<PAGE>
As filed with the Securities and Exchange Commission on October 24, 1996
Registration No. 33-83852
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
POST-EFFECTIVE AMENDMENT NO. 12 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 Proposed
Maximum Maximum Amount of
Title of Offering Aggregate Registration Fee
Securities Being Amount Being Price Offering
Registered/(1)/ Registered Per Unit Price
- ----------------------------------------------------------------------------------------
<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. 12, including Supplement No. 3 dated October 22, 1996 to
the Prospectus.
<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>
[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, Supplement No. 2 dated June 28, 1996 and Supplement
No. 3 dated October 22, 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. (the "Joint Venture") of a property in Madison,
Wisconsin. Supplement No. 3 describes the acquisition by the Joint Venture of a
property in Farmers Branch, Texas.
<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.
19
<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
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<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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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,
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<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
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(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
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<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.
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<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
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<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
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<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
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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
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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.
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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.
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<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.
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<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
SUPPLEMENT NO. 3 DATED OCTOBER 22, 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, Supplement
No. 1 thereto dated April 24, 1996 and Supplement No. 2 thereto dated June 28,
1996 ("Supplement No. 2") (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 acquisition by a joint venture (the "Joint Venture") between
the Partnership and Wells Real Estate Fund VIII, L.P. ("Wells Fund VIII") of an
office building in Farmers Branch, Texas in the north Dallas, Texas metropolitan
area; and
(iii) 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 October 15, 1996, the Partnership had raised a
total of $20,468,407 in offering proceeds (2,046,841 Units), comprised of
$16,488,592 raised from the sale of Class A Status Units (1,648,859 Units) and
$3,979,815 raised from the sale of Class B Status Units (397,982 Units).
The Joint Venture
The Joint Venture was originally formed for the purpose of acquiring a
7.09 acre tract of real property located in Madison, Wisconsin and constructing
thereon a four-story office building containing approximately 96,750 rentable
square feet (the "Madison 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 upon its completion pursuant to an Agreement to
Lease, as described in Supplement No. 2. As of September 30, 1996, the Joint
Venture had expended $2,309,040 in connection with the Madison Project, and it
is anticipated that a total of $8,190,960 in additional funds will be required
to complete the construction. Construction of the Madison Project is currently
on schedule with an anticipated completion date on or before June 15, 1997.
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.
The Joint Venture acquired an office building located in Farmers Branch,
Dallas County, Texas (the "Dallas Property") on October 10, 1996. As of October
15, 1996, each of Wells Fund VIII and the Partnership had invested $3,723,974
and $3,748,974, respectively, 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 Madison Project and any future costs associated with the
Dallas Property.
<PAGE>
Wells Fund VIII is acting as the initial Administrative Venturer of the
Joint Venture and, as such, is responsible for establishing policies and
operating procedures with respect to the business and affairs of the Joint
Venture. However, approval of each of Wells Fund VIII and the Partnership is
required for any major decision or any action which materially affects the Joint
Venture or its real property investments.
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 real property
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."
The Dallas Property
Purchase of the Dallas Property. The Joint Venture entered into an
-------------------------------
Agreement for the Purchase and Sale of Property dated October 10, 1996 (the
"Purchase Agreement") with TCI Valwood Limited Partnership I, a Texas limited
partnership (the "Seller"), for the acquisition of a 4.864 acre tract of real
property and the one-story office building thereon located in Farmers Branch,
Dallas County, Texas (the "Dallas Property") for a purchase price of $4,450,000.
The Seller is not affiliated with the Joint Venture, Wells Fund VIII, the
Partnership or their General Partners. The Dallas Property has 40,000 gross
rentable square feet and is 100% leased to TCI Central, Inc. ("TCI").
The office building on the Dallas Property is a single-story
office/flexible purpose building which is split into three main areas, a larger
main office section which includes conference rooms and a studio, together with
studio-related areas as well as a reception and general office area, a smaller,
office section which includes a conference room, a design room, and an open work
area, as well as general offices, and a warehouse area. The entire building is
air conditioned. Its appearance is modern, with a reinforced concrete
foundation, steel column frames, reflective glass windows and a stucco-like
exterior. Off street parking is provided in three separate areas surrounding the
building with a total of approximately 235 designated parking spaces. The Dallas
Property has been landscaped with the assistance of a landscape architect. The
grounds include strip lawn areas as well as ornamental shrubs and trees, and are
equipped with an automatic underground irrigation system.
An independent appraisal of the Dallas Property was prepared by The
David L. Beal Company Real Estate Appraisers and Consultants, as of October 1,
1996, pursuant to which the market value of the land and the leased fee interest
in the Dallas Property subject to the TCI Lease (described below) was estimated
to be $4,500,000, in cash or terms equivalent to cash. This value estimate was
based upon a number of assumptions, including that the Dallas Property will
continue operating at a stabilized level with TCI occupying 100% of the rentable
area. The Joint Venture also obtained an environmental report prior to closing
evidencing that the environmental condition of the Dallas Property was
satisfactory.
The Joint Venture purchased the Dallas Property from the Seller on
October 10, 1996 pursuant to the terms of the Purchase Agreement. 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 Dallas Property is being held by the Agent as
agent for the Joint Venture.
At the closing of the acquisition of the Dallas Property, the Joint
Venture paid attorneys fees of $12,750, a fee of $6,000 to the appraiser for the
appraisal report, a fee of $3,952.52 to an independent engineering firm for a
report evaluating the condition of the improvements on the real property, and
other miscellaneous closing costs of approximately $358. At the closing, the
Seller also paid real estate commissions and, pursuant to the Purchase
Agreement, paid for the Joint Venture's owners title insurance policy.
2
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Location of the Dallas Property. The Dallas Property is located in an
-------------------------------
office park development known as Valwood Park -Farmers Branch, Phase II, which
is a controlled development industrial park. Valwood Park is located in the
city of Farmers Branch, Dallas County, in the north Dallas, Texas metropolitan
area. The Dallas Property has a highly visible location within Valwood Park, by
virtue of is location on Valwood Parkway near the intersection of I-35 (Stemmons
Freeway) and I-635 (LBJ Freeway). DFW Airport is located 15 minutes west of
Valwood Park via I-635, downtown Dallas is approximately 30 minutes south and
Love Field (Dallas' other major airport) is 25 minutes away. The area is
surrounded by both mature and recently constructed residential developments as
well as nearby hotel, retail and office complexes.
Dallas is the seventh most populous city in the United States with over
one million residents and the second largest city in Texas. The Dallas Primary
Metropolitan Statistical Area ("PMSA"), with a population of over 2.6 million
residents, is one of the fastest growing urban areas in the United States. Its
area population has grown by 35% since 1980 and is expected to be the fourth
largest in the nation by the year 2010. Since 1990, the Dallas PMSA has created
over 300,000 jobs. Dallas recently ranked in the top ten in the country in
terms of growth and employment. With over 7,500 corporations represented in
Dallas County, the Dallas PMSA recently ranked fifth on the Dun & Bradstreet
list of "Million Dollar" corporate headquarters, third on the Future 500 list of
industrial headquarters, fourth on the Fortune 500 list of service headquarters,
and fourth among insurance headquarters cities in the United States.
Valwood Park's development commenced in the late 1970's, and the park is
currently approximately 85% developed. Within Valwood Park, there are
approximately 9.2 million square feet of industrial and service/tech office
space. A property owner's association oversees the maintenance of landscaping
and common areas within Valwood Park. Each property within the park is required
to conform to quality-oriented covenants, codes and restrictions, including
guidelines for landscape requirements, construction materials, building set back
lines, coverage ratios and other aesthetic issues. The streets and common areas
incorporate extensive landscaped areas in the street medians and are designed to
accommodate both functional and appearance concerns. Lease rates in Valwood
Park are generally higher than the overall Dallas office rental market.
The Joint Venture will experience competition for tenants from owners
and managers of various other office buildings located in the immediate area of
the Dallas Property which would adversely effect the Joint Venture's ability to
retain the Dallas Property's existing tenant, and if necessary in the future, to
attract and retain other tenants.
TCI Lease. On October 10, 1996, the Seller assigned to the Joint
---------
Venture all of its rights pursuant to the Industrial Lease Agreement between
Industrial Developments International, Inc., as landlord, and TCI, as tenant,
dated as of November 1, 1995, as amended by instruments dated July 16, 1996 and
August 29, 1996, and as assigned to the Seller (such agreement, as amended and
assigned, is referred to herein as the "TCI Lease"). TCI consented to the
assignment of the TCI Lease to the Joint Venture on October 1, 1996 and agreed
that that lease will remain in full force and effect following the assignment.
TCI is a wholly owned subsidiary of TCI Communications, Inc. ("TCI
Communications"), a publicly-held corporation which is the largest cable company
in the United States, serving 13 million customers. TCI Communications, through
its subsidiaries and affiliates, is principally engaged in the construction,
acquisition, ownership and operation of cable television systems. TCI
Communications reported annual revenues for 1995 in excess of $5 billion. TCI
reported annual revenues for 1995 in excess of $453 million and its net worth,
as of December 31, 1995, was in excess of $426 million.
TCI leases 100% of the 40,000 rentable square feet of the Dallas
Property as its Dallas area headquarters for TCI Cablevision of Dallas, Inc.
TCI uses approximately one-half of the leased area as office space for
approximately 80 to 100 employees who are technicians and supervisory staff.
TCI uses the remaining 20,000 square feet for an aggregate of approximately 35
employees in three separate functions, as follows: (i) a cash flow office, for
cable customers to bring in payments and exchange equipment, (ii) a production
studio for filming and editing of local origination programming and commercials,
and (iii) a construction warehouse area.
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The TCI Lease commenced on July 19, 1996, and extends for a term of
fifteen years. TCI has the option to extend the initial term of the TCI Lease
for three consecutive five year periods. Each extension option must be
exercised, if at all, by TCI giving notice to the Joint Venture at least 180
days prior to (but no more than 210 days prior to) the expiration of the then
current lease term.
The annual base rent payable under the TCI Lease is $430,001 payable in
equal monthly installments of $35,833.42 during the first five years of the
lease term, $454,001 payable in equal monthly installments of $37,833.42 during
the next five years, and $482,001 payable in equal monthly installments of
$40,166.75 during the last five years of the lease term. The annual base rent
for each extended five year term under the TCI Lease, if TCI exercises its
option to extend the TCI Lease, will be an amount established in the Joint
Venture's reasonable determination which shall not be less than the base rent
payable for the last year of the prior lease term for the applicable five year
option, taking into account all relevant factors for rental rates then being
charged by landlords of comparable space in the vicinity of the Dallas Property.
If TCI does not agree with the Joint Venture's determination of the base rent
for such option period, TCI would have the right to retract its option to extend
the term by notifying the Joint Venture within 30 days of its receipt of notice
from the Joint Venture of the determination of the base rental rate for the
option period.
In addition to the base rent, TCI is required to pay additional rent
equal to all expenses incurred by the Joint Venture on behalf of TCI under the
terms of the TCI Lease, including, without limitation, any expenses incurred for
taxes, insurance, maintenance, repairs, replacements and utilities. Under the
terms of the TCI Lease, TCI is required to carry and maintain, at its own cost
and expense, certain types of insurance in form acceptable to the Joint Venture,
naming the Joint Venture as an additional insured, and with respect to insurance
against loss or damage to the Dallas Property, also naming the Joint Venture as
loss payee. Among other types of insurance, the TCI Lease requires that TCI
maintain liability insurance covering the leased premises and TCI's use thereof
against claims for personal injury, death, property damage and product
liability, in single limit amounts in not less than one million dollars and a
general aggregate limit of not less than ten million dollars, and "all-risk" or
an equivalent form of insurance against loss or damage to the Dallas Property in
an amount not less than 100% of the actual replacement value of the building and
improvements.
Property Management Fees. Property management and leasing services for
------------------------
the Dallas Property 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 1% of the gross revenues for property management services and, during the
first five years of the term of the TCI Lease, 3% of the gross revenues for
leasing services.
Financial Information. The Statement of Excess Revenues Over Operating
---------------------
Expenses of the Dallas Property for the period from July 19, 1996 to September
30, 1996, included herein as Appendix I to this Supplement, has been included in
reliance upon the report of Arthur Andersen LLP, independent certified public
accountants, upon the authority of said firm as experts in accounting and
auditing. The pro forma financial information for the Partnership as of
September 30, 1996, and for the nine month period ended September 30, 1996,
included in Appendix I, has not been audited.
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 October 15, 1996, the Partnership had raised a total of
$20,468,407 in offering proceeds (2,046,841 Units), comprised of $16,488,592
raised from the sale of Class A Status Units (1,648,859 Class A Status Units)
and $3,979,815 raised from the sale of Class B Status Units (397,982 Class B
Status Units). After the payment of $716,394 in Acquisition and Advisory Fees,
payment of $3,070,261 in selling commissions and organizational and offering
expenses, the investment of $3,748,974 in the Joint Venture,
4
<PAGE>
as of October 15, 1996, the Partnership was holding net offering proceeds of
$12,932,778 available for investment in properties.
5
<PAGE>
APPENDIX I
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Real Estate Fund VIII, L.P. and Wells
Real Estate Fund IX, L.P.:
We have audited the accompanying statement of excess revenues over operating
expenses for the TCI CENTRAL, INC. BUILDING for the period from July 19, 1996 to
September 30, 1996. This financial statement is the responsibility of
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of excess revenues over operating expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of excess
revenues over operating expenses. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the TCI
Central, Inc. Building after acquisition by Wells Real Estate Fund VIII, L.P.
and Wells Real Estate Fund IX, L.P.. The accompanying statement of excess
revenues over operating expenses was prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission and is not
intended to be a complete presentation of the TCI Central, Inc. Building's
revenues and expenses.
In our opinion, the statement of excess revenues over operating expenses
presents fairly, in all material respects, the excess of revenues over operating
expenses (exclusive of expenses described in Note 2) of the TCI Central, Inc.
Building for the period from July 19, 1996 to September 30, 1996 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 15, 1996
<PAGE>
TCI CENTRAL, INC. BUILDING
STATEMENT OF EXCESS REVENUES OVER
OPERATING EXPENSES
<TABLE>
<CAPTION>
For the Period
From
July 19, 1996 to
September 30,
1996
----------------
<S> <C>
RENTAL REVENUES $90,578
OPERATING EXPENSES -
----------------
EXCESS OF REVENUES OVER OPERATING EXPENSES $90,578
================
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
TCI CENTRAL, INC. BUILDING
NOTES TO STATEMENT OF EXCESS REVENUES OVER
OPERATING EXPENSES
FOR THE PERIOD FROM JULY 19, 1996 TO
SEPTEMBER 30, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF REAL ESTATE PROPERTY ACQUIRED
On October 10, 1996, Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P., through Fund VIII and Fund IX Associates, a Georgia joint
venture, acquired the TCI Central, Inc. Building, a 40,000 square foot office
and warehouse building located in Farmers Branch, Texas, for a cash purchase
price of $4,450,000. The building is 100% occupied by one tenant with a lease
term of 15 years commencing July 19, 1996. The lease is a triple net lease,
whereby the terms require the tenant to pay all operating expenses relating to
the building.
RENTAL REVENUES
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statement of excess revenues over specific operating expenses
are presented on the accrual basis. This statement has been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statement excludes certain historical expenses not comparable to the operations
of the TCI Central, Inc. Building after acquisition by Wells Real Estate Fund
VIII, L.P. and Wells Real Estate Fund IX, L.P., such as depreciation.
<PAGE>
Wells Real Estate Fund IX, L.P.
(A Limited Partnership)
Unaudited Pro Forma
Combined Balance Sheet
September 30, 1996
<TABLE>
<CAPTION>
Pro Forma
Wells Real Estate Pro Forma Combined
Fund IX, L.P. Adjustments Balance Sheet
--------------- -------------- -------------
<S> <C> <C> <C>
Assets
Investments in joint ventures $ 1,577,396(2) 2,320,553 $ 3,897,949
Cash 14,715,325(1) (2,182,231) 12,533,094
Other assets 1,043,560 (93,033) 950,527
-------------- -------------- ------------
Total assets $ 17,336,281 45,289 $ 17,381,570
============== ============== ============
Liabilities and Partners' Capital
Liabilities $ 678,738 0 $ 678,738
Partners' Capital
General Partner 500 500
Limited Partners
Class A 13,388,768 45,289 13,434,057
Class B 3,268,175 0 3,268,175
Original limited partner 100 0 100
------------- -------------- ------------
Total partners' capital 16,657,543 45,289 16,702,832
------------- -------------- ------------
Total liabilities and partners' capital $ 17,336,281 45,289 $ 17,381,570
============= ============== ============
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Statements.
<PAGE>
Wells Real Estate Fund IX, L.P.
(A Limited Partnership)
Unaudited Pro Forma
Combined Income Statement
Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Pro Forma
Wells Real Estate Pro Forma Combined
Fund VIII, L.P. Adjustments Income Statement
----------------- ------------- ----------------
<S> <C> <C> <C>
Revenues:
Equity in earnings of joint ventures $ 0(1) 45,289 $ 45,289
Interest Income 215,961 0 215,961
-------------- -------------- --------------
215,961 45,289 261,250
-------------- -------------- --------------
Expenses:
General and administrative expenses 66,682 0 66,682
-------------- -------------- --------------
Net income $ 149,279 45,289 $ 194,568
============== ============== ==============
Net income (loss) allocated to general partners $ 0 0 $ 0
Net income allocated to Class A limited partners $ 149,279 45,289 $ 194,568
Net loss allocated to Class B limited partners $ 0 0 $ 0
Net income allocated per Class A weighted
average limited partner unit $ 0.19 0.02 $ 0.21
Net loss allocated per Class B weighted
average limited partner unit $ 0.00 0 $ 0.00
Cash distribution per Class A weighted
average limited partner unit $ 0.19 0 $ 0.19
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Statements.
<PAGE>
WELLS REAL ESTATE FUND IX, L.P.
Notes to Unaudited Pro Forma Combined Balance Sheet
The following notes describe the pro forma adjustments necessary to reflect the
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1996. As the TCI
Central, Inc. Building was not completed and did not commence operations until
July 1996, December 31, 1995 pro forma information is not presented.
In the opinion of the management of Wells Real Estate Fund IX, L.P., the Pro
Forma Combined Balance Sheet includes all adjustments necessary for a fair
presentation of the financial position as of September 30, 1996.
The following provides information regarding pro forma adjustments reflected in
the Unaudited Pro Forma Balance Sheet:
(1) Reflects cash used for the purchase of the TCI Central, Inc. Building;
(2) Reflects contribution to the Fund VIII - Fund IX Joint Venture.
Notes to Unaudited Pro Forma Combined Income Statement
The following notes describe the pro forma adjustments necessary to reflect the
Unaudited Pro Forma Combined Income Statement for the nine months ended
September 30, 1996. As the TCI Central, Inc. Building was not completed and did
not commence operations until July, 1996, December 31, 1995, pro forma
information is not presented.
In the opinion of the management of Wells Real Estate Fund IX, L.P., the
Unaudited Pro Forma Combined Income Statement includes all adjustments necessary
for a fair presentation of the results of operations for the nine months ended
September 30, 1996.
The Unaudited Pro Forma Combined Income Statement for the nine months ended
September 30, 1996, includes the results of operations for Wells Real Estate
Fund IX, L.P., and the estimated equity in earnings provided by the TCI Central,
Inc. Building. In the opinion of management, this estimate is a fair
presentation of the results of operations for the nine months ended September
30, 1996.
The following provides information regarding pro forma adjustments reflected in
the Unaudited Pro Forma Combined Income Statement.
(1) Reflects Wells Real Estate Fund IX, L.P.'s 50% equity in earnings of the
TCI Central, Inc. Building.
<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):
----------------------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
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.
</TABLE>
- -----------------------
/*/ Incorporated by reference to the Registrant's Registration Statement, as
amended to date, Commission File No. 33-83852.
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
- ------------------------
/*/ Incorporated by reference to the Registrant's Registration Statement, as
amended to date, Commission File No. 33-83852.
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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.
10(ff) Agreement for the Purchase and Sale of Property, dated October 10,
1996, between TCI Valwood Limited Partnership I and Fund VIII and
Fund IX Associates
10(gg) Build to Suit Industrial Lease Agreement, dated November 1, 1995,
between Industrial Developments International, Inc. and TCI
Central, Inc., as amended July 16, 1996 and August 29, 1996
10(hh) Assignment and Assumption of Lease, dated October 10, 1996, between
TCI Valwood Limited Partnership I and The Bank of New York, as
Agent for Fund VIII and Fund IX Associates
10(ii) First Amendment to Joint Venture Agreement, dated October 10, 1996,
between Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P.
