnation or eminent domain proceedings.
(b) No person, firm, corporation or other legal entity whatsoever has any
right or option whatsoever to acquire the Property or any portion or portions
thereof or any interest or interests therein.
(c) Seller has not received any notice that the Property or any portion or
portions thereof is or will be subject to or affected by any special
assessments, whether or not presently a lien thereon.
(d) Seller is not in violation or breach of any ordinance, code, law, rule,
requirement or regulation applicable to the Property. There are no violations
of any kind and no defaults or events of default by Seller, either as the owner
of the Property or as "Declarant" under the Declaration, and all assessments
currently due with respect to, related to or arising out of the Property under
the Declaration have been paid by Seller.
(e) Seller has not used or operated the Property in any manner for the
storage, use, treatment, manufacture or disposal of any Hazardous Materials
(hereinafter defined), and, except as set forth in that certain Phase I
Environmental Assessment, The American Center, Madison, Wisconsin, Project No.
92C6863 Task 0003, prepared by Woodward-Clyde Consultants, to the best of
Seller's knowledge and belief, after reasonable investigation, the Property has
never been used or operated for the storage, use, treatment, manufacture or
disposal of any Hazardous Materials, that no underground storage tanks are
located on the Property or were located on the Property and subsequently removed
or filled, that the Property has not been previously used as a cemetery or
landfill, or as a dump for garbage or refuse or as a pit for burning any such
garbage or refuse. For purposes hereof, the term "Hazardous Materials" means
(i) any "hazardous wastes" as defined by the Resource, Conservation and Recovery
Act of 1976 (42 U.S.C. Section 6901 et. seq.), as amended from time to time, and
regulations promulgated thereunder; (ii) any "hazardous, toxic or dangerous
waste, substance or material" specifically defined as such in (or for purposes
on the Comprehensive Environmental Response, Compensation, and Liability Act,
any so-called "superfund" or "superlien" law, or any other federal, state or
local statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to or imposing liability or standards of conduct
concerning, any hazardous, toxic or dangerous waste, substance or material, and
specifically identified and known as a hazardous, toxic or dangerous waste,
substance or material as of the date hereof. Seller hereby expressly agrees
that, in the event Purchaser discovers any concealed conditions on the Property,
prior to or within six (6) months after the date of
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<PAGE>
Closing, which conditions reveal the presence of any Hazardous Materials on the
Property, any storage tanks located on the Property, or any use of the Property
for a cemetery or for dumping, or for the burial of debris, construction
materials, garbage, refuse, tree stumps or the like, or for a landfill, burn
pit, or any other use which will result in an increase in the cost of clearing,
grading, excavation, filling, compaction and other site work in connection with
the improvement of the Property as a commercial office building and associated
parking areas, Purchaser shall notify Seller of such conditions, and Seller
hereby agrees to reimburse to Purchaser all of the costs incurred by Purchaser
in connection with the remediation, removal and cleaning up of such conditions
in compliance with all applicable laws and regulations and any incremental costs
of cleaning, grading, excavation, filling, compaction and other site work
incurred by Purchaser as a result of such conditions. However, the previous
sentence notwithstanding, Seller has not made and does not make any
representations or warranties whatsoever regarding the condition or quality of
the soil located on the Property. Such costs shall be reimbursed by Seller to
Purchaser within thirty (30) days after receipt by Seller of a bill therefor,
which billing shall be accompanied by such back-up invoices, receipts and other
materials necessary for Seller to determine the accuracy of the bill. Seller
hereby expressly indemnifies and holds Purchaser harmless from and against any
and all loss, cost, damage or expense, including attorneys' fees and expenses,
incurred by Purchaser in so remediating, removing or cleaning up any such
conditions or in enforcing the obligations of Seller under this subparagraph
8(e).
(f) To the best knowledge and belief of Seller, except at provided in
subparagraph 9(b) below, and except as hereinafter set forth in this
subparagraph 8(f), there are no actions, suits, proceedings or proposals of any
kind or nature whatsoever pending or being considered relating to any proposed
changes to the highways, roadways or access ways adjoining or adjacent to the
Property, including without limitation, the widening thereof, proposed or
pending construction of road medians, proposed or pending construction of
acceleration or deceleration lanes, changes in or additions to existing or
approved curb cuts, proposed or pending installation or removal of traffic
lights or any other changes or proposed changes in traffic patterns or
management of traffic flow thereover. Seller has informed Purchaser that the
Wisconsin Department of Transportation is planning an expansion of the
interchange loop adjacent to the Property, however, this expansion does not
include any portion of the Property.
(g) Any and all corporate actions, if any, required by Seller to authorize
the execution and delivery of this Agreement and the consummation of the
transaction contemplated herein have heretofore been taken, and this Agreement
shall constitute a valid and binding Agreement, enforceable against Seller in
accordance with the terms hereof.
(h) The Property has not been classified under any designation authorized
by law to obtain a special low ad valorem tax rate or to receive a reduction,
abatement or deferment of ad valorem taxes which, in such case, will result in
additional, catch-up or roll-back ad valorem taxes in the future in order to
recover the amounts previously reduced, abated or deferred.
(i) On or before the Effective Date, Seller delivered to Purchaser true,
correct and complete copies of that certain Phase I Environmental Assessment,
The
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American Center, Madison, Wisconsin, Project No. 92C6863 Task 0003, prepared by
Woodward-Clyde Consultants ("Seller's Environmental Report"), and that certain
geotechnical services letter ("Seller's Geotechnical Report") dated June 2,
1995, from CGC, Inc. to Ayres Associates with respect to certain soil test
borings, and Seller has no further information or studies which relate to the
matters covered by such Assessment and letter. Seller neither represents nor
warrants that Seller's Environmental Report or Seller's Geotechnical Report are
sufficient for Purchaser's intended purposes.
(j) Seller shall take, or cause to be taken, all action necessary to cause
the foregoing warranties and representations to remain true and correct, in all
respects, continuously from the date hereof through the date of Closing, and
shall refrain from taking any action which may cause, or threaten to cause, any
such warranties and representations to become incorrect or untrue at any time
during such period. All such representations and warranties shall be reaffirmed
by Seller as true and correct as of the date of Closing,
9. Covenants and Agreements of Seller. (a) Seller hereby further
----------------------------------
covenants and agrees that from and after the date hereof until the date of
Closing, except as expressly otherwise set forth in this Agreement, Seller shall
not, without the prior written consent of Purchaser, change or alter the
physical condition of the Property, remove any trees, or grant or otherwise
create or consent to the creation of any easement, restriction, lien, assessment
or encumbrance affecting the Property or any portion or portions thereof, or
pursue or consent to the pursuit of any rezoning of the Property or any portion
or portions thereof.
(b) Seller hereby covenants and agrees that the following work (herein
referred to as "Seller's Pre-Closing Work") shall be completed by Seller, at
Seller's sole cost and expense, prior to the dates set forth below: (i)
providing, on or before May 15, 1996, storm water drainage structures (at the
property line of the Land) connecting the Land to the water retention area
serving The American Center, (ii) for causing, on or before the date twenty one
(21) days after Purchaser gives Seller written notice that Purchaser anticipates
requiring construction access to the Land on or about the date twenty one (21)
days after the date of such notice, either (A) West Terrace Drive as shown on
Exhibit "C" attached hereto and by reference made a part hereof to be completed
- -----------
(in accordance with the minimum standards for dedicated roads of the
classification applicable thereto), dedicated, and open to the public (with the
gravel base and the working pavement installed, but without the final topcoat of
asphalt which final topcoat shall be installed on or before September 15, 1996),
or (B) a temporary gravel drive to be completed, from the existing pavement of
East Park Boulevard to the Property, sufficient for Purchaser to obtain all
permits necessary to commence construction of Purchaser's intended improvements
on the Property, and sufficient for use by construction vehicles in connection
with the construction of Purchaser's intended improvements; (iv) on or before
May 1, 1996, obtaining the approval from all appropriate governmental
authorities of the subdivision plat for the Lot 22 Land (the "Plat"), such that
no further plats or approvals are necessary in order for the Initial Property to
be conveyed by Seller to Purchaser as contemplated by this Agreement; and (v) on
or before May 1, 1996, entering into (and delivering to Purchaser true, correct
and complete copies of) a binding contract (the "Contract") with the City of
Madison, Wisconsin, substantially in the form of Contract No. 1574 dated July
12, 1995,
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<PAGE>
between the City of Madison and Seller (with the plans and specifications and
timetable being the plans and specifications and timetable for the completion of
West Terrace Drive as shown on Exhibit "C" attached hereto), providing for
-----------
Seller to construct West Terrace Drive as shown on Exhibit "C" attached hereto
-----------
to be completed (in accordance with the minimum standards for dedicated roads of
the classification applicable thereto), dedicated, and open to the public on or
before July 31, 1996, and accepted by the applicable governmental authorities on
or before September 15, 1996. Seller shall not modify the Contract in any
material respect without the prior written consent of Purchaser. Seller shall
cause Seller's Pre-Closing Work to be completed in a good and workmanlike
manner, in accordance with all applicable laws, codes, rules and regulations.
(c) Seller hereby covenants and agrees that the following work (herein
referred to as "Seller's Post-Closing Work") shall be completed by Seller, at
Seller's sole cost and expense, prior to the dates set forth below: (i) to the
extent not completed as part of Seller's Pre-Closing Work, causing West Terrace
Drive as shown on Exhibit "C" attached hereto and by reference made a part
-----------
hereof to be completed (in accordance with the minimum standards for dedicated
road of the classification applicable thereto), dedicated, and open to the
public on or before July 31, 1996, and accepted by the applicable governmental
authorities on or before September 15, 1996; (ii) on or before the date one
hundred eighty (180) days after the date of Closing, obtaining the approval from
all appropriate governmental authorities of the Outside Land Plat, such that no
further plats or approvals are necessary in order for the Outside Land to be
conveyed by Seller to Purchaser as contemplated by this Agreement; and (iii) for
causing on or before July 31, 1996, the installation of water and sanitary sewer
utility lines at (or within) the property line of the Land or within the right-
of-way of West Terrace Drive adjacent to the Land and for causing such utilities
to be available for permanent connection on or before July 31, 1996. Seller
shall cause Seller's Post-Closing Work to be completed in a good and workmanlike
manner, in accordance with all applicable laws, codes, rules and regulations,
and in accordance with the terms and provisions of the Contract, including but
not limited to the posting of such security as the City of Madison shall
require. With respect to any of Seller's Post-Closing Work performed or caused
to be performed by Seller after Closing, Seller shall obtain, prior to
performing or causing to be performed any such work, and thereafter maintain in
full force and effect until the completion of Seller's Post-Closing Work
commercial general liability and property damage insurance (including, but not
limited to, coverage for such construction of Seller's Post-Closing Work on or
about the Property) covering the legal liability of Seller and Purchaser against
all claims for any bodily injury or death of persons and for damage to or
destruction of property occurring on, in or about the Property and the adjoining
streets, sidewalks and passageways in combined single limits for both property
damage and personal injury and in the minimum amount of Three Million and No/100
Dollars ($3,000,000.00) in connection with any single occurrence. Such
insurance shall be written by companies of recognized financial standing (with a
rating from Best's Insurance Reports of not less than A-/X) which are authorized
to do insurance business in the State of Wisconsin, shall name Purchaser as an
additional insured party, shall be reasonably satisfactory to Purchaser in all
respects and shall expressly provide (a) an effective waiver by the insurer of
all rights of subrogation against any named insured and against such insured's
interest in the Property and against any income derived therefrom,
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<PAGE>
(b) that no cancellation, reduction in amount or material change in coverage
thereof shall be effective until at least thirty (30) days after receipt by
Seller and Purchaser of written notice thereof, and (c) that such policy shall
be in "builder's risk" form if there would be an exclusion of coverage under
Purchaser's all-risks policy as a result of the performance of Seller's Post-
Closing Work. A copy of such policy or of an acceptable certificate of
insurance in force, issued by the insurer, shall be delivered to Purchaser on or
before the date Seller is required to obtain such insurance, and with respect to
renewal or replacement policies, not less than thirty (30) days prior to
expiration of the policy being renewed or replaced. Seller may obtain the
insurance required hereunder by endorsement on its blanket insurance policies,
provided that said policies fulfill the requirements hereof, that said policies
reference the Property, and that Purchaser receives satisfactory written proof
of coverage. Seller shall permit Purchaser to examine all policies evidencing
the insurance required to be maintained by Seller under this paragraph. Any or
all insurance required to be carried by Seller under this paragraph may be
carried in whole or in part under any plan of self-insurance which American
Family Mutual Insurance Company may have in force and effect from time to
time.Nothing contained in this Agreement shall be construed to require Purchaser
to prosecute any claim against any insurer or to contest any settlement proposed
by any insurer. To the extent of the insurance required to be maintained by
Seller (but in no event in excess of the fullest extent permitted by law),
Seller hereby releases Purchaser, its agents and employees from any liability
for damage to property or injury to persons, regardless of the cause of such
damage or injury.
(d) In the event that Seller fails to complete any portion of Seller's Pre-
Closing Work on or before the applicable date set forth above, Purchaser may, at
its sole option, (I) extend the time available to Seller to complete Seller's
Pre-Closing Work hereunder for a period not to exceed sixty (60) days (and the
date for Closing shall, if necessary, be extended until the day five days after
the expiration of such extension), or (II) notify Seller in writing of such
failure, and if Seller fails to complete such portion of Seller's Pre-Closing
Work on or before the date ten (10) days after Purchaser's notice, Purchaser may
terminate this Agreement by written notice to Seller and Escrow Agent, and have
no further obligations hereunder, whereupon the Earnest Money shall be promptly
returned to Purchaser (less $25.00 which shall be paid to Seller), or (III)
waive such failure of Seller to complete Seller's Pre-Closing Work and accept
conveyance of the Property without reduction in the Purchase Price, in which
event Seller's Pre-Closing Work shall be deemed completed, or (IV) pursue any
other right or remedy available at law or in equity on account of Seller's
failure. In the event Purchaser elects to extend the time available to Seller
under option (I), and upon the expiration of such sixty (60) day period Seller
has not completed Seller's Pre-Closing Work, Purchaser may exercise Purchaser's
option under (II), (III) or (IV).
(e) Seller has previously delivered to Purchaser the following: plat map,
topo map, site plans, Seller's Environmental Report, Seller's Geotechnical
Report, the Declaration, the Architectural and Development Guidelines under the
Declaration, cost estimates, information regarding American Center Owners
Association, work schedules for Seller's Pre-Closing Work, and preliminary
utility drawings. Within five (5) days after the Effective Date, Seller shall
deliver to Purchaser any other surveys, site plans, environmental audits, soils
tests, and utility information with respect to the Property in Seller's
possession.
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<PAGE>
(f) Purchaser shall give Seller written notice specifying which, if any, of
the soil stockpiled on the Land (as opposed to undisturbed soil naturally
occurring on the Land) (the "Loam") currently located on the Property Purchaser
wants removed from the Land. On or before the date twenty (20) days after
Purchaser's notice, Seller shall cause to be removed from the Property such
portion of the Loam as is specified in Purchaser's notice.
(g) Notwithstanding any assignment by Seller of its rights, duties or
obligations hereunder, American Family Mutual Insurance Company shall be jointly
and severally liable with any such assignee for the performance of Seller's Pre-
Closing Work and Seller's Post-Closing Work.
10. Conditions of Purchase. (a) The obligations of Purchaser under this
----------------------
Agreement are subject to and conditioned upon the determination by Purchaser, in
its sole discretion and judgment, that the Property is satisfactory for the use
and purposes intended by Purchaser. In the event such condition to Purchaser's
obligations has not been satisfied or waived prior to the date which is thirty
(30) days after the effective date of this Agreement [such thirty (30) day
period being herein referred to as the "Inspection Period"], Purchaser shall
have the right upon written notice to Seller and Escrow Agent within such
Inspection Period to terminate this Agreement, and upon such termination by
Purchaser, the Earnest Money shall be returned to Purchaser (less $25.00 which
shall be paid to Seller), and this Agreement shall be deemed null and void and
of no further force or effect. If Purchaser shall fail to so terminate this
Agreement within the Inspection Period as a result of the failure of the
condition specified herein, Purchaser shall be deemed to have waived such
condition. Seller acknowledges and agrees that the sum of $25.00 is good,
adequate and sufficient consideration for the rights granted to Purchaser under
this Paragraph 10. If at any time after the Inspection Period and prior to the
Closing there shall occur a change in the status of the zoning regulations
applicable to the Property, or there shall exist conditions imposed by
applicable governmental authorities for the grant of building permits, or in the
availability of utilities, including water, sanitary sewer, storm sewer, natural
gas, electricity and telephone, to service the Property (e.g., a sewer
moratorium), any of which prohibits or inhibits, or would cause a delay of, the
immediate development and use of Purchaser's proposed office building on the
Property, Purchaser shall have the right to postpone the final date for Closing
until the earlier of (i) the date which is ten (10) business days after the
lifting or removal of the impediment to the immediate development and use of
such an office building on the Property, or (ii) the date which is sixty (60)
days from and after the date on which Closing would have occurred but for such
extension. In the event the impediment to the immediate development and use of
such an office building on the Property has not been removed or lifted on or
before the postponement period, Purchaser shall have the right to terminate this
Agreement by written notice to Seller and Escrow Agent, whereupon the Earnest
Money shall be returned to Purchaser (less $25.00 which shall be paid to
Seller), and this Agreement shall be of no further force or effect.
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<PAGE>
(b) Anything to the contrary set forth herein notwithstanding, Purchaser's
obligations shall be expressly subject to and contingent upon the satisfaction
(or waiver in writing by Purchaser) of the following conditions:
(i) The construction and completion by Seller, at Seller's cost and
expense, of Seller's Pre-Closing Work.
(ii) (a) The receipt by Purchaser of documentation and information
satisfactory to Purchaser that the Permits (as hereinafter defined) will be
available to Purchaser at Closing solely upon the payment by Purchaser to
the applicable governmental authority of the customary permit fee
applicable to each such Permit ["Permits" shall mean all necessary permits
or other governmental authorizations necessary for the development on the
Land by Purchaser of an office building, including, without limitation, any
building, signage, health or other Permits deemed necessary by Purchaser in
connection with Purchaser's intended development on the Land of an office
building]; provided, however, that Purchaser agrees to make application for
the Permits at least thirty (30) days prior to Closing; and (b) the receipt
by Purchaser of all approvals under the Declaration (collectively, the
"Approvals"), necessary for the development on the Land by Purchaser of an
office building; provided, however, that Purchaser agrees to make
application for the Approvals at least thirty (30) days prior to Closing.
(iii) The execution of a lease (or an enforceable agreement to enter into
a lease), upon terms and conditions satisfactory to Purchaser, by and
between Purchaser and Westel Milwaukee Company, Inc. d/b/a Cellular One
("WMC") for the lease by Purchaser to WMC of space in a commercial office
building proposed to be constructed by Purchaser on the Property, and
further provided that such lease (or agreement to enter into a lease), if
executed by and between Purchaser and WMC prior to Closing, shall be in
full force and effect as of the date set for Closing.
(iv) The receipt by Purchaser of an appraisal, in form and substance
satisfactory to Purchaser, showing that the Property together with the
commercial office building and other improvements contemplated by Purchaser
will have a value, when completed, equal to or greater than $10,500,000.00;
provided, however, that Purchaser agrees that, on or before the date thirty
(30) days after the Effective Date, Purchaser shall enter into an agreement
with an appraiser for the performance of such appraisal.
(v) The receipt by Purchaser of an environmental audit (or an update to the
Seller's Environmental Report in favor of Purchaser) (in either event, at
Purchaser's sole cost and expense), in form and substance satisfactory to
Purchaser, with respect to the Property.
(vi) The receipt by Purchaser of an geotechnical report (or an update to
the Seller's Geotechnical Report in favor of Purchaser) (in either event,
at Purchaser's sole cost and expense), in form and substance satisfactory
to Purchaser, with respect to the Property.
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<PAGE>
(vii) The receipt by Purchaser of agreements from the appropriate utility
companies or governmental agencies supplying such services that
installation of telephone, gas and electricity utility lines at (or within)
the property line of the Land or within the right-of-way of West Terrace
Drive adjacent to the Land will be completed and such utilities available
for permanent connection on or before July 31, 1996, together with evidence
satisfactory to Purchaser that such utility installations will be adequate
and sufficient to provide such quantities, pressure, and capacities as will
permit utilization of the Land as contemplated by Purchaser, and that
Purchaser shall be entitled to obtain all such services solely upon the
payment of such ordinary tap on fee and user charges as are normally and
uniformly imposed by the utility companies or governmental agencies
supplying such services; provided, however, that this condition shall not
apply to any company or agency except for those companies and agencies to
which Purchaser, on or before the date thirty (30) days after the Effective
Date, has made a written request for such agreement.
(viii) The receipt by Purchaser of evidence satisfactory to Purchaser that
the Design, and Control Committee under the Declaration has passed, and
there is in effect, a valid and enforceable resolution that any right to
repurchase under Section 7.5 of the Declaration must be exercised, if at
all, on or before the date sixty (60) days after such right to repurchase
could have been exercised, and the purchase price payable in connection
with such right to repurchase shall be the sum of the Purchase Price plus
all other verifiable costs and expenses, incurred and paid by Purchaser
relating to the planning, designing and constructing of the improvements on
the Land, including without limitation engineering fees, architectural
fees, costs of permits, tap fees and impact fees, less any unpaid real
estate taxes for years subsequent to the year of Closing and with taxes for
the year of such repurchase prorated between Purchaser and Seller.
In the event the foregoing condition set forth in (i) above has not been
satisfied or otherwise waived in writing on or before the scheduled date of
Closing pursuant to Paragraph 6 above, Purchaser shall have the option, upon
written notice to Seller and Escrow Agent on or before the scheduled date of
Closing (a) to extend the date of Closing for a period not to exceed sixty (60)
days to allow for the satisfaction of such condition, (b) to extend the date of
Closing for a maximum of ninety (90) days and commence to complete or cause the
completion of condition (i) above to the reasonable satisfaction of Purchaser in
which event the Purchase Price payable pursuant to Paragraph 3 shall be reduced
by the total amount of all costs and expenses incurred by Purchaser in
connection therewith, or (c) to terminate this Agreement [provided, however,
that if Purchaser has not already done so under Paragraph 9(d) of this
Agreement, Purchaser shall first notify Seller in writing of such failure, and
Purchaser shall have such right of termination only if Seller fails to cause
such condition to be satisfied on or before the date ten (10) days after
Purchaser's notice, and if Seller causes such condition to be satisfied within
such time period, the date for Closing shall be extended for a period of twenty
(20) days] whereupon all Earnest Money shall be promptly returned to Purchaser
(less $25.00 which shall be paid to Seller). In the event Purchaser elects to
extend the date of Closing pursuant to option (a) hereof, and upon the
expiration of such additional sixty (60) day period, if Seller shall have
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<PAGE>
failed to satisfy the requirements of condition (i) above, Purchaser, upon
written notice to Seller, may exercise its option under (b) or (c) above. In
the event Purchaser elects to extend the date of Closing pursuant to option (b)
hereof, and upon the expiration of such additional ninety (90) day period, if
the requirements of condition (i) above shall remain unsatisfied, Purchaser may
close under option (b) or, upon written notice to Seller, may exercise its
option under (c) above.
In the event any of the foregoing conditions set forth in (ii) above have
not been satisfied or otherwise waived in writing on or before the date ten (10)
days prior to the date for Closing pursuant to Paragraph 6 above (as the same
may have been extended pursuant to any applicable provision of this Agreement),
or in the event that such conditions have been satisfied or waived, but prior to
Closing there shall occur a change in the status of the zoning regulations
applicable to the Property, or there shall exist conditions imposed by
applicable governmental authorities for the grant of building permits, or in the
availability of utilities, including water, sanitary sewer, storm sewer, natural
gas, electricity and telephone, to service the Property (e.g., a sewer
moratorium), any of which prohibits or inhibits, or would cause a delay in, the
immediate issuance of the Permits, then, in either such event, Purchaser shall
have the option, upon written notice to Seller and Escrow Agent (X) to terminate
this Agreement whereupon all Earnest Money shall be promptly returned to
Purchaser (less $25.00 which shall be paid to Seller), or (Y) to postpone the
date for Closing until the earlier of (I) the date which is ten (10) business
days after the date the condition set forth in (ii) above has been satisfied or
otherwise waived in writing, or (II) August 30, 1996.
In the event any of the foregoing conditions set forth in (iii), (iv) or
(viii) above have not been satisfied or otherwise waived in writing on or before
the date for Closing pursuant to Paragraph 6 above (as the same may have been
extended pursuant to any applicable provision of this Agreement), Purchaser
shall have the option, upon written notice to Seller and Escrow Agent (X) to
terminate this Agreement whereupon all Earnest Money shall be promptly returned
to Purchaser (less $25.00 which shall be paid to Seller), or (Y) to postpone the
date for Closing until the earlier of (I) the date which is ten (10) business
days after the date the condition set forth in (iii) above has been satisfied or
otherwise waived in writing, or (II) August 30, 1996.
In the event any of the foregoing conditions set forth in (v), (vi), or
(vii) above have not been satisfied or otherwise waived in writing on or before
the date forty five (45) days after the Effective Date, Purchaser shall have the
option, upon written notice to Seller and Escrow Agent on or before the date
fifty (50) days after the Effective Date, to terminate this Agreement whereupon
all Earnest Money shall be promptly returned to Purchaser (less $25.00 which
shall be paid to Seller).
In the event Purchaser terminates this Agreement pursuant to the provisions
of this Paragraph 10 and prior to such termination Purchaser gave Seller the
written notice under Paragraph 9(b)(ii) that Purchaser anticipated requiring
construction access to the Land on or about the date twenty one (21) days after
the date of such notice, and Seller commenced construction of the temporary
gravel drive identified in Paragraph 9(b)(ii)(B), then Purchaser shall reimburse
Seller for the costs and expenses of constructing such temporary gravel drive
actually incurred by
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<PAGE>
Seller prior to the date of Purchaser's notice hereunder, up to a maximum of
$7,000.00.
11. Defaults.
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(a) In the event Seller breaches in any material respect or fails in
any material respect to perform or comply with any of its covenants, duties,
agreements, or obligations as set forth in this Agreement (and Purchaser has
performed, in all material respects, all covenants, duties, agreements or
obligations of Purchaser hereunder, if any, upon which such covenant, duty,
agreement or obligation of Seller is dependent), and such failure or breach
remains uncured in excess of five (5) days after written notice thereof from
Purchaser to Seller, Purchaser's sole and exclusive rights and remedies shall be
(i) to terminate this Agreement by giving written notice thereof to Seller and
Escrow Agent in which event Escrow Agent shall return the Earnest Money to
Purchaser, whereupon, except as expressly set forth herein to the contrary, this
Agreement shall be of no further force or effect, and neither Seller nor
Purchaser shall have any further rights, liabilities, duties or obligations
hereunder, or (ii) to seek and obtain specific performance by Seller of its
covenants, agreements, and obligations to convey the Property to Purchaser as
set forth in this Agreement, or (iii) to pursue any rights or remedies hereunder
or in equity for Seller's default, or (iv) solely in the event that Seller's
wilful misconduct prevents Purchaser from obtaining specific performance by
Seller of Seller's covenants, agreements and obligations to convey the Property,
the right to seek and obtain damages on account of such wilful misconduct of
Seller.
(b) In the event Purchaser fails or refuses to perform any of
Purchaser's covenants, duties, agreements or obligations under this Agreement or
is otherwise in default under this Agreement (and Seller has performed, in all
material respects, all covenants, duties, agreements or obligations of Seller
hereunder, if any, upon which such covenant, duty, agreement or obligation of
Purchaser is dependent), and such failure or breach remains uncured in excess of
five (5) days after written notice thereof from Seller to Purchaser, the sole
and exclusive right and remedy of Seller shall be to terminate this Agreement by
giving written notice thereof to Purchaser and Escrow Agent, in which event,
Escrow Agent shall deliver the Earnest Money to Seller as damages for such
failure or refusal of Purchaser, and this Agreement, except as expressly set
forth herein to the contrary, shall be of no further force or effect, and
neither Seller nor Purchaser shall have any further rights, liabilities, duties
or obligations hereunder, except as expressly set forth herein to the contrary.
The parties hereto acknowledge that it is impossible to estimate more precisely
the damages which might be suffered by Seller in that event. The delivery of
the Earnest Money to Seller is intended not as a penalty, but as liquidated
damages. Purchaser hereby waives and releases any right to (and hereby
covenants that it shall not) sue Seller or seek or claim a refund of the Earnest
Money (or any part thereof) on the grounds that it is an unreasonable amount and
exceeds Seller's actual damages or that its delivery to or retention by Seller
constitutes a penalty and not an agreed reasonable liquidated damages amount.
This provision for liquidated damages does not, however, prevent Seller from
enforcing Seller's rights to indemnification as elsewhere provided for in this
Agreement, or limit Seller's recovery from Purchaser, or Seller's remedies,
under any such indemnity.
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<PAGE>
12. Intentionally Deleted.
---------------------
13. Possession of Property. Seller shall deliver to Purchaser full and
----------------------
exclusive possession of the Property on the date of Closing.
14. Condemnation. In the event the Property or any portion or portions
------------
thereof shall be taken or condemned by any governmental authority or other
entity prior to the date of Closing, or in the event Purchaser receives notice
of a proposed taking prior to the date of Closing, Purchaser shall have the
option of either (i) terminating this Agreement by giving written notice thereof
to Seller, whereupon all Earnest Money shall be immediately refunded to
Purchaser and this Agreement and all rights and obligations created hereunder
shall be null and void and of no further force or effect, or (ii) requiring
Seller to convey the remaining portion of the Property to Purchaser pursuant to
the terms and provisions hereof and to transfer and assign to Purchaser at
Closing all of Seller's right, title and interest in and to any award made or to
be made by reason of such condemnation. Seller and Purchaser hereby further
agree that Purchaser shall have the right to participate in all negotiations
with any such governmental authority relating to the Property or to the
compensation to be paid for any portion or portions thereof condemned by such
governmental authority or other entity.
15. Brokers and Agents. Purchaser and Seller each represent and warrant
------------------
to the other that no real estate broker, sales person or agent or other person
or entity is entitled to a commission or other fee in connection with this
Agreement or the purchase and sale of property contemplated by this Agreement.
Seller shall and does hereby indemnify and hold harmless Purchaser from and
against any claim for any real estate sales commission, finder's fees, or like
compensation in connection with the sale contemplated hereby and arising out of
any act or agreement of Seller. Likewise, Purchaser shall and does hereby
indemnify and hold harmless Seller from and against any claim for any real
estate sales commission, finder's fees or like compensation in connection with
the sale contemplated hereby and arising out of any act or agreement of
Purchaser.
16. Notices. Any notices which may be permitted or required hereunder
-------
shall be in writing and shall be deemed to have been duly given as of the date
and time the same are either personally delivered or, if mailed, when deposited
with the
-18-
<PAGE>
United States Postal Service, postage prepaid, to be mailed by registered or
certified United States mail, return receipt requested, addressed as follows:
If to Purchaser: Wells Capital, Inc.
3883 Holcomb Bridge Road
Norcross, Georgia 30092
Attn: Leo F. Wells, III
with a copy to:
Troutman Sanders
Suite 5200
600 Peachtree Street
Atlanta, Georgia 30308-2216
Attn: Jeffrey F. Hetsko, Esq.
with a copy to:
Mr. David M. Kraxberger
President
ADEVCO Corporation
3885 Holcomb Bridge Road
Norcross, Georgia 30092
If to Seller: Mr. Richard Wilberg
American Family Mutual Insurance Company
6000 American Parkway
Madison, Wisconsin 53783
with a copy to:
Lathrop & Clark
Suite 1000
122 West Washington Avenue
Madison, Wisconsin 53703
Attn: Jerry E. McAdow, Esq.
Purchaser and Seller may, by like notice, specify another address in the United
States for notices.
17. General Provisions. No failure of either party to exercise any power
------------------
given hereunder or to insist upon strict compliance with any obligation
specified herein, and no custom or practice at variance with the terms hereof,
shall constitute a waiver of either party's right to demand exact compliance
with the terms hereof. This Agreement contains the entire agreement of the
parties hereto, and no representations, inducements, promises or agreements,
oral or otherwise, between the parties not embodied herein shall be of any force
or effect. Any amendment to this Agreement shall not be binding upon any of the
parties hereto unless such amendment is in writing and executed by both Seller
and Purchaser, The provisions of this Agreement shall inure to the benefit of
and be binding upon
-19-
<PAGE>
the parties hereto and their respective successors and assigns. At the election
of Purchaser, this transaction shall be closed in the name of and the deed
delivered to its nominee or assigns. Time is of the essence of this Agreement.
This Agreement and all amendments hereto shall be governed by and construed
under the laws of the state in which the Property is located. This Agreement
may be executed in multiple counterparts, each of which shall constitute an
original, but all of which taken together shall constitute one and the same
agreement. The executed signature pages of any counterpart hereof may be
appended or attached to any other counterpart hereof; and, provided that all
parties hereto shall have executed a counterpart hereof, this Agreement shall be
valid and binding upon the parties notwithstanding the fact that the execution
of all parties may not be reflected upon any one single counterpart. All
personal pronouns used in this Agreement, whether used in the masculine,
feminine or neuter gender, shall include all genders, the singular shall include
the plural and vice versa. The headings inserted at the beginning of each
paragraph are for convenience only, and do not add to or subtract from the
meaning of the contents of each paragraph. Seller and Purchaser do hereby
covenant and agree that such documents as may be legally necessary or otherwise
appropriate to carry out the terms of this Agreement shall be executed and
delivered by each party at the Closing. No provision of this Agreement shall be
construed against or interpreted to the disadvantage of either party by any
court, judicial or other governmental authority by reason of such party's having
been deemed to have structured, written, drafted or dictated such provision.
18. Day for Performance. Wherever herein there is a day or time period
-------------------
established for performance and such day or the expiration of such time period
is a Saturday, Sunday or holiday, then such time for performance shall be
automatically extended to the next business day.
19. Survival of Provisions. All covenants, warranties and agreements set
----------------------
forth in this Agreement shall survive the Closing of the transaction
contemplated hereby and shall survive the execution or delivery of any and all
deeds and other documents at any time executed or delivered under, pursuant to
or by reason of this Agreement, and shall survive the payment of all monies made
under, pursuant to or by reason of this Agreement.
20. Severability. This Agreement is intended to be performed in
------------
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any provision of this Agreement, or the
application thereof to any person or circumstance, shall, for any reason and to
any extent be invalid or unenforceable, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby but rather shall be enforced to the greatest extent permitted
by law.
21. Effective Date. The "Effective Date" of this Agreement shall, for all
--------------
purposes, be the date Purchaser actually receives a fully executed counterpart
of this Agreement, and a fully executed counterpart of the Escrow Agreement,
from Seller.
IN WITNESS WHEREOF, Purchaser has caused this Agreement to be executed and
its corporate seal to be affixed hereunto by its duly authorized officer
-20-
<PAGE>
this 23rd day of April 1996 as an offer to Seller upon the terms and
------- --------
conditions herein contained.
"PURCHASER"
WELLS CAPITAL, INC.
By: /s/ Leo F. Wells
--------------------------
Title: President
----------------------
Attest: /s/ Brian M. Conlon
----------------------
Title: Asst. Secretary
----------------------
[CORPORATE SEAL]
IN ACCEPTANCE HEREOF, Seller has caused this Agreement to be executed and
its seal to be affixed hereunto this _______ day of _____________ 1996 as an
acceptance of the foregoing offer of Purchaser.
"SELLER"
AMERICAN FAMILY MUTUAL INSURANCE COMPANY
By: /s/ Thomas E. King
-------------------------------------
Title: V.P. Investments
----------------------------------
Attest:
---------------------------------
Title:
---------------------------------
[CORPORATE SEAL]
-21-
<PAGE>
Exhibit "A"
Property Description
Exhibit could not be electronically reproduced
Exhibit consisted of a portion of Terrace First Addition plat showing Lot 22
containing 5.99 acres (260,917.61 square feet) as proposed, together with
portion of Lot 21, being 1.09 acres (47.649.71 square feet), located within 100
foot stormwater drainage easement located to the south of Lot 22.
<PAGE>
Exhibit "B"
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT (the "Agreement"), made and entered into as of the
____ day of ______ 1996 by and among AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a
Wisconsin Mutual Insurance Corporation (hereinafter referred to as "Seller"),
WELLS CAPITAL, INC., a Georgia corporation (hereinafter referred to as
"Purchaser"), and CHICAGO TITLE INSURANCE COMPANY (hereinafter referred to as
"Escrow Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Purchaser and Seller have entered into that certain Agreement for
Purchase and Sale of Real Property fully-executed on ____________, 1996
(hereinafter referred to as the "Contract");
WHEREAS, Paragraph 3 of said Contract provides for the payment of Twenty
Five Thousand and No/100 Dollars ($25,000.00) to Escrow Agent to be held and
applied by Escrow Agent in accordance with this Agreement;
WHEREAS, the parties hereto desire to set forth the terms and conditions of
Escrow Agent's holding, investment and disbursement of the Escrow Funds (as
hereinafter defined).
NOW, THEREFORE, for and in consideration of the agreements set forth in the
Contract and the mutual covenants set forth herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Escrow Agent does hereby acknowledge receipt of a check, payable to
the order of Escrow Agent, in the amount of Twenty Five Thousand and No/100
Dollars ($25,000.00). Such funds represented by such check in the amount of
Twenty Five Thousand and No/100 Dollars ($25,000.00), together with any other
funds deposited with Escrow Agent by Purchaser pursuant to the Contract, are
herein referred to as the "Escrow Funds". Escrow Agent hereby agrees to hold,
administer, and disburse the Escrow Funds pursuant to this Agreement. Escrow
Agent shall invest the Escrow Funds in one or more interest bearing accounts at
federally insured institutions with which Escrow Agent has an established
banking relationship, or in such other accounts and institutions as shall be
directed in writing by both Seller and Purchaser. All interest or other income
shall be part of the Escrow Funds and shall be disbursed in the same manner as
the balance of the Escrow Funds. Purchaser's Federal Identification Number for
purposes of this Agreement is 58-1565532. Escrow Agent's fee, if any, shall be
paid one half by Purchaser and one half by Seller.
2. At such time as Escrow Agent receives written notice from either
Purchaser or Seller, or both, setting forth the identity of the party to whom
such Escrow Funds (or portions thereof) are to be disbursed and further setting
forth the specific section or paragraph of such Contract pursuant to which the
disbursement of such Escrow Funds (or portions thereof) is being requested,
Escrow Agent shall disburse such Escrow Funds pursuant to such notice; provided,
--------
however, that if such notice is given by either Purchaser or Seller but not
- -------
both, Escrow Agent shall (i) promptly notify the other party (either Purchaser
or Seller, as the case may be) that Escrow Agent has received a request for
disbursement, and (ii) withhold disbursement of such Escrow Funds for a period
of five (5) days after Escrow Agent gives the other party notice of receipt by
Escrow Agent of such notice of disbursement and if Escrow Agent receives written
notice from either Purchaser or Seller within said five (5) day period which
notice countermands or disputes the
<PAGE>
earlier notice of disbursement, then Escrow Agent shall withhold such
disbursement until both Purchaser and Seller can agree upon a disbursement of
such Escrow Funds. Purchaser and Seller hereby agree to send to the other,
pursuant to Paragraph 6 below, a duplicate copy of any written notice sent to
Escrow Agent and requesting any such disbursement or countermanding or disputing
a request for disbursement.
3. In performing any of its duties hereunder, Escrow Agent shall not
incur any liability to anyone for any damages, losses, or expenses, except for
gross negligence, willful default or breach of trust, and it shall accordingly
not incur any such liability with respect to (i) any action taken or omitted in
good faith upon advice of its legal counsel given with respect to any questions
relating to the duties and responsibilities of Escrow Agent under this
Agreement, or (ii) any action taken or omitted in reliance upon any instrument,
including any written notice or instruction provided for in this Agreement, not
only as to its due execution and the validity and effectiveness of its
provisions but also as to the truth and accuracy of any information contained
therein, which Escrow Agent shall in good faith believe to be genuine, to have
been signed or presented by a proper person or persons, and to conform with the
provisions of this Agreement.
4. Notwithstanding the provisions of Paragraph 2 above, in the event of a
dispute between Purchaser and Seller sufficient in the sole discretion of Escrow
Agent to justify its doing so or in the event that Escrow Agent has not
disbursed the Escrow Funds on or before the date which is nine (9) months from
the date hereof, Escrow Agent shall be entitled to tender into the registry or
custody of any court of competent jurisdiction the Escrow Funds, together with
such legal pleadings as it may deem appropriate, and thereupon be discharged
from all further duties and liabilities under this Agreement. Any such legal
action may be brought in such court as Escrow Agent shall determine to have
jurisdiction thereof.
5. Purchaser and Seller hereby agree to indemnify and hold Escrow Agent
harmless against any and all losses, claims, damages, liabilities, and expenses,
including, without limitation, reasonable costs of investigation and legal
counsel fees, which may be imposed upon Escrow Agent or incurred by Escrow Agent
in connection with the performance of its duties hereunder, including, without
limitation, any litigation arising from this Agreement or involving the subject
matter hereof, unless arising from the gross negligence or willful default or
breach of trust by Escrow Agent.
6. Wherever any notice or other communication is required or permitted
hereunder, such notice or other communication shall be in writing and shall be
delivered by overnight courier, hand, or sent by U.S. registered or certified
mail, return receipt requested, postage prepaid, to the addresses set out below
or at such other addresses as are specified by written notice delivered in
accordance herewith:
PURCHASER: Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Attn: Mr. Leo F. Wells III
with a copy to: Mr. John W. Griffin
Troutman Sanders
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
-2-
<PAGE>
SELLER: American Family Mutual Insurance Company
6000 American Parkway
Madison, WI 53783
Attn: Mr. Richard Wilberg
with a copy to:
Lathrop & Clark
Suite 1000
122 West Washington Avenue
Madison, Wisconsin 53703
Attn: Jerry E. McAdow, Esq.
ESCROW AGENT: ___________________
___________________
___________________
___________________
Attn: _____________
Any notice or other communication mailed as hereinabove provided shall be deemed
effectively given or received on the date of delivery, if delivered by hand or
by overnight courier, or otherwise on the third (3rd) business day following the
postmark date of such notice or other communication.
7. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors, and assigns. Any and all rights granted
to any of the parties hereto may be exercised by their agents or personal
representatives.
8. Time is of the essence of this Agreement.
9. This Agreement is governed by and is to be construed under the laws of
the State of Wisconsin and may be executed in several counterparts, each of
which shall be deemed an original, and all such counterparts together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have signed and sealed this
Agreement as of the day, month and year first above written.
SELLER:
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin
Mutual Insurance Corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
(CORPORATE SEAL)
[Signatures Continued on Following Page]
-3-
<PAGE>
[Signatures Continued from Preceding Page]
PURCHASER:
WELLS CAPITAL, INC., a Georgia corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
(CORPORATE SEAL)
ESCROW AGENT:
CHICAGO TITLE INSURANCE COMPANY
By:
-------------------------------------
Title:
----------------------------------
(CORPORATE SEAL)
-4-
<PAGE>
Exhibit "C"
West Terrace Drive
Exhibit could not be electronically reproduced
Exhibit consisted of most of sheet 1 of 2 of The American Center Plat Terrace
First Addition showing Lot 22 and Lot 21 to the east of Lot 22 and West Terrace
Drive running along the north and northwesterly boundaries of Lots 21 and 22.
<PAGE>
PERPETUAL EASEMENTS FOR STORM
WATER DRAINAGE PURPOSES
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin insurance
corporation, (hereafter "Grantor") being the owner of the property hereinafter
described, in consideration of the sum of $1.00, the benefits which will inure
to the Grantor by reason of the existence of these storm water easements and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged does hereby grant, set over, transfer and covey to the CITY
OF MADISON, a Wisconsin municipal corporation, located in Dane County, Wisconsin
(hereafter "Grantee"), perpetual easements for storm water drainage purposes,
including but not limited to the right of ingress and egress thereon, the right
and obligation to excavate, operate, repair, replace and maintain the storm
water facilities and improvements located within the easements and the
obligation to perform all work incidental thereto within said easements,
together with all of the Grantor's right, title and interest in and to the storm
water facilities and improvements located within said easement areas.
These easements, designated as the "Eastern Easement", the "Western
Easement" and the "Interchange Easement" are attached hereto as EXHIBIT A,
EXHIBIT B and EXHIBIT C respectively and incorporated herein and made a part
hereof by reference. Attached hereto and incorporated by reference is a map
designated as EXHIBIT D, which describes and locates all of the above referred
to easements.
These easements are granted in fulfillment of Article II, Section B of
Subdivision Contract No. 1574 executed by the Grantor and Grantee on the 12th
day of July, 1995. The easements granted herein shall continue for so long as
the storm water facilities and improvements installed within the easements are
in use and in the event and to the extent that said improvements and facilities
shall be abandoned for a period of one (1) year then at the option of the
Grantor, these easements shall terminate and the Grantee shall execute and
deliver to the Grantor such documents as may be requested by the Grantor for the
purpose of terminating the rights granted hereby. Grantee acknowledges and
agrees that Grantor reserves the right to transfer and convey the lands referred
to as Exhibit C, together with other lands, to the State of Wisconsin for
development as part of an expanded highway interchange loop, subject to the
terms of this easement.
By its acceptance of these easements, which acceptance shall be
evidenced by the filing of this instrument for record, the Grantee covenants and
agrees that it will perform all necessary maintenance, repairs, replacement and
restoration of any and all of said storm water management facilities and
improvements installed within the easements as of the date hereof and will
repair any surface or subsurface improvements damaged or disturbed during the
course of any such maintenance, repair, replacement or restoration, except that
within the easement areas, pursuant to the terms of the "Stormwater Easement and
Greenway Maintenance Agreement" bearing even date herewith, Grantor or its
successors or assigns, at its discretion and in such quantities, quality and
location as it determines is appropriate, will install and maintain landscaping,
grass, ground cover, aquatic plantlife and rip rap along the water channels and
the stormwater detention and retention ponds, provided that no such surface
vegetation or landscape plantings shall materially interfere with or impede the
flow of storm water.
<PAGE>
By the execution and delivery of this instrument to the Grantee, the Grantor
covenants and agrees for itself and its successors and assigns to limit its use
of the easement areas to openspace use of the surface, to place no buildings or
permanent improvements within the easement areas and to plant only such
landscaping plantings as will not materially interfere with or impede the flow
of storm water.
IN WITNESS WHEREOF, American Family Mutual Insurance Company has caused
this instrument to be executed by its duly authorized representatives as of this
____ day of __________________, 1996.
AMERICAN FAMILY MUTUAL INSURANCE CO.
By:
---------------------------------------------
Richard J. Haas, V.P. Office Administration
By:
---------------------------------------------
James W. Behrens, Assistant General Counsel
STATE OF WISCONSIN )
) ss.
COUNTY OF DANE )
Personally came before me this ___ day of ________________, 1996, the
above named Richard J. Haas, V.P. Office Administration and James W. Behrens,
Assistant General Counsel, to me known to be the persons who executed the
foregoing instrument and acknowledged the same.
Notary Public, Stateof Wisconsin
My commission:
This instrument drafted by:
Jerry E. McAdow
2
<PAGE>
THE AMERICAN CENTER - STORM WATER DRAINAGE EASEMENTS
EXHIBIT A - EASTERN EASEMENT
100 Foot wide channel easement from the intersection of Eastpark Boulevard and
Biltmore Drive
to the north line of Terrace Drive
A parcel of land located in the Southwest Quarter of the Northeast Quarter and
in the Northwest Quarter of the Southeast Quarter of Section 22, Township 8
North, Range 10 East, City of Madison, Dane County, Wisconsin, more particularly
described as follows:
Beginning at the southwesterly corner of the most southerly terminus of Eastpark
Boulevard (formerly American Center Boulevard) as platted in The American Center
Plat;
Thence along the proposed right-of-way of Eastpark Boulevard, S 14 degrees
36'09" W 150.80 feet;
Thence continuing along said right-of-way, 388.85 feet along the arc of a 598.71
foot radius curve to the right, with central angle of 37 degrees 12'46", the
chord of which bears S 43 degrees 18'07" W and is 382.05 feet in length;
Thence S 01 degrees 30'26" W 168.88 feet;
Thence S 33 degrees 46'11" E 403.66 feet to the northerly line of East Terrace
Drive as platted in The American Center Plat, Terrace Addition;
Thence along said north line and the north line of West Terrace Drive as platted
in The American Center Plat, Terrace First Addition, S 41 degrees 40'13" W 77.96
feet;
Thence continuing along said north line, 25.19 feet along the arc of a 465.00
foot radius curve to the right, with central angle of 03 degrees 06'13", the
chord of which bears S 43 degrees 13'19" W and is 25.19 feet in length;
Thence N 33 degrees 46'11" W 460.73 feet;
Thence N 01 degrees 30'26" E 262.55 feet;
Thence 371.98 feet along the arc of a 498.71 foot radius curve to the left, with
central angle of 42 degrees 44'11" the chord of which bears N 47 degrees 01'56"
E and is 363.42 feet in length;
Thence N 14 degrees 36'09" E 142.81 feet;
Thence N 16 degrees 01'54" E 166.27 feet to the proposed southerly right-of-way
of Biltmore Drive;
Thence along said southerly right-of-way, S 73 degrees 58'06" E 75.00 feet;
Thence continuing along said southerly right-of-way, 39.27 feet along the arc of
a 25.00 foot radius curve to the right, with central angle of 90 degrees 00'00"
the chord of which bears S 28 degrees 58'06" E and is 35.36 feet in length to
the westerly right-of-way of Eastpark Boulevard (formerly American Center
Boulevard);
Thence along said westerly right-of-way, S 16 degrees 01'54" W 140.02 feet to
the point of beginning, said parcel containing 3.082 acres, subject to a 120
foot wide utility easement recorded as document number 2244448.
3
<PAGE>
THE AMERICAN CENTER - STORM WATER DRAINAGE EASEMENTS
EXHIBIT B - WESTERN EASEMENT
100 Foot wide channel easement from the west line of Terrace First Addition to
Retention Basin No. 1 and Including Retention Basin No. 1
A parcel of land located in the Northeast Quarter of the Southwest Quarter and
the Southeast Quarter of the Northwest Quarter of Section 22, Township 8 North,
Range 10 East, City of Madison, Dane County, Wisconsin, more particularly
described as follows:
Beginning at the southwest corner of The American Center Plat, Terrace First
Addition;
Thence along the northerly line of the proposed right-of-way of the Interstate
Highway 90/94 and United States Highway 151 interchange, N 73 degrees 59'24" W
302.66 feet;
Thence N 07 degrees 07'04" W 575.92 feet;
Thence N 04 degrees 37'42" E 211.44 feet;
Thence N 12 degrees 28'34" E 316.98 feet;
Thence WEST 716.24 feet;
Thence S 57 degrees 26'05" W 101.54 feet to the easterly right-of-way of
Interstate Highway 90/94;
Thence along said easterly right-of-way, N 20 degrees 16'35" W 102.66 feet to
the southerly line of a public utility (sanitary sewer and water distribution
main) easement;
Thence along said southerly line, N 43 degrees 50'29" E 336.82 feet;
Thence continuing along said southerly line, N 65 degrees 19'26" E 87.57 feet;
Thence EAST 625.88 feet to the westerly line of the proposed 100-foot right-of-
way of Eastpark Boulevard;
Thence along said westerly line, 93.38 feet along the arc of a 698.71-foot
radius curve to the left, with central angle of 07 degrees 39'28", the chord of
which bears S 36 degrees 30'49" E and is 93.31 feet in length;
Thence S 12 degrees 28'34" W 584.34 feet;
Thence S 04 degrees 37'42" W 194.30 feet;
Thence S 07 degrees 07'04" E 367.55 feet;
Thence 233.43 feet along the arc of a 200.00-foot radius curve to the left, with
central angle of 66 degrees 52'20", the chord of which bears S 40 degrees 33'14"
E and is 220.40 feet in length;
Thence S 73 degrees 59'24" E 88.03 feet to the west line of said Terrace First
Addition;
Thence along said west line, S 06 degrees 36'29" W 101.35 feet to the point of
beginning, said parcel containing 9.421 acres, subject to a 50 foot wide
electric easement recorded as document number 1734881 and a 120 foot wide
utility easement recorded as document number 2244448.
