<PAGE>
As filed with the Securities and Exchange Commission on December 27, 1996
Registration No. 33-83852
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
POST-EFFECTIVE AMENDMENT NO. 13 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. 13, including Supplement No. 4 dated December 27,
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 and Supplement No. 4 dated December 27, 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. 4 describes
the acquisition by Wells Real Estate Fund IX, L.P. of real property in Knox
County, Tennessee.
<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,
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as of October 15, 1996, the Partnership was holding net offering proceeds of
$12,932,778 available for investment in properties.
5
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WELLS REAL ESTATE FUND IX, L.P.
SUPPLEMENT NO. 4 DATED DECEMBER 27, 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, Supplement No. 2 thereto dated June 28, 1996
and Supplement No. 3 thereto dated October 22, 1996 (collectively, the
"Prospectus"). Unless otherwise defined herein, capitalized terms used in this
Supplement shall have the same meanings as set forth in the Prospectus.
The purpose of this Supplement is to describe the following:
(i) The status of the offering of units of limited partnership
interest (the "Units") in Wells Real Estate Fund IX, L.P. (the "Partnership");
(ii) The acquisition by the Partnership of real property in Knox
County, Tennessee in the Knoxville, Tennessee metropolitan area; and
(iii) Revisions to the "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" section of the Prospectus; and
(iv) A recent legal proceeding involving Wells Real Estate Fund II,
L.P. ("Wells Fund II") and Wells Real Estate Fund III, L.P. ("Wells Fund III"),
and its general partners, Wells Capital, Inc. and Leo F. Wells, III.
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 December 18, 1996, the Partnership had raised
a total of $28,182,788 in offering proceeds (2,818,279 Units), comprised of
$22,857,206 raised from the sale of Class A Status Units (2,285,721 Units) and
$5,325,582 raised from the sale of Class B Status Units (532,558 Units).
THE KNOXVILLE PROPERTY
Purchase of the Knoxville Property. The Partnership entered into a Real
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Estate Option Agreement dated December 9, 1996 (the "Option Agreement") with The
Development Corporation of Knox County, a Tennessee nonprofit corporation (the
"Seller"), for the option to purchase a 5.622 acre tract of real property
located in Knox County, near Knoxville, Tennessee (the "Knoxville Property") for
a purchase price of $583,800. The Seller is not affiliated with the Partnership
or its General Partners. The Partnership exercised the option pursuant to the
Option Agreement and acquired the Knoxville Property on December 13, 1996. In
accordance with the terms of the Amended and Restated Custodial Agency Agreement
(the "Custodial Agency Agreement") dated November 30, 1995, between the
Partnership and The Bank of New York (the "Agent"), legal title to the Knoxville
Property is being held by the Agent as agent for the Partnership. The
Partnership entered into a Development Agreement (as hereinafter described) for
the construction of a three-story office building containing approximately
83,885 rentable square feet to be erected on the Knoxville Property (the
"Project"). The Partnership entered into a Lease Agreement (the "ABB Lease")
with ABB Flakt, Inc. ("ABB") pursuant to which ABB agreed to lease 55,000
rentable square feet of the Project upon its completion.
An independent appraisal of the Knoxville Property was prepared by The
David L. Beal Company, Real Estate Appraisers and Consultants, as of October 31,
1996, pursuant to which the market value of the land and the leased fee interest
in the Knoxville Property subject to the ABB Lease (described below) was
estimated to be $8,300,000, in cash or terms equivalent to cash. This value
estimate was based upon a number of assumptions, including that the Project is
finished in accordance with plans and specifications provided and that the
building is operating following completion at a stabilized level with ABB
occupying 55,000 rentable square feet and 94% of the remaining rentable area
<PAGE>
occupied by other tenants. The Partnership also obtained an environmental
report prior to closing evidencing that the environmental condition of the
Knoxville Property was satisfactory.
In connection with the closing of the acquisition of the Knoxville
Property, the Partnership incurred attorneys fees and expenses of approximately
$40,800, title insurance premiums of $15,040 and costs for recording taxes, deed
recording and settlement fees of $2,273. At the closing, the Seller paid real
estate commissions of $29,190 and $145 in other miscellaneous closing costs.
Location of the Knoxville Property. The Knoxville Property is located
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in an office park known as Centerpoint Business Park, on Pellissippi Parkway
just north of the intersection of Interstates 40 and 75, in Knox County,
Tennessee outside the city limits of Knoxville and approximately 10 miles west
of the Knoxville central business district. The Pellissippi Parkway and the
commercial area along the Interstate 40/75 corridor has evolved recently from a
residential suburb into one of the area's fastest growing commercial and retail
districts. The area has become competitive with the metropolitan Knoxville area
office market due to its growth in office space.
Knoxville, the county seat of Knox County, Tennessee, is the third
largest city in the State of Tennessee, after Memphis and Nashville, and the
largest city in eastern Tennessee. Knoxville is located at the intersection of
two major interstate highways, I-40 which extends east to west, and I-75 which
extends north to south. The Knoxville economy is largely oriented to trade and
manufacturing, due to its location as the geographic center of the eastern
portion of the United States and the wide range of available transportation
resources. Knoxville's central location and transportation access has also
caused it to emerge as a convention center. The Knoxville metropolitan
statistical area population in 1990 was 604,812, compared to the 1980 census of
565,970. Unemployment for Knox County in 1995 was 3.4%, lower than the overall
rate for the State of Tennessee of 5.2% and the national rate of 5.6%.
The western portion of Knox County, in which the Knoxville Property is
located, has experienced the most growth and development in the Knoxville
metropolitan area during the past 10 years due primarily to available land and
services. It is anticipated that the Knoxville metropolitan area will continue
to grow as a major regional center of trade and tourism due to its location at
the intersection of Interstates 40 and 75 and the recent extension of the
Pellissippi Parkway to the Knoxville airport.
Access to the Knoxville Property is provided by Pellissippi Parkway, a
limited access thoroughfare traversing southeast to the Knoxville airport, with
an interchange at Interstate 40/75 south of the Knoxville Property. Nearby
Kingston Pike also provides east and west traffic flow for the Centerpoint
Business Park, and serves as the major commercial center in the immediate area
with a number of large strip shopping centers, a regional mall, gas stations,
convenience stores, office buildings, restaurants and other various
retail/commercial uses. The Project will be highly visible from both
Centerpoint Parkway and Pellissippi Parkway, since the building elevation will
be at or above road grade.
The Partnership will experience competition for tenants from owners and
managers of various other office buildings located in the immediate area of the
Project which would adversely effect the Partnership's ability to attract and
retain tenants.
Development Agreement. On December 10, 1996, the Partnership entered
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into a Development Agreement (the "Development Agreement") with ADEVCO
Corporation, a Georgia corporation (the "Developer"), as the exclusive
development manager to supervise, manage and coordinate the planning, design,
construction and completion of the Project.
The Developer is an Atlanta based real estate development and management
company formed in 1990 which specializes in the development of office buildings.
The Developer has previously developed or is developing a total of five 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
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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 Real Estate Fund VIII, L.P. ("Wells Fund VIII"), each 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 62,000 rentable square feet located in Alachua County, near
Gainesville, Florida (the "Gainesville Project"), (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"), and (v) a development agreement with Fund VIII and Fund IX
Associates, a joint venture between Wells Fund VIII and the Partnership, for the
development of a four-story office building containing approximately 96,750
rentable square feet located in Madison, Wisconsin (the "Madison 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, 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. Construction of the Madison Project
is currently on schedule, with an anticipated completion date on or before June
15, 1997. Westel-Milwaukee Company, Inc. d/b/a Cellular One agreed to lease
approximately 75,000 rentable square feet of the Madison Project, comprising
approximately 78% of the Madison Project, within 10 business days of the
completion of the construction.
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. Mr. Kraxberger has also
personally guaranteed the performance of the contractor, Integra Construction,
Inc., under the Construction Contract (as hereinafter described) pursuant to the
terms of a separate Guaranty Agreement. Neither the Developer nor Mr.
Kraxberger are affiliated with the Partnership or the 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 under the
Architect's Agreement (as described below) and the contractor 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 Partnership 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
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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 Partnership on a weekly basis as to the status of the Project and
submit to the Partnership 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 Partnership 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 Partnership 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 Partnership. The Developer has agreed to indemnify the
Partnership 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 Partnership 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
Partnership.
It is anticipated that the funds to be expended by the Partnership for
the development and construction of the Project will be paid out of investor
capital contributions of the Partnership, which are currently being held by the
Agent pursuant to the Custodial Agency Agreement, with payments to be made after
the Partnership has approved appropriate draw requests and submitted such
requests to the Agent for payment. However, the Partnership may elect to
provide funds to the Developer so that the Developer can pay Partnership
obligations with respect to the construction and development of the Project
directly. All such funds of the Partnership 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 Partnership. If at any time there
are in the bank account funds of the Partnership 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 Partnership
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 Partnership 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 Partnership. 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 Partnership will pay a development fee of
$175,000. 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 Partnership will also pay the Developer an "ABB Work
Fee" of $125,000. The ABB Work Fee is for services rendered by the Developer
with respect to the supervision and management of tenant build-out of the
premises leased by ABB pursuant to the ABB Lease. The fee is due and payable in
one lump sum upon the completion of the construction of the Project and the
tenant improvements under the ABB Lease.
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 ABB. Such fee shall be an amount equal to
$2.30 multiplied by the number of square feet of rentable space built out, and
shall be payable in a lump sum upon completion of the tenant improvements. The
Development Agreement also contains a provision appointing the Developer as the
Partnership's non-exclusive agent during development and construction of the
Project to offer for lease space which is not initially leased by ABB. 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 Partnership during each month of the initial term of such
tenant's lease should the Developer lease any such additional space to any
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tenants (including without limitation the lease to ABB of additional space not
initially leased by ABB) during the development and construction of the Project,
plus, if such lease grants to the tenant an option to extend or renew the term
of the lease and the tenant exercises such option, an amount equal to 5% of all
gross base rents (excluding escalations and operating costs) actually paid by
the tenant during each month of the extended term of such tenant's lease. In
any event, the Partnership's obligation to pay the foregoing leasing fees with
respect to the additional space will terminate 10 years after the commencement
date of the applicable lease, even if the term of the applicable lease is
extended beyond such 10 year period. The Development Agreement further provides
that the Partnership and the Developer agree to consider the possible cash-out
of the commission obligation for the leasing of the additional space, but shall
not be obligated to agree to any such cash-out arrangement. The Developer is
not entitled to a commission or fee in the event ABB exercises any right of
first refusal or expansion option as set forth in the ABB Lease. The
Partnership's obligation to pay these lease-up fees to the Developer would
terminate 10 years after the commencement date of the tenant's lease, even if
the lease is extended beyond a 10 year period.
It is anticipated that the aggregate of all costs and expenses to be
incurred by the Partnership 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 ABB Lease and tenant improvements
for the premises not leased initially by ABB will total approximately
$7,693,791, comprised of the following expenditures:
<TABLE>
<CAPTION>
<S> <C>
Construction Contract $4,134,814
Tenant Improvements - ABB Premises 936,259
Tenant Improvements - Additional Space 470,176
Land 583,800
Closing Costs 58,113
Leasing Commissions - ABB Lease 330,000
Leasing Commissions - Additional Space 57,500
Architectural Fees 217,500
Architect's Expenses 30,000
Space Planning 110,000
Development Fee 175,000
ABB Work Fee 125,000
Additional Space Work Fee 66,435
Survey and Engineering 42,300
Landscaping 150,000
Lake Improvement 50,000
Signage 12,500
Appraisal Fee 6,000
Marketing 10,500
Contingency 127,894
</TABLE>
The total of all the foregoing expenses anticipated to be incurred by the
Partnership with respect to the Project, exclusive of costs relating to
marketing, closing costs and tenant improvements and leasing commissions for the
premises not leased initially by ABB, will total approximately $7,031,067.
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 $7,031,067, 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 $300,000 (plus
any fees earned relating to the lease-up of space not initially leased by ABB).
The item shown above in the estimated expenditures for the Project of
$50,000 for "lake improvement" refers to the anticipated additional landscaping
costs which will be incurred to enhance the appearance of the retention pond
which abuts the Knoxville Property. The pond will be improved to serve as an
attractive amenity for the Project. The improvements will include a fountain
which will be installed in the pond and other landscaping surrounding the area,
including benches to provide a recreational space for employees working in the
building.
In the event the Developer should for any reason cease to manage the
development of the Project, the Partnership 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.
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Construction Contract. The Partnership entered into a construction
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contract (the "Construction Contract") on November 1, 1996 with the general
contracting firm of Integra Construction, Inc. (the "Contractor") for the
construction of the Project. The Contractor is a Georgia corporation based in
Atlanta specializing in commercial, industrial and institutional building. The
Contractor commenced operations in November 1994. Its principals were formerly
employed by McDevitt & Street Company, a large general contracting firm which
operates throughout the United States and which has served previously as the
general contractor for properties developed by other limited partnerships
sponsored by the General Partners. The Contractor is presently engaged in the
construction of two office buildings, a utilities building and a church, and
since July 1995, has completed nine projects with a total construction value in
excess of $7,700,000. The Contractor has served as the general contractor for
the construction of the Gainesville Project, an office building in Gainesville,
Florida which is owned by a joint venture between Wells Fund VII and Wells Fund
VIII. The Contractor is not affiliated with 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 three-story steel
framed office building with reflective insulated glass and brick exterior
containing approximately 87,000 gross square feet and 83,885 of rentable square
feet. The Project site will have approximately 297 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 Partnership will pay the
Contractor a fixed sum of $4,134,814 for the construction of the Project,
excluding tenant improvements. It is anticipated that the Construction Contract
will be amended to provide for the construction of the tenant improvements
required pursuant to the ABB Lease at such time as the plans and specifications
are drawn for such improvements and the budget for such improvements is firmly
established. The Contractor will be responsible for all costs of labor,
materials, construction equipment and machinery necessary for completion of the
Project. In addition, the Contractor will be required to secure and pay for any
additional business licenses, tap fees and building permits which may be
necessary for construction of the Project.
The Partnership will make monthly progress payments to the Contractor in an
amount of 90% of the portion of the contract price properly allocable to labor,
materials and equipment, less the aggregate of any previous payments made by the
Partnership; provided, however, that when a total of $206,740 has been withheld
as retainage, no further retainage will be withheld from the monthly progress
payments. When construction is substantially complete and the space is
available for occupancy, the Partnership will make a semi-final payment in the
amount of all of the unpaid balance, except that the Partnership may retain an
amount in accordance with the terms of the Construction Contract which is
necessary to protect its remaining interest until final completion of the
Project. The Partnership will pay the entire unpaid balance when the Project
has been fully completed in accordance with the terms and conditions of the
Construction Contract. As a condition of final payment, the Contractor will be
required to execute and deliver a release of all claims and liens against the
Partnership.
The Contractor will be responsible to the Partnership for the acts or
omissions of its subcontractors and suppliers of materials and of persons either
directly or indirectly employed by them. The Contractor has agreed to indemnify
the Partnership from and against all liability, claims, damages, losses,
expenses and costs of any kind or description arising out of or in connection
with the performance of the Construction Contract, provided that such liability,
claim, damage, loss or expense is caused in whole or in part by any action or
omission of the Contractor, any subcontractor or materialmen, anyone directly or
indirectly employed by any of them or anyone for whose acts any of them may be
liable. The Construction Contract also requires the Contractor to obtain and
maintain, until completion of the Project, adequate insurance coverage relating
to the Project, including insurance for workers' compensation, personal injury
and property damage.
The Contractor is required to work expeditiously and diligently to maintain
progress in accordance with the construction schedule and to achieve substantial
completion of the Project within the contract time. The Contractor is required
to employ all such additional labor, services and supervision, including such
extra shifts and overtime, as may be necessary to maintain progress in
accordance with the construction schedule. It is anticipated that the Project
will be completed on or before December 1, 1997. As described below, in the
event the Project is not completed by December 1, 1997, the Partnership will be
required to reimburse ABB for rental and operating expense costs incurred by ABB
for holding over in ABB's current premises (but only to the extent such costs,
computed on a per diem basis, exceed the per diem rental and operating expense
costs payable by ABB for the last 12 months of the term of ABB's current lease).
Although completion or performance bonds are often obtained in connection with
the development and construction of commercial properties such as the Project to
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reduce the risk of non-performance and to assure compliance with approved plans
and specifications, due to the 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. However, performance by the
Contractor of the Construction Contract has been personally guaranteed by David
B. Blackmore and Drew S. White, founding principals of the Contractor, as well
as David Kraxberger, a principal of the Developer.
Architect's Agreement. Smallwood, Reynolds, Stewart, Stewart & Associates,
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Inc. (the "Architect") will be the architect for the Project pursuant to the
Architect's Agreement entered into with the Partnership. The Architect is based
in Atlanta, Georgia, was founded in 1979, has a staff of over 200 persons, and
specializes in programming, planning, architecture, interior design, landscape
architecture and construction administration. The Architect has its principal
office in Atlanta, Georgia and additional offices in Tampa, Florida and
Singapore. The Architect has designed a wide variety of projects, with a total
construction cost in excess of $2 billion, including facilities for corporate
office space, educational and athletic facilities, retail space, manufacturing,
warehouse and distribution facilities, hotels and resorts, correctional
institutions, and luxury residential units. The Architect has performed
architectural services with respect to the Gainesville Project, a two-story
office building containing approximately 62,000 rentable square feet located
near Gainesville, Florida, owned by a joint venture between Wells Fund VII and
Wells Fund VIII. The Architect is not affiliated with 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 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 $32,625 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, plumbing and fire protection and electrical systems, materials and
such other elements as may be appropriate. The Architect will be paid $65,250
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 $97,875 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 Partnership 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 Partnership 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 $21,750 for its
services performed during the construction phase.
The total amount of fees payable to the Architect under the Architect's
Agreement is $217,500. 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 $30,000.
ABB Lease. On December 10, 1996, the Partnership entered into a Lease
---------
Agreement (the "ABB Lease") with ABB pursuant to which ABB agreed to lease
55,000 rentable square feet of the Project, comprising approximately 66% of the
Project.
ABB is a Delaware corporation which is principally engaged in the business
of pollution control engineering and consulting. ABB will use the leased area
as office space for approximately 220 employees. ABB Asea Brown Boveri Ltd.
("ABB-Switzerland"), a Swiss corporation based in Zurich, is the holding company
7
<PAGE>
of the ABB Asea Brown Boveri Group (the "ABB Group") which is comprised of
approximately 1,000 companies around the world, including ABB. While the shares
of ABB-Switzerland are not publicly traded, the shares of two of the parent
companies in the ABB Group are listed on various stock exchanges in Europe and
the United States. ABB-Switzerland is owned in equal parts by ASEA AB, a
Swedish corporation, and BBC Brown Boveri Ltd., a Swiss corporation. The ABB
Group's companies do business in 140 countries. The Group's revenues are
predominantly provided by contracts with utilities and independent power
producers for the design, engineering, construction, manufacture and marketing
of products, services and systems in connection with the generation,
transmission and distribution of electricity. In addition, the ABB Group
generates a significant portion of its revenues from the sale of industrial
automation products, systems and services to pulp and paper, automotive, and
other manufacturers. The ABB Group also provides financial services principally
for its internal businesses and affiliates. The ABB Group reported net income
in 1995 of approximately $34 billion and net worth of approximately $5.2
billion. The ABB Group's total number of employees for 1995 was approximately
210,000 worldwide and approximately 25,000 in the United States. ABB Inc., the
United States parent company of ABB, reported a net worth in 1995 of in excess
of $500,000,000, gross revenues in excess of $4 billion, and total assets in
excess of $4 billion. ABB reported a net worth in 1995 of in excess of $15
million, gross revenues in excess of $300 million and total assets in excess of
$150 million.
The initial term of the ABB Lease will be nine years and 11 months to
commence (the "Rental Commencement Date") on the later of (a) January 1, 1998,
or (b) the earlier of (i) the date which is 30 days after substantial completion
of the Project, or (ii) 30 days after the date upon which ABB takes possession
and occupies any portion of the leased premises for business purposes. ABB has
the option to extend the initial term of the ABB Lease for two successive five
year periods. Each extension option must be exercised, if at all, no less than
six months prior to the expiration of the then current lease term.
The annual base rent payable under the ABB Lease will be $646,250 payable
in equal monthly installments of $53,854 during the first five years of the
initial lease term, and $728,750 payable in equal monthly installments of
$60,729 during the last four years and 11 months of the initial lease term. The
annual base rent for each extended term under the ABB Lease will be the market
rate for the period covered by the extended term. The term "market rate" is
defined in the ABB Lease as the annual effective rental rate per square foot of
rentable floor area then being charged by landlords under new leases of office
space in the metropolitan Knoxville, Tennessee market for similar space in a
building of comparable quality and with comparable parking and other amenities.
The ABB Lease provides that if the parties cannot agree on the appropriate
market rate, the market rate shall be established by real estate appraisers.
The ABB Lease provides that ABB has the option to require the Partnership to
make available to ABB an amount equal to up to $165,000 to be used by ABB for
the purchase of systems furniture to be installed in the leased premises, upon
written request of ABB to the Partnership within 30 days after the Rental
Commencement Date. If ABB elects to use all or any portion of the furniture
allowance, the amount of the furniture allowance actually paid by the
Partnership to ABB shall be amortized in equal monthly payments over the number
of months left in the lease term at an interest rate of 10% per annum, and such
amounts shall be added to and become part of the base rental. ABB is required
to provide the Partnership a valid first lien upon all of the furniture with
respect to which ABB has purchased with or received reimbursement from the
furniture allowance to secure payment of all amounts due by ABB to the
Partnership under the ABB Lease.
In addition to the base rent, ABB 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 4% of the gross rental
income from the Project, and all taxes and governmental charges attributable to
the Project or its operation (excluding taxes imposed or measured on or by the
income of the Partnership from operation of the Project).
Under the terms of the ABB Lease, the Partnership is responsible for a
construction allowance of $976,600 (calculated at the rate of $19 per usable
square foot of the premises). The ABB Lease also provides that so long as ABB
shall occupy 40% or more of the rentable floor area of the building, ABB shall
have the right to design and designate the location of one monument-type sign
naming the building and the Partnership will pay $5,000 of the cost associated
with purchasing and installing such signage. In addition, the Partnership has
agreed to provide ABB on the fifth anniversary of the Rental Commencement Date a
redecoration allowance of an amount equal to (i) $5 per square foot of usable
area of the premises leased as of the fifth anniversary of the Rental
Commencement Date which has been leased and occupied by ABB for at least three
8
<PAGE>
consecutive years ending with such fifth anniversary, reduced by (ii) $177,000
(i.e., assuming ABB continues to lease 51,250 square feet pursuant to the terms
of the ABB Lease during such five year period, the redecoration allowance would
be $79,250).
The terms of the ABB Lease provide that ABB has a right of first refusal
for the lease of any space in the building not initially leased by ABB. In the
event that the Partnership has secured a potential tenant for any of such space,
the Partnership has agreed to give ABB 10 business days to exercise its right to
add such space to the leased premises. In the event that ABB exercises its
right of first refusal, the lease of the additional space will be subject to all
the terms and conditions of the ABB Lease, provided that the base rental and
other charges and any allowances shall be solely as set forth in the notice to
ABB of the proposed terms of lease for the potential tenant of such space. If
ABB does not so exercise its right of first refusal within such 10 business day
period, the Partnership will have the right to lease the space to the potential
tenant except that, after the expiration of any such lease to another party,
such space will again become subject to ABB's right of first refusal. The ABB
Lease further provides that the Partnership has agreed that during the term of
the ABB Lease, no leases of space with other tenants for any of the space not
initially leased by ABB pursuant to the ABB Lease shall have terms in excess of
three years from the last day of the month in which such third party tenant
takes possession of such space.
ABB has a one-time option to terminate the ABB Lease as of the seventh
anniversary of the Rental Commencement Date, which is exercisable by written
notice to the Partnership at least 12 months in advance of such seventh
anniversary. If ABB elects to exercise this termination option, ABB is required
to pay to the Partnership, on or before 90 days prior to the seventh anniversary
of the Rental Commencement Date, a termination payment intended to compensate
the Partnership for the present value of certain sums which the Partnership has
expended in connection with the ABB Lease amortized over and attributable to the
remaining lease term (in the nature of the leasing commissions, construction
allowance, furniture allowance and redecoration allowance, etc.) and a rent
payment equal to approximately 15 months of monthly base rental payments. (The
termination payment would be approximately $1,818,000 under certain assumptions,
including ABB is leasing upon termination 69,000 square feet of rentable area
and 60,000 square feet of usable area.)
The ABB Lease provides that the Partnership is required to cause the
Project to be substantially completed as soon as practicable under the
circumstances, with a goal of achieving substantial completion on or before
December 1, 1997 (subject to force majeure and any delays caused by ABB). If
substantial completion has not occurred on or before December 1, 1997 (extended
on a day for day basis for delays due to force majeure and for delays caused by
ABB), ABB's sole right and remedy shall be for the Partnership to reimburse ABB
for rental and operating expense costs incurred by ABB for holding over in ABB's
current premises, but only to the extent such costs, computed on a per diem
basis, exceed the per diem rental and operating expense cost payable by ABB for
the last 12 months of the term of ABB's current lease.
As security for ABB's obligations to the Partnership under the ABB Lease,
ABB has provided to the Partnership, and agreed to maintain in full force and
effect at all times during the 10 year period from the Rental Commencement Date,
an irrevocable standby letter of credit in accordance with the terms and
conditions set forth in the ABB Lease. Each letter of credit issued pursuant to
the provisions of the ABB Lease is required to be in a form of an irrevocable
credit, to be issued by an "approved issuer," to name the Partnership as the
beneficiary and to specify that the Partnership, as beneficiary, may draw
against the letter of credit upon the occurrence of a "drawing event."
"Approved issuer" is defined to require that the letter of credit issuer shall
have and maintain a Moody's Bank Credit Report Service rating of P-1 or its
equivalent. "Drawing event" is defined to include any failure of ABB to pay any
installment of rent or other charge or assessment pursuant to the terms of the
ABB Lease within five days of notice thereof, or any other event of default with
respect to which the Partnership has exercised or is exercising its remedies.
The letter of credit maintained by ABB is required to be in the amount of
$4,000,000 until the seventh anniversary of the Rental Commencement Date,
$3,000,000 from the seventh anniversary of the Rental Commencement Date to the
eighth anniversary of the Rental Commencement Date, $2,000,000 from the eighth
anniversary of the Rental Commencement Date to the ninth anniversary of the
Rental Commencement Date, and $1,000,000 from the ninth anniversary of the
Rental Commencement Date to the tenth anniversary of the Rental Commencement
Date. The original letter of credit which was delivered by ABB to the
Partnership simultaneously with the execution of the ABB Lease was issued by
Svenska Handelsbanken, a Swedish bank which is the largest bank in the Nordic
region with over $90 billion of assets and a credit rating issued by Moody's
Bank Credit Report Service of P-1/Aa3, and was issued in the amount of
$4,000,000 for a one year term. If the Partnership draws on the letter of
credit, the Partnership shall apply the proceeds first toward the performance of
the obligations which ABB has failed to perform under the ABB Lease, and the
9
<PAGE>
remainder, if any, shall be held by the Partnership in certain permitted
investments as additional security for the performance by ABB of the ABB Lease.
In connection with the execution of the ABB Lease, the Partnership entered
into an agreement with each of two real estate brokers, one of which is a firm
affiliated with the Developer, for the payment of commissions in consideration
of services rendered in procuring the ABB Lease. The commission agreements
require the Partnership to pay a total of $330,000 in leasing commissions, one-
half of which is payable within 30 days after the execution of the ABB Lease and
acquisition of the Knoxville Property, and the remaining one-half of which is
payable upon ABB's occupancy and acceptance of the leased premises. Neither
broker is affiliated with the Partnership or the General Partners.
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 ABB Lease equal to the first
month's rent plus 5% of the gross revenues over the initial term of the ABB
Lease. In addition, the Property Manager may also receive initial lease-up fees
relating to the lease-up of space not initially leased by ABB, as provided in
the Prospectus.
Lease-Up Risk. As set forth above, ABB has agreed to lease approximately
-------------
66% of the Project. However, since the Partnership has not yet obtained any
leases for the remaining approximately 34% of office space at the Project, the
Partnership 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 Partnership will be able to attract or obtain
suitable tenants for the remaining approximately 34% of space at the Project or
that it will be able to attract or obtain suitable tenants for the space
initially leased by ABB upon the expiration of its lease.