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.
</TABLE>
- -----------------------
/*/ Incorporated by reference to the Registrant's Registration Statement, as
amended to date, Commission File No. 33-83852.
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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.
23(j) Consent of Arthur Andersen LLP - Wells Capital, Inc.
</TABLE>
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.
- ---------------------------
/*/ Incorporated 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. 12 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 23rd day of October, 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
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 12 to Registration Statement has been signed by the
following person in the capacity and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<C> <S> <C>
/s/ Leo F. Wells, III President (Chief Executive Officer), October 23, 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.
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequential Sequential
Exhibit No. Page No.
- ----------- ----------
<C> <S> <C>
1/*/ Dealer Manager Distribution Agreement N/A
between Registrant and Wells
Investment Securities, Inc.
3(a) Form of Amended and Restated Agreement N/A
of Limited Partnership of Wells Real
Estate Fund IX, L.P. (included as
Exhibit B to Prospectus)
3(b)/*/ Certificate of Limited Partnership of N/A
Wells Real Estate Fund VIII, L.P.
dated August 15, 1994
3(c)/*/ Certificate of Limited Partnership of N/A
Wells Real Estate Fund IX, L.P. dated
August 15, 1994
4 Form of Subscription Agreement and N/A
Subscription Agreement Signature Page
(included as Exhibit C to Prospectus)
5(a)/*/ Opinion of Branch, Pike & Ganz N/A
regarding the legality of the
securities of Wells Real Estate Fund
VIII, L.P. to be offered
5(b)/*/ Opinion of Branch, Pike & Ganz N/A
regarding the legality of securities
of Wells Real Estate Fund IX, L.P. to
be offered
8/*/ Opinion of Branch of Branch, Pike & N/A
Ganz regarding tax matters
8(a)/*/ Supplemental Opinion of Holland & N/A
Knight regarding tax matters
10(a)/*/ Escrow Agreement between Wells Real N/A
Estate Fund IX, L.P. and NationsBank
of Georgia, N.A.
10(b)/*/ New York Escrow Agreement between N/A
Wells Real Estate Fund IX, L.P. and
NationsBank of Georgia, N.A.
10(c)/*/ Pennsylvania Escrow Agreement between N/A
Wells Real Estate Fund IX, L.P. and
NationsBank of Georgia, N.A.
10(d)/*/ Form of Leasing and Tenant N/A
Coordinating Agreement between
Registrant and Wells Management
Company, Inc.
10(e)/*/ Form of Management Agreement between N/A
Registrant and Wells Management
Company, Inc.
10(f)/*/ Amended and Restated Custodial Agency N/A
Agreement between Wells Real Estate
Fund IX, L.P. and NationsBank of
Georgia, N.A.
10(g)/*/ Fund VII and Fund VIII Associates N/A
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 N/A
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.
</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.
- ----------- ----------
<C> <S> <C>
10(i)/*/ Letter Agreement amending Agreement N/A
for the Purchase and Sale of Real
Property, dated July 27, 1994, between
Sellers and Wells & Associates, Inc.
10(j)/*/ Letter Agreement amending Agreement N/A
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, 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(l)/*/ First Amendment to Lease Agreement, N/A
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, N/A
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 N/A
2, 1995, between Wells Real Estate
Fund VII, L.P. and ADEVCO Corporation
10(o)/*/ Owner-Contractor Agreement, dated N/A
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 N/A
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, N/A
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 N/A
Real Property, dated February 13,
1995, between G.L. National, Inc. and
Wells Capital, Inc.
10(s)/*/ Agreement to Lease, dated February 15, N/A
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, N/A
1995, between Fund VI, Fund VII and
Fund VIII Associates and ADEVCO
Corporation
10(u)/*/ Owner-Contractor Agreement, dated N/A
April 24, 1995, between 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.
<PAGE>
<TABLE>
<CAPTION>
Sequential Sequential
Exhibit No. Page No.
- ----------- ----------
<C> <S> <C>
10(v)/*/ Architect's Agreement, dated February N/A
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 N/A
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 N/A
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, N/A
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, N/A
1995, between Fund VI, Fund VII and
Fund VIII Associates and Norcom
Development, Inc.
10(aa)/*/ Joint Venture Agreement, dated June N/A
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 N/A
Real Property, dated April 23, 1996,
between American Family Mutual
Insurance Company and Wells Capital,
Inc.
10(cc)/*/ Agreement to Lease, dated June 18, N/A
1996, between Fund VIII and IX
Associates and Westel-Milwaukee, Inc.,
d/b/a Cellular One
10(dd)/*/ Development Agreement, dated June 18, N/A
1996, between Fund VIII and Fund IX
Associates and ADEVCO Corporation
10(ee)/*/ Owner-Contractor Agreement, dated June N/A
18, 1996, between Wells Real Estate
Fund VIII, L.P. and Kraemer Brothers,
Inc.
10(ff) Agreement for the Purchase and Sale of
Property, dated October 10, 1996,
between TCI Valwood Limited
Partnership I and Fund VIII and Fund
IX Associates
10(gg) Build to Suit Industrial Lease
Agreement, dated November 1, 1995,
between Industrial Developments
International, Inc. and TCI Central,
Inc., as amended July 16, 1996 and
August 29, 1996
10(hh) Assignment and Assumption of Lease,
dated October 10, 1996, between TCI
Valwood Limited Partnership I and The
Bank of New York, as Agent for Fund
VIII and Fund IX Associates
10(ii) First Amendment to Joint Venture
Agreement, dated October 10, 1996,
between Wells Real Estate Fund VIII,
L.P. and Wells Real Estate Fund IX,
L.P.
</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.
- ----------- ----------
<C> <S> <C>
23(a)/*/ Consent of KPMG Peat Marwick LLP - N/A
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 N/A
(included in Exhibits 5(a), 5(b) and 8)
23(f)/*/ Letter of KPMG Peat Marwick LLP to N/A
Securities and Exchange Commission
regarding Wells Real Estate Fund IX,
L.P.
23(g)/*/ Consent of Holland & Knight (included N/A
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.
23(j) Consent of Arthur Andersen LLP - Wells
Capital, 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>
EXHIBIT 10(FF)
AGREEMENT FOR THE PURCHASE AND SALE OF PROPERTY
-----------------------------------------------
THIS AGREEMENT FOR THE PURCHASE AND SALE OF PROPERTY (this "Agreement"), is
made and entered into as of the 10th day of October, 1996, by and between TCI
VALWOOD LIMITED PARTNERSHIP I, a Texas limited partnership (hereinafter referred
to as "Seller"), and FUND VIII AND FUND IX ASSOCIATES, a Georgia joint venture
(hereinafter referred to as "Purchaser").
WITNESSETH:
WHEREAS, Seller desires to sell and Purchaser desires to purchase the
Property (as hereinafter defined) subject to the terms and conditions
hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, the mutual
agreements contained herein, the sum of Ten Dollars ($10.00) in hand paid by
Purchaser to Seller at and before the sealing and delivery of these presents and
for other good and valuable consideration, the receipt, adequacy, and
sufficiency which are hereby expressly acknowledged by the parties hereto, the
parties hereto do hereby covenant and agree as follows:
1. Purchase and Sale of Property. Subject to and in accordance with the
-----------------------------
terms and provisions of this Agreement, Seller hereby agrees to sell to
Purchaser and Purchaser hereby agrees to purchase from Seller, the Property,
which term "Property" shall mean and include the following:
(a) all that tract or parcel of land located in Farmers Branch, Dallas
County, Texas containing approximately 4.864 acres, and being more
particularly described on Exhibit "A" attached hereto and by this reference
made a part hereof (herein referred to as the "Land"); and
(b) all rights, privileges, and easements appurtenant to the Land,
including, without limitation, the Easement Estate described in the
Reciprocal Easement Agreement recorded in Volume 96157, page 1544, Deed
Records, Dallas County, Texas, and all water rights, mineral rights,
reversions, or other appurtenances to said Land, and all right, title, and
interest of Seller, if any, in and to any land lying in the bed of any
street, road, alley, or right-of-way, open or proposed, adjacent to or
abutting the Land; and
(c) all buildings, structures, and improvements situated on the Land,
and all apparatus, built-in appliances, equipment, pumps, machinery,
plumbing, heating, air conditioning, elevators, electrical and other
fixtures owned by Seller and located on or to be located on the Land (all
of which are herein collectively referred to as the "Improvements"); and
<PAGE>
(d) all of Seller's right, title, and interest, as landlord or lessor,
in and to the Lease (as hereinafter defined); and
(e) all of Seller's right, title, and interest, if any, in and to the
plans and specifications with respect to the Improvements and any
guarantees, trademarks, rights of copyright, warranties, or other rights
related to the ownership of or use and operation of the Land or
Improvements, all governmental licenses and permits, personal property, if
any, and all intangibles associated with the Land and Improvements,
including the name of the Improvements and the logo therefor, if any.
2. Purchase Price. Subject to adjustment and credits as otherwise
--------------
specified in this Agreement, the purchase price (the "Purchase Price") to be
paid by Purchaser to Seller for the Property shall be Four Million, Four Hundred
Fifty Thousand Dollars ($4,450,000.00). The Purchase Price shall be paid by
Purchaser to Seller at the Closing (as hereinafter defined) by wire transfer of
immediately available federal funds, subject to prorations, adjustments and
credits as otherwise specified in this Agreement.
3. Title. Seller covenants and agrees that Seller, at its sole cost and
-----
expense, shall cause Chicago Title Insurance Company, or such other such title
insurance company acceptable to Purchaser (herein referred to as the "Title
Company") to deliver to Purchaser a standard Texas Owner Policy of Title
Insurance (herein referred to as the ("Title Policy") without endorsements
insuring good and indefeasible fee simple record title to the Property to be in
Purchaser with exceptions (herein referred to as the ("Permitted Exceptions") as
set forth by the Title Company. Purchaser, at its sole cost and expense, may
obtain such endorsements and changes to the Title Policy as it desires and can
negotiate with the Title Company.
4. Representations and Warranties of Seller. Seller hereby makes the
----------------------------------------
following representations and warranties to Purchaser:
(a) Lease. Attached hereto as Exhibit "B" and by this reference made
-----
a part hereof are true and accurate copies of (i) that certain Build to
Suit Industrial Lease Agreement dated November 1, 1995, by and between
Industrial Developments International, Inc., as Landlord, and TCI Central,
Inc., as Tenant, (ii) that certain First Amendment to Lease Agreement dated
as of July 16, 1996, and (iii) that certain Second Amendment to Build to
Suit Industrial Lease Agreement dated as of August 29, 1996, which comprise
the only lease in effect relating to the Property (such lease, as modified
and amended, being herein referred to as the "Lease"). Seller is the owner
of the landlord's interest under the Lease and owns unencumbered legal
title to the Lease and the rents and other income thereunder, subject only
to the collateral assignment of the Lease and the rents thereunder in favor
of the holder of any existing mortgage or deed of trust encumbering the
Property, which mortgage or deed of trust shall be canceled and satisfied
by Seller at the Closing.
2
<PAGE>
(b) Lease - Assignment. To Seller's knowledge, without a duty to
------------------
inquire, the Tenant has not assigned its interest in the Lease or sublet
any portion of the premises leased to the Tenant under the Lease.
(c) Lease - Default. (i) Seller has not received any notice of
---------------
termination or default under the Lease, (ii) to the Seller's knowledge,
without a duty to inquire, there are no existing or uncured defaults by
Seller or by the Tenant under the Lease, (iii) to the Seller's knowledge,
without a duty to inquire, there are no events which with the passage of
time or notice, or both, would constitute a default by Seller or by the
Tenant, and Seller has complied with each and every undertaking, covenant,
and obligation of landlord under the Lease arising during Seller's
ownership of the Property, and (iv) Seller has not received notice that
Tenant has asserted any defense, set-off, or counterclaim with respect to
its tenancy or its obligation to pay rent, additional rent, or other
charges pursuant to the Lease.
(d) Lease - Rents and Special Consideration. Tenant, except as
---------------------------------------
evidenced by the express terms of the Lease: (i) has not prepaid rent for
more than one month in advance under the Lease, (ii) is not entitled to
receive any rent concession in connection with its tenancy under the Lease
which has not already been received, (iii) is not entitled to any special
work (not yet performed), or consideration (not yet given) in connection
with its tenancy under the Lease; and (iv) does not have any deed, option,
or other evidence of any right or interest in or to the Property, except as
evidenced by the express terms of the Lease.
(e) Lease - Commissions. Except as set fort in that certain Lease
-------------------
Commission Agreement, dated September 15, 1995, by and between R.A. Mohr &
Associates, Inc. and Industrial Developments International, Inc., a copy of
which Purchaser acknowledges that it has received, no rental, lease, or
other commissions with respect to the Lease is payable to Seller, any
partner of Seller, any party affiliated with or related to Seller or third
party.
(f) No Other Agreements. Other than the Lease and the Permitted
-------------------
Exceptions, Seller has not entered into any leases, service contracts,
management agreements, or other agreements or instruments, to which Seller
is a party and that grant to any person whomsoever or any entity whatsoever
any right, title, interest or benefit in or to all or any part of the
Property or any rights relating to the use, operation, management,
maintenance, or repair of all or any part of the Property.
(g) No Litigation. To Seller's knowledge, without a duty to
-------------
investigate, there are no actions, suits, or proceedings pending, or,
threatened by any organization, person, individual, or governmental agency
against Seller with respect to the Property or against the Property, nor
does Seller have any knowledge of any basis for such action. Seller has no
knowledge of any pending
3
<PAGE>
or threatened application for changes in the zoning applicable to the
Property or any portion thereof.
(h) Condemnation. To Seller's knowledge, without a duty to
------------
investigate, no condemnation or other taking by eminent domain of the
Property or any portion thereof has been instituted and, there are no
pending or threatened condemnation or eminent domain proceedings (or
proceedings in the nature or in lieu thereof) affecting the Property or any
portion thereof or its use.
(i) Proceedings Affecting Access. To Seller's knowledge, without a
----------------------------
duty to investigate, the Property will be served by a curb cut for direct
vehicular access to and from Senlac Drive, adjoining the Property, which is
a public road. To Seller's knowledge, without a duty to investigate, there
are no pending or threatened proceedings that could have the effect of
impairing or restricting access between the Property and such adjacent
public road.
(j) No Assessments. To Seller's knowledge, without a duty to
--------------
investigate, except for assessments by the property owner's association
having jurisdiction over the Property which have been paid if due and
owing, no assessments have been made against the Property that are unpaid,
whether or not they have become liens, and there are no pending
assessments.
(k) Violations. Seller has not received written notice of any
----------
violations of law, municipal or county ordinances, recorded covenants, or
other legal requirements with respect to the Property that remain uncured,
and to Seller's knowledge, without a duty to investigate, the Improvements
thereon comply with all applicable legal requirements with respect to the
use, occupancy and construction thereof, except as set forth on the survey
of the Property and except as set forth in the other documents provided to
Purchaser.
(l) Improvements. To Seller's knowledge, without a duty to
------------
investigate, (i) there are no structural or other defects, latent or
otherwise, in the Improvements, (ii) the heating, ventilating, air
conditioning, electrical, plumbing, water, roofing, elevators (if any),
storm drainage and sanitary sewer systems at or servicing the Land and
Improvements are in good condition and working order and there are no
defects or deficiencies, latent or otherwise, therein.
(m) Bankruptcy. Seller is solvent and has not made a general
----------
assignment for the benefit of creditors nor been adjudicated a bankrupt or
insolvent, nor h liquidator, or trustee for any of Seller's properties
(including the Property) been appointed or a petition filed by or to
Seller's knowledge against Seller for bankruptcy, reorganization, or
arrangement pursuant to the Federal Bankruptcy Act or any similar Federal
or state statute, or any proceeding instituted for the dissolution or
liquidation of Seller.
4
<PAGE>
(n) Pre-existing Right to Acquire. No person or entity has any right
-----------------------------
or option to acquire the Property or any portion thereof which will have
any force or effect after the execution of this Agreement, other than
Purchaser, except as set forth in the Lease.
(o) Effect of Certification. Neither this Agreement nor the
-----------------------
transactions contemplated herein will constitute a breach or violation of,
or default under, or will be modified, restricted, or precluded by the
Leases or the Permitted Exceptions.
(p) Authorization. Seller is a duly organized and validly existing
-------------
limited partnership under the laws of the State of Texas and has duly
registered in any jurisdiction where it is required to do so. This
Agreement has been duly authorized and executed on behalf of Seller and
constitutes the valid and binding agreement of Seller, enforceable in
accordance with its terms, and all necessary action on the part of Seller
to authorize the transactions herein contemplated has been taken, and no
further action is necessary for such purpose.
(q) Seller Not a Foreign Person. Neither Seller nor the owner of
---------------------------
beneficial title to the Property is a "foreign person" which would subject
Purchaser to the withholding tax provisions of Section 1445 of the Internal
Revenue Code of 1986, as amended.
5. Seller's Additional Covenants. Seller does hereby further covenant
-----------------------------
and agree as follows:
(a) Tenant Estoppel Certificate. At or prior to Closing, Seller shall
---------------------------
obtain and deliver to Purchaser a fully completed estoppel certificate with
respect to the Lease (herein referred to as the "Tenant Estoppel
Certificate") duly executed by the Tenant thereunder. The Tenant Estoppel
Certificate shall be executed as of a date not more than twenty (20) days
prior to Closing.
6. Closing. The consummation of the sale by Seller and purchase by
-------
Purchaser of the Property (herein referred to as the "Closing") shall be held on
or October 8, 1996, at the office of the Title Company, which is located at 350
N. St. Paul, Suite 250, Dallas, Texas 75201, with Sue Johnson as the closer.
7. Seller's Closing Documents. For and in consideration of, and as a
--------------------------
condition precedent to, Purchaser's delivery to Seller of the Purchase Price
described in Paragraph 2 hereof, Seller shall obtain or execute, at Seller's
expense, and deliver to Purchaser at Closing the following documents (all of
which shall be duly executed, acknowledged, and notarized where required):
(a) Deed. A Special Warranty Deed ("Special Warranty Deed") conveying
----
to Purchaser indefeasible fee simple title to the Land and
5
<PAGE>
Improvements, together with all rights, members, easements, and
appurtenances thereto, subject only to the Permitted Exceptions. The legal
description set forth in the Special Warranty Deed shall be as set forth on
Exhibit "A" attached hereto. In the event Purchaser shall obtain a new or
updated survey of the Land and Improvements and the legal description set
forth in Purchaser's survey shall differ from the legal description set
forth on Exhibit "A" hereto, Seller shall execute and deliver to Purchaser
a quitclaim deed containing a legal description based upon such survey
obtained by Purchaser;
(b) Blanket Transfer. A Blanket Transfer and Assignment in the form
----------------
and substance of Exhibit "C" attached hereto and by this reference made a
part hereof;
(c) Assignment and Assumption of Lease. An Assignment and Assumption
----------------------------------
of Lease in the form and substance of Exhibit "D" attached hereto and by
this reference made a part hereof, assigning to Purchaser all of Seller's
right, title, and interest in and to the Lease and the rents thereunder;
(d) FIRPTA Certificate. A FIRPTA Certificate in the form and
------------------
substance of Exhibit "E" attached hereto and by this reference made a part
hereof;
(e) Surveys and Plans. Such surveys, site plans, plans and
-----------------
specifications, and other matters relating to the Property as are described
in subparagraph (a) of the Blanket Transfer and Assignment and are in the
possession of Seller or Seller's agents;
(f) Certificates of Occupancy. If in Seller's possession, the
-------------------------
original certificates of occupancy for all space within the Improvements;
(g) Estoppel Certificate. The estoppel certificate referred to in
--------------------
Paragraph 5 hereof;
(h) Keys and Records. All of the keys in Seller's possession to any
----------------
doors or locks on the Property and the original tenant files and other
books and records relating to the Property in Seller's possession;
(i) Tenant Notice. Notice from Seller to the Tenant of the sale of
-------------
the Property to Purchaser in such form as Purchaser shall reasonably
approve;
(j) Settlement Statement. A settlement statement setting forth the
--------------------
amounts paid by or on behalf of and/or credited to each of Purchaser and
Seller pursuant to this Agreement;
6
<PAGE>
(k) Lease. If in Seller's possession, an original executed
-----
counterpart of the Lease and all amendments thereto;
(l) Warranties. If in Seller's possession, original executed
----------
counterparts of all warranties affecting the Property. If originals are
not available, the a copy of all such warranties.