4
<PAGE>
THE AMERICAN CENTER - STORM WATER DRAINAGE EASEMENTS
EXHIBIT C - INTERCHANGE EASEMENT
Easement over a portion of the proposed IH-90/94 and USH-151
Interchange Expansion
A parcel of land located in the Northeast Quarter of the Southwest Quarter and
the Northwest Quarter of the Southeast Quarter of Section 22, Township 8 North,
Range 10 East, City of Madison, Dane County, Wisconsin, more particularly
described as follows:
Beginning at the southwest corner of The American Center Plat, Terrace First
Addition;
Thence along the northerly line of the proposed right-of-way of the Interstate
Highway 90/94 and United States Highway 151 Interchange, S 73 degrees 59'24" E
539.35 feet;
Thence continuing along said northerly line, S 83 degrees 06'04" E 161.90 feet;
Thence continuing along said northerly line, N 66 degrees 46'56" E 257.87 feet
to the northwesterly right-of-way of United States Highway 151;
Thence along said northwesterly right-of-way, S 41 degrees 40'08" W 496.35 feet
to the northerly line of the existing right-of-way of the Interstate Highway
90/94 and United States Highway 151 interchange;
Thence along said last-mentioned northerly line, 137.87 feet along the arc of a
350.80 foot radius nontangent curve to the right, with central angle of
22 degrees 31'03", whose chord bears S 75 degrees 32'08" W and is 136.98 feet in
length;
Thence along said northerly line, N 78 degrees 45'08" W 820.10 feet to the
easterly right-of-way of Interstate Highway 90/94;
Thence along said easterly right-of-way, N 28 degrees 18'00" W 503.76 feet to
the northerly line of the proposed right-of-way of the Interstate Highway 90/94
and United States Highway 151 interchange extended;
Thence continuing along said northerly line of said northerly line extended, S
82 degrees 02'41" E 255.24 feet;
Thence continuing along said northerly line S 73 degrees 59'24" E 350.46 feet,
to the point of beginning, said parcel containing 9.957 acres, subject to a 60
foot wide MG&E easement recorded as document number 1743573.
5
<PAGE>
EXHIBIT "D"
STORM WATER EASEMENT DRAFT
Page 6 of Exhibit "D" could not be electronically reproduced.
Page 6 consisted of a drawing prepared by Hofmeister Engineering & Surveying,
Madison, Wisconsin, dated January 31, 1996, showing detention basins and
easement areas adjoining Lot 22.
6
<PAGE>
Exhibit "E"
Bicycle and Pedestrian Paths
Exhibit could not be electronically reproduced
Exhibit consisted of most of sheet 1 of 2 of The American Center Plat Terrace
First Addition showing Lot 22 and Lot 21 to the east of Lot 22.
<PAGE>
EXHIBIT 10(CC)
--------------
AGREEMENT TO LEASE, DATED JUNE 18, 1996,
----------------------------------------
BETWEEN FUND VIII AND IX ASSOCIATES
-----------------------------------
AND WESTEL-MILWAUKEE, INC. d/b/a CELLULAR ONE
---------------------------------------------
<PAGE>
AGREEMENT TO LEASE
THIS AGREEMENT TO LEASE (this "Agreement") is made this 18th day of
--------- ------
June , 1996 between FUND VIII AND FUND IX ASSOCIATES, a
- ---------------------
Georgia general partnership (the "Landlord"), and WESTEL-MILWAUKEE COMPANY,
--------
INC., d/b/a Cellular One, a Wisconsin corporation (the "Tenant").
------
W I T N E S S E T H:
--------------------
WHEREAS, Landlord is under contract to purchase a parcel of land more
particularly described on Exhibit "A" attached hereto and incorporated herein by
-----------
this reference (the "Land"); and
----
WHEREAS, Landlord proposes to construct a four-story building containing
approximately 106,238 gross square feet on the Land (the "Building") and Tenant
--------
desires to lease 75,000 rentable square feet within the Building (the "Leased
------
Premises") from Landlord, such Leased Premises and Building being more
- --------
particularly described in the Lease in the form attached hereto as Exhibit "B"
-----------
incorporated herein and made a part hereof by this reference (the "Lease").
NOW, THEREFORE, the parties in consideration of mutual promises and
understandings described herein agree as follows:
1. PURPOSE: The purpose of this Agreement is to define the obligations
-- -------
of Landlord and Tenant prior to the execution of the Lease, which execution
shall occur as provided in Section 3 of this Agreement.
2. LANDLORD'S OBLIGATIONS: (a) Landlord, at Landlord's sole expense,
-- ----------------------
shall construct the building on the Land substantially in accordance with plans
and specifications (collectively, the "Building Plans") prepared by Strang, Inc.
--------------
("Landlord's Architect"). Terms and provisions relating to the preparation and
--------------------
approval of the Building Plans are set forth in both Exhibit "D" to this
-----------
Agreement and Exhibit "D" to the Lease. Landlord shall also construct the
Leased Premises in accordance with construction documents of the Leased
Premises. Terms and provisions relating to the preparation and approval of the
construction documents of the Leased Premises, the construction of the Leased
Premises and the allocation of the costs of such construction are set forth in
Exhibits "D" and "D-1" attached to this Agreement (such Exhibits being also
- ------------ -----
attached to the Lease). Architectural drawings for the Building and Leased
Premises shall be completed by the Landlord at the Landlord's expense, except
that any increase in such expense resulting from changes in Tenant's plans and
specifications shall be borne by Tenant.
1
<PAGE>
(b) Landlord shall complete construction of the Building and shall have the
Leased Premises ready for Tenant's occupancy by June 15, 1997 (which, as such
date may be extended in accordance with subparagraph [c], is herein referred to
as the "Completion Date"), except for a mutually agreed upon punch list, and
subject to force majeure as hereinafter provided. The Completion Date shall be
determined by the issuance of a temporary or permanent certificate of occupancy
from the City of Madison, Dane County, Wisconsin for the Building and a
certification from Landlord's Architect that the Building is substantially
complete and has been constructed substantially in accordance with the Building
Plans, subject to a punch list reasonably acceptable to Tenant.
(c) Should Landlord not have the Leased Premises complete and ready for
Tenant's occupancy by August 31 1997, Landlord shall have an additional thirty
days until September 30, 1997, to complete the Leased Premises, during which
time Landlord shall reimburse Tenant for the difference in the rent that would
have been charged under the Lease and the amount of rent actually incurred by
Tenant as a result of Landlord not having the Leased Premises complete. In the
event Landlord has not completed the Leased Premises by December 31, 1997,
Tenant shall have the right to terminate this Agreement and Tenant shall have no
obligation to Landlord to execute the Lease. Nothing herein above stated is
intended to penalize Landlord for, Landlord shall not be liable for damages
and/or expenses resulting from, and the dates for completion of the Leased
Premises shall be extended by, delays caused by the following force majeure
events: labor disputes, lockouts, acts of God, enemy action, civil commotion,
any pending or actual action or ruling by a court or administrative body
prohibiting Landlord from performing in accordance with the terms hereof, riot,
governmental regulations not in effect at the date of execution of this
Agreement, conditions that could not have been reasonably foreseen by Landlord
(including adverse weather conditions), inability to obtain construction
materials or energy, fire or unavoidable casualty or delays caused by
arbitration, provided such matters are beyond the reasonable control of
Landlord. Notwithstanding the foregoing, in the event the Leased Premises are
not available for occupancy by such dates due to changes by Tenant in the
Tenant's plans and specifications or such other delays caused directly or
indirectly by Tenant or any employee, agent or contractor of Tenant
(collectively, the "Tenant's Delays"), then (i) to the extent of such Tenant's
---------------
Delays, Landlord shall not have any liability whatsoever to Tenant on account of
the Leased Premises not being available for occupancy, (ii) this Agreement shall
not be rendered void or voidable as a result of such Tenant's Delays, and (iii)
for each day the Completion Date is delayed by Tenant's Delays, Tenant shall pay
Landlord on demand an amount equal to the daily pro-rata share of the rent to be
paid by Tenant under the Lease beginning on the date such rent would have
commenced to accrue under the Lease but for the Tenant's Delays. For every day
constituting a Tenant's Delay or a force majeure delay as provided above, one
calendar day shall be added to the day on which Landlord is required to have the
Leased Premises complete; provided, however, the Completion Date shall in no
event be extended by more than one (1) year as a result of force majeure delays.
(d) The obligations imposed upon Landlord by this Section 2 shall be
referred to in this Agreement as the "Landlord's Obligations").
----------------------
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<PAGE>
3. LEASE EXECUTION: Tenant shall execute at least four (4) counterparts
-- ---------------
of the Lease and deliver same to Landlord within ten (10) business days of the
Completion Date, and in any event prior to Tenant taking possession of the
Leased Premises for the installation of Tenant's, furniture, fixtures, equipment
and telephone systems as provided in Section 4 below. Landlord will execute the
counterparts of the Lease and return two (2) counterparts thereof to Tenant
within five (5) business days after receipt of the executed counterparts of the
Lease from Tenant.
4. LEASE COMMENCEMENT DATE: Landlord shall cooperate and allow Tenant
-- -----------------------
access to the Leased Premises approximately thirty (30) days prior to the
Completion Date to coordinate installation of Tenant's furniture, fixtures,
equipment and telephone system, provided that Tenant has executed the requisite
counterparts of the Lease and delivered same to Landlord as provided above, and
provided that Tenant shall comply with terms of the Lease relating to such early
occupancy of the Leased Premises.
5. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement and
-- ----------------
mutual understanding of Landlord and Tenant and this Agreement shall not be
modified except in writing executed by both parties hereto.
6. ATTORNEY'S FEES: (a) Landlord agrees to pay on demand any costs or
-- ---------------
expenses, including all cost of collection, litigation and attorney's fees,
incurred by Tenant resulting from any breach of the obligations and agreements
of Landlord set forth in this Agreement.
(b) Tenant agrees to pay on demand any costs or expenses, including all
costs of collection, litigation and attorney's fees, incurred by Landlord
resulting from any breach of the obligations and agreements of Tenant set forth
in this Agreement.
7. NUMBER AND GENDER: As used in this Agreement, the singular number
-- -----------------
shall include the plural and the plural shall include the singular, and use of
any gender shall be applicable to all genders, unless the context would clearly
not admit such construction.
8. TITLE: The obligations of Landlord and Tenant under this Agreement
-- -----
are conditioned upon the acquisition of title to the Land by Landlord on or
before August 28, 1996. Landlord and Tenant hereby agree that if Landlord does
not acquire title to the Land on or before August 28, 1996, then this Agreement
may, at the option of either, be cancelled and terminated upon written notice to
the other given prior to the acquisition of title to such Land by Landlord.
9. ASSIGNMENT: Tenant hereby agrees that Landlord may assign its right
-- ----------
and delegate its duties under this Agreement to any limited partnership of which
Landlord or a general partner of Landlord shall be a general partner or to any
general partnership having as a general partner either Landlord or any limited
partnership of which a general partner of Landlord is a general partner. Upon
any such assignment, Landlord shall furnish written notice
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<PAGE>
thereof to Tenant. In no event shall Tenant assign this Agreement, either in
whole or in part, without the prior written consent of Landlord, except that
Tenant shall have the right to assign this Agreement without the prior written
consent of Landlord to an assignee which is both (i) an affiliate of BellSouth
Corporation and (ii) an entity which has a minimum net worth of $150,000,000,
provided that such assignee shall expressly assume in writing the obligations of
Tenant under this Agreement.
10. REPRESENTATIONS: Tenant hereby represents to Landlord that Tenant is
--- ---------------
a duly organized and validly existing Wisconsin corporation and duly qualified
to do business in Wisconsin and that all corporate actions and approvals
required to be taken or obtained by Tenant to authorize the execution, delivery
and performance of this Agreement and the attached Lease have been duly and
validly taken or obtained by Tenant and that the corporate officer of Tenant
executing and delivering this Agreement on behalf of Tenant has full power,
authority, and discretion to do so on behalf of Tenant and that this Agreement
is the valid and binding agreement of Tenant, enforceable in accordance with its
terms. Tenant hereby agrees to furnish Landlord with such corporate documents,
resolutions, or certificates as shall be reasonably required to confirm its
foregoing representations.
11. LANDLORD'S LIABILITY: Landlord shall have no personal liability
--- --------------------
with respect to any of the provisions of this Agreement. If Landlord is in
default with respect to its obligations under this Agreement, Tenant shall look
solely to the equity of Landlord in and to the Land described on Exhibit "A"
-----------
hereto and the Building for satisfaction of Tenant's remedies, if any. It is
expressly understood and agreed that Landlord's liability under the terms of
this Agreement shall in no event exceed the amount of its interest in and to
said Land and Building. In no event shall any partner of Landlord nor any joint
venturer in Landlord, nor any officer, director or shareholder of Landlord or
any such partner or joint venturer of Landlord be personally liable with respect
to any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day first above written.
LANDLORD:
FUND VIII AND FUND IX ASSOCIATES,
a Georgia general partnership
By: Wells Real Estate Fund VIII, L.P.,
a Georgia limited partnership
By: /s/ Leo F. Wells, III
----------------------------------
Leo F. Wells, III,
General Partner
[Signatures continued on following page]
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<PAGE>
[Signatures continued from previous page]
By: Wells Partners, L.P.,
a Georgia limited partnership,
General Partner
By: Wells Capital, Inc.,
a Georgia corporation,
General Partner
By: /s/ Leo F. Wells
-------------------------------
Leo F. Wells, III,
President
By: Wells Real Estate Fund IX, L.P.,
a Georgia limited partnership
By: /s/ Leo F. Wells
--------------------------------
Leo F. Wells, III,
General Partner
By: Wells Partners, L.P.,
a Georgia limited partnership,
General Partner
By: Wells Capital, Inc.,
a Georgia corporation,
General Partner
By: /s/ Leo F. Wells
--------------------------------
Leo F. Wells, III,
President
[Signatures continued on following page]
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<PAGE>
[Signatures continued from previous page]
TENANT:
WESTEL-MILWAUKEE COMPANY, INC.,
d/b/a Cellular One,
a Wisconsin corporation
By: /s/ Eric B. Hertz
---------------------------
Title: Authorized Officer
Attest: /s/ Elizabeth A. Mussell
---------------------------
Assistant Secretary
(CORPORATE SEAL)
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<PAGE>
EXHIBIT A
---------
Legal Description
-----------------
Lot Twenty-Two (22) and that part of Lot Twenty-One (21), lying between
the Easterly and Westerly lines of said Lot 22 as extended in a Southerly
direction to the Southerly line of said Lot 21, The American Center Plat Terrace
First Addition, in the City of Madison, Dane County, Wisconsin. This real estate
is also described as follows:
Beginning at the Northeast corner of said Lot 22; thence S06 degrees
36'29"W, 693.50 feet; thence N73 degrees 59'24"W, 476.50 feet; thence N06
degrees 36'29"E, 584.18 feet; thence N67 degrees 00'00"E, 138.76 feet;
thence along the arc of a curve concave northerly, having a radius of
335.00 feet and whose chord bears S68 degrees 04'00"E, 141.93 feet; thence
S80 degrees 17'48"E, 100.00 feet; thence along the arc of a curve concave
northerly, having a radius of 535.00 feet and whose chord bears S86 degrees
21'06"E, 112.87 feet to the point of beginning. Parcel contains 308,977.27
square feet or 7.09 acres. Parcel subject to easements of record.
<PAGE>
EXHIBIT B
---------
LEASE AGREEMENT
by and between
FUND VIII AND FUND IX ASSOCIATES
("Landlord")
and
WESTEL-MILWAUKEE COMPANY, INC., D/B/A CELLULAR ONE
("Tenant")
<PAGE>
TABLE OF CONTENTS
Page
----
1. Certain Definitions.................................................. 1
2. Lease of Premises.................................................... 2
3. Term................................................................. 3
4. Possession........................................................... 3
5. Rental Payments...................................................... 3
6. Base Rental.......................................................... 4
7. Additional Rental.................................................... 4
8. Operating Expenses................................................... 6
9. Tenant Taxes......................................................... 9
10. Payments............................................................. 9
11. Late Charges......................................................... 10
12. Use Rules............................................................ 10
13. Alterations.......................................................... 10
14. Repairs.............................................................. 11
15. Landlord's Right of Entry............................................ 11
16. Insurance............................................................ 12
17. Waiver of Subrogation................................................ 13
18. Default.............................................................. 13
19. Waiver of Breach..................................................... 17
20. Assignment and Subletting............................................ 17
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<PAGE>
21. Destruction......................................................... 19
22. Landlord's Lien Waiver.............................................. 20
23. Services by Landlord................................................ 20
24. Attorneys' Fees and Homestead....................................... 20
25. Time................................................................ 21
26. Subordination, Attornment and Non-Disturbance....................... 21
27. Estoppel Certificates............................................... 22
28. Cumulative Rights................................................... 22
29. Holding Over........................................................ 22
30. Surrender of Premises............................................... 23
31. Notices............................................................. 23
32. Damage or Theft of Personal Property................................ 23
33. Eminent Domain...................................................... 24
34. Parties............................................................. 25
35. Indemnification..................................................... 26
36. Force Majeure....................................................... 26
37. Landlord's Liability................................................ 26
38. Landlord's Covenant of Quiet Enjoyment.............................. 27
39. Signs............................................................... 27
40. Hazardous Substances................................................ 28
41. Submission of Lease................................................. 29
42. Severability........................................................ 29
43. Entire Agreement.................................................... 29
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<PAGE>
44. Headings............................................................ 29
45. Broker..............................................................
46. Governing Law....................................................... 30
47. Warranties..........................................................
48. Extension of Lease Term............................................. 30
49. Intentionally Omitted............................................... 31
50. Memorandum of Lease................................................. 31
51. Roof Communication System........................................... 31
52. First Right of Refusal.............................................. 33
53. Expansion Option.................................................... 34
54. Tenant's Parking.................................................... 35
55. Authority and Representations....................................... 35
EXHIBITS
- --------
Exhibit "A" - Legal Description
Exhibit "B" - Rules and Regulations
Exhibit "C" - Supplemental Notice
Exhibit "D" - Construction Obligations
Exhibit "D-1" - Coordination of Layout Work by Landlord
Exhibit "E" - Building Standard Services
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<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT ("Lease"), is made and entered into this _____ day of
___________, 199__, by and between Landlord and Tenant.
W I T N E S S E T H:
- - - - - - - - - -
1. Certain Definitions. For purposes of this Lease, the following terms
-------------------
shall have the meanings hereinafter ascribed thereto:
(a) Landlord: FUND VIII AND FUND IX ASSOCIATES, a Georgia general
partnership
(b) Landlord's Address:
c/o Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
(c) Tenant: WESTEL-MILWAUKEE COMPANY, INC.,
d/b/a Cellular One, a Wisconsin corporation
(d) Tenant's Address:
Lease Administrator
---------------------
---------------------
---------------------
(e) Building Address:
Interstate 90/94 and U.S. Highway 151
The American Center
Madison, Wisconsin _______
(f) Suite Number: N/A
---------
(g) Rentable Floor Area of the Leased Premises:
Approximately 75,000 square feet. See Article 2.
<PAGE>
(h) Rentable Floor Area of the Building:
Approximately 96,750 square feet
(i) Lease Term: Nine Years ( 11 ) months
--------------- -----
(j) Base Rental Rate:
RATE PER SQUARE FOOT
OF RENTABLE FLOOR AREA
LEASE YEAR OF LEASED PREMISES
---------- --------------------------
ONE THROUGH FIVE $11.50/sq. ft.
SIX THROUGH TEN $13.00/sq. ft.
(k) Rental Commencement Date: The earlier of (x) the date which is
fifteen (15) days after Substantial Completion (as defined in Paragraph
1[i] of Exhibit "D" attached hereto and to the Agreement to Lease between
the parties hereto dated June ___, 1996 [hereinafter referred to as the
"Agreement to Lease"]) or (y) the date upon which Tenant takes possession
and occupies any portion of the Leased Premises for business purposes.
(l) Construction Allowance for initial Leased Premises: $1,500,000.00
(calculated at the rate of $20.00 per square foot of Rentable Floor Area of
the Leased Premises).
(m) Security Deposits: NONE
--------------------------------
(n) Broker(s): NONE
--------------------------------------
2. Lease of Premises. Landlord, in consideration of the covenants and
-----------------
agreements to be performed by Tenant, and upon the terms and conditions
hereinafter stated, does hereby rent and lease unto Tenant, and Tenant does
hereby rent and lease from Landlord, certain premises (the "Leased Premises") in
the building (hereinafter referred to as "Building") located or to be located on
that certain tract of land (the "Land") more particularly described on Exhibit
-------
"A" attached hereto and by this reference made a part hereof, which Leased
- ---
Premises comprise all of the Rentable Floor Area on the first, third and fourth
floors of the Building, containing approximately 75,000 square feet of Rentable
Floor Area in the aggregate, with no easement for light, view or air included in
the Leased Premises or being granted hereunder. The "Project" is comprised of
the Building, the Land, the Building's parking facilities, any walkways, covered
walkways or other means of access to the Building and the Building's parking
facilities, all common areas, including any lobbies or plazas, and any other
improvements or landscaping on the Land. For purposes of this Lease, the
Rentable Floor Area of the Leased Premises shall be calculated by multiplying
the
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<PAGE>
usable square feet of floor area of the Leased Premises by 1.10. The usable
area of the Leased Premises shall be determined in accordance with the American
National Standard Method of Measuring Floor Area in Office Buildings, ANSI
Z65.1-1980 (reaffirmed 1989) published by the Building Owners and Managers
Association International. Upon Substantial Completion, Landlord will cause its
architect to make and certify to Landlord and Tenant physical measurements of
the Leased Premises and the Building, and the Rentable Floor Area of the Leased
Premises and the Rentable Floor Area of the Building will be adjusted based upon
such physical measurements.
3. Term. The term of this Lease ("Lease Term") shall commence on the
----
date first hereinabove set forth, and, unless sooner terminated as provided in
this Lease, shall end on the expiration of the period designated in Article 1(i)
above (the "Expiration Date"), which period shall commence on the Rental
Commencement Date, unless the Rental Commencement Date shall be other than the
first day of a calendar month, in which event such period shall commence on the
first day of the calendar month following the month in which the Rental
Commencement Date occurs. Promptly after the Rental Commencement Date Landlord
shall send to Tenant a Supplemental Notice in the form of Exhibit "C" attached
-----------
hereto and by this reference made a part hereof, specifying the Rental
Commencement Date, the date of expiration of the Lease Term in accordance with
Article 1(i) above and certain other matters as therein set forth. The Lease
Term shall be subject to extension as provided in Article 48 hereof.
4. Possession. The obligations of Landlord and Tenant with respect to
----------
the Building and the initial leasehold improvements to the Leased Premises are
set forth in Exhibit "D" attached to the Agreement to Lease and Exhibits "D" and
------------
"D-1" attached hereto and by this reference made a part hereof. Taking of
- -----
possession by Tenant shall be deemed conclusively to establish that Landlord's
construction obligations with respect to the Leased Premises have been completed
in accordance with the plans and specifications approved by Landlord and Tenant
and that the Leased Premises, to the extent of Landlord's construction
obligations with respect thereto, are in good and satisfactory condition, except
for latent defects and Punch List Items and subject to any warranties contained
in Article 47 hereof.
5. Rental Payments.
---------------
(a) Commencing on the Rental Commencement Date, and continuing
thereafter throughout the Lease Term, Tenant hereby agrees to pay all Rent
due and payable under this Lease. As used in this Lease, the term "Rent"
shall mean the Base Rental, Tenant's Forecast Additional Rental, Tenant's
Additional Rental, applicable sales tax, and any other amounts that Tenant
assumes or agrees to pay under the provisions of this Lease that are owed
to Landlord, including without limitation any and all other sums that may
become due by reason of any default of Tenant or failure on Tenant's part
to comply with the agreements, terms, covenants and conditions of this
Lease to be performed by Tenant. Base Rental together with Tenant's
Forecast Additional Rental shall be due and payable in twelve (12) equal
installments on the
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<PAGE>
first day of each calendar month, commencing on the Rental Commencement
Date and continuing thereafter throughout the Lease Term and any extensions
or renewals thereof, and Tenant hereby agrees to pay such Rent to Landlord
at Landlord's address as provided herein (or such other address as may be
designated by Landlord from time to time) monthly in advance. Tenant shall
pay all Rent and other sums of money as shall become due from and payable
by Tenant to Landlord under this Lease at the times and in the manner
provided in this Lease, without demand, set-off or counterclaim except as
expressly provided herein.
(b) If the Rental Commencement Date is other than the first day of a
calendar month or if this Lease terminates on other than the last day of a
calendar month, then the installments of Base Rental and Tenant's Forecast
Additional Rental for such month or months shall be prorated on a daily
basis and the installment or installments so prorated shall be paid in
advance. Also, if the Rental Commencement Date occurs on other than the
first day of a calendar year, or if this Lease expires or is terminated on
other than the last day of a calendar year, Tenant's Additional Rental
shall be prorated for such commencement or termination year, as the case
may be, by multiplying such Tenant's Additional Rental by a fraction, the
numerator of which shall be the number of days of the Lease Term (from and
after the Rental Commencement Date) during the commencement or expiration
or termination year, as the case may be, and the denominator of which shall
be 365, and the calculation described in Article 7 hereof shall be made as
soon as possible after the expiration or termination of this Lease,
Landlord and Tenant hereby agreeing that the provisions relating to said
calculation shall survive the expiration or termination of this Lease.
6. Base Rental. From and after the Rental Commencement Date Tenant shall
-----------
pay to Landlord a base annual rental (herein called "Base Rental") for each
Lease Year equal to the Base Rental Rate set forth for such Lease Year in
Article 1(j) above multiplied by the Rentable Floor Area of Leased Premises set
forth in Article 1(g) above. As used in this Lease, the term "Lease Year" shall
mean the twelve month period commencing on the Rental Commencement Date, and
each successive twelve month period thereafter during the Lease Term, except
that if the Rental Commencement Date is not on the first day of a calendar
month, the first Lease Year shall extend through the end of the twelfth month
after the Rental Commencement Date. Tenant shall be responsible for any and all
State (and City and County) Sales Tax (or other forms of tax levied on rents or
rentals) incurred solely by virtue of this Lease and any payments by Tenant
hereunder.
7. Additional Rental.
-----------------
(a) For purposes of this Lease, "Tenant's Forecast Additional Rental"
shall mean Landlord's reasonable estimate of Tenant's Additional Rental for
the coming calendar year or portion thereof. If at any time it appears to
Landlord that Tenant's Additional Rental for the current calendar year will
vary from Landlord's estimate by more than five percent (5%), Landlord
shall have the right to revise, by notice to
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<PAGE>
Tenant, its estimate for such year, and subsequent payments by Tenant for
such year shall be based upon such revised estimate of Tenant's Additional
Rental. Failure to make a revision contemplated by the immediately
preceding sentence shall not prejudice Landlord's right to collect the full
amount of Tenant's Additional Rental. Prior to the Rental Commencement
Date and thereafter prior to the beginning of each calendar year during the
Lease Term, including any extensions thereof, Landlord shall present to
Tenant a statement of Tenant's Forecast Additional Rental for such calendar
year; provided, however, that if such statement is not given prior to the
beginning of any calendar year as aforesaid, Tenant shall continue to pay
during the next ensuing calendar year on the basis of the amount of
Tenant's Forecast Additional Rental payable during the calendar year just
ended until the month after such statement is delivered to Tenant.
(b) For purposes of this Lease, "Tenant's Additional Rental" shall
mean for each calendar year (or portion thereof) Tenant's Share of
Operating Expenses (as defined below) for such calendar year (or portion
thereof). The "Tenant's Share" shall mean that percentage determined by
dividing the number of square feet of Rentable Floor Area of Leased
Premises by the square feet of Rentable Floor Area of Building. The
Tenant's Share shall be a adjusted to reflect any change in the Rentable
Floor Area of the Leased Premises or Rentable Floor Area of the Building.
In the event the Building is not fully occupied during any calendar year,
the Operating Expenses which are variable in nature shall be adjusted for
the purposes of determining Tenant's Additional Rental to an amount that
would have been incurred by Landlord for such calendar year if the Building
had been fully occupied during such calendar year. Landlord agrees that
only Operating Expenses which would normally vary depending on the amount
of space actually occupied in the Building, such as costs of utilities,
supplies and janitorial services, shall be adjusted in this manner and that
fixed expenses which are unrelated to occupancy levels shall not be so
adjusted.
(c) Within ninety (90) days after the end of the calendar year in
which the Rental Commencement Date occurs and of each calendar year
thereafter during the Lease Term, or as soon thereafter as practicable,
Landlord shall provide Tenant a statement showing the Operating Expenses
for said calendar year and a statement prepared by Landlord showing any
adjustment to the Operating Expenses to reflect full occupancy of the
Building during such calendar year, and comparing Tenant's Forecast
Additional Rental with Tenant's Additional Rental. In the event Tenant's
Forecast Additional Rental exceeds Tenant's Additional Rental for said
calendar year, Landlord shall credit such amount against Rent next due
hereunder or, if the Lease Term has expired or is about to expire, refund
such excess to Tenant if Tenant is not in default under this Lease (in the
instance of a default such excess shall be held as additional security for
Tenant's performance, may be applied by Landlord to cure any such default,
and shall not be refunded until any such default is cured). In the event
that the Tenant's Additional Rental exceeds Tenant's Forecast Additional
Rental for
-5-
<PAGE>
said calendar year, Tenant shall pay Landlord, within thirty (30) days of
receipt of the statement, an amount equal to such difference. The
provisions of this Lease concerning the payment of Tenant's Additional
Rental shall survive the expiration or earlier termination of this Lease.
(d) Landlord's books and records pertaining to the calculation of
Operating Expenses for any calendar year within the Lease Term may be
audited by Tenant or its representatives at Tenant's expense, at any time
within thirty-six (36) months after the end of each such calendar year;
provided that Tenant shall give Landlord not less than thirty (30) days'
prior written notice of any such audit. If Landlord's calculation of
Tenant's Additional Rental for the audited calendar year was incorrect,
then Tenant shall be entitled to a prompt refund of any overpayment or
Tenant shall promptly pay to Landlord the amount of any underpayment, as
the case may be. In the event such audit discloses an overpayment by
Tenant of more than four percent (4%), then Landlord may either pay the
cost of such audit or notify Tenant of its disagreement with such audit.
Landlord and Tenant agree to negotiate diligently in good faith to resolve
any disagreement, and, if they are unable to do so, shall agree upon an
independent auditing firm which shall make the final determination and the
costs of which shall be shared equally by the parties.
8. Operating Expenses.
------------------
(a) For the purposes of this Lease, "Operating Expenses" shall mean
all expenses, costs and disbursements (but not specific costs billed to
specific tenants of the Building) of every kind and nature, computed on the
accrual basis, relating to or incurred or paid in connection with the
ownership, management, operation, repair and maintenance of the Project,
including but not limited to, the following:
(1) wages, salaries and other costs of all on-site and off-site
employees engaged in the operation, management, maintenance or access
control of the Project, including taxes, insurance and benefits relating to
such employees, allocated based upon the time such employees are engaged
directly in providing such services; provided, however, that with respect
to such employees, only such costs as relate to employees with a grade of
building superintendent or below shall be included and with respect to off-
site employees, only such costs as relate to on-site inspections or work
shall be included;
(2) the cost of all supplies, tools, equipment and materials used
in the operation, management, maintenance and access control of the
Project;
(3) the cost of all utilities for the Project, including but not
limited to the cost of electricity, gas, water, sewer services and power
for heating, lighting, air conditioning and ventilating;
-6-
<PAGE>
(4) the cost of all maintenance and service agreements for the
Project and the equipment therein, including but not limited to
security service, window cleaning, elevator maintenance, janitorial
service, landscaping maintenance and customary landscaping
replacement;
(5) the cost of repairs and general maintenance of the Project
including, without limitation, the Building systems;
(6) amortization of the cost of acquisition and/or installation
of capital investment items (including security equipment and
replacement items), amortized on a straight-line basis over their
respective useful lives (determined in accordance with generally
accepted accounting principles, if applicable), which are installed
for the purpose of reducing operating expenses, promoting safety,
complying with governmental requirements imposed after the Rental
Commencement Date (except with respect to items resulting from
Tenant's Layout Work), or maintaining the first-class nature of the
Project;
(7) the cost of casualty, rental loss, liability and other
insurance applicable to the Project and Landlord's personal property
used in connection therewith;
(8) the cost of trash and garbage removal, vermin extermination,
and snow, ice and debris removal;
(9) the cost of legal and accounting services incurred by
Landlord in connection with the management, maintenance, operation and
repair of the Project, excluding the owner's or Landlord's general
accounting and fund accounting, such as partnership statements and tax
returns, and excluding services described in Article 8(b)(14) below;
(10) all taxes, assessments and governmental charges, whether or
not directly paid by Landlord, whether federal, state, county or
municipal and whether they be by taxing districts or authorities
presently taxing the Project or by others subsequently created or
otherwise, and any other taxes and assessments attributable to the
Project or its operation (and the costs of contesting any of the
same), including assessments under the Declaration of Protective
Covenants and Conditions (recorded as Doc. No. 2379020) and business
license taxes and fees, excluding, however, interest and penalties,
taxes and assessments imposed on the personal property of the tenants
of the Project, federal and state taxes on income, death taxes,
franchise taxes, and any taxes (other than business license taxes and
fees) imposed or measured on or by the income of Landlord from the
operation of the Project; provided, however, that if at any time
during the Lease Term, the present method of taxation or assessment
shall be so changed that the whole or any part of the taxes,
assessments, levies, impositions or charges now levied, assessed or
imposed on real estate and the improvements thereon shall be
discontinued and as a substitute therefor, or in lieu of or in
addition thereto,
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taxes, assessments, levies, impositions or charges shall be levied,
assessed and/or imposed wholly or partially as a capital levy or
otherwise on the rents received from the Project or the rents reserved
herein or any part thereof, then such substitute or additional taxes,
assessments, levies, impositions or charges, to the extent so levied,
assessed or imposed, shall be deemed to be included within the
Operating Expenses to the extent that such substitute or additional
tax would be payable if the Project were the only property of the
Landlord subject to such tax; and it is agreed that Tenant will be
responsible for ad valorem taxes on its personal property; and
(11) a management fee in the amount of three percent (3%) of the
gross rental income from the Project exclusive of sales tax on rental
income or management fees collected with respect thereto.
(b) For purposes of this Lease, and notwithstanding anything in any
other provisions of this Lease to the contrary, "Operating Expenses" shall
not include the following:
(12) the cost of any special build-out work or service performed
for any tenant (including Tenant) at such tenant's cost;
(13) the cost of correcting defects in construction;
(14) compensation paid to officers and executives of Landlord and
employees above the grade of building superintendent;
(15) the cost of any items for which Landlord is reimbursed by
insurance, condemnation or otherwise, except for costs reimbursed
pursuant to provisions similar to Articles 7 and 8 hereof;
(16) the cost of any additions, changes, replacements and other
items which are made in order to prepare for a tenant's occupancy;
(17) the cost of repairs incurred by reason of fire or other
casualty;
(18) insurance premiums to the extent Landlord may be directly
reimbursed therefor;
(19) interest on debt or amortization payments on any mortgage or
deed of trust and rental under any ground lease or other underlying
lease;
(20) any real estate brokerage commissions;
(21) any advertising expenses incurred in connection with the
marketing of any rentable space;
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(22) rental payments for base building equipment such as HVAC
equipment and elevators;
(23) any expenses for repairs or maintenance which are covered by
warranties and service contracts, to the extent such maintenance and
repairs are made at no cost to Landlord;
(24) legal expenses arising out of the construction of the
improvements on the Land or the enforcement of the provisions of any
lease affecting the Land or Building, including without limitation
this Lease;
(25) costs or amounts paid to parties affiliated with Landlord or
Landlord's managing agent to the extent such costs or amounts exceed
the fair market value of the services or materials provided;
(26) costs of alterations or additions made for the purpose of
complying with any laws, rules or ordinances in effect prior to the
Rental Commencement Date (except with respect to Tenant's Layout Work);
(27) costs attributable to the presence or existence of hazardous
materials in or about the Property, unless such presence or existence
is the result of Tenant's actions;
(28) costs of all services rendered to other tenants not rendered
to the Tenant;
(29) costs incurred as a result of violation of any lease or
applicable law or ordinance by the Landlord or any other tenant; and
(30) insurance premiums to the extent increased as a result of
the activities of other tenants.
9. Tenant Taxes. Tenant shall pay promptly when due all taxes directly
------------
or indirectly imposed or assessed upon Tenant's gross sales, business
operations, machinery, equipment, trade fixtures and other personal property or
assets, whether such taxes are assessed against Tenant, Landlord or the
Building. In the event that such taxes are imposed or assessed against Landlord
or the Building, Landlord shall furnish Tenant with all applicable tax bills,
public charges and other assessments or impositions and Tenant shall forthwith
pay the same either directly to the taxing authority or, if required by law to
be paid by Landlord instead of Tenant, to Landlord.
10. Payments. All payments of Rent and other payments to be made to
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Landlord shall be made on a timely basis and shall be payable to Landlord or as
Landlord may otherwise designate. All such payments shall be mailed or
delivered to Landlord's Address designated in Article 1(b) above or at such
other place as Landlord may designate from time
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to time in writing. If mailed, all payments shall be mailed in sufficient time
and with adequate postage thereon to be received in Landlord's account by no
later than the due date for such payment. Tenant agrees to pay to Landlord
Fifty Dollars ($50.00) for each check presented to Landlord in payment of any
obligation of Tenant which is not paid by the bank on which it is drawn.
11. Late Charges. Any Rent or other amounts payable to Landlord under
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this Lease, if not paid by the fifth (5th) day after notice of nonpayment, shall
incur a late charge of Two Hundred Dollars ($200.00) for Landlord's
administrative expense in processing such delinquent payment and in addition
thereto shall bear interest from and after the due date for such payment at the
prime rate of interest announced from time to time by SunTrust Bank, Atlanta,
Georgia (or its successor), plus four percent (4%). Notwithstanding the
foregoing, Landlord shall not be required to give notice as a condition to
imposition of the late charge or interest more than twice during any twelve
month period. In no event shall the rate of interest payable on any late
payment exceed the legal limits for such interest enforceable under applicable
law.
12. Use Rules. The Leased Premises shall be used for executive, general
---------
administrative, office space and other similar purposes and no other purposes
and in accordance with all applicable laws, ordinances, rules and regulations of
governmental authorities, all nationally recognized industry standards
applicable to such uses and the Rules and Regulations attached hereto as Exhibit
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"B" and by this reference made a part hereof. Tenant covenants and agrees to
- ---
abide by the Rules and Regulations in all respects as now set forth and attached
hereto or as hereafter promulgated by Landlord. Landlord shall have the right
at all times during the Lease Term to publish and promulgate and thereafter
enforce such rules and regulations or changes in the existing Rules and
Regulations as it may reasonably deem necessary to protect the tenantability,
safety, operation, and welfare of the Leased Premises and the Project. To the
extent of any inconsistency between the Rules and Regulations and this Lease,
this Lease shall control. Landlord agrees to enforce the Rules and Regulations
in a uniform manner. Landlord shall not, during the term hereof, use or suffer
or permit anyone to use the Building or any part thereof, and Tenant agrees not
to use the Leased Premises for (a) gambling activities, or (b) the conduct of
obscene pornographic or similar disreputable activities. Without the prior
written consent of Tenant, Landlord shall not lease any other space in the
Building to any direct competitor of Tenant in its wireless communication
business or to any governmental authority or agency thereof which is engaged in
law enforcement involving processing or detention of arrestee or prisoners.
13. Alterations. Tenant shall not make, suffer or permit to be made any
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alterations, additions or improvements to or of the Leased Premises or any part
thereof, or attach any fixtures or equipment thereto, without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld.
Except for Tenant's trade fixtures and personal property which are readily
removable, all such alterations, additions and improvements shall become
Landlord's property at the expiration or earlier termination of the Lease Term
and shall remain on the Leased Premises without compensation to Tenant.
Notwithstanding the foregoing, nothing herein contained shall prohibit Tenant
from normal
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and customary decorating and redecorating of the Leased Premises, which shall
not require Landlord's approval.
14. Repairs.
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(a) Landlord shall maintain in good order and repair, subject to
normal wear and tear and subject to casualty and condemnation, the Building
(excluding the Leased Premises and other portions of the Building leased to
other tenants), Building systems, the Building parking facilities, the
public areas, common areas and the landscaped areas. Notwithstanding the
foregoing obligation, the cost of any repairs or maintenance to the
foregoing necessitated by the intentional acts or negligence of Tenant or
its agents, contractors, employees, licensees, subtenants or assigns, shall
be borne solely by Tenant and shall be deemed Rent hereunder and shall be
reimbursed by Tenant to Landlord upon demand. Likewise, the cost of any
repairs or maintenance to the foregoing (including the Leased Premises)
necessitated by the intentional acts or negligence of Landlord or its
agents, contractors, employees, licensees, tenants or assigns shall be born
solely by Landlord. Otherwise, Landlord shall not be required to make any
repairs or improvements to the Leased Premises except for structural
repairs necessary for safety and tenantability.
(b) Tenant covenants and agrees that it will take good care of the
Leased Premises and all alterations, additions and improvements thereto and
will keep and maintain the same in good condition and repair, except for
normal wear and tear and casualty. Tenant shall at once report, in
writing, to Landlord any defective or dangerous condition known to Tenant.
Landlord has no obligation and has made no promise to alter, remodel,
improve, repair, decorate or paint the Leased Premises or any part thereof,
except as specifically and expressly herein set forth.
15. Landlord's Right of Entry. Landlord shall retain duplicate keys to
-------------------------
all doors of the Leased Premises and Landlord and its agents, employees and
independent contractors shall have the right to enter the Leased Premises at
reasonable hours to inspect and examine same, to make repairs, additions,
alterations, and improvements, to exhibit the Leased Premises to mortgagees,
prospective mortgagees, purchasers or tenants, and to inspect the Leased
Premises to ascertain that Tenant is complying with all of its covenants and
obligations hereunder; provided, however, that Landlord shall, except in case of
emergency, afford Tenant such prior notification of an entry into the Leased
Premises as shall be reasonably practicable under the circumstances. Landlord
shall be allowed to take into and through the Leased Premises any and all
materials that may be required to make such repairs, additions, alterations or
improvements. Landlord shall use all reasonable and diligent efforts to avoid
interruption of Tenant's business and to protect Tenant's property during such
times.
16. Insurance.
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<PAGE>
(a) Tenant shall procure at its expense and maintain throughout the
Lease Term a policy or policies of fire and extended coverage insurance
insuring the full replacement cost of its furniture, equipment, supplies,
and other property owned, leased, held or possessed by it and contained in
the Leased Premises, together with the improvements to the Leased Premises,
if provided by Tenant, and worker's compensation insurance as required by
applicable law. Tenant shall also procure at its expense and maintain
throughout the Lease Term a policy or policies of insurance, insuring
Tenant, Landlord, Landlord's managing agent and Landlord's mortgagee, if
any, against any and all liability for injury to or death of a person or
persons and for damage to property occasioned by or arising out of any
construction work being done by Tenant or Tenant's contractors on the
Leased Premises, or arising out of the condition, use, or occupancy by
Tenant of the Leased Premises, or in any way occasioned by or arising out
of the activities of Tenant, its agents, contractors or employees in the
Leased Premises, or other portions of the Building or the Project, and of
Tenant's guests and licensees while they are in the Leased Premises, the
limits of such policy or policies to be in combined single limits for both
damage to property and bodily injury and in amounts not less than Three
Million Dollars ($3,000,000) for each occurrence during the initial Lease
Term and not less than Five Million Dollars ($5,000,000) for each
occurrence during any Extended Term (as defined in Article 48 hereof).
Such insurance shall, in addition, extend to any liability of Tenant
arising out of the indemnities provided for in this Lease. Tenant shall
also carry such other types of insurance in form and amount which Landlord
shall reasonably deem to be prudent for Tenant to carry, should the
circumstances or conditions so merit Tenant carrying such type of insurance
and provided that such insurance is then customarily required to be
maintained by landlords of similar projects. All insurance policies
procured and maintained by Tenant pursuant to this Article 16 shall include
Landlord and any additional parties designated by Landlord as additional
insureds, shall be carried with companies licensed to do business in the
State of Wisconsin and, if rated, rated at least B+ Class VII by Best's
Insurance Reports and shall be non-cancelable and not subject to material
change except after twenty (20) days' written notice to Landlord. Duly
executed certificates of insurance with respect to such policies shall be
delivered to Landlord prior to the date Tenant enters the Leased Premises
for the installation of its improvements, trade fixtures or furniture, and
certificates evidencing renewals of such policies shall be delivered to
Landlord within fifteen (15) days of the expiration of each respective
policy term.
Notwithstanding anything to the contrary contained herein, so long as
Tenant is BellSouth Corporation or any subsidiary (direct or indirect)
thereof, Tenant may, at its option, elect to either (i) obtain and maintain
the insurance policies required of Tenant or (ii) assume the risk
contemplated by and otherwise required under such insurance policies
pursuant to self-insurance programs of BellSouth Corporation.
(b) Landlord shall procure at its expense (but with the expense to be
included in Operating Expenses as provided in Article 8[a] hereof) and
shall thereafter maintain throughout the Lease Term a policy or policies of
fire and extended
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<PAGE>
coverage insurance with respect to the Building and the improvements to the
Leased Premises, insuring against loss or damage by fire and such other
risks as are from time to time included in a standard form of fire and
extended coverage policy of insurance available in the State of Wisconsin
and related at least A- Class X by Best's Insurance Reports. Said Building
and improvements to the Leased Premises shall be insured for the benefit of
Landlord in an amount not less than the full replacement costs thereof as
determined from time to time by the insurance company (excluding any costs
of replacing leasehold improvements in the Leased Premises, and such
insurance may provide for a reasonable deductible). Landlord shall also
procure at its expense (but with the expense to be included in Operating
Expenses as provided in Article 8[a] hereof) and shall thereafter maintain
throughout the Lease Term a policy or policies of commercial general
liability insurance insuring against the liability of Landlord arising out
of the maintenance, use and occupancy of the Project, with limits of such
policy or policies to be in combined single limits for both damage to
property and personal injury and in amounts not less than Five Million
Dollars ($5,000,000) for each occurrence. Such insurance required herein
shall be issued by and binding upon an insurance company approved by the
Insurance Commissioner of the State of Wisconsin and licensed to do
business in the State of Wisconsin. Upon reasonable request from Tenant,
Landlord will provide a certificate of insurance evidencing the maintenance
of the insurance required herein.
17. Waiver of Subrogation. Landlord and Tenant shall each have included
---------------------
in all policies of fire, extended coverage, business interruption and other
insurance respectively obtained by them covering the Leased Premises, the
Building and contents therein, a waiver by the insurer of all right of
subrogation against the other in connection with any loss or damage thereby
insured against. Any additional premium for such waiver shall be paid by the
primary insured. To the full extent permitted by law, Landlord and Tenant each
waives all right of recovery against the other for, and agrees to release the
other from liability for, loss or damage to the extent such loss or damage is
covered by valid and collectible insurance in effect at the time of such loss or
damage or would be covered by the insurance (or self-insurance) required to be
maintained under this Lease by the party seeking recovery.
18. Default.
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(a) The following events shall be deemed to be events of default by
Tenant under this Lease: (i) Tenant shall fail to pay any installment of
Rent or any other charge or assessment against Tenant pursuant to the terms
hereof within five (5) days after receipt by Tenant of notice in writing
from Landlord; provided, however, such Notice and such grace period shall
be required to be provided by Landlord and shall be accorded Tenant if
necessary, only two times during any consecutive twelve month period of the
term of this Lease, and in the event of default shall be deemed to have
immediately occurred upon the third failure by Tenant to make a timely
payment as aforesaid within any consecutive twelve (12) month period of the
term of this Lease, it being intended by the parties hereto that such
notice and such grace period shall protect infrequent unforeseen clerical
errors beyond the control of Tenant, and shall
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<PAGE>
not protect against Tenant's lack of diligence of planning in connection
with its obligation to make timely payment of rent and other amounts due
hereunder; (ii) Tenant shall fail to comply with any term, provision,
covenant or warranty made under this Lease by Tenant, other than the
payment of the Rent or any other charge or assessment payable by Tenant,
and shall not cure such failure within twenty (20) days after notice
thereof to Tenant provided, however, in the case of a failure or breach
which cannot with due diligence be remedied by Tenant within a period of
twenty (20) days, if Tenant proceeds as promptly as may be reasonably
possible after the service of such notice and with all due diligence to
remedy the failure or breach and thereafter to prosecute the remedying of
such failure or breach with all due diligence, Tenant shall have an
additional period of time, not to exceed one hundred twenty (120) days, in
which to effect such cure; (iii) Tenant or any surety of this Lease shall
make a general assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts as they become due, or shall file a
petition in bankruptcy, or shall be adjudicated as bankrupt or insolvent,
or shall file a petition in any proceeding seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or shall
file an answer admitting or fail timely to contest the material allegations
of a petition filed against it in any such proceeding; (iv) a proceeding is
commenced against Tenant or any surety of this Lease seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, and such proceeding shall not have been dismissed within forty-
five (45) days after the commencement thereof; (v) a receiver or trustee
shall be appointed for the Leased Premises or for all or substantially all
of the assets of Tenant or of any guarantor of this Lease; (vi) Tenant
shall do or permit to be done anything which creates a lien upon the Leased
Premises or the Project and such lien is not removed or discharged by bond
or otherwise within thirty (30) days after written notice to Tenant of the
filing thereof; (vii) Tenant shall fail to return a properly executed
instrument to Landlord in accordance with the provisions of Article 26
hereof within the time period provided for such return following Landlord's
request for same as provided in Article 26; or (viii) Tenant shall fail to
return a properly executed estoppel certificate to Landlord in accordance
with the provisions of Article 27 hereof within the time period provided
for such return following Landlord's request for same as provided in
Article 27.
(b) Upon the occurrence of any of the aforesaid events of default,
Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever: (i) terminate this
Lease, in which event Tenant shall immediately surrender the Leased
Premises to Landlord and if Tenant fails to do so, Landlord may without
prejudice to any other remedy which it may have for possession or
arrearages in Rent, enter upon and take possession of the Leased Premises
and expel or remove Tenant and any other person who may be occupying said
Leased Premises or any part thereof, by force, if necessary, without being
liable for prosecution or any claim of damages therefor; Tenant hereby
agreeing to pay to Landlord on demand the amount of all loss and damage
which Landlord may suffer
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<PAGE>
by reason of such termination, whether through inability to relet the
Leased Premises on satisfactory terms or otherwise; (ii) terminate Tenant's
right of possession (but not this Lease) and enter upon and take possession
of the Leased Premises and expel or remove Tenant and any other person who
may be occupying said Leased Premises or any part thereof, by entry
(including the use of force, if necessary), dispossessory suit or
otherwise, without thereby releasing Tenant from any liability hereunder,
without terminating this Lease, and without being liable for prosecution or
any claim of damages therefor and, if Landlord so elects, make such
alterations, redecorations and repairs as, in Landlord's judgment, may be
necessary to relet the Leased Premises, and Landlord shall use reasonable
efforts (as hereinafter provided) to relet the Leased Premises or any
portion thereof in Landlord's or Tenant's name, but for the account of
Tenant, for such term or terms (which may be for a term extending beyond
the Lease Term) and at such rental or rentals and upon such other terms as
Landlord may reasonably deem advisable, with or without advertisement, and
by private negotiations, and receive the rent therefor, Tenant hereby
agreeing to pay to Landlord the deficiency, if any, between all Rent
reserved hereunder and the total rental applicable to the Lease Term hereof
obtained by Landlord re-letting, and Tenant shall be liable for Landlord's
expenses in redecorating and restoring the Leased Premises and all costs
incident to such re-letting, including broker's commissions and lease
assumptions, and in no event shall Tenant be entitled to any rentals
received by Landlord in excess of the amounts due by Tenant hereunder; or
(iii) enter upon the Leased Premises by force, if necessary, without being
liable for prosecution or any claim of damages therefor, and do whatever
Tenant is obligated to do under the terms of this Lease; and Tenant agrees
to reimburse Landlord on demand for any expenses including, without
limitation, reasonable attorneys' fees which Landlord may incur in thus
effecting compliance with Tenant's obligations under this Lease and Tenant
further agrees that Landlord shall not be liable for any damages resulting
to Tenant from such action, whether caused by negligence of Landlord or
otherwise. If Landlord shall reenter the Leased Premises and take
possession from Tenant without terminating this Lease, provided that Tenant
has vacated the Leased Premises and is not contesting Landlord's right to
the possession of the Leased Premises, Landlord will use reasonable efforts
to relet the Leased Premises and thereby mitigate the damages which
Landlord shall incur. Tenant hereby agrees that Landlord's agreement to
use reasonable efforts to relet the Leased Premises in order to mitigate
its damages shall not be deemed to impose upon Landlord an obligation to
relet the Leased Premises (i) for any purpose other than use permitted
under this Lease or (ii) to any Tenant who is not financially capable of
performing the duties and obligations imposed such Tenant under the
applicable lease, or (iii) to prefer the Leased Premises over any other
space available in the Building. If this Lease is terminated by Landlord as
a result of the occurrence of an event of default based upon, and only
upon, the failure of Tenant to pay Rent for any reason other than Tenant's
good faith exercise of its rights under Articles 18(d) and 23 hereof,
Landlord may upon thirty (30) days' notice to Tenant declare to be due and
payable immediately, the present value (calculated by using the "Discount
Rate" published from time to time in The Wall Street Journal at the time of
-----------------------
such election) of the difference between (x) the entire
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<PAGE>
amount of Rent and other charges and assessments which in Landlord's
reasonable determination would become due and payable to Landlord during
the remainder of the Lease Term, and (y) the then fair market rental value
of the Leased Premises for the remainder of the Lease Term, unless within
such thirty (30) day period Tenant shall cure such default. Upon the
acceleration of such amounts, Tenant agrees to pay the same at once,
together with all Rent and other charges and assessments theretofore due,
at Landlord's address as provided herein; provided, however, that such
payment shall not constitute a penalty or forfeiture but shall constitute
liquidated damages for Tenant's failure to comply with the terms and
provisions of this Lease (Landlord and Tenant agreeing that Landlord's
actual damages in such event are impossible to ascertain and that the
amount set forth above is a reasonable estimate thereof).