Possible Joint Venture. As set forth in the Prospectus, the General
----------------------
Partners have the authority to cause the Partnership to enter into joint
ventures with future programs sponsored by the General Partners or their
Affiliates, Prior Wells Public Programs and certain other entities. Although
the General Partners have not made a determination as of the date of this
Supplement as to whether to cause the Partnership to enter into a joint venture
for the purpose of owning, developing and operating the Project, there is a
likelihood that the Partnership will enter into such a joint venture with a
Prior Wells Public Program or a future program sponsored by the General Partners
for such purposes sometime in the future. At such time as the General Partners
believe that a reasonable probability exists that the Partnership will enter
into a joint venture with respect to the Project, the Prospectus will be
supplemented to disclose the terms of such proposed investment transaction.
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 December 18, 1996, the Partnership had raised a total of
$28,182,788 in offering proceeds (2,818,279 Units), comprised of $22,857,206
raised from the sale of Class A Status Units (2,285,721 Class A Status Units)
and $5,325,582 raised from the sale of Class B Status Units (532,558 Class B
Status Units). As of December 18, 1996, the Partnership was holding net
offering proceeds of $17,543,659 available for investment in properties after
(i) the payment of $986,398 in Acquisition and Advisory Fees, (ii) the payment
of $4,227,418 in selling commissions and organizational and offering expenses,
(iii) the investment of $4,748,974 in a joint venture between Wells Real Estate
Fund VIII, L.P. and the Partnership which owns an office building under
construction in Madison, Wisconsin and an office building in the Dallas, Texas
metropolitan area, and (iv) the investment of $676,339 in connection with the
Project.
10
<PAGE>
RECENT LEGAL PROCEEDING
On December 5, 1996, litigation was instituted in the Superior Court of
Fulton County, Georgia against Wells Fund II, Wells Fund III, Wells Capital,
Inc. and Leo F. Wells, III, who are the general partners of Wells Fund II and
Wells Fund III, in connection with a request by a limited partner in Wells Fund
II and Wells Fund III for a list of the names, addresses and ownership interests
of the limited partners of each of Wells Fund II and Wells Fund III which to
date the defendants have refused to furnish to the plaintiff. The case is
styled Gramercy Park Investments L.P. v. Wells Real Estate Fund II, Wells Real
-----------------------------------------------------------------------
Estate Fund III, L.P., Wells Capital, Inc. and Leo F. Wells, III. The plaintiff
- ----------------------------------------------------------------
alleges that it is entitled to a copy of the limited partner list under
applicable provisions of Georgia partnership law and the partnership agreements
of Wells Fund II and Wells Fund III and is seeking an order directing the
defendants to furnish to the plaintiff a current list of the names, addresses
and ownership interests of the limited partners in Wells Fund II and Wells Fund
III, as well as an award of certain damages, including its costs and attorneys'
fees and such other relief as the court deems just and proper. The defendants
have 30 days after service of the complaint within which to respond. As of the
date of this Supplement, the defendants have not yet responded to the
plaintiff's complaint.
11
<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.
10(jj)/*/ Real Estate Option Agreement, dated December 9, 1996, between The
Development Corporation of Knox County and Wells Real Estate Fund
IX, L.P.
10(kk) Lease Agreement, dated December 10, 1996, between Wells Real
Estate Fund IX, L.P. and ABB Flakt, Inc.
10(ll) Development Agreement, dated December 10, 1996, between Wells Real
Estate Fund IX, L.P. and ADEVCO Corporation
10(mm) Owner-Contractor Agreement, dated November 1, 1996, between Wells
Real Estate Fund IX, L.P. and Integra Construction, Inc.
23(a)/*/ Consent of KPMG Peat Marwick LLP - Wells Real Estate Fund VIII,
L.P.
23(b) Consent of KPMG Peat Marwick LLP - Wells Real Estate Fund IX, L.P.
23(c) Consent of KPMG Peat Marwick LLP - Wells Partners, L.P.
</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. 13 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 27th day of December, 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), December 27, 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 N/A
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 N/A
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, N/A
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 N/A
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>
10(jj)/*/ Real Estate Option Agreement, dated December 9, 1996,
between The Development Corporation of Knox County
and Wells Real Estate Fund IX, L.P.
10(kk) Lease Agreement, dated December 10, 1996, between Wells
Real Estate Fund IX, L.P. and ABB Flakt, Inc.
10(ll) Development Agreement, dated December 10, 1996, between
Wells Real Estate Fund IX, L.P. and ADEVCO Corporation
10(mm) Owner-Contractor Agreement, dated November 1, 1996,
between Wells Real Estate Fund IX, L.P. and Integra
Construction, Inc.
23(a)/*/ Consent of KPMG Peat Marwick LLP - Wells Real Estate Fund N/A
VIII, L.P.
23(b) Consent of KPMG Peat Marwick LLP - Wells Real Estate Fund
IX, L.P.
23(c) Consent of KPMG Peat Marwick LLP - Wells Partners, L.P.
23(d) Consent of KPMG Peat Marwick LLP - Wells Capital, Inc.
23(e)/*/ Consent of Branch, Pike & Ganz (included in N/A
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>
REAL ESTATE OPTION AGREEMENT
----------------------------
This REAL ESTATE OPTION AGREEMENT is made and entered into effective as of
the 9th day of December, 1996 (the "Effective Date"), by and between THE
DEVELOPMENT CORPORATION OF KNOX COUNTY, a Tennessee non-profit corporation,
hereinafter referred to as "Seller," and WELLS REAL ESTATE FUND IX, L.P., a
Georgia Limited Partnership, hereinafter referred to as "Purchaser."
WITNESSETH:
----------
WHEREAS, Seller is the owner in fee simple of a certain unimproved tract of
land consisting of approximately 5.622 acres, more or less, comprised of lot 13R
in the CenterPoint Business Park, located in Knox County, Tennessee, as is more
particularly described on Exhibit A, attached hereto and incorporated herein by
---------
reference (hereinafter referred to as the "Premises"); and
WHEREAS, Purchaser wishes to purchase an option on the Premises as
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants and provisions
herein contained, the payment of the Option Price hereinafter specified, the
foregoing recitals which are incorporated into this Agreement by reference, and
other good and valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option. Subject to the conditions of this Agreement, Seller
---------------
hereby grants to Purchaser an option to purchase the Premises together with all
improvements thereon, if any, on an "as is, where is" basis.
2. Option Period. This Option shall remain in full force and effect for a
-------------
period of twenty (20) days from the Effective Date, such Option Period
commencing upon the Effective Date, and terminating at 11:59 p.m. on the 29th
day of December, 1996, which period of time is hereinafter referred to as the
"Exercise Period." By mutual agreement of the parties, the Exercise Period may
be extended for an additional period of thirty (30) days, which extension will
be evidenced by an amendment to this Agreement signed by both parties.
3. Exercise of Option. This Option may be exercised by Purchaser at any
------------------
time during the Exercise Period by written notice from Purchaser to Seller which
is actually delivered to and received by Seller during the Exercise Period.
4. Option Consideration. Purchaser shall pay to Seller the sum of Five
--------------------
Thousand and No/100 Dollars ($5,000.00) ("Option Price") as consideration for
the granting of the Option, the receipt of which is hereby acknowledged. In the
event Purchaser does not properly exercise the Option as herein provided, the
Option Price shall be retained by Seller free and clear of all claims. In the
event Purchaser properly exercises the Option as herein provided, the Option
Price shall be credited against the Purchase Price.
5. Exceptions to Title. In the event of the exercise of the Option, the
-------------------
Premises will be sold and conveyed subject to:
(a) Real property taxes for the year 1996, which shall be apportioned
between the parties hereto at the closing hereof and assumed by
Purchaser;
(b) Utilities easements serving the Premises and plat restrictions of
record;
(c) Such other easements, covenants, and restrictions as are of
record in the Knox County Register's Office; and
(d) Such other affirmative covenants and restrictions which are
contained in the proposed form of the warranty deed, attached
hereto as Exhibit B.
---------
1
<PAGE>
6. Purchase Price. In the event of the exercise of the Option, the total
--------------
purchase price for the Premises will be Five Hundred Eighty-Three Thousand Eight
Hundred and No/100 Dollars ($583,800.00). The Purchase Price shall be payable
as follows:
(a) The Option Price shall be applied to the Purchase Price;
(b) The balance of the Purchase Price shall be paid in cash or by
cashier's or certified check at the Closing of the sale of the
Premises hereinafter specified (the "Closing").
7. Assignment of Option. This Agreement may not be assigned by Purchaser
--------------------
without the prior written consent of Seller. Seller consents to the assignment
of this Agreement to the Bank of New York as agent for Wells Real Estate Fund
IX, L.P.
8. Existing Mortgages. If there be a mortgage or deed of trust on the
------------------
Premises and in the event of the exercise of the Option, Seller agrees to obtain
at Seller's expense and deliver to Purchaser, on or before the Closing
hereunder, a release thereof, properly executed and acknowledged in form for
recording.
9. Title to the Premises. Purchaser agrees at Purchaser's expense to
---------------------
cause the title to the Premises to be examined by any reputable title company or
attorney, and to obtain a survey of the Premises, which survey shall be
certified and delivered to Seller and Purchaser. The new survey description
shall be used for the deed described in paragraph 12.
------------
10. Purchaser's Rights on Seller's Default. In the event of the exercise
--------------------------------------
of the Option and if (i) Seller defaults in its performance hereunder; or (ii)
Seller is unable to convey good title to the Premises at Closing as required
hereunder; or (iii) a qualified and licensed architect or engineer concludes
that the Premises are unsuitable for construction due to soil or geologic
conditions, then Purchaser shall have the following rights:
(a) To accept the Premises or any part thereof subject to any of the
foregoing and, if necessary, obtain specific performance of this
Agreement subject to such matters; or
(b) To cancel and terminate this Agreement by written notice to
Seller, in which event the Option Price, together with any
accrued interest thereon, shall be returned to Purchaser.
Purchaser must elect one of the foregoing remedies, upon which election
the selected remedy shall become Purchaser's sole remedy at law or in equity.
11. Seller's Rights Upon Purchaser's Default. In the event Purchaser
----------------------------------------
should exercise the Option and thereafter default under this Agreement, Seller's
sole and exclusive remedy shall be to retain the Option Price as liquidated
damages and the parties hereto shall have no further rights or obligations
hereunder whatsoever. It is hereby agreed that Seller's damages will be
difficult to ascertain and that the Option Price constitutes a reasonable
liquidation thereof and is intended not as a penalty, but as fully liquidated
damages. Seller agrees that in the event of a default by Purchaser, it shall
not initiate any proceeding to recover damages from Purchaser, but shall limit
its recovery to the receipt and retention of the Option Price.
12. Title Documents. In the event of the exercise of the Option, the deed
---------------
by which the Premises are conveyed to Purchaser at the Closing shall be a
special warranty deed substantially in the form of Exhibit B, in proper
---------
statutory form for recording and duly executed and acknowledged by Seller,
subject to the matters stated in paragraph 5. Seller shall pay the cost of
-----------
preparing said deed and Purchaser shall pay the cost of recording the same,
including all taxes. Purchaser agrees to pay all other closing costs.
13. Purchaser's Right to Possession. In the event of the exercise of the
-------------------------------
Option, Seller agrees to give actual possession and occupancy of the Premises to
Purchaser at the time of Closing hereunder, provided, however, during the
Exercise Period, Purchaser shall have the right to enter the Premises, together
with men and materials,
2
<PAGE>
for the following purposes: (i) to make a physical inspection of the Premises,
including subsurface tests, test borings, and hazardous waste tests; and (ii) to
make an accurate survey of the boundaries of the Premises. Purchaser shall also
have the right to inspect the Premises immediately prior to or on the day of
Closing. In the event Purchaser enters upon the Premises for the purposes
specified in subparagraphs (i) and (ii) above, Purchaser will indemnify Seller
----------------- ----
for any claim made against Seller as a result of Purchaser's entry and, if the
Closing does not take place as provided hereunder, Purchaser will indemnify
Seller for any damage to the Premises caused by Purchaser's entry. Purchaser's
indemnity obligations contained in this
Paragraph 13 shall survive Closing.
- ------------
14. Condemnation Prior to Closing. In the event of the exercise of the
-----------------------------
Option and in the event of the taking of the Premises or any part thereof by
condemnation, the parties agree that Purchaser shall have the option to declare
this Agreement null and void (in which event the Option Price shall be returned
to Purchaser) or to accept the Premises in the condition in which they are left
following such taking, with an assignment by Seller to Purchaser of all rights
to the collection of any condemnation award.
15. Closing Adjustments. In the event of the exercise of the Option, at
-------------------
the time of Closing hereunder, real estate taxes shall be apportioned and
adjusted between the parties as of the date of Closing.
16. Closing. In the event of the exercise of the Option, the Closing of
-------
the purchase of the Premises by Purchaser shall be held within ten (10) days
after the exercise of the Option, with the location and time of said Closing to
be specified by Purchaser in a written notice; provided, however, that in no
event shall the Closing occur later than December 31, 1996. At said Closing, the
Purchase Price shall be paid by Purchaser to Seller as required in paragraph 6
-----------
hereof and Seller shall deliver to Purchaser a special warranty deed for the
Premises as required by paragraph 12 hereof.
------------
17. Brokerage Commissions. In the event of the exercise of the Option and
---------------------
Closing of the sale of the Premises as herein specified, Seller agrees to pay
ADEVCO Realty Group, Inc. a commission equal to Five (5%) percent of the
Purchase Price for arranging the sale of the Premises pursuant to a separate
agreement with said broker. Purchaser agrees to and hereby does indemnify and
hold Seller free and harmless from all losses, damages, costs, commissions and
expenses, including attorneys' fees, that Seller may suffer as a result of any
claims or suits brought by any other brokers or finders in connection with this
transaction, except with respect to a broker employed by Seller.
18. General Provisions.
------------------
(a) All notices or demands hereunder shall be in writing and shall be
deemed to have been sufficiently given or served for all purposes
when presented personally or sent by registered or certified
United States mail, return receipt requested, or forwarded by a
nationally recognized overnight courier service, to any party
hereto at the address set forth below or at such other address as
any party shall subsequently designate in writing:
If to Seller:
The Development Corporation of Knox County
706 Walnut Street
Knoxville, Tennessee 37902
Contact: Melissa A. Ziegler
Phone: (423) 546-5887
3
<PAGE>
If to Purchaser:
Wells Real Estate Fund IX, L.P.
3885 Holcomb Bridge Road
Norcross, GA 30092
Attn: Michael Berndt and Dave Kraxberger
(b) This Agreement shall be construed and enforced in
accordance with the laws of the State of Tennessee.
(c) If two or more persons constitute either Seller or Purchaser, the
word "Seller" or the word "Purchaser" shall be construed as if it
reads "Sellers" and "Purchasers" whenever the sense of this
Agreement so requires.
(d) The captions of this Agreement are inserted only for the purpose
of convenient reference and in no way define, limit, or prescribe
the scope or intent of this Agreement or any part thereof.
(e) This Agreement constitutes the entire contract between the
parties hereto, and may not be changed (including an extension of
the Exercise Period as provided in paragraph 2) or terminated
-----------
orally, but may only be modified by an instrument in writing
signed by the parties hereto.
(f) The provisions hereof shall apply to and inure to the benefit of
the successors, assigns and representatives of the respective
parties hereto.
(g) This Agreement may be executed in multiple counterparts which
shall be construed together as one instrument.
(h) Seller hereby represents and warrants to Purchaser that, to the
best of Seller's knowledge, without independent investigation or
inquiry (i) no "hazardous substances", as that term is defined in
the Comprehensive Environmental Response, Compensation, and
Liability Act, and the rules and regulations promulgated pursuant
hereto, or any other pollutants, toxic materials, or contaminants
have been or shall prior to Closing be discharged, disbursed,
released, stored, treated, generated, disposed of, or allowed to
escape on the Property, (ii) no underground storage tanks are
located on the Property or were located on the Property and
subsequently removed or filled, and (iii) the Property has not
previously been used as a cemetery, landfill, or as a dump for
garbage or refuse or as a pit for burning any such garbage or
refuse (but Seller hereby discloses that a portion of Seller's
property located along the common boundary line between Lots 13R
and 11 of CenterPoint Park was used as a burning area several
years ago; however, Seller has no knowledge regarding the
materials which were burned in this area).
EXECUTED as of the day, year and month first above written.
SELLER:
THE DEVELOPMENT CORPORATION OF
_______________________
Date and time executed KNOX COUNTY
4
<PAGE>
By: /s/ Melissa Ziegler
____________________________ --------------------------
Witness Melissa Ziegler
Its: Executive Director
PURCHASER:
WELLS REAL ESTATE FUND IX, L.P.
By: /s/ Leo F. Wells, III
____________________________ -------------------------------
Date and time executed
Title:___________________
____________________________
Witness
5
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT ("Lease"), is made and entered into this 10th day of
December, 1996, by and between Landlord and Tenant.
W I T N E S S E T H:
- - - - - - - - - -
1. Certain Definitions. For purposes of this Lease, the following terms
-------------------
shall have the meanings hereinafter ascribed thereto:
(a) Landlord: WELLS REAL ESTATE FUND IX, L.P., a limited partnership.
(b) Landlord's Address:
c/o Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
(c) Tenant: ABB FLAKT, INC.
(d) Tenant's Address:
1400 Centerpoint Boulevard
Knoxville, Tennessee 37932
(e) Building Address:
1500 Centerpoint Boulevard
Knoxville, Tennessee 37932
(f) Suite Number: 300
(g) Rentable Floor Area of the Demised Premises:
55,000 square feet
(h) Rentable Floor Area of the Building:
83,885 square feet
(i) Lease Term: One Hundred Nineteen (119) months
<PAGE>
(j) Base Rental Rate:
RATE PER SQUARE FOOT
OF RENTABLE FLOOR AREA
LEASE YEAR OF DEMISED PREMISES
---------- ------------------------
FIRST YEAR $11.75/sq. ft.
SECOND YEAR $11.75/sq. ft.
THIRD YEAR $11.75/sq. ft.
FOURTH YEAR $11.75/sq. ft.
FIFTH YEAR $11.75/sq. ft.
SIXTH YEAR $13.25/sq. ft.
SEVENTH YEAR $13.25/sq. ft.
EIGHTH YEAR $13.25/sq. ft.
NINTH YEAR $13.25/sq. ft.
TENTH YEAR $13.25/sq. ft.
(k) Rental Commencement Date: The later of (x) January 1, 1998, or (y)
the earlier of (I) the date which is thirty (30) days after Substantial
Completion (as defined in Paragraph 1[i] of Exhibit "D" attached hereto) or
-----------
(II) the date thirty (30) days after the date upon which Tenant takes
possession and occupies any portion of the Demised Premises for business
purposes.
(l) Construction Allowance for initial Demised Premises: $976,600.00
(calculated at the rate of $19.00 per square foot of usable area [51,400] of
the initial Demised Premises).
(m) Broker(s): Collins, Sharp & Koella, Inc.
(n) Redecoration Allowance: An amount equal to (x) $5.00 per square
foot of usable area of that portion of the Demised Premises leased pursuant
to this Lease as of the fifth (5th) anniversary of the Rental Commencement
Date which has been leased and occupied by Tenant for not less than three (3)
consecutive years ending with such fifth (5th) anniversary, reduced by (y)
$177,000.00.
2. Lease of Premises. Landlord, in consideration of the covenants and
-----------------
agreements to be performed by Tenant, and upon the terms and conditions
hereinafter stated, does hereby rent and lease unto Tenant, and Tenant does
hereby rent and lease from Landlord, certain premises (the "Demised Premises")
in the building (hereinafter referred to as "Building") located or to be located
on that certain tract of land (the "Land") more particularly described on
Exhibit "A" attached hereto and by this reference made a part hereof, which
- -----------
Demised Premises comprise 55,000 square feet of Rentable Floor Area and are
outlined on the floor plans attached hereto as Exhibit "B" and by this reference
-----------
made a part hereof, with no easement for light, view or air included in the
Demised Premises or being granted hereunder. The "Project" is comprised of the
Building, the Land, the Building's parking facilities, any walkways, covered
walkways or other means of access to the Building and the Building's parking
facilities, all common areas, including any lobbies or plazas, and any other
improvements or landscaping on the Land. For purposes of this Lease, "common
areas" shall include any improvements, areas and facilities from time to time
made available by Landlord, in Landlord's sole discretion, and upon such
-2-
<PAGE>
conditions as Landlord shall determine, for the non-exclusive, common and joint
use or benefit of Landlord, Tenant and other tenants, occupants and users of the
Project, and their respective employees, agents, subtenants, concessionaires,
licensees, customers and invitees, or any of them. The common areas may include
(not to be deemed a representation as to their availability), but are not
limited to, sidewalks, parking areas, access roads, driveways, serviceways,
tunnels, loading docks, and landscaped areas, together with all hallways,
lobbies, corridors, elevators, entrances and exits, restrooms, stairways and
other similar areas within the Building designated by Landlord, from time to
time, for the general use of all of the occupants of the Building. For such
period of time as Tenant has the right under this Lease to occupy the Demised
Premises, Tenant shall have the nonexclusive right to use the common areas in
common with Landlord, Tenant and other tenants, occupants and users of the
Project, and their respective employees, agents, subtenants, concessionaires,
licensees, customers and invitees. For purposes of this Lease, the Rentable
Floor Area of the Demised Premises shall be calculated by multiplying the usable
square feet of floor area of the Demised Premises by 1.07. The usable area of
the Demised Premises shall be determined in accordance with the American
National Standard Method of Measuring Floor Area in Office Buildings, ANSI/BOMA
Z65.1-1996 published by the Building Owners and Managers Association
International.
3. Term. The term of this Lease ("Lease Term") shall commence on the date
----
first hereinabove set forth, and, unless sooner terminated as provided in this
Lease, shall end on the expiration of the period designated in Article 1(i)
above, which period shall commence on the Rental Commencement Date, unless the
Rental Commencement Date shall be other than the first day of a calendar month,
in which event such period shall commence on the first day of the calendar month
following the month in which the Rental Commencement Date occurs. Promptly
after the Rental Commencement Date Landlord shall send to Tenant a Supplemental
Notice in the form of Exhibit "C" attached hereto and by this reference made a
-----------
part hereof, specifying the Rental Commencement Date, the date of expiration of
the Lease Term in accordance with Article 1(i) above and certain other matters
as therein set forth.
4. Possession. The obligations of Landlord and Tenant with respect to the
----------
Building and the initial leasehold improvements to the Demised Premises are set
forth in Exhibit "D" attached hereto and by this reference made a part hereof.
-----------
Within thirty (30) days after the Commencement Date, Tenant shall have the right
to prepare and provide to Landlord a list of incomplete or defective Punch List
Items, all of which shall be promptly repaired and/or completed by Landlord at
its sole cost and expense, and, for a period of one (1) year following the date
Tenant takes possession of any portion of the Demised Premises, Tenant shall
have the right to notify Landlord of its discovery of latent defects in the
Demised Premises all of which shall be promptly repaired and/or completed by
Landlord at its sole cost and expense. Except for such Punch List Items so
specified by Tenant within said thirty (30) day period, and except for such
latent defects specified by Tenant within such one (1) year period, the taking
of possession by Tenant shall be deemed conclusively to establish that
Landlord's construction obligations with respect to the Demised Premises have
been completed in accordance with the plans and specifications approved by
Landlord and Tenant and that the Demised Premises, to the extent of Landlord's
construction obligations with respect thereto, are in good and satisfactory
condition.
-3-
<PAGE>
5. Rental Payments.
---------------
(a) Commencing on the Rental Commencement Date, and continuing
thereafter throughout the Lease Term, Tenant hereby agrees to pay all Rent
due and payable under this Lease. As used in this Lease, the term "Rent"
shall mean the Base Rental, Tenant's Forecast Additional Rental, Tenant's
Additional Rental, and any other amounts that Tenant assumes or agrees to pay
under the provisions of this Lease that are owed to Landlord, including
without limitation any and all other sums that may become due by reason of
any default of Tenant or failure on Tenant's part to comply with the
agreements, terms, covenants and conditions of this Lease to be performed by
Tenant. Base Rental together with Tenant's Forecast Additional Rental shall
be due and payable in twelve (12) equal installments on the first day of each
calendar month, commencing on the Rental Commencement Date and continuing
thereafter throughout the Lease Term and any extensions or renewals thereof,
and Tenant hereby agrees to pay such Rent to Landlord at Landlord's address
as provided herein (or such other address as may be designated by Landlord
from time to time) monthly in advance. Tenant shall pay all Rent and other
sums of money as shall become due from and payable by Tenant to Landlord
under this Lease at the times and in the manner provided in this Lease,
without demand, set-off or counterclaim.
(b) If the Rental Commencement Date is other than the first day of a
calendar month or if this Lease terminates on other than the last day of a
calendar month, then the installments of Base Rental and Tenant's Forecast
Additional Rental for such month or months shall be prorated on a daily basis
and the installment or installments so prorated shall be paid in advance.
Also, if the Rental Commencement Date occurs on other than the first day of a
calendar year, or if this Lease expires or is terminated on other than the
last day of a calendar year, Tenant's Additional Rental shall be prorated for
such commencement or termination year, as the case may be, by multiplying
such Tenant's Additional Rental by a fraction, the numerator of which shall
be the number of days of the Lease Term (from and after the Rental
Commencement Date) during the commencement or expiration or termination year,
as the case may be, and the denominator of which shall be 365, and the
calculation described in Article 7 hereof shall be made as soon as possible
after the expiration or termination of this Lease, Landlord and Tenant hereby
agreeing that the provisions relating to said calculation shall survive the
expiration or termination of this Lease.
6. Base Rental. From and after the Rental Commencement Date Tenant shall
-----------
pay to Landlord a base annual rental (herein called "Base Rental") for each
Lease Year equal to the sum of (a) the Base Rental Rate set forth for such Lease
Year in Article 1(j) above multiplied by the Rentable Floor Area of the Demised
Premises set forth in Article 1(g) above, plus (b) the monthly payment, if any,
calculated pursuant to Special Stipulation 12 with respect to the Furniture
Allowance. As used in this Lease, the term "Lease Year" shall mean the twelve
month period commencing on the Rental Commencement Date, and each successive
twelve month period thereafter during the Lease Term, except that if the Rental
Commencement Date is not on the first day of a calendar month, the first Lease
Year shall extend through the end of the twelfth month after the Rental
Commencement Date.
-4-
<PAGE>
7. Additional Rental.
-----------------
(a) For purposes of this Lease, "Tenant's Forecast Additional Rental"
shall mean Landlord's reasonable estimate of Tenant's Additional Rental for
the coming calendar year or portion thereof. If at any time it reasonably
appears to Landlord that Tenant's Additional Rental for the current calendar
year will vary from Landlord's estimate by more than ten percent (10%),
Landlord shall have the right to revise, by notice to Tenant, its estimate
for such year, and subsequent payments by Tenant for such year shall be based
upon such revised estimate of Tenant's Additional Rental. Failure to make a
revision contemplated by the immediately preceding sentence shall not
prejudice Landlord's right to collect the full amount of Tenant's Additional
Rental. Prior to the Rental Commencement Date and thereafter on or before
November 1 of each calendar year during the Lease Term, including any
extensions thereof, Landlord shall present to Tenant a statement of Tenant's
Forecast Additional Rental for such calendar year; provided, however, that if
such statement is not given on or before November 1 of any calendar year as
aforesaid, Tenant shall continue to pay during the next ensuing calendar year
on the basis of the amount of Tenant's Forecast Additional Rental payable
during the calendar year just ended until the month after such statement is
delivered to Tenant. For purposes of determining Tenant's Forecast
Additional Rental the calendar year within which the Rental Commencement Date
occurs, the estimated Operating Expenses for such calendar year shall be
deemed to be $4.50 per square foot multiplied by 83,885 square feet of
Rentable Floor Area of the Building.
(b) For purposes of this Lease, "Tenant's Additional Rental" shall mean
for each calendar year (or portion thereof) Tenant's Share of the Operating
Expenses (as defined below) for such calendar year (or portion thereof). The
"Tenant's Share" shall mean sixty five and fifty seven one hundredths percent
(65.57%), determined by dividing 55,000 square feet of Rentable Floor Area of
the Demised Premises by 83,885 square feet of Rentable Floor Area of the
Building. The Tenant's Share shall be a adjusted to reflect any change in
the Rentable Floor Area of the Demised Premises or Rentable Floor Area of the
Building. In the event the Building is not fully occupied during any
calendar year (or portion thereof), the Operating Expenses which are variable
in nature shall be adjusted for the purposes of determining Tenant's
Additional Rental to an amount that would have been incurred by Landlord for
such calendar year (or portion thereof) if the Building had been fully
occupied during such calendar year (or portion thereof). Landlord agrees
that only Operating Expenses which would normally vary depending on the
amount of space actually occupied in the Building, such as costs of
utilities, supplies and janitorial services, shall be adjusted in this manner
and that fixed expenses which are unrelated to occupancy levels shall not be
so adjusted.