(m) Other Documents. Such other documents as shall be reasonably
---------------
required by Purchaser's counsel.
8. Purchaser's Closing Documents. Purchaser shall deliver the balance of
-----------------------------
the Purchase Price and shall obtain or execute and deliver to Seller at Closing
the following documents, all of which shall be duly executed and acknowledged
where required and shall survive the Closing:
(a) Blanket Transfer. A Blanket Transfer and Assignment in the form
----------------
and substance of Exhibit "C" attached hereto;
(b) Assignment and Assumption of Lease. The Assignment and Assumption
----------------------------------
of Lease in the form and substance of Exhibit "D" hereto;
(c) Settlement Statement. A settlement statement setting forth the
--------------------
amounts paid by or on behalf of and/or credited to each of Purchaser and
Seller pursuant to this Agreement;
(d) Other Documents. Such other documents as shall be reasonably
---------------
required by Seller's counsel.
9. Closing Costs. Seller shall pay the cost of the Title Policy, the
-------------
attorneys' fees of Seller, one-half of the escrow fee (not to exceed $400 in
total), and all other costs and expenses incurred by Seller in closing and
consummating the purchase and sale of the Property pursuant hereto. Purchaser
shall pay the costs of all endorsements and modifications to the Title Policy,
one-half of the escrow fee, one-half of the escrow fee (not to exceed $400 in
total), its attorneys' fees and all other costs and expenses incurred by
Purchaser in closing and consummating the purchase and sale of the Property
pursuant hereto.
10. Prorations. The following items shall be prorated and/or credited
----------
between Seller and Purchaser as of Midnight preceding the date of Closing:
(a) Rent. Rent, additional rents, operating costs, and other income
----
of the Property (other than security deposits) collected by Seller from
Tenant for the month of Closing. Purchaser shall also receive a credit
against the Purchase Price payable by Purchaser to Seller at Closing for
any rents or other sums (not including security deposits) prepaid by Tenant
for any period following the month of Closing. Seller hereby acknowledges
that Purchaser shall not be legally
7
<PAGE>
responsible to Seller for the collection of any uncollected rent or other
income under the Lease that is past due or otherwise due and payable as of
the date of Closing. Purchaser agrees that if (i) Tenant is in arrears on
the date of Closing in the payment of rent or other charges under the
Lease, and (ii) upon Purchaser's receipt of any rental or other payment
from Tenant, Tenant is, or after application of a portion of such payment
will be, current under the Lease in the payment of all accrued rental and
other charges that become due and payable on the date of Closing or
thereafter and in the payment of any other obligations of Tenant to
Purchaser, then Purchaser shall refund to Seller, out of and to the extent
of the portion of such payment remaining after Purchaser deducts therefrom
any and all sums due and owing to Purchaser from Tenant from and after the
date of Closing, an amount up to the full amount of any arrearage existing
on the date of Closing.
(b) Property Taxes. Except for such taxes which are the
--------------
responsibility of Tenant and for which Seller has not received payment,
City, state, county, and school district ad valorem taxes based on the ad
valorem tax bills for the Property, if then available, or if not, then on
the basis of the latest available tax figures and information. Should such
proration be based on such latest available tax figures and information and
prove to be inaccurate upon receipt of the ad valorem tax bills for the
Property for the year of Closing, either Seller or Purchaser, as the case
may be, may demand at any time after Closing a payment from the other
correcting such malapportionment. In addition, if after Closing there is
an adjustment or reassessment by any governmental authority with respect
to, or affecting, any ad valorem taxes for the Property for the year of
Closing or any prior year, any additional tax payment or refund for the
Property required to be paid or refunded with respect to the year of
Closing shall be prorated between Purchaser and Seller and any such
additional tax payment or refund for the Property for any year prior to the
year of Closing shall be paid by or to Seller, as the case may be. This
agreement shall expressly survive the Closing.
(c) Utility Charges. Except for utilities which are the
---------------
responsibility of Tenant and for which Seller has not received payment,
Seller shall pay all utility bills received prior to Closing and shall be
responsible for utilities furnished to the Property prior to Closing.
Purchaser shall be responsible for the payment of all bills for utilities
furnished to the Property subsequent to the Closing. Seller and Purchaser
hereby agree to prorate and pay their respective shares of all utility
bills received subsequent to Closing, which agreement shall survive
Closing.
11. Hazardous Substances. To the Seller's knowledge, without a duty to
--------------------
inquire: (a) there are not "hazardous substances" (as defined in Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Sections 9601 et seq. as amended) at the Property that are not being used in
------
compliance with applicable regulations; (b) there has been no release or threat
of release of any such hazardous substance; (c) the Property is not subject
8
<PAGE>
to regulation by any governmental entity as result of the presence of (A)
stored, leaked or spilled petroleum products, (B) underground storage tanks, (C)
an accumulation of rubbish, debris or other solid waste, or because of the
presence, release, threat of release, discharge, storage, treatment, generation
or disposal of any "hazardous waste" (as defined in the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq., as amended), or "toxic
-------
substance" (as defined in the Toxic Substance Control Act, 15 U.S.C. Section
2601 et seq., as amended), including without limitation asbestos and items or
equipment containing polychlorinated biphenyls (PCBs) in excess of 50 parts per
million; and (d) no environmental condition exists on the Property that either
(X) requires the owner of the Property to report such condition to any authority
or agency of the State of Texas or (Y) requires the owner of the Property to
make a notation of such condition in any public records or conveyancing
instrument upon the conveyance of the Property.
12. Broker's Commission. Seller has by separate agreement agreed to pay a
-------------------
real estate commission to Wardman & Wooden (the "Broker"). Purchaser and Seller
hereby represent each to the other that they have not discussed this Agreement
or the subject matter hereof with any real estate broker or agent other than
Broker so as to create any legal right in any such broker or agent to claim a
real estate commission with respect to the conveyance of the Property
contemplated by this Agreement. Seller shall and does hereby indemnify and hold
harmless Purchaser from and against any claim, whether or not meritorious, for
any real estate sales commission, finder's fees, or like compensation in
connection with the sale contemplated hereby and arising out of any act or
agreement of Seller. Likewise, Purchaser shall and does hereby indemnify and
hold harmless Seller from and against any claim, whether or not meritorious, for
any real estate sales commission, finder's fees, or like compensation in
connection with the sale contemplated hereby and arising out of any act or
agreement of Purchaser, except any such claim asserted by Broker or any broker
or agent claiming under Broker. This Paragraph 12 shall survive the Closing or
any termination of this Agreement.
13. Notices. Wherever any notice or other communication is required or
-------
permitted hereunder, such notice or other communication shall be in writing and
shall be delivered by overnight courier, by hand, or sent by U.S. registered or
certified mail, return receipt requested, postage prepaid, to the addresses set
out below or at such other addresses as are specified by written notice
delivered in accordance herewith:
<TABLE>
<S> <C>
PURCHASER: c/o Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Attn: Mr. Leo F. Wells, III
with a copy to: O'Callaghan & Stumm
3867 Holcomb Bridge Road, Suite 800
Norcross, Georgia 30092
Attn: William L. O'Callaghan, Jr., Esq.
</TABLE>
9
<PAGE>
SELLER: TCI Valwood Limited Partnership I
4245 North Central Expressway, Suite 600
Lock Box 100
Dallas, Texas 75205
Attn: Mr. Don Farris
with a copy to: Hirsch & Westheimer
25th Floor, NationsBank Center
Houston, Texas 77002
Attn: Boots Goldberg, Esq.
Any notice or other communication given as hereinabove provided shall be deemed
effectively given or received on the date of delivery.
14. Possession. Possession of the Property shall be granted by Seller to
----------
Purchaser on the date of funding, subject only to the Leases and the Permitted
Exceptions.
15. Time Periods. If the time period by which any right, option, or
------------
election provided under this Agreement must be exercised, or by which any act
required hereunder must be performed, or by which the Closing must be held,
expires on a Saturday, Sunday, or holiday, then such time period shall be
automatically extended through the close of business on the next regularly
scheduled business day in Dallas, Texas.
16. Survival of Provisions. All covenants, warranties, and agreements set
----------------------
forth in this Agreement shall survive the execution or delivery of any and all
deeds and other documents at any time executed or delivered under, pursuant to,
or by reason of this Agreement, and shall survive the payment of all monies made
under, pursuant to, or by reason of this Agreement, for a period of 12 months
following Closing.
17. 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.
18. Authorization. Purchaser represents to Seller that Agreement has been
-------------
duly authorized and executed on behalf of Purchaser and constitutes the valid
and binding agreement of Purchaser, enforceable in accordance with its terms,
and all necessary action on the part of Purchaser to authorize the transactions
herein contemplated has been taken, and no further action is necessary for such
purpose.
19. 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
10
<PAGE>
demand exact compliance with the terms hereof. This Agreement contains the
entire agreement of the parties hereto, and no representations, inducements,
promises, or agreements, oral or otherwise, between the parties not embodied
herein shall be of any force or effect. Any amendment to this Agreement shall
not be binding upon the parties hereto unless such amendment is in writing and
executed by all parties hereto. The provisions of this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, legal representatives, successors, and assigns. Time is of the essence
of this Agreement. This Agreement may be executed in multiple counterparts,
each of which shall constitute an original, but all of which taken together
shall constitute one and the same agreement. The headings inserted at the
beginning of each paragraph are for convenience only, and do not add to or
subtract from the meaning of the contents of each paragraph. This Agreement
shall be construed and interpreted under the laws of the State of Texas. Except
as otherwise provided herein, all rights, powers, and privileges conferred
hereunder upon the parties shall be cumulative but not restrictive to those
given by law. All personal pronouns used in this Agreement, whether used in the
masculine, feminine, or neuter gender shall include all genders, and all
references herein to the singular shall include the plural and vice versa.
20. AS IS, WHERE IS.
---------------
(a) PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR THOSE
REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS AND
GUARANTIES, IF ANY, IN THIS CONTRACT AND THE SPECIAL WARRANTY DEED
CONVEYING THE PROPERTY, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY
DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS
OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS,
IMPLIED, OR STATUTORY, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO,
CONCERNING OR WITH RESPECT TO: (A) THE NATURE, QUALITY OR CONDITION OF THE
PROPERTY OR ANY PART THEREOF, INCLUDING, WITHOUT LIMITATION, THE WATER,
SOIL AND GEOLOGY; (B) THE ECONOMIC FEASIBILITY OF THE PROPERTY OR THE
INCOME TO BE DERIVED FROM THE PROPERTY; (C) THE SUITABILITY OF THE PROPERTY
FOR ANY AND ALL ACTIVITIES AND USES WHICH PURCHASER MAY CONDUCT THEREON;
(D) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS,
RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY
OR BODY; (E) THE RENTABILITY, HABITABILITY, MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE OF THE PROPERTY; (F) THE PRESENCE OF ANY ENDANGERED OR
THREATENED SPECIES ON THE PROPERTY, AS WELL AS THE SUITABILITY OF THE
PROPERTY AS HABITAT FOR ANY OF THOSE SPECIES; (G) THE PRESENCE OR ABSENCE
OF ANY HAZARDOUS SUBSTANCES (AS HEREINAFTER DEFINED) ON, UNDER OR ABOUT THE
PROPERTY OR THE COMPLIANCE OF THE PROPERTY WITH THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION AND
11
<PAGE>
LIABILITY ACT, THE SUPERFUND AMENDMENT AND REAUTHORIZATION ACT, THE
RESOURCE CONSERVATION RECOVERY ACT, THE FEDERAL WATER POLLUTION CONTROL
ACT, THE FEDERAL ENVIRONMENTAL PESTICIDES ACT, THE CLEAN WATER ACT, THE
CLEAN AIR ACT, THE TEXAS NATURAL RESOURCES CODE, THE TEXAS WATER CODE, THE
TEXAS SOLID WASTE DISPOSAL ACT, THE TEXAS HAZARDOUS SUBSTANCES SPILL
PREVENTION AND CONTROL ACT, ANY SO CALLED FEDERAL, STATE OR LOCAL
"SUPERFUND" OR "SUPERLIEN" STATUTE, OR ANY OTHER STATUTE, LAW, ORDINANCE,
CODE, RULE, REGULATION, ORDER OR DECREE REGULATING, RELATING TO OR IMPOSING
LIABILITY (INCLUDING STRICT LIABILITY) OR STANDARDS OF CONDUCT CONCERNING
ANY HAZARDOUS SUBSTANCES (HEREIN COLLECTIVELY CALLED THE HAZARDOUS
SUBSTANCE LAWS). FOR PURPOSES OF THIS AGREEMENT, THE TERM "HAZARDOUS
SUBSTANCES" SHALL MEAN AND INCLUDE THOSE ELEMENTS OR COMPOUNDS WHICH ARE
CONTAINED ON THE LIST OF HAZARDOUS SUBSTANCES ADOPTED BY THE UNITED STATES
ENVIRONMENTAL PROTECTION AGENCY AND THE LIST OF TOXIC POLLUTANTS DESIGNATED
BY CONGRESS OR THE ENVIRONMENTAL PROTECTION AGENCY OR UNDER ANY HAZARDOUS
SUBSTANCE LAWS, OR (H) ANY OTHER MATTER WITH RESPECT TO THE PROPERTY.
(b) The provisions of this Section 20 shall survive closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective seals to be affixed hereunto as of the day,
month and year first above written.
"SELLER":
TCI Valwood Limited Partnership,
a Texas limited partnership
By: TCI-Valwood, Inc., a Texas corporation, its
general partner
By: /s/Don Farris
---------------------------------
Name: Don Farris
---------------------------
Title: President
--------------------------
12
<PAGE>
"PURCHASER":
FUND VIII AND FUND IX ASSOCIATES, INC., a Georgia
joint venture
By: Wells Real Estate Fund VIII, L.P., a Georgia
limited partnership
By: Wells Partners, L.P., its general partner
By: /s/ Edna B. King
-----------------------------
Name: Edna B. King
------------------------
Title: Vice President
-----------------------
By: Wells Real Estate Fund IX, L.P., a Georgia
limited partnership
By: Wells Partners, L.P., its general partner
By: /s/ Edna B. King
-----------------------------
Name: Edna B. King
------------------------
Title: Vice President
-----------------------
13
<PAGE>
Schedule of Exhibits
--------------------
Exhibit "A" - Description of Land
Exhibit "B" - Copy of Lease
Exhibit "C" - Blanket Transfer and Assignment Form
Exhibit "D" - Assignment and Assumption of Lease
Exhibit "E" - FIRPTA Certificate
14
<PAGE>
EXHIBIT 10(GG)
BUILD TO SUIT
INDUSTRIAL LEASE AGREEMENT
BETWEEN
INDUSTRIAL DEVELOPMENTS INTERNATIONAL, INC.
AS LANDLORD
AND
TCI CENTRAL, INC.
AS TENANT
DATED NOVEMBER 1, 1995
<PAGE>
LEASE INDEX
-----------
Section Subject
- ------- -------
1 Basic Lease Provisions
2 Demised Premises
3 Term
4 Base Rent
5 Security Deposit
6 Additional Rent
7 Use of Demised Premises
8 Insurance
9 Utilities
10 Taxes and Other Impositions
11 Maintenance and Repairs
12 Tenants' Personal Property; Indemnity
13 Tenant's Fixtures
14 Signs
15 Landlord's Lien
16 Governmental Regulations
17 Environmental Matters
18 Plans and Specifications for Construction of Demised Premises
19 Tenant Alterations and Additions
20 Services by Landlord
21 Fire and Other Casualty
22 Condemnation
23 Tenant's Default
24 Landlord's Right of Entry
25 Mortgagee's Rights
26 Estoppel Certificate
27 Landlord Liability
28 Notices and Payments
29 Brokers
30 Assignment and Subleasing
31 Termination or Expiration
32 Late Payments
33 Rules and Regulations
34 Dispute Resolution Procedure
35 Miscellaneous
Exhibit "A" Legal Description
Exhibit "A-1" Site Plan
Exhibit "A-2" Floor Plan
Exhibit "A-3" Elevation Plan
Exhibit "A-4" Preliminary Construction Specifications
Exhibit "B" Permitted Encumbrances
Exhibit "C" Rules and Regulations
Exhibit "D" Protective Covenants
-i-
<PAGE>
BUILD TO SUIT
-------------
INDUSTRIAL LEASE AGREEMENT
--------------------------
THIS LEASE AGREEMENT (this "Lease") is made this 1st day of November, 1995,
by and between INDUSTRIAL DEVELOPMENTS INTERNATIONAL, INC., a Delaware
corporation ("Landlord"), and TCI CENTRAL, INC., a Delaware corporation
("Tenant") (the words "Landlord" and "Tenant" to include their respective legal
representatives, successors and permitted assigns where the context requires or
permits).
W I T N E S S E T H:
1. Basic Lease Provisions. The following constitute the "Basic Lease
----------------------
Provisions" of this Lease:
(a) Demised Premises: Exhibit "A" attached hereto
-----------
(b) Building Square Footage: 40,000
(c) Annual Base Rent:
Lease Years 1-5 $422,800.00 per year
Lease Years 6-10 $446,800.00 per year
Lease Years 11-15 $474,800.00 per year
(d) Monthly Base Rent Installments:
Lease Years 1-5 $ 35,233.33per month
Lease Years 6-10 $ 37,233.33per month
Lease Years 11-15 $ 39,566.67. per month
(e) Lease Commencement Date: April 1, 1996
(f) Base Rent Commencement Date: April 1, 1996
(g) Primary Term: 15 years
(h) Security Deposit: None
(i) Date Tenant Must Approve Plans and Specifications For
Improvements: September 15, 1995
(j) Permitted Use: office, warehouse, storage, film studio,
customer service facility and a cable television electronic
control center for the reception, transmission, processing and
retransmission of video programming and other uses reasonably
related or incidental thereto.
<PAGE>
(k) Addresses for notice:
Landlord: Industrial Developments
International, Inc.
Atlanta Financial Center
3343 Peachtree Road, Suite 1050
Atlanta, Georgia 30326
Attn: Chief Operating Officer
With a copy to: Industrial Developments
International, Inc.
5420 LBJ Freeway
Suite 1275
Dallas, Texas 75240
Tenant: TCI Cablevision of Dallas, Inc.
1565 Chenault
Dallas, Texas 75228
Attn: Wendy Donahue
With a copy to: TCI Central, Inc.
4700 S. Syracuse Street
Suite 1100
Denver, Colorado 80237-2722
Attn: Division Counsel
(l) Address for rental payments:
Industrial Developments International, Inc.
P.O. Box 930199
Atlanta, Georgia 31193
(m) Broker(s): R.A. Mohr & Associates, Inc.
and
The Ed Waters Company
2. Demised Premises. For and in consideration of the rent hereinafter
-----------------
reserved and the mutual covenants hereinafter contained, Landlord does hereby
lease and demise unto Tenant, and Tenant does hereby hire, lease and accept,
from Landlord, that certain parcel of real property (the "Land") containing
approximately 4.86 acres, which Land is situated in Farmers Branch, Texas,
within Valwood Park (the "Project") and is more particularly described in
Exhibit "A" attached hereto and by this reference made a part hereof, together
- -----------
with and including all buildings, structures, driveways, parking lots, walkways,
landscaping and other appurtenances thereto and all other improvements, with the
consent of Tenant, at anytime during the term of this Lease erected, or situated
thereon including specifically, but, without limitation, a building (the
"Building") to be constructed containing approximately 40,000 square feet of
office and warehouse space of which approximately 10,000 square feet shall be
office space and to be located on the Land as shown on Exhibit "A-1" attached
-------------
hereto, and all other improvements including all driveways, parking lots,
walkways, landscaping and other appurtenances thereto (collectively, the
"Demised Premises") subject only to the matters on Exhibit "B" attached hereto
-----------
(herein referred to as "Permitted Encumbrances"), all upon the terms and
conditions hereinafter set forth. The Demised Premises including the Building
shall be developed and constructed by Landlord substantially in accordance with
the Preliminary Drawings prepared by Hardy McCullah/MLM Architects, Inc.,
attached hereto as Exhibit "A-1" (herein, the "Site Plan"); Exhibit "A-2"
------------- -------------
(herein, the "Floor Plan") and Exhibit "A-3" (herein, the "Elevation Plan"), and
-------------
the construction specifications attached hereto as Exhibit "A-4" (herein
-------------
"Preliminary Construction Specifications"), (the plans and specifications as
shown on Exhibits "A-l" through "A-4" are herein, collectively the "Preliminary
Plans") and in accordance with the terms of Section 18 hereof. Except to the
-2-
<PAGE>
extent required to cause compliance with the provisions of applicable law, the
Building and improvements comprising the Demised Premises shall be located
substantially as shown on the Site Plan.