(c) Pursuit of any of the foregoing remedies shall not preclude
pursuit of any other remedy herein provided or any other remedy provided at
law or in equity, nor shall pursuit of any remedy herein provided
constitute an election of remedies thereby excluding the later election of
an alternate remedy, or a forfeiture or waiver of any Rent or other charges
and assessments payable by Tenant and due to Landlord hereunder or of any
damages accruing to Landlord by reason of violation of any of the terms,
covenants, warranties and provisions herein contained. No reentry or
taking possession of the Leased Premises by Landlord or any other action
taken by or on behalf of Landlord shall be construed to be an acceptance of
a surrender of this Lease or an election by Landlord to terminate this
Lease unless written notice of such intention is given to Tenant.
Forbearance by Landlord to enforce one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to
constitute a waiver of such default. In determining the amount of loss or
damage which Landlord may suffer by reason of termination of this Lease or
the deficiency arising by reason of any reletting of the Leased Premises by
Landlord as above provided, allowance shall be made for the expense of
repossession. Tenant agrees to pay to Landlord all costs and expenses
incurred by Landlord in the enforcement of this Lease, including, without
limitation, the fees of Landlord's attorneys as provided in Article 24
hereof.
(d) If Landlord shall default in the performance of any of its
obligations under this Lease in a way which materially affects the use or
tenantability of the Leased Premises, and such default shall continue for
thirty (30) days after notice from Tenant specifying Landlord's default
(except that if such default cannot be cured within said thirty [30] day
period, this period shall be extended for a reasonable additional time,
provided that Landlord commences to cure such default within the thirty
[30] day and proceeds diligently thereafter to affect such cure), Tenant
may, without prejudice to any of its other rights under this Lease, correct
or cure such default by Landlord and invoice Landlord the cost and expenses
incurred by Tenant therefor, and Landlord shall reimburse Tenant within
thirty (30) days following receipt of such invoice. If Landlord shall fail
to reimburse Tenant for such cost and expenses within such thirty (30) day
period, Tenant shall have the right to deduct such cost and expenses from
Base Rental thereafter due hereunder, provided, however, that
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in the event Landlord notifies Tenant that it disputes the existence of any
such default, during the pendency of such dispute, Tenant may pay the
amount in dispute to an independent escrow agent of its choice to be held
by the agent pending resolution of the dispute. Tenant shall not be deemed
to be in default hereunder by reason of such payment until the dispute is
resolved in favor of Landlord and Tenant fails to cause the agent to pay
the amount determined to be payable to Landlord within ten (10) days after
Tenant is notified of the determination. Tenant and Landlord shall
negotiate in good faith to resolve the dispute by agreement.
19. Waiver of Breach. No waiver of any breach of the covenants,
----------------
warranties, agreements, provisions, or conditions contained in this Lease shall
be construed as a waiver of said covenant, warranty, provision, agreement or
condition or of any subsequent breach thereof, and if any breach shall occur and
afterwards be compromised, settled or adjusted, this Lease shall continue in
full force and effect as if no breach had occurred.
20. Assignment and Subletting. Landlord may assign this Lease or any
-------------------------
interest herein or in the Leased Premises or mortgage, pledge, encumber,
hypothecate or otherwise transfer its interest therein. Tenant shall not,
without the prior written consent of Landlord, assign this Lease or any interest
herein or in the Leased Premises, or mortgage, pledge, encumber, hypothecate or
otherwise transfer or sublet the Leased Premises or any part thereof or permit
the use of the Leased Premises by any party other than Tenant except that (i)
Tenant may assign this Lease to, or sublet the Leased Premises or any part
thereof to, or permit the use of the Leased Premises by an affiliate of Tenant,
and (ii) any consent by Landlord to any assignment of this Lease or subletting
of the Leased Premises shall not be unreasonably withheld, conditioned or
delayed. In exercising such right of consent to any proposed assignment or
subletting, Landlord shall be entitled to take into account any factor or
factors relevant to such decision, and the factors which may cause Landlord to
reasonably withhold its consent shall include, without limitation, (a) the
proposed assignee or subtenant has a disreputable or dishonest business
reputation, (b) in the case of a proposed subletting of a portion of the Leased
Premises, the proposed subtenant does not have sufficient financial resources to
perform its obligations under the applicable sublease, (c) in the case of an
assignment of this Lease or a subletting of all or substantially all of the
Leased Premises, the proposed assignee or subtenant is involved in a business
which is different from the business of the original Tenant or has a net worth
which is less than the aggregate net worth of Tenant and all other parties then
liable for the obligations of Tenant under this Lease, (d) the proposed assignee
or subtenant is a party who would (or whose use would) detract from the
character of the Building as a first-class building, (e) the proposed use of the
Leased Premises shall involve an occupancy rate of more than one (1) person per
two hundred (200) square feet of Rentable Floor Area within the Leased Premises,
(f) the proposed assignment or subletting shall be to a governmental subdivision
or agency or any person or entity who enjoys diplomatic or sovereign immunity,
or (g) such proposed assignment, subletting or use would contravene any
restrictive covenant (including any exclusive use) granted to any other tenant
of the Building. For purposes hereof, an affiliate shall mean an entity (i)
which owns, directly or indirectly, more than fifty percent (50%) of Tenant or
(ii) which is more than fifty percent (50%) owned, directly or indirectly, by
Tenant or (iii) into which Tenant is
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merged, provided that in the event of a merger, the surviving entity's net worth
exceeds that of Tenant at such time. Consent to one or more such transfers or
subleases to a non-affiliate of Tenant shall not destroy or waive this
provision, and all subsequent transfers and subleases shall likewise be made
only upon obtaining the prior written consent of Landlord. Without limiting the
foregoing prohibition, in no event shall Tenant assign this Lease or any
interest herein, whether directly, indirectly or by operation of law, or sublet
the Leased Premises or any part thereof or permit the use of the Leased Premises
or any part thereof by any party if such proposed assignment, subletting or use
would contravene any restrictive covenant (including any exclusive use) granted
to any other tenant of the Building or would contravene the provisions of
Article 12 of this Lease. Except as otherwise set forth herein, no assignment
of this Lease or subletting of the Leased Premises to any party shall relieve
Tenant of any liability arising under this Lease. Sublessees or transferees of
the Leased Premises for the balance of the Lease Term shall become directly
liable to Landlord for all obligations of Tenant hereunder, without relieving
Tenant (or any surety of Tenant's obligations hereunder) of any liability
therefor, and Tenant shall remain obligated for all liability to Landlord
arising under this Lease during the entire remaining Lease Term including any
extensions thereof, whether or not authorized herein, unless such assignee
assumes all liability hereunder and has a net worth equal to or exceeding the
aggregate net worth of Tenant and all other parties then liable for the
obligations of Tenant under this Lease. If Tenant is a partnership, a
withdrawal or change, whether voluntary, involuntary or by operation of law, of
partners owning a controlling interest in the Tenant shall be deemed a voluntary
assignment of this Lease and subject to the foregoing provisions. If Tenant is
a corporation, any dissolution, merger (except as permitted above),
consolidation or other reorganization of Tenant, or the sale or transfer
of a controlling interest in the capital stock of Tenant, shall be deemed a
voluntary assignment of this Lease and subject to the foregoing provisions.
Landlord may, as a prior condition to considering any request for consent to an
assignment or sublease (when Landlord's consent is required), require Tenant to
obtain and submit current financial statements of any proposed subtenant or
assignee. In the event Landlord consents to an assignment or sublease, Tenant
shall pay to Landlord a fee to cover Landlord's reasonable accounting costs plus
any legal fees incurred by Landlord as a result of the assignment or sublease.
Any consideration, in excess of the Rent and other charges and sums due and
payable by Tenant under this Lease, paid to Tenant by any assignee of this Lease
for its assignment, or by any sublessee under or in connection with its sublease
(when Landlord's consent is required), or otherwise paid to Tenant by another
party for use and occupancy of the Leased Premises or any portion thereof, shall
be retained by Tenant and Landlord shall have no right or claim thereto as
against Tenant. No assignment of this Lease consented to by Landlord shall be
effective unless and until Landlord shall receive an original assignment and
assumption agreement, in form and substance reasonably satisfactory to Landlord,
signed by Tenant and Tenant's proposed assignee, whereby the assignee assumes
due performance of this Lease to be done and performed for the balance of the
then remaining Lease Term of this Lease. No subletting of the Leased Premises,
or any part thereof, shall be effective unless and until there shall have been
delivered to Landlord an agreement, in form and substance reasonably
satisfactory to Landlord, signed by Tenant and the proposed sublessee, whereby
the sublessee acknowledges the right of Landlord to continue or terminate any
sublease, in Landlord's sole discretion, upon termination of this
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Lease, and such sublessee agrees to recognize and attorn to Landlord in the
event that Landlord elects under such circumstances to continue such sublease.
21. Destruction.
-----------
(a) If the Leased Premises are damaged by fire or other casualty, the
same shall be repaired or rebuilt as speedily as practical under the
circumstances at the expense of the Landlord, unless this Lease is
terminated as provided in this Article 21, and during the period required
for restoration, a just and proportionate part of Base Rental shall be
abated until the Leased Premises are repaired or rebuilt.
(b) If the Leased Premises are (i) damaged to such an extent that
repairs cannot, in Landlord's judgment, be completed within two hundred
seventy (270) days after the date of the casualty, or (ii) damaged or
destroyed as a result of a risk which is not insured under standard fire
insurance policies with extended coverage endorsement, or (iii) damaged or
destroyed during the last eighteen (18) months of the Lease Term, or if the
Building is damaged in whole or in part (whether or not the Leased Premises
are damaged), to such an extent that the Building cannot, in Landlord's
judgment, be operated economically as an integral unit, then and in any
such event Landlord may at its option terminate this Lease by notice in
writing to the Tenant within sixty (60) days after the date of such
occurrence. If the Leased Premises are damaged to such an extent that
repairs cannot, in Landlord's judgment, be completed within two hundred
seventy (270) days after the date of the casualty or if the Leased Premises
are substantially damaged during the last eighteen (18) months of the Lease
Term, or in the event the Building is damaged to such an extent that the
Building cannot be operated economically as an integral unit, then in
either such event Tenant may elect to terminate this Lease by notice in
writing to Landlord within thirty (30) days after the date of such
occurrence. Unless Landlord or Tenant elects to terminate this Lease as
hereinabove provided, this Lease will remain in full force and effect and
Landlord shall repair such damage at its expense to the extent required
under subparagraph (c) below as expeditiously as possible under the
circumstances.
(c) If Landlord should elect or be obligated pursuant to subparagraph
(a) above to repair or rebuild because of any damage or destruction,
Landlord's obligation shall be limited to the original Building and any
other work or improvements which were originally performed or installed at
Landlord's expense as described in Exhibit "D" attached hereto (and in
-----------
Exhibit "D" attached to the Agreement to Lease) or with the proceeds of the
Construction Allowance. If the cost of performing such repairs exceeds the
actual proceeds of insurance paid or payable to Landlord on account of such
casualty, or if Landlord's mortgagee or the lessor under a ground or
underlying lease shall require that any insurance proceeds from a casualty
loss be paid to it, Landlord may terminate this Lease unless Tenant, within
thirty (30) days after demand therefor, deposits with Landlord a sum of
money sufficient to pay the difference between the cost of repair and the
proceeds of the insurance available to Landlord for such purpose.
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<PAGE>
22. Landlord's Lien Waiver. Landlord does hereby waive and release any
----------------------
and all liens, claims, demands, security interests or rights, including, but not
limited to, the right to levy, distrain, sue, execute or sell for unpaid rent,
which Landlord now has or hereafter acquires (including, but not limited to, any
lien arising by virtue of Wisconsin lien laws) in any and all of the personal
property of Tenant, including without limitation, machinery, equipment,
furniture, fixtures and inventory of goods and all additions, replacements and
substitutions theretofore and all of the proceeds thereof. Landlord agrees to
execute and deliver within ten (10) days of Tenant's request a written statement
confirming Landlord's lien waiver and release as provided herein.
23. Services by Landlord. Landlord shall provide the Building Standard
--------------------
Services described on Exhibit "E" attached hereto and by reference made a part
-----------
hereof. If, for any reason other than Tenant's failure to pay for all charges
to the utility company, to the governmental entity furnishing such services to
the extent Tenant is obligated to pay therefor under this Lease or Tenant's
failure to comply with the obligations of Tenant pursuant to this Lease, or
Tenant's negligence or willful misconduct, such services are unavailable for
more than three (3) consecutive business days, the Base Rental shall abate
equitably from and after the third (3rd) day for the remaining period of such
interruption or delay.
24. Attorneys' Fees and Homestead. In the event Landlord or Tenant
-----------------------------
defaults in the performance of any of the terms, agreements or conditions
contained in this Lease and the non-defaulting party places the enforcement of
this Lease, or any part thereof, or the collection of any Rent due or to become
due hereunder, or recovery of the possession of the Leased Premises, in the
hands of an attorney, or files suit upon the same, and should such non-
defaulting party prevail in such suit, the defaulting party, to the extent
permitted by applicable law, agrees to pay the non-defaulting party all
reasonable attorney's fees actually incurred by the non- defaulting party.
Tenant waives all homestead rights and exemptions which it may have under any
law as against any obligation owing under this Lease, and assigns to Landlord
its homestead and exemptions to the extent necessary to secure payment and
performance of its covenants and agreements hereunder.
25. Time. Time is of the essence of this Lease and whenever a certain day
----
is stated for payment or performance of any obligation of Tenant or Landlord,
the same enters into and becomes a part of the consideration hereof.
26. Subordination, Attornment and Non-Disturbance.
---------------------------------------------
(a) Existing Security Deeds or Underlying Leases. Landlord represents
--------------------------------------------
and warrants to Tenant that (i) as of the date of this Lease, Landlord owns
or has a valid contract to acquire fee simple title to the land comprising
Leased Premises, and (ii) as of the later of the date of this Lease or the
date Landlord acquires fee simple title to said land, the land is (or will
be) free and clear of any mortgages, deeds to secure debt, deeds of trust
or other such financing instruments (each a "Security Deed") or any ground
or underlying leases.
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(b) Subordination. Should Landlord desire to place a Security Deed
-------------
upon the Project or any portion thereof or to enter into a sale and lease-
back of the Project or any portion thereof, Tenant agrees that upon request
from the holder or proposed holder of any Security Deed or from the lessor
or proposed lessor under any underlying lease, Tenant shall execute a
subordination, non-disturbance and attornment agreement ("non-disturbance
agreement") subordinating this Lease to the interest of such holder or
lessor and their respective heirs, successors and assigns. The holder of
any such Security Deed or the lessor under any such underlying lease shall
agree in such nondisturbance agreement that, so long as Tenant complies
with all of the terms and conditions of this Lease and is not in default
hereunder beyond the period of cure of such default as provided herein,
such holder or lessor or any person or entity acquiring the interest of the
Landlord under this Lease as a result of the enforcement of such Security
Deed or lease or deed in lieu thereof (the "Successor Landlord") shall not
take any action to disturb Tenant's possession of the Leased Premises
during the remainder of the term of this Lease and any extension or renewal
thereof and the Successor Landlord shall recognize all of Tenant's rights
under this Lease, despite any foreclosure, lease termination or other
action by such holder or lessor, including, without limitation, the taking
of possession of the Leased Premises or any portion thereof by the
Successor Landlord or the exercise of any assignment of rents by the holder
or lessor. In any such non-disturbance agreement, Tenant shall agree to
give the holder of the Security Deed (or, in the case of an underlying
lease, the lessor thereunder) notice of defaults by Landlord hereunder (but
only to the address previously supplied to Tenant in writing) at the same
time as such notice is given to Landlord and time periods to cure such
defaults which are the same as those granted to Landlord hereunder (which
time period shall run from and after such notice is given to such holder or
lessor), and Tenant shall further agree that any Successor Landlord shall
not be personally liable for any accrued obligation of the former landlord,
or for any act or omission of the former landlord, whether prior to or
after such enforcement proceedings, nor be subject to any counterclaims
which shall have accrued to Tenant against the former landlord prior to the
date upon which such party shall become the owner of the Leased Premises.
Such non-disturbance agreement shall also provide for the attornment by
Tenant to the Successor Landlord and shall provide that such Successor
Landlord shall not be (a) subject to any offsets which the Tenant might
have against the former landlord (other than any payments made to cure a
default by Landlord); or (b) bound by any Base Rental or any other payments
(other than any payments made to cure a default by Landlord) which the
Tenant under this Lease might have paid for more than one (1) month in
advance to any former landlord under this Lease Landlord will join in the
signing of the non-disturbance agreement, and such non-disturbance
agreement will be in the form suitable for recording in the deed records of
Dane County, Wisconsin.
(c) Election by Mortgagee. If the holder of any Security Deed or any
---------------------
lessor under a ground or underlying lease elects to have this Lease
superior to its Security Deed or lease and signifies its election in the
instrument creating its lien or lease or by separate instrument recorded in
connection with or prior to a foreclosure,
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or in the foreclosure deed itself, then this Lease shall be superior to
such Security Deed or lease.
27. Estoppel Certificates. Within fifteen (15) days after request
---------------------
therefor by Landlord, Tenant agrees to execute and deliver to Landlord in
recordable form an estoppel certificate addressed to Landlord, any mortgagee or
assignee of Landlord's interest in, or purchaser of, the Leased Premises or the
Building or any part thereof, certifying (if such be the case) that this Lease
is unmodified and is in full force and effect (and if there have been
modifications, that the same is in full force and effect as modified and stating
said modifications); that there are no defenses or offsets against the
enforcement thereof or stating those claimed by Tenant; and stating the date to
which Rent and other charges have been paid. Such certificate shall also
include such other information as may reasonably be required by such mortgagee,
proposed mortgagee, assignee, purchaser or Landlord. Any such certificate may
be relied upon by Landlord, any mortgagee, proposed mortgagee, assignee,
purchaser and any other party to whom such certificate is addressed.
28. Cumulative Rights. All rights, powers and privileges conferred
-----------------
hereunder upon the parties hereto shall be cumulative to, but not restrictive
of, or in lieu of those conferred by law.
29. Holding Over. If Tenant remains in possession after expiration or
------------
termination of the Lease Term, unless Landlord and Tenant have entered into a
written agreement to the contrary, Tenant shall become a tenant-at-sufferance,
and there shall be no renewal of this Lease by operation of law. During the
period of any such holding over, all provisions of this Lease shall be and
remain in effect except that the monthly rental shall be one hundred fifty
percent (150%) of the amount of Rent (including any adjustments as provided
herein) payable for the last full calendar month of the Lease Term including
renewals or extensions. The inclusion of the preceding sentence in this Lease
shall not be construed as Landlord's consent for Tenant to hold over.
30. Surrender of Premises. Upon the expiration or other termination of
---------------------
this Lease, Tenant shall quit and surrender to Landlord the Leased Premises and
every part thereof and all alterations, additions and improvements thereto,
broom clean and in good condition and state of repair, reasonable wear and tear
only excepted. Tenant shall remove all personalty and equipment not attached to
the Leased Premises which it has placed upon the Leased Premises, and Tenant
shall restore the Leased Premises to the condition immediately preceding the
time of placement thereof. If Tenant shall fail or refuse to remove all of
Tenant's effects, personalty and equipment from the Leased Premises upon the
expiration or termination of this Lease for any cause whatsoever or upon the
Tenant being dispossessed by process of law or otherwise, such effects,
personalty and equipment shall be deemed conclusively to be abandoned and may be
appropriated, sold, stored, destroyed or otherwise disposed of by Landlord
without obligation to account for them. Tenant shall pay Landlord on demand any
and all expenses incurred by Landlord in the removal of such property,
including, without limitation, the cost of repairing any damage to the Building
or Project caused by the removal of such property and storage charges (if
Landlord elects to
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<PAGE>
store such property). The covenants and conditions of this Article 30 shall
survive any expiration or termination of this Lease.
31. Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and may be delivered in person to either party or may be
sent by courier or by United States Mail, certified, return receipt requested,
postage prepaid. Any such notice shall be deemed received by the party to whom
it was sent (i) in the case of personal delivery or courier delivery, on the
date of delivery to such party, and (ii) in the case of certified mail, the date
receipt is acknowledged on the return receipt for such notice or, if delivery is
rejected or refused or the U.S. Postal Service is unable to deliver same because
of changed address of which no notice was given pursuant hereto, the first date
of such rejection, refusal or inability to deliver. All such notices shall be
addressed to Landlord or Tenant at their respective address set forth
hereinabove or at such other address as either party shall have theretofore
given to the other by notice as herein provided.
32. Damage or Theft of Personal Property. All personal property brought
------------------------------------
into the Leased Premises by Tenant, or Tenant's employees or business visitors,
shall be at the risk of Tenant only, and Landlord shall not be liable for theft
thereof or any damage thereto occasioned by any act of co-tenants, occupants,
invitees or other users of the Building or any other person, unless such theft
or damage is the result of the act of Landlord or its employees and Landlord is
not relieved therefrom by Article 17 hereof. Unless caused by the negligence of
Landlord or its employees, Landlord shall not at any time be liable for damage
to any property in or upon the Leased Premises which results from power surges
or other deviations from the constancy of the electrical service or from gas,
smoke, water, rain, ice or snow which issues or leaks from or forms upon any
part of the Building or from the pipes or plumbing work of the same, or from any
other place whatsoever.
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33. Eminent Domain.
--------------
(a) If all or part of the Leased Premises shall be taken for any
public or quasi-public use by virtue of the exercise of the power of
eminent domain or by private purchase in lieu thereof, this Lease shall
terminate as to the part so taken as of the date of taking, and, in the
case of a partial taking, either Landlord or Tenant shall have the right to
terminate this Lease as to the balance of the Leased Premises by written
notice to the other within thirty (30) days after such date; provided,
however, that a condition to the exercise by Tenant of such right to
terminate shall be either (i) that more than fifteen percent (15%) of the
Leased Premises was taken or (ii) that the portion of the Leased Premises
and\or parking taken shall be of such extent and nature as substantially to
handicap, impede or impair Tenant's use of the balance of the Leased
Premises, unless prior to the execution of the aforesaid notice, Landlord
shall notify Tenant of its intention to replace the portion of the Leased
Premises or parking in such a way as to render the Leased Premises and/or
parking suitable for the Tenant's use, and such replacement is provided
within one hundred fifty (150) days of such notice. If title to so much of
the Building is taken that a reasonable amount of reconstruction thereof
will not in Landlord's sole discretion result in the Building being a
practical improvement and reasonably suitable for use for the purpose for
which it is designed, then this Lease shall terminate on the date that the
condemning authority actually takes possession of the part so condemned or
purchased.
(b) If this Lease is terminated under the provisions of this Article
33, Rent shall be apportioned and adjusted as of the date of termination.
Tenant shall have no claim against Landlord or against the condemning
authority for the value of any leasehold estate or for the value of the
unexpired Lease Term provided that the foregoing shall not preclude any
claim that Tenant may have against the condemning authority for the
unamortized cost of leasehold improvements, to the extent the same were
installed at Tenant's expense (and not with the proceeds of the
Construction Allowance), or for loss of business, moving expenses or other
consequential damages, in accordance with subparagraph (d) below.
(c) If there is a partial taking of the Building and this Lease is not
thereupon terminated under the provisions of this Article 33, then this
Lease shall remain in full force and effect, and Landlord shall, within a
reasonable time thereafter, repair or reconstruct the remaining portion of
the Building to the extent necessary to make the same a complete
architectural unit; provided that in complying with its obligations
hereunder Landlord shall not be required to expend more than the net
proceeds of the condemnation award which are paid to Landlord, and if such
records are insufficient to restore the Building or Leased Premises to a
condition substantially similar to the condition of the same prior to the
taking and Landlord elects not to fund the shortfall, Tenant shall be
entitled to terminate this Lease by written notice given on or before ten
(10) days after notice that Landlord will not fund the shortfall.
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<PAGE>
(d) All compensation awarded or paid to Landlord upon a total or
partial taking of the Leased Premises or the Building shall belong to and
be the property of Landlord without any participation by Tenant. Nothing
herein shall be construed to preclude Tenant from prosecuting any claim
directly against the condemning authority for loss of business, for damage
to, and cost of removal of, trade fixtures, furniture and other personal
property belonging to Tenant, and for the unamortized cost of leasehold
improvements to the extent same were installed at Tenant's expense (and not
with the proceeds of the Construction Allowance). In no event shall Tenant
have or assert a claim for the value of any unexpired term of this Lease.
Subject to the foregoing provisions of this subparagraph (d), Tenant hereby
assigns to Landlord any and all of its right, title and interest in or to
any compensation awarded or paid as a result of any such taking.
(e) Notwithstanding anything to the contrary contained in this Article
33, if, during the Lease Term, the use or occupancy of any part of the
Building or the Leased Premises shall be taken or appropriated temporarily
for any public or quasi-public use under any governmental law, ordinance,
or regulations, or by right of eminent domain, this Lease shall be and
remain unaffected by such taking or appropriation except that Tenant's Rent
shall be abated during the period of such temporary taking if and to the
extent Landlord is compensated therefor. In the event of any such
temporary appropriation or taking, Tenant shall be entitled to receive that
portion of any award which represents compensation for the loss of use or
occupancy of the Leased Premises during the Lease Term, and Landlord shall
be entitled to receive that portion of any award which represents the cost
of restoration and compensation for the loss of use or occupancy of the
Leased Premises after the end of the Lease Term.
34. Parties. The term "Landlord", as used in this Lease, shall include
-------
Landlord and its assigns and successors. It is hereby covenanted and agreed by
Tenant that should Landlord's interest in the Leased Premises cease to exist for
any reason during the Lease Term, then notwithstanding the happening of such
event, this Lease nevertheless shall remain in full force and effect, and Tenant
hereby agrees to attorn to the then owner of the Leased Premises. The term
"Tenant" shall include Tenant and its heirs, legal representatives and
successors, and shall also include Tenant's assignees and sublessees, if this
Lease shall be validly assigned or the Leased Premises sublet for the balance of
the Lease Term or any renewals or extensions thereof. In addition, Landlord and
Tenant covenant and agree that Landlord's right to transfer or assign Landlord's
interest in and to the Leased Premises, or any part or parts thereof, shall be
unrestricted, and that in the event of any such transfer or assignment by
Landlord which includes the Leased Premises, Landlord's obligations to Tenant
thereafter arising hereunder shall cease and terminate, and Tenant shall look
only and solely to Landlord's assignee or transferee for performance thereof.
35. Indemnification. Tenant hereby indemnifies Landlord from and agrees
---------------
to hold Landlord harmless against, any and all liability, loss, cost, damage or
expense, including, without limitation, court costs and reasonable attorney's
fees, imposed on Landlord by any
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<PAGE>
person whomsoever, caused in whole or in part by any negligent act or omission
of Tenant, or any of its employees, contractors, servants, agents, subtenants or
assignees, or of Tenant's invitees while such invitees are within the Leased
Premises or the Building, or otherwise occurring in connection with any default
of Tenant hereunder except for such matters as are caused by the gross
negligence or willful misconduct of Landlord, its employees, agents, contractors
and subcontractors. Landlord hereby indemnifies Tenant from and agrees to hold
Tenant harmless against, any and all liability, loss, cost, damage or expense,
including, without limitation, court costs and reasonable attorney's fees,
imposed on Tenant by any person whomsoever, caused in whole or in part by any
negligent act or omission of Landlord, or any of its employees, contractors,
servants, agents, subtenants or assignees, or of Landlord's invitees while such
invitees are within the Leased Premises or the Building, or otherwise occurring
in connection with any default of Landlord hereunder except for such matters as
are caused by the gross negligence or willful misconduct of Tenant, its
employees, agents, contractors and subcontractors. The provisions of this
Article 35 shall survive any termination of this Lease.
36. Force Majeure. In the event of strike, lockout, labor trouble, civil
-------------
commotion, act of God, or any other cause beyond a party's control (collectively
"force majeure") resulting in the Landlord's inability to supply the services or
perform the other obligations required of Landlord hereunder, this Lease shall
not terminate and, except as provided in Article 23, Tenant's obligation to pay
Rent and all other charges and sums due and payable by Tenant shall not be
affected or excused and Landlord shall not be considered to be in default under
this Lease. If, as a result of force majeure, Tenant is delayed in performing
any of its obligations under this Lease, Tenant's performance shall be excused
for a period equal to such delay and Tenant shall not during such period be
considered to be in default under this Lease with respect to the obligation,
performance of which has thus been delayed.
37. Landlord's Liability. Landlord shall have no personal liability with
--------------------
respect to any of the provisions of this Lease. If Landlord is in default with
respect to its obligations under this Lease, Tenant shall look for satisfaction
of Tenant's remedies, if any, solely to the equity of Landlord in and to the
Building and the Land described in Exhibit "A" attached hereto and to the
-----------
proceeds of Landlord's insurance policy or policies actually paid to Landlord
and not applied by Landlord by the applicable claim or to the restoration of the
Building as required by the terms of this Lease (unless same are not so applied
because such proceeds are required by the holder of a mortgage to be paid to it
to reduce the debt secured by such mortgage). It is expressly understood and
agreed that Landlord's liability under the terms of this Lease shall in no event
exceed the amount of its interest in and to said Land and Building and the
aforedescribed proceeds of insurance. In no event shall any partner of Landlord
nor any joint venturer in Landlord, nor any officer, director or shareholder of
Landlord or any such partner or joint venturer of Landlord be personally liable
with respect to any of the provisions of this Lease.
38. Landlord's Covenant of Quiet Enjoyment. Provided Tenant performs the
--------------------------------------
terms, conditions and covenants of this Lease, and subject to the terms and
provisions
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<PAGE>
hereof, Landlord covenants and agrees to take all necessary steps to secure and
to maintain for the benefit of Tenant the quiet and peaceful possession of the
Leased Premises, for the Lease Term, without hindrance, claim or molestation by
Landlord or any other person lawfully claiming under Landlord.
39. Signs.
-----
(a) Tenant may place its signs on the entrance doors to the Leased
Premises and in hallways or elevator lobbies on floors wholly leased by
Tenant. On floors partially leased by Tenant, Tenant may place its signs
on entrance doors to the Leased Premises and, at Tenant's expense, Landlord
shall place signs in the elevators and in the hallways leading to the
Leased Premises which give direction to the Leased Premises.
(b) Landlord, at its expense, shall place a directory board in the
Building lobby and, at Tenant's option to be exercised in its sole
discretion, shall affix thereto Tenant's name and the name of each
division, subsidiary, affiliate, partner, permitted assignee or subtenant
of Tenant that is located in the Building or within the Project limits.
(c) So long as Tenant shall occupy forty percent (40%) or more of the
Rentable Floor Area in the Building, it shall have the right to (i) design
and designate the location of one (1) monument-type sign naming the Project
and one (1) sign on the exterior of the Building naming the Project and
(ii) prohibit any other sign to be placed outside of or on the Building or
within the lobby or other prominent area inside the Building which is
visible to the public (other than identification signs at the entrance to a
tenant's premises). Landlord shall bear $5,000 of the cost and Tenant any
excess cost of purchasing and installing any monument-type sign. The cost
of maintaining, repairing or replacing said monument-type sign shall be
included within Operating Expenses. Tenant shall be solely responsible for
the cost of purchasing, installing and maintaining any sign on the exterior
of the Building. The monument-type sign and sign on the exterior of the
Building shall be consistent in quality and appearance with other signs in
the office park for Class A buildings. The monument-type sign and any sign
on the exterior of the Building shall be subject to the prior approval of
Landlord as to size, materials and method of lighting and attachment, which
approval shall not be unreasonably withheld. Tenant acknowledges that such
signs must also comply with, and shall be installed only if permitted by,
Laws and private restrictive covenants applicable to the Project. Tenant
agrees that Tenant will not unreasonably withhold its consent to the
placement of up to two (2) additional names of tenants on the monument-type
sign.
40. Hazardous Substances.
--------------------
(a) Tenant and Landlord hereby covenant and agree each with the other
that they shall not cause or permit any "Hazardous Substances" (as
hereinafter
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<PAGE>
defined) to be generated, placed, held, stored, used, located or disposed
of at the Project or any part thereof, except for Hazardous Substances as
are commonly and legally used or stored as a consequence of using the
Leased Premises for general office and administrative purposes (and, if
permitted hereunder, medical treatment and medical laboratory purposes),
but only so long as the quantities thereof do not pose a threat to public
health or to the environment or would necessitate a "response action", as
that term is defined in CERCLA (as hereinafter defined), and so long as the
parties strictly comply or cause compliance with all applicable
governmental rules and regulations concerning the use, storage, production,
transportation and disposal of such Hazardous Substances. For purposes of
this Article 40, "Hazardous Substances" shall mean and include those
elements or compounds which are contained in the list of Hazardous
Substances adopted by the United States Environmental Protection Agency
(EPA) or in any list of toxic pollutants designated by Congress or the EPA
or which are defined as hazardous, toxic, pollutant, infectious or
radioactive by any other federal, state or local statute, law, ordinance,
code, rule, regulation, order or decree regulating, relating to or imposing
liability (including, without limitation, strict liability) or standards of
conduct concerning, any hazardous, toxic or dangerous waste, substance or
material, as now or at any time hereinafter in effect (collectively,
"Environmental Laws"). Each party hereby agrees to indemnify and hold
harmless the other party hereto from and against any and all losses,
liabilities, including strict liability, damages, injuries, expenses,
including reasonable attorneys' fees, costs of settlement or judgment and
claims of any and every kind whatsoever paid, incurred or suffered by, or
asserted against, such other party by any person, entity or governmental
agency for, with respect to, or as a direct or indirect result of, the
presence in, or the escape, leakage, spillage, discharge, emission or
release from, the Leased Premises or the Building or Land of any Hazardous
Substances (including, without limitation, any losses, liabilities,
including strict liability, damages, injuries, expenses, including
reasonable attorneys' fees, costs of any settlement or judgment or claims
asserted or arising under the Comprehensive Environmental Response,
Compensation and Liability Act ["CERCLA"], any so-called federal, state or
local "Superfund" or "Superlien" laws or any other Environmental Law);
provided, however, that the foregoing indemnity is limited to matters
arising solely from Tenant's or Landlord's violation of the covenant
contained in this Article. The obligations of Tenant and Landlord under
this Article shall survive any expiration or termination of this Lease.
(b) Landlord agrees that the Building will contain no Hazardous
Substances that would violate Environmental Laws or pose a threat to public
health or the environment on the Rental Commencement Date.
41. Submission of Lease. The submission of this Lease for examination
-------------------
does not constitute an offer to lease and this Lease shall be effective only
upon execution hereof by Landlord and Tenant.
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<PAGE>
42. Severability. If any clause or provision of this Lease is illegal,
------------
invalid or unenforceable under present or future laws, the remainder of this
Lease shall not be affected thereby, and in lieu of each clause or provision of
this Lease which is illegal, invalid or unenforceable, there shall be added as a
part of this Lease a clause or provision as nearly identical to the said clause
or provision as may be legal, valid and enforceable.
43. Entire Agreement. This Lease contains the entire agreement of the
----------------
parties and no representations, inducements, promises or agreements, oral or
otherwise, between the parties not embodied herein shall be of any force or
effect. No failure of Landlord to exercise any power given Landlord hereunder,
or to insist upon strict compliance by Tenant with any obligation of Tenant
hereunder, and no custom or practice of the parties at variance with the terms
hereof, shall constitute a waiver of Landlord's right to demand
exact compliance with the terms hereof. This Lease may not be altered, waived,
amended or extended except by an instrument in writing signed by Landlord and
Tenant. This Lease is not in recordable form, and Tenant agrees not to record
or cause to be recorded this Lease.
44. Headings. The use of headings herein is solely for the convenience of
--------
indexing the various paragraphs hereof and shall in no event be considered in
construing or interpreting any provision of this Lease.
45. Broker. Tenant represents and warrants to Landlord that (except with
------
respect to any Broker[s] identified in Article 1[n] hereinabove) no broker,
agent, commission salesperson, or other person has represented Tenant in the
negotiations for and procurement of this Lease and of the Leased Premises and
that (except with respect to any Broker[s] identified in Article 1[n]
hereinabove) no commissions, fees, or compensation of any kind are due and
payable in connection herewith to any broker, agent, commission salesperson, or
other person as a result of any act or agreement of Tenant. Tenant agrees to
indemnify and hold Landlord harmless from all loss, liability, damage, claim,
judgment, cost or expense (including reasonable attorneys' fees and court costs)
suffered or incurred by Landlord as a result of a breach by Tenant of the
representation and warranty contained in the immediately preceding sentence or
as a result of Tenant's failure to pay commissions, fees, or compensation due to
any broker who represented Tenant, whether or not disclosed, or as a result of
any claim for any fee, commission or similar compensation with respect to this
Lease made by any broker, agent or finder (other than the Broker[s] identified
in Article 1[n] hereinabove) claiming to have dealt with Tenant. Landlord
agrees to indemnify and hold Tenant harmless from all loss, liability, damage,
claim, judgement, cost or expense, (including reasonable attorney's fees and
court costs) suffered or incurred by Tenant as a result of Landlord's failure to
pay commissions, fees or compensation due to any broker who represented
Landlord, whether or not disclosed, with respect to this Lease, including any
Broker identified in Article 1(n).
46. Governing Law. The laws of the State of Wisconsin shall govern the
-------------
validity, performance and enforcement of this Lease.
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<PAGE>
47. Warranties. Upon request by Tenant after the Rental Commencement
----------
Date, Landlord shall grant Tenant a nonexclusive assignment, to be shared in
common with Landlord, its successors and assigns, of all warranties and
guaranties obtained by Landlord from its general contractor and any other
contractors and/or manufacturers with respect to the improvements that have been
made to the Leased Premises. Landlord shall warrant the such improvements for a
period of one (1) year from the date of Substantial Completion.
48. Extension of Lease Term. Tenant may extend the Lease Term for two (2)
-----------------------
successive terms (each, an "Extended Term") of five (5) years each, which
extensions may be exercised by Tenant by giving notice of its election to extend
to Landlord at least twelve (12) months prior to the then current expiration of
the Lease Term. The Base Rental Rate for each of the Extended Terms shall be
the "Market Rental Rate" for the Extended Term in question. For purposes of
this Article, "Market Rental Rate" shall mean the annual effective rental rate
per square foot of Rentable Floor Area then being charged by landlords under new
leases of office space in the metropolitan Madison, Wisconsin market for space
similar to the Leased Premises in a building of comparable quality and with
comparable parking and other amenities. In determining the Market Rental Rate,
Landlord and Tenant (and any appraisers, if applicable) shall take into account
the fact that Tenant shall pay Tenant's share of the annual Operating Expenses.
Also, in determining the Market Rental Rate, Landlord and Tenant (and any
appraisers, if applicable) shall compare actual rental rates only (after making
appropriate adjustments resulting from the foregoing facts) and shall take into
consideration any discounts, allowances, free rent, remodeling credits,
construction allowances and other concessions and inducements granted by other
landlords. If Landlord and Tenant cannot agree on the amount of such Market
Rental Rate within thirty (30) days after Tenant exercises the option to extend
the term of this Lease, Landlord and Tenant agree that the determination of the
Market Rental Rate for the applicable Extended Term shall be made in accordance
with the following procedure. Landlord and Tenant shall each appoint one (1)
appraiser within nine (9) business days after the thirty (30) day period
referred to in the preceding sentence. Those two (2) appraisers shall promptly
appoint a third (3rd) appraiser. Each appraiser appointed hereunder shall be a
member of the American Institute of Real Estate Appraisers (or successor
organization) having at least ten (10) years experience in appraisal of office
buildings and office rental rates in the metropolitan Madison, Wisconsin area.
If such appraisers fail to appoint such third (3rd) appraiser within ten (10)
business days after notice of their appointment, then either Landlord or Tenant,
upon written notice to the other, may request the appointment of a third (3rd)
appraiser by the then President of the Board of Realtors in the Madison,
Wisconsin area or any then similar existing body. Each appraiser so appointed
shall independently make appraisals of the Market Rental Rate of the Leased
Premises. Except as hereinafter provided, the Market Rental Rate of the Leased
Premises for the applicable Extended Term shall be the average of the three (3)
appraisals of the Market Rental Rate; provided, however, if the determination of
the Market Rental Rate of one (1) appraiser is disparate from the median of all
three (3) determinations of Market Rental Rate by more than twice the amount by
which the other determination is disparate from the median, then the
determination of such appraiser shall be excluded, the remaining two (2)
determinations shall be averaged and such average shall be binding and
conclusive on Landlord and Tenant. If, after notice by either Landlord or
Tenant of the appointment of an
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<PAGE>
appraiser by the party giving such notice, the other party to whom such notice
is given shall fail, within a period of ten (10) business days after such
notice, to appoint an appraiser, then the appraiser so appointed by the party
giving notice shall have the power to proceed as sole appraiser to determine the
Market Rental Rate of the Leased Premises. Landlord shall pay the fees and
expenses of the person appointed by Landlord as an appraiser hereunder, and
Tenant shall pay the fees and expenses of the person appointed by Tenant as an
appraiser hereunder. Landlord and Tenant shall each pay one-half (1/2) of the
fees and expenses of the third (3rd) appraiser appointed pursuant to the
provisions of this Article.
49. Intentionally Omitted.
---------------------
50. Memorandum of Lease. Landlord and Tenant will at any time, at the
-------------------
request of the other, properly execute duplicate originals of an instrument, in
recordable form, which will constitute a Memorandum of this Lease, with a
description of the Leased Premises, the term of this Lease and any other
portions hereof, excepting the rental provisions, as either party may reasonably
request. Any and all recording costs required in connection with the recording
of such Memorandum of Lease shall be paid by the party requesting recordation.
This Lease shall not be recorded.
51. Roof Communication System.
-------------------------
(a) Subject to the provisions of this Article, Tenant shall have the
right, at its sole cost and expense, to install, maintain and operate, upon
the roof of the Building, one (1) mount and associated antennas (the
"Communication Equipment"); subject, however, to the feasibility of placing
the Communication Equipment in the location desired by Tenant on the roof
of the Building. Tenant agrees to pay all actual, reasonable costs,
including without limitation reasonable out-of-pocket costs incurred by
Landlord, associated with the review, installation, operation, utilization,
replacement, maintenance and removal of such Communication Equipment. At
least sixty (60) days prior to a proposed installation date for the
Communication Equipment, Tenant shall deliver to Landlord preliminary plans
and/or data for the Communication Equipment, showing the size thereof
(diameter and mounted height), proposed location, weight of the antenna and
mount, orientation and tilt, method of mounting, line of site requirements,
cable connection criteria, type of construction, roofing penetration
details, and electrical drawings. The Communication Equipment (i) is
subject to Landlord's reasonable approval as to location, color (must match
roof color) and general appearance; (ii) must be constructed in complete
compliance with all applicable governmental rules, regulations and codes
(Tenant shall be responsible for procuring whatever licenses or permits may
be required for the installation and operation of the system); (iii) must
be designed, installed, utilized and operated so as not to adversely affect
or impact the structural, mechanical, electrical, elevatoring,
communications or other systems of or serving the Building, including
without limitation, the communications equipment installed by or for
Landlord's other tenants existing as of the date of this Lease; (iv) must
not, in Landlord's reasonable judgment, be likely to cause injury to
persons or property; and (v) must not, in
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<PAGE>
Landlord's reasonable judgment, adversely affect the exterior appearance of
the Building. Additionally, if the Communication Equipment should, in
Landlord's opinion, be determined to be visible, Tenant shall at its sole
cost and expense, be responsible for erecting visual barriers reasonably
acceptable to Landlord which will prevent the Communication Equipment from
being visible. Tenant hereby indemnifies and holds Landlord harmless from
all costs (including reasonable attorneys' fees and costs of suit), losses,
damages or liabilities arising out of any installation, operation,
maintenance and use by Tenant of the Communication Equipment.
(b) Tenant shall be permitted to employ its own contractors to
undertake the installation of the Communication Equipment, subject to
Landlord's reasonable approval of such contractors. In making its
determination to approve or disapprove such contractors, Landlord shall
take into consideration the business reputation of such contractors, the
experience of such contractors in performing installations of the nature
contemplated by Tenant's plans, whether the utilization of such contractors
would impair the roofing warranties held by Landlord, the financial
condition of such contractors, and the nature and extent of the insurance
maintained by such contractors. Any contractor(s) doing work related to
the installation, maintenance, operation or removal of the Communication
Equipment and associated system components is required to carry commercial
general liability, worker's compensation and property damage insurance in
amounts reasonably acceptable to the Landlord. The installation must be
executed in such a manner as to not impair any roofing warranties held by
Landlord and such installation may need to be coordinated with the original
roofing contractor. Any such work conducted in connection with the
installation, maintenance, operation or removal of the Communication
Equipment must be done in accordance with Landlord's reasonable rules and
regulations promulgated by Landlord pertaining to construction in or on the
roof of the Building by third party contractors.
(c) All additional equipment required for or related to the
Communication Equipment shall be located in the Leased Premises unless an
alternate location within or on top of the Building is expressly agreed to
by Landlord, which agreement may be withheld in Landlord's sole and
absolute discretion.
(d) Subject to the rules which may be reasonably promulgated by
Landlord pertaining to access by tenants to the roof of the Building,
Tenant (or its contractors) shall have reasonable access to the
Communication Equipment for purposes of servicing, repairing or otherwise
maintaining said equipment.
(e) Landlord will provide such space in the core of the Building
necessary to accommodate Tenant's conduit and other requirements related to
the Communication Equipment. Coordination of the location of all sleeves
and other items related to the Communication Equipment shall be the
responsibility of Tenant and/or its consultants, and any out-of-pocket
costs associated with the installation of
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<PAGE>
the Communication Equipment and conduit and other wiring associated
therewith in the core areas for Tenant's requirements related to the
Communication Equipment shall be borne by Tenant, including without
limitation all actual, reasonable costs incurred by Landlord in connection
therewith.
(f) Landlord specifically reserves the right to install, or permit the
installation of, other similar communications equipment on the roof of the
Building so long as said equipment does not interfere with the normal
operations of Tenant's Communication Equipment.
(g) Tenant agrees to reimburse Landlord for all costs and expenses
incurred by Landlord pursuant to this Article within thirty (30) days after
receipt by Tenant of an invoice therefor from Landlord and such supporting
documentation as Tenant may reasonably request.
(h) Tenant may, at or before the expiration or termination of this
Lease, remove the Communication Equipment, provided that Tenant repairs any
damage caused by such removal, including the sealing of any penetrations in
the roof or into the core of the Building.
(i) Tenant shall not be obligated to pay Base Rent for the use of the
roof area of the Building which is occupied by the Communication Equipment.
52. First Right of Refusal. Provided this Lease is not in default,
----------------------
Landlord hereby grants Tenant the right of first refusal for any additional
space in the Building. Landlord agrees to notify Tenant in writing that it has
secured a potential tenant and the principal terms of the proposed lease to such
tenant (term of lease and extension options, rental rates and tenant improvement
allowances) and Landlord agrees to give Tenant ten (10) business days to
exercise its right on the terms and conditions set forth therein.
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<PAGE>
53. Expansion Option.
----------------
(a) Provided that, at the time of exercise of the Expansion Option
herein provided, this Lease is in effect and no Event of Default under this
Lease then exists, and subject to and in accordance with the terms and
provisions set forth below, Tenant shall have the option (the "Expansion
Option") to expand the Leased Premises into all or any commercially usable
portion of the "Available Space" (as hereinafter defined) on the second
floor of the Building. For purposes hereof, the term "Available Space"
shall mean all Rentable Floor Area on the second floor of the Building as
of the exercise by Tenant of the Expansion Option, except for such Rentable
Floor Area on the second floor of the Building which has been leased by
Landlord to Tenant or a third party for a term extending beyond the
commencement of the sixth (6th) Lease Year after following the right of
first refusal procedure set forth in Article 52 hereof. Tenant may
exercise the Expansion Option by giving written notice of such exercise to
Landlord no earlier than the date which is eight (8) months prior to the
commencement of the sixth (6th) Lease Year and no later than five (5)
months prior to the commencement of the sixth (6th) Lease Year, and in the
event Tenant desires to expand the Leased Premises by less than all of the
then existing Available Space, Tenant shall specify in such notice the
portion of the Available Space to be leased by Tenant. The space leased by
Tenant pursuant to the exercise of the Expansion Option is herein referred
to as the "Expansion Space". Upon the exercise of the Expansion Option,
Landlord shall make the Expansion Space available for the commencement of
construction of tenant improvements therein (or if demolition of previous
tenant improvements is first required, for the demolition thereof) within
the period which is two (2) months before or two (2) months after the
commencement of the sixth (6th) Lease Year of the Lease Term, or such
earlier date as is mutually agreeable to Landlord and Tenant. In the event
Tenant shall exercise the Expansion Option with respect to less than all of
the then existing Available Space, the following standards shall apply to
the Expansion Space leased by Tenant: (i) the Expansion Space shall have a
configuration which is commercially usable, and (ii) any portion of the
Available Space not so leased by Tenant must have a configuration which is
commercially usable. If necessary, Landlord and Tenant will adjust the
configuration of the Expansion Space so as to achieve compliance with the
foregoing standards. Any Expansion Space as to which Tenant has properly
exercised its Option in accordance with this Article 53 shall be leased by
Tenant from Landlord for the balance of the Lease Term, on the terms and
conditions of this Lease then, and from time to time thereafter, in effect,
including, without limitation, Tenant's obligation to pay Tenant's Forecast
Additional Rental and Tenant's Additional Rental with respect to such
Expansion Space and Tenant's obligation to pay Base Rental at the
applicable Base Rental rate attributable to the balance of the Leased
Premises from time to time. The construction of, and the amount of
construction allowance for, any and all tenant improvements in the
Expansion Space shall be governed by the terms and provisions of
subparagraph (b) below. The commencement of Rent for the Expansion Space
shall be governed by subparagraph (c) below.
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<PAGE>
(b) All tenant improvements in all portions of Expansion Space which
have been previously improved for other tenants shall be delivered to and
accepted by Tenant in an "as is" condition. Any and all demolition of
existing tenant improvements or any additional construction of tenant
improvements in such Expansion Space ("Expansion Layout Work") shall be
performed, constructed and installed by Landlord in accordance with plans
and specifications prepared by Tenant at Tenant's expense and reasonably
approved by Landlord, all substantially in accordance with the same
procedure as the Layout Work was done pursuant to the terms of paragraphs 5
and 6 of Exhibit "D" and Exhibit "D-1" of this Lease. Landlord shall pay
----------- -------------
for the cost of the Expansion Layout Work up to the amount of Ten Dollars
($10.00) per square foot of Rentable Floor Area for any portion of the
applicable Expansion Space which has not previously been improved for any
other tenant and in the amount of Eight Dollars ($8.00) per square foot of
Rentable Floor Area for any portion of the Expansion Space which has been
previously improved for another tenant. Tenant shall be responsible for
all costs of the Expansion Layout Work to the extent such costs exceed the
aforesaid amount to be paid by Landlord.
(c) The date upon which all Base Rental, Tenant's Forecast Additional
Rental and Tenant's Additional Rental for the Expansion Space shall
commence shall be the earlier to occur of (x) the date which is sixty (60)
days after Landlord shall make such Expansion Space available to Tenant for
the commencement of tenant improvements therein, or (y) the date Tenant
shall occupy any portion of such Expansion Space for business purposes.
54. Tenant's Parking. At all times during the initial and renewal terms,
----------------
Landlord shall provide free parking space in the Building parking area at the
rate of at least 4.0 spaces per 1,000 square feet of usable area of the
Building.
55. Authority and Representations. Each of the persons executing this
-----------------------------
Lease on behalf of Tenant does hereby personally represent and warrant that
Tenant is a duly incorporated and validly existing corporation and is fully
authorized and qualified to do business in the State of Wisconsin, that the
corporation has full right and authority to enter into this Lease, and that each
person signing on behalf of the corporation is authorized to sign on behalf of
the corporation. Upon the request of Landlord, Tenant shall deliver to Landlord
documentation satisfactory to Landlord evidencing Tenant's compliance with this
Article, and Tenant agrees to promptly execute all necessary and reasonable
applications or documents as reasonably requested by Landlord, required by the
jurisdiction in which the Leased Premises is located, to permit the issuance of
necessary permits and certificates for Tenant's use and occupancy of the Leased
Premises. To the best of its knowledge, Landlord has not paid, directly or
indirectly, any officer, employee or agent of Tenant or any of its affiliates in
order to have such person cause Tenant to sign this Lease.
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<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the day, month and year first above written.