(c) Within ninety (90) days after the end of the calendar year in which
the Rental Commencement Date occurs and of each calendar year thereafter
during the Lease Term, or as soon thereafter as practicable, Landlord shall
provide Tenant a statement showing the Operating Expenses for said calendar
year and a statement prepared by Landlord showing any adjustment to the
Operating Expenses to reflect full occupancy of the Building during such
calendar year, and comparing Tenant's Forecast Additional Rental with
Tenant's Additional Rental. In the event Tenant's Forecast Additional Rental
exceeds Tenant's Additional Rental for said calendar year, Landlord shall
credit such amount against Rent next due hereunder or, if the Lease Term has
-5-
<PAGE>
expired or is about to expire, refund such excess to Tenant if Tenant is not
in default under this Lease (in the instance of a default such excess shall
be held as additional security for Tenant's performance, may be applied by
Landlord to cure any such default, and shall not be refunded until any such
default is cured). In the event that the Tenant's Additional Rental exceeds
Tenant's Forecast Additional Rental for said calendar year, Tenant shall pay
Landlord, within thirty (30) days of receipt of the statement, an amount
equal to such difference. The provisions of this Lease concerning the
payment of Tenant's Additional Rental shall survive the expiration or earlier
termination of this Lease.
(d) Landlord's books and records pertaining to the calculation of
Operating Expenses for any calendar year within the Lease Term may be audited
by Tenant or its representatives at Tenant's expense, at any time within
twenty four (24) months after the end of each such calendar year; provided
that Tenant shall give Landlord not less than thirty (30) days' prior written
notice of any such audit. Prior to the commencement of such audit, Tenant
shall cause its authorized representative to agree in writing for the benefit
of Landlord that such representative will keep the results of the audit
confidential and that such representative will not disclose or divulge the
results of such audit except to Tenant and Landlord and except in connection
with any dispute between Landlord and Tenant relating to Operating Expenses.
Such audit shall be conducted during reasonable business hours at Landlord's
office where Landlord's books and records are maintained. Tenant shall cause
a written audit report to be prepared by its authorized representative
following any such audit and shall provide Landlord with a copy of such
report promptly after receipt thereof by Tenant. If Landlord's calculation
of Tenant's Additional Rental for the audited calendar year was incorrect,
then Tenant shall be entitled to a prompt refund of any overpayment or Tenant
shall promptly pay to Landlord the amount of any underpayment, as the case
may be.
8. Operating Expenses.
------------------
(a) For the purposes of this Lease, "Operating Expenses" shall mean all
expenses, costs and disbursements (but not specific costs billed to specific
tenants of the Building) of every kind and nature, computed on the accrual
basis, relating to or incurred or paid in connection with the ownership,
management, operation, repair and maintenance of the Project, including but
not limited to, the following:
(1) wages, salaries and other costs of all on-site and off-site
employees engaged in the operation, management, maintenance or access control
of the Project, including taxes, insurance and benefits relating to such
employees, allocated based upon the time such employees are engaged directly
in providing such services;
(2) the cost of all supplies, tools, equipment and materials used
in the operation, management, maintenance and access control of the Project;
(3) the cost of all utilities for the Project, including but not
limited to the cost of electricity, gas, water, sewer services and power for
heating, lighting, air conditioning and ventilating;
-6-
<PAGE>
(4) the cost of all maintenance and service agreements for the
Project and the equipment therein, including but not limited to security
service, window cleaning, elevator maintenance, HVAC maintenance, janitorial
service, waste recycling service, landscaping maintenance and customary
landscaping replacement;
(5) the cost of repairs and general maintenance of the Project;
(6) amortization of the cost of acquisition and/or installation of
capital investment items (including security equipment and energy management
equipment), amortized over their respective useful lives, which are installed
for the purpose of reducing operating expenses, promoting safety, complying
with governmental requirements, or maintaining the first-class nature of the
Project;
(7) the cost of casualty, rental loss, liability and other
insurance applicable to the Project and Landlord's personal property used in
connection therewith;
(8) the cost of trash and garbage removal, vermin extermination,
and snow, ice and debris removal;
(9) the cost of legal and accounting services incurred by Landlord
in connection with the management, maintenance, operation and repair of the
Project, excluding the owner's or Landlord's general accounting and fund
accounting, such as partnership statements and tax returns, and excluding
services described in Article 8(b)(14) below;
(10) all taxes, assessments and governmental charges, whether or
not directly paid by Landlord, whether federal, state, county or municipal
and whether they be by taxing districts or authorities presently taxing the
Project or by others subsequently created or otherwise, and any other taxes
and assessments attributable to the Project or its operation (and the costs
of contesting any of the same), including without limitation assessments
under any declaration or shared costs under any easement agreement with
respect to the operation, maintenance, repair and replacement of the storm
water facilities in Centerpoint Park, and business license taxes and fees,
excluding, however, taxes and assessments imposed on the personal property of
the tenants of the Project, federal and state taxes on income, death taxes,
franchise taxes, and any taxes (other than business license taxes and fees)
imposed or measured on or by the income of Landlord from the operation of the
Project; and it is agreed that Tenant will be responsible for ad valorem
taxes on its personal property; and
(11) a management fee in the amount of four percent (4%) of the
gross rental income from the Project.
(b) For purposes of this Lease, and notwithstanding anything in any
other provision of this Lease to the contrary, "Operating Expenses" shall not
include the following:
(1) the cost of any special build-out work or service performed for
any tenant (including Tenant) at such tenant's cost;
-7-
<PAGE>
(2) the cost of installing, operating and maintaining any specialty
service, such as a restaurant, cafeteria, retail store, sundry shop,
newsstand, or concession;
(3) the cost of correcting defects in construction;
(4) compensation paid to officers and executives of Landlord;
(5) the cost of any items for which Landlord is reimbursed by
insurance, condemnation or otherwise, except for costs reimbursed pursuant to
provisions similar to Articles 7 and 8 hereof;
(6) the cost of any additions, changes, replacements and other
items which are made in order to prepare for a tenant's occupancy;
(7) the cost of repairs incurred by reason of fire or other
casualty;
(8) insurance premiums to the extent Landlord may be directly
reimbursed therefor, except for premiums reimbursed pursuant to provisions
similar to Articles 7 and 8 hereof;
(9) interest on debt or amortization payments on any mortgage or
deed of trust and rental under any ground lease or other underlying lease;
(10) any real estate brokerage commissions;
(11) any advertising expenses incurred in connection with the
marketing of any rentable space;
(12) rental payments for base building equipment such as HVAC
equipment and elevators;
(13) any expenses for repairs or maintenance which are covered by
warranties and service contracts, to the extent such maintenance and repairs
are made at no cost to Landlord;
(14) legal expenses arising out of the construction of the
improvements on the Land or the enforcement of the provisions of any lease
affecting the Land or Building, including without limitation this Lease; and
(15) costs or amounts paid to parties affiliated with Landlord or
Landlord's managing agent to the extent such costs or amounts exceed the fair
market value of the services or materials provided.
9. Tenant Taxes; Rent Taxes. Tenant shall pay promptly when due all taxes
------------------------
directly or indirectly imposed or assessed upon Tenant's gross sales, business
operations, machinery, equipment, trade fixtures and other personal property or
assets, whether such taxes are assessed against Tenant,
-8-
<PAGE>
Landlord or the Building. In the event that such taxes are imposed or assessed
against Landlord or the Building, Landlord shall furnish Tenant with all
applicable tax bills, public charges and other assessments or impositions and
Tenant shall forthwith pay the same either directly to the taxing authority or,
at Landlord's option, to Landlord. In addition, in the event there is imposed
at any time a tax upon and/or measured by the rental payable by Tenant under
this Lease, whether by way of a sales or use tax or otherwise, Tenant shall be
responsible for the payment of such tax and shall pay the same on or prior to
the due date thereof; provided, however, that the foregoing shall not include
any inheritance, estate, succession, transfer, gift or income tax imposed on or
payable by Landlord.
10. Payments. All payments of Rent and other payments to be made to
--------
Landlord shall be made on a timely basis and shall be payable to Landlord or as
Landlord may otherwise designate. All such payments shall be mailed or
delivered to Landlord's Address designated in Article 1(b) above or at such
other place as Landlord may designate from time to time in writing. If mailed,
all payments shall be mailed in sufficient time and with adequate postage
thereon to be received in Landlord's account by no later than the due date for
such payment. Tenant agrees to pay to Landlord Fifty Dollars ($50.00) for each
check presented to Landlord in payment of any obligation of Tenant which is not
paid by the bank on which it is drawn, together with interest from and after the
due date for such payment at the rate of eighteen percent (18%) per annum on the
amount due.
11. Late Charges. Any Rent or other amounts payable to Landlord under this
------------
Lease, if not paid by the fifth day of the month for which such Rent is due, or
by the due date specified on any invoices from Landlord for any other amounts
payable hereunder, shall incur a late charge of Fifty Dollars ($50.00) for
Landlord's administrative expense in processing such delinquent payment and in
addition thereto shall bear interest at the rate of eighteen percent (18%) per
annum from and after the due date for such payment. In no event shall the rate
of interest payable on any late payment exceed the legal limits for such
interest enforceable under applicable law.
12. Use Rules. The Demised Premises shall be used for executive, general
---------
administrative, office space and other similar purposes and no other purposes
and in accordance with all applicable laws, ordinances, rules and regulations of
governmental authorities, all nationally recognized industry standards
applicable to such uses and the Rules and Regulations attached hereto and made a
part hereof. Tenant covenants and agrees to abide by the Rules and Regulations
in all respects as now set forth and attached hereto or as hereafter promulgated
by Landlord. Landlord shall have the right at all times during the Lease Term
to publish and promulgate and thereafter enforce such rules and regulations or
changes in the existing Rules and Regulations as it may reasonably deem
necessary to protect the tenantability, safety, operation, and welfare of the
Demised Premises and the Project.
13. Alterations. Except for any initial improvement of the Demised Premises
-----------
pursuant to Exhibit "D", which shall be governed by the provisions of said
-----------
Exhibit "D", Tenant shall not make, suffer or permit to be made any alterations,
- -----------
additions or improvements to or of the Demised Premises or any part thereof, or
attach any fixtures or equipment thereto, without first obtaining Landlord's
written consent, which consent shall not be unreasonably withheld. Except for
Tenant's trade fixtures and personal property which are readily removable, all
such alterations, additions and improvements shall become Landlord's property at
the expiration or earlier termination of the Lease Term and shall remain on the
Demised Premises without compensation to Tenant unless Landlord elects by notice
to Tenant to have Tenant remove such alterations, additions and improvements, in
which event, notwithstanding any
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<PAGE>
contrary provisions respecting such alterations, additions and improvements
contained in Article 30 hereof, Tenant shall promptly restore, at its sole cost
and expense, the Demised Premises to its condition prior to the installation of
such alterations, additions and improvements, normal wear and tear excepted.
14. Repairs.
-------
(a) Landlord shall maintain in good order and repair, subject to normal
wear and tear and subject to casualty and condemnation, the Building
(including without limitation the roof, foundation, basement, structural
portions of interior and exterior structural walls, but excluding the Demised
Premises and other portions of the Building leased to other tenants), the
Base Building mechanical, electrical and plumbing systems within the
Building, the Building parking facilities, the common areas and the
landscaped areas. Notwithstanding the foregoing obligation, the cost of any
repairs or maintenance to the foregoing necessitated by the intentional acts
or negligence of Tenant or its agents, contractors, employees, licensees,
subtenants or assigns, shall be borne solely by Tenant and shall be deemed
Rent hereunder and shall be reimbursed by Tenant to Landlord upon demand.
Except as expressly set forth above in this Article 14(a), Landlord shall not
be required to make any repairs or improvements to the Demised Premises
except for any initial improvements to the Demised Premises pursuant to the
provisions of Exhibit "D" and except structural repairs necessary for safety
-----------
and tenantability.
(b) Tenant covenants and agrees that it will take good care of the
Demised Premises and all alterations, additions and improvements thereto and
will keep and maintain the same in good condition and repair, except for
normal wear and tear. Tenant shall at once report, in writing, to Landlord
any defective or dangerous condition known to Tenant. Except for Tenant's
rights as set forth in Article 18(e), to the fullest extent permitted by law,
Tenant hereby waives all rights to make repairs at the expense of Landlord or
in lieu thereof to vacate the Demised Premises as may be provided by any law,
statute or ordinance now or hereafter in effect. Landlord has no obligation
and has made no promise to alter, remodel, improve, repair, decorate or paint
the Demised Premises or any part thereof, except as specifically and
expressly herein set forth.
15. Landlord's Right of Entry. Landlord shall retain duplicate keys to all
-------------------------
doors of the Demised Premises and Landlord and its agents, employees and
independent contractors shall have the right to enter the Demised Premises at
reasonable hours to inspect and examine same, to make repairs, additions,
alterations, and improvements, to exhibit the Demised Premises to mortgagees,
prospective mortgagees, purchasers or tenants, and to inspect the Demised
Premises to ascertain that Tenant is complying with all of its covenants and
obligations hereunder; provided, however, that Landlord shall, except in case of
emergency, have the right to enter only with the prior knowledge of Tenant and
such entry shall be during Tenant's normal business hours (unless Tenant
otherwise consents to entry during other hours, which consent Tenant agrees not
to unreasonably withhold or delay). Landlord shall be allowed to take into and
through the Demised Premises any and all materials that may be required to make
such repairs, additions, alterations or improvements. During such time as such
work is being carried on in or about the Demised Premises, the Rent provided
herein shall not abate, and Tenant waives any claim or cause of action against
Landlord for damages by reason of interruption of Tenant's business or loss of
profits therefrom because of the prosecution of any such work or any part
thereof; provided
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<PAGE>
and on the condition that Landlord shall use all reasonable and diligent efforts
to minimize the disruption of Tenant's business and to protect Tenant's property
during such times.
16. Insurance.
---------
(a) Tenant shall procure at its expense and maintain throughout the
Lease Term a policy or policies of all-risk insurance insuring the full
replacement cost of its furniture, equipment, supplies, and other property
owned, leased, held or possessed by it and contained in the Demised Premises,
and worker's compensation insurance as required by applicable law. Tenant
shall also procure at its expense and maintain throughout the Lease Term a
policy or policies of insurance, insuring Tenant, Landlord, Landlord's
managing agent and Landlord's mortgagee, if any, against any and all
liability for injury to or death of a person or persons and for damage to
property occasioned by or arising out of any construction work being done by
Tenant or Tenant's contractors on the Demised Premises, or arising out of the
condition, use, or occupancy of the Demised Premises, or in any way
occasioned by or arising out of the activities of Tenant, its agents,
contractors or employees in the Demised Premises, or other portions of the
Building or the Project, and of Tenant's guests and licensees while they are
in the Demised Premises, the limits of such policy or policies to be in
combined single limits for both damage to property and personal injury and in
amounts not less than Three Million Dollars ($3,000,000) for each occurrence.
Such insurance shall, in addition, extend to any liability of Tenant arising
out of the indemnities provided for in this Lease. All insurance policies
procured and maintained by Tenant pursuant to this Article 16 shall name
Landlord and any additional parties designated by Landlord as additional
insured, shall be carried with companies licensed to do business in the State
of Tennessee having a rating from Best's Insurance Reports of not less than
A-/X, and shall be non-cancelable and not subject to material change except
after twenty (20) days' written notice to Landlord. Duly executed
certificates of insurance with respect to such policies shall be delivered to
Landlord prior to the date Tenant enters the Demised Premises for the
installation of its improvements, trade fixtures or furniture, and
certificates evidencing renewals of such policies shall be delivered to
Landlord at least thirty (30) days prior to the expiration of each respective
policy term.
(b) Landlord shall procure at its expense (but with the expense to be
included in Operating Expenses as provided in Article 8[a] hereof) and shall
thereafter maintain throughout the Lease Term a policy or policies of all-
risk (including rent loss coverage) real and personal property insurance with
respect to the Building (including the leasehold improvements to the Demised
Premises), insuring against loss or damage by fire and such other risks as
are from time to time included in a standard form of all-risk policy of
insurance available in the State of Tennessee. Said Building and
improvements to the Demised Premises shall be insured for the benefit of
Landlord in an amount not less than the full replacement costs thereof as
determined from time to time by the insurance company (and such insurance may
provide for a reasonable deductible). Landlord shall also procure at its
expense (but with the expense to be included in Operating Expenses as
provided in Article 8[a] hereof) and shall thereafter maintain throughout the
Lease Term a policy or policies of commercial general liability insurance
insuring against the liability of Landlord arising out of the maintenance,
use and occupancy of the Project, with limits of such policy or policies to
be in combined single limits for both damage to property and personal injury
and in amounts not less than Three Million Dollars ($3,000,000.00) for each
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<PAGE>
occurrence. Such insurance required herein shall be issued by an insurance
company licensed to do business in the State of Tennessee. Any insurance
required to be carried by Landlord hereunder may be carried under blanket
policies covering other properties of Landlord and/or its partners and/or
their respective related or affiliated corporations so long as such blanket
policies provide insurance at all times for the Project as required by this
Lease. Upon reasonable request from Tenant, Landlord will provide a
certificate of insurance evidencing the maintenance of the insurance required
herein.
17. Waiver of Subrogation. Landlord and Tenant shall each have included in
---------------------
all policies of fire, extended coverage, business interruption and loss of rents
insurance respectively obtained by them covering the Demised Premises, the
Building and contents therein, a waiver by the insurer of all right of
subrogation against the other in connection with any loss or damage thereby
insured against. Any additional premium for such waiver shall be paid by the
primary insured. To the full extent permitted by law, Landlord and Tenant each
waives all right of recovery against the other for, and agrees to release the
other from liability for, loss or damage to the extent such loss or damage is
covered by valid and collectible insurance in effect at the time of such loss or
damage or would be covered by the insurance required to be maintained under this
Lease by the party seeking recovery.
18. Default.
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(a) The following events shall be deemed to be events of default by
Tenant under this Lease: (i) Tenant shall fail to pay any installment of
Rent or any other charge or assessment against Tenant pursuant to the terms
hereof within five (5) days after receipt by Tenant of notice in writing from
Landlord; provided, however, such notice and such grace period shall be
required to be provided by Landlord and shall be accorded Tenant if
necessary, only two times during any consecutive twelve month period of the
Lease Term, and in the event of default shall be deemed to have immediately
occurred upon the third failure by Tenant to make a timely payment as
aforesaid within any consecutive twelve (12) month period of the Lease Term,
it being intended by the parties hereto that such notice and such grace
period shall protect against infrequent unforeseen clerical errors beyond the
control of Tenant, and shall not protect against Tenant's lack of diligence
of planning in connection with its obligation to make timely payment of rent
and other amounts due hereunder; (ii) Tenant shall fail to comply with any
term, provision, covenant or warranty made under this Lease by Tenant, other
than the payment of the Rent or any other charge or assessment payable by
Tenant, and shall not cure such failure within thirty (30) days after notice
thereof to Tenant provided, however, in the case of a failure or breach which
is capable of being remedied by Tenant but which cannot with due diligence be
remedied by Tenant within a period of thirty (30) days, if Tenant proceeds as
promptly as may be reasonably possible after the service of such notice and
with all due diligence to remedy the failure or breach and thereafter to
prosecute the remedying of such failure or breach with all due diligence,
Tenant shall have an additional period of time, not to exceed ninety (90)
days (for a total of one hundred twenty (120) days from the service of such
notice), in which to effect such cure; (iii) Tenant or any guarantor of this
Lease shall make a general assignment for the benefit of creditors, or shall
admit in writing its inability to pay its debts as they become due, or shall
file a petition in bankruptcy, or shall be adjudicated as bankrupt or
insolvent, or shall file a petition in any proceeding seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, or shall file
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<PAGE>
an answer admitting or fail timely to contest the material allegations of a
petition filed against it in any such proceeding; (iv) a proceeding is
commenced against Tenant or any guarantor of this Lease seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, and such proceeding shall not have been dismissed or discharged
within sixty (60) days after the commencement thereof; (v) a receiver or
trustee shall be appointed for the Demised Premises or for all or
substantially all of the assets of Tenant or of any guarantor of this Lease;
(vi) Tenant shall fail to take possession of the Demised Premises as provided
in this Lease; (vii) Tenant shall do or permit to be done anything which
creates a lien upon the Demised Premises or the Project and such lien is not
removed or discharged by bond or otherwise (or by the posting of such
security with Landlord as Landlord shall determine, in Landlord's sole
discretion) within thirty (30) days after the filing thereof; (viii) Tenant
shall fail to return a properly executed instrument to Landlord in accordance
with the provisions of Article 26 hereof within the time period provided for
such return following Landlord's request for same as provided in Article 26;
(ix) Tenant shall fail to return a properly executed estoppel certificate to
Landlord in accordance with the provisions of Article 27 hereof within the
time period provided for such return following Landlord's request for same as
provided in Article 27; or (x) Tenant shall fail, for any reason whatsoever,
to maintain the Original Letter of Credit or any Replacement Letter of Credit
(as those terms are defined in Article 39 hereof) in full force and effect at
all times during the Security Period (as that term is defined in Article 39
hereof).
(b) Upon the occurrence of any of the aforesaid events of default,
Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever: (i) terminate this Lease,
in which event Tenant shall immediately surrender the Demised Premises to
Landlord and if Tenant fails to do so, Landlord may without prejudice to any
other remedy which it may have for possession or arrearages in Rent, enter
upon and take possession of the Demised Premises and expel or remove Tenant
and any other person who may be occupying said Demised Premises or any part
thereof without being liable for prosecution or any claim of damages
therefor; Tenant hereby agreeing to pay to Landlord on demand the amount of
all loss and damage which Landlord may suffer by reason of such termination,
whether through inability to relet the Demised Premises on satisfactory terms
or otherwise; (ii) terminate Tenant's right of possession (but not this
Lease) and enter upon and take possession of the Demised Premises and expel
or remove Tenant and any other person who may be occupying said Demised
Premises or any part thereof, by entry, dispossessory suit or otherwise,
without thereby releasing Tenant from any liability hereunder, without
terminating this Lease, and without being liable for prosecution or any claim
of damages therefor and, if Landlord so elects, make such alterations,
redecorations and repairs as, in Landlord's judgment, may be necessary to
relet the Demised Premises, and Landlord may, but shall be under no
obligation to do so, relet the Demised Premises or any portion thereof in
Landlord's or Tenant's name, but for the account of Tenant, for such term or
terms (which may be for a term extending beyond the Lease Term) and at such
rental or rentals and upon such other terms as Landlord may reasonably deem
advisable, with or without advertisement, and by private negotiations, and
receive the rent therefor, Tenant hereby agreeing to pay to Landlord the
deficiency, if any, between all Rent reserved hereunder and the total rental
applicable to the Lease Term hereof obtained by Landlord re-letting, and
Tenant shall be liable for Landlord's expenses in redecorating and restoring
the Demised Premises and all costs incident to such re-letting, including
broker's commissions and lease
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<PAGE>
assumptions, and in no event shall Tenant be entitled to any rentals received
by Landlord in excess of the amounts due by Tenant hereunder; or (iii) enter
upon the Demised Premises without being liable for prosecution or any claim
of damages therefor, and do whatever Tenant is obligated to do under the
terms of this Lease; and Tenant agrees to reimburse Landlord on demand for
any expenses including, without limitation, reasonable attorneys' fees which
Landlord may incur in thus effecting compliance with Tenant's obligations
under this Lease and Tenant further agrees that Landlord shall not be liable
for any damages resulting to Tenant from such action, whether caused by
negligence of Landlord or otherwise. If Landlord shall reenter the Demised
Premises and take possession from Tenant without terminating this Lease,
provided that Tenant has vacated the Demised Premises and is not contesting
Landlord's right to the possession of the Demised Premises, Landlord will use
reasonable efforts to relet the Demised Premises and thereby mitigate the
damages which Landlord shall incur. Tenant hereby agrees that Landlord's
agreement to use reasonable efforts to relet the Demised Premises in order to
mitigate Landlord's damages shall not be deemed to impose upon Landlord any
obligation to relet the Demised Premises (i) for any purpose other than use
permitted under this Lease or (ii) to any Tenant who is not financially
capable of performing the duties and obligations imposed upon Tenant under
this Lease, or (iii) to prefer the Demised Premises over any other space
available in the Building. If this Lease is terminated by Landlord as a
result of the occurrence of an event of default, Landlord may declare to be
due and payable immediately, the present value (calculated with a discount
factor of eight percent [8%] per annum) of the difference between (x) the
entire amount of Rent and other charges and assessments which in Landlord's
reasonable determination would become due and payable during the remainder of
the Lease Term determined as though this Lease had not been terminated
(including, but not limited to, increases in Rent pursuant to this Lease),
and (y) the then fair market rental value of the Demised Premises for the
remainder of the Lease Term. Upon the acceleration of such amounts, Tenant
agrees to pay the same at once, together with all Rent and other charges and
assessments theretofore due, at Landlord's address as provided herein, it
being agreed that such payment shall not constitute a penalty or forfeiture
but shall constitute liquidated damages for Tenant's failure to comply with
the terms and provisions of this Lease (Landlord and Tenant agreeing that
Landlord's actual damages in such event are impossible to ascertain and that
the amount set forth above is a reasonable estimate thereof).
(c) Pursuit of any of the foregoing remedies shall not preclude pursuit
of any other remedy herein provided or any other remedy provided by law or at
equity, nor shall pursuit of any remedy herein provided constitute an
election of remedies thereby excluding the later election of an alternate
remedy, or a forfeiture or waiver of any Rent or other charges and
assessments payable by Tenant and due to Landlord hereunder or of any damages
accruing to Landlord by reason of violation of any of the terms, covenants,
warranties and provisions herein contained. No reentry or taking possession
of the Demised Premises by Landlord or any other action taken by or on behalf
of Landlord shall be construed to be an acceptance of a surrender of this
Lease or an election by Landlord to terminate this Lease unless written
notice of such intention is given to Tenant. Forbearance by Landlord to
enforce one or more of the remedies herein provided upon an event of default
shall not be deemed or construed to constitute a waiver of such default. In
determining the amount of loss or damage which Landlord may suffer by reason
of termination of this Lease or the deficiency arising by reason of any
reletting of the Demised Premises by Landlord as above provided, allowance
shall be made for the expense of repossession. Tenant agrees to pay to
Landlord all costs and expenses incurred by Landlord in the enforcement of
this
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<PAGE>
Lease, including, without limitation, the fees of Landlord's attorneys as
provided in Article 24 hereof.
(d) The abandonment or vacation of the Demised Premises shall not be an
event of default by Tenant under this Lease, but in the event Tenant shall
abandon or vacate the Demised Premises for more than ninety (90) days, unless
due to a casualty, condemnation or remodeling (which remodeling is being
diligently prosecuted), Landlord may, at any time while such abandonment or
vacation of the Demised Premises is continuing, notify Tenant of Landlord's
election to terminate this Lease, in which event this Lease shall terminate
on the date so selected by Landlord in Landlord's written election to
terminate this Lease, and on the date so set forth in Landlord's written
election, this Lease shall terminate and come to an end as though the date
selected by Landlord were the last day of the natural expiration of the Lease
Term; provided, however, that no such termination shall affect or limit any
obligations or liabilities of Tenant arising or accruing under this Lease
prior to the effective date of any such termination; and provided further
that Tenant may rescind Landlord's election by (i) notifying Landlord in
writing, within ten (10) days after receipt of Landlord's written election to
terminate this Lease, that Tenant will reoccupy the Demised Premises for
business purposes and (ii) in fact, so reoccupying the Demised Premises for
business purposes within sixty (60) days thereafter.
(e) If Landlord shall default in the performance of any of its
obligations under this Lease in a way which materially affects the use or
tenantability of the Demised Premises, and such default shall continue for
thirty (30) days after notice from Tenant specifying Landlord's default
(except that if such default cannot be cured within said thirty [30] day
period, this period shall be extended for a reasonable additional time,
provided that Landlord commences to cure such default within the thirty [30]
day and proceeds diligently thereafter to effect such cure), Tenant may,
without prejudice to any of its other rights under this Lease, correct or
cure such default by Landlord and invoice Landlord the cost and expenses
incurred by Tenant therefor, and Landlord shall reimburse Tenant within
thirty (30) days following receipt of such invoice. If Landlord shall fail
to reimburse Tenant for such cost and expenses within such thirty (30) day
period, Tenant shall have the right to deduct such cost and expenses from
Base Rental thereafter due hereunder, provided, however, that in the event
Landlord notifies Tenant that it disputes the existence of any such default,
during the pendency of such dispute, Tenant may pay the amount in dispute to
an independent escrow agent of its choice to be held by the agent pending
resolution of the dispute. Tenant shall not be deemed to be in default
hereunder by reason of such payment until the dispute is resolved in favor of
Landlord and Tenant fails to cause the agent to pay the amount determined to
be payable to Landlord within ten (10) days after Tenant is notified of the
determination. Tenant and Landlord shall negotiate in good faith to resolve
the dispute by agreement.