3. Term.
----
(a) To have and to hold the Demised Premises for
(i) a preliminary term (the "Preliminary Term") which shall
commence on the date of execution of this Lease by Landlord and Tenant and shall
expire on the Lease Commencement Date, as defined herein; and
(ii) a primary term (the "Primary Term") which shall commence
on the Lease Commencement Date and shall expire one hundred eighty (180)
calendar months thereafter (the Preliminary Term, the Primary Term, and any and
all extensions thereof, herein referred to as the "Term"). The Term of this
Lease shall end on the final day thereof without the requirement of notice from
either party to the other.
(b) For purposes of this Lease, the term "Lease Commencement Date"
shall mean the later to occur of Substantial Completion, as defined herein, and
April 1, 1996.
(c) For purposes of this Lease, the term "Substantial Completion"
or any grammatical variation thereof shall mean sufficient completion of
construction of the Demised Premises in accordance with the Plans (as defined in
Section 18), so that Tenant can lawfully occupy the Demised Premises, as
evidenced by the delivery by Landlord to Tenant of (i) a Certificate of
Occupancy or its equivalent (or Temporary Certificate of Occupancy or its
equivalent) for the Building issued by the appropriate governmental authority if
so required by applicable law, and (ii) a Certificate of Substantial Completion
on standard AIA Form G-704 certified by the project architect, Hardy
McCullah/MLM Architects, Inc. (the "Architect"). In the event completion to such
extent is delayed because of Tenant Delay, as defined herein, then Substantial
Completion shall be deemed to mean the date when the Demised Premises would have
been completed to such extent but for such Tenant Delay, as determined by the
Architect. In the event Tenant shall dispute the determination of such date by
the Architect, the parties shall utilize the Dispute Resolution Procedure as
defined in Section 34, with Qualified Architects serving as Officials. For
purposes of this Lease, the Architect shall be deemed a "Qualified Architect"
for Landlord and __________________ shall be deemed a "Qualified Architect" for
Tenant.
(d) The Lease Commencement Date and the expiration date of the
Term, when determined as herein provided, shall be evidenced by a supplemental
agreement to be executed upon the request of either party to the other party
hereto.
4. Base Rent. Tenant shall pay to Landlord at the address set forth in
---------
Section 1(l) as base rent for the Demised Premises, commencing on the Lease
Commencement Date (herein, the "Base Rent Commencement Date") and continuing
throughout the Term in lawful money of the United States the annual amount set
forth in Section 1(c) payable in equal monthly installments as set forth in
Section 1(d) (the "Base Rent"), payable in advance, without demand and without
abatement, reduction, set-off or deduction, on the first day of each calendar
month during the Term. If the Base Rent Commencement Date shall fall on a day
other than the first day of a calendar month, the Base Rent shall be apportioned
pro rata on a per diem basis for the period such Base Rent Commencement Date and
the first day of the following calendar month and such apportioned sum shall be
paid on the Base Rent Commencement Date. Notwithstanding anything to the
contrary contained herein, Tenant agrees to pay the first Monthly Base Rent
Installment thirty (30) days after construction of the Demised Premises begins.
5. [Intentionally Omitted]
-3-
<PAGE>
6. Additional Rent. Any amounts required to be paid by Tenant under this
---------------
Lease (in addition to Base Rent) hereunder and any charges or expenses incurred
by Landlord on behalf of Tenant under the terms of this Lease, including,
without limitation, any expenses incurred for taxes, insurance, maintenance,
repairs, replacements and utilities which are the obligation of Tenant
hereunder, shall be considered additional rent (herein, "Additional Rent")
payable in the same manner and upon the same terms and conditions as Base Rent
reserved hereunder except as expressly set forth herein to the contrary. Any
failure on the part of Tenant to pay such Additional Rent when due shall entitle
Landlord to the remedies available to it for non-payment of Base Rent,
including, without limitation, late charges and interest thereon at the Interest
Rate (as herein defined) pursuant to Section 32 hereof. Tenant's obligations for
payment of Additional Rent shall begin to accrue on the Base Rent Commencement
Date regardless of the Rent Commencement Date.
7. Use of Demised Premises.
-----------------------
(a) The Demised Premises shall be used for the Permitted Use set
forth in Section 1(j) and for no other purpose.
(b) Tenant will permit no liens to attach or exist against the
Demised Premises, and shall not commit any waste.
(c) The Demised Premises shall not be used for any illegal
purposes, and Tenant shall not allow, suffer, or permit any vibration, noise,
odor, light or other effect to occur within or around the Demised Premises that
could constitute a nuisance or trespass for any tenant of Landlord occupying an
adjoining building, its customers, agents, licensees or invitees. Upon notice by
Landlord to Tenant that any of the aforesaid prohibited uses are occurring,
Tenant agrees to promptly remove or control the same.
(d) Tenant shall not in any way violate any law, ordinance or any
restrictive covenant affecting the Demised Premises as shown by and included in
the Permitted Encumbrances, including specifically, but without limitation, the
Protective Covenants (as defined in Section 33), and shall not in any manner use
the Demised Premises so as to cause cancellation of, or prevent the use of the
fire and extended coverage insurance policy required hereunder.
8. Insurance.
---------
(a) Tenant covenants and agrees that from and after the date of
delivery of the Demised Premises from Landlord to Tenant, Tenant will carry and
maintain, at its sole cost and expense, the following types of insurance, in the
amounts specified and in the form hereinafter provided for:
(i) Liability insurance in the Commercial General Liability
form (or reasonable equivalent thereto) covering the Demised Premises and
Tenant's use thereof against claims for personal injury or death, property
damage and product liability occurring upon, in or about the Demised Premises,
such insurance to be written on an occurrence basis (not a claims made basis),
to be in combined single limits amounts not less than One Million Dollars
($1,000,000.00) and to have general aggregate limits of not less than Ten
Million Dollars ($10,000,000.00) for each policy year. The insurance coverage
required under this Section 8(a)(i) shall, in addition, extend to any liability
of Tenant arising out of the indemnities provided for in Section 11 and, if
necessary, the policy shall contain a contractual endorsement to that effect.
(ii) (A) insurance on the "All-Risk" or equivalent form on a
Replacement Cost Basis against loss or damage to the Building and all other
improvements now or hereafter located on the Land (including, without in any
manner limiting the generality of the foregoing, flood insurance if the Demised
Premises are located in a flood hazard area), having a deductible not greater
than Fifty Thousand Dollars ($50,000.00); and in an amount sufficient to prevent
Landlord or Tenant from becoming a co-insurer of any loss, but in any event in
amounts not less than 100% of the
-4-
<PAGE>
actual replacement value of such Building and improvements. Landlord shall have
the right to require from Tenant, not more often than once every twelve (12)
months, reasonable evidence of the value of the Building.
(B) insurance on the "All-Risk" or equivalent form
against abatement or loss of rental by reason of the occurrences covered by the
insurance described in clause (A) above and by reason of any service
interruptions in an amount equal to Base Rent and all Additional Rent for at
least twelve (12) months following the occurrence of such casualty;
(C) boiler and machinery insurance covering losses to
or from any steam boilers, pressure vessels or similar apparatus requiring
inspection under applicable state or municipal laws or regulations which are
located at the Demised Premises or on any other building systems for which such
coverage is available, in amounts determined by Tenant to be appropriate or for
such higher amounts as may at any time be reasonably required by Landlord and
having a deductible of not more than Fifty Thousand Dollars ($50,000.00);
coverage shall be on a broad form comprehensive basis including loss of income
with a limit of at least an amount which is reasonably acceptable to Landlord;
and
(D) workmen's compensation insurance to the extent
required by the laws of the state in which the Demised Premises are located to
the extent necessary to protect Landlord, Mortgagee and the Demised Premises
against workmen's compensation claims.
(b) All policies of the insurance provided for in Section 8(a)
shall be issued in form acceptable to Landlord by insurance companies with a
rating of not less than "A+," and financial size of not less than Class XII, in
the most current available "Best's Insurance Reports", and licensed to do
business in the state in which the Building is located. Tenant shall have the
right to increase the deductible amounts under the policies of insurance
required by Sections 8(a)(ii)(A) and (C) above, subject to the approval of
Landlord, such approval not to be unreasonably withheld; provided, however, that
-------- -------
Landlord shall be entitled to withhold such approval unless Tenant is able to
demonstrate that the requested increase in any such deductible is commercially
reasonable for improvements comparable to the Building. Each and every such
policy:
(i) shall name Landlord as well as Landlord's Mortgagee, as
defined in Section 24, and any other party reasonably designated by Landlord, as
an additional insured. In addition, the coverage described in Section 8(a)(ii)
shall also name Landlord as "loss payee";
(ii) shall be delivered to Landlord prior to delivery of
possession of the Demised Premises to Tenant and thereafter within thirty (30)
days prior to the expiration of each such policy, and, as often as any such
policy shall expire or terminate. Renewal or additional policies shall be
procured and maintained by Tenant in like manner and to like extent;
(iii) shall contain a provision that the insurer waives any
right of subrogation against Landlord on account of any loss or damage
occasioned to Landlord, its property, the Demised Premises or its contents
arising from any risk covered by all risks fire and extended coverage insurance
of the type and amount required to be carried hereunder, provided that such
waiver does not invalidate such policies or prohibit recovery thereunder;
(iv) shall contain a provision that the insurer will give to
Landlord and such other parties in interest at least thirty (30) days notice in
writing in advance of any material change, cancellation, termination or lapse,
or the effective date of any reduction in the amounts of insurance; and
(v) shall be written as a primary policy which does not
contribute to and is not in excess of coverage which Landlord may carry.
-5-
<PAGE>
(c) Any insurance provided for in Section 8(a) may be maintained by
means of a policy or policies of blanket insurance, covering additional items or
locations or insureds; provided, however, that:
-------- -------
(i) Landlord and any other parties in interest from time to
time designated by Landlord to Tenant shall be named as an additional insured
thereunder as its interest may appear;
(ii) the coverage afforded Landlord and any such other parties
in interest will not be reduced or diminished by reason of the use of such
blanket policy of insurance;
(iii) any such policy or policies shall specify therein the
amount of the total insurance allocated to the Tenant's improvements and
property; and
(iv) the requirements set forth in this Section 8 are
otherwise satisfied.
(d) In the event that Tenant shall fail to carry and maintain the
insurance coverages set forth in this Section 8, Landlord may upon thirty (30)
days notice to Tenant (unless such coverages will lapse in which event no such
notice shall be necessary) procure such policies of insurance and Tenant shall
promptly reimburse Landlord therefor.
(e) Each party may, at any time, but not more than one (1) time in
any twelve (12) month period, require a review of the insurance coverage and
limits of liability set forth in Section 8 to determine whether the coverage and
the limits are reasonable and adequate in the then existing circumstances. The
review shall be undertaken on a date and at a time set forth in a party's notice
requesting a review and shall be conducted at the Demised Premises. If the
parties are, after a review, unable to agree on either the coverage or the
limits, then the parties shall employ the Dispute Resolution Procedure (as
defined in Section 34) with insurance advisors having at least ten (10) years
experience in insurance for commercial and industrial properties serving as
Officials. In rendering the decision the Officials shall consider the
requirements of Section 8, the cost of the insurance to be obtained, inflation,
changes in condition, and the insurance then being carried by similar industrial
use developments in the area of the Project.
9. Utilities. Commencing on the Lease Commencement Date and continuing
---------
through the remainder of the Term, Tenant shall be responsible for maintaining
the portion of the utility lines located between the Land boundary line and the
Building and shall promptly pay as billed to Tenant all rents and charges for
water and sewer services and all costs and charges for gas, steam, electricity,
fuel, light, power, telephone, heat and any other utility or service used or
consumed in or servicing the Demised Premises and all other costs and expenses
involved in the care, management and use thereof to the extent charged by the
applicable utility companies. If Tenant fails to pay any utility bills or
charges, Landlord may, at its option and upon reasonable notice to Tenant, pay
the same and in such event, the amount of such payment, together with interest
thereon at the Interest Rate as defined in Section 32 from the date of such
payment by Landlord, will be added to Tenant's next due payment, as Additional
Rent.
10. Taxes and Other Impositions.
---------------------------
(a) Commencing on the Lease Commencement Date and continuing
through the remainder of the Term, Tenant shall be solely obligated for the
costs of all real estate taxes and other impositions for the Demised Premises,
including the Building and the Land, and Tenant agrees to pay all installments
of such imposition which accrue during the Term. This provision shall expressly
survive the expiration or termination of this Lease in order to settle up
Tenant's pro rata share of such taxes for the final Lease Year of the Term.
-6-
<PAGE>
(b) Real estate taxes and other impositions shall mean all ad
valorem taxes, water and sanitary taxes, assessments, liens, licenses and permit
fees or any other taxes imposed, assessed or levied against the Land and the
Demised Premises, and all other charges, impositions or burdens of whatever kind
and nature, whether or not particularized by name, and whether general or
special, ordinary or extraordinary, foreseen or unforeseen, which at any time
during the Term may be created, assessed, confirmed, adjudged, imposed or
charged upon or with respect to the Demised Premises, the Land, or any
improvements made thereto, or on any part of the foregoing or any appurtenances
thereto, or directly upon this Lease or the rent payable hereunder or amounts
payable by any subtenants or other occupants of the Demised Premises, or upon
this transaction or any documents to which Tenant is a party or successor-in-
interest, or against Landlord because of Landlord's estate or interest herein,
by any governmental authority, or under any law, including among others, all
rental, sales, use, inventory or other similar taxes and any special tax bills
and general, special or other assessments and liens or charges made on local or
general improvements or any governmental or public power or authority
whatsoever.
(c) Notwithstanding the foregoing, if any imposition shall be
created, levied, assessed, adjudged, imposed, charged or become a lien with
respect to a period of time which commences before the Lease Commencement Date
or ends after the expiration date of the Term (other than an expiration date of
the Term by reason of breach of any of the terms hereof by Tenant), then Tenant
shall only be required to pay that portion of such imposition which is equal to
the proportion of said period which falls within the Term. If Tenant is
permitted to pay (by the assessing and collecting authorities) and elects to pay
any imposition in installments, Tenant shall nevertheless pay any and all
installments thereof which are due prior to the expiration of the Term or sooner
termination of the Term. Nothing contained in this Lease shall require Tenant to
pay any income or excess profits or taxes assessed against Landlord, or any
corporation, capital stock and franchise taxes imposed upon Landlord. Landlord
agrees to deliver to Tenant copies of all such notices of real estate taxes and
impositions which Landlord receives.
(d) Tenant agrees to pay Landlord such real estate taxes and
impositions within thirty (30) days after receipt of written notice from
Landlord.
(e) Tenant shall furnish Landlord, not later than thirty (30) days
after the last day upon which they may be paid without any fine, penalty,
interest or additional cost, but in any event, by the due date thereof, evidence
of the payment of all real estate taxes and impositions.
11. Maintenance and Repairs.
-----------------------
(a) From and after the Lease Commencement Date and throughout the
Term, Tenant shall, at its own cost and expense, maintain the Demised Premises,
exterior and interior, in good condition and repair, including, without
limitation, repair and maintenance of the interior of the Building, including
but not limited to the electrical systems, heating, air conditioning and
ventilation systems, plate glass, windows and doors, sprinkler and plumbing
systems. Tenant shall maintain in full force and effect a service contract for
the heating, ventilation and air conditioning systems with an entity reasonably
acceptable to Landlord. Tenant's obligations to repair and maintain the Demised
Premises shall also include, without limitation, repair, maintenance and
replacement of all plumbing and sewage facilities within and about the Demised
Premises (including, specifically, but without limitation, the portion of water
and sewer lines between the boundary of the Land and Building), fixtures,
interior walls, floors, ceilings, windows, doors, storefronts, plate glass,
skylights, all electrical facilities and equipment including, without
limitation, lighting fixtures, lamps, fans and any exhaust equipment and
systems, electrical motors, and all other appliances and equipment of every kind
and nature located in, upon or about the Demised Premises including, without
limitation, exterior lighting and fencing, and any sidewalks, parking areas and
access ways (including, without limitation, curbs and striping) upon the Demised
Premises and the landscaping and grounds surrounding the Building. All glass,
both interior and exterior, is at the sole risk of Tenant; and any broken glass
shall be promptly replaced at Tenant's expense by glass of like kind, size and
quality.
-7-
<PAGE>
Unless the same is caused solely by the negligent action or inaction of
Landlord, Landlord shall not be liable to Tenant or to any other person for any
damage occasioned by failure in any utility system or by the bursting or leaking
of any vessel or pipe in or about the Demised Premises, or for any damage
occasioned by water coming into the Demised Premises or arising from the acts or
neglects of occupants of adjacent property or the public.
(b) Landlord shall, at its own cost and expense, maintain in good
condition and repair the exterior walls, roof, foundation and structural frame
of the Building. Landlord's obligation shall exclude the cost of any maintenance
or repair required because of the act or negligence of Tenant, its employees or
agents, the cost of which shall be the responsibility of Tenant.
12. Tenant's Personal Property; Indemnity. All of Tenant's personal
-------------------------------------
property in the Demised Premises shall be and remain at Tenant's sole risk, and
Landlord shall not be liable for and Tenant hereby releases Landlord from any
and all liability for theft thereof or any damage thereto occasioned by any acts
or negligence of any third persons, or any act of God, except to the extent
caused by the acts or negligence of Landlord, its agents, employees and
contractors. As to personal injury or property damage (including personal
property of Tenant), Landlord shall not be liable for any injury to the person
or property of Tenant or other persons in or about the Demised Premises. Tenant
expressly agrees to indemnify, defend and hold Landlord, its officers,
directors, partners, affiliates, employees and authorized agents harmless for
any liabilities, claims or damages (including reasonable attorney's fees, costs
and expenses) in all such cases, except to the extent any such liabilities,
claims or damages arise out of acts or omissions of Landlord or Landlord's
officers, directors, partners, affiliates, employees or authorized agents
constituting negligence, willful misconduct or breach of this Lease. Except to
the extent covered by insurance carried by Tenant or required to be carried by
Tenant hereunder, Landlord shall indemnify, defend and hold Tenant, its
officers, directors, partners, affiliates, employees and authorized agents
harmless from any liabilities, claims or damages (including reasonable
attorney's fees, costs and expenses) against Tenant brought by a third party
arising out of such acts or omissions of Landlord or Landlord's officers,
directors, partners, affiliates, employees or authorized agents. The provisions
of this Section 12 shall survive the expiration or termination of this Lease
with respect to any damage, injury, or death occurring before such expiration or
termination.
13. Tenant's Fixtures. Tenant shall have the right to install in the
-----------------
Demised Premises trade fixtures required by Tenant or used by it in its
business, and if installed by Tenant, to remove any or all such trade fixtures
from time to time during and upon termination of this Lease, provided Tenant is
not then in default under the terms of this Lease and any applicable grace
period has not expired with the default having not been cured; provided,
--------
however, that Tenant shall repair and restore any damage or injury to the
- -------
Demised Premises (to the condition in which the Demised Premises existed prior
to such installation) caused by the installation and/or removal of any such
trade fixtures.
14. Signs. No sign, advertisement or notice shall be inscribed, painted,
-----
affixed, or displayed on the windows or exterior walls of the Demised Premises
or on any public area of the Building, except in such places, numbers, sizes,
colors and styles as are approved in advance in writing by Landlord, which
approval shall not be unreasonably withheld or delayed and which conform to all
applicable laws and/or ordinances and the Protective Covenants. Any and all
permitted signs shall be installed, maintained and removed by Tenant, at
Tenant's sole expense.
15. Landlord's Lien. Notwithstanding any other provision hereof to the
---------------
contrary, Landlord shall have at all times a valid first lien upon all of the
personal property and trade fixtures of Tenant situated in and upon the Demised
Premises to secure the obligations of Tenant for all Base Rent, Additional Rent
and other sums to become due hereunder and the performance by Tenant of each and
all of Tenant's other covenants and obligations hereunder. Said personal
property and trade fixtures shall not be removed from the Demised Premises
without the consent of the Landlord until Tenant shall have paid all Base Rent,
Additional Rent and other sums to become due hereunder and shall
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have fully discharged all of the covenants and obligations hereunder to be
performed by Tenant. The lien herein granted may be foreclosed in the manner and
form provided by law for the foreclosure of chattel mortgages or in any other
manner provided or permitted by law.