"LANDLORD":
FUND VIII AND FUND IX ASSOCIATES,
a Georgia general partnership
- --------------------------- By: Wells Real Estate Fund VIII, L.P.,
Witness a Georgia limited partnership
By: (SEAL)
- --------------------------- --------------------------
Witness Leo F. Wells, III,
General Partner
By: Wells Partners, L.P.,
a Georgia limited partnership,
General Partner
- --------------------------- By: Wells Capital,
Witness a Georgia corporation,
General Partner
By:
- --------------------------- ---------------------
Witness Leo F. Wells, III,
President
(CORPORATE SEAL)
[Signatures continued on following page]
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<PAGE>
[Signatures continued from previous page]
- ---------------------------- By: Wells Real Estate Fund IX, L.P.,
Witness a Georgia limited partnership
By: (SEAL)
- ----------------------------- -------------------------
Witness Leo F. Wells, III,
General Partner
By: Wells Partners, L.P.,
a Georgia limited partnership,
General Partner
- ---------------------------- By: Wells Capital, Inc.,
Witness a Georgia corporation,
General Partner
By:
- ---------------------------- --------------------
Witness Leo F. Wells, III,
President
(CORPORATE SEAL)
"TENANT":
WESTEL-MILWAUKEE COMPANY, INC.,
d/b/a Cellular One,
a Wisconsin corporation
- ------------------------
Witness By:
-----------------------------
Its:
- ------------------------ ----------------------------
Witness Authorized Officer
(CORPORATE SEAL)
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<PAGE>
EXHIBIT A
---------
Legal Description
-----------------
Lot Twenty-Two (22) and that part of Lot Twenty-One (21), lying between the
Easterly and Westerly lines of said Lot 22 as extended in a Southerly direction
to the Southerly line of said Lot 21, The American Center Plat Terrace First
Addition, in the City of Madison, Dane County, Wisconsin. This real estate is
also described as follows:
Beginning at the Northeast corner of said Lot 22; thence S06degree36'29"W,
693.50 feet; thence N73degree59'24"W, 476.50 feet; thence N06degree36'29"E,
584.18 feet; thence N67degree00'00"E, 138.76 feet; thence along the arc of
a curve concave northerly, having a radius of 335.00 feet and whose chord
bears S68degree04'00"E, 141.93 feet; thence S80degree17'48"E, 100.00 feet;
thence along the arc of a curve concave northerly, having a radius of
535.00 feet and whose chord bears S86degree21'06"E, 112.87 feet to the
point of beginning. Parcel contains 308,977.27 square feet or 7.09 acres.
Parcel subject to easements of record.
<PAGE>
EXHIBIT "B"
-----------
RULES AND REGULATIONS
1. No sign, picture, advertisement or notice visible from the exterior of the
Leased Premises shall be installed, affixed, inscribed, painted or
otherwise displayed by Tenant on any part of the Leased Premises or the
Building unless the same is first approved by Landlord. Any such sign,
picture, advertisement or notice approved by Landlord shall be painted or
installed for Tenant at Tenant's cost by Landlord or by a party approved by
Landlord. No awnings, curtains, blinds, shades or screens shall be
attached to or hung in, or used in connection with any window or door of
the Leased Premises without the prior consent of the Landlord, including
approval by the Landlord of the quality, type, design, color and manner of
attachment.
2. Tenant agrees that its use of electrical current shall never exceed the
capacity of existing feeders, risers or wiring installation.
3. The Leased Premises shall not be used for storage of merchandise held for
sale to the general public. Tenant shall not do or permit to be done in or
about the Leased Premises or Building anything which shall increase the
rate of insurance on said Building or obstruct or interfere with the rights
of other lessees of Landlord or annoy them in any way, including, but not
limited to, using any musical instrument, making loud or unseemly noises,
or singing, etc. The Leased Premises shall not be used for sleeping or
lodging. Tenant will be permitted to use for its own employees and
invitees within the Leased Premises Underwriters' Laboratory approved
equipment for brewing coffee, tea, hot chocolate and similar beverages,
provided that such use is in accordance with all applicable federal, state,
county and city laws, codes, ordinances, rules and regulations. No part of
said Building or Leased Premises shall be used for gambling, immoral or
other unlawful purposes. No intoxicating beverage shall be sold in said
Building or Leased Premises without prior written consent of the Landlord.
No area outside of the Leased Premises shall be used for storage purposes
at any time.
4. No birds or animals of any kind shall be brought into the Building (other
than trained seeing-eye dogs required to be used by the visually impaired).
No bicycles, motorcycles or other motorized vehicles shall be brought into
the Building.
5. The sidewalks, entrances, passages, corridors, halls, elevators, and
stairways in the Building shall not be obstructed by Tenant or used for any
purposes other than those for which same were intended as ingress and
egress. No windows, floors or skylights that reflect or admit light into
the Building shall be covered or obstructed by Tenant. Toilets, wash
basins and sinks shall not be used for any purpose other than those for
which they were constructed, and no sweeping, rubbish, or other obstructing
or
<PAGE>
improper substances shall be thrown therein. Any damage resulting to them,
or to heating apparatus, from misuse by Tenant or its employees, shall be
borne by Tenant.
6. Five (5) keys for the front door and five (5) keys for the rear door will
be furnished Tenant without charge. Landlord may make a reasonable charge
for any additional keys. No additional lock, latch or bolt of any kind
shall be placed upon any door nor shall any changes be made in existing
locks without written consent of Landlord and Tenant shall in each such
case furnish Landlord with a key for any such lock. At the termination of
the Lease, Tenant shall return to Landlord all keys furnished to Tenant by
Landlord, or otherwise procured by Tenant, and in the event of loss of any
keys so furnished, Tenant shall pay to Landlord the cost thereof.
7. Landlord shall have the right to prescribe the weight, position and manner
of installation of heavy articles such as safes, machines and other
equipment brought into the Building. No safes, furniture, boxes, large
parcels or other kind of freight shall be taken to or from the Leased
Premises or allowed in any elevator, hall or corridor except at times
allowed by Landlord. In no event shall any weight be placed upon any floor
by Tenant so as to exceed the design conditions of the floors at the
applicable locations.
8. Tenant shall not cause or permit any gases, liquids or odors to be produced
upon or permeate from the Leased Premises, and, except in the case of
normal and customary medical supplies, no flammable, combustible or
explosive fluid, chemical or substance shall be brought into the Building.
9. Landlord may implement a card access security system to control access
during times other than the Building Operating Hours. Landlord shall not
be liable for excluding any person from the Building during such other
times, or for admission of any person to the Building at any time, or for
damages or loss for theft resulting therefrom to any person, including
Tenant.
10. Unless agreed to in writing by Landlord, Tenant shall not employ any person
other than Landlord's contractors for the purpose of cleaning and taking
care of the Leased Premises. Cleaning service will not be furnished on
nights when rooms are occupied after 6:30 p.m., unless, by agreement in
writing, service is extended to a later hour for specifically designated
rooms. Landlord shall not be responsible for any loss, theft, mysterious
disappearance of or damage to, any property, however occurring.
11. No connection shall be made to the electric wires or gas or electric
fixtures, without the consent in writing on each occasion of Landlord. All
glass, locks and trimmings in or upon the doors and windows of the Leased
Premises shall be kept whole and in good repair. Tenant shall not injure,
overload or deface the Building, the woodwork or the walls of the Leased
Premises, nor permit upon the Leased Premises any noisome, noxious, noisy
or offensive business.
-2-
<PAGE>
12. If Tenant requires wiring for a bell or buzzer system, such wiring shall be
done by the electrician of the Landlord only, and no outside wiring men
shall be allowed to do work of this kind unless by the written permission
of Landlord or its representatives.
13. Tenant and its employees and invitees shall observe and obey all parking
and traffic regulations as imposed by Landlord. All vehicles shall be
parked only in areas designated for vehicle parking by Landlord.
14. Canvassing, peddling, soliciting and distribution of handbills or any other
written materials in the Building are prohibited, and Tenant shall
cooperate to prevent the same.
15. Landlord shall have the right to change the name of the Building and to
change the street address of the Building, provided that in the case of a
change in the street address, Landlord shall give Tenant not less than one
hundred eighty (180) days' prior notice of the change, unless the change is
required by governmental authority. If Tenant shall occupy more than forty
percent (40%) of the Rentable Floor Area in the Building, the name of the
Building shall not be changed without the consent of Tenant.
16. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular lessee, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of any other
lessee, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the other lessees of the Building.
17. These Rules and Regulations are supplemental to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of any premises in the Building.
18. Landlord reserves the right upon fifteen (15) days' prior written notice to
Tenant to make such other and reasonable Rules and Regulations as in its
judgment may from time to time be needed for the safety, care and
cleanliness of the Building and the Land, and for the preservation of good
order therein.
-3-
<PAGE>
EXHIBIT "C"
-----------
SUPPLEMENTAL NOTICE
Re: Lease dated as of ___________, 199__, by and between Fund VIII and
Fund IX Associates, as Landlord, and Westel-Milwaukee Company, Inc.,
d/b/a Cellular One, as Tenant.
Dear Sirs:
Pursuant to Article 3 of the captioned Lease, please be advised as follows:
1. The Rental Commencement Date is the _____ day of _____________,
199___, and the expiration date of the Lease Term is the _____ day of
_____________, 20___, subject however to the terms and provisions of the Lease.
2. The Rentable Floor Area of the Leased Premises is ____________ square
feet.
3. The Rentable Floor Area of the Building is 96,750 square feet.
4. Terms denoted herein by initial capitalization shall have the meanings
ascribed thereto in the Lease.
"LANDLORD":
FUND VIII AND FUND IX ASSOCIATES,
a Georgia general partnership
- ------------------------------ By: Wells Real Estate Fund VIII, L.P.,
Witness a Georgia limited partnership
By: (SEAL)
- ------------------------------ -----------------------------
Witness Leo F. Wells, III,
General Partner
[Signatures continued on following page]
<PAGE>
[Signatures continued from previous page]
By: Wells Partners, L.P.,
a Georgia limited partnership,
General Partner
By: Wells Capital, Inc.,
- ------------------------------ a Georgia corporation,
Witness General Partner
By:
- ------------------------------ -------------------------
Witness Leo F. Wells, III,
President
(CORPORATE SEAL)
- ----------------------------- By: Wells Real Estate Fund IX, L.P.,
Witness a Georgia limited partnership
By: (SEAL)
- ----------------------------- -----------------------
Witness Leo F. Wells, III,
General Partner
By: Wells Partners, L.P.,
a Georgia limited
partnership,
General Partner
By: Wells Capital, Inc.,
- ---------------------------- a Georgia corporation,
Witness General Partner
By:
- ---------------------------- ------------------
Witness Leo F. Wells, III,
President
(CORPORATE SEAL)
-2-
<PAGE>
EXHIBIT "D"
-----------
CONSTRUCTION OBLIGATIONS
1. DEFINITIONS.
-----------
(a) Base Building Plans. The term "Base Building Plans" shall mean
-------------------
the plans and specifications developed by Landlord's architects and engineers
and used to build the Building to a Base Building Condition (as hereinafter
defined). Landlord agrees to prepare with due diligence and submit to Tenant
the Base Building Plans for the building foundations, structural steel, joist
and deck, elevators, site grading and site utilities on or before June 11, 1996
and for the balance of the Project on or before August 6, 1996. Tenant shall
have fifteen (15) days within which to approve said plans, which approval shall
not be unreasonably withheld or delayed, and if notice of disapproval is not
given on or before the expiration of said period, approval shall be deemed to
have been given.
(b) Base Building Condition. The term "Base Building Condition" shall
-----------------------
mean the condition when the following improvements have been completed,
constructed, and installed and are operational:
(1) Exterior walls and glass windows and frames installed. Building
perimeters will be fully finished as relates to water proofing, caulking,
glazing and metal finishing.
(2) Unfinished interior of exterior walls on each floor of the Leased
Premises (with wallboard portion of exterior walls taped and finished ready
for surface treatment).
(3) Concrete slab broom cleaned. Finished surfaces to be ready to receive
carpet, ceramic tile, resilient tile, wood parquet or stone flooring.
(4) Men's and ladies' bathroom facilities, with Building Standard doors,
lighting fixtures, and finishes located on each floor of the Building on
which any portions of the Leased Premises are located.
(5) One (1) Building Standard drinking fountain for each floor of the
Building.
(6) Exit light fixtures and exit signs and emergency circuits as required
by codes for open floor occupancy and fire valve cabinets and/or fire
extinguisher cabinets as required by codes for open floor occupancy,
installed in stairways or core.
(7) Building fire stairs installed, with surrounding walls installed and
with Building Standard doors for such stairwells installed.
(8) Building core installed, with walls installed, taped, sanded and
floated.
<PAGE>
(9) Building Standard electrical and telephone distribution rooms and
janitorial closets constructed in accordance with the Base Building Plans,
together with doors for such rooms and closets installed.
(10) Building Standard electrical panels in the core electrical closet on
each floor (ready for Tenant's electrical connections) sufficient to supply
the quantities of electrical power described in the Building Standard
Services set forth in Exhibit "E" of this Lease. In addition, the
-----------
electrical system shall be capable of providing five (5) watts per rentable
square foot.
(11) Base Building air conditioning system, including diffusers and
returns, capable of maintaining (i) 73 degrees F.D.B. at 50% R.H. + 5%
-
automatic control in summer based on the local 2-1/2% outdoor design
condition as specified in the "ASHRAE Handbook of Fundamentals" and (ii) 71
degrees F.D.B. at 20% R.H. minimum in winter based on the local design
conditions as specified in the latest edition of "ASHRAE Handbook of
Fundamentals". Air conditioning design basis is 5 watts per usable square
foot lighting and power load, based upon an occupancy rate of one (1)
person per 150 usable square feet and venetian blinds drawn with slats
tilted against the sun at not less than 45 degrees from horizontal.
(12) Building Standard air handling unit(s) in the mechanical room on each
floor. HVAC main trunk duct work from the fan room to the core walls, HVAC
ducts, VAV boxes and mechanical diffusers for standard layout for permitted
zones.
(13) One (1) sanitary sewer and vent location per floor in the core area
for Tenant's connection in accordance with the Base Building Plans.
(14) One (1) domestic cold water supply connection per floor located in the
core area in accordance with the Base Building Plans.
(15) Building Standard sprinkler risers and main loop installed on each
floor of the Building, together with Building Standard sprinkler heads
installed in accordance with Landlord's standard grid pattern.
(16) All gypboard cladding around the core, all columns and perimeter
sills.
(17) Building Standard ceiling grid and 2' x 2' ceiling tile.
(18) Building Standard 2' x 4', 3 tube parabolic, recessed fluorescent
light fixtures with a maximum of one (1) fixture per eighty (80) square
feet of usable area in the Leased Premises.
(19) Building Standard blinds for all exterior window openings.
-2-
<PAGE>
(20) The parking facilities, driveways, and all entrances and exits are
complete so as to allow beneficial use thereof.
(21) All general exhaust requirements completed in accordance with the Base
Building Plans.
(22) All exterior landscaping and plaza work, except for landscaping not
yet completed due to seasonal conditions.
(23) A 250 KW emergency diesel generator of the Building emergency
electrical requirements.
(c) Base Building Work. The term "Base Building Work" shall mean the
------------------
work required to complete the improvements on the Land to Base Building
Condition.
(d) Building Standard. The term "Building Standard" shall mean the
-----------------
standard of all material, finishes and workmanship established by Landlord for
the Building. All such materials, finishes and workmanship shall be consistent
with the first-class nature of the Project.
(e) Plans and Specifications. The term "Plans and Specifications"
------------------------
shall mean the working drawings and specifications for the construction of the
Layout Work in the Leased Premises, which working drawings and specifications
shall be prepared by Tenant's Architect (as hereinafter defined) and submitted
to Landlord for approval on or before October 25, 1996 (the "Plan Delivery
Date"). Landlord's approval shall not be unreasonably withheld or delayed and
shall be deemed given if notice of disapproved is not given within said time
period. The Plans and Specifications shall include, without limitation,
complete, detailed architectural drawings and specifications for Tenant's
partition layout, reflected ceiling and other installations, and complete
mechanical and electrical plans and specifications for installation of
supplemental air conditioning systems, fire protection and electrical systems.
Tenant agrees to submit to Landlord schematic drawings for the Layout Work
prepared by Tenant's Architect on or before September 3, 1996.
(f) Tenant's Architect. The term "Tenant's Architect" shall mean the
------------------
architect designated by Tenant for the design of the Layout Work and the
preparation of plans and specifications therefor.
(g) Plan Delivery Date. The term "Plan Delivery Date" having the
------------------
meaning given to it in subparagraph (e).
(h) Layout Work. The term "Layout Work" shall mean all job plant,
-----------
labor, equipment, materials, and appurtenances necessary to fully complete the
construction, finishing, and installation of all of the leasehold improvements
to the portion of the Leased Premises to be initially built-out as shown on the
Plans and Specifications, including without limitation, the following:
-3-
<PAGE>
(1) Perimeter gypboard soffit, thermostats and controls throughout the
Leased Premises and all connections to the Base Building systems.
(2) Any alterations or changes to the Building Standard ceiling grid system
and Building Standard ceiling tiles provided by Landlord as part of the
Base Building Work.
(3) Light fixtures which are non-Building Standard or which exceed the
number of Building Standard light fixtures provided by Landlord as part of
the Base Building Work.
(4) Electrical and telephone:
(i) All light switches.
(ii) All electrical outlets and all conduit and wiring throughout the
Leased Premises for electrical power, including connections to the
Building Standard electrical panels in the core of the Building.
(iii) All telephone outlets, conduit and wiring throughout the
Leased Premises and any necessary connections in the Building core.
(iv) All conduit and wiring for lights throughout the Leased Premises
and connections to Building Standard electrical panels in the core of
the Building, and any increase to the number of Building Standard
panelboards.
(v) Any provision for supplying power to the Leased Premises beyond
the amount required under the Building Standard Services or circuiting
at less than 8 outlets per 15 AMP circuit, including necessary
metering to measure excess electrical usage.
(vi) All exit light fixtures, exit signs and emergency circuits.
(5) All plumbing work for facilities such as toilets and sinks in the
Leased Premises in addition to the plumbing work, toilets, sinks and
related facilities provided in Base Building Work.
(6) All partitions including finish, and the finish to the inside of the
Building's perimeter walls.
(7) All doors, frames and hardware not included in the Base Building Work.
(8) All floor finish including base.
-4-
<PAGE>
(9) Any modification to or deviation from the sprinkler system to be
provided by Landlord as part of the Base Building Condition.
(10) Any special construction as shown on the Plans and Specifications
approved by the Landlord.
(11) Tenant's identification sign(s).
(12) Tenant's communication and telephone equipment and installation
thereof.
The Layout Work comprises the completed construction and installation
required to fully complete the leasehold improvements required by or shown
on the Plans and Specifications (including any amendments, additions, or
changes to said Plans and Specifications) and includes all labor and
services necessary to timely and fully produce such construction and
installation, and all materials and equipment incorporated, or to be
incorporated, in such construction or installation (including any labor,
materials, or services furnished pursuant to any change orders or in
accordance with any other changes, modifications, or additions to
construction). The Layout Work shall be performed by Landlord's
contractors as provided in Paragraph 5 below.
(i) Substantial Completion. The term "Substantial Completion" shall
----------------------
mean the earlier of (i) the date when all of the Base Building Work and Layout
Work shall have been completed, except for Punch List Items and except for such
of the Base Building Work on floors of the Building not a part of the Leased
Premises which, if incomplete, will not interfere with the Tenant's use or
enjoyment of the Leased Premises, or (ii) the date when the Base Building Work
and Layout Work would have been so completed to such an extent but for delays
caused by Tenant.
(j) Punch List Items. The term "Punch List Items" shall mean details
----------------
of construction, decoration and mechanical adjustment which, in the aggregate,
are minor in character and do not interfere with Tenant's use or enjoyment of
the Leased Premises.
(k) Tenant's Access. During the thirty (30) days prior to the
---------------
estimated date of Substantial Completion, Tenant may install its equipment and
furnishings provided that in doing so it shall not interfere with or delay the
date of Substantial Completion.
2. BASE BUILDING WORK.
------------------
Landlord agrees to pursue the Base Building Work with due diligence
and continuity so as to cause Substantial Completion to occur as soon as
practicable under the circumstances. Landlord shall cause the Building to be
constructed in accordance with applicable laws, rules and regulations. Landlord
shall at its sole cost and expense finish the elevator lobby on the second floor
of the Building in a manner which is compatible with the elevator lobby on the
first floor.
-5-
<PAGE>
3. NOT USED.
--------
4. CONSTRUCTION ALLOWANCE.
----------------------
Tenant shall be responsible for the payment of all costs of the Layout
Work to the extent such costs exceed the Construction Allowance provided by
Landlord. Landlord will provide the Construction Allowance described in Article
1(l) of this Lease, and Tenant shall receive a credit for the Construction
Allowance as provided in Paragraph 5(d) below.
5. PERFORMANCE OF LAYOUT WORK BY LANDLORD'S CONTRACTORS. The performance
----------------------------------------------------
of the Layout Work shall be governed by this Paragraph 5.
(a) Landlord shall obtain bids from Landlord's contractors for the
Layout Work and provide such bids to Tenant on or before November 14, 1996. In
the event Tenant shall fail to respond to such bids within ten (10) days after
receipt thereof, Tenant shall be deemed to have approved such bids. In the
event that Tenant within ten (10) days thereafter objects to such bids, Tenant
may obtain bids from third parties. Alternatively, in the event Tenant shall
elect to make changes to the Plans and Specifications in order to reduce the
cost of the Layout Work, Tenant shall give notice thereof to Landlord within ten
(10) days after such bids are received by Tenant, whereupon Tenant shall
resubmit revised Plans and Specifications to Landlord as soon as possible under
the circumstances, and Landlord shall obtain supplemental bids from Landlord's
contractors with respect to the changed portions of the Layout Work. If Tenant
elects to obtain additional bids from third parties or if Tenant elects to make
changes in the Plans and Specifications, and if such election by Tenant shall
cause the approval of the bids by Tenant to be delayed beyond the later of (i)
December 10, 1996, or (ii) the date which is ten (10) days after the initial
bids are submitted to Tenant, such delays shall be deemed to be delays caused by
Tenant.
(b) Performance by Landlord. Landlord shall, through Landlord's
-----------------------
contractors, construct and install the Layout Work in a first-class manner in
accordance with first-class construction standards. Landlord shall be
obligated diligently to manage and coordinate the construction and installation
of the Layout Work so that the Layout Work shall be substantially completed on
the schedule set forth in Article 47 of this Lease, unless completion of the
Layout Work is prevented by reason of delays caused by Tenant.
(c) Coordination Services. Tenant acknowledges that Landlord will not
--------------------- ---
act as a general contractor for the Layout Work, and the manner in which
Landlord will coordinate and supervise the construction of the Layout Work is
described on Exhibit "D-1" attached hereto and made a part hereof by this
-------------
reference.
(d) Payment of Costs of Layout Work. Tenant shall be responsible for
-------------------------------
all costs of the Layout Work in accordance with the Plans and Specifications, to
the extent such costs exceed the Construction Allowance. Periodically after
commencement of construction of the Layout Work, but not more frequently than
monthly, Landlord shall submit to Tenant
-6-
<PAGE>
a billing for that portion of the costs of the Layout Work payable to the date
of such billing. There shall be a credit against Tenant's obligation under each
billing for the Construction Allowance, which credit shall be the product of (i)
the quotient of the Construction Allowance divided by the total estimated cost
of the Layout Work, times (ii) the amount of the billing in question. Final
adjustment of the credit for such Construction Allowance shall be made in
connection with the final payment by Tenant to Landlord of the costs of such
Layout Work. Tenant's failure to promptly pay any such billing within ten (10)
days after receipt of such billing shall be deemed authorization for Landlord to
instruct the contractor constructing and installing the Layout Work to stop work
until such payment is made, together with any accrued interest and late fees
attributable thereto. The payments due by Tenant to Landlord for costs of the
Layout Work shall be deemed Additional Rental under this Lease. If there
remains any undisbursed Construction Allowance after the payment of all costs of
the Layout Work, then Landlord shall credit such undisbursed portion of the
Construction Allowance to Rent next thereafter becoming due and payable under
this Lease until fully credited.
6. CONSENT OF LANDLORD.
-------------------
Any approval or consent by Landlord of any of Tenant's plans,
specifications, or other items to be submitted by Tenant to and/or reviewed by
Landlord pursuant to this Exhibit "D" shall be deemed to be strictly limited to
-----------
an acknowledgement of approval or consent by Landlord thereto and such approval
or consent shall not constitute an assumption by Landlord of any responsibility
for the accuracy, sufficiency or feasibility of any plans, specifications or
other such items and shall not imply any representation, acknowledgement or
warranty by Landlord that the design is safe, feasible or structurally sound or
will comply with any legal or governmental requirements. Landlord's approval or
consent shall be deemed to have been withheld unreasonably if it was withheld
for any reason other than (i) non-compliance of Tenant's Plans and
Specifications with governmental requirements, (ii) Tenant's Plans and
Specifications will materially, adversely affect the structure or systems of the
Building or the first class nature of the Project, (iii) the work required by
such Tenant's Plans and Specifications would cause a delay in the completion of
the Base Building Work, or (iv) Landlord's reasonable objections to the
appearance of the improvements which will be visible from the exterior of the
Building.
-7-
<PAGE>
EXHIBIT "D-1"
-------------
COORDINATION OF LAYOUT WORK BY LANDLORD
Landlord will provide the following services:
1. Meet with Tenant and Tenant's Architect to determine Tenant's work
requirements, design package and plans, which include, but are not limited
to:
(a) Floor Plan
(b) Reflected Ceiling Plans
(c) Architectural Details
(d) Electrical
(e) Mechanical/Plumbing
2. Review the architectural and engineering plans, drawings, and
specifications, and advise and make recommendations to Tenant and Tenant's
Architect with respect to such factors as construction feasibility,
possible economies, availability of materials and labor, time requirements
for procurement and construction, and projected costs. Assist in the
coordination of all sections of the drawings and specifications, without,
however, assuming any of Tenant's Architect's responsibilities for design.
3. Consult with, advise, assist and make recommendations to Tenant and
Tenant's Architect on all aspects of planning for the construction of
Tenant improvements.
4. Make recommendations to Tenant and Tenant's Architect regarding the
division of work in the Plans and Specifications to facilitate the awarding
of trade contracts, taking into consideration such factors as time of
performance, availability of labor, overlapping trade jurisdictions,
provisions for temporary facilities, etc.
5. Review Plans and Specifications with Tenant's Architect to eliminate areas
of conflict and overlapping in the work to be performed by the various
trade contractors.
6. Recommend for purchase and expedite the procurement of long-lead items to
insure their delivery by the required dates.
7. After receiving final construction drawings, proceed to secure competitive
bids, as follows:
(a) Evaluate all bidders as to their acceptability prior to being asked to
bid each job and advise Tenant of this evaluation. Tenant shall have
the right to select the list of bidders and to select the contract
prices and unit prices for all subcontractors.
-8-
<PAGE>
(b) Invite a minimum of three (3) competitive bids from each of the
following trades:
(1) Architectural Work - including partitions, doors, hardware,
carpentry work (excluding fine millwork), painting, wall
covering, ceiling, sprinkler, plumbing, general condition, etc.
(2) Fine Millwork
(3) All Electrical
(4) All Mechanical
(5) All Floor Coverings
(6) All other trades designated by Tenant or Tenant's Architect as
requiring competitive bids.
(c) Issue complete copies of all construction drawings, with all
specifications necessary for the contractor to give a detailed
statement of cost to complete the project.
(d) Deviation from the three bid procedure may be taken at Tenant's
request.
(e) Compare and check contracts for errors and provide advice and
information to Tenant to assist Tenant in making contract awards.
8. Establish a construction schedule for Tenant's review and reasonable
approval, which approval Tenant shall be deemed to have given if Tenant
does not notify Landlord of any objections within five (5) business days of
Tenant's receipt thereof from Landlord. Closely monitor the schedule
during the construction phase and be responsible for providing all parties
with periodic reports as to the status of the work with respect to the
construction schedule.
9. Coordinate the work of all trades as well as the architects and engineers.
(Landlord in this instance is providing services normally provided by a
general contractor.)
10. Provide a competent project manager to coordinate and provide general
direction of the work and the trade contractors.
11. Establish on-site organization, lines of authority, and procedures for
coordination among Tenant, Tenant's Architect, consultants, and engineers,
Tenant's contractors and subcontractors, Landlord's project contractor and
subcontractors, and Landlord's architect, consultants, and engineers with
respect to the Layout Work and implement such procedures.
12. In cooperation with Tenant's Architect, establish and implement procedures
to be followed for expediting and processing all shop drawings, catalogs,
and other papers and drawings.
-9-
<PAGE>
13. Establish effective programs relating to safety, job site records, labor
relations, EEO, and progress reports.
14. Continually review all construction work to ensure quality of work and
contractual terms, and coordinate with Tenant any changes necessary and/or
requested after construction starts.
15. Review and process all applications for payment by trade contractors and
material suppliers.
16. Make recommendations for and process requests for changes in the work and
maintain records of change orders.
17. Prepare a final punchlist after inspection of the Leased Premises in
conjunction with Tenant's Architect and Tenant.
18. Supervise completion of all punchlist items.
Tenant understands that Landlord may not directly employ personnel to carry
out its duties as required above and may perform its duties through a contractor
or developer selected by Landlord, but there will not be any additional cost or
fee to be paid by Tenant.
-10-
<PAGE>
EXHIBIT "E"
-----------
BUILDING STANDARD SERVICES
Landlord shall furnish the following services to Tenant during the Lease
Term (the "Building Standard Services"):
(a) Common-use restrooms and toilets at the locations provided for in the
Base Building Plans and cold and tempered domestic water (for use in restrooms
and other sink locations), provided such sink locations are properly connected
to the Base Building water supply point as part of Tenant's Layout Work.
(b) Subject to curtailment as required by governmental laws, rules or
mandatory regulations and subject to the design conditions set forth in
paragraph 1(b)(11) of Exhibit "D" attached hereto, central heat and air
-----------
conditioning in season, at 72 to 76 degrees fahrenheit. Such heating and air
conditioning shall be furnished between 7:00 a.m. and 6:00 p.m. on weekdays
(from Monday through Friday, inclusive) and between 8:00 a.m. and 1:00 p.m. on
Saturdays, all exclusive of Holidays, as defined below (the "Building Operating
Hours").
Upon one (1) day's prior notice by Tenant given during Building Operating
Hours, Landlord will furnish such air conditioning and heating at other times
(that is, other than the times specified above), in which case Tenant shall
reimburse Landlord for all costs of such heating and air conditioning during
days and times other than the Building Operating Hours. Any sums due hereunder
from Tenant shall be paid by Tenant to Landlord together with the installment of
Base Rental which is due next following receipt by Tenant of a billing from
Landlord for such sums. Landlord's bill shall be accompanied by appropriate
documentation.
(c) Electric lighting service for all public areas and special service
areas of the Building in the manner and to the extent reasonably deemed by
Landlord to be in keeping with the standards of buildings comparable to the
Building in the metropolitan Madison, Wisconsin area.
(d) Janitor service shall be provided five (5) days per week, exclusive of
Holidays (as hereinbelow defined), in a manner that Landlord reasonably deems to
be consistent with the standards of office buildings comparable to the Building
in the metropolitan Madison, Wisconsin area. In the event any special cleaning
services are required for laboratories, special health care areas or other non-
office space (and which are not required for office space), any incremental cost
of providing such special cleaning services shall be borne solely by Tenant, and
shall be paid by Tenant to Landlord as additional rent.
<PAGE>
(e) Sufficient electrical capacity to operate lights, typewriters,
calculating machines, photocopying machines, personal computers and other
machines of the same low voltage electrical consumption.
Should Tenant's total rated electrical design load exceed the Building
Standard rated electrical design load, or if Tenant's electrical design requires
low voltage or high voltage circuits in excess of Tenant's share of the Building
Standard circuits, Landlord will (at Tenant's expense) install such additional
circuits and associated high voltage panels and/or additional low voltage panels
with associated transformers (which additional circuits, panels and transformers
shall be hereinafter referred to as the "Additional Electrical Equipment"). If
the Additional Electrical Equipment is installed because Tenant's low or high
voltage rated electrical design load exceeds the applicable Building Standard
rated electrical design load, then a meter shall also be added (at Tenant's
expense) to measure the electricity used through the Additional Electrical
Equipment.
The design and installation of any Additional Electrical Equipment (or any
related meter) required by Tenant shall be subject to the prior approval of
Landlord (which approval shall not be unreasonably withheld). All expenses
incurred by Landlord in connection with the review and approval of any
Additional Electrical Equipment shall also be reimbursed to Landlord by Tenant.
Tenant shall also pay on demand the actual metered cost of electricity consumed
through the Additional Electrical Equipment (if applicable), plus any actual
accounting expenses incurred by Landlord in connection with the metering
thereof.
If any of Tenant's electrical equipment requires conditioned air in excess
of Building Standard air conditioning, the same shall be installed by Landlord
(on Tenant's behalf), and Tenant shall pay all design, installation, metering
and operating costs relating thereto.
If Tenant requires that certain areas within Tenant's Leased Premises must
operate in excess of the normal Building Operating Hours (as hereinabove
defined), the electrical service to such areas may be separately circuited and
metered (at Tenant's expense) such that Tenant shall be billed the costs
associated with electricity consumed during hours other than Building Operating
Hours.
(f) All Building Standard fluorescent bulb and ballast replacement in all
areas and all incandescent bulb replacement in public areas, toilet and restroom
areas, and stairwells.
(g) Elevator Service and Parking in accordance with the Base Building
Plans, and subject to reasonable security requirements, 24 hour access to the
Building.
To the extent the services described above require electricity and water
supplied by public utilities, Landlord's covenants thereunder shall only impose
on Landlord the obligation to use its reasonable efforts to cause the applicable
public utilities to furnish same. Except for deliberate and willful acts of
Landlord, failure by Landlord to furnish the services described herein, or any
cessation thereof, shall not render Landlord liable for damages to either person
or property, nor be construed as an eviction of Tenant, nor, except to the
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<PAGE>
extent provided in Article 23 of the Lease, work an abatement of rent, nor
relieve Tenant from fulfillment of any covenant or agreement hereof. In
addition to the foregoing, should any of the equipment or machinery, for any
cause, fail to operate, or function properly, except as provided in Article 23
of the Lease, Tenant shall have no claim for rebate of rent or damages on
account of an interruption in service occasioned thereby or resulting therefrom;
unless Landlord fails to use reasonable efforts to promptly repair or replace if
necessary, said equipment or machinery and to restore said services during
normal business hours.
The following dates shall constitute "Holidays" as that term is used in the
Lease: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, Christmas, and any other holiday generally recognized as such by landlords
of office space in the Madison, Wisconsin office market, as determined by
Landlord in good faith. If in the case of any specific holiday mentioned in the
preceding sentence, a different day shall be observed than the respective day
mentioned, then that day which constitutes the day observed by national banks in
Madison, Wisconsin on account of said holiday shall constitute the Holiday under
the Lease.
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<PAGE>
EXHIBIT 10(DD)
--------------
DEVELOPMENT AGREEMENT, DATED JUNE 18, 1996,
-------------------------------------------
BETWEEN FUND VIII AND IX ASSOCIATES
-----------------------------------
AND ADEVCO CORPORATION
----------------------
<PAGE>
DEVELOPMENT AGREEMENT
BETWEEN
FUND VIII AND FUND IX ASSOCIATES,
Owner
AND
ADEVCO CORPORATION,
Manager
June 18, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
- ----
<C> <S> <C>
ARTICLE 1. DEFINITIONS.................................... 1
ARTICLE 2. ENGAGEMENT OF THE MANAGER...................... 5
2.1 Engagement..................................... 5
2.2 Relationship................................... 5
ARTICLE 3. TERM OF AGREEMENT.............................. 5
ARTICLE 4 RESPONSIBILITIES OF THE MANAGER................ 6
4.1 General Responsibility......................... 6
4.2 Development Functions.......................... 6
4.3 Completion..................................... 11
4.4 Employees...................................... 11
4.5 Manager's Costs................................ 11
ARTICLE 5.. DEVELOPMENT BUDGET............................. 12
5.1 Implementation of Development Budget........... 12
5.2 Revision of Development Budget................. 12
5.3 Emergencies.................................... 12
5.4 Reduction in Fees.............................. 13
ARTICLE 6 AUTHORITY OF THE MANAGER....................... 14
6.1 General Authority.............................. 14
6.2 Execution of Documents and Agreements.......... 14
ARTICLE 7 ACCOUNTING AND REPORTS......................... 15
7.1 Books of Account............................... 15
7.2 Monthly Reports................................ 15
7.3 Construction Draw Reports...................... 16
7.4 Annual Development and Financial Statements.... 16
7.5 Examination of Books and Records............... 17
ARTICLE 8. BANKING........................................ 17
8.1 Separate Accounts.............................. 17
8.2 The Owner's Duty to Provide Funds.............. 17
8.3 Investment of Owner's Funds.................... 18
ARTICLE 9 STANDARD OF CARE; LIABILITY; INDEMNITY;
CONFIDENTIALITY................................ 18
9.1 Standard of Care; Manager's Liability.......... 18
9.2 Indemnity of Owner............................. 19
9.3 Indemnity of Manager........................... 19
9.4 Survival of Indemnities........................ 19
9.5 No Obligation to Third Parties................. 19
9.6 Nature of the Manager's Duties and
Responsibilities............................... 19
9.7 Ownership of Information and Materials......... 20
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 10 INSURANCE 20
10.1 Insurance Requirements......................... 20
10.2 Owner's Insurance Primary Coverage............. 21
10.3 Waiver of Subrogation.......................... 21
ARTICLE 11 COMPENSATION OF THE MANAGER.................... 21
11.1 Fees - General................................. 21
11.2 Development Fee................................ 21
11.3 Cellular One Work Fee.......................... 21
11.4 Small Tenant Work Fee.......................... 22
11.5 Small Tenant Leasing Fee....................... 22
11.6 Disbursements to the Manager................... 22
ARTICLE 12 MANAGER AS LEASING AGENT....................... 22
12.1 Nonexclusive Engagement........................ 22
12.2 Manager's Leasing Duties....................... 22
12.3 Small Tenant Leasing Fee....................... 23
ARTICLE 13 REIMBURSEMENT OF ADVANCES, COSTS AND EXPENSES.. 25
13.1 Reimbursement of Advances...................... 25
13.2 Reimbursement of Costs and Expenses............ 25
ARTICLE 14 DEFAULT AND TERMINATION........................ 26
14.1 Default by Manager............................. 26
14.2 Additional Terminating Event................... 27
14.3 Default by Owner............................... 27
14.4 Obligation for Fees Upon Termination........... 27
14.5 Actions Upon Termination....................... 28
ARTICLE 15 OTHER ACTIVITIES OF THE MANAGER................ 28
ARTICLE 16 NATURE OF AGREEMENT............................ 28
ARTICLE 17 GENERAL PROVISIONS............................. 29
17.1 Notices........................................ 29
17.2 Modifications.................................. 30
17.3 Binding Effect................................. 30
17.4 Duplicate Originals............................ 30
17.5 Construction................................... 30
17.6 Entire Agreement............................... 30
17.7 Assignment..................................... 30
17.8 Authorized Representatives..................... 30
17.9 Terminology.................................... 31
17.10 Time of Essence................................ 31
</TABLE>
-ii-
<PAGE>
Exhibits:
- --------
Exhibit "A" Description or Site Plan of Land
Exhibit "B" Development Budget
Exhibit "C" Insurance Requirements
Exhibit "D" Reimbursable Expenditures Relating to Project
Exhibit "E" Form of Estoppel Certificate
-iii-
<PAGE>
DEVELOPMENT AGREEMENT
---------------------
THIS AGREEMENT, made and entered into this 18 day of June, 1996, by and
----
between FUND VIII AND FUND IX ASSOCIATES, a Georgia general partnership
(hereinafter referred to as the "Owner"), and ADEVCO CORPORATION, a Georgia
corporation (hereinafter referred to as the "Manager").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Owner owns or has the contractual right to acquire that
certain parcel of land located in Madison, Dane County, Wisconsin, on which the
Owner proposes to develop and construct an office building with related parking,
landscaping and other site work pursuant to plans and specifications prepared
and to be prepared by Strang, Inc.; and
WHEREAS, the Owner desires to engage the Manager as an independent
contractor, upon the terms and conditions set forth herein, to supervise and to
manage the development and construction of such building and other improvements
and to lease vacant space in such building; and
WHEREAS, the Manager desires to perform such services for the Owner in
consideration of the compensation set forth herein.
NOW, THEREFORE, for and in consideration of the premises, the sum of Ten
Dollars ($10.00) in hand paid by each party to the other, and the mutual
promises, obligations and agreements contained herein, the Owner and the
Manager, intending to be, and being, legally bound, do hereby agree as follows:
ARTICLE 1
---------
DEFINITIONS
-----------
For purposes of this Agreement, each of the following terms shall, when
used herein with an initial capital letter, have the meaning hereinbelow set
forth.
Agreement. The term "Agreement" means this Development Agreement, together
---------
with all amendments hereto and all exhibits attached hereto.
Agreement to Lease. The term "Agreement to Lease" means the Agreement to
------------------
Lease between Owner and Cellular One dated June ___, 1996.
1
<PAGE>
Architect. The term "Architect" means the architectural firm of Strang,
---------
Inc., and any other firm employed by the Owner as an architect with respect to
the Project.
Architect's Agreement. The term "Architect's Agreement" means the
---------------------
agreement(s) between the Owner and the Architect under which the Architect has
been or shall be engaged to prepare architectural designs, plans, drawings and
specifications for the Project and to render other services in connection with
the design and construction of the Project. The Architect's Agreement is
incorporated herein by this reference.
Building. The term "Building" means a first-class, multiple tenant four-
--------
story office building, containing approximately 106,238 gross square feet and
96,750 net rentable square feet, which the Owner intends to develop and
construct upon the Land.
Cellular One. The term "Cellular One" means Westel-Milwaukee
------------
Company, Inc., d/b/a Cellular One.
Cellular One Lease. The term "Cellular One Lease" means the lease
------------------
agreement between the Owner and Cellular One to be entered into pursuant to the
Agreement to Lease.
Cellular One Work Fee. The term "Cellular One Work Fee" means the fee to
---------------------
be paid to the Manager by the Owner as provided in Section 11.3 hereof.
Completion Date. The term "Completion Date" means the first day on which
---------------
all of the following have occurred: (i) the construction and equipping of the
Project has been completed in accordance with Architect's plans and
specifications (inclusive of landscaping plans, to the extent that landscaping
can feasibly be installed due to the season), as evidenced by a certificate to
such effect from the Architect, (ii) the Tenant Improvements for the space in
the Building to be occupied by Cellular One have been completed in accordance
with the working drawings and specifications for such space, as evidenced by a
certificate to such effect from the Architect, (iii) permanent certificates of
occupancy or their equivalent have been issued by the appropriate governmental
authority with respect to the base building and with respect to the space in the
Building to be occupied by Cellular One, (iv) the term of the Cellular One Lease
has commenced, (v) Cellular One has executed and delivered the Cellular One
Lease, and (vi) Cellular One has executed and delivered to the "Landlord" under
the Cellular One Lease an estoppel certificate substantially in the form
attached hereto as Exhibit "E" and by reference made a part hereof.
-----------
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<PAGE>
Construction Agreement. The term "Construction Agreement" means,
----------------------
collectively, the construction contract between the Owner and the Contractor
with respect to the Project and such other construction or employment agreements
as may be hereafter entered into by the Owner and a general contractor or
special purpose contractor with respect to the performance of work or the
providing of services to the Project. The Construction Agreement is
incorporated herein by this reference.
Contractor. The term "Contractor" means, collectively, Kraemer Brothers,
----------
Inc. and all other firms employed by the Owner as a general contractor or as a
special purpose contractor with respect to the Project; and singly any such
general or special purpose contractor.
Development Budget. The term "Development Budget" means the budget, a copy
------------------
of which is attached hereto and made a part hereof as Exhibit "B", which sets
-----------
forth the Manager's best estimate of all expenses to be incurred with respect to
the acquisition of the Land, the planning, design, development, construction and
completion of the Project, and the Tenant Improvements for Cellular One.
Development Fee. The term "Development Fee" means the fee to be paid to
---------------
the Manager by the Owner as provided in Section 11.2 hereof.
Development Functions. The term "Development Functions" means those
---------------------
functions of the Manager set forth in Section 4.2 of this Agreement.
Development Period. The term "Development Period" means the period
------------------
commencing on the date of this Agreement and terminating on the date which is
three (3) months after the Completion Date.
Event of Default. The term "Event of Default" means any one or more of the
----------------
events described in Section 14.1 of this Agreement.
Kraxberger. The term "Kraxberger" means David M. Kraxberger, an individual
----------
residing in Cobb County, Georgia.
Land. The term "Land" means that certain parcel of land located in
----
Madison, Dane County, Wisconsin, as more particularly shown or described on
Exhibit "A" attached hereto and by this reference made a part hereof.
- -----------
Manager. The term "Manager" means Adevco Corporation, a Georgia
-------
corporation.
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<PAGE>
Monthly Report. The term "Monthly Report" means the report to be prepared
--------------
by the Manager and submitted to the Owner on a monthly basis as provided in
Section 7.2 hereof.
Owner. The term "Owner" means Fund VIII and Fund IX Associates, a Georgia
-----
general partnership having Wells Real Estate Fund VIII, L.P., a Georgia limited
partnership, and Wells Real Estate Fund IX, L.P., a Georgia limited partnership,
as its only general partners.
Project. The term "Project" means the Land, the Building, and the Site
-------
Improvements, collectively.
Site Improvements. The term "Site Improvements" means the surface level
-----------------
parking facilities, sufficient to accommodate approximately 398 automobiles, any
and all on and off-site road improvements, walkways, complete utilities and
drainage systems, landscaping work, exterior lighting, ground-mounted signs and
other site improvements which the Owner intends to develop and construct upon
the Land.
Small Tenant Leasing Fee. The term "Small Tenant Leasing Fee" means the
------------------------
fee to be paid to the Manager by the Owner as provided in Sections 11.5 and 12.3
hereof.
Small Tenant Work Fee. The term "Small Tenant Work Fee" means the fee to
---------------------
be paid to the Manager by the Owner as provided in Section 11.3 hereof.
Speculative Space. The term "Speculative Space" means the rentable area of
-----------------
the Building which is not initially leased by Cellular One.
Tenant Improvements. The term "Tenant Improvements" means all improvements
-------------------
constructed on or within the Project for use or operation by tenants under or
pursuant to written leases or occupancy agreements, including without limitation
the "Layout Work" (as defined in the Cellular One Lease) for Cellular One and
other tenant improvements required to be installed or constructed by the
"Landlord" under the Cellular One Lease or the Agreement to Lease.
Tenant Improvements Completion Date. The term "Tenant Improvements
-----------------------------------
Completion Date" means with respect to the Tenant Improvements for each tenant
of the Project, the first day in which the Tenant Improvements in such tenant's
space have been completed in accordance with the plans and specifications for
such Tenant Improvements, all necessary certificates of occupancy or their
equivalent have been issued by the applicable governmental authority with
respect to such space, and such tenant has accepted its premises (whether or not
it has taken possession of
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<PAGE>
its space) as evidenced by a customary estoppel certificate executed by such
tenant.
ARTICLE 2
---------
ENGAGEMENT OF THE MANAGER
-------------------------
2.1 Engagement. The Owner hereby engages the Manager as the exclusive
----------
development manager of the Project to supervise, to manage, and to coordinate
the planning, design, construction, and completion of the Project, all in
accordance with the terms, conditions and limitations herein set forth. The
Manager hereby accepts such engagement and hereby agrees to diligently use its
best efforts in the performance of its duties and the Development Functions
hereunder, which performance in all respects and at all times shall be carried
out to the same extent and with the same degree of care and quality as the
Manager would exercise in the conduct of its own affairs if the Manager were the
owner of the Project. The Manager agrees to apply prudent and reasonable
business practices in the performance of its duties hereunder.
2.2 Relationship. With respect to the Owner, the Manager shall at all
------------
times be an independent contractor. No provision hereof shall be construed to
constitute the Manager or any of its officers or employees as an employee or
employees of the Owner nor shall any provision of this Agreement be construed as
creating a partnership or joint venture between the Manager and the Owner.
Neither the Owner nor the Manager shall have the power to bind the other party
except pursuant to the terms of this Agreement. The Manager acknowledges and
agrees that it shall act as a fiduciary hereunder with respect to the Owner and
that, with respect to all of the services to be rendered by the Manager to the
Owner pursuant to this Agreement, the Manager shall have the duty to act at all
times in the best interests of the Owner in rendering such services. In the
event the Owner disapproves of any of the general policies and procedures of the
Manager with respect to the Project and shall have so notified the Manager, the
Manager shall conform its general policies and procedures with respect to the
Project to those requested by the Owner insofar as such policies may be
consistent with the terms and provisions of this Agreement.
ARTICLE 3
---------
TERM OF AGREEMENT
-----------------
The engagement of the Manager hereunder shall commence on the date on which
this Agreement is executed and shall end on the date which is three (3) months
from and after the Completion Date; provided, however, if any remedial work to
be performed by the Contractor following the completion of the Project has not
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<PAGE>
been completed or if the Manager has commenced and is diligently prosecuting,
but has not completed, any Tenant Improvements, the term of this Agreement shall
be extended until the date on which any remedial work required to be performed
by the Contractor following completion of the Project shall be so performed and
accepted by the Owner, or until the completion of such Tenant Improvements, as
the case may be.
ARTICLE 4
---------
RESPONSIBILITIES OF THE MANAGER
-------------------------------
4.1 General Responsibility. The Manager's general responsibility
----------------------
hereunder as the Owner's development manager shall be to manage, to supervise,
and to coordinate the planning, design, construction, and completion of the
Project.
4.2 Development Functions. In discharging its general responsibility
---------------------
hereunder, the Manager shall perform and discharge the following specific
responsibilities with respect to the Project (herein collectively referred to as
the "Development Functions"):
4.2.1 The Manager shall negotiate and submit to the Owner, for the
Owner's approval and execution, the Architect's Agreement and the
Construction Agreement.
4.2.2 The Manager, in the name of, and on behalf of, the Owner,
shall maintain and continue the engagement of Strang, Inc., as the
Architect, and Kraemer Brothers, Inc., as a Contractor, for the
compensation and on the terms provided for in the Architect's Agreement and
the Construction Agreement, respectively; and the Manager shall supervise,
administer and coordinate the performance of all work done by the Architect
and the Contractor. The Manager shall negotiate, on terms consistent with
and within the limitations of the Development Budget, and submit to the
Owner for the Owner's approval, contracts with such other design and
engineering professionals and consultants as the Manager deems appropriate
for the design and construction of the Project. Subject to the provisions
of Section 5.2 hereof, the employment of such other design and engineering
professionals on terms not consistent with and within the limitations of
the Development Budget shall be only at the direction of the Owner.
4.2.3 The Manager shall coordinate the acquisition by the Owner of
the Land.
4.2.4 The Manager shall implement the Development Budget as
provided herein.
-6-
<PAGE>
4.2.5 In implementing the Development Budget and in otherwise
discharging its duties and responsibilities hereunder, the Manager shall
negotiate with, and submit to the Owner (for execution by the Owner)
contracts with, supervise the performance of, and review and approve or
disapprove applications for payment of the fees, charges, and expenses of,
such architects, engineers, planners, designers, consultants, general
contractors, subcontractors, vendors, and other design and construction
professionals, consultants, and suppliers as the Manager deems necessary or
appropriate to develop the Project in accordance with and subject to the
limitations of the Development Budget. Such fees, charges and expenses
shall be borne by the Owner as contemplated in the Development Budget.
Subject to the provisions of Section 5.2 hereof, the employment,
supervision and payment of such additional architects, engineers, planners,
designers, consultants, general contractors, subcontractors, vendors, and
other design and construction professionals, consultants, and suppliers on
terms not consistent with or within the limitations of the Development
Budget shall be only at the direction of the Owner.
4.2.6 The Manager shall arrange for a preliminary site plan to be
prepared showing the location within the Land of the Building and the Site
Improvements and shall submit such site plan to the Owner for approval by
the Owner. The cost of such site plan shall be borne by the Owner as
contemplated in the Development Budget.
4.2.7 The Manager shall arrange to be prepared such survey and
engineering plans and drawings as are from time to time requested by the
Owner. The costs of such survey and engineering plans shall be borne by
the Owner as contemplated in the Development Budget.
4.2.8 The Manager shall administer and oversee the selection by the
Contractor of major subcontractors and others as appropriate for
construction of the Project and review bids for acceptability from
subcontractors.
4.2.9 The Manager shall review all applicable building codes,
environmental, zoning and land use laws and other applicable local, state
and federal laws, regulations and ordinances concerning the development,
use and operation of the Project or any portion thereof. The Manager shall
make application for and seek to obtain and keep in full force and effect
all necessary governmental approvals and permits, and shall endeavor to
perform such acts as shall be reasonably necessary to effect compliance by
the Owner with all laws, rules, ordinances, statutes, and regulations of
-7-
<PAGE>
any governmental authority applicable to the Project. Upon receipt of the
Owner's approval, the Manager shall seek to obtain any permits, variances
or rezoning of the Land or any portion thereof, as are necessary or
appropriate to cause the Project to be in compliance with all such codes,
laws, regulations and ordinances. All costs required to be paid to third
parties in order to obtain such permits, variances or rezonings shall be
borne by the Owner as contemplated in the Development Budget.
4.2.10 The Manager shall review all applicable private
restrictions, covenants and easement agreements concerning the development,
use and operation of the Project or any portion thereof. The Manager shall
endeavor to perform such acts as shall be reasonably necessary to effect
compliance by the Owner with all such restrictions, covenants and
easements.
4.2.11 The Manager shall negotiate and submit to the Owner for the
Owner's approval all contracts for, or otherwise arrange for the delivery
of, and pay all charges imposed on the Owner for, all utilities required
for the development, construction, and operation of the Project, including,
without limitation, water, electricity, telephone, storm sewer, and
sanitary sewer services.