19. Waiver of Breach. No waiver of any breach of the covenants, warranties,
----------------
agreements, provisions, or conditions contained in this Lease shall be construed
as a waiver of said covenant, warranty, provision, agreement or condition or of
any subsequent breach thereof, and if any breach shall occur and afterwards be
compromised, settled or adjusted, this Lease shall continue in full force and
effect as if no breach had occurred.
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<PAGE>
20. Assignment and Subletting. Tenant shall not, without the prior written
-------------------------
consent of Landlord, assign this Lease or any interest herein or in the Demised
Premises, or mortgage, pledge, encumber, hypothecate or otherwise transfer or
sublet the Demised Premises or any part thereof or permit the use of the Demised
Premises by any party other than Tenant. Consent to one or more such transfers
or subleases shall not destroy or waive this provision, and all subsequent
transfers and subleases shall likewise be made only upon obtaining the prior
written consent of Landlord. Without limiting the foregoing prohibition, in no
event shall Tenant assign this Lease or any interest herein, whether directly,
indirectly or by operating of law, or sublet the Demised Premises or any part
thereof or permit the use of the Demised Premises or any part thereof by any
party (i) if the proposed assignee or subtenant is a party who would (or whose
use would) detract from the character of the Building as a first-class building,
such as, without limitation, a dental, medical or chiropractic office or a
governmental office, (ii) if the proposed use of the Demised Premises shall
involve an occupancy rate of more than one (1) person per 200 square feet of
Rentable Floor Area within the Demised Premises, (iii) if the proposed
assignment or subletting shall be to a governmental subdivision or agency or any
person or entity who enjoys diplomatic or sovereign immunity, (iv) if such
proposed assignee or subtenant is an existing tenant of the Building, or (v) if
such proposed assignment, subletting or use would contravene any restrictive
covenant (including any exclusive use) granted to any other tenant of the
Building. Notwithstanding the foregoing prohibition, Tenant shall have the
right, without the consent of Landlord but with prior notice to Landlord, to
assign this Lease or sublet the entire Premises to an entity which is more than
fifty percent (50%) owned, directly or indirectly, by Tenant, or to an entity
which directly or indirectly owns more than fifty percent (50%) of Tenant, or to
an entity which is more than fifty percent (50%) owned, directly or indirectly,
by an entity which itself owns, directly or indirectly, more than fifty percent
(50%) of Tenant. No assignment of this Lease or subletting of the Demised
Premises shall relieve Tenant of any liability arising under this Lease.
Sublessees or transferees of the Demised Premises for the balance of the Lease
Term shall become directly liable to Landlord for all obligations of Tenant
hereunder, without relieving Tenant (or any guarantor of Tenant's obligations
hereunder) of any liability therefor, and Tenant shall remain obligated for all
liability to Landlord arising under this Lease during the entire remaining Lease
Term including any extensions thereof, whether or not authorized herein. If
Tenant is a partnership, a withdrawal or change, whether voluntary, involuntary
or by operation of law, of partners owning a controlling interest in the Tenant
shall be deemed a voluntary assignment of this Lease and subject to the
foregoing provisions. If Tenant is a corporation, any dissolution, merger,
consolidation or other reorganization of Tenant, or the sale or transfer of a
controlling interest in the capital stock of Tenant, shall be deemed a voluntary
assignment of this Lease and subject to the foregoing provisions. Landlord may,
as a prior condition to considering any request for consent to an assignment or
sublease (when Landlord's consent is required), require Tenant to obtain and
submit current financial statements of any proposed subtenant or assignee. In
the event Landlord consents to an assignment or sublease, Tenant shall pay to
Landlord a fee to cover Landlord's reasonable accounting costs plus any legal
fees incurred by Landlord as a result of the assignment or sublease. Landlord
may require an additional security deposit from the assignee as a condition of
its consent. Any consideration, in excess of the Rent and other charges and
sums due and payable by Tenant under this Lease, paid to Tenant by any assignee
of this Lease for its assignment, or by any sublessee under or in connection
with its sublease (when Landlord's consent is required), or otherwise paid to
Tenant by another party for use and occupancy of the Demised Premises or any
portion thereof, shall be retained by Tenant and Landlord shall have no right or
claim thereto as against Tenant. No assignment of this Lease consented to by
Landlord shall be effective unless and until Landlord shall receive an original
assignment and assumption agreement, in form and substance reasonably
satisfactory to Landlord, signed by Tenant and Tenant's proposed
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<PAGE>
assignee, whereby the assignee assumes due performance of this Lease to be done
and performed for the balance of the then remaining Lease Term of this Lease. No
subletting of the Demised Premises, or any part thereof, shall be effective
unless and until there shall have been delivered to Landlord an agreement, in
form and substance reasonably satisfactory to Landlord, signed by Tenant and the
proposed sublessee, whereby the sublessee acknowledges the right of Landlord to
continue or terminate any sublease, in Landlord's sole discretion, upon
termination of this Lease, and such sublessee agrees to recognize and attorn to
Landlord in the event that Landlord elects under such circumstances to continue
such sublease.
21. Destruction.
-----------
(a) If the Demised Premises are damaged by fire or other casualty, the
same shall be repaired or rebuilt as speedily as practical under the
circumstances at the expense of the Landlord, unless this Lease is terminated
as provided in this Article 21, and during the period required for
restoration, a just and proportionate part of Base Rental shall be abated
until the Demised Premises are repaired or rebuilt.
(b) If the Demised Premises are damaged or destroyed by fire or other
casualty, Landlord shall give Tenant written notice (the "Repair Notice")
within thirty (30) days after the date of the casualty specifying Landlord's
reasonable estimate of the time period to complete the repairs of such damage
or destruction. If the Demised Premises are (i) damaged to such an extent
that repairs cannot, in Landlord's judgment, be completed within one hundred
fifty (150) days after the date of the casualty or (ii) damaged or destroyed
as a result of a risk which is not insured under standard fire insurance
policies with extended coverage endorsement, or (iii) damaged or destroyed
during the last six (6) months of the Lease Term, or if the Building is
damaged in whole or in part (whether or not the Demised Premises are
damaged), to such an extent that the Building cannot, in Landlord's judgment,
be operated economically as an integral unit, then and in any such event
Landlord may at its option terminate this Lease by notice in writing to the
Tenant within sixty (60) days after the date of such occurrence. If the
Demised Premises are damaged to such an extent that repairs cannot, in
Landlord's judgment, be completed within one hundred fifty (150) days after
the date of the casualty or if the Demised Premises are substantially damaged
during the last six (6) months of the Lease Term, then in either such event
Tenant may elect to terminate this Lease by notice in writing to Landlord
within ten (10) days after the date of the Repair Notice. Unless Landlord or
Tenant elects to terminate this Lease as hereinabove provided, this Lease
will remain in full force and effect and Landlord shall repair such damage at
its expense to the extent required under this Article as expeditiously as
possible under the circumstances.
(c) If Landlord should elect or be obligated pursuant to subparagraph
(a) above to repair or rebuild because of any damage or destruction,
Landlord's obligation shall be limited to the original Building and the
leasehold improvements in the Demised Premises and shall not extend to any
furniture, equipment, supplies or other personal property owned or leased by
Tenant, its employees, contractors, invitees or licensees. If the cost of
performing such repairs exceeds the actual proceeds of insurance paid or
payable to Landlord on account of such casualty, or if Landlord's mortgagee
or the lessor under a ground or underlying lease shall require that any
insurance proceeds from a casualty loss be paid to it, Landlord may terminate
this Lease unless Tenant, within thirty (30) days after demand therefor,
deposits with Landlord a sum of money
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<PAGE>
sufficient to pay the difference between the cost of repair and the proceeds
of the insurance available to Landlord for such purpose. If Landlord should
elect or be obligated pursuant to subparagraph (a) above to repair or rebuild
because of any damage or destruction, Landlord shall make available to Tenant
on an "as-is" basis (and solely for the time period from the date of the
casualty to the date the repairs have been completed, whereupon the term with
respect to such temporary space shall be deemed to terminate) any vacant
space in the Building which is suitable and available for immediate occupancy
and is reasonably expected to remain so available until such time as the
repairs to the Demised Premises have been completed (and Landlord shall have
no obligation to perform or install tenant improvements or otherwise finish
such space), and Tenant shall pay Landlord the same Base Rental and other
charges with respect to such temporary space on a square foot basis as Tenant
would then be required under this Lease to pay with respect to such temporary
space were such space part of the Demised Premises, and the terms and
provisions of this Lease [excluding, however, the construction obligations of
Landlord and the obligations with respect to the Construction Allowance,
Redecoration Allowance, Furniture Allowance, and reimbursement for costs of
Plans and Specifications] shall apply to such space as if such space were
part of the Demised Premises.
(d) In no event shall Landlord be liable for any loss or damage
sustained by Tenant by reason of casualties mentioned hereinabove or any
other accidental casualty.
22. Intentionally Omitted.
---------------------
23. Services by Landlord. Landlord shall provide the Building Standard
--------------------
Services described on Exhibit "E" attached hereto and by reference made a part
-----------
hereof.
24. Attorneys' Fees and Homestead. In the event Landlord or Tenant defaults
-----------------------------
in the performance of any of the terms, agreements or conditions contained in
this Lease and the non-defaulting party places the enforcement of this Lease, or
any part thereof, or the collection of any Rent due or to become due hereunder,
or recovery of the possession of the Demised Premises, in the hands of an
attorney, or files suit upon the same, and should such non-defaulting party
prevail in such suit, the defaulting party, to the extent permitted by
applicable law, agrees to pay the non-defaulting party all reasonable attorney's
fees actually incurred by the non-defaulting party. Tenant waives all homestead
rights and exemptions which it may have under any law as against any obligation
owing under this Lease, and assigns to Landlord its homestead and exemptions to
the extent necessary to secure payment and performance of its covenants and
agreements hereunder.
25. Time. Time is of the essence of this Lease and whenever a certain day
----
is stated for payment or performance of any obligation of Tenant or Landlord,
the same enters into and becomes a part of the consideration hereof.
26. Subordination, Attornment and Non-Disturbance.
---------------------------------------------
(a) Existing Security Deeds or Underlying Leases. Landlord represents
--------------------------------------------
and warrants to Tenant that (i) as of the date of this Lease, Landlord owns
or has a valid contract to acquire fee simple title to the Land, and (ii) as
of the later of the date of this Lease or the date Landlord acquires fee
simple title to the Land, the Land is (or will be) free and clear of any
mortgages,
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<PAGE>
deeds to secure debt, deeds of trust or other such financing instruments
(each a "Security Deed") or any ground or underlying leases.
(b) Subordination. Tenant agrees that upon request from the Landlord,
-------------
from the holder or proposed holder of any Security Deed or from the lessor or
proposed lessor under any underlying lease, Tenant shall execute a
subordination, non-disturbance and attornment agreement ("non-disturbance
agreement") subordinating this Lease to the interest of such holder or lessor
and their respective heirs, successors and assigns. The holder of any such
Security Deed or the lessor under any such underlying lease shall agree in
such nondisturbance agreement that, so long as Tenant complies with all of
the terms and conditions of this Lease and is not in default hereunder beyond
the period of cure of such default as provided herein, such holder or lessor
or any person or entity acquiring the interest of the Landlord under this
Lease as a result of the enforcement of such Security Deed or lease or deed
in lieu thereof (the "Successor Landlord") shall not take any action to
disturb Tenant's possession of the Demised Premises during the remainder of
the Lease Term and any extension or renewal thereof and the Successor
Landlord shall recognize all of Tenant's rights under this Lease, despite any
foreclosure, lease termination or other action by such holder or lessor,
including, without limitation, the taking of possession of the Demised
Premises or any portion thereof by the Successor Landlord or the exercise of
any assignment of rents by the holder or lessor. In any such non-disturbance
agreement, Tenant shall agree to give the holder of the Security Deed (or, in
the case of an underlying lease, the lessor thereunder) notice of defaults by
Landlord hereunder (but only to the address previously supplied to Tenant in
writing) at the same time as such notice is given to Landlord and time
periods to cure such defaults which are the same as those granted to Landlord
hereunder (which time period shall run from and after such notice is given to
such holder or lessor), and Tenant shall further agree that any Successor
Landlord shall not be personally liable for any accrued obligation of the
former landlord, or for any act or omission of the former landlord, whether
prior to or after such enforcement proceedings, nor be subject to any
counterclaims which shall have accrued to Tenant against the former landlord
prior to the date upon which such party shall become the owner of the Demised
Premises. Such non-disturbance agreement shall also provide for the
attornment by Tenant to the Successor Landlord and shall provide that such
Successor Landlord shall not be (a) subject to any offsets which the Tenant
might have against the former landlord (other than any payments made to cure
a default by Landlord); or (b) bound by any Base Rental or any other payments
(other than any payments made to cure a default by Landlord) which the Tenant
under this Lease might have paid for more than one (1) month in advance to
any former landlord under this Lease. Landlord will join in the signing of
the non-disturbance agreement, and such non-disturbance agreement will be in
the form suitable for recording in the deed records of Knox County,
Tennessee.
(c) Election by Mortgagee. If the holder of any Security Deed or any
---------------------
lessor under a ground or underlying lease elects to have this Lease superior
to its Security Deed or lease and signifies its election in the instrument
creating its lien or lease or by separate instrument recorded in connection
with or prior to a foreclosure, or in the foreclosure deed itself, then this
Lease shall be superior to such Security Deed or lease.
27. Estoppel Certificates. Within thirty (30) days after request therefor
---------------------
by Landlord, Tenant agrees to execute and deliver to Landlord in recordable form
an estoppel certificate addressed to
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Landlord, any mortgagee or assignee of Landlord's interest in, or purchaser of,
the Demised Premises or the Building or any part thereof, certifying (if such be
the case) that this Lease is unmodified and is in full force and effect (and if
there have been modifications, that the same is in full force and effect as
modified and stating said modifications); that there are no defenses or offsets
against the enforcement thereof or stating those claimed by Tenant; and stating
the date to which Rent and other charges have been paid. Such certificate shall
also include such other information as may reasonably be required by such
mortgagee, proposed mortgagee, assignee, purchaser or Landlord. Any such
certificate may be relied upon by Landlord, any mortgagee, proposed mortgagee,
assignee, purchaser and any other party to whom such certificate is addressed.
28. Cumulative Rights. All rights, powers and privileges conferred
-----------------
hereunder upon the parties hereto shall be cumulative to, but not restrictive
of, or in lieu of those conferred by law.
29. Holding Over. If Tenant remains in possession after expiration or
------------
termination of the Lease Term with or without Landlord's written consent, Tenant
shall become a tenant-at-sufferance, and there shall be no renewal of this Lease
by operation of law. During the period of any such holding over, all provisions
of this Lease shall be and remain in effect except that the monthly rental shall
be one hundred and fifty percent (150%) of the amount of Rent (including any
adjustments as provided herein) payable for the last full calendar month of the
Lease Term including renewals or extensions. The inclusion of the preceding
sentence in this Lease shall not be construed as Landlord's consent for Tenant
to hold over.
30. Surrender of Premises. Upon the expiration or other termination of this
---------------------
Lease, Tenant shall quit and surrender to Landlord the Demised Premises and
every part thereof and all alterations, additions and improvements thereto,
broom clean and in good condition and state of repair, reasonable wear and tear
only excepted. Tenant shall remove Tenant's trade fixtures and all personalty
and equipment not attached to the Demised Premises which it has placed upon the
Demised Premises, and Tenant shall restore the Demised Premises to the condition
immediately preceding the time of placement thereof. If Tenant shall fail or
refuse to remove all of Tenant's effects, personalty and equipment from the
Demised Premises upon the expiration or termination of this Lease for any cause
whatsoever or upon the Tenant being dispossessed by process of law or otherwise,
such effects, personalty and equipment shall be deemed conclusively to be
abandoned and may be appropriated, sold, stored, destroyed or otherwise disposed
of by Landlord without obligation to account for them. Tenant shall pay
Landlord on demand any and all expenses incurred by Landlord in the removal of
such property, including, without limitation, the cost of repairing any damage
to the Building or Project caused by the removal of such property and storage
charges (if Landlord elects to store such property). The covenants and
conditions of this Article 30 shall survive any expiration or termination of
this Lease.
31. Notices. All notices required or permitted to be given hereunder shall
-------
be in writing and may be delivered in person to either party or may be sent by
courier or by United States Mail, certified, return receipt requested, postage
prepaid. Any such notice shall be deemed received by the party to whom it was
sent (i) in the case of personal delivery or courier delivery, on the date of
delivery to such party, and (ii) in the case of certified mail, the date receipt
is acknowledged on the return receipt for such notice or, if delivery is
rejected or refused or the U.S. Postal Service is unable to deliver same because
of changed address of which no notice was given pursuant hereto, the first date
of such rejection, refusal or inability to deliver. All such notices shall be
addressed to Landlord or Tenant at their respective
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address set forth hereinabove or at such other address as either party shall
have theretofore given to the other by notice as herein provided.
32. Damage or Theft of Personal Property. All personal property brought
------------------------------------
into Demised Premises by Tenant, or Tenant's employees or business visitors,
shall be at the risk of Tenant only, and Landlord shall not be liable for theft
thereof or any damage thereto occasioned by any act of co-tenants, occupants,
invitees or other users of the Building or any other person, unless such theft
or damage is the result of the act of Landlord or its employees and Landlord is
not relieved therefrom by Article 17 hereof. Unless caused by the negligence of
Landlord or its employees, Landlord shall not at any time be liable for damage
to any property in or upon the Demised Premises which results from power surges
or other deviations from the constancy of the electrical service or from gas,
smoke, water, rain, ice or snow which issues or leaks from or forms upon any
part of the Building or from the pipes or plumbing work of the same, or from any
other place whatsoever.
33. Eminent Domain.
--------------
(a) If all or part of the Demised Premises shall be taken for any public
or quasi-public use by virtue of the exercise of the power of eminent domain
or by private purchase in lieu thereof, this Lease shall terminate as to the
part so taken as of the date of taking, and, in the case of a partial taking,
either Landlord or Tenant shall have the right to terminate this Lease as to
the balance of the Demised Premises by written notice to the other within
thirty (30) days after such date; provided, however, that a condition to the
exercise by Tenant of such right to terminate shall be either (i) that more
than fifteen percent (15%) of the Demised Premises was taken or (ii) that the
portion of the Demised Premises taken shall be of such extent and nature as
substantially to handicap, impede or impair Tenant's use of the balance of
the Demised Premises. If title to so much of the Building is taken that a
reasonable amount of reconstruction thereof will not in Landlord's sole
discretion result in the Building being a practical improvement and
reasonably suitable for use for the purpose for which it is designed, then
this Lease shall terminate on the date that the condemning authority actually
takes possession of the part so condemned or purchased.
(b) If this Lease is terminated under the provisions of this Article 33,
Rent shall be apportioned and adjusted as of the date of termination. Tenant
shall have no claim against Landlord or against the condemning authority for
the value of any leasehold estate or for the value of the unexpired Lease
Term provided that the foregoing shall not preclude any claim that Tenant may
have against the condemning authority for the unamortized cost of leasehold
improvements, to the extent the same were installed at Tenant's expense (and
not with the proceeds of the Construction Allowance), or for loss of
business, moving expenses or other consequential damages, in accordance with
subparagraph (d) below.
(c) If there is a partial taking of the Building and this Lease is not
thereupon terminated under the provisions of this Article 33, then this Lease
shall remain in full force and effect, and Landlord shall, within a
reasonable time thereafter, repair or reconstruct the remaining portion of
the Building to the extent necessary to make the same a complete
architectural unit; provided that in complying with its obligations hereunder
Landlord shall not be required to expend more than the net proceeds of the
condemnation award which are paid to Landlord.
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<PAGE>
(d) All compensation awarded or paid to Landlord upon a total or partial
taking of the Demised Premises or the Building shall belong to and be the
property of Landlord without any participation by Tenant. All compensation
awarded or paid to Landlord upon a temporary taking of all or any portion of
the Demised Premises with respect to which Tenant exercises Tenant's right to
terminate under Article 33(e) shall belong to and be the property of Landlord
without any participation by Tenant. Nothing herein shall be construed to
preclude Tenant from prosecuting any claim directly against the condemning
authority for loss of business, for damage to, and cost of removal of, trade
fixtures, furniture and other personal property belonging to Tenant, and for
the unamortized cost of leasehold improvements to the extent same were
installed at Tenant's expense (and not with the proceeds of the Construction
Allowance). In no event shall Tenant have or assert a claim for the value of
any unexpired term of this Lease. Subject to the foregoing provisions of
this subparagraph (d), Tenant hereby assigns to Landlord any and all of its
right, title and interest in or to any compensation awarded or paid as a
result of any such taking.
(e) Notwithstanding anything to the contrary contained in this Article
33, if, during the Lease Term, the use or occupancy of any part of the
Building or the Demised Premises shall be taken or appropriated temporarily
for any public or quasi-public use under any governmental law, ordinance, or
regulations, or by right of eminent domain, this Lease shall be and remain
unaffected by such taking or appropriation and Tenant shall continue to pay
in full all Rent payable hereunder by Tenant during the Lease Term; provided,
however, that if Landlord reasonably estimates that the temporary taking will
continue for a period in excess of ninety (90) days, Tenant shall have the
right to terminate this Lease solely with respect to the portion of the
Demised Premises which is the subject of such temporary taking by giving
Landlord written notice of such termination within fifteen (15) days after
the date of such temporary taking. In the event of any such temporary
appropriation or taking with respect to which Tenant does not exercise the
right of termination set forth in the sentence immediately preceding this
sentence, Tenant shall be entitled to receive that portion of any award which
represents compensation for the loss of use or occupancy of the Demised
Premises during the Lease Term, and Landlord shall be entitled to receive
that portion of any award which represents the cost of restoration and
compensation for the loss of use or occupancy of the Demised Premises after
the end of the Lease Term. In the event of any such temporary appropriation
or taking with respect to which Tenant exercises the right of termination set
forth in the first sentence of this Article 33(e), Landlord shall be entitled
to receive that portion of any award which represents compensation for the
loss of use or occupancy of the portion of the Demised Premises with respect
to which such termination is effective.
34. Parties. The term "Landlord", as used in this Lease, shall include
-------
Landlord and its assigns and successors. It is hereby covenanted and agreed by
Tenant that should Landlord's interest in the Demised Premises cease to exist
for any reason during the Lease Term, then notwithstanding the happening of such
event, this Lease nevertheless shall remain in full force and effect, and Tenant
hereby agrees to attorn to the then owner of the Demised Premises. The term
"Tenant" shall include Tenant and its heirs, legal representatives and
successors, and shall also include Tenant's assignees and sublessees, if this
Lease shall be validly assigned or the Demised Premises sublet for the balance
of the Lease Term or any renewals or extensions thereof. In addition, Landlord
and Tenant covenant and agree that Landlord's right to transfer or assign
Landlord's interest in and to the Demised Premises, or any part or
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<PAGE>
parts thereof, shall be unrestricted, and that in the event of any such transfer
or assignment by Landlord which includes the Demised Premises, Landlord's
obligations to Tenant thereafter arising hereunder shall cease and terminate,
and Tenant shall look only and solely to Landlord's assignee or transferee for
performance thereof.
35. Indemnification. Tenant hereby indemnifies Landlord from and agrees to
---------------
hold Landlord harmless against, any and all liability, loss, cost, damage or
expense, including, without limitation, court costs and reasonable attorney's
fees, imposed on Landlord by any person whomsoever, caused in whole or in part
by any negligent act or omission of Tenant, or any of its employees,
contractors, servants, agents, subtenants or assignees, or of Tenant's invitees
while such invitees are within the Demised Premises or the Building, or
otherwise occurring in connection with any default of Tenant hereunder except
for such matters as are caused by the gross negligence or willful misconduct of
Landlord, its employees, agents, contractors and subcontractors. Landlord
hereby indemnifies Tenant from and agrees to hold Tenant harmless against, any
and all liability, loss, cost, damage or expense, including, without limitation,
court costs and reasonable attorney's fees, imposed on Tenant by any person
whomsoever, caused in whole or in part by any negligent act or omission of
Landlord, or any of its employees, contractors, servants, agents, subtenants or
assignees, or of Landlord's invitees while such invitees are within the Demised
Premises or the Building, or otherwise occurring in connection with any default
of Landlord hereunder except for such matters as are caused by the gross
negligence or willful misconduct of Tenant, its employees, agents, contractors
and subcontractors. The provisions of this Article 35 shall survive any
termination of this Lease.
36. Force Majeure. In the event of strike, lockout, labor trouble, civil
-------------
commotion, act of God, or any other cause beyond a party's control (collectively
"force majeure") resulting in the Landlord's inability to supply the services or
perform the other obligations required of Landlord hereunder, then, except for
the express rights of termination granted to Tenant elsewhere in this Lease,
this Lease shall not terminate and Tenant's obligation to pay Rent and all other
charges and sums due and payable by Tenant shall not be affected or excused and
Landlord shall not be considered to be in default under this Lease. If, as a
result of force majeure, Tenant is delayed in performing any of its obligations
under this Lease, other than Tenant's obligation to take possession of the
Demised Premises on or before the Rental Commencement Date and to pay Rent and
all other charges and sums payable by Tenant hereunder, Tenant's performance
shall be excused for a period equal to such delay and Tenant shall not during
such period be considered to be in default under this Lease with respect to the
obligation, performance of which has thus been delayed.
37. Landlord's Liability. Landlord shall have no personal liability with
--------------------
respect to any of the provisions of this Lease. If Landlord is in default with
respect to its obligations under this Lease, Tenant shall look for satisfaction
of Tenant's remedies, if any, solely to the equity of Landlord in and to the
Building and the Land described in Exhibit "A" hereto and to the proceeds of
-----------
Landlord's insurance policy or policies actually paid to Landlord and not
applied by Landlord by the applicable claim or to the restoration of the
Building as required by the terms of this Lease (unless same are not so applied
because such proceeds are required by the holder of a mortgage to be paid to it
to reduce the debt secured by such mortgage). It is expressly understood and
agreed that Landlord's liability under the terms of this Lease shall in no event
exceed the amount of its interest in and to said Land and Building and the
aforedescribed proceeds of insurance. In no event shall any partner of Landlord
nor any joint venturer in Landlord, nor
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any officer, director or shareholder of Landlord or any such partner or joint
venturer of Landlord be personally liable with respect to any of the provisions
of this Lease.
38. Landlord's Covenant of Quiet Enjoyment. Provided Tenant performs the
--------------------------------------
terms, conditions and covenants of this Lease, and subject to the terms and
provisions hereof, Landlord covenants and agrees to take all necessary steps to
secure and to maintain for the benefit of Tenant the quiet and peaceful
possession, occupancy and use of the Demised Premises, for the Lease Term,
without hindrance, claim or molestation by Landlord or any other person lawfully
claiming under Landlord.
39. Letter of Credit.
----------------
(a) As security for the performance by Tenant of its obligations under
this Lease, Tenant hereby covenants and agrees that it shall obtain and
maintain in full force and effect at all times during the time period
commencing on the date of execution of this Lease through the tenth (10th)
anniversary of the Rental Commencement Date (such period of time being
referred to herein as the "Security Period") an irrevocable stand-by letter
of credit or irrevocable stand-by replacement letter of credit subject to and
in accordance with the terms and conditions set forth below (such letters of
credit and replacement letters of credit required to be provided hereunder
being herein individually referred to as a "Letter of Credit" and
collectively as the "Letters of Credit"; the initial Letter of Credit in the
amount of $4,000,000 delivered hereunder and any replacement of such initial
Letter of Credit that has a term which includes any period of time prior to
the Rental Commencement Date is sometimes referred to herein as the "Original
Letter of Credit"; and any subsequent Letter of Credit issued after the
Rental Commencement Date is sometimes herein referred to as a "Replacement
Letter of Credit"). Landlord and Tenant acknowledge that in lieu of issuing
a replacement of the initial or any subsequent Letter of Credit, the issuer
of the then existing Letter of Credit may elect to amend the then existing
Letter of Credit to extend the maturity date thereof as required hereunder
and, if applicable, reduce the amount of the Letter of Credit to the amount
required to be maintained hereunder as of the date such reduction is
permitted hereunder (it being understood and agreed that such amendment(s)
shall be limited to such matters only), by issuing an amendment to the then
existing Letter of Credit, in which case the "Original Letter of Credit" or
the "Replacement Letter of Credit" shall be deemed to be the then existing
Letter of Credit, as so amended.