16. Governmental Regulations.
------------------------
(a) Tenant shall promptly comply throughout the Term of this Lease,
at Tenant's sole cost and expense, with all present and future laws, ordinances
and regulations of all applicable governing authorities relating to all or any
part of the Demised Premises, foreseen or unforeseen, ordinary as well as
extraordinary, or to the use or manner of use of the Demised Premises or to the
sidewalks, parking areas, curbs and access ways adjoining the Demised Premises.
In the event that such law, ordinance or regulation requires a renovation,
improvement or replacement to the Demised Premises, then Tenant shall be
required to make such renovation, improvement or replacement at Tenant's sole
cost and expense. Tenant shall also observe and comply with the requirements of
all policies of public liability, fire and other policies of insurance at any
time in force with respect to the Demised Premises.
(b) Subject to the last sentence hereof, Landlord, at its sole cost
and expense, shall be responsible for causing the Building to comply with Title
III of the Americans With Disabilities Act of 1990 (the "ADA"), or the
regulations promulgated thereunder as said Title III pertains to the general
public, as of the Lease Commencement Date. During the Term, Tenant hereby agrees
that it shall be responsible, at its sole cost and expense, for (i) causing the
Building and the Demised Premises to comply with Title III of the ADA as a
result of any special requirements of the ADA relating to accommodations for
individual employees of Tenant and (ii) complying with all obligations of Tenant
under Title I of the ADA.
17. Environmental Matters.
---------------------
(a) For purposes of this Lease:
(i) "Contamination" as used herein means the uncontained or
uncontrolled presence of or release of Hazardous Substances (as hereinafter
defined) into any environmental media from, upon, within, below, into or on
any portion of the Demised Premises, the Building, or the Project so as to
require remediation, cleanup or investigation under any applicable
Environmental Law (as hereinafter defined).
(ii) "Environmental Laws" as used herein means all federal,
state, and local laws, regulations, orders, permits, ordinances or other
requirements, concerning protection of human health, safety and the
environment, all as may be amended from time to time.
(iii) "Hazardous Substances" as used herein means any hazardous
or toxic substance, material, chemical, pollutant, contaminant or waste as
those terms are defined by any applicable Environmental Laws (including,
without limitation, the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. 9601 et seq. ("CERCLA") and the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq. ["RCRA"]) and any
solid wastes, polychlorinated biphenyls, urea formaldehyde, asbestos,
radioactive materials, radon, explosives, petroleum products and oil.
(b) Landlord represents that, except as set forth in environmental
reports delivered by Landlord to Tenant (i) Landlord has not treated, stored or
disposed of any Hazardous Substances upon or within the Demised Premises and
(ii) to Landlord's actual knowledge, no Hazardous Substances are present on or
under the Land as of the date of this Lease.
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(c) Tenant represents that all its activities on the Demised
Premises or the Project during the course of this Lease will be conducted in
compliance with Environmental Laws. Tenant warrants that it is currently in
compliance with all applicable Environmental Laws and that there are no pending
or threatened notices of deficiency, notices of violation, orders, or judicial
or administrative actions involving alleged violations by Tenant of any
Environmental Laws. Tenant, at Tenant's sole cost and expense, shall be
responsible for obtaining all permits or licenses or approvals under
Environmental Laws necessary for Tenant's operation of its business on the
Demised Premises and shall make all notifications and registrations required by
any applicable Environmental Laws. Tenant, at Tenant's sole cost and expense,
shall at all times comply with the terms and conditions of all such permits,
licenses, approvals, notifications and registrations and with any other
applicable Environmental Laws affecting in any way the Demised Premises. Tenant
warrants that it will obtain all such permits, licenses or approvals and make
all such notifications and registrations required by any applicable
Environmental Laws necessary for Tenant's operation of its business on the
Demised Premises.
(d) Tenant shall not cause or permit any Hazardous Substances to be
brought upon, kept, stored or used in or about the Demised Premises, the
Building, or the Project without the prior written consent of Landlord, which
consent may be granted or withheld in the absolute discretion of Landlord;
provided, however, that the consent of Landlord shall not be required for the
- -------- -------
use at the Demised Premises of cleaning supplies, toner for photocopying
machines and other similar materials, in containers and quantities reasonably
necessary for and consistent with normal and ordinary use by Tenant, at the
Demised Premises, in the routine operation or maintenance of Tenant's office
equipment or in the routine janitorial service, cleaning and maintenance for the
Demised Premises.
(e) Tenant shall not cause or permit the release of any Hazardous
Substances by Tenant or its agents, contractors, employees or invitees into any
environmental media such as air, water or land, or into or on the Demised
Premises, the Building or the Project in any manner that violates any
Environmental Laws. If such release shall occur, Tenant shall (i) take all steps
reasonably necessary to contain and control such release and any associated
Contamination, (ii) clean up or otherwise remedy such release and any associated
Contamination to the extent required by, and take any and all other actions
required under, applicable Environmental Laws and (iii) notify and keep Landlord
reasonably informed of such release and response.
(f) Regardless of any consents granted by Landlord pursuant to
Section 17(d) allowing Hazardous Substances upon the Demised Premises, Tenant
shall under no circumstances whatsoever (i) cause or permit any activity on the
Demised Premises which would cause the Demised Premises to become subject to
regulation as a hazardous waste treatment, storage or disposal facility under
RCRA or the regulations promulgated thereunder; (ii) discharge Hazardous
Substances into the storm sewer system serving the Project; or (iii) install any
underground storage tank or underground piping on or under the Demised Premises.
(g) Tenant shall and hereby does indemnify Landlord and hold and
defend Landlord harmless from and against any and all reasonable and actual
expense, loss, and liability suffered by Landlord (with the exception of those
expenses, losses, and liabilities arising from Landlord's own negligence or
willful act), by reason of Tenant's storage, generation, handling, treatment,
transportation, disposal, or arrangement for transportation or disposal, of any
Hazardous Substances (whether accidental, intentional, or negligent) or by
reason of Tenant's breach of any of the provisions of this Section 17. Such
expenses, losses and liabilities shall include, without limitation, (i) any and
all expenses that Landlord may incur to comply with any Environmental Laws as a
result of Tenant's failure to comply therewith; (ii) any and all costs that
Landlord may incur in studying or remedying any Contamination at or arising from
the Demised Premises as a result of a failure by Tenant to comply with this
Section 17 or Environmental Laws; (iii) any and all costs that Landlord may
incur in studying, removing, disposing or otherwise addressing any Hazardous
Substances which are present at the Demised Premises as a result of a failure by
Tenant to comply with this Section 17 or
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Environmental Laws; (iv) any and all fines, penalties or other sanctions
assessed upon Landlord by reason of Tenant's failure to comply with
Environmental Laws; and (v) any and all reasonable legal and professional fees
and costs incurred by Landlord in connection with the foregoing. The indemnity
contained herein shall survive the termination or expiration of this Lease.
(h) Landlord shall have the right, but not the obligation, to enter
the Demised Premises at reasonable times throughout the Term, after prior
written notice to Tenant, to audit and inspect the Demised Premises for Tenant's
compliance with this Section 17.
18. Plans and Specifications for Construction of Demised Premises.
-------------------------------------------------------------
(a) Within thirty (30) days after the date hereof, Landlord shall
prepare, at Landlord's sole cost and expense, and submit to Tenant a set of
plans and specifications (collectively, the "Plans and Specifications") based
upon the Preliminary Plans, covering all work to be performed by Landlord in
constructing the Building and other improvements which shall be a part of the
Demised Premises. Tenant shall have ten (10) days after receipt of the Plans and
Specifications in which to review and approve the Plans and Specifications. In
the event Tenant shall fail to review the Plans and Specifications within such
time period, Tenant shall be deemed to have approved such Plans and
Specifications. Any subsequent changes to the Plans and Specifications requested
by Tenant shall be at Tenant's sole cost and expense and subject to Landlord's
written approval (herein referred to as a "Change Order"). Tenant may by Change
Order replace the materials called for in the Plans and Specifications with
comparable materials, or with materials of a higher grade, but Tenant shall have
no right to change the materials to materials which, in Landlord's sole opinion,
are of an inferior grade or quality to those called for in the Plans and
Specifications. The aggregate cost of all such Change Orders (the "Change Order
Cost") in excess of the costs reflected in the Plans and Specifications shall be
paid in cash by Tenant to Landlord upon Landlord's submission to Tenant of
written request for payment of such additional cost ("Landlord's Notice") and
not later than the Lease Commencement Date; provided, however, that Tenant shall
have the option, which option shall be exercised by written notice to Landlord
("Tenant's Notice") within five (5) days following the receipt of the Landlord's
Notice, either (i) to deliver to Landlord the Change Order Cost within ten (10)
days following receipt of Landlord's Notice or (ii) to amortize the Change Order
Cost over the initial Term at an annual rate of twelve percent (12%), which
amortization payments shall commence on the Base Rent Commencement Date;
provided, however, that Tenant shall be permitted to amortize only a maximum
amount of $50,000 and any amount in excess of the $50,000 shall be paid to
Landlord as set forth in subsection (i) above. In the event that Tenant fails to
deliver Tenant's Notice within five (5) days following receipt of Landlord's
Notice, Tenant shall be deemed to have elected the option set forth in (i)
above. In the event that Tenant elects the option set forth in (i) above,
failure by Tenant to make such payment to Landlord shall be a default hereunder.
The cost to Tenant for Change Orders shall be Landlord's cost plus ten percent
(10%) of such amount as Landlord's overhead.
(b) Landlord shall, at its sole cost and expense construct the
Building and other improvements pursuant to the Plans and Specifications, and in
accordance with the terms and conditions of this Lease ("Landlord's Work").
Landlord shall make no changes to the Plans and Specifications without Tenant's
written consent, with the exception of immaterial details which will not affect
Tenant's use and occupancy of the Building and other improvements. Landlord
shall have the final Plans and Specifications sealed by the Architect, obtain
all required building permits, certificates and licenses and thereafter, in
accordance with all applicable law and insurance requirements, perform
Landlord's Work in a diligent and good workmanlike manner, subject to Ordinary
Delay and Tenant Delay (as those terms are defined below).
(c) Landlord shall use reasonable speed and diligence to achieve
Substantial Completion, at Landlord's sole cost and expense, on or before
April 1, 1996, provided that Landlord shall not be liable to Tenant in any way
for achieving Substantial Completion after such target date.
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<PAGE>
(d) No later than the date which is sixty (60) days prior to the
estimated date of Substantial Completion, Landlord shall give Tenant written
notice that Landlord estimates Substantial Completion will occur sixty (60) days
thereafter. Twenty (20) days after receipt of such notice, Tenant may commence
construction and installation of Tenant's improvements and fixtures within the
Demised Premises (herein referred to as "Tenant's Work"). Landlord and Tenant
shall cause their respective workmen to work in cooperation with each other.
(e) The Substantial Completion target date of April 1, l996 shall
be extended for one (1) day for each day that Substantial Completion is delayed:
(i) as a result of the failure by Tenant to timely approve or
disapprove the Plans and Specifications, or as a result of Change Orders or
other changes requested by Tenant in the Plans and Specifications after the
Tenant's approval thereof (collectively referred to herein as "Tenant Delay");
or
(ii) due to strikes or other labor troubles not specific to the
Demised Premises, governmental restrictions and limitations, war or other
national emergency, non-availability of materials or supplies, delay in
transportation, accidents, floods, fire, damage or other casualties, weather or
acts or omissions of Tenant, or delays by utility companies in bringing utility
lines to the Demised Premises all beyond the reasonable control of Landlord
(collectively referred to herein as "Ordinary Delay"). The inability or refusal
of Landlord to make any monetary payment shall not constitute or result in an
Ordinary Delay.
(f) On or prior to the date of Substantial Completion of the
Demised Premises, a representative of Landlord and a representative of Tenant
together shall inspect the Demised Premises and, within thirty (30) days
thereafter, generate a punchlist of defective or uncompleted items relating to
the completion of construction of the improvements within the Demised Premises,
which punchlist shall indicate the estimation by the parties of the cost of each
item. Landlord shall, within a reasonable time after such punchlist is prepared
and agreed upon by Landlord and Tenant, complete such incomplete work and remedy
such defective work as are set forth on the punchlist.
(g) Upon the Lease Commencement Date, Tenant shall execute and
deliver to Landlord a letter confirming the Lease Commencement Date and
expiration date of this Lease.
(h) Landlord hereby warrants to Tenant that the materials and
equipment furnished by Landlord's contractors in the completion of Landlord's
Work will be of good quality and new, that during the one (1) year period
following the date of Substantial Completion of Landlord's Work, such materials
and equipment and the work of such contractors shall be free from defects not
inherent in the quality required or permitted hereunder, and that such work will
conform to the Plans and Specifications (the foregoing referred to herein as
"Landlord's Warranty"). This warranty shall exclude damages or defects caused by
abuse by Tenant, its employees, invitees, licensees, contractors and agents,
improper or insufficient maintenance, improper operation, or normal wear and
tear under normal usage.
19. Tenant Alterations and Additions.
--------------------------------
(a) Except as to any nonstructural alterations, improvements, or
additions to the Demised Premises (collectively a "Tenant Change"), which Tenant
Changes individually cost less than $5,000.00 and in the aggregate over the Term
total less than $25,000.00, Tenant shall not make or permit to be made any other
Tenant Change without first obtaining on each occasion Landlord's prior written
consent (which consent Landlord agrees not unreasonably to withhold) and
Mortgagee's prior written consent (if such consent is required). With respect to
any such Tenant Change requiring Landlord's prior written consent, Tenant shall
furnish Landlord with a full set of plans and specifications for any such Tenant
Change prior to the commencement thereof together
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with an original builder's risk policy of insurance in form and amount of
coverage reasonably acceptable to Landlord, showing Tenant as named insured, and
Landlord and Mortgagee (if applicable) as loss payees. If Landlord, at the time
of giving its approval to any Tenant Change, notifies Tenant that approval is
conditioned upon restoration, then upon written request of Landlord, Tenant
shall, at its sole cost and expense and upon the termination of this Lease,
remove the same and restore the Demised Premises to its condition prior to such
Tenant Change.
(b) All Tenant Changes shall be performed in accordance with all
legal requirements applicable thereto and in a good and workmanlike manner with
first-class materials and, upon completion of any Tenant Change, Tenant shall
furnish to Landlord "as-built" drawings showing the location and type thereof.
No Tenant Change shall impair the structural strength of the Building or reduce
its value, Tenant shall take or cause to be taken all steps that are required or
permitted by law in order to avoid the imposition of any materialmen's or
mechanics' liens upon the Building or the Demised Premises, and Tenant shall pay
the full cost of any Tenant Change and Tenant shall give Landlord such
reasonable security as may be requested by Landlord to insure payment of such
cost. Except as otherwise provided herein and in Section 12 hereof, all Tenant
Changes and all repairs and all other property attached to or installed on the
Demised Premises by or on behalf of Tenant shall immediately upon completion or
installation thereof be and become part of the Demised Premises and the property
of Landlord without payment therefor by Landlord and shall be surrendered to
Landlord upon the expiration or earlier termination of the Term. With respect to
any Tenant Change, whether or not requiring Landlord's prior consent, Landlord
shall have no duty or obligation to make any replacement or repair thereto,
whether interior or exterior, structural or non-structural, ordinary or
extraordinary or as required to comply with any law.
20. Services by Landlord. From and after the Lease Commencement Date,
--------------------
Landlord shall be responsible for providing no services to the Demised Premises
whatsoever, except for the services for which Landlord is specifically obligated
pursuant to Section 18 (f) and (h).
21. Fire and Other Casualty.
-----------------------
(a) If the Building or other improvements on the Land shall be
damaged or destroyed by fire or other casualty, Tenant, at Tenant's sole cost
and expense, shall promptly and diligently proceed to adjust the loss with the
insurance companies (subject to the approval of the Mortgagee (if applicable)
and of Landlord) and arrange for the disbursement of insurance proceeds, and
repair, rebuild or replace such Building and other improvements, so as to
restore the Demised Premises to the condition in which they were immediately
prior to such damage or destruction. The net proceeds of any insurance recovered
by reason of such damage or destruction in excess of the cost of adjusting the
insurance claim and collecting the insurance proceeds (such excess being
referred to herein as the "Net Insurance Proceeds") shall be held by the
Mortgagee (provided that such Mortgagee is a bank, savings association,
insurance company or other similar institutional lender; herein called
"Institutional Lender"), or, if no Institutional Lender then holds a mortgage
lien, or deed of trust on the Demised Premises, by any national or state
chartered bank which is reasonably acceptable to Landlord and Tenant; and the
Net Insurance Proceeds shall be released for the purpose of paying the fair and
reasonable cost of restoring such Building and other improvements. Such Net
Insurance Proceeds shall be released to Tenant, or to Tenant's contractors, from
time to time as the work progresses, pursuant to such requirements and
limitations as may be reasonably acceptable to Landlord and Mortgagee (if the
Mortgagee so requires), including, without limitation, lien waivers from each of
the contractors, subcontractors, materialmen and suppliers performing the work.
If the Net Insurance Proceeds (less any applicable deductible) are insufficient
to restore the Demised Premises, Tenant shall be obligated to pay such
deficiency and the amount of any such deductible. Notwithstanding the foregoing,
if the Net Insurance Proceeds are less than Twenty-Five Thousand Dollars
($25,000.00), and if the Mortgagee agrees in writing, such Net Insurance
Proceeds may be held by Tenant and used by Tenant to pay the fair and reasonable
cost of restoring such Demised Premises and other improvements. If the Net
Insurance Proceeds exceed the full cost of the repair,
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rebuilding or replacement of the damaged Building or other improvements, if the
Mortgagee does not retain such excess proceeds and apply the same on account of
the debt owed to it, then the amount of such excess Net Insurance Proceeds shall
be paid to Tenant upon the completion of such repair, rebuilding or replacement.
Landlord agrees not unreasonably to withhold or delay any approvals required to
be obtained by Tenant from Landlord pursuant to the provisions of this Section
21(a).
(b) Whenever Tenant shall be required to carry out any work or repair
and restoration pursuant to this Section 21, Tenant, prior to the commencement
of such work, shall deliver to Landlord for Landlord's prior approval (which
shall not be unreasonably withheld or delayed) a full set of the plans and
specifications therefor, together with a copy of all approvals and permits which
shall be required from any governmental authority having jurisdiction. After
completion of any major repair or restoration, Tenant shall, as soon as
reasonably possible, obtain and deliver to Landlord a Certificate of Substantial
Completion from the inspecting architect and a permanent Certificate of
Occupancy (or amended Certificate of Occupancy), if required by applicable laws,
issued by the appropriate authority with respect to the use of the Demised
Premises, as thus repaired and restored. Any such work or repair and
restoration, in all cases, shall be carried out by Tenant in a good and
workmanlike manner with materials at least equal in quality to the original
materials used therefor prior to the damage or destruction. If, after a default
by Tenant, Landlord shall carry out any such work or repair and restoration
pursuant to the provisions of this Section 21, then Landlord shall be entitled
to withdraw monies held for application to the costs of such work from time to
time as such costs are incurred.
22. Condemnation.
------------
(a) If all of the Demised Premises is taken or condemned for a public
or quasi-public use, this Lease shall terminate as of the earlier of the date
title to the condemned real estate vests in the condemnor and the date on which
Tenant is deprived of possession of all of the Demised Premises. In such event,
the Base Rent herein reserved and all Additional Rent and other sums payable
hereunder shall be apportioned and paid in full by Tenant to Landlord to that
date, all Base Rent, Additional Rent and other sums payable hereunder prepaid
for periods beyond that date shall forthwith be repaid by Landlord to Tenant,
and neither party shall thereafter have any liability hereunder, except that any
obligation or liability of either party, actual or contingent, under this Lease
which has accrued on or prior to such termination date shall survive.
(b) In the event of a taking of "Substantially All of the Demised
Premises" (as herein defined), Tenant may, at its option, upon thirty (30) days'
written notice to Landlord, which shall be given no later than sixty (60) days
following the taking, have the right to terminate this Lease. All Base Rent and
other sums payable by Tenant hereunder shall be apportioned and paid through and
including the date of taking, and neither Landlord nor Tenant shall have any
rights in any compensation or damages payable to the other in connection with
such condemnation. For purposes of this provision, "Substantially All of the
Demised Premises" shall mean (i) so much of the Demised Premises as, when taken,
leaves the untaken portion unsuitable, in the reasonable opinion of Tenant and
Landlord, for the continued feasible and economic operation of the Demised
Premises by Tenant for the same purposes as immediately prior to such taking or
as contemplated herein, (ii) so many of the parking spaces on the Land as
reduces the parking ratio below that which is required by the zoning ordinance
applicable to the Project, and Landlord's failure to provide substantially
similar alternative parking reasonably acceptable to Tenant within sixty (60)
days after such taking, or (iii) so much of the Demised Premises that access to
the Demised Premises is materially impeded, as reasonably determined by Landlord
and Tenant.