4.2.12 The Manager shall coordinate the services of such
accountants and attorneys as may be engaged by the Owner upon such terms as
may be approved by the Owner and utilize such accounting and disbursement
systems as may be determined by the Owner.
4.2.13 The Manager shall review and make recommendations to the
Owner regarding the Owner's insurance program so that the Owner shall
obtain and keep in force, at the Owner's expense as contemplated in the
Development Budget, such policies of insurance, including, but not limited
to, public liability, all-risk, and builder's risk, in such amounts and
with such carriers as shall be prudent with respect to the Project.
4.2.14 The Manager shall maintain complete and accurate records
reflecting the progress of the Manager's implementation of the Development
Budget, which records shall include all contracts, purchase orders,
disbursement requests, bids, and proposals of contractors, suppliers, and
vendors, and such other records, plans and information as the Owner may
from time to time request or as the Manager shall deem appropriate to
maintain in discharging its duties and responsibilities hereunder.
-8-
<PAGE>
4.2.15 The Manager shall inspect the Project at regular intervals
so as to be kept informed as to the stage of development and the condition
of the Project.
4.2.16 Upon the Owner's prior written authorization, the Manager
shall execute for and on behalf of, and in the name of, the Owner any
applications, requests and other documents which the Manager deems
necessary or appropriate for execution by the Owner in connection with the
development or construction of the Project.
4.2.17 The Manager shall examine the contents of all applications
for payments submitted under the Architect's Agreement or any Construction
Agreement, verify the contents of such applications and prepare, execute
and deliver, or cause to be prepared, executed and delivered such
certificates and other documents as may be required by such Agreements and
shall review and approve all disbursements made by or on behalf of the
Owner under the Architect's Agreement and under any Construction Agreement,
all in accordance with the Development Budget as it may from time to time
be revised pursuant to Section 5.2 hereof. The Manager shall process all
such applications for payments and any other invoices and charges as
expeditiously as possible to avoid all penalties and any excess interest
and to take advantage, wherever possible and desirable, of vendor
discounts. The Manager shall also make recommendations to the Owner with
respect to modifications, clarifications and change orders necessary or
desirable under any Construction Agreement; and the Manager shall also
review and recommend for approval or disapproval by the Owner, as
appropriate, change orders under any Construction Agreement, all in
accordance with the Development Budget as it may from time to time be
revised pursuant to Section 5.2 hereof.
4.2.18 The Manager shall coordinate, review, administer, manage and
oversee the work, activities and performance of the Architect under the
Architect's Agreement and of the Contractor under the Construction
Agreement. Such activities by the Manager shall include, without
limitation, reviewing, monitoring and coordinating all construction
scheduling to ensure the orderly process of construction and completion
thereof in the manner and within the time periods required by the Agreement
to Lease and the Cellular One Lease, and reviewing and verifying all
payment requests from the Architect and the Contractor. The Manager shall
serve as the Owner's representative in all discussions, negotiations, and
dealings with the Architect and the Contractor. The Manager shall
periodically (but no less often than weekly) advise the Owner of the status
of the Project and of the performance by the Architect and by
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<PAGE>
the Contractor of their respective duties and obligations with respect to
the Project. The Manager shall also assist and advise the Owner with
respect to the performance and enforcement by the Owner of its duties and
rights under the Architect's Agreement and the Construction Agreement. The
Manager shall coordinate with the Architect and the Contractor an orderly
and expeditious transition from the construction stage of the Project to
the operating and leasing stage of the Project and, in connection
therewith, the Manager shall expedite and supervise the completion of any
remedial work that may be required to be performed by the Contractor
following the completion of the Project.
4.2.19 The Manager shall cooperate with the Owner's inspecting
engineer, if any, engaged for the purpose of reviewing the status of the
work.
4.2.20 The Manager shall purchase, to the extent the same are not
provided under the Construction Agreement, all supplies, materials, and
equipment required in connection with the development of the Project, and
the cost of same shall be borne by the Owner as contemplated in the
Development Budget.
4.2.21 The Manager shall coordinate, review, administer, manage and
oversee the work and activities relating to, and the performance of, the
Tenant Improvements to be constructed and installed by the "Landlord" under
the Agreement to Lease and the Cellular One Lease, and at the request of
the Owner, the Manager shall coordinate, review, administer, manage and
oversee the work and activities relating to, and the performance of, any
Tenant Improvements to be constructed and installed by the "Landlord" under
any other lease of Speculative Space which is entered into during the
Development Period.
4.2.22 The Manager shall deliver to the Owner the originals of all
permits, licenses, guaranties, warranties, bills of sale and other
contracts, agreements, change orders or commitments obtained or received by
the Manager for the account or benefit of the Owner, it being understood
that the Owner, upon the Owner's approval thereof, will execute all such
contracts, agreements, change orders and documents, and that the Manager
will not, under any circumstances, execute contracts, agreements, change
orders or documents on behalf of the Owner except as specifically provided
otherwise in this Agreement or as otherwise expressly authorized in writing
by the Owner.
4.2.23 The Manager shall perform and discharge all other
obligations of the Manager under this Agreement.
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<PAGE>
4.3 Completion. The Manager hereby agrees to diligently use its best
----------
efforts and shall devote sufficient time and personnel to cause the development
of the Project to be completed in compliance with the time parameters
established therefor under the Agreement to Lease and the Cellular One Lease,
and in accordance with the Development Budget as it may from time to time be
revised pursuant to Section 5.2 hereof.
4.4 Employees. The Manager shall have in its employ at all times a
---------
sufficient number of capable employees to enable the Manager to perform its
duties hereunder. All persons, other than independent contractors, employed by
the Manager in the performance of its responsibilities hereunder shall be
exclusively controlled by and shall be the employees of the Manager and not of
the Owner, and the Owner shall have no liability, responsibility or authority
with respect thereto. The Manager agrees that the Manager shall cause
Kraxberger to be personally involved in the performance of the Development
Functions and the other obligations and undertakings of the Manager hereunder.
4.5 Manager's Costs. Notwithstanding anything contained in any other
---------------
provision of this Agreement to the contrary, the following costs and expenses
shall be borne solely by the Manager and shall not be borne by the Owner:
(a) Cost of gross salary and wages, payroll taxes, insurance,
workers' compensation and other benefits of Kraxberger and any other
employees of the Manager;
(b) Cost of forms, papers, ledgers and other supplies and equipment
used in the Manager's office;
(c) Cost of electronic data processing or computer services, or any
pro rata charge for data processing or computer services provided by
computer service companies, which the Manager may elect to incur in the
performance of the Development Functions;
(d) Cost of office equipment acquired by the Manager to enable it
to perform its duties hereunder;
(e) Cost of advances made to employees of the Manager and cost of
travel and lodging by the Manager's employees and agents, including
Kraxberger; and
(f) Cost attributable to losses, including any legal fees relating
thereto, arising from negligence, fraud or willful act or omission on the
part of the Manager or any of the Manager's officers, directors, employees
or agents, except to the extent such costs are to be borne by the Owner
pursuant to Section 9.3 hereof.
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<PAGE>
ARTICLE 5
---------
DEVELOPMENT BUDGET
------------------
5.1 Implementation of Development Budget. The Owner hereby approves the
------------------------------------
Development Budget and the Manager is hereby authorized and directed to
implement the Development Budget pursuant to this Agreement. The Manager may,
without the need for any further approval whatsoever by the Owner, make any
expenditures and incur any obligations provided for in the Development Budget,
as it may be revised from time to time as provided herein. The Manager shall
use prudence and diligence and shall employ its best efforts to ensure that the
actual costs incurred for each category or line item of expense as set forth in
the Development Budget shall not exceed such category or line item in the
Development Budget. The Manager shall advise the Owner promptly if it appears
that costs in any category or line item specified in the Development Budget will
exceed the amount budgeted therefor. All expenses shall be charged to the
proper category or line item in the Development Budget, and no expenses may be
classified or reclassified for the purpose of avoiding an excess in the budgeted
amount of a category or line item without the Owner's prior written approval.
The Manager shall secure the Owner's prior written approval before incurring and
paying any cost which will result in aggregate expenditures under any one
category or line item in the Development Budget exceeding the amount budgeted
therefor.
5.2 Revision of Development Budget. If the Manager at any time
------------------------------
determines that the Development Budget is not compatible with the then-
prevailing status of the Project and does not adequately provide for the
completion of the Project, the Manager shall promptly prepare and submit to the
Owner an appropriate revision of the Development Budget. Any such revision
shall require the approval of the Owner; provided, however, that any such
revision shall be considered approved on the fourteenth (14th) day following its
delivery to the Owner, unless the Owner shall, within such fourteen (14) day
period, notify the Manager in writing of its disapproval of the proposed
revision and specify in such notice the items to which it objects. In the event
of any such objection, the Manager and the Owner shall consult and endeavor to
reconcile their differences.
5.3 Emergencies. Notwithstanding any limitations herein provided, the
-----------
Manager may spend funds or incur expenses on behalf of the Owner in
circumstances which the Manager reasonably and in good faith believes constitute
an emergency requiring prompt action to avert, or reduce the risk of, damage to
persons or property. The Manager shall, in any case, notify the Owner as soon
as practicable of the existence of such emergency and of the action taken by the
Manager with respect thereto.
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<PAGE>
5.4 Reduction in Fees. In the event that the total of all costs and
-----------------
expenses actually incurred by the Owner with respect to the acquisition of the
Land and the planning, design, development, construction and completion of the
Project, the Tenant Improvements for Cellular One under the Agreement to Lease
and the Cellular One Lease (including costs in all categories or line items
specified in the Development Budget, but expressly excluding costs for the
specific line items marked with a double asterisk in the Development Budget, and
net of amounts reimbursed to the Owner by Cellular One with respect to Tenant
Improvements for such tenant) shall exceed $9,891,919.00, the amount of the fees
payable to the Manager under Sections 11.2 through 11.5 hereof shall be reduced
by the amount of such excess, with any reductions to be applied to such fees in
the following order of priority:
(a) first, to unpaid portions of the Development Fee until the remaining
Development Fee is reduced to zero;
(b) then to unpaid portions of the Cellular One Work Fee until the
remaining Cellular One Work Fee is reduced to zero;
(c) then to any portion of the Development Fee and the Cellular One Work
Fee which has theretofore been paid to the Manager until all such
fees have been reduced to zero, and the Manager hereby agrees to
reimburse to the Owner an amount of such fees theretofore paid to
the Manager as shall equal the amount of such reduction;
(d) then to unpaid portions of the Small Tenant Work Fee until the
remaining Small Tenant Work Fee is reduced to zero;
(e) then to the unpaid portions of the Small Tenant Leasing Fee until
the remaining Small Tenant Leasing Fee is reduced to zero; and
(f) then to any portion of the Small Tenant Work Fee and Small Tenant
Leasing Fee which has theretofore been paid to the Manager until all
such fees have been reduced to zero, and the Manager hereby agrees
to reimburse to the Owner an amount of such fees theretofore paid to
the Manager as shall equal the amount of such reduction.
The aforesaid reductions in the fees payable to the Manager under Sections 11.2
through 11.5 hereof shall be effected regardless of whether or not appropriate
revisions of the Development Budget
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<PAGE>
are approved by the Owner and regardless of whether or not any increases in
costs and expenses incurred by the Owner with respect to the acquisition of the
Land or the planning, design, development, construction and completion of the
Project and the Tenant Improvements for Cellular One are approved by the Owner;
provided, however, in the event such costs and expenses shall increase as a
- -------- -------
result of a change by the Owner in the scope of the work comprising the Project,
the incremental costs due to the change in the scope of the work shall not cause
a reduction in the fees payable to the Manager under Sections 11.2 through 11.5
hereof. The Owner shall not be obligated to accept or agree to changes in the
scope of the work comprising the Project in order to reduce the costs and
expenses with respect thereto. The Owner and the Manager agree that appropriate
reductions in the fees payable to the Manager (and reimbursements thereof to the
Owner, if applicable) shall be effected as and when it is reasonably determined
by the Owner that the costs and expenses under any category or line item in the
Development Budget shall exceed the amount originally budgeted therefor or that
costs and expenses will be incurred that are not originally budgeted under the
Development Budget; provided, however, the Owner and the Manager shall make
reasonable allocations of the "contingency" category or line item in the
Development Budget to other categories or line items prior to effecting a
reduction in the fees payable to the Manager, so long as a reasonable reserve is
maintained in the "contingency" category or line item to cover future
contingencies. Promptly following the Completion Date, the Owner and the
Manager shall make any final adjustments and payments between them to give
effect to the agreements set forth in this Section 5.4.
ARTICLE 6
---------
AUTHORITY OF THE MANAGER
------------------------
6.1 General Authority. The Manager shall have, and is hereby granted by
-----------------
the Owner, full and complete power, authority, and discretion to act for, and in
the name, place, and stead of, the Owner in carrying out and discharging the
responsibilities and obligations of the Manager under this Agreement (including,
without limitation, all of the responsibilities imposed upon the Manager under
Article 4 hereof); provided, however, that the Manager shall have no right or
authority, express or implied, to commit or otherwise obligate the Owner in any
manner whatsoever except to the extent specifically provided herein or
specifically authorized in writing by the Owner.
6.2 Execution of Documents and Agreements. Only when specifically
-------------------------------------
authorized by the Owner in a writing to the Manager, the Manager may, at the
Manager's election, execute any documents, agreements, or other instruments on
behalf of the Owner as
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<PAGE>
follows, it being acknowledged that the Manager shall be entitled to the
indemnification by the Owner for any obligations or liabilities thereunder and
shall not thereby incur any liability or obligation to any third party
thereunder:
FUND VIII AND FUND IX ASSOCIATES,
a Georgia general partnership
By: Adevco Corporation,
a Georgia corporation,
as Manager
By:___________________________
Title:________________________
(CORPORATE SEAL)
ARTICLE 7
---------
ACCOUNTING AND REPORTS
----------------------
7.1 Books of Account. The Manager shall maintain or cause to be
----------------
maintained true and accurate books of account reflecting the planning, design,
construction, and completion of the Project. All entries to such books of
account shall be supported by sufficient documentation to permit the Owner and
its auditors to ascertain that said entries are properly and accurately
recorded. Such books of account shall be located at the Manager's principal
metropolitan Atlanta, Georgia office and shall be maintained in accordance with
the Manager's present cash method of accounting, unless otherwise directed or
approved by the Owner. The Manager shall ensure such control over accounting
and financial transactions as is reasonably required to protect the Owner's
assets from theft, error or fraudulent activity on the part of the Manager, the
Manager's employees or agents.
7.2 Monthly Reports. Promptly following the end of each calendar month,
---------------
the Manager shall prepare a report with respect to the Project (hereinafter
referred to as the "Monthly Report") and shall cause the same to be delivered to
the Owner and the Owner's inspecting engineer, if any. Each Monthly Report
shall be subdivided into categories specified in the Development Budget and
shall contain the following information respecting the Project:
(a) The draw request for the month covered by the Monthly Report,
including:
(i) each draw request letter;
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<PAGE>
(ii) each certificate of the Architect;
(iii) each application and certificate for payment of the
Contractor; and
(iv) any other invoices covered in the draw request.
(b) The costs incurred under the Construction Contract as of the
date of the Monthly Report.
(c) All costs incurred but not paid as of the date of such Monthly
Report.
(d) A comparison of the amount of actual costs incurred as of the
date of the Monthly Report to the budgeted costs as of such date, shown on
a line-item basis using the same categories or line items set forth in the
Development Budget.
(e) Photographs of the Project depicting the current status of
construction.
(f) A report with respect to the progress of construction,
including information as to whether the commencement, milestone and
completion dates in the Agreement to Lease and the Cellular One Lease are
being achieved. The Manager shall identify in such report potential
variances between the completion dates required in the Agreement to Lease
and the Cellular One Lease and the probable completion dates and shall make
recommendations as to adjustments necessary to meet the required completion
dates.
The Manager shall furnish the Owner with a certificate from Kraxberger in
respect of each such Monthly Report certifying that such Monthly Report is
accurate, true and complete in all respects.
7.3 Construction Draw Reports. The Manager shall cause to be delivered
-------------------------
to the Owner, at the Owner's expense, promptly after they are prepared, copies
of each construction draw request under any construction loan obtained by the
Owner with respect to the Project.
7.4 Annual Development and Financial Statements. Within thirty (30)
-------------------------------------------
days after the end of each fiscal year of the Owner during the term of this
Agreement, the Manager shall cause to be prepared and delivered to the Owner, at
the Owner's expense, a report which is a summary of the previous Monthly Reports
for such fiscal year which have been tendered to the Owner pursuant
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<PAGE>
to Section 7.2 hereof. In addition, within sixty (60) days after the end of
each fiscal year of the Owner during the term of this Agreement, the Manager
shall cause to be prepared and delivered to the Owner, at the Owner's expense,
unaudited financial statements reflecting all receipts and disbursements
collected, received, or made by the Manager with respect to the development and
the construction of the Project for such fiscal year. The Manager shall also
cause to be prepared and delivered to the Owner such other reports and
information with respect to the development and construction of the Project for
each fiscal year as the Owner shall reasonably request.
7.5 Examination of Books and Records. The Owner, at its expense, shall
--------------------------------
have the right at all reasonable times during normal business hours and upon at
least twenty-four (24) hours advance notice, to audit, to examine, and to make
copies of or extracts from the books of account and records maintained by the
Manager with respect to the Project. If the Owner shall notify the Manager of
either weaknesses in internal control or errors in record keeping, the Manager
shall correct such weaknesses and errors as soon as possible after they are
disclosed to the Manager. The Manager shall notify the Owner in writing of the
actions taken to correct such weaknesses and errors.
ARTICLE 8
---------
BANKING
-------
8.1 Separate Accounts. It is contemplated that the Owner will make
-----------------
disbursements with respect to the development and construction of the Project
directly to the Architect and the Contractor. Nevertheless, all disbursements
and other funds of the Owner which may be received by the Manager hereunder with
respect to the development or construction of the Project shall be deposited by
the Manager and held in such bank account or accounts maintained by the Manager
in such bank or banks with federal deposit insurance protection as may be
selected by the Manager and approved by the Owner. All such funds shall be and
shall remain the property of the Owner and shall be disbursed by the Manager in
payment of the obligations of the Owner incurred in connection with the
development and construction of the Project, or, subject to the provisions of
Section 8.2 below, shall be disbursed to the Owner at the Owner's request.
Except as hereinafter provided, the Manager shall not commingle the Owner's
funds with the funds of any other person.
8.2 The Owner's Duty to Provide Funds. The Owner agrees that the Owner
---------------------------------
will pay all current obligations of the Owner in accordance with the Development
Budget, including all obligations of the Owner to the Manager hereunder.
Alternatively, at the Owner's option, the Owner may elect to provide funds to
the
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<PAGE>
Manager so that the Manager can pay all such obligations of the Owner (excluding
obligations to the Manager, it being understood and agreed that such obligations
to the Manager shall be paid directly by the Owner to the Manager). If the
Owner elects to cause the Manager to make payment of such obligations, the Owner
hereby agrees that, by making deposits to (following notice as provided below),
or by refraining from withdrawing funds from, the bank account or accounts
maintained by the Manager pursuant to Section 8.1 above, the Owner shall, during
the term of this Agreement, maintain sufficient funds in such bank account or
accounts to enable the Manager to pay all current obligations of the Owner in
accordance with the Development Budget, excluding the obligations of the Owner
to the Manager hereunder. Accordingly, the Owner shall, within ten (10) days of
its receipt of any written request from the Manager for additional funds (which
request must specify the amount of such funds requested and the purposes for
which they are to be used), deposit in such bank account or accounts such
additional funds as the Owner shall consider appropriate with respect to such
request by the Manager.
8.3 Investment of Owner's Funds. If at any time there are in the bank
---------------------------
account or accounts established pursuant to Section 8.1 above, funds of the
Owner, from whatever sources, temporarily exceeding the immediate cash needs of
the Project, the Manager may (and at the discretion of the Owner shall) invest
such excess funds in such savings accounts, certificates of deposit, United
States Treasury obligations, commercial paper, and the like, as the Manager
shall deem appropriate or as the Owner shall direct, provided that the form of
any such investment shall be consistent with the Manager's need to be able to
liquidate any such investment to meet the cash needs of the Project from time to
time.
ARTICLE 9
---------
STANDARD OF CARE; LIABILITY;
----------------------------
INDEMNITY; CONFIDENTIALITY
--------------------------
9.1 Standard of Care; Manager's Liability. The Manager shall have no
-------------------------------------
liability to the Owner for any errors of judgment, or any mistakes of fact or of
law, made in a good faith effort to perform and carry out the Manager's
responsibilities under this Agreement, unless the Manager has failed to exercise
that degree of care and skill which a reasonable and diligent businessman in the
Manager's profession would exercise in transactions of a similar nature for his
own account, provided, of course, that sufficient funds are made available by
the Owner for the performance of the Manager's responsibilities.
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<PAGE>
9.2 Indemnity of Owner. The Manager hereby agrees to indemnify, defend
------------------
and hold harmless the Owner and its partners and their respective officers,
directors and employees, from and against any and all claims, demands, losses,
liabilities, actions, lawsuits and other proceedings, judgments and awards, and
costs and expenses (including without limitation reasonable attorneys' fees and
court costs incurred in connection with the enforcement of this indemnity or
otherwise), arising out of the negligence, fraud or any willful act or omission
of the Manager, or any of its officers, directors, agents or employees, in
connection with this Agreement or the Manager's services or work hereunder,
whether within or beyond the scope of its duties or authority hereunder.
9.3 Indemnity of Manager. The Owner hereby agrees to indemnify, defend
--------------------
and hold harmless the Manager, its officers, directors and employees, from and
against any and all claims, demands, losses, liabilities, actions, lawsuits and
other proceedings, judgments and awards, and costs and expenses (including
without limitation reasonable attorney's fees and court costs incurred in
connection with the enforcement of this indemnity or otherwise), arising out of
(i) any action taken by the Manager within the scope of its duties or authority
hereunder, excluding only such of the foregoing as result from the negligence,
fraud or willful act of the Manager, its officers, directors, agents and
employees, and (ii) the negligence, fraud or any willful act or omission of the
Owner and its partners and their respective officers, directors and employees.
9.4 Survival of Indemnities. The provisions of Sections 9.2 and 9.3
-----------------------
hereof shall survive the completion of the Manager's services hereunder or any
earlier termination of this Agreement.
9.5 No Obligation to Third Parties. None of the responsibilities and
------------------------------
obligations of the Manager under this Agreement shall in any way or in any
manner be deemed to create any liability of the Manager to, or any rights in,
any person or entity other than the Owner.
9.6 Nature of the Manager's Duties and Responsibilities. The Owner
---------------------------------------------------
hereby acknowledges that the Manager's duties and responsibilities hereunder
with respect to the development and construction of the Project consist only in
managing, supervising, and coordinating the planning, design, construction and
completion of the Project and the performance of the other Development Functions
in accordance with the terms of this Agreement; that the Manager is not itself
preparing any architectural or engineering plans, designs, or specifications or
performing any construction required for the development or completion of the
Project; that the Manager is not a guarantor or
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<PAGE>
insurer of any work to be performed by any other party in connection with the
planning, design, construction, and completion of the Project; and that the
Manager is not responsible for, and will not be liable for, any work, act,
omission, negligence, gross negligence, or intentional misconduct of any other
party employed by the Owner or performing work for the Owner in connection with
the Project.
9.7 Ownership of Information and Materials. The Owner shall have the
--------------------------------------
right to use, without further compensation to the Manager, all written data and
information generated by or for the Manager in connection with the Project or
supplied to the Manager by the Owner or the Owner's contractors or agents, and
all drawings, plans, books, records, contracts, agreements and all other
documents and writings in its possession relating to its services or the
Project. Such data and information shall at all times be the property of the
Owner. The Manager agrees, for itself and all persons retained or employed by
the Manager in performing its services, to hold in confidence and not to use or
disclose to others any confidential or proprietary information of the Owner
which is heretofore or hereafter disclosed to the Manager or any such persons
and which is designated by the Owner as confidential and proprietary, including
but not limited to any proprietary or confidential data, information, plans,
programs, plants, processes, equipment, costs, operations, tenants or customers
which may come within the knowledge of the Manager or any such persons in the
performance of, or as a result of, its services, except where (i) the Owner
specifically authorizes the Manager to disclose any of the foregoing to others
or such disclosure reasonably results from the performance of the Manager's
duties hereunder, or (ii) such written data or information shall have
theretofore been made publicly available by parties other than the Manager or
any such persons. Nothing contained in this Section 9.7 shall be deemed to
limit or restrict the provisions of Article 15 hereof or of the rights of the
Manager thereunder.
ARTICLE 10
----------
INSURANCE
---------
10.1 Insurance Requirements. Throughout the term of this Agreement,
----------------------
insurance with respect to the Project shall be carried and maintained in force
in accordance with the provisions contained in Exhibit "C, attached hereto and
----------
incorporated herein by this reference, with the premiums and other costs and
expenses for such required insurance to be borne as provided in Exhibit "C".
-----------
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<PAGE>
10.2 Owner's Insurance Primary Coverage. As between any insurance
----------------------------------
carried by the Owner pursuant to this Article 10 and any insurance carried by
the Manager, the Owner's insurance shall for all purposes be considered the
primary coverage, and no claim shall be made under or with respect to any
insurance maintained by the Manager except in the event that the Owner's entire
insurance is exhausted (without regard to whether the actual amount of the
Owner's insurance exceeds the amounts specified in this Article 10).
10.3 Waiver of Subrogation. Each insurance policy maintained by the
---------------------
Owner or by the Manager with respect to the Project shall contain a waiver of
subrogation clause, so that no insurer shall have any claim over or against the
Owner or the Manager, as the case may be, by way of subrogation or otherwise,
with respect to any claims which are insured under any such policy.
ARTICLE 11
----------
COMPENSATION OF THE MANAGER
---------------------------
11.1 Fees - General. As compensation for the services rendered and to be
--------------
rendered by the Manager under this Agreement, the Owner shall pay the Manager
the Development Fee, the Cellular One Work Fee, the Small Tenant Work Fee, and
the Small Tenant Leasing Fee, all in accordance with and subject to the terms
and provisions of Sections 11.2, 11.3, 11.4 and 11.5 hereof, respectively, and
all such fees shall be subject to reduction as provided in Section 5.4 hereof.
11.2 Development Fee. The Owner shall pay the Manager, as the
---------------
Development Fee for the Project, the sum of Two Hundred Fifty Thousand and
No/100 Dollars ($250,000.00). The Development Fee shall be due and payable
ratably (on the basis of the percentage of construction completed) as the
construction and development of the Project are completed. The Development Fee
shall be paid in monthly installments commencing with the month following the
month during which the on-site development work with respect to the Project
shall commence. The remaining balance of the Development Fee shall be due and
payable upon the Completion Date.
11.3 Cellular One Work Fee. The Owner shall pay the Manager, as the
---------------------
Cellular One Work Fee, the sum of Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00). The Cellular One Work Fee shall be due and payable in one lump
sum upon the Completion Date.
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<PAGE>
11.4 Small Tenant Work Fee. In the event the Manager shall serve as the
---------------------
construction manager with respect to any portion of the Tenant Improvements to
be constructed by the Owner for any tenant of the Speculative Space, the Owner
shall pay the Manager, as the Small Tenant Work Fee, an amount equal to Two and
30/100 Dollars ($2.30) multiplied by the number of square feet of rentable area
in the Speculative Space which are built-out for such tenant. The Small Tenant
Work Fee with respect to the Tenant Improvements for each such tenant shall be
due and payable in one lump sum on the Tenant Improvements Completion Date for
such Tenant Improvements.
11.5 Small Tenant Leasing Fee. The Owner shall pay to the Manager the
------------------------
Small Tenant Leasing Fee in accordance with and subject to the terms and
conditions of Section 12.3 hereof.
11.6 Disbursements to the Manager. The Manager may not disburse to
----------------------------
itself any amounts due under this Article 11 from the bank account or accounts
maintained by the Manager pursuant to Article 8 hereof, it being understood and
agreed that the amounts due and payable to the Manager under this Article 11
shall be paid directly by the Owner to the Manager.
ARTICLE 12
----------
MANAGER AS LEASING AGENT
------------------------
12.1 Nonexclusive Engagement. Subject to the terms, conditions and
-----------------------
limitations hereinafter set forth, the Owner does hereby appoint the Manager as
the Owner's non-exclusive agent to offer for lease the Speculative Space. The
term of such appointment shall commence on the date of this Agreement and shall
expire on the earlier to occur of (i) the Completion Date or (ii) August 1,
1997. In the event the Owner shall desire for any reason to engage a real
estate broker or agent as the Owner's exclusive agent for the leasing of the
Speculative Space, the Owner shall have the right to terminate the appointment
of the Manager hereunder by written notice to the Manager, which termination
shall be effective immediately upon the giving of such notice. The Manager
hereby accepts its nonexclusive appointment hereunder.
12.2 Manager's Leasing Duties. The Manager agrees to perform the
------------------------
following duties:
(a) To list and offer the Speculative Space for lease in a
commercially prudent manner. The Manager shall not be obligated to expend
its own funds for the advertisement of such Speculative Space.
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<PAGE>
(b) To actively cooperate with other qualified brokers in leasing
the Speculative Space.
(c) To negotiate for the rental to desirable tenants, without
unlawful discrimination, of all available Speculative Space at rental rates
set forth in a schedule of rental rates and other business terms approved
by the Owner from time to time and which are not inconsistent with
applicable restrictions set forth in other leases of space in the Project,
including the Cellular One Lease.
(d) To keep the Owner advised of the status of negotiations with
prospective tenants, inquiries and offers received from brokers and others.
(e) To use its reasonable efforts to lease the Speculative Space to
desirable tenants.
12.3 Small Tenant Leasing Fee.
------------------------
(a) With respect to each lease of Speculative Space (including
without limitation a lease of the Speculative Space by Cellular One) which
is procured by the Manager and which is either entered into during the term
of the non-exclusive agency for which provision is made in Section 12.1
hereof or otherwise qualifies for a commission pursuant to Section 12.3(b)
below, the Owner shall pay to the Manager, as the Small Tenant Leasing Fee
with respect to such lease, and as full and complete compensation for all
leasing services provided by the Manager in connection with such lease, an
amount equal to five percent (5%) of all gross base rents (excluding
escalations in operating costs) actually paid by the tenant during each
month of the initial term of such tenant's lease, plus, if such lease
----
grants to the tenant an option to extend or renew the term of the lease and
the tenant exercises such option, an amount equal to five percent (5%) of
all gross base rents (excluding escalations in operating costs) actually
paid by the tenant during each month of the extended term of such tenant's
lease. Notwithstanding the foregoing to the contrary, the Owner's
obligation to pay the aforesaid Small Tenant Leasing Fee equal to five
percent (5%) of the gross base rent collected from a tenant shall cease and
terminate on the date which is ten (10) years after the commencement date
of the applicable lease, even if the term of the applicable lease is
extended beyond such ten (10) year period pursuant to an option granted to
the tenant in such lease. The Owner and the Manager agree to consider the
possible cash-out of the commission obligation under this Section 12.3 with
respect to any such lease qualifying for a commission
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<PAGE>
hereunder, but the Owner and the Manager shall not be obligated to agree to
any such cash-out arrangement.
(b) Within twenty (20) calendar days after the expiration or
earlier termination of this non-exclusive agency arrangement, the Manager
shall furnish the Owner with a written list of prospects, if any, with whom
the Manager can demonstrate to the reasonable satisfaction of the Owner
that it has been, within ninety (90) days of such expiration or
termination, holding substantive negotiations for a lease relating to the
Speculative Space. If, within one hundred twenty (120) calendar days after
the expiration or termination date, such space is leased to any one of the
listed prospects or active negotiations for such space are continued
between a listed prospect and the Owner and successfully concluded within
one hundred eighty (180) calendar days after the expiration or termination
date, the Manager shall be considered the procuring broker hereunder for
such space and shall be entitled to receive from the Owner a Small Tenant
Leasing Fee as if such transaction occurred prior to such termination or
expiration date. If the Manager shall fail to furnish such a written list,
the Owner shall not be liable for any commission, expenses or other
compensation hereunder in the event of a lease to any such prospect.
Further, if for any reason other than intentional suspension of
negotiations to avoid payment of a Small Tenant Leasing Fee hereunder,
active negotiations between the Owner and the listed prospect end within
one hundred eighty (180) calendar days after the termination or expiration
date of this Agreement, and at such time no agreement has been reached or
is contemplated respecting such space, negotiations between the Owner and
the prospect shall be considered abandoned and the Owner shall not be
liable for any commission, expenses or other compensation hereunder, even
if a lease with such prospect is thereafter consummated.
(c) Notwithstanding anything contained herein to the contrary,
there shall be no commission or fee due, earned or payable at any time to
the Manager for any Speculative Space in the Project rented or leased to
Cellular One, unless the Manager is entitled to a commission under Section
12.3(a) or (b) above. The Manager expressly acknowledges and agrees that
it shall not be entitled to a commission or fee in the event Cellular One
shall exercise any right of first refusal or expansion option set forth in
the Cellular One Lease. Also notwithstanding anything contained herein to
the contrary, there shall be no commission or fee due, earned or payable to
the Manager with respect to any lease which is procured by the Owner or any
third party, and not by the Manager, even if such lease is procured during
the term of
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<PAGE>
the appointment hereunder, it being understood and agreed that the
Manager's appointment hereunder is only on a non-exclusive basis.
(d) In the event an outside real estate broker is involved in a
lease transaction for which the Owner is obligated to pay the Manager a
Small Tenant Leasing Fee under Section 12.3 hereof, the Small Tenant
Leasing Fee payable by the Owner to the Manager under Section 12.3 above
shall be shared by the Manager and such outside real estate broker(s) in a
manner agreed upon by the Manager and such outside real estate broker(s),
and the Manager shall indemnify and hold the Owner harmless from any loss,
costs, damage and expenses, including reasonable attorney's fees, arising
from any claims by any such outside real estate broker for a fee,
commission or compensation arising out of such lease, so long as the Owner
shall pay the Small Tenant Leasing Fee payable by the Owner under Section
12.3 above. The foregoing indemnity shall be inapplicable to any claim by
an outside real estate broker that the Owner has agreed with such outside
real estate broker to pay a commission to it other than as specifically
agreed upon between the Manager and such outside real estate broker.
(e) A tenant shall be considered procured, and the Small Tenant
Leasing Fee shall be considered earned, due and payable hereunder, only
when that tenant has paid (which shall include checks of the tenant having
cleared all accounts) to the "Landlord" the first month's base rent,
excluding all free rent periods. The Small Tenant Leasing Fee shall be
paid by the Owner to the Manager only if, as and when such base rent is
received by the Owner.
ARTICLE 13
----------
REIMBURSEMENT OF ADVANCES, COSTS AND EXPENSES
---------------------------------------------
13.1 Reimbursement of Advances. The Manager shall not be required to
-------------------------
advance any of its own funds for the payment of any costs and expenses incurred
by or on behalf of the Owner in connection with the Project, but if the Manager
advances its own funds in payment of any of such costs and expenses, the Owner,
subject to the provisions of Sections 4.5, 5.2 and 11.6 hereof, shall promptly
reimburse the Manager or, in lieu thereof, the Manager may reimburse itself from
the bank account or accounts maintained by the Manager pursuant to Article 8
hereof.
13.2 Reimbursement of Costs and Expenses. Promptly after execution of
-----------------------------------
this Agreement, the Owner shall reimburse the Manager for all costs and expenses
set forth on Exhibit "D" attached hereto and by this reference made a part
-----------
hereof, all of
-25-
<PAGE>
which costs and expenses the Manager hereby represents and warrants were
incurred and paid by the Manager prior to the date hereof (or will be paid by
the Manager in due course) in connection with the Project and are authorized and
bona fide expenditures under the Development Budget.
ARTICLE 14
----------
DEFAULT AND TERMINATION
-----------------------
14.1 Default by Manager. Upon the happening of any Event of Default (as
------------------
hereinafter defined), the Owner shall have the absolute unconditional right to
terminate this Agreement by giving written notice of such termination to the
Manager. Any one or more of the following events shall constitute an "Event of
Default" by the Manager under this Agreement:
(a) If the Manager shall fail to observe, perform or comply in any
material respect with any term, covenant, agreement or condition of this
Agreement which is to be observed, performed or complied with by the
Manager under the provisions of this Agreement, and such failure shall
continue uncured for ten (10) days after the giving of written notice
thereof by the Owner to the Manager specifying the nature of such failure,
unless such failure can be cured but is not susceptible of being cured
within said ten (10) day period, in which event such a failure shall not
constitute an Event of Default if the Manager commences curative action
within said ten (10) day period, and thereafter prosecutes such action to
completion with all due diligence and dispatch;
(b) If the Manager or Kraxberger shall make a general assignment
for the benefit of creditors;
(c) If any petition shall be filed against the Manager or
Kraxberger in any court, whether or not pursuant to any statute of the
United States or of any State, in any bankruptcy, reorganization,
dissolution, liquidation, composition, extension, arrangement or insolvency
proceedings, and such proceedings shall not be dismissed within sixty (60)
days after the institution of the same, or if any such petition shall be so
filed by the Manager or Kraxberger;
(d) If, in any proceeding, a receiver, trustee or liquidator be
appointed for all or a substantial portion of the property and assets of
the Manager or Kraxberger, and such receiver, trustee or liquidator shall
not be discharged within ninety (90) days after such appointment;
-26-
<PAGE>
(e) If the Manager shall assign this Agreement or any of its rights
or obligations hereunder, without the prior written consent of the Owner;
and
(f) If the Manager shall intentionally or willfully fail to perform
any of its duties or obligations hereunder, or if the Manager shall
misappropriate any funds of the Owner in the possession or control of the
Manager or shall otherwise commit an act of fraud against the Owner (except
that if such misappropriation of funds or fraud by the taking is committed
by an employee of the Manager other than Kraxberger, such event may be
cured by the Manager if the Manager makes prompt restitution to the Owner
and discharges such employee).
14.2 Additional Terminating Event. The Owner shall have the right to
----------------------------
terminate this Agreement upon written notice to the Manager in the event
Kraxberger shall die, become permanently or temporarily disabled or shall cease
for reasons beyond his control to be actively involved in performing, on behalf
of the Manager, the Development Functions and the other obligations and
undertakings of the Manager hereunder. The Owner shall also have the right to
terminate this Agreement upon written notice to the Manager in the event the
Owner shall elect for any reason whatsoever not to acquire the Land.
14.3 Default by Owner. If the Owner fails to comply with or perform in
----------------
any material respect any of the terms and provisions to be complied with or any
of the obligations to be performed by the Owner under this Agreement, and such
failure continues uncured for a period of fifteen (15) days after written notice
to the Owner specifying the nature of such default (or, in the case of a non-
monetary default, such longer period of time as may be needed in the exercise by
the Owner of due diligence to effect a cure of any such non-monetary default),
then the Manager shall have the right, in addition to all other rights and
remedies available to the Manager at law and in equity (including without
limitation the right to pursue an action for specific performance), at its
option, to terminate this Agreement by giving written notice thereof to the
Owner, in which event the Owner shall immediately pay to the Manager, in cash,
the sums payable to the Manager upon termination as provided in Section 14.4
hereof, and upon the payment of such amounts, subject to Sections 9.2, 9.3, 9.7,
12.3(d) and 14.5 hereof, the Owner and the Manager shall have no further rights,
duties, liabilities or obligations whatsoever under this Agreement.
14.4 Obligation for Fees Upon Termination. Upon any termination of this
------------------------------------
Agreement, the Owner shall pay to the Manager all amounts due and payable to the
Manager as of the date of termination pursuant to the terms of this Agreement
(including,
-27-
<PAGE>
without limitation, any accrued but unpaid installments of the Development Fee)
less, if this Agreement terminates as a result of an Event of Default, an amount
- ----
equal to the damages incurred or suffered (or to be incurred or suffered) by the
Owner as a result of such Event of Default. Upon the payment of all such
amounts payable under this Section, subject to Sections 9.2, 9.3, 9.7, 12.3(d)
and 14.5 hereof, the Owner and the Manager shall have no further rights, duties,
liabilities or obligations whatsoever under this Agreement.
14.5 Actions Upon Termination. Upon any termination of this Agreement,
------------------------
the Manager shall promptly (a) account for and deliver to the Owner any monies
of the Owner held by the Manager, including funds in the bank account or
accounts maintained by the Manager pursuant to Article 8 hereof and any funds
due the Owner under this Agreement but received after such termination, and (b)
deliver to the Owner or to such other person as the Owner shall designate in
writing, all materials, supplies, equipment, keys, contracts, documents and
books and records pertaining to this Agreement or the development of the
Project. The Manager shall also furnish all such information, take all such
other action and shall cooperate with the Owner as the Owner shall reasonably
require in order to effectuate an orderly and systematic termination of the
Manager's duties and activities hereunder. This Section 14.5 of this Agreement
shall survive any termination of this Agreement.
ARTICLE 15
----------
OTHER ACTIVITIES OF THE MANAGER
-------------------------------
The Owner hereby acknowledges that the Manager is engaged in the ownership,
development, leasing, sale, and management of commercial properties other than
the Project and the Owner hereby agrees that the Manager shall in no way be
restricted from, or have any liability to account to the Owner with respect to,
such activities, notwithstanding that such activities may compete with, or be
enhanced by, the Manager's activities under this Agreement or the Owner's
ownership of the Project.
ARTICLE 16
----------
NATURE OF AGREEMENT
-------------------
The rights and duties granted to and assumed by the Manager hereunder are
those of an independent contractor only. Nothing contained herein shall be so
construed as to constitute the relationship created under this Agreement between
the Manager and the Owner as a mutual agency, a partnership, or a joint venture.
-28-
<PAGE>
ARTICLE 17
----------
GENERAL PROVISIONS
------------------
17.1 Notices. Whenever any notice, consent, approval, demand or request
-------
required or permitted under this Agreement, such notice, consent, approval,
demand or request shall be in writing and shall be delivered by hand or sent by
registered or certified mail, return receipt requested, to the addresses set out
below or to such other addresses as are specified by written notice given in
accordance herewith, or sent via facsimile transmission to the facsimile numbers
set out below or to such other facsimile numbers as are specified by written
notice given in accordance herewith:
Owner: Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Fax: (770) 840-7224
Attention: Mr. Leo F. Wells, III
with a copy to: Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
Fax: (404) 885-3900
Attention: Mr. John W. Griffin
Manager: Adevco Corporation
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Fax: (770) 840-7224
Attention: Mr. David M. Kraxberger
All notices, consents, approvals, demands or requests delivered by hand
shall be deemed given upon the date so delivered; those given by mailing as
hereinabove provided shall be deemed given on the date on which such notice,
demand, or request is so deposited in the United States Mail; those given by
facsimile transmission shall be deemed given on the date shown on sender's copy
hereof showing the proper "answerback" code for the facsimile transmission
number to which the notice is sent. Nonetheless, the time period, if any, in
which a response to any notice, demand, or request must be given shall commence
to run from the date of receipt of the notice, demand, or request by the
addressee thereof. Any notice, demand, or request not received because of
changed address of which no notice was given as hereinabove provided or because
of refusal to accept delivery shall be deemed received by the party to whom
addressed on the date of hand delivery or on the third calendar day following
deposit in the United States Mail, as the case may be.
-29-
<PAGE>
17.2 Modifications. Neither any change or modification of this Agreement
-------------
nor any waiver of any term or condition hereof shall be valid or binding on the
parties hereto, unless such change, modification, or waiver shall be in writing
and signed by the party to be bound thereby.
17.3 Binding Effect. This Agreement shall inure to the benefit of and
--------------
shall be binding upon the parties hereto, their successors, transferees, and
permitted assigns.
17.4 Duplicate Originals. For the convenience of the parties hereto, any
-------------------
number of counterparts hereof may be executed, each such counterpart shall be
deemed to be an original instrument, and all of such counterparts shall together
be deemed one and the same instrument.
17.5 Construction. This Agreement shall be interpreted, constructed, and
------------
enforced in accordance with the laws of the State of Georgia. The titles of the
articles and sections herein have been inserted as a matter of convenience of
reference only and shall not control or affect the meaning or construction of
any of the terms or provisions herein. The parties agree that they have both
participated equally in the negotiation and preparation of this Agreement and no
court construing this Agreement or the rights of the parties hereunder shall be
prejudiced toward either party by reason of the rule of construction that a
document is to be construed more strictly against the party or parties who
prepared the same.
17.6 Entire Agreement. This Agreement is intended by the parties hereto
----------------
to be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof
notwithstanding any representation or statement to the contrary heretofore made.
17.7 Assignment. This Agreement shall not be assigned by the Manager
----------
without the prior written consent of the Owner, and any such assignment by the
Manager without the prior written consent of the Owner shall be null, void and
of no force and effect and shall be an Event of Default hereunder.
17.8 Authorized Representatives. Any consent, approval, authorization,
--------------------------
or other action required or permitted to be given or taken under this Agreement
by the Manager or the Owner, as the case may be, shall be given or taken by the
authorized representative of each. For purposes of this Agreement, (a) the
authorized representative of the Manager shall be David M. Kraxberger; (b) the
authorized representative of the Owner shall be Leo F. Wells, III or Mike
Watson. Any party hereto may from time to time designate other or replacement
authorized
-30-
<PAGE>
representatives by written notice from its authorized representative to the
other parties hereto. The written statements and representations of any
authorized representative of the Manager or the Owner shall for the purposes of
this Agreement be binding upon such party for whom the authorized representative
purports to act, and the other parties hereto shall have no obligation or duty
whatsoever to inquire into the authority of any such representative to take any
action which he proposes to take, regardless of whether such representative
actually has the authority to take any such action; and the Manager and the
Owner shall be entitled to rely upon any direction, authorization, consent,
approval, or disapproval given by any authorized representative of the Manager
or the Owner, as the case may be, in connection with any matter arising out of
or in connection with this Agreement or the Project.
17.9 Terminology. All personal pronouns used in this Agreement, whether
-----------
used in the masculine, feminine, or neuter gender, shall include all other
genders; and all terms used herein in the singular shall include the plural, and
vice versa.
17.10 Time of Essence. Time is of the essence of this Agreement.
---------------
IN WITNESS WHEREOF, the parties hereto have executed and sealed this
Agreement as of the day, month and year first above written.
"MANAGER":
-------
ADEVCO CORPORATION,
a Georgia corporation
By: /s/ David M. Kraxberger
------------------------
Title: President
--------------------
[CORPORATE SEAL]
[Signatures continued on following page]
-31-
<PAGE>
[Signatures continued from previous page]
"OWNER":
-----
FUND VIII AND FUND IX ASSOCIATES,
a Georgia general partnership
/s/ Martha Cory By: Wells Real Estate Fund VIII, L.P.,
- ---------------------- a Georgia limited partnership
Witness
/s/ Caryl Jamieson By: /s/ Leo F. Wells (SEAL)
- ---------------------- ---------------------------
Witness Leo F. Wells, III,
General Partner
By: Wells Partners, L.P.,
a Georgia limited partnership,
General Partner
/s/ Martha Cory By: Wells Capital, Inc.,
- ---------------------- a Georgia corporation,
Witness General Partner
/s/ Caryl Jamieson By: /s/ Leo F. Wells
- ---------------------- -----------------------
Witness Leo F. Wells, III,
President
(CORPORATE SEAL)
/s/ Martha Cory By: Wells Real Estate Fund IX, L.P.,
- ---------------- a Georgia limited partnership
Witness
/s/ Caryl Jamieson By: /s/ Leo F. Wells (SEAL)
- ------------------- -----------------
Witness Leo F. Wells, III,
General Partner
By: Wells Partners, L.P.,
a Georgia limited partnership,
General Partner
/s/ Martha Cory By: Wells Capital, Inc.,
- ---------------------- a Georgia corporation,
Witness General Partner
By: /s/ Leo F. Wells
/s/ Caryl Jamieson -----------------------
- ---------------------- Leo F. Wells, III,
Witness President
(CORPORATE SEAL)
-32-
<PAGE>
EXHIBIT A
---------
Legal Description
-----------------
Lot Twenty-Two (22) and that part of Lot Twenty-One (21), lying between the
Easterly and Westerly lines of said Lot 22 as extended in a Southerly direction
to the Southerly line of said Lot 21, The American Center Plat Terrace First
Addition, in the City of Madison, Dane County, Wisconsin. This real estate is
also described as follows:
Beginning at the Northeast corner of said Lot 22; thence S06degree36'29"W,
693.50 feet; thence N73degree59'24"W, 476.50 feet; thence N06degree36'29"E,
584.18 feet; thence N67degree00'00"E, 138.76 feet; thence along the arc of
a curve concave northerly, having a radius of 335.00 feet and whose chord
bears S68degree04'00"E, 141.93 feet; thence S80degree17'48"E, 100.00 feet;
thence along the arc of a curve concave northerly, having a radius of
535.00 feet and whose chord bears S86degree21'06"E, 112.87 feet to the
point of beginning. Parcel contains 308,977.27 square feet or 7.09 acres.
Parcel subject to easements of record.
<PAGE>
6/5/96
EXHIBIT "B"
-----------
ADEVCO Corporation
3885 HOLCOMB BRIDGE ROAD
NORCROSS, GEORGIA 30092
Commercial Project Development Model
All Rights Reserved
Do not Duplicate
Descripition: BUILDING PRO FORMA - MADISON, WISCONSIN
A DEVELOPMENT OF ADEVCO Corporation
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Acres 7.09
Phase 1 Phase 2 Combined
------- ------- --------
Gross Sq. Ft. 106,238 0 106,238
Rentable Sq. Ft. 96,750 0 96,750
Usable Sq. Ft. 91,000 0 91,000
Building Floors 4 0
Parking Spaces 400 0
Parking levels 0 0
Excel 3.0 File Name CELL1A
Project Name CELLULAR ONE
Location/Address THE AMERICAN CENTER
City/State MADISON, WISCONSIN
PROJECT COSTS
1 ------- COST/SQ.FT.
ACQUISITION PHASE 1 TOTAL N.R.
A) -------- ----- -----------
LAND (7.09 ACRES @
$3.10 SQ. FT.) $833,941
BROKERAGE FEE
MISCELLANEOUS 0
--------
TOTAL ACQUISITION $833,941 $8.62
</TABLE>
<PAGE>
6/5/96
Project Name CELLULAR ONE
Location/Address THE AMERICAN CENTER
City/State MADISON, WISCONSIN
<TABLE>
<CAPTION>
DEVELOPMENT COSTS
<S> <C> <C> <C>
B)
APPRAISAL FEES 5,000
LEGAL FEES
CLOSING COSTS INCLUDED
CONTRACT REVIEW G.C. INCLUDED
LENDER'S COUNSEL INCLUDED
LEASE DOCUMENT INCLUDED
PARTNERSHIP FEES 0 0
SURVEY/ENGINEERING
SURVEY COSTS 2,000
TESTING/SOIL 2,750
ENVIRONMENTAL REPORT 2,200
CIVIL ENGINEERING 10,000
CONCRETE INSPECTING (CARRIED BY 0 16,950
ARCHITECTURAL FEES
PRELIMINARY DESIGN 10,000
BASE CONTRACT 239,036
SPACE PLANNING 136,500
LANDSCAPE 12,000
LENDER PACKAGE 0
MARKETING CENTER
REIMBURSABLES 37,554
STRUCTURAL - M.E.P. 0 435,089
FEES
FINANCING FEE 0
CONSTRUCTION INTEREST 0
PROGRESS INSPECTION 0
COUNTY FEES 0
WATER METER 0
TAP 0
SEWER 0 0
DEVELOPMENT FEE 250,000
SIGN - BUILDING & DIRECTORY 20,000
REAL ESTATE TAXES 0
LANDSCAPE CONSTRUCTION 132,798
INSURANCE
TITLE INSURANCE 0
BUILDERS RISK 0
CONTRACTORS BOND 0 0
CELLULARONE WORK FEE 250,000
DEVELOPER OVERHEAD 75,000
LEASE UP/OPERATING DEFICIT 0
----------
TOTAL DEVELOPMENT $1,184,837 $ 12.25
</TABLE>
<PAGE>
6/5/96
Project Name CELLULAR ONE
Location/Address THE AMERICAN CENTER
City/State MADISON, WISCONSIN
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
MARKETING
C)
ADVERTISING
SIGNS - TEMPORARY CONST. 2,000
BROCHURES 3,000
ADVERTISING 5,000 10,000
MODEL 0
SIGNS - LEASING 0
GROUND BREAKING PARTY TRAVEL/ENTERTAINMENT 2,000
RENDERING 1,250
OPENING PARTY 2,000
ENTERTAINMENT 0
FURNITURE & EQUIPMENT 0
OFFICE SHOWCASE 0
TRAVEL 15,000
MARKETING CENTER RENT 0
MARKETING CENTER CONSTRUCTION 0
MARKETING CENTER OPERATIONS 0
MARKETING CENTER MAINTENANCE 0
SALARIES 0
PHOTOGRAPHY 2,500
MISCELLANEOUS 1,550
----------
TOTAL MARKETING $ 34,300 $ 0.35
LEASING COMMISSIONS & CONCESSIONS
D)
CASH OUT TO CO-OP $ 0
CASH OUT TO LEASING AGENT 0
INHOUSE (USE $3.00 RSF FOR ALL SPE 0
PROCUREMENT FEES 0
TOTAL LEASING COMMISSIONS $ 0
TENANT CONCESSIONS 0
INSTALL TENANT CEILING PER RFP 150,000
----------
TOTAL LEASING $ 150,000 $ 1.55
CONTINGENCY $ 175,000 $ 1.81
---------- ---------
PROJECT COSTS BEFORE CONSTRUCTION $2,378,078 $ 24.58
========== =========
</TABLE>
Assumptions:
-----------
Leasing commissions: 100.00% In house lease percentage
0.00% Co-op Leases
0.00% Commission rate
4 Years of Normal Lease term
<PAGE>
6/5/96
Project Name CELLULAR ONE
Location/Address THE AMERICAN CENTER
City/State MADISON, WISCONSIN
0 Months of rent for procurement fee
$0 Annual Rent exempt from commissions and f
Tenant concessions: $0.00 Rate per Square Foot
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CONSTRUCTION COSTS
II --------------
A) GENERAL CONDITIONS 0 $ 0.00
B) SITEWORK 0 $ 0.00
C) G.C. FEE 0 $ 0.00
D) OFFICE TOWER 6,048,129 $ 56.93
E) TENANT FINISH 1,500,012 $ 15.50
0
----------
TOTAL CONSTRUCTION COSTS $7,548,141 $ 78.02
========== =======
TOTAL PROJECT COST $9,926,219 $102.60
------------------ ========== =======
</TABLE>
<PAGE>
EXHIBIT "C"
-----------
INSURANCE REQUIREMENTS
This exhibit is attached to and made part of the Development Agreement between
FUND VIII AND FUND IX ASSOCIATES, as Owner, and ADEVCO CORPORATION, as Manager,
dated June ___, 1996.