(b) Each Letter of Credit issued hereunder shall (i) be in the form of
an irrevocable credit; (ii) be issued by an "Approved Issuer" (as hereinafter
defined); (iii) name Landlord as the beneficiary and will state that it is
transferable by Landlord to the assigns of Landlord's interest in this Lease
upon notice from Landlord, the payment of the issuer's transfer charges as
set forth in the applicable Letter of Credit and compliance with the issuer's
customary requirements relating to such transfers (each Letter of Credit
shall expressly contain an acknowledgement by the issuer that such Letter of
Credit can be transferred by Landlord to any holder of any mortgage on
Landlord's interest in the Project to secure such holder's mortgage); and
(iv) specify that Landlord, as beneficiary, may draw against the Letter of
Credit, without documents other than the sight draft and certification set
forth below, at any time and from time to time until the expiration thereof
at one or more designated branches of the issuing bank in Atlanta, Georgia,
or at one or more designated bank counters at designated offices of the
issuing bank in either Atlanta, Georgia, or New York City, New York, in a
single drawing for the full amount of such
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<PAGE>
Letter of Credit, upon presentation of a sight draft and written
certification from Landlord, as beneficiary, that a "Drawing Event" described
in Article 39(l) of this Lease has occurred and is continuing under this
Lease and that Landlord has the right to draw against the Letter of Credit
for the sum set forth in the sight draft under the provisions of this Article
39. "Approved Issuer" shall mean: (x) Svenska Handelsbanken (or its
successor) for so long as Svenska Handelsbanken (or its successor) (A) shall
maintain a banking office with banking counters in either or both of Atlanta,
Georgia, and New York City, New York, and (B) shall have and maintain a
Moody's Bank Credit Report Service rating of P-1 (or, if Moody's subsequently
uses a different scale, the rating which would be equivalent to the current
P-1, or if Moody's dissolves or otherwise becomes defunct, the rating of
another nationally recognized rating service which would be equivalent to the
current P-1); or (y) such other national banking association which Tenant, in
its discretion, may designate and which shall be approved by Landlord in its
reasonable discretion, provided and for so long as such national banking
association (A) shall maintain a banking office with banking counters in
either or both of Atlanta, Georgia, and New York City, New York, and (B)
shall have and maintain a Moody's Bank Credit Report Service rating of P-1
(or, if Moody's subsequently uses a different scale, the rating which would
be equivalent to the current P-1, or if Moody's dissolves or otherwise
becomes defunct, the rating of another nationally recognized rating service
which would be equivalent to the current P-1). The Original Letter of Credit
shall have an initial expiration date of the first anniversary of the date of
this Lease, but Tenant shall maintain the Original Letter of Credit in effect
in accordance with the provisions of Article 39(c) until at least ninety (90)
days after the Rental Commencement Date, the first Replacement Letter of
Credit shall have an expiration date of the first anniversary of the Rental
Commencement Date, the second Replacement Letter of Credit shall have an
expiration date of the second anniversary of the Rental Commencement Date,
the third Replacement Letter of Credit shall have an expiration date of the
third anniversary of the Rental Commencement Date, the fourth Replacement
Letter of Credit shall have an expiration date of the fourth anniversary of
the Rental Commencement Date, the fifth Replacement Letter of Credit shall
have an expiration date of the fifth anniversary of the Rental Commencement
Date, the sixth Replacement Letter of Credit shall have an expiration date of
the sixth anniversary of the Rental Commencement Date, the seventh
Replacement Letter of Credit shall have an expiration date of the seventh
anniversary of the Rental Commencement Date, the eighth Replacement Letter of
Credit shall have an expiration date of the eighth anniversary of the Rental
Commencement Date, the ninth Replacement Letter of Credit shall have an
expiration date of the ninth anniversary of the Rental Commencement Date, and
the tenth Replacement Letter of Credit shall have an expiration date of the
tenth anniversary of the Rental Commencement Date. The Letters of Credit
shall be in the following amounts for the following time periods:
Amount of
Time Period Letter of Credit
-----------------------------------------------
Date of execution of this $4,000,000.00
-------------
Lease to 7th anniversary of
Rental Commencement Date
7th anniversary of Rental $3,000,000.00
-------------
Commencement Date to
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8th anniversary of Rental
Commencement Date
8th anniversary of Rental $2,000,000.00
-------------
Commencement Date to
9th anniversary of Rental
Commencement Date
9th anniversary of Rental $1,000,000.00
-------------
Commencement Date to
10th anniversary of Rental
Commencement Date
(c) The Original Letter of Credit shall have a term of approximately one
(1) year and shall be delivered to Landlord by Tenant simultaneously with the
execution of this Lease. Tenant shall maintain the Original Letter of Credit
in effect (either by replacement thereof or amendment thereto) for a term
which extends at least ninety (90) days after the Rental Commencement Date
(the ninetieth (90th) day preceding the expiration of the Original Letter of
Credit is herein defined as the "Replacement Date" applicable to the Original
Letter of Credit). Accordingly, at least ninety (90) days prior to the
expiration of the Original Letter of Credit, Tenant shall cause the
expiration date of the Original Letter of Credit to be extended (either by
issuance of a replacement of the then existing Original Letter of Credit or
an appropriate amendment thereto) to the end that the Original Letter of
Credit shall at all times by maintained in effect by Tenant for a term which
extends at least ninety (90) days after the Rental Commencement Date. If the
replacement of or amendment to the then existing Original Letter of Credit is
issued on or after the Rental Commencement Date, such replacement Letter of
Credit or amended Letter of Credit, as the case may be, shall constitute the
first Replacement Letter of Credit, and such first Replacement Letter of
Credit shall have an expiration date of the first anniversary of the Rental
Commencement Date. At least ninety (90) days prior to each of the first,
second, third, fourth, fifth, sixth, seventh, eighth and ninth anniversaries
of the Rental Commencement Date (the ninetieth (90th) day preceding each such
anniversary being herein referred to as a "Replacement Date"), a Replacement
Letter of Credit replacing the expiring Letter of Credit which must be
effective (i.e., capable of being drawn upon) on or before the expiration
date of the expiring Letter of Credit (the actual date of delivery of each
Replacement Letter of Credit being herein referred to as a "Letter Delivery
Date") and shall expire on the second (2nd) Rental Commencement Date
anniversary following such Letter Delivery Date, shall be delivered to
Landlord by Tenant; it being understood and agreed by Tenant that,
notwithstanding any other term or provision of this Article 39 [but subject
to the terms of Article 39(f)], a Letter of Credit in the applicable amount
required pursuant to the schedule above shall be outstanding and in full
force and effect at all times during the Security Period. Tenant's
obligation to maintain a Letter of Credit hereunder shall cease and expire on
the tenth (10th) anniversary of the Rental Commencement Date.
(d) Upon receipt of any newly issued Letter of Credit (if same is a
newly issued Letter of Credit, as opposed to an amendment of the then
existing Letter of Credit), and provided that such newly issued Letter of
Credit becomes effective on or before the date of delivery thereof
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to Landlord, Landlord shall deliver to Tenant (or, at the direction of
Tenant, the issuing bank) the expiring Letter of Credit in exchange for the
newly issued Letter of Credit. Upon receipt of any newly issued Letter of
Credit which becomes effective after the date of delivery thereof to
Landlord, Landlord shall deliver to Tenant (or, at Tenant's direction, the
issuing bank) the expiring Letter of Credit on the effective date of the
newly issued Letter of Credit (unless Landlord has drawn on such expiring
Letter of Credit in accordance with this Article 39), it being understood and
agreed that in such case the expiring Letter of Credit shall remain in full
force and effect until the effective date of the newly issued Letter of
Credit. Notwithstanding any other provision of this Article 39 to the
contrary, each Replacement Letter of Credit having an effective date prior to
the expiration date of the expiring Letter of Credit shall be in the amount
of the expiring Letter of Credit from the applicable Letter Delivery Date
until the next anniversary date of the Rental Commencement Date and then
shall automatically (by the terms of such Replacement Letter of Credit)
reduce to the applicable lower amount set forth on the schedule above as of
such anniversary date. All fees, premiums and other sums charged by the
issuing bank for each Letter of Credit shall be paid by Tenant, and not
Landlord.
(e) In the event that a Drawing Event occurs under this Lease, it is
understood and agreed that Landlord shall thereupon have the right, in its
discretion and at any time during the continuance of such Drawing Event, to
draw upon the full face amount of the then outstanding Letter of Credit.
(f) The failure by Tenant, for any reason whatsoever, to maintain the
Original Letter of Credit or any Replacement Letter of Credit in full force
and effect at all times during the Security Period shall constitute an
immediate Drawing Event and an immediate event of default hereunder (no
notice and right to cure period or grace period shall be a condition to such
failure constituting an event of default hereunder notwithstanding the
provisions of Article 18 of this Lease) and, in addition to (and not in lieu
of) all other rights and remedies available to Landlord under this Lease or
at law or in equity, Landlord shall have the right to sue Tenant for specific
performance of its obligation to deliver and maintain the applicable Letter
of Credit.
(g) It is understood and agreed that the Letters of Credit are required
to be issued hereunder as security for the performance of Tenant's
obligations under this Lease after the occurrence of a Drawing Event and,
notwithstanding any other term or provision of this Article 39 or elsewhere
in this Lease, such Letters of Credit and the receipt of the proceeds
therefrom are not intended by Landlord and Tenant to be, and shall not be
construed or deemed to be, liquidated damages or a cap, restriction or
limitation of any kind or sort on or with respect to any of Landlord's rights
and remedies under this Lease or at law or in equity by virtue of the
occurrence of a Drawing Event or of an event of default; it being understood
and agreed by Tenant that Landlord hereby expressly reserves all rights and
remedies against Tenant, including without limitation a suit or suits for
monetary damages, available to it under this Lease and at law or in equity
because of a Drawing Event or an event of default.
(h) Any proceeds received by Landlord from any Letter of Credit
(hereinafter called the "Proceeds") shall be applied by Landlord first toward
the performance of Tenant's obligations which Tenant has failed to perform
under this Lease, and the remainder, if any, shall be held by Landlord, in
such "Permitted Investments" (as hereinafter defined) as Landlord shall
determine,
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in Landlord's sole discretion, as additional security for the faithful
performance by Tenant throughout the Security Period of all the terms and
conditions of the Lease on the part of Tenant to be performed. If all or any
part of the Proceeds is or are so applied by Landlord, then Tenant shall
immediately upon demand from Landlord pay to Landlord an amount sufficient to
return the Proceeds to an amount equal to the amount set forth in Article
39(b) as the amount of the Letter of Credit which was otherwise required to
be maintained by Tenant at such time. In no event shall Landlord be
responsible or liable for any decrease in the Proceeds invested in Permitted
Investments. Any interest earned on the Proceeds shall become part of the
Proceeds. Permitted Investments shall mean, collectively, (a) direct
obligations of the United States of America or of any agency or political
subdivision thereof, or obligations guaranteed as to principal and interest
by the United States or by any agency or political subdivision thereof, in
any case maturing not more than ninety (90) days from the date of acquisition
thereof; (b) certificates of deposit issued by any bank having capital,
surplus and undivided profits of at least U.S.$200,000,000 and a long-term
unsecured senior debt rating of at least "A" by Standard & Poor's and "A2" by
Moody's, in any case maturing not more than ninety (90) days from the date of
acquisition thereof; and (c) commercial paper rated "P-1" or better by
Moody's or "A-1" or better by Standard & Poor's, in any case maturing not
more than ninety (90) days from the date of acquisition thereof. If, on the
seventh (7th) anniversary of the Commencement Date no event of default then
exists under this Lease and the Proceeds in Landlord's possession in excess
of the unreimbursed amounts incurred by or owed to Landlord in connection
with any default by Tenant under this Lease equal or exceed $3,000,000.00,
Landlord shall refund to Tenant the amount by which the Proceeds in excess of
such unreimbursed amounts equal or exceed $3,000,000.00. If, on the eighth
(8th) anniversary of the Commencement Date no event of default then exists
under this Lease and the Proceeds in Landlord's possession in excess of the
unreimbursed amounts incurred by or owed to Landlord in connection with any
default by Tenant under this Lease equal or exceed $2,000,000.00, Landlord
shall refund to Tenant the amount by which the Proceeds in excess of such
unreimbursed amounts equal or exceed $2,000,000.00. If, on the ninth (9th)
anniversary of the Commencement Date no event of default then exists under
this Lease and the Proceeds in Landlord's possession in excess of the
unreimbursed amounts incurred by or owed to Landlord in connection with any
default by Tenant under this Lease equal or exceed $1,000,000.00, Landlord
shall refund to Tenant the amount by which the Proceeds in excess of such
unreimbursed amounts equal or exceed $1,000,000.00. If, on the tenth (10th)
anniversary of the Commencement Date no event of default then exists under
this Lease and there are any Proceeds in Landlord's possession in excess of
the unreimbursed amounts incurred by or owed to Landlord in connection with
any default by Tenant under this Lease, Landlord shall refund to Tenant such
excess. If no event of default then exists under this Lease and Tenant
delivers to Landlord a Letter of Credit complying in all respects with the
terms of this Lease, in the amount of the Letter of Credit that would then be
required to be in effect had Landlord not drawn on the previous Letter of
Credit, then upon such delivery, Landlord shall refund to Tenant the Proceeds
then held by Landlord.
(i) Landlord shall have the right to apply all or any part of the
Proceeds toward the performance of Tenant's obligations which Tenant has
failed to perform under this Lease.
(j) In the event of a sale or transfer of Landlord's interest in the
Demised Premises or the Building or a lease by Landlord of the Building,
Landlord shall have the right to transfer
-28-
<PAGE>
the Proceeds to the purchaser or lessee, as the case may be, and Landlord
shall be relieved of all liability to Tenant for the return of the Proceeds.
The Tenant shall look solely to the new owner or lessor for the return of the
Proceeds. The Proceeds shall not be mortgaged, assigned or encumbered by
Tenant. In the event of a permitted assignment or subletting under this
Lease by Tenant, the Proceeds shall be held by Landlord as a deposit made by
the permitted assignee or subtenant and the Landlord shall have no further
liability with respect to the return of the Proceeds to the original Tenant.
(k) Landlord shall keep the Proceeds in Permitted Investments separate
from its general accounts.
(l) "Drawing Event" shall mean any one or more of the following:
(i) an event of default under Article 18(a)(i) of this
Lease;
(ii) an event of default under Article 18(a)(ii) of this
Lease with respect to which Landlord performs Tenant's unperformed
obligation and incurs costs in connection with such performance;
(iii) any event of default under Article 18(a)(iii), (iv),
(v), (vi) or (x);
(iv) any other event of default under Article 18 with respect
to which Landlord has exercised or is simultaneously exercising one
or more of Landlord's remedies under Article 18(b)(i) or (ii).
40. Hazardous Substances. Tenant hereby covenants and agrees that Tenant
--------------------
shall not cause or permit any "Hazardous Substances" (as hereinafter defined) to
be generated, placed, held, stored, used, located or disposed of at the Project
or any part thereof, except for Hazardous Substances as are commonly and legally
used or stored as a consequence of using the Demised Premises for general office
and administrative purposes (and, if permitted hereunder, medical treatment and
medical laboratory purposes), but only so long as the quantities thereof do not
pose a threat to public health or to the environment or would necessitate a
"response action", as that term is defined in CERCLA (as hereinafter defined),
and so long as Tenant strictly complies or causes compliance with all applicable
governmental rules and regulations concerning the use, storage, production,
transportation and disposal of such Hazardous Substances. For purposes of this
Article 40, "Hazardous Substances" shall mean and include those elements or
compounds which are contained in the list of Hazardous Substances adopted by the
United States Environmental Protection Agency (EPA) or in any list of toxic
pollutants designated by Congress or the EPA or which are defined as hazardous,
toxic, pollutant, infectious or radioactive by any other federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to or imposing liability (including, without limitation, strict
liability) or standards of conduct concerning, any hazardous, toxic or dangerous
waste, substance or material, as now or at any time hereinafter in effect
(collectively "Environmental Laws"). Tenant hereby agrees to indemnify Landlord
and hold Landlord harmless from and against any and all losses, liabilities,
including strict liability, damages, injuries, expenses, including reasonable
attorneys' fees, costs of settlement or judgment and claims of any and every
kind whatsoever paid, incurred or suffered by, or asserted against, Landlord by
any person, entity or governmental agency for, with respect to, or as a direct
or indirect result of, the
-29-
<PAGE>
presence in, or the escape, leakage, spillage, discharge, emission or release
from, the Demised Premises of any Hazardous Substances (including, without
limitation, any losses, liabilities, including strict liability, damages,
injuries, expenses, including reasonable attorneys' fees, costs of any
settlement or judgment or claims asserted or arising under the Comprehensive
Environmental Response, Compensation and Liability Act ["CERCLA"], any so-called
federal, state or local "Superfund" or "Superlien" laws or any other
Environmental Law); provided, however, that the foregoing indemnity is limited
to matters arising solely from Tenant's violation of the covenant contained in
this Article. The obligations of Tenant under this Article shall survive any
expiration or termination of this Lease.
41. Submission of Lease. The submission of this Lease for examination does
-------------------
not constitute an offer to lease and this Lease shall be effective only upon
execution hereof by Landlord and Tenant.
42. Severability. If any clause or provision of the Lease is illegal,
------------
invalid or unenforceable under present or future laws, the remainder of this
Lease shall not be affected thereby, and in lieu of each clause or provision of
this Lease which is illegal, invalid or unenforceable, there shall be added as a
part of this Lease a clause or provision as nearly identical to the said clause
or provision as may be legal, valid and enforceable.
43. Entire Agreement. This Lease contains the entire agreement of the
----------------
parties and no representations, inducements, promises or agreements, oral or
otherwise, between the parties not embodied herein shall be of any force or
effect. No failure of Landlord to exercise any power given Landlord hereunder,
or to insist upon strict compliance by Tenant with any obligation of Tenant
hereunder, and no custom or practice of the parties at variance with the terms
hereof, shall constitute a waiver of Landlord's right to demand exact compliance
with the terms hereof. No failure of Tenant to exercise any power given Tenant
hereunder, or to insist upon strict compliance by Landlord with any obligation
of Landlord hereunder, and no custom or practice of the parties at variance with
the terms hereof, shall constitute a waiver of Tenant's right to demand exact
compliance with the terms hereof. This Lease may not be altered, waived,
amended or extended except by an instrument in writing signed by Landlord and
Tenant. This Lease is not in recordable form, and Tenant agrees not to record
or cause to be recorded this Lease or any short form or memorandum thereof.
44. Headings. The use of headings herein is solely for the convenience of
--------
indexing the various paragraphs hereof and shall in no event be considered in
construing or interpreting any provision of this Lease.
45. Broker. Tenant represents and warrants to Landlord that (except with
------
respect to any Broker[s] identified in Article 1[m] hereinabove) no broker,
agent, commission salesperson, or other person has represented Tenant in the
negotiations for and procurement of this Lease and of the Demised Premises and
that (except with respect to any Broker[s] identified in Article 1[m]
hereinabove) no commissions, fees, or compensation of any kind are due and
payable in connection herewith to any broker, agent, commission salesperson, or
other person as a result of any act or agreement of Tenant. Tenant agrees to
indemnify and hold Landlord harmless from all loss, liability, damage, claim,
judgment, cost or expense (including reasonable attorneys' fees and court costs)
suffered or incurred by Landlord as a result of a breach by Tenant of the
representation and warranty contained in the immediately preceding sentence or
as a result of Tenant's failure to pay commissions, fees, or compensation due to
any broker who represented Tenant, whether or not disclosed, or as a result of
any claim for any fee,
-30-
<PAGE>
commission or similar compensation with respect to this Lease made by any
broker, agent or finder (other than the Broker[s] identified in Article 1[m]
hereinabove) claiming to have dealt with Tenant. Tenant shall cause any agent
or broker representing Tenant to execute a lien waiver to and for the benefit of
Landlord, waiving any and all lien rights with respect to the Building and Land
which such agent or broker has or might have under Tennessee law. Landlord
agrees to indemnify and hold Tenant harmless from all loss, liability, damage,
claim, judgement, cost or expense, (including reasonable attorney's fees and
court costs) suffered or incurred by Tenant as a result of Landlord's failure to
pay commissions, fees or compensation due to any broker who represented
Landlord, whether or not disclosed, with respect to this Lease, including any
Broker identified in Article 1(m).
46. Governing Law. The laws of the State of Tennessee shall govern the
-------------
validity, performance and enforcement of this Lease.
47. Special Stipulations. The special stipulations attached hereto as
--------------------
Exhibit "F" are hereby incorporated herein by this reference as though fully set
- -----------
forth.
48. Authority. Each of the persons executing this Lease on behalf of Tenant
---------
does hereby personally represent and warrant that Tenant is a duly incorporated
and validly existing corporation and is fully authorized and qualified to do
business in the State of Tennessee, that the corporation has full right and
authority to enter into this Lease, and that each person signing on behalf of
the corporation is an officer of the corporation and is authorized to sign on
behalf of the corporation. Upon the request of Landlord, Tenant shall deliver
to Landlord documentation satisfactory to Landlord evidencing Tenant's
compliance with this Article, and Tenant agrees to promptly execute all
necessary and reasonable applications or documents as reasonably requested by
Landlord, required by the jurisdiction in which the Demised Premises is located,
to permit the issuance of necessary permits and certificates for Tenant's use
and occupancy of the Demised Premises.
49. Delayed Occupancy. If Substantial Completion has not occurred on or
-----------------
before December 1, 1997 (extended on a day for day basis for delays due to force
majeure and for delays caused by Tenant), Tenant's sole right and remedy shall
be for Landlord to reimburse tenant for rental and operating expense costs
incurred by Tenant for holding over in Tenant's current premises located at 1400
Centerpoint Boulevard, Knoxville, Tennessee 37932 during the "Delay Period" (as
hereinafter defined), but only to the extent such costs, computed on a per diem
basis, exceed the per diem rental and operating expense costs payable by Tenant
for the last twelve months of the term of Tenant's current lease. "Delay
Period" shall mean the time period beginning on the date set forth above in this
Article 49 (as extended) and ending on the earlier to occur of (x) the date of
Substantial Completion, or (y) the date of termination of this Lease. Such
amount shall be payable by Landlord to Tenant on the date Tenant occupies the
Premises for the conduct of Tenant's business.
-31-
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as of
the day, month and year first above written.
WELLS REAL ESTATE FUND IX, L.P.
a Georgia limited partnership
By: /s/ Leo F. Wells, III (SEAL)
--------------------------------
Leo F. Wells, III,
General Partner
By: Wells Partners, L.P., a Georgia
limited partnership, General
Partner
By: Wells Capital, Inc., a Georgia
corporation, General Partner
By: /s/ Leo F. Wells, III
----------------------------
Leo F. Wells, III,
President
[CORPORATE SEAL]
"TENANT":
ABB FLAKT, INC., a Delaware corporation
By: /s/ Jan G.Kreminski
---------------------------------------
Its: Senior Vice President
Attest: /s/ Thomas E. Liggett
-----------------------------------
Its: Assistant Secretary
(CORPORATE SEAL)
-32-
<PAGE>
RULES AND REGULATIONS
1. No sign, picture, advertisement or notice visible from the exterior of the
Demised Premises shall be installed, affixed, inscribed, painted or otherwise
displayed by Tenant on any part of the Demised Premises or the Building
unless the same is first approved by Landlord. Any such sign, picture,
advertisement or notice approved by Landlord shall be painted or installed
for Tenant at Tenant's cost by Landlord or by a party approved by Landlord.
No awnings, curtains, blinds, shades or screens shall be attached to or hung
in, or used in connection with any window or door of the Demised Premises
without the prior consent of the Landlord, including approval by the Landlord
of the quality, type, design, color and manner of attachment.
2. Tenant agrees that its use of electrical current shall never exceed the
capacity of existing feeders, risers or wiring installation provided as
Building Standard Services (see Exhibit "H").
-----------
3. The Demised Premises shall not be used for storage of merchandise held for
sale to the general public. Tenant shall not do or permit to be done in or
about the Demised Premises or Building anything which shall increase the rate
of insurance on said Building or obstruct or interfere with the rights of
other lessees of Landlord or annoy them in any way, including, but not
limited to, using any musical instrument, making loud or unseemly noises, or
singing, etc. The Demised Premises shall not be used for sleeping or
lodging. No cooking or related activities shall be done or permitted by
Tenant in the Demised Premises except with permission of Landlord. Tenant
will be permitted to use for its own employees within the Demised Premises
Underwriters' Laboratory approved equipment for brewing coffee, tea, hot
chocolate and similar beverages, provided that such use is in accordance with
all applicable federal, state, county and city laws, codes, ordinances, rules
and regulations. No vending machines of any kind will be installed,
permitted or used on any part of the Demised Premises without the prior
consent of Landlord. No part of said Building or Demised Premises shall be
used for gambling, immoral or other unlawful purposes. No intoxicating
beverage shall be sold in said Building or Demised Premises without prior
written consent of the Landlord. No area outside of the Demised Premises
shall be used for storage purposes at any time.
4. No birds or animals of any kind shall be brought into the Building (other
than trained seeing-eye dogs required to be used by the visually impaired).
No bicycles, motorcycles or other motorized vehicles shall be brought into
the Building.
5. The sidewalks, entrances, passages, corridors, halls, elevators, and
stairways in the Building shall not be obstructed by Tenant or used for any
purposes other than those for which same were intended as ingress and egress.
No windows, floors or skylights that reflect or admit light into the Building
shall be covered or obstructed by Tenant. Toilets, wash basins and sinks
shall not be used for any purpose other than those for which they were
constructed, and no sweeping, rubbish, or other obstructing or improper
substances shall be thrown therein. Any damage resulting to them, or to
heating apparatus, from misuse by Tenant or its employees, shall be borne by
Tenant.
<PAGE>
6. Five (5) keys for the front door and five (5) keys for the rear door will be
furnished Tenant without charge. Landlord may make a reasonable charge for
any additional keys. No additional lock, latch or bolt of any kind shall be
placed upon any door nor shall any changes be made in existing locks without
written consent of Landlord and Tenant shall in each such case furnish
Landlord with a key for any such lock. At the termination of the Lease,
Tenant shall return to Landlord all keys furnished to Tenant by Landlord, or
otherwise procured by Tenant, and in the event of loss of any keys so
furnished, Tenant shall pay to Landlord the cost thereof.
7. Landlord shall have the right to prescribe the weight, position and manner of
installation of heavy articles such as safes, machines and other equipment
brought into the Building. No safes, furniture, boxes, large parcels or
other kind of freight shall be taken to or from the Demised Premises or
allowed in any elevator, hall or corridor except at times allowed by
Landlord. In no event shall any weight be placed upon any floor by Tenant so
as to exceed the design conditions of the floors at the applicable locations.
8. Tenant shall not cause or permit any gases, liquids or odors to be produced
upon or permeate from the Demised Premises, and, except in the case of normal
and customary medical supplies, no flammable, combustible or explosive fluid,
chemical or substance shall be brought into the Building.
9. Landlord may implement an electronic cipher lock access security system to
control access during times other than the Building Operating Hours.
Landlord shall not be liable for excluding any person from the Building
during such other times, or for admission of any person to the Building at
any time, or for damages or loss for theft resulting therefrom to any person,
including Tenant.
10. Unless agreed to in writing by Landlord, Tenant shall not employ any person
other than Landlord's contractors for the purpose of cleaning and taking
care of the Demised Premises. Cleaning service will not be furnished on
nights when rooms are occupied after 6:30 p.m., unless, by agreement in
writing, service is extended to a later hour for specifically designated
rooms. Landlord shall not be responsible for any loss, theft, mysterious
disappearance of or damage to, any property, however occurring.
11. No connection shall be made to the electric wires or gas or electric
fixtures, without the consent in writing on each occasion of Landlord. All
glass, locks and trimmings in or upon the doors and windows of the Demised
Premises shall be kept whole and in good repair. Tenant shall not injure,
overload or deface the Building, the woodwork or the walls of the Demised
Premises, nor permit upon the Demised Premises any noisome, noxious, noisy
or offensive business.
12. If Tenant requires wiring for a bell or buzzer system, such wiring shall be
done by the electrician of the Landlord only, and no outside wiring men
shall be allowed to do work of this kind unless by the written permission of
Landlord or its representatives. Any wiring for telephone service must be
approved by Landlord, and no boring or cutting for wiring shall be done
unless approved by Landlord or its representatives, as stated.
-2-
<PAGE>
13. Tenant and its employees and invitees shall observe and obey all parking and
traffic regulations as imposed by Landlord. All vehicles shall be parked
only in areas designated for vehicle parking by Landlord.