(c) If only part of the Demised Premises is taken or condemned for a
public or quasi-public use and this Lease does not terminate pursuant to Section
22(b) above, Tenant shall restore, using all reasonable speed and diligence, the
Demised Premises to a condition and to a size as nearly comparable as reasonably
possible to the condition and size thereof immediately prior to the taking and
Landlord, to the extent of
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the award it receives in excess of the costs of collecting the award and value
of the Land taken (herein, the "Net Condemnation Proceeds"), shall release the
Net Condemnation Proceeds to Tenant for that purpose and Tenant shall have the
right to participate in any proceeding relating to the awarding of restoration
damages. There shall be an equitable abatement of the Base Rent and Additional
Rent according to the value of the Demised Premises before and after the taking.
Determination of such value of the Demised Premises after a partial taking shall
be mutually agreed to by the parties within sixty (60) days from the date of the
taking and if the parties can not so agree, then such value shall be determined
in accordance with the Dispute Resolution Procedure (as defined in Section 34),
with real estate appraisers having at lease ten (10) years experience appraising
commercial real estate, including build-to-suit leases, serving as Officials.
Pending such determination, Tenant shall continue to pay the Base Rent and
Additional Rent as herein originally specified, and upon such determination, if
Tenant is entitled to a refund because of an overpayment of Base Rent or
Additional Rent, Landlord shall make the same promptly, or in lieu thereof
credit the amount thereof to future installments of Base Rent or Additional Rent
as they become due.
(d) Landlord shall be entitled to receive the entire award in any
proceeding with respect to any taking provided for in this Section 22, without
deduction therefrom for any estate vested in Tenant by this Lease, and Tenant
shall receive no part of such award. Nothing herein contained shall be deemed
to prohibit Tenant from making a separate claim, against the condemnor, to the
extent permitted by law, for the value of the unamortized tenant improvements
(installed in accordance with Section 19 at Tenant's expense), Tenant's moveable
trade fixtures, machinery and moving expenses, provided that, in any case, the
making of such claim shall not and does not adversely affect or diminish
Landlord's award.
23. Tenant's Default.
----------------
(a) The occurrence of any one or more of the following events shall
constitute an event of default (herein referred to as an "Event of Default") of
Tenant under this Lease:
(i) if Tenant fails to pay Base Rent or any Additional Rent
hereunder as and when such rent becomes due and such failure shall continue for
more than ten (10) days after receipt of written notice from Landlord of such
failure;
(ii) if Tenant fails to pay Base Rent or any Additional Rent on
time more than three (3) times in any period of twelve (12) months,
notwithstanding that such payments have been made within the applicable cure
period;
(iii) [Intentionally omitted];
(iv) if Tenant permits to be done anything which creates a lien
upon the Demised Premises and fails either (A) to discharge, (B) bond such lien,
or (C) post security with Landlord acceptable to Landlord, within thirty (30)
days after receipt by Tenant of written notice thereof;
(v) if Tenant violates the provisions of Section 30 of this
Lease by attempting to make an unpermitted assignment or sublease;
(vi) if Tenant fails to maintain in force all policies of
insurance required by this Lease and such failure shall continue for more than
ten (10) days after Landlord gives Tenant notice of such failure;
(vii) if any petition is filed by or against Tenant or any
guarantor of this Lease under any present or future section or chapter of the
Bankruptcy Code, or under any similar law or statute of the United States or any
state thereof (which, in the case of an involuntary proceeding, is not
permanently discharged, dismissed, stayed, or vacated, as the case may be,
within sixty (60) days of commencement), or if any order for
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relief shall be entered against Tenant or any guarantor of this Lease in any
such proceedings;
(viii) if Tenant or any guarantor of this Lease becomes insolvent
or makes a transfer in fraud of creditors or makes an assignment for the benefit
of creditors;
(ix) if a receiver, custodian, or trustee is appointed for the
Demised Premises or for all or substantially all of the assets of Tenant or of
any guarantor of this Lease, which appointment is not vacated within sixty (60)
days following the date of such appointment; or
(x) if Tenant fails to perform or observe any other term of
this Lease and such failure shall continue for more than thirty (30) days after
Landlord gives Tenant notice of such failure, or, if such failure cannot be
corrected within such thirty (30) day period, if Tenant does not commence to
correct such default within said thirty (30) day period and thereafter
diligently prosecute the correction of same to completion within a reasonable
time and in any event prior to the time a failure to complete such correction
could cause Landlord to be subject to prosecution for violation of any law,
rule, ordinance or regulation or causes, or could cause a default under any
mortgage or other Permitted Encumbrance.
(b) Upon the occurrence of any one or more of the aforesaid Events of
Default, or upon the occurrence of any other default or defaults by Tenant under
this Lease, Landlord may, at Landlord's option, without any demand or notice
whatsoever (except as expressly required in this Section 23):
(i) Terminate this Lease by giving Tenant notice of
termination, in which event this Lease shall expire and terminate on the date
specified in such notice of termination with the same force and effect as though
the date so specified were the date herein originally fixed as the termination
date of the Term, and all rights of Tenant under this Lease and in and to the
Demised Premises shall expire and terminate and Tenant shall remain liable for
all obligations under this Lease arising up to the date of such termination, and
Tenant shall surrender the Demised Premises to Landlord on the date specified in
such notice, and if Tenant fails to so surrender Landlord shall have the right,
without notice, to enter upon and take possession of the Demised Premises and to
expel or remove Tenant and its effects without being liable for prosecution or
any claim for damages therefor; or
(ii) Terminate this Lease as provided in Section 23(b)(i) hereof
and recover from Tenant all damages Landlord may incur by reason of Tenant's
default, including, without limitation, a sum which, at the date of such
termination, represents the value of the excess, if any, of (1) the Base Rent,
Additional Rent and all other sums which would have been payable hereunder by
Tenant for the period commencing with the day following the date of such
termination and ending with the expiration date had this Lease not been
terminated, over (2) the aggregate reasonable rental value of the Demised
Premises for the period commencing with the day following the date of such
termination and ending with the expiration date had this Lease not been
terminated, plus (3) the costs of recovering possession of the Demised Premises
and all other expenses incurred by Landlord due to Tenant's default, including,
without limitation, reasonable attorney's fees, plus (4) the unpaid Base Rent
and Additional Rent earned as of the date of termination plus any interest and
late fees due hereunder, plus other sums of money and damages owing on the date
of termination by Tenant to Landlord under this Lease or in connection with the
Demised Premises, all of which excess sum shall be deemed immediately due and
payable; provided, however, that such payments shall not be deemed a penalty but
-------- -------
shall merely constitute payment of liquidated damages, it being understood and
acknowledged by Landlord and Tenant that actual damages to Landlord are
extremely difficult, if not impossible, to ascertain. The excess, if any, of
subparagraph (ii)(1) over subparagraph (ii)(2) herein shall be discounted to
present value at the "Treasury Yield" rate. "Treasury Yield" shall mean the
rate of return in percent per annum of Treasury Constant Maturities for the
length of time specified as published in document H.15(519) (presently published
by the Board of Governors of the U.S. Federal Reserve System titled "Federal
Reserve
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<PAGE>
Statistical Release") for the calendar week immediately preceding the
calendar week in which the termination occurs. If the rate of return of
Treasury Constant Maturities for the calendar week in question is not published
on or before the business day preceding the date of the Treasury Yield in
question is to become effective, then the Treasury Yield shall be based upon the
rate of return of Treasury Constant Maturities for the length of time specified
for the most recent calendar week for which such publication has occurred. If
no rate of return for Treasury Constant Maturities is published for the specific
length of time specified, the Treasury Yield for such length of time shall be
the weighted average of the rates of return of Treasury Constant Maturities most
nearly corresponding to the length of the applicable period specified. If the
publishing of the rate of return of Treasury Constant Maturities is ever
discontinued, then the Treasury Yield shall be based upon the index which is
published by the Board of Governors of the U.S. Federal Reserve System in
replacement thereof or, if no such replacement index is published, the index
which, in Landlord's reasonable determination, most nearly corresponds to the
rate of return of Treasury Constant Maturities. In determining the aggregate
reasonable rental value pursuant to subparagraph (ii)(2) above, the parties
hereby agree that, at the time Landlord seeks to enforce this remedy, all
relevant factors should be considered, including, but not limited to, (a) the
length of time remaining in the Term, (b) the then current market conditions in
the general area in which the Building is located, (c) the likelihood of
reletting the Demised Premises for a period of time equal to the remainder of
the Term, (d) the net effective rental rates then being obtained by landlords
for similar type space of similar size in similar type buildings in the general
area in which the Building is located, (e) the vacancy levels in the general
area in which the Building is located, (f) current levels of new construction
that will be completed during the remainder of the Term and how this
construction will likely affect vacancy rates and rental rates and (g)
inflation; or
(iii) Without terminating this Lease, and with or without notice
to Tenant, Landlord may in its own name but as agent for Tenant enter into and
upon and take possession of the Demised Premises or any part thereof, and, at
Landlord's option, remove persons and property therefrom and such property, if
any, may be removed and stored in a warehouse or elsewhere at the cost of, and
for the account of Tenant, all without being deemed guilty of trespass or
becoming liable for any loss or damage which may be occasioned thereby, and
Landlord may rent the Demised Premises or any portion thereof as the agent of
Tenant with or without advertisement, and by private negotiations and for any
term upon such terms and conditions as Landlord may deem necessary or desirable
in order to relet the Demised Premises. Landlord shall in no way be responsible
or liable for any failure to rent the Demised Premises or any part thereof, or
for any failure to collect any rent due upon such reletting. Upon each such
reletting, all rentals received by Landlord from such reletting shall be
applied: first, to the payment of any indebtedness (other than any rent due
hereunder) from Tenant to Landlord; second, to the payment of any costs and
expenses of such reletting, including, without limitation, brokerage fees and
attorney's fees and costs of alterations and repairs; third, to the payment of
rent and other charges then due and unpaid hereunder; and the residue, if any,
shall be held by Landlord to the extent of and for application in payment of
future rent, if any becomes owing, as the same may become due and payable
hereunder. In reletting the Demised Premises as aforesaid, Landlord may grant
rent concessions and Tenant shall not be credited therefor. If such rentals
received from such reletting shall at any time or from time to time be less than
sufficient to pay to Landlord the entire sums then due from Tenant hereunder,
Tenant shall pay any such deficiency to Landlord. Such deficiency shall, at
Landlord's option, be calculated and paid monthly. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect to
terminate this Lease for any such previous default provided same has not been
cured; or
(iv) Without terminating this Lease, and with or without notice
to Tenant, Landlord may enter into and upon the Demised Premises and without
being liable for prosecution or any claim for damages therefor, maintain the
Demised Premises and repair or replace any damage thereto or do anything or make
any payment for which Tenant is responsible hereunder. Tenant shall reimburse
Landlord immediately upon demand for any expenses which Landlord incurs in thus
effecting Tenant's compliance under this Lease, and Landlord shall not be liable
to Tenant for any damages with respect thereto; or
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(v) Without liability to Tenant or any other party and without
constituting a constructive or actual eviction, suspend or discontinue
furnishing or rendering to Tenant any property, material, labor, utilities or
other service, wherever Landlord is obligated to furnish or render the same so
long as Tenant is in default under this Lease; or
(vi) Allow the Demised Premises to remain unoccupied and collect
rent from Tenant as it comes due; or
(vii) Foreclose any security interest in the property of Tenant
which Landlord may have under the laws of the state where the Building is
located or under this Lease, including the immediate taking of possession of all
property on or in the Demised Premises; or
(viii) Pursue such other remedies as are available at law or in
equity.
(c) If this Lease shall terminate as a result of or while there exists
a default hereunder, any funds of Tenant held by Landlord may be applied by
Landlord to any damages payable by Tenant (whether provided for herein or by
law) as a result of such termination or default.
(d) Neither the commencement of any action or proceeding, nor the
settlement thereof, nor entry of judgment thereon shall bar Landlord from
bringing subsequent actions or proceedings from time to time, nor shall the
failure to include in any action or proceeding any sum or sums then due be a bar
to the maintenance of any subsequent actions or proceedings for the recovery of
such sum or sums so omitted.
(e) If any statute or rule of law shall limit any of Landlord's
remedies as hereinabove set forth, Landlord shall nonetheless be entitled to any
and all other remedies hereinabove set forth.
(f) No agreement to accept a surrender of the Demised Premises and no
act or omission by Landlord or Landlord's agents during the Term shall
constitute an acceptance or surrender of the Demised Premises unless made in
writing and signed by Landlord. No re-entry or taking possession of the Demised
Premises by Landlord shall constitute an election by Landlord to terminate this
Lease unless a written notice of such intention is given to Tenant.
(g) No provision of this Lease shall be deemed to have been waived by
either party unless such waiver is in writing and signed by the party making
such waiver. Landlord's acceptance of Base Rent or Additional Rent following an
Event of Default hereunder shall not be construed as a waiver of such Event of
Default. No custom or practice which may grow up between the parties in
connection with the terms of this Lease shall be construed to waive or lessen
either party's right to insist upon strict performance of the terms of this
Lease, without a written notice thereof the other party.
(h) The rights granted to Landlord in this Section 23 shall be
cumulative of every other right or remedy provided in this Lease or which
Landlord may otherwise have at law or in equity or by statute, and the exercise
of one or more rights or remedies shall not prejudice or impair the concurrent
or subsequent exercise of other rights or remedies or constitute a forfeiture or
waiver of Base Rent, Additional Rent or damages accruing to Landlord by reason
of any Event of Default. If an Event of Default shall occur, Tenant shall pay
to Landlord, on demand, all expenses incurred by Landlord as a result thereof,
including reasonable attorneys' fees, court costs and expenses.
24. Landlord's Right of Entry. Tenant agrees to permit Landlord and the
-------------------------
authorized representatives of Landlord and of the Mortgagee to enter upon the
Demised Premises at all reasonable times for the purposes of inspecting them and
making any necessary repairs thereto and performing any work therein that may be
necessary by
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<PAGE>
reason of Tenant's failure to make such repairs or perform any such
work required of Tenant under this Lease; provided that, except in the case of
an emergency, Landlord shall give the Tenant reasonable prior written notice
not less than two (2) days in advance of Landlord's intended entry upon the
Demised Premises. Nothing herein shall imply any duty upon the part of Landlord
to do any such work, and the performance thereof by Landlord shall not
constitute a waiver of Tenant's default in failing to perform it. Landlord
shall not be liable for inconvenience, annoyance, disturbance or other damage to
Tenant by reason of making such repairs or the performance of such work in the
Demised Premises or on account of bringing materials, supplies and equipment
into or through the Demised Premises during the course thereof, and the
obligations of Tenant under this Lease shall not thereby be affected; provided,
--------
however, that Landlord shall use reasonable efforts not to annoy, disturb or
- -------
otherwise interfere with Tenant's operations in the Demised Premises in making
such repairs or performing such work. Landlord also shall have the right to
enter the Demised Premises at all reasonable times to exhibit the Demised
Premises to any prospective purchaser, mortgagee or tenant.
25. Mortgagee's Rights.
------------------
(a) For purposes of this Lease:
(i) "Mortgagee" as used herein means the current holder of a
Mortgage;
(ii) "Mortgage" as used herein means any or all mortgages, deeds to
secure debt, deeds of trust or other instruments in the nature thereof which may
now or hereafter affect or encumber Landlord's title to the Demised Premises,
and any amendments, modifications, extensions or renewals thereof.
(b) This Lease and all rights of Tenant hereunder are and shall be
subject and subordinate to the lien and security title of any Mortgage. Tenant
recognizes and acknowledges the right of Mortgagee to foreclose or exercise the
power of sale against the Demised Premises under any Mortgage.
(c) Tenant shall, in confirmation of the subordination set forth in
Section 25(b) and notwithstanding the fact that such subordination is self-
operative, and no further instrument or subordination shall be necessary, upon
demand, at any time or times, execute, acknowledge, and deliver to Landlord or
to Mortgagee any and all instruments requested by either of them to evidence
such subordination.
(d) If requested by Mortgagee, Tenant shall, upon demand, at any time
or times, execute, acknowledge, and deliver to Mortgagee, any and all
instruments that may be necessary to make this Lease superior to the lien of any
Mortgage.
(e) If Mortgagee (or Mortgagee's nominee, or other purchaser at
foreclosure) shall hereafter succeed to the rights of Landlord under this Lease,
whether through possession or foreclosure action or delivery of a new lease,
Tenant shall, if requested by such successor, attorn to and recognize such
successor as Tenant's landlord under this Lease without change in the terms and
provisions of this Lease, provided that such successor shall not be bound by (i)
any payment of Base Rent or Additional Rent for more than one month in advance,
except prepayments in the nature of security for the performance by Tenant of
its obligations under this Lease, and then only if such prepayments have been
deposited with and are under the control of such successor, or (ii) any
provision of any amendment to the Lease to which Mortgagee has not consented,
and shall promptly execute and deliver any instrument that may be necessary to
evidence such attornment, (iii) the defaults of any prior landlord under this
Lease, or (iv) any offset rights arising out of the defaults of any prior
landlord under this Lease. Upon such attornment, this Lease shall continue in
full force and effect as a direct lease between each successor landlord and
Tenant, subject to all of the terms, covenants and conditions of this Lease.
(f) In the event there is a Mortgage at any time during the Term,
Landlord shall use reasonable efforts to cause the Mortgagee to enter into a
subordination,
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<PAGE>
nondisturbance and attornment agreement with Tenant reasonably satisfactory to
Tenant and consistent with this Section 25.
26. Estoppel Certificate. Tenant agrees, at any time, and from time to
--------------------
time, within fifteen (15) days after Landlord's written request, to execute,
acknowledge and deliver to Landlord, a statement in writing in recordable form
to Landlord and/or its designee certifying that: (i) this Lease is unmodified
and in full force and effect (or, if there have been modifications, that the
same is in full force and effect, as modified) and (ii) the dates to which Base
Rent, Additional Rent and other charges have been paid, (iii) whether or not, to
the best knowledge of the signer of such certificates, there exists any failure
by Landlord to perform any term, covenant or condition contained in this Lease,
and, if so, specifying each such failure of which the signer may have knowledge,
(iv) (if such be the case) the Tenant has unconditionally accepted the Demised
Premises and is conducting its business therein, (v) and as to such additional
matters as may be reasonably requested by Landlord, it being intended that any
such statement delivered pursuant hereto may be relied upon by Landlord and by
any purchaser of title to the Demised Premises or by any Mortgagee or any
assignee thereof or any party to any sale-leaseback of the Demised Premises, or
the landlord under a ground lease affecting the Demised Premises.
27. Landlord Liability. No owner of the Demised Premises, whether or not
------------------
named herein, shall have liability hereunder after it ceases to hold title to
the Demised Premises, except for obligations which may have theretofore accrued.
Neither Landlord nor any officer, director, shareholder, partner or principal of
Landlord, whether disclosed or undisclosed, shall be under any personal
liability with respect to any of the provisions of this Lease, and if Landlord
is in breach or default with respect to Landlord's obligations or otherwise
under this Lease, Tenant shall look solely to the equity of Landlord in the
Demised Premises for the satisfaction of Tenant's remedies. It is expressly
understood and agreed that Landlord's liability under the terms, covenants,
conditions, warranties and obligations of this Lease shall in no event exceed
the loss of Landlord's equity interest in the Demised Premises.
28. Notices and Payments. Any notice or payment required or permitted to
--------------------
be given or served by either party to this Lease shall be deemed given when made
in writing and either (i) personally delivered, (ii) deposited with the United
States Postal Service, postage prepaid, to be mailed by registered mail, return
receipt requested, or (iii) delivered by overnight delivery service providing
proof of delivery, properly addressed to the address set forth in Section 1(k)
(as the same may be changed by giving written notice of the aforesaid in
accordance with this Section 28). If any notice mailed is properly addressed
with appropriate postage but returned for any reason, such notice shall be
deemed to be effective notice and to be given on the date of mailing.
29. Brokers. Neither Landlord nor Tenant has engaged any brokers who would
-------
be entitled to any commission or fee based on the execution of this Lease, other
than as set forth in Section 1(l) (the "Broker") who shall be paid pursuant to
separate agreement. Further, neither Landlord nor Tenant have had any
conversations or negotiations with any broker except the Broker concerning the
leasing of the Demised Premises to Tenant. Landlord and Tenant hereby indemnify
each other against and from any claims for any brokerage commissions (except
those payable to the Broker, all of which are payable pursuant to a separate
agreement) and all costs, expenses and liabilities in connection therewith,
including, without limitation, reasonable attorneys' fees and expenses, for any
breach of the foregoing. The foregoing indemnification shall survive the
expiration or termination of the Lease for any reason.