A. Owner's Insurance Requirements.
------------------------------
Throughout the term of this Agreement the Owner shall carry or cause to be
carried and maintain in force insurance described in paragraphs 1 through 3
below. The cost of such policies shall be at the sole cost and expense of the
Owner.
1. Builder's Risk.
--------------
An "All Risk" builder's risk policy including coverage for collapse,
flood, earthquake and installation risks written on a completed
value basis in an amount not less than total replacement value of
the Project under construction (less the value of such portions of
the Project as are uninsurable under the policy, i.e., site
preparation, abrading, paving, parking lots, etc., excepting,
however, foundations and other undersurface installations subject to
collapse or damage by other insured perils). Such policy will also
include coverage for soft costs including interest expense and loss
of rents. Deductible per loss shall be determined by the Owner.
2. Commercial General Liability and Automobile Liability.
-----------------------------------------------------
This policy (or policies) shall be written at a total limit of no
less than $5,000,000 per occurrence and $5,000,000 Aggregate and
will include the following extension of coverage:
a. Broad Form CGL endorsement;
b. X, C and U coverage;
c. Blanket Contractual with exclusions pertaining to completed
operations, explosion, collapse and underground hazards
deleted.
3. Boiler and Machinery.
--------------------
If the Boiler and Machinery equipment is put in service prior to the
expiration of the builder's risk
<PAGE>
policy and prior to certification of building completion the Manager
shall notify the Owner so that the Owner may exercise its option to
purchase Boiler and Machinery coverage if needed.
B. Manager's Insurance Requirements for policies covering Manager.
--------------------------------------------------------------
During the term of this Agreement if the Manager shall have employees in
addition to Kraxberger, the Manager agrees to carry and maintain in force,
at the Manager's sole cost and expense, Worker's Compensation and
Employer's Liability. Such policy shall be endorsed to waive subrogation
against the Owner.
C. Insurance Requirements for Architects and Engineers.
---------------------------------------------------
The Manager shall require any architect or engineering firm employed by the
Owner to carry Professional Liability Insurance in an amount not less than
$500,000 per occurrence.
D. Insurance Requirements for All Contractors and Third Party Services.
---------------------------------------------------------- --------
Every contractor and all parties furnishing service to the Owner and/or the
Manager must provide the Manager prior to commencing work, evidence of the
following minimum insurance requirements. In no way do these minimum
requirements limit the liability assumed elsewhere in this Development
Agreement:
1. Worker's Compensation and Employers Liability.
---------------------------------------------
2. Commercial General Liability.
----------------------------
a. Commercial General Liability form, including
Premises/Operations, Elevators and Escalators, Independent
Contractors, Products - Completed Operations, Personal
Injury, (exclusions A and C deleted), Broad Form Property
Damage (including Completed Operations), and afford coverage
for the X, C and U Hazards.
b. Contractual Liability: Blanket basis insuring the liability
assumed under this Development Agreement (coverage must be
endorsed so that all exclusions relating to watercraft,
railroad property, products and
-2-
<PAGE>
completed operations and explosion, collapse and underground
hazards are deleted).
c. Limits of Liability: Bodily Injury $500,000 each
occurrence, $500,000 aggregate; Property Damage $100,000
each occurrence, $100,000 aggregate.
3. Comprehensive Automobile Liability.
----------------------------------
a. Comprehensive Automobile Liability form, including all
Owned, Non-Owned and Hired Vehicles.
b. Limits of Liability: Bodily Injury $250,000 each person,
$500,000 each occurrence; Property damage $100,000 each
occurrence.
4. Umbrella Liability.
------------------
Such insurance provide coverage with limits of not less than $1,000,000 per
occurrence/$1,000,000 aggregate, in excess of the underlying coverages
listed in 1, 2 and 3 above.
5. Additional Requirements.
-----------------------
a. The Contractor shall require the same minimum insurance
requirements, as listed above, of all subcontractors, and
these subcontractors shall also comply with the additional
requirements listed below.
b. All insurance coverages required as herein set forth, shall
be at the sole cost and expense of contractor,
subcontractor, or those providing third party services, and
deductibles shall be assumed by, for the account of, and at
their sole risk.
c. Except where prohibited by law, all insurance policies shall
contain provisions that the insurance companies waive the
rights of recovery or subrogation against the Owner and the
Manager, their agents, servants, invitees, employees,
tenants, affiliated companies, contractors, subcontractors,
and their insurers.
-3-
<PAGE>
E. Miscellaneous.
-------------
1. Accident Reports.
----------------
The Manager shall be completely responsible for reporting to the
appropriate insurance carriers and/or their agents all accidents
involving injury to employees of any contractor, any member of the
public or property damages, provided that the Manager receives a
report from the Contractor regarding such accident or otherwise
becomes aware of such accident.
-4-
<PAGE>
EXHIBIT "D"
-----------
REIMBURSABLE EXPENDITURES RELATING TO PROJECT
None
<PAGE>
EXHIBIT "E"
-----------
ESTOPPEL CERTIFICATE
KNOW ALL MEN, that WESTEL-MILWAUKEE COMPANY, INC., d/b/a Cellular One
("Cellular One") is a tenant in a certain office building located at Interstate
90/94 and U.S. Highway 151, The American Center, Madison, Wisconsin pursuant to
the terms set forth in that certain Lease dated _____________, 1996, as amended
and supplemented (hereinafter collectively called the "Lease") with Fund VIII
and Fund IX Associates ("Landlord") and does hereby certify and acknowledge to
Landlord as follows:
1. As of the date hereof, Cellular One has commenced to pay Base Rental
(as defined in the Lease) and Tenant's Additional Rental (as defined in the
Lease) due under the Lease and is not in default in the respect thereof under
the Lease.
2. As of the date hereof, Cellular One is in possession of the Leased
Premises (as defined in the Lease) and has accepted the same, including the work
of Landlord performed therein, and Cellular One has no knowledge of any default
of Landlord in the performance and observation of the covenants, conditions and
agreements contained in the Lease on Landlord's part to be kept, observed and
performed.
3. As of the date hereof, there exist no setoffs made by Cellular One
or defenses that Cellular One may claim to the enforcement of the agreements,
terms, covenants or conditions of the Lease.
4. The Lease is a valid and binding obligation by and between Cellular
One and Landlord.
5. The term of the Lease commenced as of __________, 199__ and shall
expire, unless extended or sooner terminated in accordance with the terms of the
Lease, on _______________.
6. The Lease, except as amended by and supplemented by
__________________________________________, has not been further amended or
modified in any respect and, as of the date hereof, is in full force and effect
and enforceable in accordance with its terms.
IN WITNESS WHEREOF, Cellular One has caused this instrument to be executed
as of this ____ day of __________, ____.
WESTEL-MILWAUKEE COMPANY, INC.,
d/b/a Cellular One,
a Wisconsin corporation
WITNESS: By:_______________________________
Title:____________________________
_________________________
<PAGE>
GUARANTY
In consideration of the sum of Ten and No/100 Dollars ($10.00) and other
good and valuable consideration paid or delivered to DAVID M. KRAXBERGER
("Guarantor"), the receipt and sufficiency whereof are hereby acknowledged by
Guarantor, and for the purpose of seeking to induce and as an inducement for the
execution and delivery by FUND VIII AND FUND IX ASSOCIATES, a Georgia general
partnership ("Owner"), of that certain Development Agreement (the "Agreement")
with ADEVCO CORPORATION, a Georgia corporation ("Manager"), of even date
herewith, Guarantor does hereby guarantee to Owner the full and prompt payment
of all sums and amounts payable by Manager under the Agreement, and hereby
further guarantees the full and timely performance and observance of all the
covenants, terms, conditions and agreements therein provided to be performed and
observed by Manager; and Guarantor hereby covenants and agrees to and with Owner
that if default shall at any time be made by Manager in the payment of any sums
or amounts payable by Manager under the Agreement, or if Manager should default
in the performance and observance of any of the terms, covenants and conditions
contained in the Agreement, Guarantor shall and will forthwith pay such sums and
amounts, and shall and will forthwith faithfully perform and fulfill all of such
terms, covenants and conditions and will forthwith pay to Owner all damages that
may arise in consequence of any default by Manager under the Agreement,
including, without limitation, all reasonable attorneys' fees and disbursements
incurred by Owner or caused by any such default or the enforcement of this
Guaranty.
This Guaranty is an unconditional guaranty of payment (and not of
collection) and of performance. The liability of Guarantor is coextensive with
that of Manager and also joint and several and this Guaranty shall be
enforceable against Guarantor without the necessity of any suit or proceeding on
Owner's part of any kind or nature whatsoever against Manager and without the
necessity of any notice of non-payment, non-performance or non-observance or of
any notice of acceptance of this Guaranty or of any other notice or demand to
which Guarantor might otherwise be entitled, all of which Guarantor hereby
expressly waives. Guarantor hereby expressly agrees that the validity of this
Guaranty and the obligations of Guarantor hereunder shall in no way be
terminated, affected, diminished or impaired by reason of (a) the assertion or
the failure to assert by Owner against Manager of any of the rights or remedies
reserved by Owner pursuant to the terms, covenants and conditions of the
Agreement, or (b) any non-liability of Manager under the Agreement due to
insolvency, discharge in bankruptcy or any other defense of a similar nature.
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This Guaranty shall be a continuing guaranty, and the liability of
Guarantor hereunder shall in no way be affected, released or diminished by
reason of (a) any assignment, renewal, modification, amendment or extension of
the Agreement, or (b) any modification or waiver of or change in any of the
terms, covenants and conditions of the Agreement by Owner and Manager, or (c)
any extension of time that may be granted by Owner to Manager, or (d) any
consent, release, indulgence or other action, inaction or omission under or in
respect of the Agreement, or (e) any dealings or transactions or matter or thing
occurring between Owner and Manager, or (f) any bankruptcy, insolvency,
reorganization, liquidation, arrangement, assignment for the benefit of
creditors, receivership, trusteeship or similar proceeding affecting Manager,
whether or not notice thereof or of any thereof is given to Guarantor.
Should Owner be obligated by any bankruptcy or other law to repay to
Manager or to Guarantor or to any trustee, receiver or other representative of
either of them, any amounts previously paid, this Guaranty shall be reinstated
in the amount of such repayments. Owner shall not be required to litigate or
otherwise dispute its obligations to make such repayments if it in good faith
believes that such obligation exists.
No delay on the part of Owner in exercising any right, power or privilege
under this Guaranty or failure to exercise the same shall operate as a waiver of
or otherwise affect any such right, power or privilege, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
No waiver or modification of any provision of this Guaranty nor any
termination of this Guaranty shall be effective unless in writing, signed by
Owner; nor shall any such waiver be applicable except in the specific instance
for which given.
All of Owner's rights and remedies under the Agreement and under this
Guaranty, now or hereafter existing at law or in equity or by statute or
otherwise, are intended to be distinct, separate and cumulative and no exercise
or partial exercise of any such right or remedy therein or herein mentioned is
intended to be in exclusion of or a waiver of any of the others.
Guarantor agrees that whenever at any time or from time to time Guarantor
shall make any payment to Owner or perform or fulfill any term, covenant or
condition hereunder on account of the liability of Guarantor hereunder,
Guarantor will notify Owner in writing that such payment or performance, as the
case may be, is for such purpose. No such payment or performance by Guarantor
pursuant to any provision hereof shall entitle Guarantor by subrogation or
otherwise to the rights of Owner to any payment by
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Manager or out of the property of Manager, except after payment of all sums or
fulfillment of all covenants, terms, conditions or agreements to be paid or
performed by Manager.
Without regard to principles of conflicts of laws, the validity,
interpretation, performance and enforcement of this Guaranty shall be governed
by and construed in accordance with the internal laws of the State of Georgia.
IN WITNESS WHEREOF, the undersigned has duly executed this
Guaranty this 18 day of June , 1996.
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GUARANTOR:
/s/ David M. Kraxberger (SEAL)
------------------------
DAVID M. KRAXBERGER
Residence Address:
4658 Jefferson Township Ln.
---------------------------
Marietta, GA 30060
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Social Security Number:
###-##-####
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EXHIBIT 10(EE)
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OWNER-CONTRACTOR AGREEMENT, DATED JUNE 18, 1996,
------------------------------------------------
BETWEEN WELLS REAL ESTATE FUND VIII, L.P.
-----------------------------------------
AND KRAEMER BROTHERS, INC.
--------------------------
<PAGE>
STANDARD FORM OF AGREEMENT BETWEEN
OWNER AND CONTRACTOR WHERE THE BASIS
OF PAYMENT IS A STIPULATED SUM
AIAEDS AIA DOCUMENT A101
________________________________________________________________________________
AGREEMENT
MADE AS OF THE 18th DAY OF June IN THE YEAR OF
-------- ---------------
NINETEEN HUNDRED AND Ninety Six.
BETWEEN THE OWNER:
(NAME AND ADDRESS)
WELLS REAL ESTATE FUND VIII, L.P.
3885 Holcomb Bridge Road
Norcross, GA 30092
AND THE CONTRACTOR:
(NAME AND ADDRESS)
KRAMER BROTHERS, INC.
925 Park Avenue
Plain, WI 53577
THE PROJECT IS:
(NAME AND LOCATION)
MADISON CELLULAR TELEPHONE COMPANY - NEW OFFICE FACILITY
Madison, Wisconsin
THE ARCHITECT IS:
(NAME AND ADDRESS)
STRANG, INC.
6411 Mineral Point Road
Madison, WI 53705-0019
THE OWNER AND CONTRACTOR AGREE AS SET FORTH BELOW.
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ARTICLE 1
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THE CONTRACT DOCUMENTS
The Contract Documents consist of this Agreement, Conditions of the Contract
(General, Supplementary and other Conditions), Drawings, Specifications, addenda
issued prior to execution of this Agreement, other documents listed in this
Agreement and Modifications issued after execution of this Agreement; these form
the Contract, and are as fully a part of the Contract as if attached to this
Agreement or repeated herein. The Contract represents the entire and integrated
agreement between the parties hereto and supersedes prior negotiations,
representations or agreements, either written or oral. An enumeration of the
Contract Documents, other than Modifications, appears in Article 9.
ARTICLE 2
---------
THE WORK OF THIS CONTRACT
The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract Documents
to be the responsibility of others, which work generally includes:
-----------------------------
Construction of a four-story shell and core office building of approximately
106,238 G.S.F. located in Madison, WI.
ARTICLE 3
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DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
3.1 The date of commencement is the date from which the Contract Time of
Paragraph 3.2 is measured, and shall be the date of this Agreement, as first
written above, unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement, if it differs from the date of this Agreement,
or, if applicable, state that the date will be fixed in a notice to proceed.)
June 20, 1996.
Unless the date of commencement is established by a notice to proceed issued by
the Owner, the Contractor shall notify the Owner in writing not less than five
days before commencing the Work to permit the timely filing of mortgages,
mechanic's liens and other security interests.
3.2 The Contractor shall achieve Substantial Completion of the entire Work not
later than________________________.
(Insert the calendar date or number of calendar days after the date of
commencement. Also insert any requirements for earlier Substantial Completion of
certain portions of the Work, if not stated elsewhere in the Contract
Documents.)
Building base, core and shell: March 31, 1997
Entire Work: June 15, 1997
Contractor shall also complete tenant improvements no later than June 15, 1997
subject to receipt of plans and specifications for tenant improvements no later
than October 31, 1996. Tenant improvements are not included in the Contract, but
may be added by appropriate change order.
,subject to adjustments of this Contract Time as provided in the Contract
Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time.)
ARTICLE 4
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CONTRACT SUM
4.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum of Six Million Forty-Eight Thousand
Three Hundred and Fifty Dollars
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($6,048,350.00), subject to additions and deductions as provided in the Contract
Documents.
4.2 The Contract Sum is based upon the following alternates, if any, which are
described in the Contract Documents and are hereby accepted by the Owner:
(State the number or other identification of accepted alternates. If decisions
on other alternates are to be made by the Owner subsequent to the execution of
this Agreement, attach a schedule of such other alternates showing the amount
for each and the date until which that amount is valid.)
See Adjustments set forth in Exhibit "C" hereto.
The Contract Sum is a "not-to-exceed" price which shall not change as the
Construction Documents are finalized unless material design changes or scope
revisions are made which are not in accord with the drawings listed at
Subparagraph 9.1.5 of this Agreement. Upon completion of the bidding phase a
change order will be executed to incorporate the finalized Construction
Documents and to convert the "not-to-exceed" price to a firm lump sum price. If
savings are generated through the competitive bidding process which result in a
project construction cost less than that upon which the Contract Sum is based,
all of the savings shall be returned to the Owner via such change order to
reflect the project savings.
ARTICLE 5
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PROGRESS PAYMENTS
5.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner shall
make progress payments on account of the Contract Sum to the Contractor as
provided below and elsewhere in the Contract Documents.
5.2 The period covered by each Application for Payment shall be one calendar
month on the last day of the month.
5.3 Provided an Application for Payment is received by the Architect not later
than the Tenth day of a month, the Owner shall make payment to the Contractor
not later than the Twenty-Fifth day of the same month. If an Application for
Payment is received by the Architect after the application date fixed above,
payment shall be made by the Owner not later than Fifteen (15) days after the
Architect receives the Application for Payment.
5.4 Each Application for Payment shall be based upon the Schedule of Values
submitted by the Contractor in accordance with the Contract Documents. The
Schedule of Values shall allocate the entire Contract Sum among the various
portions of the Work and be prepared in such form and supported by such data to
substantiate its accuracy as the Architect may require. This Schedule, unless
objected to by the Architect, shall be used as a basis for reviewing the
Contractor's Applications for Payment.
5.5 Applications for Payment shall indicate the percentage of completion of each
portion of the Work as of the end of the period covered by the Application for
Payment.
5.6 Subject to the provisions of the Contract Documents, the amount of each
progress payment shall be computed as follows:
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5.6.1. Take that portion of the Contract Sum properly allocable to completed
Work as determined by multiplying the percentage completion of each portion of
the Work by the share of the total Contract Sum allocated to that portion of the
Work in the Schedule of Values, less retainage of five percent (5%). Pending
final determination of cost to the Owner of changes in the Work, amounts not in
dispute may be included as provided in Subparagraph 7.3.7 of the General
Conditions even though the Contract Sum has not yet been adjusted by Change
Order;
5.6.2 Add that portion of the Contract Sum properly allocable to materials and
equipment delivered and suitably stored at the site for subsequent incorporation
in the completed construction (or, if approved in advance by the Owner, suitably
stored off the site at a location agreed upon in writing), less retainage of
five percent (5%); and
5.6.3 Subtract the aggregate of previous payments made by the Owner; and
5.6.4 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of the General
Conditions.
5.7 The progress payment amount determined in accordance with Paragraph 5.6
shall be further modified under the following circumstances:
5.7.1 Add, upon Substantial Completion of the Work, a sum sufficient to increase
the total payments to One Hundred percent (100%) of the Contract Sum, less such
amounts as the Architect shall determine for incomplete Work and unsettled
claims: and
5.7.2 Add, if final completion of the Work is thereafter materially delayed
through no fault of the Contractor, any additional amounts payable in accordance
with Subparagraph 9.10.3 of the General Conditions.
5.8 Reduction or limitation of retainage, if any, shall be as follows:
(If it is intended, prior to Substantial Completion of the entire Work, to
reduce or limit the retainage resulting from the percentages inserted in
Subparagraphs 5.6.1 and 5.6.2 above, and this is not explained elsewhere in the
Contract Documents, insert here provisions for such reduction or limitation.)
ARTICLE 6
---------
FINAL PAYMENT
Final payment, constituting the entire unpaid balance of the Contract Sum, shall
be made by the Owner to the Contractor when (1) the Contract has been fully
performed by the Contractor except for the Contractor's responsibility to
correct nonconforming Work as provided in Subparagraph 12.2.2 of the General
Conditions and to satisfy other requirements, if any, which necessarily survive
final payment; and (2) a final Certificate for Payment has been issued by the
Architect; such final payment shall be made by the Owner not more than 30 days
after the issuance of the Architect's final Certificate for Payment.
ARTICLE 7
---------
MISCELLANEOUS PROVISIONS
7.1 Where reference is made in this Agreement to a provision of the General
Conditions or another Contract Document, the reference refers to that provision
as amended or supplemented by other provisions of the Contract Documents.
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7.2 Payments due and unpaid under the Contract shall bear interest from the date
payment is due at the rate stated below, or in the absence thereof, at the legal
rate prevailing from time to time at the place where the Project is located.
(Insert rate of interest agreed upon, if any.)
The rate of interest shall be 10% per annum.
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owners's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers.)
7.3
ARTICLE 8
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TERMINATION OR SUSPENSION
8.1 The Contract may be terminated by the Owner or the Contractor as provided in
Article 14 of the General Conditions.
8.2 The Work may be suspended by the Owner as provided in Article 14 of the
General Conditions.
ARTICLE 9
---------
ENUMERATION OF CONTRACT DOCUMENTS
9.1 The Contract Documents, except for Modifications issued after execution of
this Agreement, are enumerated as follows:
9.1.1 The Agreement is this executed Standard Form of Agreement Between Owner
and Contractor, AIA Document A101, 1987 Edition.
9.1.2 The General Conditions are the General Conditions of the Contract for
Construction, AIA Document A201, 1987 Edition as modified and attached hereto as
----------------------------------
Exhibit "A".
- -----------
9.1.3 The Supplementary and other Conditions of the Contract are those contained
in the as follows:
DOCUMENT TITLE PAGES
Supplemental General Conditions attached hereto as Exhibit "B."
9.1.4 The Specifications are those contained in the Project Manual dated as in
Subparagraph 9.1.3, and are as follows:
(Either list the Specifications here or refer to an exhibit attached to this
Agreement.)
SECTION TITLE PAGES
9.1.5 The Drawings are as follows, and are dated
unless a different date is shown below:
(Either list the Drawings here or refer to an exhibit attached to this
Agreement.)
NUMBER TITLE DATE
A0.1 Site Plan Dated December 1, 1995
A1.1 First Floor Plan Dated December 7, 1995
A1.2 Second Floor Plan Dated December 6, 1995
A1.3 Third Floor Plan Dated December 6, 1995
A2.1 Three Story Ext. Elevations w/EIFS
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A2.1 Three Story Ext. Elevations w/Brick Dated December 6, 1995
A2.2 Four Story Ext. Elevations w/EIFS Dated December 6, 1995
A2.2 Four Story Ext. Elevations w/Brick Dated December 6, 1995
A3.1 Wall Sections Dated November 30, 1995
Outline Specifications Pages 1-9 Dated December 12, 1995
Revised Building Elevation Received March 25, 1996
Revised Preliminary Floor Plans Received March 29, 1996
9.1.6 The addenda, if any, are as follows:
NUMBER DATE PAGES
Portions of addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 9
9.1.7 Other documents, if any, forming part of the Contract Documents are as
follows:
(List here any additional documents which are intended to form part of the
Contract Documents. The General Conditions provide that bidding requirements
such as advertisement or invitation to bid. Instructions to Bidders, sample
forms and the Contractor's bid are not part of the Contract Documents unless
enumerated in this Agreement. They should be listed here only if intended to be
part of the Contract Documents.)
1. Letter from Kraemer Brothers, Inc. to ADEVCO Corporation dated May 29, 1996
as amended and attached hereto as Exhibit "C."
2. Exhibits "D" and "E" hereto.
This Agreement is entered into as of the day and year first written above and is
executed in at least three original copies of which one is to be delivered to
the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
OWNER
FUND VIII AND FUND IX ASSOCIATES,
a Georgia general partnership
By: Wells Real Estate Fund VIII, L.P.,
a Georgia limited partnership
By: /s/ Leo F. Wells
--------------------------------
Leo F. Wells, III,
General Partner
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By: Wells Partners, L.P.,
a Georgia limited partnership,
General Partner
By: /s/ Leo F. Wells
--------------------------------------
Leo F. Wells, III,
President of Wells Capital, Inc.,
General Partner
By: Wells Real Estate Fund IX, L.P.,
a Georgia limited partnership
By: /s/ Leo F. Wells
-------------------------------------------
Leo F. Wells, III
General Partner
By: Wells Partners, L.P.
a Georgia limited partnership,
General Partner
By: /s/ Leo F. Wells
--------------------------------------
Leo F. Wells, III,
President of Wells Capital, Inc.,
General Partner
CONTRACTOR
KRAEMER BROTHERS, INC.
By: /s/ Tom Kraemer
---------------------------------------
Tom Kraemer President
- -------------------------------------------
(Printed Name and Title)
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EXHIBIT "A"
- ---------------------
GENERAL CONDITIONS OF THE CONTRACT
FOR CONSTRUCTION
AIAEDS AIA DOCUMENT A201
________________________________________________________________________________
1987 EDITION
TABLE OF ARTICLES
1. GENERAL PROVISIONS 8. TIME
2. OWNER 9. PAYMENTS AND COMPLETION
3. CONTRACTOR 10. PROTECTION OF PERSONS AND PROPERTY
4. ADMINISTRATION OF THE CONTRACT 11. INSURANCE AND BONDS
5. SUBCONTRACTORS 12. UNCOVERING AND CORRECTION OF WORK
6. CONSTRUCTION BY OWNER OR BY 13. MISCELLANEOUS PROVISIONS
SEPARATE CONTRACTORS
14. TERMINATION OR SUSPENSION OF THE
7. CHANGES IN THE WORK CONTRACT
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- --------------------------------------------------------------------------------
GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION
- --------------------------------------------------------------------------------
ARTICLE 1
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GENERAL PROVISIONS
1.1 BASIC DEFINITIONS
1.1.1 THE CONTRACT DOCUMENTS
The Contract Documents consist of the Agreement between Owner and Contractor
(hereinafter the Agreement), Conditions of the Contract (General, Supplementary
and other Conditions), Drawings, Specifications, addenda issued prior to
execution of the Contract, other documents listed in the Agreement and
Modifications issued after execution of the Contract. A Modification is (1) a
written amendment to the Contract signed by both parties, (2) a Change Order,
(3) a Construction Change Directive or (4) a written order for a minor change in
the Work issued by the Architect. Unless specifically enumerated in the
Agreement, the Contract Documents do no include other documents such as bidding
requirements (advertisement or invitation to bid, Instructions to Bidders,
sample forms, the Contractor's bid or portions of addenda relating to bidding
requirements).
1.1.2 THE CONTRACT
The Contract Documents form the Contract for Construction. The Contract
represents the entire and integrated agreement between the parties hereto and
supersedes prior negotiations, representations or agreements, either written or
oral. The Contract may be amended or modified only by a Modification. The
Contract Documents shall not be construed to create a contractual relationship
of any kind (1) between the Architect and Contractor, (2) between the Owner and
a Subcontractor or Sub-contractor or (3) between any persons or entities other
than the Owner and Contractor. The Architect shall, however, be entitled to
performance and enforcement of obligations under the Contract intended to
facilitate performance of the Architect's duties.
1.1.3 THE WORK
The term "Work" means the construction and services required by the Contract
Documents, whether completed or partially completed, and includes all other
labor, materials, equipment and services provided or to be provided by the
Contractor to fulfill the Contractor's obligations. The Work may constitute the
whole or a part of the Project.
1.1.4 THE PROJECT
The Project is the total construction of which the Work performed under the
Contract Documents may be the whole or a part and which may include construction
by the Owner or by separate contractors.
1.1.5 THE DRAWINGS
The Drawings are the graphic and pictorial portions of the Contract Documents,
wherever located and whenever issued, showing the design, location and
dimensions of the Work, generally including plans, elevations, sections,
details, schedules and diagrams.
1.1.6 THE SPECIFICATIONS
The Specifications are that portion of the Contract Documents consisting of the
written requirements for materials, equipment, construction systems, standards
and workmanship for the Work, and performance of related services.
1.1.7 THE PROJECT MANUAL
The Project Manual is the volume usually assembled for the Work which may
include the bidding requirements, sample forms. Conditions of the Contract and
Specifications.
1.2 EXECUTION, CORRELATION AND INTENT
12.1 The Contract Documents shall be signed by the Owner and Contractor as
provided in the Agreement. If either the Owner or Contractor or both do not sign
all the Contract Documents, the Architect shall identify such unsigned Documents
upon request.
1.2.2 Execution of the Contract by the Contractor is a representation that the
Contractor has visited the site, become familiar with local conditions under
which the Work is to be performed and correlated personal observations with
requirements of the Contract Documents.
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1.2.3 The intent of the Contract Documents is to include all items necessary for
the proper execution and completion of the Work by the Contractor. The Contract
Documents are complementary, and what is required by one shall be as binding as
if required by all; performance by the Contractor shall be required only to the
extent consistent with the Contract Documents and reasonably inferable from them
as being necessary to produce the intended results.
1.2.4 Organization of the Specifications into divisions, sections and articles,
and arrangement of Drawings shall not control the Contractor in dividing the
Work among Subcontractors or in establishing the extent of Work to be performed
by any trade.
1.2.5 Unless otherwise stated in the Contract Documents, words which have
well-known technical or construction industry meanings are used in the Contract
Documents in accordance with such recognized meanings.
1.3 OWNERSHIP AND USE OF ARCHITECT'S DRAWINGS, SPECIFICATIONS AND OTHER
DOCUMENTS
1.3.1 The Drawings, Specifications and other documents prepared by the Architect
are instruments of the Architect's service through which the Work to be executed
by the Contractor is described. The Contractor may retain one contract record
set. Neither the Contractor nor any Subcontractor, Sub-subcontractor or material
or equipment supplier shall own or claim a copyright in the Drawings,
Specifications and other documents prepared by the Architect, and unless
otherwise indicated the Architect shall be deemed the author of them and will
retain all common law, statutory and other reserved rights, in addition to the
copyright. All copies of them, except the Contractor's record set, shall be
returned or suitably accounted for to the Architect, on request, upon completion
of the Work. The Drawings, Specifications and other documents prepared by the
Architect, and copies thereof furnished to the Contractor, are for use solely
with respect to this Project. They are not to be used by the Contractor or any
Subcontractor, Sub-subcontractor or material or equipment supplier on other
projects or for additions to this Project outside the scope of the Work without
the specific written consent of the Owner and Architect. The Contractor,
Subcontractors, Sub-subcontractors and material or equipment suppliers are
granted a limited license to use and reproduce applicable portions of the
Drawings, Specifications and other documents prepared by the Architect
appropriate to and for use in the execution of their Work under the Contract
Documents. All copies made under this license shall bear the statutory copyright
notice, if any, shown on the Drawings, Specifications and other documents
prepared by the Architect. Submittal or distribution to meet official regulatory
requirements or for other purposes in connection with this Project is not to be
construed as publication in derogation of the Architect's copyright or other
reserved rights.
1.4 CAPITALIZATION
1.4.1 Terms capitalized in this General Conditions include those which are (1)
specifically defined, (2) the titles of numbered articles and identified
references to Paragraphs, Subparagraphs and Clauses in the document or (3) the
titles of other documents published by the American Institute of Architects.
1.5 INTERPRETATION
1.5.1 In the interest of brevity the Contract Documents frequently omit
modifying words such as "all" and "any" and articles such as "the" and "an," but
the fact that a modifier or an article is absent from one statement and appears
in another is not intended to affect the interpretation of either statement.
ARTICLE 2
---------
OWNER
2.1 DEFINITION
2.1.1 The Owner is the person or entity identified as such in the Agreement and
is referred to throughout the Contract Documents as if singular in number. The
term "Owner" means the Owner or the Owner's authorized representative.
2.1.2 The Owner upon reasonable written request shall furnish to the Contractor
in writing information which is necessary and relevant for the Contractor to
evaluate, give notice of or enforce mechanic's lien rights. Such information
shall include a correct statement of the record legal title to the property on
which the Project is located, usually referred to as the site, and the Owner's
interest therein at the time of execution of the Agreement and, within five days
after any change, information of such change in title, recorded or unrecorded.
2.2 INFORMATION AND SERVICES REQUIRED OF THE OWNER
2.2.1 The Owner shall, at the request of the Contractor, prior to execution of
the Agreement and promptly from time to time thereafter, furnish to the
Contractor reasonable evidence that financial arrangements have been made to
fulfill the Owner's obligations under the Contract.
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2.2.2 The Owner shall furnish surveys describing physical characteristics, legal
limitations and utility locations for the site of the Project, and a legal
description of the site.
2.2.3 Except for permits and fees which are the responsibility of the Contractor
under the Contract Documents, the Owner shall secure and pay for necessary
approvals, easements, assessments and charges required for construction, use or
occupancy of permanent structures or for permanent changes in existing
facilities.
2.2.4 Information or services under the Owner's control shall be furnished by
the Owner with reasonable promptness to avoid delay in orderly progress of the
Work.
2.2.5 Unless otherwise provided in the Contract Documents, the Contractor will
be furnished, free of charge, such copies of Drawings and Project Manuals as are
reasonably necessary for execution of the Work.
2.2.6 The foregoing are in addition to other duties and responsibilities of the
Owner enumerated herein and especially those in respect to Article 6
(Construction by Owner or by Separate Contractors), Article 9 (Payments and
Completion) and Article 11 (Insurance and Bonds).
2.3 OWNER'S RIGHT TO STOP THE WORK
2.3.1 If the Contractor fails to correct Work which is not in accordance with
the requirements of the Contract Documents as required by Paragraph 12.2 or
persistently fails to carry out Work in accordance with the Contract Documents,
the Owner, by written order signed personally or by an agent specifically so
empowered by the Owner in writing, may order the Contractor to stop the Work, or
any portion thereof, until the cause for such order has been eliminated;
however, the right of the Owner to stop the Work shall not give rise to a duty
on the part of the Owner to exercise this right for the benefit of the
Contractor or any other person or entity, except to the extent required by
Subparagraph 6.1.3.
2.4 OWNER'S RIGHT TO CARRY OUT THE WORK
2.4.1 If the Contractor defaults or neglects to carry out the Work in accordance
with the Contract Documents and fails within a seven-day period after receipt of
written notice from the Owner to commence and continue correction of such
default or neglect with diligence and promptness, the Owner may after such
seven-day period give the Contractor a second written notice to correct such
deficiencies within a second seven-day period. If the Contractor within such
second seven-day period after receipt of such second notice fails to commence
and continue to correct any deficiencies, the Owner may, without prejudice to
other remedies the Owner may have, correct such deficiencies. In such case an
appropriate Change Order shall be issued deducting from payments then or
thereafter due the Contractor the cost of correcting such deficiencies,
including compensation for the Architect's additional services and expenses made
necessary by such default, neglect or failure. Such action by the Owner and
amounts charged to the Contractor are both subject to prior approval of the
Architect. If payments then or thereafter due the Contractor are not sufficient
to cover such amounts, the Contractor shall pay the difference to the Owner.
ARTICLE 3
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CONTRACTOR
3.1 DEFINITION
3.1.1 The Contractor is the person or entity identified as such in the Agreement
and is referred to throughout the Contract Documents as if singular in number.
The term "Contractor" means the Contractor or the Contractor's authorized
representative.
3.2 REVIEW OF CONTRACT DOCUMENTS AND FIELD CONDITIONS BY CONTRACTOR
3.2.1 The Contractor shall carefully study and compare the Contract Documents
with each other and with information furnished by the Owner pursuant to
Subparagraph 2.2.2 and shall at once report to the Architect errors,
inconsistencies or omissions discovered. The Contractor shall not be liable to
the Owner or Architect for damage resulting from errors, inconsistencies or
omissions in the Contract Documents unless the Contractor was responsible for
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such error, inconsistency or omission or recognized such error, inconsistency or
- ----------------------------------------
omission and knowingly failed to report it to the Architect. If the Contractor
performs any construction activity knowing it involves a recognized error,
inconsistency or omission in the Contract Documents without such notice to the
Architect, the Contractor shall assume appropriate responsibility for such
performance and shall bear an appropriate amount of attributable costs for
correction.
3.2.2 The Contractor shall take field measurements and verify field conditions
and shall carefully compare such field measurements and conditions and other
information known to the Contractor with the Contract Documents before
commencing activities. Errors,
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inconsistencies or omissions discovered shall be reported to the Architect at
once.
3.2.3 The Contractor shall perform the Work in accordance with the Contract
Documents and submittals approved pursuant to Paragraph 3.12.
3.3 SUPERVISION AND CONSTRUCTION PROCEDURES
3.3.1 The contractor shall supervise and direct the Work, using the contractors
best skill and attention. The Contractor shall be solely responsible for and
have control over construction means, methods, techniques, sequences and
procedures and for coordinating all portions of the Work under the Contract,
unless Contract Documents give other specific instructions concerning these
matters.
3.3.2 The Contractor shall be responsible to the Owner for acts and omissions of
the Contractor's employees, Subcontractors and their agents and employees, and
other persons performing portions of the Work under a contract with the
Contractor.
3.3.3 The Contractor shall not be relieved of obligations to performing the work
in accordance with the Contract Documents either by activities or duties of the
Architect in the Architect's administration of the Contract, or by tests,
inspections or approvals required or performed by persons other than the
Contractor.
3.3.4 The Contractor shall be responsible for inspection of portions of Work
already performed under this Contract to determine that such portions are in
proper condition to receive subsequent Work.
3.4 LABOR AND MATERIALS
3.4.1 Unless otherwise provided in the Contract Documents, the Contractor shall
provide and pay for labor, materials, equipment, tools, construction equipment
and machinery, water, heat, utilities, transportation and other facilities and
services necessary for proper execution and completion of the Work, whether
temporary or permanent and whether or not incorporated or to be incorporated in
the Work.
3.4.2 The Contractor shall enforce strict discipline and good order among the
Contractor's employees and other persons carrying out the Contract. The
Contractor shall not permit employment of unfit persons or persons not skilled
in tasks assigned to them.
3.5 WARRANTY
3.5.1 The Contractor warrants to the Owner and Architect that materials and
equipment furnished under the Contract will be of good quality and new unless
otherwise required or permitted by the Contract Documents, that the Work will be
free from defects not inherent in the quality required or permitted, and that
the Work will conform with the requirements of the Contract Documents. Work not
conforming to these requirements, including substitutions not properly approved
and authorized, may be considered defective. The Contractor's warranty excludes
remedy for damage or defect caused by abuse, modifications not executed by the
Contractor, improper or insufficient maintenance, improper operations, or normal
wear and tear under normal usage. If required by the Architect, the Contractor
shall furnish satisfactory evidence as to the kind and quality of materials and
equipment.
3.6 TAXES
3.6.1 The Contractor shall pay sales, consumer, use and similar taxes for the
work or portions thereof provided by the Contractor which are legally enacted
when bids are received or negotiations concluded, whether or not yet effective
or merely scheduled to go into effect.
3.7 PERMITS, FEES AND NOTICES
3.7.1 Unless otherwise provided in the Contract Documents, the Contractor shall
secure and pay for the building permit and other permits and governmental fees,
licenses and inspections necessary for proper execution and completion of the
Work which are customarily secured after execution of the Contract and which are
legally required when bids are received or negotiations concluded.
3.7.2 The Contractor shall comply with and give notices required by laws,
ordinances, rules, regulations and lawful orders of public authorities bearing
on performance of the Work.
3.7.3 It is not the Contractor's responsibility to ascertain that the Contract
Documents are in accordance with applicable laws, statutes, ordinances, building
codes, and rules and regulations. However, if the Contractor observes that
portions of the Contract Documents are at variance therewith, the Contractor
shall promptly notify the Architect and Owner in writing, and necessary changes
shall be accomplished by appropriate Modifications.
3.7.4 If the Contractor performs Work knowing it to be contrary to laws,
statutes, ordinances, building codes, and rules and regulations without such
notice to the Architect and Owner, the Contractor shall assume full
responsibility for such Work and shall bear the attributable costs.
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3.8 ALLOWANCES
3.8.1 The Contractor shall include in the Contract Sum all allowances stated in
the Contract Documents. Items covered by allowances shall be supplied for such
amounts and by such persons or entities as the Owner may direct, but the
Contractor shall not be required to employ persons or entities against which the
Contractor makes reasonable objections.
3.8.2 Unless otherwise provided in the Contract Documents:
.1 materials and equipment under an allowance shall be selected
promptly by the Owner to avoid delay in the Work;
.2 shall cover the cost to the Contractor of materials and equipment
delivered at the site and all required taxes, less applicable trade
discounts:
.3 Contractor's costs for unloading and handling at the site, labor,
installation costs, overhead, profit and other expenses contemplated
for stated allowance amounts shall be included in the Contract Sum and
not in the allowances:
.4 whenever costs are more than or less than allowances, the Contract
Sum shall be adjusted accordingly by Change Order. The amount of the
Change Order shall reflect (1) the difference between actual costs and
the allowances under Clause 3.8.2.2 and (2) changes in Contractor's
costs under Clause 3.8.2.3.
3.9 SUPERINTENDENT
3.9.1 The Contractor shall employ a competent superintendent and necessary
assistants who shall be in attendance at the Project site during performance of
the Work. The superintendent shall represent the Contractor, and communications
given to the superintendent shall be as binding as if given to the Contractor.
Important communications shall be confirmed in writing. Other communications
shall be similarly confirmed on written request in each case.
3.10 CONTRACTOR'S CONSTRUCTION SCHEDULES
3.10.1 The Contractor, promptly after being awarded the Contract, shall prepare
and submit for the Owner's and Architect's information a Contractor's
construction schedule for the Work. The schedule shall not exceed time limits
current under the Contract Documents, shall be revised at appropriate intervals
as required by the conditions of the Work and Project, shall be related to the
entire Project to the extent required by the Contract Documents, and shall
provide for expeditious and practicable execution of the Work.
3.10.2 The Contractor shall prepare and keep current, for the Architect's
approval, a schedule of submittals which is coordinated with the Contractor's
construction schedule and allows the Architect reasonable time to review
submittals.
3.10.3 The Contractor shall conform to the most recent schedules.
3.11 DOCUMENTS AND SAMPLES AT THE SITE
3.11.1 The Contractor shall maintain at the site for the Owner one record copy
of the Drawings, Specifications, addenda, Change Orders and other Modifications,
in good order and marked currently to record changes and selections made during
currently to record changes and selections made during construction, and in
addition approved Shop Drawings, Product Data, Samples and similar required
submittals. These shall be available to the Architect and shall be delivered to
the Architect for submittal to the Owner upon completion of the Work.
3.12 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES
3.12.1 Shop Drawings are drawings, diagrams, schedules and other data specially
prepared for the Work by the Contractor or a Subcontractor, Sub-subcontractor,
manufacturer, supplier or distributor to illustrate some portion of the Work.
3.12.2 Product Data are illustrations, standard schedules, performance charts,
instructions, brochures, diagrams and other information furnished by the
Contractor to illustrate materials or equipment for some portion of the Work.
3.12.3 Samples are physical examples which illustrate materials, equipment or
workmanship and establish standards by which the Work will be judged.
3.12.4 Shop Drawings, Product Data, Samples and similar submittals are not
Contract Documents. The purpose of their submittal is to demonstrate for those
portions of the Work for which submittals are required the way the Contractor
proposes to conform to the information given and the design concept expressed in
the Contract Documents. Review by the Architect is subject to the limitations of
Subparagraph 4.2.7.
3.12.5 The Contractor shall review, approve and submit to the Architect Shop
Drawings, Product Data, Samples and similar submittals required by the Contract
Documents with reasonable promptness and in such sequence as to cause no delay
in the Work or in the activities of the Owner or of separate contractors.
Submittals made by the Contractor which are not
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required by the Contract Documents may be returned without action.
3.12.6 The Contractor shall perform no portion of the Work requiring submittal
and review of Shop Drawings, Product Data, Samples or similar submittals until
the respective submittal has been approved by the Architect. Such Work shall be
in accordance with approval submittals.
3.12.7 By approving and submitting Shop Drawings, Product Data, Samples and
similar submittals, the Contractor represent that the Contractor has determined
and verified materials, field measurements and field construction criteria
related thereto, or will do so, and has checked and coordinated and information
contained within such submittals with the requirements of the Work and the
Contract Documents.
3.12.8 The Contractor shall not be relieved of responsibility for deviations
from requirements of the Contract Documents by the Architect's approval of Shop
Drawings, Product Data, Samples or similar submittals unless the Contractor has
specifically informed the Architect in writing of such deviation at the time of
submittal and the Architect has given written approval to the specific
deviation. The Contractor shall not be relieved of responsibility for errors or
omissions in Shop Drawings, Product Data, Samples or similar submittals by the
Architect's approval thereof.
3.12.9 The Contractor shall direct specific attention, in writing or on
resubmitted Shop Drawings, Product Data, Samples or similar submittals, to
revisions other than those requested by the Architect on previous submittals.
3.12.10 Informational submittals upon which the Architect is not expected to
take responsive action may be so identified in the Contract Documents.
3.12.11 When professional certification of performance criteria of materials,
systems or equipment is required by the Contract Documents, the Architect shall
be entitled to rely upon the accuracy and completeness of such calculations and
certifications.
3.13 USE OF SITE
3.13.1 The Contractor shall confine operations at the site to areas permitted by
law, ordinances, permits and the Contract Documents and shall not unreasonably
encumber the site with materials or equipment.
3.14 CUTTING AND PATCHING
3.14.1 The Contractor shall be responsible for cutting, fitting or patching
required to complete the Work or to make its parts fit together properly.
3.14.2 The Contractor shall not damage or endanger a portion of the Work or
fully or partially completed construction of the Owner or separate contractors
by cutting, patching or otherwise altering such construction, or by excavation.
The Contractor shall not cut or otherwise alter such construction by the Owner
or a separate contractor except with written consent of the Owner and of such
separate contractor; such consent shall not be unreasonably withheld. The
Contractor shall not be unreasonably withheld. The Contractor shall not
unreasonably withhold from the Owner or a separate contractor the Contractor's
consent to cutting or otherwise altering the Work.
3.15 CLEANING UP
3.15.1 The Contractor shall keep the premises and surrounding area free from
accumulation of waste materials or rubbish caused by operations under the
Contract. At completion of the Work the Contractor shall remove from and about
the Project waste materials, rubbish, the Contractor's tools, construction
equipment, machinery and surplus materials.
3.15.2 If the Contractor fails to clean up as provided in the Contract
Documents, the Owner may do so and the cost thereof shall be charged to the
Contractor.
3.16 ACCESS TO WORK
3.16.1 The Contractor shall provide the Owner and Architect access to the Work
in preparation and progress wherever located.
3.17 ROYALTIES AND PATENTS
3.17.1 The Contractor shall pay all royalties and license fees. The Contractor
shall defend suits or claims for infringement of patent rights and shall hold
the Owner and Architect harmless from loss on account thereof, but shall not be
responsible for such defense or loss when a particular design, process or
product of a particular manufacturer or manufacturers is required by the
Contract Documents. However, if the Contractor has reason to believe that the
required design, process or product is an infringement of a patent, the
Contractor shall be responsible for such loss unless such information is
promptly furnished to the Architect.
3.18 INDEMNIFICATION
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3.18.2 In claims against any person or entity indemnified under this Paragraph
3.18 by an employee of the Contractor, a Subcontractor, anyone directly or
indirectly employed by them or anyone for whose acts they may be liable, the
indemnification obligation under this Paragraph 3.18 shall not be limited by a
limitation on amount or type of damages, compensation or benefits payable by or
for the Contractor or a Subcontractor under workers' or workmen's compensation
acts, disability benefit acts or other employee benefit acts.
3.18.3 The obligations of the Contract under this Paragraph 3.18 shall not
extend to the liability of the Architect, the Architect's consultants, and
agents and employees of any of them arising out of (1) the preparation or
approval of maps, drawings, opinions, reports, surveys, Change Orders, design or
specifications, or (2) the giving of or the failure to give directions or
instructions by the Architect, the Architect's consultants, and agents and
employees of any of them provided such giving or failure to give is the primary
cause of the injury of damage.
ARTICLE 4
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ADMINISTRATION OF THE CONTRACT
4.1 ARCHITECT
4.1.1 The Architect is the person lawfully licensed to practice architecture or
an entity lawfully practicing architecture identified as such in the Agreement
and is referred to throughout the Contract Documents as if singular in number.
The term "Architect" means the Architect or the Architect's authorized
representative.
4.1.2 Duties, responsibilities and limitations of authority of the Architect as
set forth in the Contract Documents shall not be restricted, modified or
extended without written consent of the Owner, Contractor and Architect. Consent
shall not be unreasonably withheld.
4.1.3 In case of termination of employment of the Architect, the Owner shall
appoint an architect against whom the Contractor makes no reasonable objection
and whose status under the Contract Documents shall be that of the former
architect.
4.1.4 Disputes arising under Subparagraphs 4.1.2 and 4.1.3 shall be subject to
arbitration.
4.2 ARCHITECT'S ADMINISTRATION OF THE CONTRACT
4.2.1. The Architect will provide administration of the contract as described
in the Contract Documents, and will be the Owner's representative (1) during
construction, (2) until final payment is due and (3) with the Owner's
concurrence, from time to time during the correction period described in
Paragraph 12.2. The Architect will advise and consult with the Owner. The
Architect will have authority to act on behalf of the Owner only to the extent
provided in the Contract Documents, unless otherwise modified by written
instrument in accordance with other provisions of the Contract.
4.2.2 The Architect will visit the site at intervals appropriate to the stage of
construction to become generally familiar with the progress and quality of the
completed Work and to determine in general if the Work is being performed in a
manner indicating that the Work, when completed, will be in accordance with the
Contract Documents. However, the Architect will not be required to make
exhaustive or continuous on-site inspections to check quality or quantity of the
Work. On the basis of on-site observations as an architect, the Architect will
keep the Owner informed of progress of the Work, and will endeavor to guard the
Owner against defects and deficiencies in the Work.
4.2.3 The Architect will not have control over or charge of and will not be
responsible for construction means, methods, techniques, sequences or
procedures, or for safety precautions and programs in connection with the Work,
since these are solely the Contractor's responsibility as provided in Paragraph
3.3. The Architect will not be responsible for the Contractor's failure to carry
out the Work in accordance with the Contract Documents. The Architect will not
have control over or charge of and will not be responsible for acts or omissions
of the Contractor, Subcontractors, or their agents or employees, or of any other
persons performing portions of the Work.
4.2.4 COMMUNICATIONS FACILITATING CONTRACT ADMINISTRATION.
Except as otherwise provided in the Contract Documents or when direct
communications have been specially authorized, the Owner and Contractor shall
endeavor to communicate through the Architect. Communications by and with the
Architect's consultants shall be through
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the Architect. Communications by and with Subcontractors and material suppliers
shall be through the Contractor. Communications by and with separate contractors
shall be through the Owner.
4.2.5 Based on the Architect's observations and evaluations of the Contractor's
Applications for Payment, the Architect will review and certify the amounts due
the Contractor and will issue Certificates for Payment in such amounts.
4.2.6 The Architect will have authority to reject Work which does not conform to
the Contract Documents. Whenever the Architect considers it necessary or
advisable for implementation of the intent of the Contract Documents, the
Architect will have authority to require additional inspection or testing of the
Work in accordance with Subparagraphs 13.5.2 and 13.5.3, whether or not such
Work is fabricated, installed or completed. However, neither this authority of
the Architect nor a decision made in good faith either to exercise or not to
exercise such authority shall give rise to a duty or responsibility of the
Architect to the Contract, Subcontractors, material and equipment suppliers,
their agents or employees, or other persons performing portions of the Work.
4.2.7 The Architect will review and approve or take other appropriate action
upon the Contractor's submittals such as Shop Drawings, Product Data and
Samples, but only for the limited purpose of checking for conformance with
information given and the design concept expressed in the Contract Documents.