14. Canvassing, peddling, soliciting and distribution of handbills or any other
written materials in the Building are prohibited, and Tenant shall cooperate
to prevent the same.
15. Landlord shall have the right to change the name of the Building and to
change the street address of the Building, provided that in the case of a
change in the street address, Landlord shall give Tenant not less than 180
days' prior notice of the change, unless the change is required by
governmental authority.
16. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular lessee, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of any other
lessee, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the other lessees of the Building.
17. These Rules and Regulations are supplemental to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of any premises in the Building.
18. Landlord reserves the right upon fifteen (15) days' prior written notice to
Tenant to make such other and reasonable Rules and Regulations as in its
judgment may from time to time be needed for the safety, care and
cleanliness of the Building and the Land, and for the preservation of good
order therein.
-3-
<PAGE>
DEVELOPMENT AGREEMENT
---------------------
THIS AGREEMENT, made and entered into this 10th day of December, 1996, by
and between WELLS REAL ESTATE FUND IX, L.P., a Georgia limited partnership
(hereinafter referred to as the "Owner"), and ADEVCO CORPORATION, a Georgia
corporation (hereinafter referred to as the "Manager").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Owner owns or has the contractual right to acquire that
certain parcel of land located in Knoxville, Knox County, Tennessee, on which
the Owner proposes to develop and construct an office building with related
parking, landscaping and other site work pursuant to plans and specifications
prepared and to be prepared by Smallwood, Reynolds, Stewart, Stewart &
Associates, Inc.; and
WHEREAS, the Owner desires to engage the Manager as an independent
contractor, upon the terms and conditions set forth herein, to supervise and to
manage the development and construction of such building and other improvements
and to lease vacant space in such building; and
WHEREAS, the Manager desires to perform such services for the Owner in
consideration of the compensation set forth herein.
NOW, THEREFORE, for and in consideration of the premises, the sum of Ten
Dollars ($10.00) in hand paid by each party to the other, and the mutual
promises, obligations and agreements contained herein, the Owner and the
Manager, intending to be, and being, legally bound, do hereby agree as follows:
ARTICLE 1
---------
DEFINITIONS
-----------
For purposes of this Agreement, each of the following terms shall, when
used herein with an initial capital letter, have the meaning hereinbelow set
forth.
ABB Flakt. The term "ABB Flakt" means ABB Flakt, Inc.
---------
ABB Lease. The term "ABB Lease" means the Lease between Owner and ABB
---------
Flakt dated December 10, 1996.
ABB Work Fee. The term "ABB Work Fee" means the fee to be paid to the
------------
Manager by the Owner as provided in Section 11.3 hereof.
Agreement. The term "Agreement" means this Development Agreement, together
---------
with all amendments hereto and all exhibits attached hereto.
Architect. The term "Architect" means the architectural firm of Smallwood,
---------
Reynolds, Stewart, Stewart & Associates, Inc., and any other firm employed by
the Owner as an architect with respect to the Project.
Architect's Agreement. The term "Architect's Agreement" means the
---------------------
agreement(s) between the Owner and the Architect under which the Architect has
been or shall be engaged to prepare architectural designs, plans, drawings and
specifications for the Project and to render other services in connection with
the design and construction of the Project. The Architect's Agreement is
incorporated herein by this reference.
<PAGE>
Building. The term "Building" means a first-class, multiple tenant three-
--------
story office building, containing approximately 87,091 gross square feet and
83,520 net rentable square feet, which the Owner intends to develop and
construct upon the Land.
Completion Date. The term "Completion Date" means the first day on which
---------------
all of the following have occurred: (i) the construction and equipping of the
Project has been completed in accordance with Architect's plans and
specifications (inclusive of landscaping plans, to the extent that landscaping
can feasibly be installed due to the season), as evidenced by a certificate to
such effect from the Architect, (ii) the Tenant Improvements for the space in
the Building to be occupied by ABB Flakt have been completed in accordance with
the working drawings and specifications for such space, as evidenced by a
certificate to such effect from the Architect, (iii) permanent certificates of
occupancy or their equivalent have been issued by the appropriate governmental
authority with respect to the base building and with respect to the space in the
Building to be occupied by ABB Flakt, (iv) the term of the ABB Lease has
commenced, (v) ABB Flakt has executed and delivered the ABB Lease, and (vi) ABB
Flakt has executed and delivered to the "Landlord" under the ABB Lease an
estoppel certificate substantially in the form attached hereto as Exhibit "E"
-----------
and by reference made a part hereof.
Construction Agreement. The term "Construction Agreement" means,
----------------------
collectively, the construction contract between the Owner and the Contractor
with respect to the Project and such other construction or employment agreements
as may be hereafter entered into by the Owner and a general contractor or
special purpose contractor with respect to the performance of work or the
providing of services to the Project. The Construction Agreement is
incorporated herein by this reference.
Contractor. The term "Contractor" means, collectively, Integra
----------
Construction, Inc. and all other firms employed by the Owner as a general
contractor or as a special purpose contractor with respect to the Project; and
singly any such general or special purpose contractor.
Development Budget. The term "Development Budget" means the budget, a copy
------------------
of which is attached hereto and made a part hereof as Exhibit "B", which sets
-----------
forth the Manager's best estimate of all expenses to be incurred with respect to
the acquisition of the Land, the planning, design, development, construction and
completion of the Project, and the Tenant Improvements for ABB Flakt.
Development Fee. The term "Development Fee" means the fee to be paid to
---------------
the Manager by the Owner as provided in Section 11.2 hereof.
Development Functions. The term "Development Functions" means those
---------------------
functions of the Manager set forth in Section 4.2 of this Agreement.
Development Period. The term "Development Period" means the period
------------------
commencing on the date of this Agreement and terminating on the date which is
three (3) months after the Completion Date.
Event of Default. The term "Event of Default" means any one or more of the
----------------
events described in Section 14.1 of this Agreement.
Kraxberger. The term "Kraxberger" means David M. Kraxberger, an individual
----------
residing in Cobb County, Georgia.
Land. The term "Land" means that certain parcel of land located in
----
Knoxville, Knox County, Tennessee, as more particularly shown or described on
Exhibit "A" attached hereto and by this reference made a part hereof.
- -----------
Manager. The term "Manager" means Adevco Corporation, a Georgia
-------
corporation.
2
<PAGE>
Monthly Report. The term "Monthly Report" means the report to be prepared
--------------
by the Manager and submitted to the Owner on a monthly basis as provided in
Section 7.2 hereof.
Owner. The term "Owner" means Wells Real Estate Fund IX, L.P., a Georgia
-----
limited partnership.
Project. The term "Project" means the Land, the Building, and the Site
-------
Improvements, collectively.
Site Improvements. The term "Site Improvements" means the surface level
-----------------
parking facilities, sufficient to accommodate approximately 320 automobiles, any
and all on and off-site road improvements, walkways, complete utilities and
drainage systems, landscaping work, exterior lighting, ground-mounted signs and
other site improvements which the Owner intends to develop and construct upon
the Land.
Small Tenant Leasing Fee. The term "Small Tenant Leasing Fee" means the
------------------------
fee to be paid to the Manager by the Owner as provided in Sections 11.5 and 12.3
hereof.
Small Tenant Work Fee. The term "Small Tenant Work Fee" means the fee to
---------------------
be paid to the Manager by the Owner as provided in Section 11.3 hereof.
Speculative Space. The term "Speculative Space" means the rentable area of
-----------------
the Building which is not initially leased by ABB Flakt.
Tenant Improvements. The term "Tenant Improvements" means all improvements
-------------------
constructed on or within the Project for use or operation by tenants under or
pursuant to written leases or occupancy agreements, including without limitation
the "Layout Work" (as defined in the ABB Lease) for ABB Flakt and other tenant
improvements required to be installed or constructed by the "Landlord" under the
ABB Lease.
Tenant Improvements Completion Date. The term "Tenant Improvements
-----------------------------------
Completion Date" means with respect to the Tenant Improvements for each tenant
of the Project, the first day in which the Tenant Improvements in such tenant's
space have been completed in accordance with the plans and specifications for
such Tenant Improvements, all necessary certificates of occupancy or their
equivalent have been issued by the applicable govern mental authority with
respect to such space, and such tenant has accepted its premises (whether or not
it has taken possession of its space) as evidenced by a customary estoppel
certificate executed by such tenant.
ARTICLE 2
---------
ENGAGEMENT OF THE MANAGER
-------------------------
2.1 Engagement. The Owner hereby engages the Manager as the exclusive
----------
development manager of the Project to supervise, to manage, and to coordinate
the planning, design, construction, and completion of the Project, all in
accordance with the terms, conditions and limitations herein set forth. The
Manager hereby accepts such engagement and hereby agrees to diligently use its
best efforts in the performance of its duties and the Development Functions
hereunder, which performance in all respects and at all times shall be carried
out to the same extent and with the same degree of care and quality as the
Manager would exercise in the conduct of its own affairs if the Manager were the
owner of the Project. The Manager agrees to apply prudent and reasonable
business practices in the performance of its duties hereunder.
2.2 Relationship. With respect to the Owner, the Manager shall at all
------------
times be an independent contractor. No provision hereof shall be construed to
constitute the Manager or any of its officers or employees as an employee or
employees of the Owner nor shall any provision of this Agreement be construed as
creating a partnership or joint venture between the Manager and the Owner.
Neither the Owner nor the Manager shall have the power to bind the other party
except pursuant to the terms of this Agreement. The Manager acknowledges and
agrees that it shall act as a fiduciary hereunder with respect to the Owner and
that, with respect to all of the services
3
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to be rendered by the Manager to the Owner pursuant to this Agreement, the
Manager shall have the duty to act at all times in the best interests of the
Owner in rendering such services. In the event the Owner disapproves of any of
the general policies and procedures of the Manager with respect to the Project
and shall have so notified the Manager, the Manager shall conform its general
policies and procedures with respect to the Project to those requested by the
Owner insofar as such policies may be consistent with the terms and provisions
of this Agreement.
ARTICLE 3
---------
TERM OF AGREEMENT
-----------------
The engagement of the Manager hereunder shall commence on the date on which
this Agreement is executed and shall end on the date which is three (3) months
from and after the Completion Date; provided, however, if any remedial work to
be performed by the Contractor following the completion of the Project has not
been completed or if the Manager has commenced and is diligently prosecuting,
but has not completed, any Tenant Improvements, the term of this Agreement shall
be extended until the date on which any remedial work required to be performed
by the Contractor following completion of the Project shall be so performed and
accepted by the Owner, or until the completion of such Tenant Improvements, as
the case may be.
ARTICLE 4
---------
RESPONSIBILITIES OF THE MANAGER
-------------------------------
4.1 General Responsibility. The Manager's general responsibility
----------------------
hereunder as the Owner's development manager shall be to manage, to supervise,
and to coordinate the planning, design, construction, and completion of the
Project.
4.2 Development Functions. In discharging its general responsibility
---------------------
hereunder, the Manager shall perform and discharge the following specific
responsibilities with respect to the Project (herein collectively referred to as
the "Development Functions"):
4.2.1 The Manager shall negotiate and submit to the Owner, for
the Owner's approval and execution, the Architect's Agreement and the
Construction Agreement.
4.2.2 The Manager, in the name of, and on behalf of, the Owner,
shall maintain and continue the engagement of Smallwood, Reynolds, Stewart,
Stewart & Associates, Inc., as the Architect, and Integra Construction,
Inc., as a Contractor, for the compensation and on the terms provided for
in the Architect's Agreement and the Construction Agreement, respectively;
and the Manager shall supervise, administer and coordinate the performance
of all work done by the Architect and the Contractor. The Manager shall
negotiate, on terms consistent with and within the limitations of the
Development Budget, and submit to the Owner for the Owner's approval,
contracts with such other design and engineering profes sionals and
consultants as the Manager deems appropriate for the design and
construction of the Project. Subject to the provisions of Section 5.2
hereof, the employment of such other design and engineering professionals
on terms not consistent with and within the limitations of the Development
Budget shall be only at the direction of the Owner.
4.2.3 The Manager shall coordinate the acquisition by the Owner
of the Land.
4.2.4 The Manager shall implement the Development Budget as
provided herein.
4.2.5 In implementing the Development Budget and in otherwise
discharging its duties and responsibilities hereunder, the Manager shall
negotiate with, and submit to the Owner (for execution by the Owner)
contracts with, supervise the performance of, and review and approve or
disapprove
4
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applications for payment of the fees, charges, and expenses of, such
architects, engineers, planners, designers, consultants, general
contractors, subcontractors, vendors, and other design and construction
professionals, consultants, and suppliers as the Manager deems necessary or
appropriate to develop the Project in accordance with and subject to the
limitations of the Development Budget. Such fees, charges and expenses
shall be borne by the Owner as contemplated in the Development Budget.
Subject to the provisions of Section 5.2 hereof, the employment,
supervision and payment of such additional architects, engineers, planners,
designers, consultants, general contractors, subcontractors, vendors, and
other design and construction professionals, consultants, and suppliers on
terms not consistent with or within the limitations of the Development
Budget shall be only at the direction of the Owner.
4.2.6 The Manager shall arrange for a preliminary site plan to be
prepared showing the location within the Land of the Building and the Site
Improvements and shall submit such site plan to the Owner for approval by
the Owner. The cost of such site plan shall be borne by the Owner as
contemplated in the Development Budget.
4.2.7 The Manager shall arrange to be prepared such survey and
engineering plans and drawings as are from time to time requested by the
Owner. The costs of such survey and engineering plans shall be borne by the
Owner as contemplated in the Development Budget.
4.2.8 The Manager shall administer and oversee the selection by
the Contractor of major subcontractors and others as appropriate for
construction of the Project and review bids for acceptability from
subcontractors.
4.2.9 The Manager shall review all applicable building codes,
environmental, zoning and land use laws and other applicable local, state
and federal laws, regulations and ordinances concerning the development,
use and operation of the Project or any portion thereof. The Manager shall
make application for and seek to obtain and keep in full force and effect
all necessary governmental approvals and permits, and shall endeavor to
perform such acts as shall be reasonably necessary to effect compliance by
the Owner with all laws, rules, ordinances, statutes, and regulations of
any governmental authority applicable to the Project. Upon receipt of the
Owner's approval, the Manager shall seek to obtain any permits, variances
or rezoning of the Land or any portion thereof, as are necessary or
appropriate to cause the Project to be in compliance with all such codes,
laws, regulations and ordinances. All costs required to be paid to third
parties in order to obtain such permits, variances or rezonings shall be
borne by the Owner as contemplated in the Development Budget.
4.2.10 The Manager shall review all applicable private
restrictions, covenants and easement agreements concerning the development,
use and operation of the Project or any portion thereof. The Manager shall
endeavor to perform such acts as shall be reasonably necessary to effect
compliance by the Owner with all such restrictions, covenants and
easements.
4.2.11 The Manager shall negotiate and submit to the Owner for the
Owner's approval all contracts for, or otherwise arrange for the delivery
of, and pay all charges imposed on the Owner for, all utilities required
for the development, construction, and operation of the Project, including,
without limitation, water, electricity, telephone, storm sewer, and
sanitary sewer services.
4.2.12 The Manager shall coordinate the services of such
accountants and attorneys as may be engaged by the Owner upon such terms as
may be approved by the Owner and utilize such accounting and disbursement
systems as may be determined by the Owner.
4.2.13 The Manager shall review and make recommendations to the
Owner regarding the Owner's insurance program so that the Owner shall
obtain and keep in force, at the Owner's expense as contemplated in the
Development Budget, such policies of insurance, including, but not limited
to, public
5
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liability, all-risk, and builder's risk, in such amounts and with such
carriers as shall be prudent with respect to the Project.
4.2.14 The Manager shall maintain complete and accurate records
reflecting the progress of the Manager's implementation of the Development
Budget, which records shall include all contracts, purchase orders,
disbursement requests, bids, and proposals of contractors, suppliers, and
vendors, and such other records, plans and information as the Owner may
from time to time request or as the Manager shall deem appropriate to
maintain in discharging its duties and responsibilities hereunder.
4.2.15 The Manager shall inspect the Project at regular intervals
so as to be kept informed as to the stage of development and the condition
of the Project.
4.2.16 Upon the Owner's prior written authorization, the Manager
shall execute for and on behalf of, and in the name of, the Owner any
applications, requests and other documents which the Manager deems
necessary or appropriate for execution by the Owner in connection with the
development or construction of the Project.
4.2.17 The Manager shall examine the contents of all applications
for payments submitted under the Architect's Agreement or any Construction
Agreement, verify the contents of such applications and prepare, execute
and deliver, or cause to be prepared, executed and delivered such
certificates and other documents as may be required by such Agreements and
shall review and approve all disbursements made by or on behalf of the
Owner under the Architect's Agreement and under any Construction Agreement,
all in accordance with the Development Budget as it may from time to time
be revised pursuant to Section 5.2 hereof. The Manager shall process all
such applications for payments and any other invoices and charges as
expeditiously as possible to avoid all penalties and any excess interest
and to take advantage, wherever possible and desirable, of vendor
discounts. The Manager shall also make recommendations to the Owner with
respect to modifications, clarifications and change orders necessary or
desirable under any Construction Agreement; and the Manager shall also
review and recommend for approval or disapproval by the Owner, as
appropriate, change orders under any Construction Agreement, all in
accordance with the Development Budget as it may from time to time be
revised pursuant to Section 5.2 hereof.
4.2.18 The Manager shall coordinate, review, administer, manage
and oversee the work, activities and performance of the Architect under the
Architect's Agreement and of the Contractor under the Construction
Agreement. Such activities by the Manager shall include, without
limitation, reviewing, monitoring and coordinating all construction
scheduling to ensure the orderly process of construction and completion
thereof in the manner and within the time periods required by the ABB
Lease, and reviewing and verifying all payment requests from the Architect
and the Contractor. The Manager shall serve as the Owner's representative
in all discussions, negotiations, and dealings with the Architect and the
Contractor. The Manager shall periodically (but no less often than weekly)
advise the Owner of the status of the Project and of the performance by the
Architect and by the Contractor of their respective duties and obligations
with respect to the Project. The Manager shall also assist and advise the
Owner with respect to the performance and enforcement by the Owner of its
duties and rights under the Architect's Agreement and the Construction
Agreement. The Manager shall coordinate with the Architect and the
Contractor an orderly and expeditious transition from the construction
stage of the Project to the operating and leasing stage of the Project and,
in connection therewith, the Manager shall expedite and supervise the
completion of any remedial work that may be required to be performed by the
Contractor following the completion of the Project.
4.2.19 The Manager shall cooperate with the Owner's inspecting
engineer, if any, engaged for the purpose of reviewing the status of the
work.
6
<PAGE>
4.2.20 The Manager shall purchase, to the extent the same are not
provided under the Construction Agreement, all supplies, materials, and
equipment required in connection with the development of the Project, and
the cost of same shall be borne by the Owner as contemplated in the
Development Budget.
4.2.21 The Manager shall coordinate, review, administer, manage
and oversee the work and activities relating to, and the performance of,
the Tenant Improvements to be constructed and installed by the "Landlord"
under the ABB Lease, and at the request of the Owner, the Manager shall
coordinate, review, administer, manage and oversee the work and activities
relating to, and the performance of, any Tenant Improvements to be
constructed and installed by the "Landlord" under any other lease of
Speculative Space which is entered into during the Development Period.
4.2.22 The Manager shall deliver to the Owner the originals of all
permits, licenses, guaranties, warranties, bills of sale and other
contracts, agreements, change orders or commitments obtained or received by
the Manager for the account or benefit of the Owner, it being understood
that the Owner, upon the Owner's approval thereof, will execute all such
contracts, agreements, change orders and documents, and that the Manager
will not, under any circumstances, execute contracts, agreements, change
orders or documents on behalf of the Owner except as specifically provided
otherwise in this Agreement or as otherwise expressly authorized in writing
by the Owner.
4.2.23 The Manager shall perform and discharge all other
obligations of the Manager under this Agreement.
4.3 Completion. The Manager hereby agrees to diligently use its best
----------
efforts and shall devote sufficient time and personnel to cause the development
of the Project to be completed in compliance with the time parameters
established therefor under the ABB Lease, and in accordance with the Development
Budget as it may from time to time be revised pursuant to Section 5.2 hereof.
4.4 Employees. The Manager shall have in its employ at all times a
---------
sufficient number of capable employees to enable the Manager to perform its
duties hereunder. All persons, other than independent contractors, employed by
the Manager in the performance of its responsibilities hereunder shall be
exclusively controlled by and shall be the employees of the Manager and not of
the Owner, and the Owner shall have no liability, responsibility or authority
with respect thereto. The Manager agrees that the Manager shall cause
Kraxberger to be personally involved in the performance of the Development
Functions and the other obligations and undertakings of the Manager hereunder.
4.5 Manager's Costs. Notwithstanding anything contained in any other
---------------
provision of this Agreement to the contrary, the following costs and expenses
shall be borne solely by the Manager and shall not be borne by the Owner:
(a) Cost of gross salary and wages, payroll taxes, insurance,
workers' compensation and other benefits of Kraxberger and any other
employees of the Manager;
(b) Cost of forms, papers, ledgers and other supplies and equipment
used in the Manager's office;
(c) Cost of electronic data processing or computer services, or any
pro rata charge for data processing or computer services provided by
computer service companies, which the Manager may elect to incur in the
performance of the Development Functions;
(d) Cost of office equipment acquired by the Manager to enable it
to perform its duties hereunder;
7
<PAGE>
(e) Cost of advances made to employees of the Manager and cost of
travel and lodging by the Manager's employees and agents, including
Kraxberger; and
(f) Cost attributable to losses, including any legal fees relating
thereto, arising from negligence, fraud or willful act or omission on the
part of the Manager or any of the Manager's officers, directors, employees
or agents, except to the extent such costs are to be borne by the Owner
pursuant to Section 9.3 hereof.
ARTICLE 5
---------
DEVELOPMENT BUDGET
------------------
5.1 Implementation of Development Budget. The Owner hereby approves the
------------------------------------
Development Budget and the Manager is hereby authorized and directed to
implement the Development Budget pursuant to this Agreement. The Manager may,
without the need for any further approval whatsoever by the Owner, make any
expenditures and incur any obligations provided for in the Development Budget,
as it may be revised from time to time as provided herein. The Manager shall
use prudence and diligence and shall employ its best efforts to ensure that the
actual costs incurred for each category or line item of expense as set forth in
the Development Budget shall not exceed such category or line item in the
Development Budget. The Manager shall advise the Owner promptly if it appears
that costs in any category or line item specified in the Development Budget will
exceed the amount budgeted therefor. All expenses shall be charged to the
proper category or line item in the Development Budget, and no expenses may be
classified or reclassified for the purpose of avoiding an excess in the budgeted
amount of a category or line item without the Owner's prior written approval.
The Manager shall secure the Owner's prior written approval before incurring and
paying any cost which will result in aggregate expenditures under any one
category or line item in the Development Budget exceeding the amount budgeted
therefor.
5.2 Revision of Development Budget. If the Manager at any time
------------------------------
determines that the Development Budget is not compatible with the then-
prevailing status of the Project and does not adequately provide for the
completion of the Project, the Manager shall promptly prepare and submit to the
Owner an appropriate revision of the Development Budget. Any such revision shall
require the approval of the Owner; provided, however, that any such revision
shall be considered approved on the fourteenth (14th) day following its delivery
to the Owner, unless the Owner shall, within such fourteen (14) day period,
notify the Manager in writing of its disapproval of the proposed revision and
specify in such notice the items to which it objects. In the event of any such
objection, the Manager and the Owner shall consult and endeavor to reconcile
their differences.
5.3 Emergencies. Notwithstanding any limitations herein provided, the
-----------
Manager may spend funds or incur expenses on behalf of the Owner in
circumstances which the Manager reasonably and in good faith believes constitute
an emergency requiring prompt action to avert, or reduce the risk of, damage to
persons or property. The Manager shall, in any case, notify the Owner as soon
as practicable of the existence of such emergency and of the action taken by the
Manager with respect thereto.
5.4 Reduction in Fees. In the event that the total of all costs and
-----------------
expenses actually incurred by the Owner with respect to the acquisition of the
Land and the planning, design, development, construction and completion of the
Project, the Tenant Improvements for ABB Flakt under the ABB Lease (including
costs in all categories or line items specified in the Development Budget, but
expressly excluding costs for the specific line items marked with a double
asterisk in the Development Budget, and net of amounts reimbursed to the Owner
by ABB Flakt with respect to Tenant Improvements for such tenant) shall exceed
$7,031,067.00, the amount of the fees payable to the Manager under Sections 11.2
through 11.5 hereof shall be reduced by the amount of such excess, with any
reductions to be applied to such fees in the following order of priority:
(a) first, to unpaid portions of the Development Fee until the remaining
Development Fee is reduced to zero;
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(b) then to unpaid portions of the ABB Work Fee until the remaining ABB
Work Fee is reduced to zero;
(c) then to any portion of the Development Fee and the ABB Work Fee
which has theretofore been paid to the Manager until all such fees
have been reduced to zero, and the Manager hereby agrees to
reimburse to the Owner an amount of such fees theretofore paid to
the Manager as shall equal the amount of such reduction;
(d) then to unpaid portions of the Small Tenant Work Fee until the
remaining Small Tenant Work Fee is reduced to zero;
(e) then to the unpaid portions of the Small Tenant Leasing Fee until
the remaining Small Tenant Leasing Fee is reduced to zero; and
(f) then to any portion of the Small Tenant Work Fee and Small Tenant
Leasing Fee which has theretofore been paid to the Manager until all
such fees have been reduced to zero, and the Manager hereby agrees
to reimburse to the Owner an amount of such fees theretofore paid to
the Manager as shall equal the amount of such reduction.
The aforesaid reductions in the fees payable to the Manager under Sections 11.2
through 11.5 hereof shall be effected regardless of whether or not appropriate
revisions of the Development Budget are approved by the Owner and regardless of
whether or not any increases in costs and expenses incurred by the Owner with
respect to the acquisition of the Land or the planning, design, development,
construction and completion of the Project and the Tenant Improvements for ABB
Flakt are approved by the Owner; provided, however, in the event such costs and
-------- -------
expenses shall increase as a result of a change by the Owner in the scope of the
work comprising the Project, the incremental costs due to the change in the
scope of the work shall not cause a reduction in the fees payable to the Manager
under Sections 11.2 through 11.5 hereof. The Owner shall not be obligated to
accept or agree to changes in the scope of the work comprising the Project in
order to reduce the costs and expenses with respect thereto. The Owner and the
Manager agree that appropriate reductions in the fees payable to the Manager
(and reimbursements thereof to the Owner, if applicable) shall be effected as
and when it is reasonably determined by the Owner that the costs and expenses
under any category or line item in the Development Budget shall exceed the
amount originally budgeted therefor or that costs and expenses will be incurred
that are not originally budgeted under the Development Budget; provided,
however, the Owner and the Manager shall make reasonable allocations of the
"contingency" category or line item in the Development Budget to other
categories or line items prior to effecting a reduction in the fees payable to
the Manager, so long as a reasonable reserve is maintained in the "contingency"
category or line item to cover future contingencies. Promptly following the
Completion Date, the Owner and the Manager shall make any final adjustments and
payments between them to give effect to the agreements set forth in this Section
5.4.
ARTICLE 6
---------
AUTHORITY OF THE MANAGER
------------------------
6.1 General Authority. The Manager shall have, and is hereby granted by
-----------------
the Owner, full and complete power, authority, and discretion to act for, and in
the name, place, and stead of, the Owner in carrying out and discharging the
responsibilities and obligations of the Manager under this Agreement (including,
without limitation, all of the responsibilities imposed upon the Manager under
Article 4 hereof); provided, however, that the Manager shall have no right or
authority, express or implied, to commit or otherwise obligate the Owner in any
manner whatsoever except to the extent specifically provided herein or
specifically authorized in writing by the Owner.
6.2 Execution of Documents and Agreements. Only when specifically
-------------------------------------
authorized by the Owner in a writing to the Manager, the Manager may, at the
Manager's election, execute any documents, agreements, or
9
<PAGE>
other instruments on behalf of the Owner as follows, it being acknowledged that
the Manager shall be entitled to the indemnification by the Owner for any
obligations or liabilities thereunder and shall not thereby incur any liability
or obligation to any third party thereunder:
WELLS REAL ESTATE FUND IX, L.P.,
a Georgia limited partnership
By: Adevco Corporation,
a Georgia corporation,
as Manager
By:___________________________
Title:________________________
(CORPORATE SEAL)
ARTICLE 7
---------
ACCOUNTING AND REPORTS
----------------------
7.1 Books of Account. The Manager shall maintain or cause to be
----------------
maintained true and accurate books of account reflecting the planning, design,
construction, and completion of the Project. All entries to such books of
account shall be supported by sufficient documentation to permit the Owner and
its auditors to ascertain that said entries are properly and accurately
recorded. Such books of account shall be located at the Manager's principal
metropolitan Atlanta, Georgia office and shall be maintained in accordance with
the Manager's present cash method of accounting, unless otherwise directed or
approved by the Owner. The Manager shall ensure such control over accounting
and financial transactions as is reasonably required to protect the Owner's
assets from theft, error or fraudulent activity on the part of the Manager, the
Manager's employees or agents.