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<PAGE>
30. Assignment and Subleasing.
-------------------------
(a) Tenant may not assign, mortgage, pledge, encumber or otherwise
transfer this Lease, or any interest hereunder, or sublet the Demised Premises,
in whole or in part, without on each occasion first obtaining the prior express
written consent of Landlord, which consent shall not be unreasonably withheld.
For purposes of this Section 30, Landlord shall be deemed to have reasonably
withheld consent if Landlord determines (i) that the prospective assignee or
subtenant is not of a financial strength similar to Tenant as of the Lease Date,
(ii) that the prospective assignee or subtenant has a poor business reputation
(iii) that the proposed use of the Demised Premises by such prospective assignee
or subtenant (including, without limitation, a use involving the use or handling
of Hazardous Substances) will negatively affect the value or marketability of
the Building or the Project or (iv) that the prospective assignee or subtenant
is a current tenant in the Project or is a bona-fide third-party prospective
tenant. Permitted subtenants or assignees shall become liable directly to
Landlord for all obligations of Tenant hereunder, without, however, relieving
Tenant of any of its liability hereunder. No assignment, mortgaging, subletting
or use or occupancy by others shall in any way be construed to relieve Tenant
from any of its liability hereunder to pay Base Rent, Additional Rent and all
other sums payable by Tenant hereunder or to perform its obligations hereunder
(which shall in every instance continue as the liability and obligation of a
principal and not a surety) or from thereafter obtaining the express consent of
Landlord to any other or further assignment, mortgaging or subletting of this
Lease.
(b) Notwithstanding Section 30(a), provided that there is not an Event
of Default under this Lease which remains uncured, Tenant shall have the right,
upon ten (10) days' prior written notice to Landlord, (i) to sublet all or part
of the Demised Premises to any related corporation or entity which controls
Tenant, is controlled by Tenant or is under common control with Tenant; or (ii)
to assign this Lease to a successor corporation into which or with which Tenant
is merged or consolidated or which acquired substantially all of Tenant's assets
and property, provided that (x) such successor corporation assumes substantially
all of the obligations and liabilities of Tenant and shall have assets,
capitalization, net worth and creditworthiness at least equal to the assets,
capitalization, net worth and creditworthiness of Tenant as of the date of this
Lease as determined by generally accepted accounting principles and (y) Tenant
shall provide in its notice to Landlord the information required in Section
30(c) below. For the purpose hereof "control" shall mean ownership of not less
than fifty percent (50%) of all the voting stock or legal and equitable interest
in such corporation or entity.
(c) If Tenant should desire to assign this Lease or sublet the Demised
Premises (or any part thereof), Tenant shall give Landlord written notice no
later than forty-five (45) days in advance of the proposed effective date of any
proposed assignment or sublease, specifying (i) the name and business of the
proposed assignee or sublessee, (ii) the amount and location of the space within
the Demised Premises proposed to be so subleased, (iii) the proposed effective
date and duration of the assignment or subletting, and (iv) the proposed rent or
consideration to be paid to Tenant by such assignee or sublessee. Tenant shall
promptly supply Landlord with financial statements and other information as
Landlord may reasonably request to evaluate the proposed assignment or sublease.
(d) Landlord shall have a period of thirty (30) days following receipt
of such notice and other information requested by Landlord within which to
notify Tenant in writing that Landlord elects: (i) to terminate this Lease as
to the space so affected as of the proposed effective date set forth in Tenant's
notice, in which event Tenant shall be relieved of all further obligations
hereunder as to such space, except for obligations under Sections 12 and 29 and
all other provisions of this Lease which expressly survive the termination
hereof; or (ii) to permit Tenant to assign or sublet such space; provided,
however, that, if the rent rate agreed upon between Tenant and its proposed
subtenant is greater than the rent rate that Tenant must pay Landlord hereunder
for that portion of the Demised Premises, or if any consideration shall be
promised to or received by Tenant in connection with such proposed assignment or
sublease (in addition to rent), then one half (1/2) of such excess rent and
other consideration shall be considered Additional Rent
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<PAGE>
owed by Tenant to Landlord (less brokerage commissions, attorneys' fees and
other disbursements reasonably incurred by Tenant for such assignment and
subletting if acceptable evidence of such disbursements is delivered to
Landlord), and shall be paid by Tenant to Landlord, in the case of excess rent,
in the same manner that Tenant pays Base Rent and, in the case of any other
consideration, within ten (10) business days after receipt thereof by Tenant; or
(iii) to refuse, in Landlord's sole and absolute discretion, to consent to
Tenant's assignment or subleasing of such space and to continue this Lease in
full force and effect as to the entire Demised Premises. If Landlord should fail
to notify Tenant in writing of such election within the aforesaid thirty (30)
day period, Landlord shall be deemed to have elected option (iii) above. Tenant
agrees to reimburse Landlord for reasonable legal fees and any other reasonable
costs incurred by Landlord in connection with any requested assignment or
subletting and such payments shall not be deducted from the Additional Rent owed
to Landlord pursuant to subsection (ii) above. Tenant shall deliver to Landlord
copies of all documents executed in connection with any permitted assignment or
subletting, which documents shall be in form and substance reasonably
satisfactory to Landlord and which shall require such assignee to assume
performance of all terms of this Lease on Tenant's part to be performed. No
acceptance by Landlord of any rent or any other sum of money from any assignee,
sublessee or other category of transferee shall be deemed to constitute
Landlord's consent to any assignment, sublease, or transfer.
(e) Any attempted assignment or sublease by Tenant in violation of the
terms and provisions of this Section 30 shall be void and such act shall
constitute a material breach of this Lease. In no event shall any assignment,
subletting or transfer, whether or not with Landlord's consent, relieve Tenant
of its primary liability under this Lease for the entire Term, and Tenant shall
in no way be released from the full and complete performance of all the terms
hereof. Any assignment or sublease allowed hereunder or consented to by
Landlord shall not relieve Tenant (or its assignee) from obtaining Landlord's
consent to any subsequent assignment or sublease if required by this Section 30.
If Landlord takes possession of the Demised Premises before the expiration of
the Term, Landlord shall have the right, at its option to take over any sublease
of the Demised Premises or any portion thereof and such subtenant shall attorn
to Landlord, as its landlord, under all the terms and obligations of such
sublease occurring from and after such date, but excluding previous acts,
omissions, negligence or defaults of Tenant and any repair or obligation in
excess of available net insurance proceeds or condemnation award.
(f) Landlord shall have the right to sell, transfer, assign, pledge,
and convey all or any part of the Demised Premises and any and all of Landlord's
rights under this Lease. In the event Landlord assigns or otherwise conveys its
rights under this Lease, Landlord shall be entirely freed and released from any
obligations accruing thereafter under this Lease, and Tenant agrees to look
solely to Landlord's successor in interest for performance of such obligations.
31. Termination or Expiration.
-------------------------
(a) No termination of this Lease prior to the normal ending thereof,
by lapse of time or otherwise, shall affect Landlord's right to collect rent for
the period prior to termination thereof.
(b) At the expiration or earlier termination of the Term, Tenant shall
surrender the Demised Premises and all improvements, alterations and additions
thereto, and keys therefor to Landlord, clean and neat, and in the same
condition as at the commencement of the Term, ordinary wear and tear only
excepted.
(c) If Tenant remains in possession of the Demised Premises after
expiration of the Term, with or without Landlord's acquiescence and without any
express agreement of the parties, Tenant shall be a tenant-at-sufferance at the
greater of (i) one hundred fifty percent (150%) of the Base Rent in effect at
the end of the Term or (ii) one hundred fifty percent (150%) of the then current
fair market rental value of the Demised
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Premises. Tenant shall also continue to pay all other Additional Rent due
hereunder, and there shall be no renewal of this Lease by operation of law.
32. Late Payments. In the event any installment of rent, inclusive of Base
-------------
Rent, or Additional Rent or other sums due hereunder, if any, is not paid (i)
within five (5) days after Tenant's receipt of written notice of such failure to
pay on the first occasion during any twelve (12) month period, or (ii) as and
when due with respect to any subsequent late payments in any twelve (12) month
period, Tenant shall pay an administrative fee equal to five percent (5%) of
such past due amount, plus interest on the amount past due at a rate equal to
the lesser of (X) fifteen percent (15%) per annum or (Y) the maximum interest
rate allowed under applicable law (the "Interest Rate") to defray the additional
expenses incurred by Landlord in processing such payment.
33. Rules and Regulations. Tenant agrees to abide by the Rules and
---------------------
Regulations set forth on Exhibit "C" attached hereto, as well as other rules and
-----------
regulations reasonably promulgated by the Landlord from time to time and the
declaration of protective covenants for the Project, attached hereto as Exhibit
-------
"D", as it may be amended from to time (herein, the "Protective Covenants"),
- ---
which Protective Covenants shall run with the Land and be binding on Tenant, its
successors and assigns. Notwithstanding anything to the contrary contained in
Exhibit "C", Tenant shall be permitted to park operational vehicles, such as
- -----------
trucks, trailers and other related equipment, in the seventy-six (76) truck
parking spaces shown on Exhibit "A-1". The one hundred sixty-two (162)
-------------
automobile parking spaces shown on Exhibit "A-1" shall be subject to Rule 11 set
-------------
forth on Exhibit "C".
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34. Dispute Resolution Procedure.
----------------------------
(a) In the event that a dispute arises between Landlord and Tenant
under the Lease, and the Lease specifically provides that the dispute resolution
procedure outlined in this Section 34 (herein referred to as the "Dispute
Resolution Procedure") shall be utilized, the parties shall proceed as follows:
(i) The party electing to proceed under the procedures outlined
herein (the "Electing Party") shall give written notice of such election to the
other party (the "Other Party"), and shall designate in writing the Electing
Party's selection of an individual with the qualifications outlined in the
section of the Lease giving rise to this remedy (the "Official") who shall act
on the Electing Party's behalf in determining the disputed fact.
(ii) Within twenty (20) days after the Other Party's receipt of
the Electing Party's selection of an Official, the Other Party, by written
notice to the Electing Party, shall designate an Official who shall act on the
Other Party's behalf in determining the disputed fact.
(iii) Within twenty (20) days of the selection of the Other
Party's Official, the two (2) Officials shall render a joint written
determination of the disputed fact. If the two (2) Officials are unable to agree
upon a joint written determination within such twenty (20) day period, each
Official shall render his or her own written determination and the two Officials
shall select a third Official within such twenty (20) day period. In the event
the two Officials are unable to select a third Official within such twenty (20)
day period, then either party may apply to a court of original jurisdiction in
Dallas County, Texas for appointment by such court of such third Official.
(iv) Within twenty (20) days after the appointment of the third
Official, the third Official shall select one of the determinations of the two
(2) Officials originally selected, without modification or qualification.
-------
(v) If either Landlord or Tenant fails or refuses to select an
Official, the Official selected shall alone determine the disputed fact.
Landlord and Tenant agree that they shall be bound by the determination of
disputed fact pursuant to this subsection. Landlord shall bear the
-23-
<PAGE>
fee and expenses of its Official, Tenant shall bear the fee and expenses of its
Official, and Landlord and Tenant shall share equally the fee and expense of the
third Official, if any.
35. Option to Extend Term.
---------------------
(a) Landlord hereby grants to Tenant three (3) consecutive options to
extend the Term for a period of five (5) years each time, each option to be
exercised by Tenant giving written notice of its exercise to Landlord in the
manner provided in this Lease at least one hundred eighty (180) days prior to
(but not more than two hundred ten (210) days prior to) the expiration of the
Term, as it may have been previously extended. No extension option may be
exercised by Tenant if an Event of Default has occurred and is then continuing
or any facts or circumstances then exist which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default either at the
time of exercise of the option or at the time the applicable Term would
otherwise have expired if the applicable option had not been exercised.
(b) If Tenant exercises its options to extend the Term, Landlord
shall, within thirty (30) days after the receipt of Tenant's notice of exercise,
notify Tenant in writing of Landlord's reasonable determination of the Base Rent
for the Demised Premises, which amount shall not be less than Base Rent for last
year of the prior Term for the applicable five (5) year option period, taking
into account all relevant factors for space of this type in the Valwood
Improvement Authority District, Dallas County, Texas area. Tenant shall have
thirty (30) days from its receipt of Landlord's notice to notify Landlord in
writing that Tenant does not agree with Landlord's determination of the Base
Rent and therefore that Tenant elects to retract its option to extend the Term,
in which case the Term, as it may have been previously extended, shall expire on
its scheduled expiration date and Tenant's option to extend the Term shall be
void and of no further force and effect. If Tenant does not notify Landlord of
such retraction within thirty (30) days of its receipt of Landlord's notice,
Base Rent for the Demised Premises for the applicable extended term shall be the
Base Rent set forth in Landlord's notice to Tenant.
(c) Except for the Base Rent, which shall be determined as set forth
in subparagraph (b) above, leasing of the Demised Premises by Tenant for the
applicable extended term shall be subject to all of the same terms and
conditions set forth in this Lease; provided, however, that any improvement
allowances, rent abatements or other concessions applicable to the Demised
Premises during the initial Term shall not be applicable during any such
extended term.
36. Miscellaneous.
-------------
(a) The parties hereto hereby covenant and agree that any present or
future law to the contrary notwithstanding, this Lease shall not terminate,
except as herein specifically provided, and Landlord shall receive the Base Rent
and Additional Rent and all other sums payable by Tenant hereinabove provided as
net income from the Demised Premises, without any abatement, reduction, set-off,
counterclaim, defense or deduction and not diminished by (i) any imposition of
any public authority of any nature whatsoever during the Term, notwithstanding
any changes in the method of taxation or raising, levying or assessing any
imposition, or any changes in the name of any imposition, or (ii) any expenses
or charges required to be paid by Tenant to maintain, restore or replace the
Demised Premises or to protect Landlord's ownership of the Demised Premises,
other than payments under any Mortgage now existing or hereafter created by
Landlord. The obligations of Tenant hereunder shall not be affected by reason
of any damage to or destruction of the Demised Premises except as expressly
otherwise provided to the contrary in this Lease. Tenant shall remain obligated
under this Lease in accordance with its terms and shall not take any action to
terminate, rescind or void this Lease, solely as a result of any bankruptcy,
insolvency, reorganization, liquidation, dissolution or other proceeding
affecting Landlord or any assignee of Landlord.
(b) If any clause or provision of this Lease is determined to be
illegal, invalid or unenforceable under present or future laws effective during
the Term, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall
-24-
<PAGE>
not be affected thereby, and that in lieu of such illegal, invalid or
unenforceable clause or provision there shall be substituted a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and be legal, valid and enforceable. If such
invalidity is essential to the rights of either or both parties, then the
affected party shall have the right to terminate this Lease on written notice to
the other.
(c) All rights, powers, and privileges conferred hereunder upon the
parties hereto shall be cumulative, but not restrictive to those given by law.
(d) Time is of the essence of this agreement.
(e) No failure of Landlord or Tenant to exercise any power given
Landlord or Tenant hereunder or to insist upon strict compliance by Landlord or
Tenant with its obligations hereunder, and no custom or practice of the parties
at variance with the terms hereof shall constitute a waiver of Landlord's or
Tenant's rights to demand exact compliance with the terms hereof.
(f) This Lease 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 and effect. The
masculine (or neuter) pronoun, singular number shall include the masculine,
feminine and neuter gender and the singular and plural number.
(g) This contract shall create the relationship of Landlord and Tenant
between Landlord and Tenant; no estate shall pass out of Landlord; Tenant has a
usufruct, not subject to levy and sale, and not assignable by Tenant except as
expressly set forth herein.
(h) Landlord and Tenant agree to execute, upon request of the other, a
short form memorandum of this Lease in recordable form and the requesting party
shall pay the costs and charges for the recording of such short form memorandum
of lease. Under no circumstances shall Tenant have the right to record this
Lease (other than a short form memorandum of Lease, as approved by Landlord),
and should Tenant do so, Tenant shall be in default hereunder.
(i) The captions of this Lease are for convenience only and are not a
part of this Lease, and do not in any way define, limit, describe or amplify the
terms or provisions of this Lease or the scope or intent thereof.
(j) This Lease 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.
(k) This Lease shall be interpreted under the laws of the State in
which the Demised Premises is located.
(l) The parties acknowledge that this Lease is the result of
negotiations between the parties, and in construing any ambiguity hereunder no
presumption shall be made in favor of either party. No inference shall be made
from any item which has been stricken from this Lease other than the deletion of
such item.
-25-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
under seals, the day and year first above written.
LANDLORD:
INDUSTRIAL DEVELOPMENTS INTERNATIONAL, INC.
By: /s/ Timothy J. Gunter
-----------------------------------
Name: Timothy J. Gunter
-----------------------------
Title: Secretary
---------------------------
Attest: /s/ Linda M. Ward
-------------------------------
Name: Linda M. Ward
---------------------------
Title: Assistant Secretary
--------------------------
(CORPORATE SEAL)
TENANT:
TCI CENTRAL, INC.
By: /s/ Jerome J. Kashinski
-----------------------------------
Name: Jerome J. Kashinski
-----------------------------
Title: Authorized Agent
----------------------------
-26-
<PAGE>
FIRST AMENDMENT TO INDUSTRIAL LEASE AGREEMENT
---------------------------------------------
THIS AGREEMENT dated as of July 16, 1996 is by and between Industrial
Developments International, Inc., a Delaware corporation ("Landlord") and TCI
Central, Inc., a Delaware corporation ("Tenant").
Witnesseth:
----------
WHEREAS, Landlord and Tenant entered that certain Build to Suit Industrial
Lease Agreement dated November 1, 1995 (the "Lease"), for the lease of a 40,000
square foot building to be built by Landlord on a tract of land of approximately
4.8640 acres within Valwood Park, Farmers Branch, Texas;
WHEREAS, pursuant to Section 18 of the Lease, Tenant requested certain
Change Orders resulting in over $50,000 in additional improvements to the
Demises Premises;
WHEREAS, a delay in completion of the Demised Premises resulted from the
Change Orders and Tenant delay in approving the Plans and Specifications;
WHEREAS, Tenant wishes to amortize $50,000 of Tenant's Change Order Cost
(the maximum amount allowed to be amortized) over the Primary Term as Base Rent
as allowed under Section 18 of the Lease, and the Base Rent shall be increased
to reflect such amortized Change Order Cost repayment; and
WHEREAS, Landlord and Tenant desire to otherwise amend the Lease pursuant
to the terms hereof.
IN CONSIDERATION of Ten and No/100 Dollars ($10.00), the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. The "Annual Base Rent" as defined in Section 1(c) of the Lease is
hereby deleted and the following is inserted in its place:
(c) Annual Base Rent:
Lease Years 1-5 $430,001.00 per year
Lease Years 6-10 $454,001.00 per year
Lease Years 11-15 $482,001.00 per year
2. The "Monthly Base Rent Installments" as defined in Section 1(d) of the
Lease is hereby deleted and the following is inserted in its place:
(d) Monthly Base Rent Installments:
Lease Years 1-5 $35,833.42 per month
Lease Years 6-10 $37,833.42 per month
Lease Years 11-15 $40,166.75 per month
3. The Lease Commencement Date contained in Section 1(e) of the Lease is
hereby changed to "July 19, 1996".
4. The Base Rent Commencement Date contained in Section 1(f) of the Lease
is hereby changed to "July 19, 1996".
<PAGE>
5. In Section 2 of the Lease, the phrase "of which approximately 10,000
square feet shall be office space" shall be deleted with the following inserted
in its place:
"of which approximately 20,000 square feet shall be office space".
6. Landlord and Tenant acknowledge that as of the date hereof, the
cumulative Change Order Cost, the amount owed by Tenant to Landlord for Change
Orders totals $70,651.00. Pursuant to Section 18 of the Lease, Tenant shall pay
Landlord $50,000.00 of the Change Order Cost to be amortized over the Primary
Term in equal payments on a monthly basis as Base Rent. The increase in the
Base Rent as amended in Sections 1 and 2 above accounts for such amortized
Change Order Cost. Simultaneous with the execution of this Agreement, Tenant
shall pay Landlord $20,651.00 as the amount owed for the Change Order Cost
exceeding the $50,000.000 amount to be amortized. Tenant shall have no further
right to amortize any additional Change Order Cost under the Lease. In the
event there are additional Change Orders after the date hereof, Tenant shall pay
Landlord the entire amount of the Change Order Cost associated with such Change
Orders within ten (10) days following receipt of Landlord's Notice.