The Architect's action will be taken with such reasonable promptness as to cause
no delay in the Work or in the activities of the Owner. Contractor or separate
contractors, while allowing sufficient time in the Architect's professional
judgement to permit adequate review. Review of such submittals is not conducted
for the purpose of determining the accuracy and completeness of other details
such as dimensions and quantities, or for substantiating instructions for
installation or performance of equipment or systems, all of which remain the
responsibility of the Contractor as required by the Contract Documents. The
Architect's review of the Contractor's submittals shall not relieve the
Contractor of the obligations under Paragraph 3.3, 3.5 and 3.12. The Architect's
review shall not constitute approval of safety precautions or, unless otherwise
specifically stated by the Architect, of any construction means, methods,
techniques, sequences or procedures. The Architect's approval of a specific item
shall not indicate approval of an assembly of which the item is a component.
4.2.8 The Architect will prepare Change Orders and Construction Change
Directives, and may authorize minor changes in the Work as provided in Paragraph
7.4.
4.2.9 The Architect will conduct inspections to determine the date or dates of
Substantial Completion and the date of final completion, will receive and
forward to the Owner for the Owner's review and records written warranties and
related documents required by the Contract and assembled by the Contractor, and
will issue a final Certificate for Payment upon compliance with the requirements
of the Contract Documents.
4.2.10 If the Owner and Architect agree, the Architect will provide one or more
project representatives to assist in carrying out the Architect's
responsibilities at the site. The duties, responsibilities and limitations of
authority of such project representatives shall be as set forth in an exhibit to
be incorporated in the Contract Documents.
4.2.11 The Architect will interpret and decide matters concerning performance
under and requirements of the Contract Documents on written request of either
the Owner or Contractor. The Architect's response to such requests will be made
with reasonable promptness and within any time limits agreed upon. If no
agreement is made concerning the time within which interpretations required of
the Architect shall be furnished in compliance with this Paragraph 4.2, then
delay shall not be recognized on account of failure by the Architect to furnish
such interpretations until 15 days after written request is made for them.
4.2.12 Interpretations and decisions of the Architect will be consistent with
the intent of and reasonably inferable from the Contract Documents and will be
in writing or in the form of drawings. When making such interpretations and
decisions, the Architect will endeavor to secure faithful performance by both
Owner and Contractor, will not show partiality to either and will not be liable
for results of interpretations or decisions so rendered in good faith.
4.2.13 The Architect's decisions on matters relating to aesthetic effect will be
final if consistent with the intent expressed in the Contract Documents.
4.3 CLAIMS AND DISPUTES
4.3.1 DEFINITION. A Claim is a demand or assertion by one of the parties
seeking, as a matter of right, adjustment or interpretation of Contract terms,
payment of money, extension of time or other relief with respect of money,
extension of time or other relief with respect to the terms of the Contract. The
term "Claim" also includes other disputes and matters in question between the
Owner and Contractor arising out of or relating to the Contract. Claims must be
made by written notice.
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The responsibility to substantiate Claims shall rest with the party making the
Claim.
4.3.2 DECISION OF ARCHITECT. Claims, including those alleging an error or
omission by Architect, shall be referred initially to the Architect for action
as provided in Paragraph 4.4. A decision by the Architect, as provided in
Subparagraph 4.4.4. shall be required as a condition precedent to arbitration or
litigation of a Claim between the Contractor and Owner as to all such matters
arising prior to the date final payment is due, regardless of (1) whether such
matters relate to execution and progress of the work or (2) the extend of which
the work has been completed. The decision by the Architect in response to a
Claim shall not be a condition precedent to arbitration or litigation in the
event (1) the position of Architect is vacant, (2) the Architect has not
received evidence or has failed to render a decision within agreed time limits,
(3) the Architect has failed to take action required under Subparagraph 4.4.4
within 30 days after the Claim is made, (4) 45 days have passed after the Claim
has been referred to the Architect or (5) the Claim relates to a mechanic's
lien.
4.3.3 TIME LIMITS ON CLAIMS. Claims by either party must be made within 21 days
after occurrence of the event giving rise to such Claim or within 21 days after
the Claimant first recognizes the condition giving rise to the Claim, whichever
is later. Claims must be made by written notice. An addition Claim made after
the initial Claim has been implemented by Change Order will not be considered
unless submitted in timely matters.
4.3.4 CONTINUING CONTACT PERFORMANCE. Pending final resolution of a Claim
including arbitration, unless otherwise agreed in writing the contractor shall
proceed diligently with performance of the contract and the Owner shall continue
to make payments in accordance with the Contract Documents.
4.3.5 WAIVER OF CLAIMS: FINAL PAYMENT. The making of final payment shall
constitute a waiver of Claims by the Owner except those arising from:
.1 liens, Claims, security interests or encumbrances arising out
of the contract unsettled;
.2 failure of Work to comply with the requirement of the Contract
Documents; or
.3 terms of special warranties required by the Contract Documents.
4.3.6 CLAIMS FOR CONCEALED OR UNKNOWN CONDITIONS. If conditions are encountered
at the site which are (1) subsurface or otherwise concealed physical condition
which differ materially from those indicated in the Contract Documents or (2)
unknown physical conditions of an unusual nature, which differ materially
from those ordinarily found to exist and generally recognized as inherent in
construction activities of the character provided for in the Contract
Documents, then notice by the observing party shall be given to the other party
promptly before condition are disturbed and in no event later than 21 days
after first observance OF the condition. The Architect will promptly investigate
such conditions and , if they differ materially and cause an increase or
decrease in the Contractor's cost of, or time required for, performance of any
part of the work, will recommend an equitable adjustment in the Contract Sum:
provided, however that in no event shall increases in the Contract sum for such
conditions in the aggregate exceed One Hundred Thousand Dollars ($100,000,00).
Contractor expressively assumes the risk of any damages or increased cost or
expense in excess of $100,000,00 which result directly or indirectly from such
conditions, including without limitation conditions which are variance to those
indicated by any soil test or soil borings, and Contractor shall not be entitled
to additional compensation from Owner for such conditions. If the Architect
determines that the conditions at the site are not materially different from
those indicated in the Contract Documents and that no change in the terms of the
Contract is justified, the Architect shall so notify the Owner and Contractor in
writing, stating the reasons. Claims by either party in opposition to such
determination must be made within 21 days after the Architect has given notice
of the decision. If the Owner and Contractor cannot agree on an adjustment in
the Contract Sum or Contract Time, the adjustment shall be referred to the
Architect for initial determination, subject to further proceedings pursuant to
Paragraph 4.4
4.3.7 CLAIMS FOR ADDITIONAL COST. If the Contractor wishes to make Claim for an
increase in the Contract Sum, written notice as provided herein shall be given
before proceeding to execute the Work. Prior notice is not required for Claims
relating to an emergency endangering life or property arising under Paragraph
10.3. If the Contractor believes additional cost is involved for reasons
including but not limited to (1) a written interpretation from the Architect,
(2) an order by the Owner to stop the work where the Contractor was not at
fault, (3) a written order for a minor change in the Work issued by the
Architect, (4) failure of payment by the Owner, (5) termination of the Contract
by the Owner, (6) Owner's suspension or (7) other reasonable grounds,Claim shall
be filed in accordance with the procedure established herein.
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4.3.8 Claims for Additional Time
4.3.8.1 If the Contractor wishes to make Claim for all increase in the Contract
Time, written notice as provided herein shall be given. The Contractor's Claim
shall include an estimate of cost and of probable effect of delay on progress of
the Work. In the case of a continuing delay only one Claim is necessary.
4.3.8.2 If adverse weather conditions are the basis for a Claim for additional
time, such Claim shall be documented by data substantiating that weather
conditions were abnormal for the period of time and could not have been
reasonably anticipated, and that weather conditions had an adverse effect on the
scheduled construction.
4.3.9 INJURY OR DAMAGE TO PERSON OR PROPERTY. If either party to the Contract
suffers injury or damage to person or property because of an act or omission of
the other party, of any of the other party's employees or agents, or of others
for whose acts such party is legally liable, written notice of such injury or
damage, whether or not insured shall be given to the other party within a
reasonable time not exceeding 21 days after first observance. The notice shall
provide sufficient detail to enable the other party to investigate the matter.
If a Claim for additional cost or time related to this Claim is to be asserted,
it shall be filed as provided in Subparagraphs. 4.3.7 or 4.3.8.
4.4 RESOLUTION OF CLAIMS AND DISPUTES
4.4.1 The Architect will review Claims and take one or more of the following
preliminary actions within ten days of receipt of a Claim: (1) request
additional supporting data from the claimant, (2) submit a schedule to the
parties indicating when the Architect expects to take action. (3) reject the
Claim in whole or in part, stating reasons for rejection, (4) recommend approval
of the Claim by the other party or (5) suggest a compromise. The Architect may
also, but is not obligated to, notify the surety, if any, of the nature and
amount of the Claim.
4.4.2 If a Claim has been resolved, the Architect will prepare or obtain
appropriate documentation.
4.4.3 If a Claim has not been resolved, the party making the Claim shall,within
ten days after the Architect's preliminary response, take one or more of the
following actions: (1) submit additional supporting data requested by the
Architect, (2) modify the initial Claim or (3) notify the Architect that the
initial Claim stands.
4.4.4 If a Claim has not been resolved after consideration of the foregoing and
of further evidence presented by the parties or requested by the Architect, the
Architect will notify the parties in writing that the Architect's decision will
be made within seven days, which decision shall be final and binding on the
parties but subject to arbitration. Upon expiration of such time period, the
Architect will render to the parties the Architect's written decision relative
to the Claim, including any change in the Contract Sum or Contract Time or
both. If there is a surety and there appears to be a possibility of a
Contractor's default, the Architect may, but is not obligated to, notify the
surety and request the surety's assistance in resolving the controversy.
4.5 ARBITRATION
4.5.1 CONTROVERSIES AND CLAIMS SUBJECT TO ARBITRATION. Any controversy or Claim
arising out of or related to the Contract, or the breach thereof, shall be
settled by arbitration in accordance with the Construction Industry Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrator or arbitrators may be entered in any court having
jurisdiction thereof, except controversies or Claims relating to aesthetic
effect and except those waived as provided for in Subparagraph 4.3.5. Such
controversies or Claims upon which the Architect has given notice and rendered a
decision as provided in Subparagraph 4.4.4 shall be subject to arbitration upon
written demand of either party. Arbitration may be commenced when 45 days have
passed after a Claim has been referred to the Architect as provided in Paragraph
4.3 and no decision has been rendered.
4.5.2 RULES AND NOTICES FOR ARBITRATION. Claims between the Owner and Contractor
not resolved under Paragraph 4.4 shall,if subject to arbitration under
Subparagraph 4.5.1, be decided by arbitration in accordance with the
Construction Industry Arbitration Rules of the American Arbitration Association
currently in effect, unless the parties mutually agree otherwise. Notice of
demand for arbitration shall be filed in writing with the other party to the
Agreement between the Owner and Contractor and with the American Arbitration
Association, and a copy shall be filed with the Architect.
4.5.3 CONTRACT PERFORMANCE DURING ARBITRATION. During arbitration proceedings,
the Owner and Contractor shall comply with Subparagraph 4.3.4.
4.5.4 WHEN ARBITRATION MAY BE DEMANDED. Demand for arbitration of any Claim may
not be made until the earlier of (1) the date on which the Architect has
rendered a final written decision on the Claim, (2) the tenth day after the
parties have presented evidence to the Architect or have been given reasonable
opportunity to do so, if the Architect has not rendered a final written decision
by that date, or (3) any of the five events described in Subparagraph 4.3.2.
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4.5.4.1 When a written decision of the Architect states that (1) the decision is
final but subject to arbitration and (2) a demand for arbitration of a Claim
covered by such decision must be made within 30 days after the date on which the
party making the demand receives the final written decision, then failure to
demand arbitration within said 30 days' period shall result in the Architect's
decision becoming final and binding upon the Owner and Contractor. If the
Architect renders a decision after arbitration proceedings have been initiated,
such decision may be entered as evidence, but shall not supersede arbitration
proceedings unless the decision is acceptable to all parties concerned.
4.5.4.2 A demand for arbitration shall be made within the time limits specified
in Subparagraphs 4.5.1 and 4.5.4 and Clause 4.5.4.1 as applicable, and in other
cases within a reasonable time after the Claim has arisen, and in no event shall
it be made after the date when institution of legal or equitable proceedings
based on such Claim would be barred by the applicable statute of limitations as
determined pursuant to Paragraph 13.7.
4.5.5 LIMITATION ON CONSOLIDATION OR JOINDER. No arbitration arising out of or
relating to the Contract Documents shall include, by consolidation or joinder or
in any other manner, the Architect, the Architect's employees or consultants,
except by written consent containing specific reference to the Agreement and
signed by the Architect, Owner, Contractor and any other person or entity sought
to be joined. No arbitration shall include, by consolidation or joinder or in
any other manner, parties other than the Owner, Contractor, a separate
contractor as described in Article 6 and other persons substantially involved in
a common question of fact or law whose presence is required if complete relief
is to be accorded in arbitration. No person or entity other than the Owner,
Contractor or a separate contractor as described in Article 6 shall be included
as an original third party or additional third party to an arbitration whose
interest or responsibility is insubstantial. Consent to arbitration involving an
additional person or entity shall not constitute consent to arbitration of a
dispute not described therein or with a person or entity not named or described
therein. The foregoing agreement to arbitrate and other agreements to arbitrate
with an additional person or entity duly consented to by parties to the
Agreement shall be specifically enforceable under applicable law in any court
having jurisdiction thereof.
4.5.6 CLAIMS AND TIMELY ASSERTION OF CLAIMS. A party who files a notice of
demand for arbitration must assert in the demand all Claims then known to that
party on which arbitration is permitted to be demanded. When a party fails to
include a Claim through oversight, inadvertence or excusable neglect, or when a
Claim has matured or been acquired subsequently, the arbitrator or arbitrators
may permit amendment.
4.5.7 JUDGMENT ON FINAL AWARD. The Award rendered by the arbitrator or
arbitrators shall be final, and judgment may be entered upon it in accordance
with applicable law in any court having jurisdiction thereof.
ARTICLE 5
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SUBCONTRACTORS
5.1 DEFINITIONS
5.1.1 A Subcontractor is a person or entity who has a direct contract with the
Contractor to perform a portion of the Work at the site. The term
"Subcontractor" is referred to throughout the Contract Documents as if singular
in number and means a Subcontractor or an authorized representative of the
Subcontractor. The term "Subcontractor" does not include a separate contractor
or subcontractors of a separate contractor.
5.1.2 A Sub-subcontractor is a person or entity who has a direct or indirect
contract with a Subcontractor to perform a portion of the Work at the site. The
term "Sub-subcontractor" is referred to throughout the contract Documents as if
singular in number and means a Sub-subcontractor or an authorized representative
of the Sub-subcontractor.
5.2 AWARD OF SUBCONTRACTS AND OTHER CONTRACTS FOR PORTIONS OF THE WORK
5.2.1 Unless otherwise stated in the Contract Documents or the bidding
requirements, the Contractor, as soon as practicable after award of the
Contract, shall furnish in writing to the Owner through the Architect the names
of persons or entities (including those who are to furnish materials or
equipment fabricated to a special design) proposed for each principal portion of
the Work. The Architect will promptly reply to the Contractor in writing stating
whether or not the Owner or the Architect, after due investigation, has
reasonable objection to any such proposed person or entity. Failure of the Owner
or Architect to reply promptly shall constitute notice of no reasonable
objection.
5.2.2 The Contractor shall not contract with a proposed person or entity to whom
the Owner or Architect has made reasonable and timely objection. The Contractor
shall not be required to contract with anyone to whom the Contractor has made
reasonable objection.
5.2.3 If the Owner or Architect has reasonable objection to a person or entity
proposed by the Contractor, the Contractor shall propose another to whom the
Owner or Architect has no reasonable objection. The Contract Sum shall be
increased or decreased by the difference in
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cost occasioned by such change and an appropriate Change Order shall be issued.
However, no increase in the Contract Sum shall be allowed for such change unless
the Contractor has acted promptly and responsively in submitting names as
required.
5.2.4 The Contractors shall not change a Subcontractor, person or entity
previously selected if the Owner or Architect makes reasonable objection to
such change.
5.3 SUBCONTRACTUAL RELATIONS
5.3.1 By appropiate agreement, written where legally required for validity, the
Contractor shall require each Subcontractor, to the extent of the Work to be
performed by the Subcontractor, to be bound to the Contractor by terms of the
Contract Documents, and to assume toward the Contractor all the obligations and
responsibilities which the Contractor, by these Documents, assumes toward the
Owner and Architect. Each subcontract agreement shall preserve and protect the
rights of the Owner and Architect under the Contract Documents with respect to
the Work to be performed by the Subcontractor so that subcontracting thereof
will not prejudice such rights, and shall allow to the Subcontractor, unless
specifically provided otherwise in the subcontract agreement; the benefit of all
rights, remedies and redress against the Contractor that the Contractor, by the
Contract Documents, has against the Owner. Where appropriate, the Contractor
shall require each Subcontractor to enter into similar agreements with
Sub-subcontractors. The Contractor shall make available to each proposed
Subcontractor, prior to the execution of the subcontract agreement, copies of
the Contract Documents to which the Subcontractor will be bound, and, upon
written request of the Subcontractor, identify to the Subcontractor terms and
conditions of the proposed subcontract agreement which may be at variance with
the Contract Documents. Subcontractors shall similarly make copies of applicable
portions of such documents available to their respective proposed
Sub-subcontractors.
5.4 CONTINGENT ASSIGNMENT OF SUBCONTRACTS
5.4.1 Each subcontract agreement for a portion of the Work is Assigned by the
Contractor to the Owner provided that:
.1 assignment is effective only after termination of the Contract by
the Owner for cause pursuant to paragraph 14.2 and only for those
subcontract agreements which the Owner accepts by notifying the
Subcontractor in writing; and
.2 assignment is subject to the prior rights of the surety, if any,
obligated under bond relating to the Contract.
5.4.2. If the Work has been suspended for more than 30 days. The Subcontractor's
compensation shall be equitably adjusted.
ARTICLE 6
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CONSTRUCTION BY OWNER OR BY SEPARATE CONTRACTORS
6.1 OWNERS RIGHT TO PERFORM CONSTRUCTION AND TO AWARD SEPARATE CONTRACTS
6.1.1 The Owner reserves the right to perform construction or operations related
to the Project with the Owner's own forces, and to award separate contracts in
connection with other portions of the Project or other construction or
operations on the site under Conditions of the Contract identical or
substantially similar to these including those portions related to insurance and
waiver of subrogation. If the Contractor claims that delay or additional cost is
involved because of such action by the Owner, the Contractor shall make such
Claim as provided elsewhere in the Contract Documents.
6.1.2 When separate contracts are awarded for different portions of the Project
or other construction or operations on the site, the term "Contractor" in the
Contract Documents in each case shall mean the Contractor who executes each
separate Owner-Contractor Agreement.
6.1.3 The Owner shall provide for coordination of the activities of the Owner's
own forces and of each separate contractor with the Work of the Contractor, who
shall cooperate with them. The Contractor shall participate with other separate
contractors and the Owner in reviewing their construction schedules when
directed to do so. The contractor shall make any revisions to the construction
schedule and Contract sum deemed necessary after a joint review and mutual
agreement. The construction schedules shall then constitute the schedules to be
used by the Contractor, Separate contractors and the Owner until subsequently
revised.
6.1.4 Unless otherwise provided in the Contract Documents, when the Owner
performs construction or operations related to the Project with the Owner's own
forces, the Owner shall be deemed to be subject to the same obligations and to
have the same rights which apply to the Contractor under the Conditions of the
contract, including, without excluding others, those stated in Article 3, this
Article 6 and Articles 10, 11 and 12.
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6.2 MUTUAL RESPONSIBILITY
6.2.1 The Contractor shall afford the Owner and separate contractors reasonable
opportunity for introduction and storage of their materials and equipment and
performance of their activities and shall connect and coordinate the
Contractor's construction and operations with theirs as required by the contract
Documents.
6.2.2 If part of the Contractor's Work depends for proper execution or results
upon construction or operations by the Owner or a separate contractor, the
Contractor shall, prior to proceeding with that portion of the Work, promptly
report to the Architect apparent discrepancies or defects in such other
construction that would render it unsuitable for such proper execution and
results. Failure of the Contractor so to report shall constitute an
acknowledgement that the Owner's or separate contractors' completed or partially
completed construction is fit and proper to receive the Contractor's Work,
except as to defects not then reasonably discoverable.
6.2.3 Costs caused by delays or by improperly timed activities or defective
construction shall be borne by the party responsible therefor.
6.2.4 The Contractor shall promptly remedy damage wrongfully caused by the
Contractor to completed or partially completed construction or to property of
the Owner or separate contractors as provided in subparagraph 10.2.5.
6.2.5 Claims and other disputes and matters in question between the Contractor
and a separate contractor shall be subject to the provisions of Paragraph 4.3
provided the separate contractor has reciprocal obligations.
6.2.6 The Owner and each separate contractor shall have the same
responsibilities for cutting and patching as are described for the Contractor in
Paragraph 3.14.
6.3 OWNER'S RIGHT TO CLEAN UP
6.3.1 If a dispute arises among the Contractor, separate contractors and the
Owner as to the responsibility under their respective contracts for maintaining
the premises and surrounding area free from waste materials and rubbish as
described in Paragraph 3.15, the Owner may clean up and allocate the cost among
those responsible as the Architect determines to be just.
Article 7
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CHANGES IN THE WORK
7.1 CHANGES
7.1.1 Changes in the Work may be accomplished after execution of the Contract,
and without invalidating the Contract, and Change Order. Construction Change
Directive or order for a minor change in the work, subject to the limitations
stated in this Article 7 and elsewhere in the Contract Documents.
7.1.2 A change shall be based upon agreement among the Owner, Contractor and
Architect; a Construction Change Directive requires agreement by the Owner and
Architect and may or may not be agreed to by the Contractor; an order for a
minor change in the Work may be issued by the Architect alone.
7.1.3 Changes in the Work shall be performed under applicable provisions of the
Contract Documents, and the Contractor shall proceed promptly, unless otherwise
provided in the Change Order. Construction Change Directive or order for a
minor change in the Work.
7.1.4 If unit prices are stated in the Contract Documents or subsequently agreed
upon, and if quantities originally contemplated are so changed in a proposed
Change Order or Construction Change Directive that application of such unit
prices to quantities of Work proposed will cause substantial inequity to the
Owner or Contractor, the applicable unit prices shall be equitably adjusted.
7.2 CHANGE ORDERS
7.2.1 A Change Order is a written instrument prepared by the Architect and
signed by the Owner, Contractor and Architect, stating their agreement upon all
the following:
.1 a change in the Work;
.2 the amount of the adjustment in the Contract Sum, if any; and
.3 the extent of the adjustment in the Contract Time, if any.
7.2.2 Methods used in determining adjustments to the Contract Sum may include
those listed in Subparagraph 7.3.3.
7.3 CONSTRUCTION CHANGE DIRECTIVES
7.3.1 A Construction Change Directive is a written order prepared by the
Architect and signed by the Owner and Architect, directing a change in the Work
and stating a proposed basis for adjustment, if any, in the Contract Sum, or
Contract Time, or both. The Owner may by Construction Change Directive, without
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invalidating the Contract, order changes in the Work within the general scope of
the Contract consisting of additions, deletions or other revisions, the
Contract Sum and Contract Time being adjusted accordingly.
7.3.2 A Construction Change Directive shall be used in the absence of total
agreement on the terms of a Change Order.
7.3.3 If the Construction Change Directive provides for an adjustment to the
Contract Sum, the adjustment shall be based on one of the following methods:
.1 mutual acceptance of a lump sum properly itemized and supported by
sufficient substantiating data to permit evaluation:
.2 unit prices stated in the Contract Documents or subsequently agreed
upon;
.3 cost to be determined in a manner agreed upon by the parties and a
mutually acceptable fixed or percentage fee; or
.4 as provided in Subparagraph 7.3.6.
7.3.4 Upon receipt of a Construction Change Directive, the Contractor shall
promptly proceed with the change in the Work involved and advise the Architect
of the Contractor's agreement or disagreement with the method, if any, provided
in the Construction Change Directive for determining the proposed adjustment in
the Contract Sum or Contract Time.
7.3.5 A Construction Change Directive signed by the Contractor indicates the
agreement of the Contractor therewith, including adjustment in Contract Sum and
Contract Time or the method for determining them. Such agreement shall be
effective immediately and shall be recorded as a Change Order.
7.3.6 If the Contractor does not respond promptly or disagrees with the method
for adjustment in the Contract Sum, the method and the adjustment shall be
determined by the Architect on the basis of reasonable expenditures and savings
of those performing the Work attributable to the change, plus in case of an
increase in the Contract Sum, an allowance of six percent (6%) for overhead and
profit. In such case, and also under Clause 7.3.3.3, the Contractor shall keep
and present, in such form as the Architect may prescribe, an itemized accounting
together with appropriate supporting data. Unless otherwise provided in the
Contract Documents, costs for the purposes of this Subparagraph 7.3.6 shall be
limited to the following:
.1 costs of labor, including social security, old age and unemployment
insurance, fringe benefits required by agreement or custom, and
workers' or workmen's compensation insurance;
.2 costs of materials, supplies and equipment, including cost of
transportation, whether incorporated or consumed;
.3 rental costs of machinery and equipment, exclusive of hand tools,
whether rented from the Contractor or others;
.4 costs of premiums for all bonds and insurance, permit fees and
sales, use or similar taxes related to the Work; and
.5 additional costs of supervision and field office personnel directly
attributable to the change.
7.3.7 Pending final determination of cost to the Owner, amounts not in dispute
may be included in Applications for Payment. The amount of credit to be allowed
by the Contractor to the Owner for a deletion or change which results in a net
decrease in the Contract Sum shall be actual net cost as confirmed by the
Architect. When both additions and credits covering related Work or
substitutions are involved in a change, the six percent (6%) allowance for
overhead and profit shall be figured on the basis of net increase, if any, with,
respect to that change.
7.3.8 If the Owner and Contractor do not agree with the adjustment in Contract
Time or the method for determining it, the adjustment or the method shall be
referred to the Architect for determination.
7.3.9 When the Owner and Contractor agree with the determination made by the
Architect concerning the adjustments in the Contract Sum and Contract Time, or
otherwise reach agreement upon the adjustments, such agreement shall be
effective immediately and shall be recorded by preparation and execution of an
appropriate Change Order.
7.4 MINOR CHANGES IN THE WORK
7.4.1 The Architect will have authority to order minor changes in the Work not
involving adjustment in the Contract Sum or extension of the Contract Time and
not inconsistent with the intent of the Contract Documents. Such changes shall
be effected by written order and shall be binding on the Owner and Contractor.
The Contractor shall carry out such written orders promptly.
ARTICLE 8
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TIME
8.1 DEFINITIONS
8.1.1 Unless otherwise provided, Contract Time is the period of time, including
authorized adjustments, allotted in the Contract Documents for Substantial
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Completion of the Work.
8.1.2 The date of commencement of the Work is the date established in the
Agreement. The date shall not be postponed by the failure to act of the
Contractor or of persons or entities for whom the Contractor is responsible.
8.1.3 The date of Substantial Completion is the date certified by the Architect
in accordance with Paragraph 9.8.
8.1.4 The term "day" as used in the Contract Documents shall mean calendar day
unless otherwise specifically defined.
8.2 PROGRESS AND COMPLETION
8.2.1 Time limits stated in the Contract Documents are of the essence of the
Contract. By executing the Agreement the Contractor confirms that the Contract
Time is a reasonable period for performing the Work.
8.2.2 The Contractor shall not knowingly, except by agreement or instruction of
the Owner in writing, prematurely commence operations on the site or elsewhere
prior to the effective date of insurance required by Article 11 to be furnished
by the Contractor. The date of commencement of the Work shall not be changed by
the effective date of such insurance. Unless the date of commencement is
established by a notice to proceed given by the Owner, the Contractor shall
notify the Owner in writing not less than five days or other agreed period
before commencing the Work to permit the timely filing of mortgages, mechanic's
liens and other security interests.
8.2.3 The Contractor shall proceed expeditiously with adequate forces and shall
achieve Substantial Completion within the Contract Time.
8.3 DELAYS AND EXTENSIONS OF TIME
8.3.1 If the Contractor is delayed at any time in progress of the Work by act or
neglect of the Owner or Architect, or of an employee of either, or of a separate
contractor employed by the Owner, or by changes ordered in the Work, or by labor
disputes, which are not limited to the Project site, fire, unusual delay in
deliveries, unavoidable casualties or other causes beyond the Contractor's
control, or by delay authorized by the Owner pending arbitration, or by other
causes which the Architect determines may justify delay, then the Contract Time
shall be extended by Change Order for such reasonable time as the Architect may
determine.
8.3.2 Claims relating to time shall be made in accordance with applicable
provisions of Paragraph 4.3.
8.3.3
ARTICLE 9
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PAYMENTS AND COMPLETION
9.1 CONTRACT SUM
9.1.1 The Contract Sum is stated in the Agreement and, including authorized
adjustments, is the total amount payable by the Owner to the Contractor for
performance of the Work under the Contract Documents.
9.2 SCHEDULE OF VALUES
9.2.1 Before the first Application for Payment, the Contractor shall submit to
the Architect a schedule of values allocated to various portions of the Work,
prepared in such form and supported by such data to substantiate its accuracy as
the Architect may require. This schedule, unless objected to by the Architect,
shall be used as a basis for reviewing the Contractor's Applications for
Payment.
9.3 APPLICATIONS FOR PAYMENT
9.3.1 At least ten days before the date established for each progress payment,
the Contractor shall submit to the Architect an itemized Application for Payment
for operations completed in accordance with the schedule of values. Such
application shall be notarized, if required, and supported by any lien waivers
required by Owner or Architect and such data substantiating the Contractor's
right to payment as the Owner or Architect may require, such as copies of
requisitions from Subcontractors and material suppliers, and reflecting
retainage if provided for elsewhere in the Contract Documents.
9.3.1.1 Such applications may include requests for payment on account of changes
in the Work which have been properly authorized by Construction Change
Directives but not yet included in Change Orders.
9.3.1.2 Such applications may not include requests for payment of amounts the
Contractor does not intend to pay to a Subcontractor or material supplier
because of a dispute or other reason.
9.3.2 Unless otherwise provided in the Contract Documents, payments shall be
made on account of materials and equipment delivered and suitably stored at the
site for subsequent incorporation in the Work. If approved in advance by the
Owner, payment may similarly be made for materials and equipment suitably stored
off the site at a location agreed upon in writing. Payment for materials and
equipment stored on or off the site shall be conditioned upon compliance by the
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Contractor with procedures satisfactory to the Owner to establish the Owner's
title to such materials and equipment or otherwise protect the Owner's interest,
and shall include applicable insurance, storage, and transportation to the site
for such materials and equipment stored off the site.
9.3.3 The Contractor warrants that title to all Work covered by an Application
for Payment will pass to the Owner no later than the time of payment. The
Contractor further warrants that upon submittal of an Application for Payment
all Work for which Certificates for Payment have been previously issued and
payments received from the Owner shall, to the best of the Contractor's
knowledge, information and belief, be free and clear of liens, claims, security
interests or encumbrances favor of the Contractor, Subcontractors, material
suppliers, or other persons or entities making a claim by reason of having
provided labor, materials and equipment relating to the Work.
9.4 CERTIFICATES FOR PAYMENT
9.4.1 The Architect will, within seven days after receipt of the Contractor's
Application for Payment, either issue to the Owner a Certificate for Payment,
with a copy to the Contractor, for such amount as the Architect determines is
properly due, or notify the Contractor and Owner in writing of the Architect's
reasons for withholding certification in whole or in part as provided in
Subparagraph 9.5.1.
9.4.2 The issuance of a Certificate for Payment will constitute a representation
by the Architect to the Owner, based on the Architect's observations at the site
and the data comprising the Application for Payment, that the Work has
progressed to the point indicated and that, to the best of the Architect's
knowledge, information and belief, quality of the Work is in accordance with the
Contract Documents. The foregoing representations are subject to an evaluation
of the Work for conformance with the Contract Documents upon Substantial
Completion, to results of subsequent tests and inspections, to minor deviations
from the Contract Documents correctable prior to completion and to specific
qualifications expressed by the Architect. The issuance of a Certificate for
Payment will further constitute a representation that the Contractor is entitled
to payment in the amount certified. However, the issuance of a Certificate for
Payment will not be a representation that the Architect has (1) made exhaustive
or continuous on-site inspections to check the quality or quantity of the Work,
(2) reviewed construction means, methods, techniques, sequences or procedures,
(3) reviewed copies of requisitions received from Subcontractors and material
suppliers and other data requested by the Owner to substantiate the Contractor's
right to payment or (4) made examination to ascertain how or for what purpose
the Contractor has used money previously paid on account of the Contract Sum.
9.5 DECISIONS TO WITHHOLD CERTIFICATION
9.5.1 The Architect may decide not to certify payment and may withhold a
Certificate for Payment in whole or in part, to the extent reasonably necessary
to protect the Owner, if in the Architect's opinion the representations to the
Owner required by Subparagraph 9.4.2 cannot be made. If the Architect is unable
to certify payment in the amount of the Application, the Architect will notify
the Contractor and Owner as provided in Subparagraph 9.4.1. If the Contractor
and Architect cannot agree on a revised amount, the Architect will promptly
issue a Certificate for Payment for the amount for which the Architect is able
to make such representations to the Owner. The Architect may also decide not to
certify payment of, because of subsequently discovered evidence or subsequent
observations, may nullify the whole or a part of a Certificate for Payment
previously issued, to such extent as may be necessary in the Architect's opinion
to protect the Owner from loss because of:
.1 defective Work not remedied;
.2 third party claims filed or reasonable evidence indicating probable
filing of such claims;
.3 failure of the Contractor to make payments properly to Subcontractors or
for labor, materials or equipment;
.4 reasonable evidence that the Work cannot be completed for the unpaid
balance of the Contract Sum;
.5 damage to the Owner or another contractor;
.6 reasonable evidence that the Work will not be completed within the
Contract Time, and that the unpaid balance would not be adequate to
cover actual or liquidated damages for the anticipated delay; or
.7 persistent failure to carry out the Work in accordance with the Contract
Documents.
9.5.2 When the above reasons for withholding certification are removed,
certification will be made for amounts previously withheld.
9.6 PROGRESS PAYMENTS
9.6.1 After the Architect has issued a Certificate for Payment, the Owner shall
make payment in the manner
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and within the time provided in the Contract Documents, and shall so notify the
Architect.
9.6.2 The Contractor shall promptly pay each Subcontractor, upon receipt of
payment from the Owner, out of the amount paid to the Contractor on account of
Such Subcontractor's portion of the work, the amount to which said Subcontractor
is entitled, reflecting percentages actually retained from payments to the
Contractor on account of such Subcontractor's portion of work. The Contractor
shall, by appropriate agreement with each Subcontractor, require each
Subcontractor to make payments to Sub-subcontractors in similar manner.
9.6.3 The Architect will, on request, furnish to a Subcontractor, if
practicable, information regarding percentages of completion or amounts applied
for by the Contractor and action taken thereon by the Architect and Owner on
account of portions of the Work done by such Subcontractor.
9.6.4 Neither the Owner nor Architect shall have an obligation to pay or to see
to the payment of money to a Subcontractor except as may otherwise be required
by law.
9.6.5 Payment to the material suppliers shall be treated in a manner similar to
that provided in Subparagraphs 9.6.2, 9.6.3 and 9.6.4.
9.6.6 A Certificate for Payment, a progress payment, or partial or entire use or
occupancy of the Project by the Owner shall not constitute acceptance of Work
not in accordance with the Contract Documents.
9.7 FAILURE OF PAYMENT
9.7.1 If the Architect does not issue a Certificate for Payment, through no
fault of the Contractor, within seven days after receipt of the Contractor's
Application for Payment, or if the Owner does not pay the Contractor within
seven days after the date established in the Contract Documents the amount
certified by the Architect or awarded by arbitration, then the Contractor may,
upon seven additional days' written notice to the Owner and Architect, stop the
Work until payment of the amount owing has been received. The Contract Time
shall be extended appropriately and the Contract Sum shall be increased by the
amount of the Contractor's reasonable costs of shut-down, delay and start-up,
which shall be accomplished as provided in Article 7.
9.8 SUBSTANTIAL COMPLETION
9.8.1 Substantial Completion is the stage in the progress of the Work when the
Work or designated portion thereof is sufficiently complete in accordance with
the Contract Documents so the Owner can occupy or utilize the Work for its
intended use.
9.8.2 When the Contractor considers that the Work, or a portion thereof which
the Owner agrees to accept separately, is substantially complete, the Contractor
shall prepare and submit to the Architect a comprehensive list of items to be
completed or corrected. The Contractor shall proceed promptly to complete and
correct items on the list. Failure to include an item on such list does not
alter the responsibility of the Contractor to complete all Work in accordance
with the Contract Documents. Upon receipt of the Contractor's list, the
Architect will make an inspection to determine whether the Work or designated
portion thereof is substantially complete. If the Architect's inspection
discloses any item, whether or not included on the Contractor's list, which is
not in accordance with the requirements of the Contract Documents, the
Contractor shall, before issuance of the Certificate of Substantial Completion,
complete or correct such item, upon notification by the Architect. The
Contractor shall then submit a request for another inspection by the Architect
to determine Substantial Completion. When the Work or designated portion thereof
is substantially complete, the Architect will prepare a Certificate of
Substantial Completion which shall establish the date of Substantial Completion,
shall establish responsibilities of the Owner and Contractor for security,
maintenance, heat, utilities, damage to the Work and insurance, and shall fix
the time within which the Contractor shall finish all items on the list
accompanying the Certificate. Warranties required by the Contract Documents
shall commence on the date of Substantial Completion of the Work or designated
portion thereof unless otherwise provided in the Certificate of Substantial
Completion. The Certificate of Substantial Completion shall be submitted to the
Owner and Contractor for their written acceptance of responsibilities assigned
to them in such Certificate.
9.8.3 Upon Substantial Completion of the Work or designated portion thereof and
upon application by the Contractor and certification by the Architect, the
Owner shall make payment, reflecting adjustment in retainage, if any, for such
Work or portion thereof as provided in the Contract Documents.
9.9 PARTIAL OCCUPANCY OR USE
9.9.1 The Owner may occupy or use any completed or partially completed portion
of the Work at any stage when such portion is designated by separate agreement
with the Contractor, provided such occupancy or use is consented to by the
insurer as required under Subparagraph 11.3.11 and authorized by public
authorities having jurisdiction over the Work. Such
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partial occupancy or use may commence whether or not the portion is
substantially complete, provided the Owner and Contractor have accepted in
writing the responsibilities assigned to each of them for payments, retainage if
any, security, maintenance, heat, utilities, damage to the Work and insurance,
and have agrees in writing concerning the period for correction of the Work and
commencement of warranties by the Contract Documents. When the Contract
considers a portion substantially complete, the Contractor shall prepare and
submit a list to the Architect as provided under Subparagraph 9.8.2. Consent of
the Contractor to partial occupancy or use shall not be unreasonably withheld.
The stage of progress of the Work shall be determined by written agreement
between the Owner and Contractor or, if no agreement is reached, by decision of
the Architect.
9.9.2 Immediately prior to such partial occupancy or use, the Owner, Contractor
and Architect shall jointly inspect the area to be occupied or portion of the
Work to be used in order to determine and record the condition of the Work.
9.9.3 Unless otherwise agrees upon, partial occupancy or use of portion or
portions of the Work shall not constitute acceptance of Work not complying with
the requirements of the Contract Documents.
9.10 FINAL COMPLETION AND FINAL PAYMENT
9.10.1 Upon receipt of written notice that the Work is ready for final
inspection and acceptance and upon receipt of a final Application for Payment,
the Architect will promptly make such inspection and, when the Architect finds
the Work acceptable under the Contract Document and the Contract fully
performed, the Architect will promptly issue a final Certificate for Payment
stating that to the best of the Architect's knowledge, information and belief,
and on the basis of the Architect's observation and inspections, the Work has
been complete in accordance with terms and condition of the Contract Documents
and that the entire balance found to be due the Contractor and noted in said
final Certificate is due and patable. The Architect's final Certificate for
Payment will constitute a further representation that conditions listed in
Subparagraph 9.10.2 as precedent to the Contractor's being entitled to final
payment have been fulfilled.
9.10.2 Neither final payment nor any remaining retained percentage shall become
due until the Contractor submit to the Architect (1) an affidavit that payrolls,
bills for materials and equipment, and other indebtedness connected with the
Work for which the Owner or the Owner's property might be responsible or
encumbered (less amounts withheld by Owner) have been paid or otherwise
satisfied, (2) a certificate evidencing that insurance required by the Contract
Documents to remain in force after final payment is currently in effect and will
not be cancelled or allowed to expire until at least 30 days' prior written
notice has been given to the Owner, (3) a written statement that the Contractor
knows of no substantial reason that the insurance will not be renewable to cover
the period required by the Contract Documents, (4) consent of surety, if any, to
final payment and (5) if required by the Owner, other data establishing payment
or satisfaction of obligations, such as receipts, releases and waivers of liens,
claims, security interests or encumbrances arising out of the Contract, to the
extent and in such form as may be designated by the Owner. If a Subcontractor
refuses to furnish a release or waiver required by the Owner, the Contractor may
furnished a bond satisfactory to the Owner to indemnity the Owner against such
lien. If such lien remains unsatisfied after payments are made, the Contractor
shall refund to the Owner all money that the Owner may be compelled to pay in
discharging such lien, including all costs and reasonable attorneys' fees.
9.10.3 If, after Substantial Completion of the Work, final completion thereof is
materially delayed through no fault of the Contractor or by issuance of Change
Orders affecting final completion, and the Architect so confirms, the Owner
shall, upon application by the Contractor and certification by the Architect,
and without terminating the Contract, make payment of the balance due for that
portion of the Work fully completed and accepted. If the remaining balance for
Work not fully completed or corrected is less than retainage stipulated in the
Contract Documents, and if bonds have been furnished, the written consent of
surety to payment of the balance due for that portion of the Work fully
completed and accepted shall be submitted by the Contractor to the Architect
prior to certification of such payment . Such payment shall be made terms and
conditions governing final payment, except that it shall not constitute a waiver
of claims. The making of final payment shall constitute a waiver of claims by
the Owner as provided in Subparagraph 4.3.5.
9.10.4 Acceptance of final payment by the Contractor, a Subcontractor or
material supplier shall constitute a waiver of claims by that payee except those
previously made in writing and identified by that payee as unsettled at the time
if final Application for Payment. Such waivers shall be in addition to the
waiver described in Subparagraph 4.3.5.
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ARTICLE 10
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PROTECTION OF PERSONS AND PROPERTY
10.1 SAFETY PRECAUTIONS AND PROGRAMS
10.1.1 The Contractor shall be responsible for initiating, maintaining and
supervising all safety precautions and programs in connection with the
performance of the Contract.
10.1.2 In the event the Contractor encounters on the site material reasonably
believed to be asbestos or polychlorinated biphenyl (PCB) which has not been
rendered harmless, the Contractor shall immediately stop Work in the area
affected and report the condition to the Owner and Architect in writing. The
Work in the affected area shall not thereafter be resumed except by written
agreement of the Owner and Contractor if in fact the material is asbestos or
polychlorinated biphenyl (PCB) and has not been rendered harmless. The Work in
the affected area shall be resumed in the absence of asbestos or polychlorinated
biphenyl (PCB), or when it has been rendered harmless, by written agreement of
the Owner and Contractor, or in accordance with final determination by the
Architect on which arbitration has not been demanded, or by arbitration under
Article 4.
10.1.3 The Contractor shall not be required pursuant to Article 7 to perform
without consent any Work relating to asbestos or polychlorinated biphenyl (PCB).
10.1.4 To the fullest extent permitted by law, the Owner shall indemnify and
hold harmless the Contractor, Architect, Architect's consultants and agents and
employees of any of them from and against claims, damages, losses and expenses,
including but not limited to attorneys' fees, arising out of or resulting from
performance of the Work in the affected area if in fact the material is asbestos
or polychlorinated biphenyl (PCB) and has not been rendered harmless, provided
that such claim, damage, loss or expense is attributable to bodily injury,
sickness, disease or death, or to injury to or destruction of tangible property
(other than the Work itself) including loss of use resulting therefrom, but only
to the extent caused in whole or in part by negligent acts or omissions of the
Owner, anyone directly or indirectly employed by the Owner or anyone for whose
acts the Owner may be liable, regardless of whether or not such claim, damage,
loss or expense is caused in part by a party indemnified hereunder. Such
obligation shall not be construed to negate, abridge, or reduce other rights or
obligations of indemnity which would otherwise exist as to a party or person
described in this Subparagraph 10.1.4.
10.2 SAFETY OF PERSONS AND PROPERTY
10.2.1 The Contractor shall take reasonable precautions for safety of, and shall
provide reasonable protection to prevent damage, injury or loss to:
.1 employees on the Work and other persons who may be affected
thereby;
.2 the Work and materials and equipment to be incorporated therein,
whether in storage on or off the site, under care, custody or control
of the Contractor or the Contractor's Subcontractors or Sub-
contractors; and
.3 other property at the site or adjacent thereto, such as trees,
shrubs, lawns, walks, pavements, roadways, structures and utilities
not designated for removal, relocation or replacement in the course of
construction.
10.2.2 The Contractor shall give notices and comply with applicable laws,
ordinances, rules, regulations and lawful orders of public authorities bearing
on safety of persons or property or their protection from damage, injury or
loss.
10.2.3 The Contractor shall erect and maintain, as required by existing
conditions and performance of the Contract, reasonable safeguards for safety and
protection, including posting danger signs and other warnings against hazards,
promulgating safety regulations and notifying owners and users of adjacent sites
and utilities.
10.2.4 When use or storage of explosives or other hazardous materials or
equipment or unusual methods are necessary for execution of the Work, the
Contractor shall exercise utmost care and carry on such activities under
supervision of properly qualified personnel.
10.2.5 The Contractor shall promptly remedy damage and loss (other than damage
or loss insured under property insurance required by the Contract Documents) to
property referred to in Clauses 10.2.1.2 and 10.2.1.3 caused in whole or in part
by the Contractor, a Subcontractor, a Sub-subcontractor, or anyone directly or
indirectly employed by any of them, or by anyone for whose acts they may be
liable and for which the Contractor is responsible under Clauses 10.2.1.2 and
10.2.1.3, except damage or loss attributable to acts or omissions of the Owner
or Architect or anyone directly or indirectly employed by either of them, or by
anyone for whose acts either of them may be liable, and not attributable to the
fault or negligence of the Contractor. The foregoing obligations of the
Contractor are in addition to the Contractor's obligations under Paragraph 3.18.
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10.2.6 The Contractor shall designate a responsible member of the Contractor's
organization at the site whose duty shall be the prevention of accidents. This
person shall be the Contractor's superintendent unless otherwise designated by
the Contractor in writing to the Owner and Architect.
10.2.7 The Contractor shall not load or permit any part of the cortruction's or
site to be loaded so as to endanger its safety.
10.3 EMERGENCIES
10.3.1 In an emergency affecting safety of persons or property, the Contractor
shall act, at the Contractor's discretion, to prevent threatened damage, injury
or loss. Additional compensation or extension of time claimed by the Contractor
on account of an emergency shall be determined as provided in Paragraph 4.3 and
Article 7.
ARTICLE 11
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INSURANCE AND BONDS
11.1 CONTRACTOR'S LIABILITY INSURANCE
11.1.1 The Contractor shall purchase from and maintain in a company or companies
lawfully authorized to do business in the jurisdiction in which the Project is
located such insurance as will protect the Contractor from claims set forth
below which may arise out of or result from the Contractor's operations under
the Contract and for which the Contractor may be legally liable, whether such
operations be by the Contractor or by a Subcontractor or by anyone directly or
indirectly employed by any of them, or by anyone for whose acts any of them may
be liable:
.1 claims under workers' or workmen's compensation, disability benefit
and other similar employee benefit acts which are applicable to the
Work to be performed;
.2 claims for damages because of bodily injury, occupational sickness
or disease, or death of the Contractor's employees;
.3 claims for damages because of bodily injury, sickness or disease,
or death of any person other than the Contractor's employees;
.4 claims for damages insured by usual personal injury liability
coverage which are sustained (1) by a person as a result of an offense
directly or indirectly related to employment of such person by the
Contractor, or (2) by another person;
.5 claims for damages, other than to the Work itself, because of
injury to or destruction of tangible property, including loss of use
resulting therefrom;
.6 claims for damages because of bodily injury, death of a person or
property damage arising out of ownership, maintenance or use of a
motor vehicle; and
.7 claims involving contractual liability insurance applicable to the
Contractor's obligations under Paragraph 3.18.
11.1.2 The insurance required by Subparagraph 11.1.1 shall be written for not
less than limits of liability specified in the Contract Documents or required by
law, whichever coverage is greater. Coverages, written on an occurrence basis,
shall be maintained without interruption from date of commencement of the Work
until date of final payment and termination of any coverage required to be
maintained after final payment.
11.1.3 Certificates of Insurance acceptable to the Owner shall be filed with the
Owner prior to commencement of the Work. These Certificates and the insurance
policies required by this Paragraph 11.1 shall contain a provision that
coverages afforded under the policies will not be cancelled or allowed to expire
until at least 30 days' prior written notice has been given to the Owner. If any
of the foregoing insurance coverages are required to remain in force after final
payment and are reasonably available, all additional certificate evidencing
continuation of such coverage shall be submitted which the final Application for
Payment as required by Subparagraph 9.10.2. Information concerning reduction of
coverage shall be furnished by the Contractor with reasonable promptness in
accordance with the Contrator's information and belief.
11.2 OWNER'S LIABILITY INSURANCE
11.2.1 The Owner shall be responsible for purchasing and maintaining the Owner's
usual liability insurance.
11.3 PROPERTY INSURANCE
11.3.1 Unless otherwise provided, the Contractor shall purchase and maintain, in
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a company or companies lawfully authorized to do business in the jurisdiction in
which the Project is located, property insurance in the amount of the initial
Contract Sum as well as
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subsequent modifications thereto for the entire Work at the site on a
replacement cost basis without voluntary deductibles. Such property insurance
shall be maintained, unless otherwise provided in the Contract Documents or
otherwise agreed in writing by all persons and entities who are beneficiaries of
such insurance, until final payment has been made as provided in Paragraph 9.10
or until no person or entity other than the Owner has an insurable interest in
the property required by this Paragraph 11.3 to be covered, whichever is
earlier. This insurance shall include interests of the Owner, the Contractor,
Subcontractors and Sub-subcontractors in the Work.
11.3.1.1 Property insurance shall be on an all-risk policy form and shall insure
against the perils of fire and extended coverage and physical loss or damage
including, without duplication of coverage, theft, vandalism, malicious
mischief, collapse, false-work, temporary buildings and debris removal including
demolition occasioned by enforcement of any applicable legal requirements, and
shall cover reasonable compensation for Architect's services and expenses
required as a result of such insured loss. Coverage for other perils shall not
be required unless otherwise provided in the Contract Documents.
11.3.1.2
11.3.1.3 If the property insurance requires minimum deductibles and such
deductibles are identified in the Contract Documents, the Contractor shall pay
costs not covered because of such deductibles.
11.3.1.4
11.3.2 BOILER AND MACHINERY INSURANCE. The Owner, shall purchase and maintain
boiler and machinery insurance required by the Contract Document or by law,
which shall specifically cover such insured objects during installation and
until final acceptance by the Owner; this insurance shall include interest of
the Owner, Contractor, Subcontractors and Sub-subcontractors in the Work, and
the Owner and Contractor shall be named insureds.
11.3.3 LOSS OF USE INSURANCE. The Owner , at the Owner's option, may purchase
and maintain such insurance as will insure the Owner against loss of use of the
Owner's property due to fire or other hazards, however caused. The Owner waives
all rights of action against the Contractor for loss of use of the Owner's
property, including consequential losses due to fire or other hazards however
caused.
11.3.4
11.3.5 If during the Project construction period the Owner insures properties,
real or personal or both, adjoining or adjacent to the site by property
insurance under policies seperate from those insuring the Project, or if after
final payment property insurance is to be provided on the completed Project
through a policy or policies other than those insuring the Project during the
construction period, the Owner shall waive all rights in accordance with the
terms of Subparagraph 11.3.7 for damages caused by fire or other perils covered
by this separate property insurance. All separate policies shall provide this
waiver of subrogation by endorsement or otherwise.
11.3.6 Before an exposure to loss may occur, the Contractor shall file with the
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Owner a copy of each policy that includes insurance coverages required by this
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Paragraph 11.3. Each policy shall contain all generally applicable conditions,
definitions, exclusions and endorsements related to this Project. Each policy
shall contain a provision that the policy will not be cancelled or allowed to
expire until at least 30 days' prior written notice has been given to the
Contractor.