7.2 Monthly Reports. Promptly following the end of each calendar month,
---------------
the Manager shall prepare a report with respect to the Project (hereinafter
referred to as the "Monthly Report") and shall cause the same to be delivered to
the Owner and the Owner's inspecting engineer, if any. Each Monthly Report
shall be subdivided into categories specified in the Development Budget and
shall contain the following information respecting the Project:
(a) The draw request for the month covered by the Monthly Report,
including:
(i) each draw request letter;
(ii) each certificate of the Architect;
(iii) each application and certificate for payment of
the Contractor; and
(iv) any other invoices covered in the draw request.
(b) The costs incurred under the Construction Contract as of the
date of the Monthly Report.
(c) All costs incurred but not paid as of the date of such Monthly
Report.
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(d) A comparison of the amount of actual costs incurred as of the
date of the Monthly Report to the budgeted costs as of such date, shown on
a line-item basis using the same categories or line items set forth in the
Development Budget.
(e) Photographs of the Project depicting the current status of
construction.
(f) A report with respect to the progress of construction,
including information as to whether the commencement, milestone and
completion dates in the ABB Lease are being achieved. The Manager shall
identify in such report potential variances between the completion dates
required in the ABB Lease and the probable completion dates and shall make
recommendations as to adjustments necessary to meet the required completion
dates.
The Manager shall furnish the Owner with a certificate from Kraxberger in
respect of each such Monthly Report certifying that such Monthly Report is
accurate, true and complete in all respects.
7.3 Construction Draw Reports. The Manager shall cause to be delivered
-------------------------
to the Owner, at the Owner's expense, promptly after they are prepared, copies
of each construction draw request under any construction loan obtained by the
Owner with respect to the Project.
7.4 Annual Development and Financial Statements. Within thirty (30)
-------------------------------------------
days after the end of each fiscal year of the Owner during the term of this
Agreement, the Manager shall cause to be prepared and delivered to the Owner, at
the Owner's expense, a report which is a summary of the previous Monthly Reports
for such fiscal year which have been tendered to the Owner pursuant to Section
7.2 hereof. In addition, within sixty (60) days after the end of each fiscal
year of the Owner during the term of this Agreement, the Manager shall cause to
be prepared and delivered to the Owner, at the Owner's expense, unaudited
financial statements reflecting all receipts and disbursements collected,
received, or made by the Manager with respect to the development and the
construction of the Project for such fiscal year. The Manager shall also cause
to be prepared and delivered to the Owner such other reports and information
with respect to the development and construction of the Project for each fiscal
year as the Owner shall reasonably request.
7.5 Examination of Books and Records. The Owner, at its expense, shall
--------------------------------
have the right at all reasonable times during normal business hours and upon at
least twenty-four (24) hours advance notice, to audit, to examine, and to make
copies of or extracts from the books of account and records maintained by the
Manager with respect to the Project. If the Owner shall notify the Manager of
either weaknesses in internal control or errors in record keeping, the Manager
shall correct such weaknesses and errors as soon as possible after they are
disclosed to the Manager. The Manager shall notify the Owner in writing of the
actions taken to correct such weaknesses and errors.
ARTICLE 8
---------
BANKING
-------
8.1 Separate Accounts. It is contemplated that the Owner will make
-----------------
disbursements with respect to the development and construction of the Project
directly to the Architect and the Contractor. Nevertheless, all disbursements
and other funds of the Owner which may be received by the Manager hereunder with
respect to the development or construction of the Project shall be deposited by
the Manager and held in such bank account or accounts maintained by the Manager
in such bank or banks with federal deposit insurance protection as may be
selected by the Manager and approved by the Owner. All such funds shall be and
shall remain the property of the Owner and shall be disbursed by the Manager in
payment of the obligations of the Owner incurred in connection with the
development and construction of the Project, or, subject to the provisions of
Section 8.2 below, shall be disbursed to the Owner at the Owner's request.
Except as hereinafter provided, the Manager shall not commingle the Owner's
funds with the funds of any other person.
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8.2 The Owner's Duty to Provide Funds. The Owner agrees that the Owner
---------------------------------
will pay all current obligations of the Owner in accordance with the Development
Budget, including all obligations of the Owner to the Manager hereunder.
Alternatively, at the Owner's option, the Owner may elect to provide funds to
the Manager so that the Manager can pay all such obligations of the Owner
(excluding obligations to the Manager, it being understood and agreed that such
obligations to the Manager shall be paid directly by the Owner to the Manager).
If the Owner elects to cause the Manager to make payment of such obligations,
the Owner hereby agrees that, by making deposits to (following notice as
provided below), or by refraining from withdrawing funds from, the bank account
or accounts maintained by the Manager pursuant to Section 8.1 above, the Owner
shall, during the term of this Agreement, maintain sufficient funds in such bank
account or accounts to enable the Manager to pay all current obligations of the
Owner in accordance with the Development Budget, excluding the obligations of
the Owner to the Manager hereunder. Accordingly, the Owner shall, within ten
(10) days of its receipt of any written request from the Manager for additional
funds (which request must specify the amount of such funds requested and the
purposes for which they are to be used), deposit in such bank account or
accounts such additional funds as the Owner shall consider appropriate with
respect to such request by the Manager.
8.3 Investment of Owner's Funds. If at any time there are in the bank
---------------------------
account or accounts established pursuant to Section 8.1 above, funds of the
Owner, from whatever sources, temporarily exceeding the immediate cash needs of
the Project, the Manager may (and at the discretion of the Owner shall) invest
such excess funds in such savings accounts, certificates of deposit, United
States Treasury obligations, commercial paper, and the like, as the Manager
shall deem appropriate or as the Owner shall direct, provided that the form of
any such investment shall be consistent with the Manager's need to be able to
liquidate any such investment to meet the cash needs of the Project from time to
time.
ARTICLE 9
---------
STANDARD OF CARE; LIABILITY;
----------------------------
INDEMNITY; CONFIDENTIALITY
--------------------------
9.1 Standard of Care; Manager's Liability. The Manager shall have no
-------------------------------------
liability to the Owner for any errors of judgment, or any mistakes of fact or of
law, made in a good faith effort to perform and carry out the Manager's
responsibilities under this Agreement, unless the Manager has failed to exercise
that degree of care and skill which a reasonable and diligent businessman in the
Manager's profession would exercise in transactions of a similar nature for his
own account, provided, of course, that sufficient funds are made available by
the Owner for the performance of the Manager's responsibilities.
9.2 Indemnity of Owner. The Manager hereby agrees to indemnify, defend
------------------
and hold harmless the Owner and its partners and their respective officers,
directors and employees, from and against any and all claims, demands, losses,
liabilities, actions, lawsuits and other proceedings, judgments and awards, and
costs and expenses (including without limitation reasonable attorneys' fees and
court costs incurred in connection with the enforcement of this indemnity or
otherwise), arising out of the negligence, fraud or any willful act or omission
of the Manager, or any of its officers, directors, agents or employees, in
connection with this Agreement or the Manager's services or work hereunder,
whether within or beyond the scope of its duties or authority hereunder.
9.3 Indemnity of Manager. The Owner hereby agrees to indemnify, defend
--------------------
and hold harmless the Manager, its officers, directors and employees, from and
against any and all claims, demands, losses, liabilities, actions, lawsuits and
other proceedings, judgments and awards, and costs and expenses (including
without limitation reasonable attorney's fees and court costs incurred in
connection with the enforcement of this indemnity or otherwise), arising out of
(i) any action taken by the Manager within the scope of its duties or authority
hereunder, excluding only such of the foregoing as result from the negligence,
fraud or willful act of the Manager, its officers, directors, agents and
employees, and (ii) the negligence, fraud or any willful act or omission of the
Owner and its partners and their respective officers, directors and employees.
12
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9.4 Survival of Indemnities. The provisions of Sections 9.2 and 9.3
-----------------------
hereof shall survive the completion of the Manager's services hereunder or any
earlier termination of this Agreement.
9.5 No Obligation to Third Parties. None of the responsibilities and
------------------------------
obligations of the Manager under this Agreement shall in any way or in any
manner be deemed to create any liability of the Manager to, or any rights in,
any person or entity other than the Owner.
9.6 Nature of the Manager's Duties and Responsibilities. The Owner
---------------------------------------------------
hereby acknowledges that the Manager's duties and responsibilities hereunder
with respect to the development and construction of the Project consist only in
managing, supervising, and coordinating the planning, design, construction and
completion of the Project and the performance of the other Development Functions
in accordance with the terms of this Agreement; that the Manager is not itself
preparing any architectural or engineering plans, designs, or specifications or
performing any construction required for the development or completion of the
Project; that the Manager is not a guarantor or insurer of any work to be
performed by any other party in connection with the planning, design,
construction, and completion of the Project; and that the Manager is not
responsible for, and will not be liable for, any work, act, omission,
negligence, gross negligence, or intentional misconduct of any other party
employed by the Owner or performing work for the Owner in connection with the
Project.
9.7 Ownership of Information and Materials. The Owner shall have the
--------------------------------------
right to use, without further compensation to the Manager, all written data and
information generated by or for the Manager in connection with the Project or
supplied to the Manager by the Owner or the Owner's contractors or agents, and
all drawings, plans, books, records, contracts, agreements and all other
documents and writings in its possession relating to its services or the
Project. Such data and information shall at all times be the property of the
Owner. The Manager agrees, for itself and all persons retained or employed by
the Manager in performing its services, to hold in confidence and not to use or
disclose to others any confidential or proprietary information of the Owner
which is heretofore or hereafter disclosed to the Manager or any such persons
and which is designated by the Owner as confidential and proprietary, including
but not limited to any proprietary or confidential data, information, plans,
programs, plants, processes, equipment, costs, operations, tenants or customers
which may come within the knowledge of the Manager or any such persons in the
performance of, or as a result of, its services, except where (i) the Owner
specifically authorizes the Manager to disclose any of the foregoing to others
or such disclosure reasonably results from the performance of the Manager's
duties hereunder, or (ii) such written data or information shall have
theretofore been made publicly available by parties other than the Manager or
any such persons. Nothing contained in this Section 9.7 shall be deemed to
limit or restrict the provisions of Article 15 hereof or of the rights of the
Manager thereunder.
ARTICLE 10
----------
INSURANCE
---------
10.1 Insurance Requirements. Throughout the term of this Agreement,
----------------------
insurance with respect to the Project shall be carried and maintained in force
in accordance with the provisions contained in Exhibit "C, attached hereto and
----------
incorporated herein by this reference, with the premiums and other costs and
expenses for such required insurance to be borne as provided in Exhibit "C".
-----------
10.2 Owner's Insurance Primary Coverage. As between any insurance
----------------------------------
carried by the Owner pursuant to this Article 10 and any insurance carried by
the Manager, the Owner's insurance shall for all purposes be considered the
primary coverage, and no claim shall be made under or with respect to any
insurance maintained by the Manager except in the event that the Owner's entire
insurance is exhausted (without regard to whether the actual amount of the
Owner's insurance exceeds the amounts specified in this Article 10).
10.3 Waiver of Subrogation. Each insurance policy maintained by the
---------------------
Owner or by the Manager with respect to the Project shall contain a waiver of
subrogation clause, so that no insurer shall have any claim over
13
<PAGE>
or against the Owner or the Manager, as the case may be, by way of subrogation
or otherwise, with respect to any claims which are insured under any such
policy.
ARTICLE 11
----------
COMPENSATION OF THE MANAGER
---------------------------
11.1 Fees - General. As compensation for the services rendered and to be
--------------
rendered by the Manager under this Agreement, the Owner shall pay the Manager
the Development Fee, the ABB Work Fee, the Small Tenant Work Fee, and the Small
Tenant Leasing Fee, all in accordance with and subject to the terms and
provisions of Sections 11.2, 11.3, 11.4 and 11.5 hereof, respectively, and all
such fees shall be subject to reduction as provided in Section 5.4 hereof.
11.2 Development Fee. The Owner shall pay the Manager, as the
---------------
Development Fee for the Project, the sum of One Hundred Seventy-Five Thousand
and No/100 Dollars ($175,000.00). The Development Fee shall be due and payable
ratably (on the basis of the percentage of construction completed) as the
construction and development of the Project are completed. The Development Fee
shall be paid in monthly installments commencing with the month following the
month during which the on-site development work with respect to the Project
shall commence. The remaining balance of the Development Fee shall be due and
payable upon the Completion Date.
11.3 ABB Work Fee. The Owner shall pay the Manager, as the ABB Work Fee,
------------
the sum of One Hundred Twenty-Five Thousand and No/100 Dollars ($125,000.00).
The ABB Work Fee shall be due and payable in one lump sum upon the Completion
Date.
11.4 Small Tenant Work Fee. In the event the Manager shall serve as the
---------------------
construction manager with respect to any portion of the Tenant Improvements to
be constructed by the Owner for any tenant of the Speculative Space, the Owner
shall pay the Manager, as the Small Tenant Work Fee, an amount equal to Two and
30/100 Dollars ($2.30) multiplied by the number of square feet of rentable area
in the Speculative Space which are built-out for such tenant. The Small Tenant
Work Fee with respect to the Tenant Improvements for each such tenant shall be
due and payable in one lump sum on the Tenant Improvements Completion Date for
such Tenant Improvements.
11.5 Small Tenant Leasing Fee. The Owner shall pay to the Manager the
------------------------
Small Tenant Leasing Fee in accordance with and subject to the terms and
conditions of Section 12.3 hereof.
11.6 Disbursements to the Manager. The Manager may not disburse to
----------------------------
itself any amounts due under this Article 11 from the bank account or accounts
maintained by the Manager pursuant to Article 8 hereof, it being understood and
agreed that the amounts due and payable to the Manager under this Article 11
shall be paid directly by the Owner to the Manager.
ARTICLE 12
----------
MANAGER AS LEASING AGENT
------------------------
12.1 Nonexclusive Engagement. Subject to the terms, conditions and
-----------------------
limitations hereinafter set forth, the Owner does hereby appoint the Manager as
the Owner's non-exclusive agent to offer for lease the Speculative Space. The
term of such appointment shall commence on the date of this Agreement and shall
expire on the earlier to occur of (i) the Completion Date or (ii) January 15,
1998. In the event the Owner shall desire for any reason to engage a real
estate broker or agent as the Owner's exclusive agent for the leasing of the
Speculative Space, the Owner shall have the right to terminate the appointment
of the Manager hereunder by written notice to the Manager, which termination
shall be effective immediately upon the giving of such notice. The Manager
hereby accepts its nonexclusive appointment hereunder.
14
<PAGE>
12.2 Manager's Leasing Duties. The Manager agrees to perform the
------------------------
following duties:
(a) To list and offer the Speculative Space for lease in a
commercially prudent manner. The Manager shall not be obligated to expend
its own funds for the advertisement of such Speculative Space.
(b) To actively cooperate with other qualified brokers in leasing
the Speculative Space .
(c) To negotiate for the rental to desirable tenants, without
unlawful discrimination, of all available Speculative Space at rental rates
set forth in a schedule of rental rates and other business terms approved
by the Owner from time to time and which are not inconsistent with
applicable restrictions set forth in other leases of space in the Project,
including the ABB Lease.
(d) To keep the Owner advised of the status of negotiations with
prospective tenants, inquiries and offers received from brokers and others.
(e) To use its reasonable efforts to lease the Speculative Space to
desirable tenants.
12.3 Small Tenant Leasing Fee.
------------------------
(a) With respect to each lease of Speculative Space (including
without limitation a lease of the Speculative Space by ABB Flakt) which is
procured by the Manager and which is either entered into during the term of
the non-exclusive agency for which provision is made in Section 12.1 hereof
or otherwise qualifies for a commission pursuant to Section 12.3(b) below,
the Owner shall pay to the Manager, as the Small Tenant Leasing Fee with
respect to such lease, and as full and complete compensation for all
leasing services provided by the Manager in connection with such lease, an
amount equal to five percent (5%) of all gross base rents (excluding
escalations in operating costs) actually paid by the tenant during each
month of the initial term of such tenant's lease, plus, if such lease
----
grants to the tenant an option to extend or renew the term of the lease and
the tenant exercises such option, an amount equal to five percent (5%) of
all gross base rents (excluding escalations in operating costs) actually
paid by the tenant during each month of the extended term of such tenant's
lease. Notwithstanding the foregoing to the contrary, the Owner's
obligation to pay the aforesaid Small Tenant Leasing Fee equal to five
percent (5%) of the gross base rent collected from a tenant shall cease and
terminate on the date which is ten (10) years after the commencement date
of the applicable lease, even if the term of the applicable lease is
extended beyond such ten (10) year period pursuant to an option granted to
the tenant in such lease. The Owner and the Manager agree to consider the
possible cash-out of the commission obligation under this Section 12.3 with
respect to any such lease qualifying for a commission hereunder, but the
Owner and the Manager shall not be obligated to agree to any such cash-out
arrangement.
(b) Within twenty (20) calendar days after the expiration or
earlier termination of this non-exclusive agency arrangement, the Manager
shall furnish the Owner with a written list of prospects, if any, with whom
the Manager can demonstrate to the reasonable satisfaction of the Owner
that it has been, within ninety (90) days of such expiration or
termination, holding substantive negotiations for a lease relating to the
Speculative Space. If, within one hundred twenty (120) calendar days after
the expiration or termi nation date, such space is leased to any one of the
listed prospects or active negotiations for such space are continued
between a listed prospect and the Owner and successfully concluded within
one hundred eighty (180) calendar days after the expiration or termination
date, the Manager shall be considered the procuring broker hereunder for
such space and shall be entitled to receive from the Owner a Small Tenant
Leasing Fee as if such transaction occurred prior to such termination or
expiration date. If the Manager shall fail to furnish such a written list,
the Owner shall not be liable for any commission, expenses or other
compensation hereunder in the event of a lease to any such prospect.
Further, if for any reason other than intentional suspension of
negotiations to avoid payment of a Small Tenant Leasing Fee hereunder,
active negotiations between the Owner and the listed prospect end within
one hundred eighty
15
<PAGE>
(180) calendar days after the termination or expiration date of this
Agreement, and at such time no agreement has been reached or is
contemplated respecting such space, negotiations between the Owner and the
prospect shall be considered abandoned and the Owner shall not be liable
for any commission, expenses or other compensation hereunder, even if a
lease with such prospect is thereafter consummated.
(c) Notwithstanding anything contained herein to the contrary,
there shall be no commission or fee due, earned or payable at any time to
the Manager for any Speculative Space in the Project rented or leased to
ABB Flakt or any affiliate thereof, unless the Manager is entitled to a
commission under Section 12.3(a) or (b) above. The Manager expressly
acknowledges and agrees that it shall not be entitled to a commission or
fee in the event ABB Flakt shall exercise any right of first refusal or
expansion option set forth in the ABB Lease. Also notwithstanding anything
contained herein to the contrary, there shall be no commission or fee due,
earned or payable to the Manager with respect to any lease which is
procured by the Owner or any third party, and not by the Manager, even if
such lease is procured during the term of the appointment hereunder, it
being understood and agreed that the Manager's appointment hereunder is
only on a non-exclusive basis.
(d) In the event an outside real estate broker is involved in a
lease transaction for which the Owner is obligated to pay the Manager a
Small Tenant Leasing Fee under Section 12.3 hereof, the Small Tenant
Leasing Fee payable by the Owner to the Manager under Section 12.3 above
shall be shared by the Manager and such outside real estate broker(s) in a
manner agreed upon by the Manager and such outside real estate broker(s),
and the Manager shall indemnify and hold the Owner harmless from any loss,
costs, damage and expenses, including reasonable attorney's fees, arising
from any claims by any such outside real estate broker for a fee,
commission or compensation arising out of such lease, so long as the Owner
shall pay the Small Tenant Leasing Fee payable by the Owner under Section
12.3 above. The foregoing indemnity shall be inapplicable to any claim by
an outside real estate broker that the Owner has agreed with such outside
real estate broker to pay a commission to it other than as specifically
agreed upon between the Manager and such outside real estate broker.
(e) A tenant shall be considered procured, and the Small Tenant
Leasing Fee shall be considered earned, due and payable hereunder, only
when that tenant has paid (which shall include checks of the tenant having
cleared all accounts) to the "Landlord" the first month's base rent,
excluding all free rent periods. The Small Tenant Leasing Fee shall be paid
by the Owner to the Manager only if, as and when such base rent is received
by the Owner.
ARTICLE 13
----------
REIMBURSEMENT OF ADVANCES, COSTS AND EXPENSES
---------------------------------------------
13.1 Reimbursement of Advances. The Manager shall not be required to
-------------------------
advance any of its own funds for the payment of any costs and expenses incurred
by or on behalf of the Owner in connection with the Project, but if the Manager
advances its own funds in payment of any of such costs and expenses, the Owner,
subject to the provisions of Sections 4.5, 5.2 and 11.6 hereof, shall promptly
reimburse the Manager or, in lieu thereof, the Manager may reimburse itself from
the bank account or accounts maintained by the Manager pursuant to Article 8
hereof.
13.2 Reimbursement of Costs and Expenses. Promptly after execution of
-----------------------------------
this Agreement, the Owner shall reimburse the Manager for all costs and expenses
set forth on Exhibit "D" attached hereto and by this reference made a part
----------
hereof, all of which costs and expenses the Manager hereby represents and
warrants were incurred and paid by the Manager prior to the date hereof (or will
be paid by the Manager in due course) in connection with the Project and are
authorized and bona fide expenditures under the Development Budget.
16
<PAGE>
ARTICLE 14
----------
DEFAULT AND TERMINATION
-----------------------
14.1 Default by Manager. Upon the happening of any Event of Default (as
------------------
hereinafter defined), the Owner shall have the absolute unconditional right to
terminate this Agreement by giving written notice of such termination to the
Manager. Any one or more of the following events shall constitute an "Event of
Default" by the Manager under this Agreement:
(a) If the Manager shall fail to observe, perform or comply in any
material respect with any term, covenant, agreement or condition of this
Agreement which is to be observed, performed or complied with by the
Manager under the provisions of this Agreement, and such failure shall
continue uncured for ten (10) days after the giving of written notice
thereof by the Owner to the Manager specifying the nature of such failure,
unless such failure can be cured but is not susceptible of being cured
within said ten (10) day period, in which event such a failure shall not
constitute an Event of Default if the Manager commences curative action
within said ten (10) day period, and thereafter prosecutes such action to
completion with all due diligence and dispatch;
(b) If the Manager or Kraxberger shall make a general assignment
for the benefit of creditors;
(c) If any petition shall be filed against the Manager or
Kraxberger in any court, whether or not pursuant to any statute of the
United States or of any State, in any bankruptcy, reorganization,
dissolution, liquidation, composition, extension, arrangement or insolvency
proceedings, and such proceedings shall not be dismissed within sixty (60)
days after the institution of the same, or if any such petition shall be so
filed by the Manager or Kraxberger;
(d) If, in any proceeding, a receiver, trustee or liquidator be
appointed for all or a substantial portion of the property and assets of
the Manager or Kraxberger, and such receiver, trustee or liquidator shall
not be discharged within ninety (90) days after such appointment;
(e) If the Manager shall assign this Agreement or any of its rights
or obligations hereunder, without the prior written consent of the Owner;
and
(f) If the Manager shall intentionally or willfully fail to perform
any of its duties or obligations hereunder, or if the Manager shall
misappropriate any funds of the Owner in the possession or control of the
Manager or shall otherwise commit an act of fraud against the Owner (except
that if such misappropriation of funds or fraud by the taking is committed
by an employee of the Manager other than Kraxberger, such event may be
cured by the Manager if the Manager makes prompt restitution to the Owner
and discharges such employee).
14.2 Additional Terminating Event. The Owner shall have the right to
----------------------------
terminate this Agreement upon written notice to the Manager in the event
Kraxberger shall die, become permanently or temporarily disabled or shall cease
for reasons beyond his control to be actively involved in performing, on behalf
of the Manager, the Development Functions and the other obligations and
undertakings of the Manager hereunder. The Owner shall also have the right to
terminate this Agreement upon written notice to the Manager in the event the
Owner shall elect for any reason whatsoever not to acquire the Land.
14.3 Default by Owner. If the Owner fails to comply with or perform in
----------------
any material respect any of the terms and provisions to be complied with or any
of the obligations to be performed by the Owner under this Agreement, and such
failure continues uncured for a period of fifteen (15) days after written notice
to the Owner specifying the nature of such default (or, in the case of a non-
monetary default, such longer period of time as may be needed in the exercise by
the Owner of due diligence to effect a cure of any such non-monetary default),
then the Manager shall have the right, in addition to all other rights and
remedies available to the Manager at law and
17
<PAGE>
in equity (including without limitation the right to pursue an action for
specific performance), at its option, to terminate this Agreement by giving
written notice thereof to the Owner, in which event the Owner shall immediately
pay to the Manager, in cash, the sums payable to the Manager upon termination as
provided in Section 14.4 hereof, and upon the payment of such amounts, subject
to Sections 9.2, 9.3, 9.7, 12.3(d) and 14.5 hereof, the Owner and the Manager
shall have no further rights, duties, liabilities or obligations whatsoever
under this Agreement.
14.4 Obligation for Fees Upon Termination. Upon any termination of this
------------------------------------
Agreement, the Owner shall pay to the Manager all amounts due and payable to the
Manager as of the date of termination pursuant to the terms of this Agreement
(including, without limitation, any accrued but unpaid installments of the
Development Fee) less, if this Agreement terminates as a result of an Event of
----
Default, an amount equal to the damages incurred or suffered (or to be incurred
or suffered) by the Owner as a result of such Event of Default. Upon the
payment of all such amounts payable under this Section, subject to Sections 9.2,
9.3, 9.7, 12.3(d) and 14.5 hereof, the Owner and the Manager shall have no
further rights, duties, liabilities or obligations whatsoever under this
Agreement.
14.5 Actions Upon Termination. Upon any termination of this Agreement,
------------------------
the Manager shall promptly (a) account for and deliver to the Owner any monies
of the Owner held by the Manager, including funds in the bank account or
accounts maintained by the Manager pursuant to Article 8 hereof and any funds
due the Owner under this Agreement but received after such termination, and (b)
deliver to the Owner or to such other person as the Owner shall designate in
writing, all materials, supplies, equipment, keys, contracts, documents and
books and records pertaining to this Agreement or the development of the
Project. The Manager shall also furnish all such information, take all such
other action and shall cooperate with the Owner as the Owner shall reasonably
require in order to effectuate an orderly and systematic termination of the
Manager's duties and activities hereunder. This Section 14.5 of this Agreement
shall survive any termination of this Agreement.
ARTICLE 15
----------
OTHER ACTIVITIES OF THE MANAGER
-------------------------------
The Owner hereby acknowledges that the Manager is engaged in the ownership,
development, leasing, sale, and management of commercial properties other than
the Project and the Owner hereby agrees that the Manager shall in no way be
restricted from, or have any liability to account to the Owner with respect to,
such activities, notwithstanding that such activities may compete with, or be
enhanced by, the Manager's activities under this Agreement or the Owner's
ownership of the Project.
ARTICLE 16
----------
NATURE OF AGREEMENT
-------------------
The rights and duties granted to and assumed by the Manager hereunder are
those of an independent contractor only. Nothing contained herein shall be so
construed as to constitute the relationship created under this Agreement between
the Manager and the Owner as a mutual agency, a partnership, or a joint venture.