7. Landlord and Tenant agree that the form attached hereto as Exhibit E
shall be attached to and become a part of the Lease, and that the following is
added at the end of and becomes a part of Section 26 of the Lease:
"Landlord and Tenant agree that the form estoppel certificate
contained on Exhibit E, attached hereto and made a part hereof, is
acceptable to satisfy the requirements of this Section 26."
8. There has been no change in, amendment to, recession of, or
termination of Action By Written Consent dated as of January 27, 1995 signed by
Scott E. Hiigel, Executive Vice President and Chief Operating Officer of TCI
Central, Inc. in which Jerome J. Kashinski is authorized to execute this
Agreement on behalf of Tenant.
9. Except as amended hereby, the Lease shall be and remain in full force
and effect and unchanged. As amended hereby, the Lease is hereby ratified and
confirmed by all parties hereto. To the extent the terms hereof are
inconsistent with the terms of the Lease, the terms hereof shall control.
Capitalized words not defined herein shall have the meaning assigned by the
Lease.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and sealed as of the date first written above.
LANDLORD:
INDUSTRIAL DEVELOPMENTS
INTERNATIONAL, INC., a Delaware
corporation
By: /s/ Timothy J. Gunter
----------------------------------
Name: Timothy J. Gunter
-----------------------------
Title: Secretary
----------------------------
Attest: /s/ Lisa M. Ward
------------------------------
Name: Lisa M. Ward
-------------------------
Title: Assistant Secretary
------------------------
[CORPORATE SEAL]
[Signatures Continued On Next Page]
-2-
<PAGE>
[Continuation of Signature Page to
First Amendment To Industrial Lease Agreement
between Industrial Developments International, Inc. and TCI Central, Inc.]
TENANT:
TCI CENTRAL, INC., a Delaware
corporation
By: /s/ Jerome J. Kashinski
--------------------------------
Jerome J. Kashinski
Authorized Agent
[CORPORATE SEAL]
-3-
<PAGE>
SECOND AMENDMENT TO
--------------------
BUILD TO SUIT INDUSTRIAL LEASE AGREEMENT
----------------------------------------
THIS SECOND AMENDMENT TO INDUSTRIAL LEASE AGREEMENT (this "Agreement")
dated as of August 29, 1996 is by and between Industrial Developments
International, Inc., a Delaware corporation ("Landlord") and TCI Central, Inc.,
a Delaware corporation ("Tenant").
Witnesseth:
----------
WHEREAS, Landlord and Tenant entered that Build to Suit Industrial Lease
Agreement dated November 1, 1995 as amended by that First Amendment to
Industrial Lease Agreement dated as of July 16, 1996 (as amended, the "Lease")
for the lease of a 40,000 square foot building to be built by Landlord on a
tract of land of approximately 4.8640 acres within Valwood Park, Farmers Branch,
Texas; and
WHEREAS, Landlord and Tenant desire to further amend the Lease to clarify
the legal description of the property leased thereunder.
IN CONSIDERATION of Ten and No/100 Dollars ($10.00), the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. The Exhibit "A" attached to the Lease is hereby deleted in its
-----------
entirety and the Exhibit "A" attached hereto is inserted in its place.
-----------
2. Except as amended hereby, the Lease shall be and remain in full force
and effect and unchanged. As amended hereby, the Lease is hereby ratified and
confirmed by all parties hereto. To the extent the terms hereof are
inconsistent with the terms of the Lease, the terms hereof shall control.
Capitalized words not defined herein shall have the meaning assigned by the
Lease.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and sealed as of the date first written above.
LANDLORD:
INDUSTRIAL DEVELOPMENTS
INTERNATIONAL, INC., a Delaware
corporation
By: /s/ Timothy J. Gunter
----------------------------------
Name: Timothy J. Gunter
-----------------------------
Title: Secretary
----------------------------
Attest: /s/ Lisa M. Ward
------------------------------
Name: Lisa M. Ward
-------------------------
Title: Assistant Secretary
------------------------
[CORPORATE SEAL]
TENANT:
TCI CENTRAL, INC., a Delaware corporation
By: /s/ Richard E. Franklin
----------------------------------
Richard E. Franklin,
President
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10(HH)
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT, made and entered into this 10th day of October, 1996, by
----
and between TCI Valwood Limited Partnership I, (hereinafter referred to as
"Assignor"), and THE BANK OF NEW YORK, as agent for FUND VIII AND FUND IX
ASSOCIATES, a Georgia joint venture (hereinafter referred to as "Assignee").
W I T N E S S E T H:
For and in consideration of the sum of Ten and No/100 Dollars ($10.00), the
premises, the conveyance by Assignor to Assignee of all the improved real
property more particularly described on Exhibit "A", attached hereto and
incorporated herein by this reference (hereinafter referred to as the
"Property"), and the mutual covenants herein contained, the receipt and
sufficiency of the foregoing consideration being hereby acknowledged by the
parties hereto, Assignor hereby transfers, grants, conveys and assigns to
Assignee all of Assignor's right, title and interest in and to the below
described lease ("Lease"):
Industrial Lease Agreement between Industrial Developments International,
Inc., as Landlord, and TCI Central, Inc., as Tenant, dated as of November 1,
1995, as amended by instruments dated July 16, 1996, and August 29, 1996, and,
as amended, assigned to Assignor.
Assignor does hereby warrant and represent that the right, title and
interest of Assignor as landlord under the Lease is unencumbered.
Assignee, by its acceptance hereof, does hereby assume and agree to perform
any and all obligations and duties of Assignor as landlord under the Lease first
arising after the date hereof. Assignor hereby indemnifies and agrees to hold
Assignee harmless from and against any claims, defaults or other liabilities
(including, without limitation, court costs and attorneys' fees) under the Lease
first arising or accruing on or before, or any events first occurring at any
time on or before, the date hereof. Assignee hereby indemnifies and agrees to
hold Assignor harmless from and against any claims, defaults or other
liabilities (including, without limitation, court costs and attorneys' fees)
under the Lease first arising or accruing after, or any events first occurring
after, the date hereof.
This Assignment shall inure to the benefit of, and be binding upon, the
respective successors and assigns of the parties hereto.
This Assignment shall be governed by, and construed under the laws of the
State of Texas.
The Bank of New York is acting as Agent for FUND VIII AND FUND IX
ASSOCIATES ("Wells") by virtue of that certain Custodial Agency Agreement
between Wells Real Estate Fund VIII, L.P. ("Fund VIII") and NationsBank of
Georgia, N.A. ("NationsBank") dated November 15, 1994 as amended by that certain
First Amendment to Custodial Agency Agreement dated as of March 1, 1996 between
Fund VIII and Agent (as successor in interest to NationsBank) and by virtue of
that certain Amended and Restated Custodial Agency Agreement between Wells Real
Estate Fund, IX, L.P. ("Fund IX") and NationsBank dated as of November 30, 1995,
as amended by that certain First Amendment to Custodial Agency Agreement dated
as of March 1, 1996 between Fund IX and Agent (as successor in interest to
NationsBank). Neither Agent nor the shareholders, officers, directors, employees
or agents of Agent shall be personally or individually liable for any
obligations or undertakings of Assignee under this Agreement and all parties
including Assignor and its successors and assigns shall look solely to Wells,
its successor and assigns for satisfaction of any obligations or undertakings of
Assignee hereunder. Agent joins in this
<PAGE>
Agreement solely upon the direction of Fund VIII and Fund IX, and Agent has no
knowledge whether any statements set forth herein are accurate or complete.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and their seals to be affixed hereto the day, month and year first
above written.
"SELLER":
TCI Valwood Limited Partnership I,
a Texas limited partnership
By: TCI-Valwood, Inc., its general partner
By: /s/ Don Ferris
---------------------------------------
Name: Don Ferris
-------------------------------------
Title: President
------------------------------------
"PURCHASER":
THE BANK OF NEW YORK, as agent for FUND VIII and
FUND IX ASSOCIATES, a Georgia joint venture
By: /s/ Peggy T. McWhorter
---------------------------------------
Name: Peggy T. McWhorter
-------------------------------------
Title: Vice President
------------------------------------
[BANK SEAL APPEARS HERE]
<PAGE>
CONSENT AND REPRESENTATION
--------------------------
The undersigned WELLS REAL ESTATE FUND VIII, L.P., a Georgia limited
partnership, does hereby consent to the terms and provisions of the within and
foregoing instrument and does hereby authorize and direct The Bank of New York
to execute the same as Agent for the undersigned. The undersigned hereby
represents that the undersigned is a duly authorized and validly existing
limited partnership, organized under the laws of the State of Georgia, that the
undersigned is duly authorized to execute this instrument, that the person or
persons executing this instrument have full power and authority to do so and
that this instrument and the instrument to which it is attached are legal, valid
and binding and enforceable in accordance with their terms. The undersigned
agrees to furnish such documents or certificates as may be reasonably required
to confirm the foregoing representations.
This 9th day of OCTOBER, 1996.
WELLS REAL ESTATE FUND VIII, L.P.,
a Georgia limited partnership
By: Wells Partners, L.P., a Georgia
limited partnership, general
partner
By: Wells Capital, Inc., a
Georgia corporation
General Partner
By: /s/ Leo F. Wells
----------------------------------
Name: Leo F. Wells, III
----------------------------------
Title: Pres
----------------------------------
(Corporate Seal)
By: /s/ Leo F. Wells
--------------------------------------------
Leo F. Wells, III, general partner
<PAGE>
CONSENT AND REPRESENTATION
--------------------------
The undersigned WELLS REAL ESTATE FUND VIII, L.P., a Georgia limited
partnership, does hereby consent to the terms and provisions of the within and
foregoing instrument and does hereby authorize and direct The Bank of New York
to execute the same as Agent for the undersigned. The undersigned hereby
represents that the undersigned is a duly authorized and validly existing
limited partnership, organized under the laws of the State of Georgia, that the
undersigned is duly authorized to execute this instrument, that the person or
persons executing this instrument have full power and authority to do so and
that this instrument and the instrument to which it is attached are legal, valid
and binding and enforceable in accordance with their terms. The undersigned
agrees to furnish such documents or certificates as may be reasonably required
to confirm the foregoing representations.
This 9th day of OCTOBER, 1996.
WELLS REAL ESTATE FUND IX, L.P.,
a Georgia limited partnership
By: Wells Partners, L.P., a Georgia
limited partnership, general
partner
By: Wells Capital, Inc., a
Georgia corporation
General Partner
By: /s/ Leo F. Wells
----------------------------------
Name: Leo F. Wells, III
----------------------------------
Title: President
----------------------------------
(Corporate Seal)
By: /s/ Leo F. Wells
--------------------------------------------
Leo F. Wells, III, general partner
<PAGE>
EXHIBIT A
---------
DESCRIPTION
TRACT I:
BEING a tract of land situated in the S.A. & M.G. Railroad Company Survey,
Abstract No. 1418, being all of Lot 1, Block 1 of Lot 1 and Lot 2, Block 1 of
TCI Cablevision, an addition to the City of Farmers Branch, Dallas County,
Texas, as recorded in Volume 96010, Page 2760 of the Map Records of Dallas
County, Texas and being more particularly described as follows:
BEGINNING at a 3/8" iron pin found at the Northwest corner of said Lot 1, Block
1, said point being on the South right-of-way line of Valwood Parkway (100'
R.O.W.);
THENCE North 89 degrees 56 minutes 43 seconds East, along the South right-of-way
line of said Valwood Parkway, 253.32 feet to a 1/2" iron pin found for the Point
of Curvature of a circular curve to the right having a radius of 30.00 feet, a
central angle of 89 degrees 23 minutes 58 seconds, a chord length of 42.20 feet
and a chord bearing of South 45 degrees 22 minutes 17 seconds East;
THENCE along said curve to the right, 46.81 feet to a 1/2" iron pin found on the
West right-of-way line of Senlac Drive (R.O.W. varies);
THENCE South 00 degrees 41 minutes 08 seconds East, along the West right-of-way
line of said Senlac Drive, 129.79 feet to a 1/2" iron pin found for the Point of
Curvature of a circular curve to the left having a radius of 676.00 feet, a
central angle of 17 degrees 27 minutes 27 seconds, a chord length of 205.18 feet
and a chord bearing of South 09 degrees 24 minutes 52 seconds East;
THENCE along said curve to the left and West right-of-way line of Senlac Drive,
205.97 feet to a 1/2" iron pin found at the Point of Tangency;
THENCE South 18 degrees 08 minutes 35 seconds East, along the West right-of-way
line of said Senlac Drive, 238.72 feet to a 1/2" iron pin found for the Point of
Curvature of a circular curve to the right having a radius of 592.00 feet, a
central angle of 06 degrees 54 minutes 22 seconds, a chord length of 71.31 feet
and a chord bearing of South 14 degrees 41 minutes 24 seconds East;
THENCE along said curve to the right and West right-of-way line of Senlac Drive,
71.35 feet to a 1/2" iron pin set at the Southeast corner of said Lot 1, Block
1, same being the Northeast corner of Lot 2, Block 1 and of said Lot 1 and Lot
2, Block 1 of TCI Cablevision;
THENCE South 89 degrees 18 minutes 52 seconds West, departing the West line of
said Senlac Drive, along the South line of said Lot 1, Block 1 and the North
line of Lot 2, Block 1, 402.99 feet to a 1/2" iron pin set for the Southwest
corner of said Lot 1, Block 1, same being the Northwest corner of said Lot 2,
Block 1;
THENCE North 00 degrees 41 minutes 08 seconds West, along the West line of said
Lot 1, Block 1, 662.30 feet to the POINT OF BEGINNING and containing 211,876
square feet or 4.864 acres of land.
NOTE: COMPANY DOES NOT REPRESENT THAT THE ABOVE ACREAGE AND/OR SQUARE FOOTAGE
CALCULATIONS ARE CORRECT.
<PAGE>
EXHIBIT A
---------
DESCRIPTION
TRACT II
Being a 0.063 acre tract of land situated in the S.A. & M.G. Railroad Company
Survey, -Abstract No. 1418 and being a portion of Lot 2, Block 1 of TCI
Cablevision, an addition to the City of Farmers Branch, Dallas County, Texas as
recorded in Volume 96010, Page 2760 of the Map Records of Dallas County, Texas
and being more particularly described as follows:
BEGINNING at a 1/2" iron rod found at the westerlymost Southwest corner of said
Lot 2, Block 1 of TCI Cablevision;
THENCE North 00 degrees 41 minutes 08 seconds West, along the West line of said
Lot 2, Block 1, a distance of 128.59 feet to a 1/2" iron pin set at the corner
common to the Northwest corner of said Lot 2, Block 1 and the Southwest corner
of Lot 1, Block 1 of said TCI Cablevision;
THENCE North 89 degrees 18 minutes 52 seconds East, along the line common to the
North line of said Lot 2, Block 1 and the South line of said Lot 1, Block 1, a
distance of 20.00 feet;
THENCE South 00 degrees 41 minutes 08 seconds East, departing the line common to
the North line of said Lot 2, Block 1 and the South line of said Lot 1, a
distance of 95.00 feet;
THENCE South 19 degrees 35 minutes 02 seconds East, a distance of 35.50 feet to
a 1/2" iron pin found at an inner ell corner of said Lot 2, Block 1;
THENCE South 89 degrees 18 minutes 52 seconds West, a distance of 31.50 feet to
the POINT OF BEGINNING and containing 2.765 square feet or 0.063 acre of land.
NOTE: COMPANY DOES NOT REPRESENT THAT THE ABOVE ACREAGE AND/OR SQUARE FOOTAGE
CALCULATIONS ARE CORRECT.
<PAGE>
EXHIBIT 10(II)
FIRST AMENDMENT TO JOINT VENTURE AGREEMENT
OF
FUND VIII AND FUND IX ASSOCIATES
THIS FIRST AMENDMENT TO JOINT VENTURE AGREEMENT (the "First Amendment") is
made and entered into as of the 10th day of October, 1996, by and between WELLS
REAL ESTATE FUND VIII, L.P. ("Fund VIII"), a Georgia limited partnership having
Leo F. Wells, III and Wells Partners, L.P., a Georgia limited partnership, as
general partners, and WELLS REAL ESTATE FUND IX, L.P. ("Fund IX"), a Georgia
limited partnership also having Leo F. Wells, III and Wells Partners, L.P., a
Georgia limited partnership, as general partners (each of the parties hereto is
referred to herein as a "Venturer" and together as the "Venturers").
W I T N E S S E T H :
WHEREAS, the Venturers have previously formed a joint venture (the "Joint
Venture") pursuant to that certain Joint Venture Agreement of Fund VIII and Fund
IX Associates dated June 10, 1996 (the "Joint Venture Agreement"); and
WHEREAS, the Joint Venture was formed for the acquisition, ownership,
development, leasing, operation, sale and management of certain "Properties"
described on Exhibit "A" to the Joint Venture Agreement; and
WHEREAS, the Joint Venture has previously acquired a property located in
Dane County, Wisconsin, which is described on Exhibit "A" to the Joint Venture
Agreement; and
WHEREAS, the Venturers now desire to cause the Venture to acquire a second
property located in Dallas County, Texas, which is more particularly described
on Exhibit "A" to this First Amendment (the "New Property"), and the Venturers
desire to amend the Joint Venture Agreement to contemplate the acquisition of
the New Property by the Venture.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree, and the Joint Venture Agreement is hereby
amended, as follows:
I.
AMENDMENT TO SECTION 1.23
Section 1.23 of the Joint Venture Agreement is hereby amended and restated
in its entirety as follows:
"1.23 "Property" means any particular tract of land (and all rights
--------
and appurtenances incident thereto) acquired and owned by the Venture and
all improvements located, constructed or developed thereon, as more
particularly described on Exhibit "A" hereto, as may be amended from time
to time,
<PAGE>
including that certain real property located in Dane County, Wisconsin, as
more particularly described on Exhibit "A" to the Joint Venture Agreement,
and that certain real property located in Dallas County, Texas, as more
particularly described on Exhibit "A" to the First Amendment to Joint
Venture Agreement."
II.
AMENDMENT TO SECTION 3.1
Section 3.1 of the Joint Venture Agreement is hereby amended and restated
in its entirety as follows:
"3.1 Capital Contributions. The parties hereto hereby acknowledge, agree
---------------------
and confirm that, as of September 30, 1996, the amount of aggregate Capital
Contribution made to the Venture by each of the Venturers and the Distribution
Percentage Interest of each of the Venturers was as follows:
<TABLE>
<CAPTION>
Distribution
Capital Percentage
Venturer Contributions Interest
- -------- ------------- -------------
<S> <C> <C>
Fund VIII $1,487,444 49.6%
Fund IX $1,512,444 50.4%
</TABLE>
The Venturers shall make Capital Contributions to the Venture for the
acquisition of the New Property in such relative amounts as are mutually agreed
to by the Venturers, and shall from time to time make such additional Capital
Contributions to the Venture in such amounts as are agreed to by the Venturers."
III.
AMENDMENT TO EXHIBIT "A"
The Exhibit "A" of the Joint Venture Agreement is hereby amended by adding
Exhibit "A" hereto to, and making said Exhibit "A" hereto a part of, Exhibit "A"
to the Joint Venture Agreement.
IV.
RECERTIFICATION
Except as specifically amended hereby, the Joint Venture Agreement shall
continue and remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the undersigned Venturers have executed this First
Amendment to Joint Venture Agreement to Fund VIII and Fund IX Associates 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, III
in the presence of: ----------------------------
Leo F. Wells, III
President
/s/ Virginia Reinmiller
- -------------------------------
Unofficial Witness [Corporate Seal]
/s/ Martha Jean Cory
- -------------------------------
Notary Public
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ---------------------------------(SEAL)
Leo F. Wells, III
General Partner
/s/ Virginia Reinmiller
- -------------------------------
Unofficial Witness
/s/ Martha Jean Cory
- -------------------------------
Notary Public
<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, III
in the presence of: -----------------------------
Leo F. Wells, III
President
/s/ Virginia Reinmiller
- --------------------------------
Unofficial Witness [Corporate Seal]
/s/ Martha Jean Cory
- --------------------------------
Notary Public
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: -----------------------------------(SEAL)
Leo F. Wells, III
General Partner
/s/ Virginia Reinmiller
- --------------------------------
Unofficial Witness
/s/ Martha Jean Cory
- --------------------------------
Notary Public
<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
October 21, 1996
<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
October 21, 1996
<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
October 21, 1996
<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
October 21, 1996
<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
October 21, 1996
<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
October 21, 1996