11.3.7 WAIVERS OF SUBROGATION. The Owner and Contractor waive all rights against
(1) each other and any of their subcontractors, sub-subcontractors, agents and
employees, each of the other, and (2) the Architect, Architect's consultants,
separate contractors described in
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Article 6, if any, and any of their subcontractors, sub-subcontractors, agents
and employees, for damages caused by fire or other perils to the extent covered
by property insurance obtained pursuant to this Paragraph 11.3 or other property
insurance applicable to the Work, except such rights as they have to proceeds of
such insurance held by the Owner as fiduciary. The Owner or Contractor, as
appropriate, shall require of the Architect, Architect's consultants, separate
contractors described in Article 6, if any, and the subcontractors, sub-
subcontractors, agents and employees of any of them, by appropriate agreements,
written where legally required for validity, similar waivers each in favor of
other parties enumerated herein. The policies shall provide such waivers of
subrogation by endorsement or otherwise. A waiver of subrogation shall be
effective as to a person or entity even though that person or entity would
otherwise have a duty of indemnification, contractual or otherwise, did not pay
the insurance premium directly or indirectly, and whether or not the person or
entity had an insurable interest in the property damaged.
11.3.8 A loss insured under Contractor's property insurance shall be adjusted by
the Contractor as fiduciary and made payable to the Contractor as fiduciary for
the insureds, as their interests may appear, subject to requirements of any
applicable mortgagee clause and of Subparagraph 11.3.10. The Contractor shall
pay Subcontractors their just shares of insurance proceeds received by the
Contractor, and by appropriate agreements, written where legally required for
validity, shall require Subcontractors to make payments to their Sub-
subcontractors in similar manner.
11.3.9 If required in writing by a party in interest, the Contractor as
fiduciary shall, upon occurrence of an insured loss, give bond for proper
performance of the Contractor's duties. The cost of required bonds shall be
charged against proceeds received as fiduciary. The Contractor shall deposit in
a separate account proceeds so received, which the Contractor shall distribute
in accordance with such agreement as the parties in interest may reach, or in
accordance with an arbitration award in which case the procedure shall be as
provided in Paragraph 4.5. If after such loss no other special agreement is
made, replacement of damaged property shall be covered by appropriate Change
Order.
11.3.10 The Contractor as fiduciary shall have power to adjust and settle a loss
with insurers unless one of the parties in interest shall object in writing
within five days after occurrence of loss to the Contractor's exercise of this
power; if such objection be made, arbitrators shall be chosen as provided in
Paragraph 4.5. The Contractor as fiduciary shall, in that case, make settlement
with insurers in accordance with directions of such arbitrators. If distribution
of insurance proceeds by arbitration is required, the arbitrators will direct
such distribution.
11.3.11 Partial occupancy or use in accordance with Paragraph 9.9 shall not
commence until the insurance company or companies providing property insurance
have consented to such partial occupancy or use by endorsement or otherwise. The
Owner and the Contractor shall take reasonable steps to obtain consent of the
insurance company or companies and shall, without mutual written consent, take
no action with respect to partial occupancy or use that would cause
cancellation, lapse or reduction of insurance.
11.4 PERFORMANCE BOND AND PAYMENT BOND
11.4.1 The Owner shall have the right to require the Contractor to furnish bonds
covering faithful performance of the Contract and payment of obligations arising
thereunder as stipulated in bidding requirements or specifically required in the
Contract Documents on the date of execution of the Contract.
11.4.2 Upon the request of any person or entity appearing to be a potential
beneficiary of bonds covering payment of obligations arising under the Contract,
the Contractor shall promptly furnish a copy of the bonds or shall permit a copy
to be made.
ARTICLE 12
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UNCOVERING AND CORRECTION OF WORK
12.1 UNCOVERING OF WORK
12.1.1 If a portion of the Work is covered contrary to the Architect's request
or to requirements specifically expressed in the Contract Documents, it must, if
required in writing by the Architect, be uncovered for the Architect's
observation and be replaced at the Contractor's expense without change in the
Contract Time.
12.1.2 If a portion of the Work has been covered which the Architect has not
specifically requested to observe prior to its being covered, the Architect
may request to see such Work and it shall be uncovered by the Contractor. If
such Work is in accordance with the Contract Documents, costs of uncovering and
replacement shall, by appropriate Change Order, be charged to the Owner. If such
Work is not in accordance with the Contract Documents, the Contractor shall pay
such costs unless the condition was caused by the Owner or a separate contractor
in which event the Owner shall be responsible for payment of such costs.
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12.2 CORRECTION OF WORK
12.2.1 The Contractor shall promptly correct Work rejected by the Architect or
failing to conform to the requirements of the Contract Documents, whether
observed before or after Substantial Completion and whether or not fabricated,
installed or completed. The Contractor shall bear costs of correcting such
rejected Work, including additional testing and inspections and compensation for
the Architect's services and expenses made necessary thereby.
12.2.2 If, within one year after the date of Substantial Completion of the Work
or designated portion thereof, or after the date for commencement of warranties
established under Subparagraph 9.9.1, or by terms of an applicable special
warranty required by the Contract Documents, any of the Work is found to be not
in accordance with the requirements of the Contract Documents, the Contractor
shall correct it promptly after receipt of written notice from the Owner to do
so unless the Owner has previously given the Contractor a written acceptance of
such condition. This period of one year shall be extended with respect to
portions of Work first performed after Substantial Completion by the period of
time between Substantial Completion and the actual performance of the Work. This
obligation under this Subparagraph 12.2.2 shall survive acceptance of the Work
under the Contract and termination of the Contract. The Owner shall give such
notice promptly after discovery of the condition.
12.2.3 The Contractor shall remove from the site portions of the Work which are
not in accordance with the requirements of the Contract Documents and are
neither corrected by the Contractor nor accepted by the Owner.
12.2.4 If the Contractor fails to correct nonconforming Work within a reasonable
time, the Owner may correct it in accordance with Paragraph 2.4. If the
Contractor does not proceed with correction of such nonconforming Work within a
reasonable time fixed by written notice from the Architect, the Owner may remove
it and store the salvable materials or equipment at the Contractor's expense. If
the Contractor does not pay costs of such removal and storage within ten days'
written notice, the Owner may upon ten additional days' written notice sell such
materials and equipment at auction or at private sale and shall account for the
proceeds thereof, after deducting costs and damages that should have been borne
by the Contractor, including compensation for the Architect's services and
expenses made necessary thereby. If such proceeds of sale do not cover costs
which the Contractor should have borne, the Contract Sum shall be reduced by the
deficiency. If payments then or thereafter due the Contractor are not sufficient
to cover such amount, the Contractor shall pay the difference to the Owner.
12.2.5 The Contractor shall bear the cost of correcting destroyed or damaged
construction, whether completed or partially completed, of the Owner or separate
contractors caused by the Contractor's correction or removal of Work which is
not in accordance with the requirements of the Contract Documents.
12.2.6 Nothing contained in this Paragraph 12.2 shall be construed to establish
a period of limitation with respect to other obligations which the Contractor
might have under the Contracts Documents. Establishment of the time period of
one year as described in Subparagraph 12.2.2 relates only to the specific
obligation of the Contractor to correct the Work, and has no relationship to the
time within which the obligation to comply with the Contract Documents may be
sought to be enforced, nor to the time within which proceedings may be commenced
to establish the Contractor's liability with respect to the Contractor's
obligations other than specifically to correct the Work.
12.3 ACCEPTANCE OF NONCONFORMING WORK
12.3.1 If the Owner prefers to accept Work which is not in accordance with the
requirements of the Contract Documents, the Owner may do so instead of requiring
its removal and correction, in which case the Contract Sum will be reduced as
appropriate and equitable. Such adjustment shall be effected whether or not
final payment has been made.
ARTICLE 13
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MISCELLANEOUS PROVISIONS
13.1 GOVERNING LAW
13.1.1 The Contract shall be governed by the law of the place where the Project
is located.
13.2 SUCCESSORS AND ASSIGNS
13.2.1 The Owner and Contractor respectively bind themselves, their partners,
successors, assigns and legal representatives to the other party hereto and to
partners, successors, assigns and legal representatives of such other party in
respect to covenants, agreements and obligations contained in the Contract
Documents. Neither party to the Contract shall assign the Contract as a whole
without written consent of the other. If either party attempts to make such an
assignment without such consent, that party shall nevertheless remain legally
responsible for all obligations under the Contract.
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13.3 WRITTEN NOTICE
13.3.1 Written notice shall be deemed to have been duly served if delivered in
person to the individual or a member of the firm or entity or to an officer of
the corporation for which it was intended, or if delivered at or sent by
registered or certified mail to the last business address known to the party
giving notice.
13.4 RIGHTS AND REMEDIES
13.4.1 Duties and obligations imposed by the Contract Documents and rights and
remedies available thereunder shall be in addition to and not a limitation of
duties, obligations, rights and remedies otherwise imposed or available by law.
13.4.2 No action or failure to act by the Owner, Architect or Contractor shall
constitute a waiver of a right or duty afforded them under the Contract, nor
shall such action or failure to act constitute approval of or acquiescence in a
breach thereunder, except as may be specifically agreed in writing.
13.5 TESTS AND INSPECTIONS
13.5.1 Tests, inspections and approvals of portions of the Work required by the
Contract Documents or by laws, ordinances, rules, regulations or orders of
public authorities having jurisdiction shall be made at an appropriate time.
Unless otherwise provided, the Contractor shall make arrangements for such
tests, inspections and approvals with an independent testing laboratory or
entity acceptable to the Owner, or with the appropriate public authority, and
shall bear all related costs of tests, inspections and approvals. The Contractor
shall give the Architect timely notice of when and where tests and inspections
are to be made so the Architect may observe such procedures. The Owner shall
bear costs of tests, inspections or approvals which do not become requirements
until after bids are received or negotiations concluded.
13.5.2 If the Architect, Owner or public authorities having jurisdiction
determine that portions of the Work require additional testing, inspection or
approval not included under Subparagraph 13.5.1, the Architect will, upon
written authorization from the Owner, instruct the Contractor to make
arrangements for such additional testing, inspection or approval by an entity
acceptable to the Owner, and the Contractor shall give timely notice to the
Architect of when and where tests and inspections are to be made so the
Architect may observe such procedures. The Owner shall bear such costs except as
provided in Subparagraph 13.5.3.
13.5.3 If such procedures for testing, inspection or approval under
Subparagraphs 13.5.1 and 13.5.2 reveal failure of the portions of the Work to
comply with requirements established by the Contract Documents, the Contract or
shall bear all costs made necessary by such failure including those of repeated
procedures and compensation for the Architect's services and expenses.
13.5.4 Required certificates of testing, inspection or approval shall, unless
otherwise required by the Contract Documents, be secured by the Contractor and
promptly delivered to the Architect.
13.5.5 If the Architect is to observe tests, inspections or approvals required
by the Contract Documents, the Architect will do so promptly and, where
practicable, at the normal place of testing.
13.5.6 Tests or inspections conducted pursuant to the Contract Documents shall
be made promptly to avoid unreasonable delay in the Work.
13.5.6 INTEREST
13.6.1 Payments due and unpaid under the Contract Documents shall bear interest
from the date payment is due at such rate as the parties may agree upon in
writing or, in the absence thereof, at the legal rate prevailing from time to
time at the place where the Project is located.
13.7 COMMENCEMENT OF STATUTORY LIMITATION PERIOD
13.7.1 As between the Owner and Contractor:
.1 BEFORE SUBSTANTIAL COMPLETION. As to acts or failures to act
occurring prior to the relevant date of Substantial Completion, any
applicable statute of limitations shall commence to run and any
alleged cause of action shall be deemed to have accrued in any and all
events not later than such date of Substantial Completion.
.2 BETWEEN SUBSTANTIAL COMPLETION AND FINAL CERTIFICATE FOR PAYMENT.
As to acts or failures to act occurring subsequent to the relevant
date of Substantial Completion and prior to issuance of the final
Certificate for Payment, any applicable statute of limitations shall
commence to run and any alleged cause of action shall be deemed to
have accrued in any and all events not later than the date of issuance
of the final Certificate for Payment; and
.3 AFTER FINAL CERTIFICATE FOR PAYMENT. As to acts or failures to act
occurring after the relevant date of issuance of the final Certificate
for Payment, any applicable statute of limitations shall commence to
run and any
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alleged cause of action shall be deemed to have accrued in any and all
events not later than the date of any act or failure to act by the
Contractor pursuant to any warranty provided under Paragraph 3.5 the
date of any correction of the Work or failure to correct the Work by
the Contractor under Paragraph 12.2 or the date of actual commission
of any other act or failure to perform any duty or obligation by the
Contractor or Owner, whichever occurs last.
ARTICLE 14
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TERMINATION OR SUSPENSION OF THE CONTRACT
14.1 TERMINATION BY THE CONTRACTOR
14.1.1 The Contractor may terminate the Contract if the Work is stopped for a
period of 30 days through no act or fault of the Contract or a Subcontractor,
Sub-contractor or their agents or employees or any other persons performing
portions of the Work under contract with the Contractor, for any of the
following reasons:
.1 issuance of an order of a court or other public authority having
jurisdiction;
.2 an act of government, such as a declaration of national emergency,
making material unavailable;
.3 because the Architect has not issued a Certificate for Payment and
has not notified the Contractor of the reason for withholding
certification as provided in Subparagraph 9.4.1, or because the Owner
has not made payment on a Certificate for Payment within the time
stated in the Contract Documents;
.4 if repeated suspensions, delays or interruptions by the Owner as
described in Paragraph 14.3 constitute in the aggregate more than 100
percent of the total number of days scheduled for completion, or 120
days in any 365-day period, whichever is less; or
.5 the Owner has failed to furnish to the Contractor promptly, upon
the Contractor's request, reasonable evidence as required by
Subparagraph 2.2.1.
14.1.2 If one of the above reasons exists, the Contractor may, upon seven
additional days' written notice to the Owner and Architect, terminate the
Contract and recover from the Owner payment for Work executed and for proven
loss with respect to materials, equipment, tools, and construction equipment and
machinery, including reasonable overhead, profit damages.
14.1.3 If the Work is stopped for a period of 60 days through no act or fault of
the Contractor or a Subcontractor or their agents or employees or any other
persons performing portions of the Work under contract with the Contractor
because the Owner has persistently failed to fulfill the Owner's obligations
under the Contract Documents with respect to matters important to the progress
of the Work, the Contractor may, upon seven additional days' written notice to
the Owner and the Architect, terminate the Contract and recover from the Owner
as provided in Subparagraph 14.1.2.
14.2 TERMINATION BY THE OWNER FOR CAUSE
14.2.1 The Owner may terminate the Contract if the Contractor:
.1 persistently or repeatedly refuses or fails to supply enough
properly skilled workers or proper materials;
.2 fails to make payment to Subcontractors for materials or labor in
accordance with the respective agreements between the Contractor and
the Subcontractors;
.3 persistently disregards laws, ordinances, or rules, regulations or
orders of a public authority having jurisdiction; or
.4 otherwise is guilty of substantial breach of a provision of the
Contract Documents.
14.2.2 When any of the above reasons exist, the Owner, upon certification by the
Architect that sufficient cause exists to justify such action, may without
prejudice to any other rights or remedies of the Owner and after giving the
Contractor and the Contractor's surety, if any, seven days' written notice,
terminate employment of the Contractor and may, subject to any prior rights of
the surety:
.1 take possession of the site and of all materials, equipment, tools,
and construction equipment and machinery thereon owned by the
Contractor;
.2 accept assignment of subcontracts pursuant to Paragraph 5.4; and
.3 finish the Work by whatever reasonable method the Owner may deem
expedient
14.2.3 When the Owner terminates the Contract for one of the reasons stated in
Subparagraph 14.2.1, the Contractor shall not be entitled to receive further
payment until the Work is finished.
Electronic Document Service A201-1987 26
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<PAGE>
14.2.4 If the unpaid balance of the Contract Sum exceeds costs of finishing the
Work, including compensation for the Architect's services and expenses made
necessary thereby, such excess shall be paid to the Contractor. If such costs
exceed the unpaid balance, the Contract shall pay the difference to the Owner.
The amount to be paid to the Contractor or Owner, as the case may be, shall be
certified by the Architect, upon application, and this obligation for payment
shall survive termination of the Contract.
14.3 SUSPENSION BY THE OWNER FOR CONVENIENCE
---------------------------------------
14.3.1 The Owner may, without cause, order the Contractor in writing to suspend,
delay or interrupt the Work in whole or in part for such period of time as the
Owner may determine.
14.3.2 An adjustment shall be made for increases in the cost of performance of
the Contract, including profit on the increased cost of performance, cause by
suspension, delay or interruption. No adjustment shall be made to the extent:
.1 that performance is, was or would have been so suspended, delayed
or interrupted by another cause for which the Contractor is
responsible; or
.2 that an equitable adjustment is made or denied under another
provision of this Contract.
14.3.3 Adjustments made in the cost of performance may have a mutually agreed
fixed or percentage fee.
Electronic Document Service A201-1987 27
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<PAGE>
EXHIBIT "B"
-----------
SUPPLEMENTAL GENERAL CONDITIONS
-------------------------------
The Supplemental General Conditions contained in this Exhibit "B"
-----------
supplement, modify, delete from or add to the General Conditions of the Contract
for Construction (AIA A201 1987 edition) (the "General Conditions"), which is
Exhibit "A" to the Standard Form of Agreement Between Owner and Contractor (AIA
- -----------
A101 1987 Edition) entered into by and between WELLS REAL ESTATE FUND VIII, L.P.
("Owner") and KRAEMER BROTHERS, INC. ("Contractor "). Where any article,
paragraph or sentence of the General Conditions is modified or deleted by these
Supplemental General Conditions, the unaltered provisions of that article,
paragraph and/or sentence shall remain in effect.
ARTICLE 1
---------
GENERAL PROVISION
1.2 EXECUTION, CORRELATION AND INTENT
Add the following subparagraphs to Subparagraph 1.2.3:
1.2.3.1 It is the intent of the Contract Documents to provide for complete
installation of all portions of the Work. Except where work, or a
portion thereof, is specifically noted as being N.I.C. (Not in
Contract), it is understood that all items, materials and equipment
are to be furnished and installed, complete and ready for operation or
use. Where additional or supplemental details or instructions are
required to complete an item or items, the Architect shall furnish the
necessary information to the Contractor. No work shall be installed or
fabricated which depends upon the furnishing of such information. The
furnishing of such data shall not be the grounds for a claim of extra
work by the Contractor. The Contractor will be deemed to have based
its proposal on a complete installation; where additional details or
instructions are required to complete the Work, the Contractor is
deemed to have made an allowance in its proposal for the completion of
such Work, consistent with adjoining or similar details and/or the
best normally accepted practices of the trade.
1.2.3.2 In case of conflict between the elements comprising the Contract
Documents, the Contractor is obligated to have based its proposal on
the method, material, finish, system, etc., normally accepted in the
trade, unless otherwise noted in the Contract Documents.
<PAGE>
1.2.3.3 Where the scope of the Work of the Contractor in the Drawings calls for
service connections, supports, or installation of any item or group of
items being furnished by others, the Contractor shall be furnished the
plans and specifications of all other contracts to ascertain the full
scope of its Work including but not limited to connections, supports and
installation of equipment furnished by other trades or contractors.
1.2.3.4 In case of omissions or discrepancies between the Contract Documents,
the Contractor shall secure written installations from the Architect
before proceeding with the Work affected by omissions or discrepancies.
Add the following Subparagraph 1.2.6:
1.2.6 In the event of conflicts or discrepancies among the Contract Documents,
interpretations will be based on the following priorities.
.1 Addenda, with those of later date having precedence over those of
earlier date.
.2 Letter from Kraemer Brothers, Inc. (as amended) attached to the
Agreement as Exhibit "C."
.3 The Supplemental General Conditions.
.4 The General Conditions of the Contract for Construction.
.5 This Agreement.
.6 Drawings, as listed in Section 9.1.4 and 9.1.5.
In the case of an inconsistency between Drawings or within any document not
clarified by an addendum, the better quality or greater quantity of Work shall
be provided in accordance with the Architect's interpretation.
ARTICLE 3
---------
CONTRACTOR
3.18 INDEMNIFICATION
Delete Subparagraph 3.18.1 and substitute the following in its place:
3.18.1 To the fullest extent permitted by law, the Contractor shall and does
hereby agree to indemnify, save
- 2 -
<PAGE>
harmless, and defend the Owner, the Architect, and their respective
successors, assigns, agents, officers, servants and employees from and
against all claims, damages, losses and expenses, including but not
limited to reasonable attorneys' fees, court costs and disbursements,
arising out of, resulting from, or caused in whole or in part by
negligent acts or omissions of the Contractor, except to the extent
that the claim, damage, loss or expense is caused by the negligence of
the Owner or the Owner's agents, officers, servants, employees or
Architect. These obligations of the Contractor shall not be construed
to negate, abridge or otherwise reduce any right or obligation of
indemnity or contribution which would otherwise exist as to any party
or person described in this paragraph.
Add the following Paragraph 3.19:
3.19 The Contractor shall be responsible for having taken all steps necessary to
ascertain the nature and location of the Work, the general local conditions
which can affect the Work or the cost thereof. Failure by Contractor to
fully acquaint itself with conditions which may affect the Work, including,
but not limited to, conditions relating to transportation, handling,
storage of materials, availability of labor, water, roads, climate,
topographic conditions (as long as consistent with all Contract Documents),
and multi-prime contract conditions, applicable provisions of law, and the
character and availability of equipment and facilities needed preliminary
to and during the prosecution of the Work, shall not relieve Contractor of
its responsibilities under the Contract Documents and shall not constitute
a basis for an equitable adjustment to the Contract Time or the Contract
Sum under any circumstances.
ARTICLE 4
---------
ADMINISTRATION OF THE CONTRACT
4.3.5 Add the following Subparagraph 4.3.5.4:
.4 damages incurred by Owner resulting from lawsuits and/or arbitration
proceedings brought against Owner, Architect, or their respective
successors, assigns, agents, employees or representatives on account
of Contractor's acts or omissions which relate to the Work, or on
account of the acts or omissions of Contractor's subcontractors, sub-
subcontractors, materialmen or suppliers, or any of their employees,
agents or representatives which relate to the Work.
- 3 -
<PAGE>
ARTICLE 5
---------
SUBCONTRACTORS
5.2 AWARD OF SUBCONTRACTORS AND OTHER CONTRACTS FOR PORTIONS OF THE WORK
Add the following Subparagraph 5.2.5:
5.2.5 All subcontracts shall include a copy of the project schedule as it
may be updated at the time of subcontract award and all subcontractors
shall agree (1) that no extensions of the Contract Time with respect
to such subcontractor's work shall be made unless authorized under the
terms of the Contract Documents, (2) to participate and cooperate in
the scheduled meetings, (3) to furnish at all times sufficient
workmen, tools, equipment and materials and to work such hours as are
necessary to maintain the required progress as shown on the project
schedule, and (4) to provide Contractor and Owner with a written
certification upon the completion of such subcontractor's work that in
performing its work there occurred no disposal or release of hazardous
or toxic materials and that no asbestos, asbestos containing materials
or hazardous or toxic substances have been installed or incorporated
into its work. All subcontractors shall also contain the following
---------------------------------------------------
clause: "Subcontractor agrees, upon notification in writing from
-----------------------------------------------------------------
Owner of termination of Contractor under its Agreement with Owner on
--------------------------------------------------------------------
this Project, to continue performance on behalf of Owner or Owner's
-------------------------------------------------------------------
assignee under this subcontract in accordance with the terms thereof."
----------------------------------------------------------------------
ARTICLE 8
---------
TIME
8.3 DELAYS AND EXTENSIONS OF TIME
Delete Subparagraph 8.3.3 in its entirety and substitute the following
provisions:
8.3.3 In the event the Contractor requests an extension of the Contract
Time, it shall furnish such justification and supporting evidence as
the Owner and Architect may deem necessary for a determination as to
whether the Contractor is entitled to an extension of time under the
provisions of the Contract. If the Architect finds
- 4 -
<PAGE>
that the Contractor is entitled to any extension of the Contract Time,
the Architect's determination as to the total number of days'
extension shall be based upon the currently approved schedule and on
all data relevant to the extension. Such data will be included in the
next monthly updating of the schedules. The Contractor acknowledges
and agrees that actual delays in activities which, according to the
project schedule do not have an affect on the Contract Time, will not
be the basis for a change therein. If the Architect determines that
the Contractor is entitled to an extension of time, an appropriate
Change Order will be issued.
8.3.4 All claims for an extension of the Contract Time shall be made in
writing to the Architect within twenty-one (21) days of the first
instance of delay and the circum-stances and activities leading to
such claim shall be indicated or referenced on the Daily Report for
the day(s) affected; otherwise, all such claims are waived by the
Contractor. In the case of a continuous cause of delay only one (1)
written claim is necessary. The Contractor shall provide an estimate
of the probable effect of such delay on the progress of the Work.
Add the following Paragraph 8.4:
8.4 TIME OF THE ESSENCE
8.4.1 Time is of the essence with respect to each and every provision of the
Contract.
ARTICLE 9
---------
PAYMENTS AND COMPLETION
9.5 DECISIONS TO WITHHOLD CERTIFICATION
Add the following subparagraphs to Subparagraph 9.5.1:
.8 unreleased, unsatisfied, or undischarged liens filed for any portion
of the completed Work,
9.6 PROGRESS PAYMENTS
Add the following subparagraphs 9.6.1:
9.6.1 As a condition to each progress payment, Contractor shall submit duly
executed lien waivers and affidavits
- 5 -
<PAGE>
for itself and its subcontractors substantially in the form attached
hereto as Exhibit "E."
9.8 SUBSTANTIAL COMPLETION
Add the following Subparagraph 9.8.1.1:
9.8.1.1 "Substantial Completion" for payment purposes shall be defined as
Owner's and/or Architect's receipt of the following:
.1 from Contractor, the Certificate(s) of Occupancy, Partial, Temporary
or otherwise, as required for beneficial occupancy, including the
applicable approvals of the building inspector, fire marshal, elevator
inspector, etc;
.2 from Contractor, a defined list of "punchlist" items to be completed
and/or corrected with a time certain for such completion and/or
correction;
.3 from Contractor, maintenance manuals and all other items required by
the Contract Documents (such as warranty documents), in the format
required thereunder; and
.4 from Architect, the Architect's Certificate of Substantial Completion
(AIA Document G704), which shall be in the form of Exhibit "D"
----------
attached hereto and made a part hereof.
9.10 FINAL COMPLETION AND FINAL PAYMENT
Add the following subparagraphs 9.10.1.1 and 9.10.1.2:
9.10.1.1 "Final Completion" shall be defined as the date upon which Owner
receives the Architect's Certificate of Final Completion and the
Architect's Certificate of Final Payment, so long as Contractor has
completed all of the work detailed on the punchlist described in
Paragraph 9.8. Within thirty (30) days after "Final Completion" of the
Work, Owner will make payment to Contractor of the full Contract Sum,
including the remainder of all retainage.
9.10.1.2 It is agreed and understood that prior to final payment to the
Contractor and the release of the retainage, the Contractor shall be
required to provide Owner with the following:
- 6 -
<PAGE>
.1 the Final Certificate(s) of Occupancy and other required final
approvals or certificates from all authorities having jurisdiction as
may be required for beneficial occupancy of the Project.
.2 Final Release of Lien and Final Affidavit documents from all
subcontractors, materialmen and suppliers substantially in the form
attached hereto as Exhibit "E".
-----------
.3 a Final Release of Lien and a Contractor's Final Affidavit
substantially in the form attached hereto as Exhibit "E".
-----------
.4 Contractor's written certification that in performing the Work there
occurred no disposal or release of hazardous or toxic materials and
that no asbestos, asbestos containing materials or hazardous or toxic
substances have been installed or incorporated into the Work, except
as expressly required by the Contract Documents.
.5 Written certifications from all Subcontractors that in performing
their work there occurred no disposal or release of hazardous or toxic
materials and that no asbestos, asbestos containing materials or
hazardous or toxic substances have been installed or incorporated into
their work, except as expressly required by the Contract Documents.
.6 As-built documents.
ARTICLE 11
----------
INSURANCE AND BONDS
-------------------
11.1 CONTRACTOR'S LIABILITY INSURANCE
Add the following subparagraphs to Subparagraph 11.1.1:
11.1.1.8 Liability Insurance shall include all major divisions of coverage
including:
.1 Premises Operations (including X, C and U coverages as applicable).
.2 Independent Contractors' Protective.
.3 Products and Completed Operations.
.4 Personal Injury Liability.
.5 Contractual, including specified provision for Contractor's obligation
under Paragraph 3.18.
.6 Owned, non-owned and hired motor vehicles.
- 7 -
<PAGE>
.7 Broad Form Property Damage including Completed Operations.
11.1.1.9 If the General Liability coverages are provided by a Commercial
General Liability Policy on a claims-made basis, the policy date or
Retroactive Date shall predate the Contract; the termination date of
the policy or applicable extended reporting period shall be no earlier
than two calendar years after final payment, certified in accordance
with Subparagraph 9.10.2.
Add the following to Subparagraph 11.1.2:
The insurance required by Subparagraph 11.1.1 shall be written for not
less than the following limits, or greater if required by law:
.1 Workers' Compensation:
(a) State: Statutory
(b) Applicable Federal (e.g.,
Longshoremen's): Statutory
(c) Employer's Liability: $100,000 per Accident
$500,000 Disease, Policy Limit
$100,000 Disease, Each Employee
.2 Comprehensive or Commercial General Liability (including Premises
Operations; Independent Contractors' Protective; Products and
Completed Operations; Broad Form Property Damage):
(a) Bodily Injury and Property Damage:
$1,000,000 Each Occurrence
$2,000,000 Aggregate
(b) Products and Completed Operations to be maintained for 2 years after
final payments:
$1,000,000 Aggregate
(c) Property Damage Liability Insurance shall provide X, C and U coverage.
(d) Broad Form Property Damage Coverage shall include Completed
Operations.
- 8 -
<PAGE>
.3 Contractual Liability in an amount not less than the Contract
Sum.
.4 Personal Injury,
$1,000,000 Aggregate
.5 Business Auto Liability (including owned, non-owned and hired
vehicles):
(a) Bodily Injury and Property Damage:
$1,000,000 Each Occurrence
$2,000,000 Aggregate
.6 If the General Liability coverages are provided by a Commercial
Liability policy, then the General Aggregate shall not be less
than $2,000,000 and it shall apply, in total, to this Project
only.
.7 Umbrella Excess Liability:
$5,000,000 over primary insurance.
11.1.4 Add the following Subparagraph 11.1.4:
11.1.4 Contractor agrees to provide all of the insurance coverages specified
hereunder and shall provide Owner with a Certificate of Insurance
within ten (10) days of execution of the Agreement evidencing that it
has obtained such coverages. Contractor shall cause Owner, its
successors and assigns, and their respective partners, stockholders
and employees to be named as additional insureds on Contractor's
General and Umbrella liability policies with respect to this Project
and their involvement in same. All such insurance shall contain a
provision that the coverage afforded will not be cancelled, materially
changed or renewal refused until at least thirty (30) days' prior
written notice has been given to Owner and Architect. All such
insurance shall remain in effect until final payment and at all times
thereafter when Contractor may be correcting, removing or replacing
defective Work in accordance with Article 12 hereof. In addition,
Contractor shall maintain such completed operations insurance for at
least two (2) years after final payment and furnish Owner with
evidence or continuation of such insurance at final payment and one
(1) year thereafter.
11.3 PROPERTY INSURANCE
- 9 -
<PAGE>
11.3.1.4. Delete Subparagraph 11.3.1.4 and substitute the following:
11.3.1.4. The Contractor shall provide insurance coverage for portions of the
Work stored off the site after written approval of the Owner at the
value established in the approval, and also for portions of the Work
in transit.
ARTICLE 13
----------
MISCELLANEOUS PROVISIONS
Add the following Paragraphs 13.8 through 13.10 to Article 13:
13.8 Contractor undertakes that if a lien for labor or material furnished at
the Project shall be filed with respect to Owner's interest in the real
property and improvements thereon, Contractor will cause the same to be
bonded or discharged. If Contractor fails so to bond or discharge a lien
within thirty (30) days following receipt of written notice of the lien
from Owner, Owner shall have the right to satisfy such lien. Payments
made and costs incurred by Owner for such purpose, including reasonable
attorney's fees and court costs incurred in connection therewith, shall
be deemed to be payments to the Contractor hereunder, and the amount due
to Contractor shall be reduced accordingly.
13.9 Contractor warrants and represents that it believes that the Project can
be built on a regular time basis on or before the date specified in the
Contract Documents. If overtime is required to comply with the completion
date, Contractor acknowledges and agrees that the cost of all such
overtime shall be borne by Contractor except to the extent such overtime
is incurred as a result of Change Orders or delays caused by Owner or
Architect.
13.10 Contractor warrants and represents that it is experienced in and
knowledgeable about the type of Work to be performed under the Contract
Documents. Contractor further warrants and represents that it is familiar
with the Project site and the conditions under which the Work is to be
performed. Contractor acknowledges that it has had a reasonable amount of
time to price the Work and to clarify the exact scope of Work, both
quantitative and qualitative, called for by the Contract Documents.
- 10 -
<PAGE>
ARTICLE 14
----------
TERMINATION OR SUSPENSION OF THE CONTRACT
Add the following paragraph 14.4:
14.4 TERMINATION BY THE OWNER FOR CONVENIENCE
14.4.1 Notwithstanding anything else in the Contract Documents, the Owner
shall have the right to terminate the Contract or to stop the Work, in
either case solely for the Owner's convenience, by giving the
Contractor written notice that the Contract is terminated or the Work
is to be stopped.
14.4.2 ACTIONS FOLLOWING STOP WORK DIRECTIVE. Upon receipt of notice to stop
the Work issued by Owner, the Contractor shall stop all of the Work,
direct all Subcontractors to stop their work and cancel or delay all
material orders to the extent feasible and as the Contractor
reasonably believes to be in the best interests of the Owner or as may
be directed by the Owner. If the Owner thereafter directs the Work to
be recommenced within the specified period (not to exceed sixty (60)
days or such longer period as may be agreed upon by the Owner and
Contractor), the Contractor shall recommence the Work and the Contract
Sum and the date of Substantial Completion shall be equitably adjusted
to compensate the Contractor for all costs and delays incurred or to
be incurred as a result of the notice to stop the Work.
14.4.3 ACTIONS FOLLOWING TERMINATION. After receipt of a notice of
termination pursuant to the provisions of Paragraph 14.2 hereof, or on
termination under Paragraph 14.3 hereof, the Contractor shall:
.1 Stop the Work within forty-eight (48) hours and allow Owner to
take possession and control of the Project site.
.2 Place no further orders or subcontracts for materials, labor,
services or equipment.
.3 Terminate all material and equipment orders and subcontracts to
the extent terminable (unless otherwise directed by Owner) and
advise the Owner of all materials, equipment and other items
which cannot be cancelled or which are already delivered and
allow the Owner to participate in the salvage or disposition
thereof.
- 11 -
<PAGE>
14.4.4 Contractor's Termination Statement. The Contractor shall, as sson as
practical after receiving notice of termination under this Paragraph
14.3, submit to the Owner, the Contractor's statement showing all of the
costs incurred by the Contractor in the performance of Work not included
in any previous Application for Payment. The Owner shall, within sixty
(60) days after receipt of such statement, pay to the Contractor all
amounts properly included thereon plus a termination fee of six percent
(6%). The phase "costs incurred by the Contractor in the performance of
the Work terminated" as used herein shall be deemed to include:
.1 Subcontract termination cost;
.2 Cancellation fees in regard to equipment and materials ordered;
.3 Cost of all materials and equipment ordered which cannot be
cancelled, less actual proceeds received upon the disposition
thereof;
.4 Restocking fees in regard to materials ordered;
.5 Field work accomplished;
.6 Permit, engineering, bond and inspection fees; and
.7 All other direct costs actually incurred by the Contractor which
can be demonstrated by invoice, cancelled check or other
appropriate documentation.
14.5 Upon payment by the Owner of the sums agreed to under Paragraph 14.4, the
Contractor shall transfer to the Owner title to all materials, equipment
and other property included or ordered for the terminated Work, the cost of
which was included or ordered for the terminated Work, the cost of which
was included in the Contractor's termination statement. Acceptance of such
payment by the Contractor shall constitute a waiver of all further claims
by Contractor against the Owner under the Contract.
[END OF SUPPLEMENTAL GENERAL CONDITIONS]
- 12 -
<PAGE>
EXHIBIT C
[LETTERHEAD OF KRAEMER APPEARS HERE]
May 29, 1996
ADEVCO Corporation
3885 Holcomb Bridge Road
Norcross, GA 30092
Attention: Mr. David M. Kraxberger
Name & Address of Second Owner
Re: Madison Cellular Telephone Company
New Office Facility
Madison, Wisconsin
G.M.P. - II - Contract Copy
Dear Mr. Kraxberger:
We, as a member of the development team of ADEVCO Corporation/Strang, Inc./
Kraemer Brothers, Inc., propose to construct the above referenced project in
accordance with the preliminary drawings and outline specifications prepared
by Srang, Inc., 6411 Mineral Point Road, Madison, Wisconsin, 53705, Project No.
P012, pages:
A0.1 Site Plan Dated December 1, 1995
A1.1 First Floor Plan Dated December 7, 1995
A1.2 Second Floor Dated December 6, 1995
A1.3 Third Floor Plan Dated December 6, 1995
A2.1 Three Story Ext. Elevations w/EIFS Dated December 6, 1995
A2.1 Three Story Ext. Elevations w/Brick Dated December 6, 1995
A2.2 Four Story Ext. Elevations w/EIFS Dated December 6, 1995
A2.1 Four Story Ext. Elevations w/Brick Dated December 6, 1995
A3.1 Wall Sections Dated November 30, 1995
Outline Specifications Pages 1-9 Dated November 12, 1995
Revised Building Elevation Received March 25, 1996
Revised Preliminary Floor Plans Received March 29, 1996
TOTAL REVISED G.M.P. - I WITH ADJUSTMENTS 4-01-96 $6,042,000.00
(Four-Story Building: 106,238 Sq. Ft., Base Core & Shell)
<PAGE>
Page 2 - Madison Cellular Telephone Company
MADISON CELLULAR TELEPHONE COMPANY
NEW OFFICE FACILITY
MADISON, WISCONSIN
The following is a reconstruction of the G.M.P. pricing for the project,
starting with the original G.M.P. and continuing through revisions received
through 4-01-96. The breakdown of the maximum project cost (G.M.P.) is for
informational purposes only, and the costs are not individual maximum prices.
GUARANTEED MAXIMUM PRICE (G.M.P.) 12-13-95
------------------------------------------
POOR STORY BUILDING: 104,192 SQ. FT. Based upon Strang, Inc.
Schematic Drawings 12-07-95
<TABLE>
<S> <C>
SITE DEVELOPMENT:
- -----------------
Site Survey $ By Owner
Soil Borings By Owner
Site Building Sign By Owner
Excavation & Earthwork 155,000.00
Site Engineering & Layout 18,000.00
Soils Compaction Testing 6,000.00
Asphalt Paving & Basecourse 146,000.00
Misc. Directional & Hdcp. Signs 1,000.00
Site Trash Enclosure/Wall 15,000.00
Site Landscaping BY ADEVCO
Concrete Curb & Gutter 21,000.00
Concrete Walks, Pads & Aprons 46,000.00
Site Utilities - Plumbing 36,000.00
Site Lighting 60,000.00
-------------
TOTAL SITE DEVELOPMENT $ 504,000.00
GENERAL CONSTRUCTION:
- ---------------------
Gen. Cond, Ins. & Superv. $ 250,000.00
Cranes, Pumps & Hoisting Equip. 64,000.00
Conc. Fnds., Floors, Rein., Excav.,
Backfill, Insul. & Masonry 871,000.00
Struct./Joist/Deck/Misc. Steel 865,000.00
Rough Carp., Sealants & Caulking 78,000.00
Roofing & Sheet Metal 59,000.00
Doors, Frames, Hardware 39,000.00
Alum. Wdws., Entrances & Glazing 494,000.00
Metal Studs, Drywall & Insul. 276,000.00
Ceramic & Quarry Tile 37.000.00
Acoustic Cellings 83,000.00
Resil. Flooring & Base 4,000.00
Carpet 7,500.00
Painting & Wall Coverings 36,000.00
Misc. Items & Specialties 19,500.00
-------------
TOTAL GENERAL CONSTRUCTION $3,183,000.00
MECHANICAL/ELECTRICAL:
- ----------------------
Plumbing $ 170,000.00
Fire Protection 110,000.00
HVAC - Water Cooled VAV System 810,000.00
Electrical 530,000.00
Emergency Generator 45,000.00
-------------
TOTAL MECHANICAL/ELECTRICAL $1,665,000.00
MISC. & EQUIPMENT:
- ------------------
Elevators (2) $ 85,000.00
Casework 8,000.00
Toilet Partitions & Accessories 29,000.00
Exterior Building Sign/Logo BY ADEVCO
Interior Signage BY ADEVCO
Fire Ext. & Cabinets 2,000.00
Architectural Louvers 1,000.00
Floor Mats & Frames 5,000.00
Window Treatment 22,000.00
Local Building Permit 18,000.00
Performance/Payment Bond None
-------------
TOTAL MISC. & EQUIPMENT $ 171,000.00
Construction Fee $ 277,000.00
- --------------------------------------------------------------------------------
TOTAL MAXIMUM PROJECT COST - G.M.P.:
BASE, CORE & SHELL 12-13-95 $5,800,000.00
</TABLE>
2
<PAGE>
Page 3 - Madison Cellular Telephone Company
TOTAL MAXIMUM PROJECT COST - G.M.P.:
BASE, CORE & SHELL 12-13-95 $5,800,000.00
Previous adjustments to G.M.P.-I dated 2-15-96:
YES 1. Change 85% of the exterior building facade to
- ---
E.I.F.S. vs. face brick ........................ Deduct $( 75,000.00)
YES 2. Change roof steel to K-series roof joists ...... Deduct $( 13,000.00)
- ---
YES 3. Reduce steel erection cost ..................... Deduct $( 8,000.00)
- ---
YES 4. Reduce electrical cost ......................... Deduct $( 67,000.00)
- ---
YES 5. Reduce aluminum/glass cost ..................... Deduct $( 10,000.00)
- ---
- --------------------------------------------------------------------------------
TOTAL REVISED G.M.P.-I WITH ADJUSTMENTS 2-15-96 $5,627,000.00
Adjustments based upon revised drawings of preliminary floor plans, building
elevation and site plan received March 25, 1996 and March 29, 1996.
YES 6. Change the exterior building facade back to face brick.
- ---
Revise the mix of exterior face brick, aluminum windows
& curtainwall system. Add an accent sill below the
window and at the roof edge. The exterior window basic
R.O. size is a maximum 6'-0" high. Windows are based
on a system by CSI Econowall framing with standard
Class II anodized finish. Glass will be 1" insulating
standard grey tint with pyrolitic low-E coating on #3
surface. Includes architectural columns and soffit at
entry ............................................ Add $ 123,000.00
3
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Page 4 - Madison Cellular Telephone Company
YES 7. Additional window treatments at increased window
area. Agreed by ADEVCO to utilize the original
GMP cost........................................ No Change
YES 8. Site - increased asphalt & basecourse area. Agreed
by ADEVCO to utilize the original GMP area and not
increase asphalt & basecourse cost.............. No Change
YES 9. Increase gross building size per revised drawings
received 3-29-96 to 106,238 sq. ft. from 104, 192 sq. ft.
Net increase 2,046 sq. ft. @ $34.70/sq. ft. ..... Add $ 71,000.00
YES 10. Increased density of interior core area partition
walls, doors & frames........................... Add $ 27,000.00
YES 11. Change perimeter structural frame bay spacing to
45'-0". Includes:
32LH13 joists @ 45' span @ 5' o/c, floors
K-Series joists @ roof
36" deep joist girders @ interior framing
36" deep joist girders @ end bay frame.
28" deep joist girder @ perimeter exterior frame
W10 x 60 interior columns
W10 x 45 exterior columns
Increased steel cost............................. Add $ 53,000.00
YES 12. Add one (1) four-stop, 4,500 lb. service elevator
and related elevator shaft work.................. Add $ 76,000.00
YES 13. Provide two (2) additional first floor restrooms
with showers..................................... Add $ 20,000.00
4
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Page 5 - Madison Cellular Telephone Company
YES 14. Add mechanical screen at roof - size 75' x 25' x
- ---
13' high. Frame screen by extending steel frame
at center bay. Exterior wall framing is steel
stud frame work with an exterior metal facade 18"
off roof deck. Screened area is open without a
roof............................................ Add $ 45,000.00
===============================================================================
TOTAL REVISED G.M.P.-I WITH ADJUSTMENTS 4-01-96 $6,042,000.00
(FOUR-STORY BUILDING: 106,238 Sq. Ft., BASE CORE & SHELL)
YES 15. Provide "All Risk" builders risk insurance for the
- ---
duration of the project construction............ Add $ 6,350.00
- -------------------------------------------------------------------------------
TOTAL REVISED G.M.P - I $6,048,350.00
5
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Page 6 - Madison Cellular Telephone Company
The following items are included in the maximum project cost.
--------
1. All excess topsoil material will be stockpiled on contiguous American Family
property.
2. The proposal is based on the building site being Lot 22, American Center
Plat.
3. Basecourse and asphalt is based on 12 + 3 at service drives, 8 + 2-1/2 at
parking areas.
4. All planting islands include curb & gutter; the building perimeter sidewalk
includes a thickened edge curb.
5. All soils testing, concrete testing and analysis.
6. 45 ft. from core to exterior wall bay spacing.
7. Building frame structure is a structural steel frame with joist girders and
28LH13 joist at 5'-0" with 5" concrete floor slab on 1-1/2" 22 ga. form deck
with 6 x 6 - 6/6 WWF. Steel columns are W10 x 45 exterior, W10 x 60
interior. Roof framing to be K series joists.
8. General construction work for the building structure, building envelope and
building core finishes are per drawings and outline specifications.
9. All related plumbing, fire protection, HVAC and electrical work per outline
specification.
10. Use of permanent HVAC system for temporary heating after building enclosure.
11. Cost of City of Madison building permit.
The following items are not included in the maximum project cost.
------------
1. The last G.M.P. cost adjustment dated April 1, 1996 is based upon design
documents received March 25, 1996 and March 29, 1996. Design changes and
scope revisions made after March 29, 1996 are not incorporated in this
G.M.P. cost.
2. Any cost related to winter construction, temporary enclosures, temporary
heating and winter protections for exterior building enclosure.
3. Architectural/engineering fees, State of Wisconsin approval fees and plan
printing costs.
4. General Contractor Performance and Labor & Material Payment Bonds.
6. Soil borings and site survey.
6
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Page 7 - Madison Cellular Telephone Company
8. Removal and disposal of any underground storage tanks or contaminated soils
encountered during construction.
9. Any costs related to the construction of Terrace Drive or related site
utilities for Terrace Drive.
10. Any site landscaping, fine grading, seeding, sod, plantings and related
work.
11. Cost of utility company charges for service, connections and fees for site
utilities, gas and electrical.
12. Furnishing or installation of telephone equipment, including wiring,
exterior signage, building letters, interior signage, all furniture,
fixtures and fixed equipment, demountable partitions, appliances and kitchen
equipment.
13. Any costs related to tenant improvement, including plumbing, HVAC tenant
finish and electrical finishes, tele-data stubs and cabling, work station
power wiring, sound, CCTV & 40 KVA UPS, security or card access system, all
per outline specification instructions titled as Building Clarifications
dated December 12, 1995.
14. Project contingency or financing costs.
This G.M.P. price is based upon an anticipated construction start not later than
June, 1996.
Trusting the above meets with your approval, we remain,
Sincerely,
KRAEMER BROTHERS, INC.
/s/ Tom Kraemer
Tom Kraemer
President
TK/ljp
7
<PAGE>
EXHIBIT "D"
CERTIFICATION OF Distribution to:
SUBSTANTIAL
COMPLETION OWNER [ ]
ARCHITECT [ ]
CONTRACTOR [ ]
AIAEDS AIA DOCUMENT G704 FIELD [ ]
OTHER [ ]
- --------------------------------------------------------------------------------
PROJECT
(Name and address) PROJECT NO.:
CONTRACT FOR:
CONTRACT DATE:
TO CONTRACTOR:
(Name and address)
TO OWNER:
(Name and address)
DATE OF ISSUANCE:
PROJECT OR DESIGNATED PORTION SHALL INCLUDE:
The Work performed under this Contract has been reviewed and found, to the
Architect's best knowledge, information and belief, to be substantially
complete. Substantial Completion is the stage in the progress of the Work when
the Work or designated portion thereof is sufficiently complete in accordance
with the Contract Documents so the Owner can occupy or utilize the Work for its
intended use. The date of Substantial Completion of the Project or portion
thereof designated above is hereby established as which is also the date of
commencement of applicable warranties required by the Contract Documents, except
as stated below:
________________________________________________________________________________
A list of items to be completed or corrected is attached hereto. The failure to
include any items on such list does not alter the responsibility of the
Contractor to complete all Work in accordance with the Contract Documents.
ARCHITECT
Electronic Document service G704-1992 1
1
<PAGE>
BY _____________________________________________________________________________
DATE:
The Contractor will complete or correct the Work on the list of items attached
hereto within days from the above Date of Substantial Completion.
CONTRACTOR
BY _____________________________________________________________________________
DATE:
The Owner accepts the Work or designated portion thereof as substantially
complete and will assume full possession thereof at
(time) on
(date).
OWNER
BY _____________________________________________________________________________
DATE:
________________________________________________________________________________
The responsibilities of the Owner and the Contractor is security, maintenance,
heat, utilities, damage to the Work and insurance shall be as follows:
(Note--Owner's and Contractor's legal and insurance counsel should determine and
review insurance requirements and coverage.)
ELECTRONIC DOCUMENT SERVICE G704-1992 2
2
<PAGE>
EXHIBIT E
WAIVER OF CONSTRUCTION LIEN AND
AFFIDAVIT THAT SUBCONTRACTORS, SUPPLIERS
AND EMPLOYEES HAVE BEEN PAID
County of _______________)
) ss
State of ________________)
For value received, the undersigned hereby waives all rights to and claims
for a lien on the land hereafter described for any and all work, labor,
materials, plans or specifications performed, procured, or furnished, to and
including the _____ day of ________________, 19__, including without limitation,
any and all work, labor, materials, plans or specifications performed, procured
or furnished in connection with that certain improvement now being, or about to
be built, erected, made or done for ____________________________________________
(Insert Owner's Name)
owner by KRAEMER BROTHERS, INC., prime contractor, which improvement consists
generally of ___________________________________________________________________
(Describe)
The land referred to herein is situated in ____________ County, State of
___________________ and is described as follows (insert legal description if
available, otherwise street address or other clear description):________________
________________________________________________________________________________
It is expressly stipulated that this waiver applies only to work, labor,
materials, plans or specifications performed, procured or furnished to and
including the date above specified. The right to assert construction lien rights
for work, labor, materials plans or specifications performed, procured or
furnished after said date is hereby expressly reserved.
For information purposes only, and not for the purpose of limiting the
extent of this Waiver, the undersigned represents the work, labor, materials,
plans or specifications performed, procured or furnished by the undersigned in
connection with that certain improvement mentioned above consisted of
________________________________________________________________________________
(Describe)
in the amount of $__________________.
The undersigned represents it has paid all subcontractors for work
performed and materials supplied under it's subcontracts all suppliers for
materials supplied under said contract, and all employees wages and fringe
benefits for work on said project up to and including the date of this waiver.
Date of this Waiver: ________________________________________
Name of Corporation or Company
_______________________________ BY: ____________________________________
Corporate officer signature, sole
or co-partner
Subscribed and sworn to before
me this ___ day of
_________________________, 19__.
______________________________________
Notary Public, State of ______________
My Commission: ______________________
Waiv R5/94
<PAGE>
EXHIBIT 23(B)
CONSENT OF KPMG PEAT MARWICK LLP -
WELLS REAL ESTATE FUND IX, L.P.
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Partners
Wells Real Estate Fund IX, L.P.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
June 27, 1996
<PAGE>
EXHIBIT 23(C)
CONSENT OF KPMG PEAT MARWICK LLP -
WELLS PARTNERS, L.P.
<PAGE>
EXHIBIT 23(c)
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Partners
Wells Partners, L.P.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
June 27, 1996
<PAGE>
EXHIBIT 23(D)
CONSENT OF KPMG PEAT MARWICK LLP -
WELLS CAPITAL, INC.
<PAGE>
EXHIBIT 23(d)
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Partners
Wells Capital, Inc.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
June 27, 1996
<PAGE>
EXHIBIT 23(H)
CONSENT OF ARTHUR ANDERSEN LLP --
WELLS REAL ESTATE FUND IX, L.P.
<PAGE>
EXHIBIT 23(h)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
on the December 31, 1995 financial statements of Wells Capital, Inc., Wells
Partners, L.P., and Wells Real Estate Fund IX, L.P. and to all references to our
firm included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
June 28, 1996
<PAGE>
EXHIBIT 23(I)
CONSENT OF ARTHUR ANDERSEN LLP --
WELLS PARTNERS, L.P.
<PAGE>
EXHIBIT 23(i)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
on the December 31, 1995 financial statements of Wells Capital, Inc., Wells
Partners, L.P., and Wells Real Estate Fund IX, L.P. and to all references to our
firm included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
June 28, 1996
<PAGE>
EXHIBIT 23(J)
CONSENT OF ARTHUR ANDERSEN LLP --
WELLS CAPITAL, INC.
<PAGE>
EXHIBIT 23(j)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
on the December 31, 1995 financial statements of Wells Capital, Inc., Wells
Partners, L.P., and Wells Real Estate Fund IX, L.P. and to all references to our
firm included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
June 28, 1996