ARTICLE 17
----------
GENERAL PROVISIONS
------------------
17.1 Notices. Whenever any notice, consent, approval, demand or request
-------
required or permitted under this Agreement, such notice, consent, approval,
demand or request shall be in writing and shall be delivered by hand or sent by
registered or certified mail, return receipt requested, to the addresses set out
below or to such other addresses as are specified by written notice given in
accordance herewith, or sent via facsimile transmission to the facsimile numbers
set out below or to such other facsimile numbers as are specified by written
notice given in accordance herewith:
18
<PAGE>
Owner: Wells Capital, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Fax: (770) 840-7224
Attention: Mr. Leo F. Wells, III
with a copy to: Troutman Sanders LLP
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
Fax: (404) 885-3900
Attention: Mr. John W. Griffin
Manager: Adevco Corporation
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Fax: (770) 840-7224
Attention: Mr. David M. Kraxberger
All notices, consents, approvals, demands or requests delivered by hand
shall be deemed given upon the date so delivered; those given by mailing as
hereinabove provided shall be deemed given on the date on which such notice,
demand, or request is so deposited in the United States Mail; those given by
facsimile transmission shall be deemed given on the date shown on sender's copy
hereof showing the proper "answerback" code for the facsimile transmission
number to which the notice is sent. Nonetheless, the time period, if any, in
which a response to any notice, demand, or request must be given shall commence
to run from the date of receipt of the notice, demand, or request by the
addressee thereof. Any notice, demand, or request not received because of
changed address of which no notice was given as hereinabove provided or because
of refusal to accept delivery shall be deemed received by the party to whom
addressed on the date of hand delivery or on the third calendar day following
deposit in the United States Mail, as the case may be.
17.2 Modifications. Neither any change or modification of this Agreement
-------------
nor any waiver of any term or condition hereof shall be valid or binding on the
parties hereto, unless such change, modification, or waiver shall be in writing
and signed by the party to be bound thereby.
17.3 Binding Effect. This Agreement shall inure to the benefit of and
--------------
shall be binding upon the parties hereto, their successors, transferees, and
permitted assigns.
17.4 Duplicate Originals. For the convenience of the parties hereto, any
-------------------
number of counterparts hereof may be executed, each such counterpart shall be
deemed to be an original instrument, and all of such counterparts shall together
be deemed one and the same instrument.
17.5 Construction. This Agreement shall be interpreted, constructed, and
------------
enforced in accordance with the laws of the State of Georgia. The titles of the
articles and sections herein have been inserted as a matter of convenience of
reference only and shall not control or affect the meaning or construction of
any of the terms or provisions herein. The parties agree that they have both
participated equally in the negotiation and preparation of this Agreement and no
court construing this Agreement or the rights of the parties hereunder shall be
prejudiced toward either party by reason of the rule of construction that a
document is to be construed more strictly against the party or parties who
prepared the same.
17.6 Entire Agreement. This Agreement is intended by the parties hereto
----------------
to be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof
notwithstanding any representation or statement to the contrary heretofore made.
19
<PAGE>
17.7 Assignment. This Agreement shall not be assigned by the Manager
----------
without the prior written consent of the Owner, and any such assignment by the
Manager without the prior written consent of the Owner shall be null, void and
of no force and effect and shall be an Event of Default hereunder.
17.8 Authorized Representatives. Any consent, approval, authorization,
--------------------------
or other action required or permitted to be given or taken under this Agreement
by the Manager or the Owner, as the case may be, shall be given or taken by the
authorized representative of each. For purposes of this Agreement, (a) the
authorized representative of the Manager shall be David M. Kraxberger; (b) the
authorized representative of the Owner shall be Leo F. Wells, III or Mike
Watson. Any party hereto may from time to time designate other or replacement
authorized representatives by written notice from its authorized representative
to the other parties hereto. The written statements and representations of any
authorized representative of the Manager or the Owner shall for the purposes of
this Agreement be binding upon such party for whom the authorized representative
purports to act, and the other parties hereto shall have no obligation or duty
whatsoever to inquire into the authority of any such representative to take any
action which he proposes to take, regardless of whether such representative
actually has the authority to take any such action; and the Manager and the
Owner shall be entitled to rely upon any direction, authorization, consent,
approval, or disapproval given by any authorized representative of the Manager
or the Owner, as the case may be, in connection with any matter arising out of
or in connection with this Agreement or the Project.
17.9 Terminology. All personal pronouns used in this Agreement, whether
-----------
used in the masculine, feminine, or neuter gender, shall include all other
genders; and all terms used herein in the singular shall include the plural, and
vice versa.
17.10 Time of Essence. Time is of the essence of this Agreement.
---------------
IN WITNESS WHEREOF, the parties hereto have executed and sealed this
Agreement as of the day, month and year first above written.
"MANAGER":
-------
ADEVCO CORPORATION,
a Georgia corporation
By: /s/ David M. Kraxberger
--------------------------------
David M. Kraxberger,
President
[CORPORATE SEAL]
"OWNER":
-----
WELLS REAL ESTATE FUND IX, L.P.,
a Georgia limited partnership
By: /s/ Leo F. Wells, III (SEAL)
------------------------------
Leo F. Wells, III,
General Partner
[SIGNATURES CONTINUED ON NEXT PAGE]
20
<PAGE>
By: Wells Partners, L.P.,
a Georgia limited partnership,
General Partner
By: Wells Capital, Inc.,
a Georgia corporation,
General Partner
By: /s/ Leo F. Wells, III
-------------------------
Leo F. Wells, III,
President
(CORPORATE SEAL)
21
<PAGE>
OWNER-CONTRACTOR AGREEMENT
(FIXED CONTRACT SUM)
THIS AGREEMENT is made on the 1st day of November, 1996:
REGARDING:
---------
"PROJECT": ABB OFFICE BUILDING
Knox County, Knoxville, Tennessee
BETWEEN:
-------
"OWNER": WELLS REAL ESTATE FUND IX, L.P.
Address: 3885 Holcomb Bridge Road
Norcross, GA 30092
Tel. No.: (770) 449-7800
AND:
---
"CONTRACTOR" : INTEGRA CONSTRUCTION, INC.
Address: 6425 Powers Ferry Road, Suite 265
Atlanta, GA 30339
Tel. No.: (770) 953-1200
DESIGNED BY:
-----------
"ARCHITECT" : SMALLWOOD, REYNOLDS, STEWART & STEWART &
ASSOCIATES, INC.
Address: One Piedmont Center, Suite 303
3565 Piedmont Road
Atlanta, Georgia 30305
Tel. No.: (404) 233-5453
The Owner and the Contractor hereby agree as follows:
FOR VALUABLE CONSIDERATION, the sufficiency of which is hereby acknowledged, the
parties promise, covenant and agree that the Owner shall engage and compensate
Contractor and the Contractor shall perform the Work relative to the Project all
as hereinafter set forth.
ARTICLE 1.
----------
THE WORK
--------
The Contractor shall perform all Work required by the Contract Documents
relative to the Project set forth above within the Contract Time stipulated
therein and in complete accordance with and fulfillment of the provisions,
terms, and conditions thereof.
ARTICLE 2.
----------
THE PROJECT
-----------
The Project as identified above shall consist of the total construction
required under the Contract Documents upon the real property identified by the
legal description attached as Exhibit "E-1" (the "site").
<PAGE>
ARTICLE 3.
----------
THE CONTRACT DOCUMENTS
----------------------
3.1 "Contract Documents". The Contract Documents relative to this
--------------------
Agreement Package above consist of the following Exhibits:
(a) This Owner-Contractor Agreement;
(b) The General Conditions of the Contract for Construction
(hereinafter referred to as the "General Conditions");
(c) Payment Request Form;
(d) Waiver of Lien Form;
(e) Contractor's Affidavit Form;
(f) Final Waiver of Lien Form;
(g) Summary of Lump Sum Price dated June 13, 1996;
(h) Clarifications and Description of Work dated June 13, 1996;
(i) Construction Schedule Prepared by Integra Construction, Inc.
dated August 15, 1996;
(j) Upon Completion of drawings and specifications by the Architect,
a change order will be issued to incorporate all applicable
drawings and specifications as part of the Contract Documents.
These all collectively form the Contract, and are all as fully a part of the
Contract as if attached to this Agreement as repeated herein.
ARTICLE 4.
----------
TIME OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
-----------------------------------------------
4.1 "Date of Commencement". The Contractor shall commence the Work under
----------------------
this Agreement no later than seven (7) days from the date of a written notice
from the Owner to the Contractor to commence the work ("Notice to Proceed").
4.2 "Contract Time". The Contractor shall perform the Work as required in
---------------
the Contract Documents to achieve Substantial Completion of the entire Work on
or before 335 calendar days after the Date of Commencement.
---
4.3 "Adjustment for Changes". The Contract Time may be extended only for
------------------------
those causes expressly stipulated herein and elsewhere in the Contract Documents
and only strictly in accordance with the procedures and requirements set forth
therein.
4.4 "Substantial Completion". The Date of Substantial Completion shall be
------------------------
as defined in the Contract Documents.
4.5 "Final Completion". In no event shall the Work be considered complete
------------------
for purposes of final payment until the following have occurred: (a) all
construction items required by the Contract Documents have been fully completed
and approved, (b) a final certificate of payment issued by the Architect as
provided in the General Conditions.
2
<PAGE>
ARTICLE 5.
----------
CHANGE ORDERS
-------------
5.1 "Right to Make Changes". Owner may make modifications in the Work in
-----------------------
accordance with the General Conditions and appropriate adjustments in Contract
Time and Contract Sum shall be made in compliance therewith.
5.2 "Fee". The fee earned by Contractor and any Subcontractor (as defined
-----
in the General Conditions) for performing any additional work under a Change
Order performed on a "cost" plus "fee" basis shall be determined on the
following basis:
(a) The fee earned by any Subcontractor for performing such additional
work shall be 10% of the Cost of the Work (as defined in the General
Conditions) incurred by such Subcontractor to perform such work.
(b) The fee earned by Contractor for additional work performed by
Subcontractors shall be 5% of the Cost of the Work incurred by Contractor
to have such work performed.
(c) The fee earned by Contractor for additional work performed by its
own forces shall be 10% of the Cost of the Work incurred by Contractor to
perform such work.
ARTICLE 6.
----------
CONTRACT SUM
------------
6.1 "Contract Sum". The Owner shall pay the Contractor the Sum of Four
-------------- ----
Million, One Hundred Thirty Four Thousand, Eight Hundred Fourteen
- -----------------------------------------------------------------
($4,134,814.00) Dollars for the full and proper performance of the Work
-------------
hereunder, subject to Modification only and strictly in accordance with this
Agreement and as other provided by the Contract Documents.
ARTICLE 7.
----------
PAYMENTS
--------
Based upon Applications for Payment submitted to the Owner and Architect by
the Contractor and Certificates for Payment issued by the Architect, all in
accordance with the requirements of the Contract Documents the Owner shall make
payments on account of the Contract Sum to the Contractor as provided in the
Contract Documents as follows:
7.1 "Progress Payments". The Owner shall make progress payments based
-------------------
upon duly certified Applications for Payment for each period ending the 30th day
of each month, which shall be submitted to the Owner not later than the 10th day
of the following month. Such progress payments shall be in the amount of Ninety
(90%) Percent of the portion of the Contract Sum properly allocable to labor,
materials and equipment incorporated in the Work and properly allocable to
materials and equipment suitably stored, insured and protected at the site or,
at Owner's discretion, at some other location agreed upon in writing and
approved by the Owner, for the period covered by the Application for Payment,
less the aggregate of previous payments made by the Owner. When $206,740.00 has
been withheld as retainage, no further retainage will be held from progress
payments.
7.2 "Semifinal Payments". At the Date of Substantial Completion of the
--------------------
Work and submission of Semifinal Application for Payment all as provided in the
Contract Documents, the Owner shall within thirty (30) days after receipt of
such Application and other appropriate documentation and Certification by
Architect be required by the Contract Documents to make semifinal payment to the
Contractor of the certified amount owing of all unpaid balance of the Contract
Sum, as adjusted, for work completed, except for the amount of any continued
retention as provided by the Contract Documents determined necessary to protect
Owner's remaining interests until final completion.
3
<PAGE>
7.3 "Final Payment". Final Payment constituting the entire unpaid balance
---------------
of the Contract Sum, as appropriately adjusted under the Contract Documents,
shall be paid by the Owner to the Contractor when the work has been finally
completed, the Contract fully performed, the Architect has issued a Final
Certificate for Payment which approves the Final Application for Payment, and
the Contractor has provided all necessary submittals and documents required by
and otherwise fulfilled all other requirements set forth in the Contract
Documents. Such application shall be submitted on or before the 25th day of the
month in which completion occurs and payment shall be due and payable on or
before 30 days after Owner's receipt of the Final Certificate of Payment.
7.4 "Payment of Subcontractors". No later than seven (7) days after
---------------------------
receipt of payment by Contractor, Contractor shall make payments to its
Subcontractors and suppliers reflecting appropriate retainage in the same
proportion as withheld by Owner and, to the extent to their interest therein for
amounts owing for labor, materials and services provided and for which payment
is so made by Owner.
7.5 "Payment Requests and Related Form". Owner provides as Exhibits C
-----------------------------------
through F the forms to be employed in appropriate circumstances in connection
with payment applications. Owner reserves the right upon reasonable advance
written notice to Contractors to modify or substitute any or all of these forms.
ARTICLE 8.
----------
PERFORMANCE AND PAYMENT BONDS
-----------------------------
8.1 The Contractor may be required to furnish Performance and Payment
Bonds, each in an amount at least equal to the Contract Sum, as defined herein,
as security for the faithful performance and payment of all of the Contractor's
obligations under the contract Documents. Such Bonds shall be as required by
the Contract Documents and shall be delivered to the Owner no later than five
(5) days after the date requested.
ARTICLE 9.
----------
MISCELLANEOUS PROVISIONS
------------------------
9.1 Notices. The proper addresses for giving Notices under this agreement
-------
are:
To Owner: Wells Real Estate Fund IX, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
To Contractor: Integra Construction, Inc.
6425 Powers ferry Road, Suite 265
Atlanta, GA 30339
To Architect: Smallwood, Reynolds, Stewart, Stewart & Associates, Inc.
One Piedmont Center, Suite 303
3565 Piedmont Road
Atlanta, Georgia 30305
9.2 "Owner's Liability". The liability of the Owner hereunder shall be
-------------------
limited to its interest in the Project and the Property. No other property of
the Owner (or of any Partner or Venturer in Owner if Owner is a partnership or
joint venture) shall be subject to seizure or any other claim of any nature
whatsoever to satisfy any of Owner's obligations arising from this Agreement.
Neither Leo F. Wells,III, nor any other person or entity who may at any time be
a member, partner, or joint venturer in any partnership or joint venture which
may be the Owner, shall have any liability for any of the obligations of the
Owner arising from this Agreement.
9.3 "Owner's and Contractor's Representatives". Owner hereby appoints Leo
------------------------------------------ ---
F. Wells, III, or his designee as the Owner's representative for all purposes
- -------------
under this Contract. Contractor hereby appoints David B. Blackmore or his
------------------
designee under this Contract. Either party may change his representative by
written notice
4
<PAGE>
to the other. Either representative may appoint a designee for either general or
limited purposes upon written notice to the other representative. If such
appointment is for less than all purposes, the notice shall set forth the
limited nature of the appointment.
9.4 Definitions. Terms used in this Agreement which are defined in the
-----------
Contract Documents shall have the meanings designated in the Contract Documents.
9.5 Examination of Documents. The Contractor affirms, by signature to
------------------------
this Contract, that he has carefully examined all Contract Documents, and
further agrees that he will not plead unfamiliarity with any of the Contract
Documents in connection with any dispute which may arise under the Contract
Documents.
9.6 The parties acknowledge that the Owner has or will obtain financing
for the construction of the Project from a third-party lender ("Lender"). The
Contractor agrees that it will cooperate with the Owner and Lender for the
purpose of facilitating the Owner's financing of the Project, and shall execute
any and all documents, notices, agreements, or forms which are required under
the Contract Documents or the Owner or Lender may reasonably require in order
for the Owner to obtain financing for the Project.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as a Contract under seal, as of the
date set forth on the first page hereof.
[Corporate Seal] OWNER:
WELLS REAL ESTATE FUND IX, L.P.
Attest:/s/ Martha Cory /s/ Leo F. Wells, III
---------------------------- -------------------------------------
Leo F. Wells, III, General Partner
Title:
-----------------------------
[Corporate Seal] CONTRACTOR:
INTEGRA CONSTRUCTION, INC.
Attest:/s/ Jeffrey B. Powers /s/ David B. Blackmore
---------------------------- -------------------------------------
David B. Blackmore, President
Title: Project Manager
5
<PAGE>
EXHIBIT "B"
GENERAL CONDITIONS
------------------
OF THE
------
CONSTRUCTION CONTRACT
---------------------
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
ARTICLE 1. THE CONTRACT DOCUMENTS........................................ 1
1.1 DEFINITIONS.................................................... 1
1.2 EXECUTION, CORRELATION AND INTENT.............................. 1
1.3 OWNERSHIP AND USE OF DOCUMENTS................................. 3
ARTICLE 2. THE ARCHITECT................................................. 3
2.1 DEFINITION..................................................... 3
2.2 ADMINISTRATION OF THE CONTRACT................................. 3
ARTICLE 3. THE OWNER..................................................... 5
3.1 DEFINITION..................................................... 5
3.2 OWNER'S RESPONSIBILITIES....................................... 5
3.3 OWNER'S REPRESENTATIVES........................................ 5
ARTICLE 4. THE CONTRACTOR................................................ 6
4.1 DEFINITION..................................................... 6
4.2 STANDARD OF PERFORMANCE........................................ 6
4.3 REVIEW AND IMPLEMENTATION OF CONTRACT DOCUMENTS................ 6
4.4 SUPERVISION AND CONSTRUCTION PROCEDURES........................ 6
4.5 LABOR AND MATERIALS............................................ 7
4.6 WARRANTY....................................................... 7
4.7 TAXES.......................................................... 8
4.8 PERMITS, FEES AND NOTICES...................................... 9
4.9 DOCUMENTS AND SAMPLES AT THE SITE.............................. 9
4.10 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES........................ 10
4.11 USE OF SITE.................................................... 13
4.12 CUTTING AND PATCHING WORK...................................... 13
4.13 CLEANING UP.................................................... 13
4.14 COMMUNICATIONS................................................. 14
4.15 ROYALTIES AND PATENTS.......................................... 14
4.16 INDEMNIFICATION................................................ 14
4.17 LAYOUT......................................................... 15
4.18 TESTS.......................................................... 15
4.19 SITE AND RELATED PHYSICAL CONDITIONS AFFECTING THE WORK........ 15
4.20 FOUNDATION SURVEY.............................................. 16
4.21 START-UP....................................................... 16
ARTICLE 5. SUBCONTRACTORS............................................... 16
5.1 DEFINITION.................................................... 16
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
5.2 AWARD OF SUBCONTRACTORS AND OTHER CONTRACTS................... 17
5.3 SUBCONTRACTOR RELATIONS....................................... 17
ARTICLE 6. WORK BY OWNER, TENANT, AND SEPARATE CONTRACTORS.............. 19
6.1 OWNER'S RIGHT TO PERFORM WORK AND TO AWARD SEPARATE CONTRACTS.. 19
6.2 MUTUAL RESPONSIBILITY......................................... 19
6.3 OWNER'S RIGHT TO CLEAN UP..................................... 20
ARTICLE 7. TIME FOR COMPLETION.......................................... 20
7.1 DEFINITIONS................................................... 20
7.2 PROGRESS AND COMPLETION....................................... 21
7.3 DELAYS AND EXTENSIONS OF TIME................................. 21
7.4 OWNER'S RIGHT TO ACCELERATE................................... 23
7.5 THE CONSTRUCTION SCHEDULE..................................... 24
ARTICLE 8. PAYMENTS TO CONTRACTOR....................................... 25
8.1 CONTRACT SUM.................................................. 25
8.2 SCHEDULE OF VALUES............................................ 25
8.3 APPLICATIONS FOR PAYMENT...................................... 25
8.4 CERTIFICATES FOR PAYMENT...................................... 26
8.5 PROGRESS PAYMENTS............................................. 26
8.6 PAYMENTS WITHHELD............................................. 27
8.7 SEMIFINAL PAYMENT UPON SUBSTANTIAL COMPLETION................. 28
8.8 FINAL COMPLETION AND FINAL PAYMENT............................ 29
8.9 WAIVER........................................................ 30
ARTICLE 9. COMPLETION................................................... 31
9.1 SUBSTANTIAL COMPLETION........................................ 31
9.2 COMPLETION AND CLOSEOUT SUBMITTALS............................ 32
9.3 CONTRACTOR'S CLOSEOUT SUBMITTAL............................... 32
9.4 FINAL COMPLETION.............................................. 34
ARTICLE 10. PROTECTION OF PERSONS AND PROPERTY.......................... 34
10.1 SAFETY PRECAUTIONS AND PROGRAMS............................... 34
10.2 SAFETY OF PERSONS AND PROPERTY................................ 34
10.3 EMERGENCIES................................................... 35
ARTICLE 11. INSURANCE.................................................. 36
11.1 CONTRACTOR'S LIABILITY INSURANCE.............................. 36
11.2 OWNER'S LIABILITY INSURANCE................................... 37
11.3 PROPERTY INSURANCE............................................ 38
11.4 LOSS OF USE INSURANCE......................................... 39
11.5 WRAP-UP....................................................... 39
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 12. CHANGES IN THE WORK AND CLAIMS.............................. 39
12.1 CHANGE ORDERS................................................. 39
12.2 CONCEALED CONDITIONS.......................................... 41
12.3 MINOR CHANGES IN THE WORK..................................... 41
12.4 CHANGE ORDER REQUESTS AND PROPOSALS........................... 41
12.5 CLAIMS........................................................ 41
12.6 LIMITATION OF ENTITLEMENT..................................... 42
ARTICLE 13. UNCOVERING OF WORK AND CORRECTION OF WORK................... 42
13.1 UNCOVERING OF WORK............................................ 42
13.2 CORRECTION OF WORK............................................ 43
13.3 ACCEPTANCE OF DEFECTIVE OR NON-CONFORMING WORK................ 43
13.4 NON-LIMITATION OF RIGHTS...................................... 44
ARTICLE 14. TITLE TO WORK AND LIENS.................................... 44
14.1 UNENCUMBERED TITLE TO WORK.................................... 44
14.2 LIEN RELINQUISHMENT AND REMOVAL............................... 44
14.3 SUBORDINATION OF RIGHTS....................................... 45
ARTICLE 15. CONTRACTOR DEFAULT AND OWNER'S REMEDIES.................... 45
15.1 EVENTS OF CONTRACTOR'S DEFAULT................................ 45
15.2 OWNER'S REMEDIES FOR UNCURED CONTRACTOR DEFAULT............... 46
15.3 OWNER'S REMEDIES FOR REPEATED DEFAULT......................... 47
15.4 NONWAIVER OF DEFAULT REMEDIES................................. 48
ARTICLE 16. RIGHTS OF CONTRACTOR........................................ 48
16.1 STOP WORK FOR NONPAYMENT OR SUSPENSION........................ 48
16.2 TERMINATION BY CONTRACTOR..................................... 48
ARTICLE 17. ASSIGNMENT.................................................. 48
17.1 ASSIGNMENT.................................................... 48
ARTICLE 18. DISPUTES.................................................... 49
18.1 OBLIGATION TO PROCEED AND PERFORM............................. 49
ARTICLE 19. RIGHTS OF OWNER............................................. 49
19.1 CONDITIONS EXCUSING PERFORMANCE............................... 49
19.2 OWNER'S RIGHT TO SUSPEND WORK................................. 49
19.3 OWNER'S RIGHT TO STOP WORK.................................... 50
ARTICLE 20. BONDS....................................................... 50
20.1 PERFORMANCE AND PAYMENT BONDS................................. 50
</TABLE>
iii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 21. MISCELLANEOUS PROVISIONS.................................... 50
21.1 GOVERNING LAW................................................. 50
21.2 WRITTEN NOTICE................................................ 50
21.3 CLAIMS FOR DAMAGES............................................ 51
21.4 NO WAIVER..................................................... 51
21.5 RIGHTS AND REMEDIES........................................... 51
21.6 SIGNS AND ADVERTISING......................................... 51
21.7 ATTORNEY FEES................................................. 51
21.8 AGREEMENT READ AND UNDERSTOOD................................. 52
21.9 COMPLETE AGREEMENT............................................ 52
21.10 INTEREST...................................................... 52
21.11 LABOR RELATIONS............................................... 52
21.12 COVENANT NOT TO SUE........................................... 52
21.13 UNENFORCEABILITY OF ANY CLAUSE................................ 52
21.14 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................... 53
21.15 NOT TO BENEFIT THIRD PARTIES.................................. 53
21.16 TERMINATION OR SUSPENSION BY THE OWNER FOR CONVENIENCE........ 53
</TABLE>
iv
<PAGE>
GENERAL CONDITIONS OF THE
CONSTRUCTION CONTRACT
ARTICLE 1.
THE CONTRACT DOCUMENTS
----------------------
1.1 DEFINITIONS
-----------
1.1.1 The Contract Documents consist of the Owner-Contractor Agreement,
------------------
the Conditions of the Contract (General, Supplementary and other
Conditions), the Drawings, the Specifications, and all Addenda
issued prior to and all Modifications which have been approved in
writing by the Owner and issued after execution of the Contract. A
Modification is (1) a written amendment to the Owner-Contractor
Agreement signed by both parries, (2) a Change Order, (3) a written
interpretation issued by the Architect pursuant to Subparagraph
2.2.7, or (4) a written order for a minor change in the Work issued
by the Architect pursuant to Subparagraph 12.3. The Contract
Documents do not include bidding or proposal documents such as the
advertisement or invitation for bid or proposal, instructions to
bidders, sample forms, the Contractor's bid or proposals or portions
of Addenda relating to any of these, or any other documents, unless
specifically enumerated in the Owner-Contractor Agreement.
1.1.2 The Contract Documents form the Contract for Construction, which
represents the entire and INTEGRATED agreement between the parties
hereto and supersedes all prior negotiations, representations, or
agreements, either written or oral. The Contract may be amended or
modified only by a Modification as defined in Subparagraph 1.1.1.
The Contract Documents shall not be construed to create any
contractual relationship between the Owner or the Architect and any
Subcontractor or Sub-subcontractor supplier, or vendor of the
Contractor.
1.1.3 The Work comprises the completed construction required by the
----
Contract Documents and includes all labor necessary to produce such
construction, all materials, fabrications, assemblies, and equipment
incorporated or to be incorporated in such construction, and all
materials, equipment, tools, construction means, utilities,
facilities, transportation, appliances, supervision and services
necessary to achieve total completion of the Project, including such
materials and equipment which may be consumed or used but not
actually incorporated in such construction.
1.1.4 The Project is the total construction of which the Work performed
-------
under the Contract Documents may be the whole or a part.
1.1.5 The Site is the real property upon which the Project is situated.
----
1.2 EXECUTION, CORRELATION AND INTENT
---------------------------------
1.2.1 The Contract Documents shall be signed in not less than triplicate
by the Owner and Contractor. If either the Owner or the Contractor
or both do not sign the Conditions of the Contract, Drawings,
Specifications, or any of the other Contract Documents, the
Architect, with approval of the Owner, shall identify such
Documents.
1.2.2 By executing the Owner-Contractor Agreement, the Contractor
represents and acknowledges that:
(a) He has carefully reviewed the Contract Documents for errors,
discrepancies, ambiguities and omissions;
(b) He has visited the site and familiarized himself with its
physical conditions and the local conditions under which the
Work is to be performed; and
<PAGE>
(c) He has reviewed carefully all surveys, records and data regarding
the site and its physical conditions as have been made available
by Owner or Architect or were otherwise reasonably accessible and
available to him; and
(d) He had correlated his observations with the requirements of the
Contract Documents.
1.2.3 The intent of the Contract Documents is to include all items
necessary for the proper execution and completion of the Work. The
Contract Documents are complimentary, and what is required by any
one shall be binding as if required by all. The Contractor shall be
obligated to perform Work required by any Contract Document as fully
as though required by all of them. Words and abbreviations which
have well known technical or trade meanings are used in the Contract
Documents in accordance with such recognized meanings. Without
limiting the duty of the Contractor regarding review of the Contract
Documents, in the event of a conflict or discrepancy among the
various Contract Documents, the Documents shall be given precedence
in the following order (in descending order or precedence):
Provisions of the Owner-Contractor Agreement
Modifications
Change Orders
Addenda
Special Conditions
Supplementary Conditions
General Conditions
Specifications
Drawings - (large-scale Drawings over small-scale)
(figures over scaled measurements)
(schedules over other information on Drawings)
1.2.4 The organization of the Specifications into divisions, sections and
articles, and the arrangement of Drawings shall not control the
Contractor in dividing the Work among subcontractors or in
establishing the extent of the Work to be performed by any trade.
1.2.5 If any errors, discrepancies, ambiguities or omissions are found at
any time in the Contract Documents, the Contractor shall notify the
Owner and Architect in writing before beginning the Work involved.
The Architect, with Owner's approval, will make corrections,
interpretations or clarifications promptly, basing his decisions on
what is reasonably inferable from and consistent with the intent of
the Contract Documents.
1.2.6 All pertaining statutes, ordinances, laws, rules, codes,
regulations, standards, and lawful orders of public authorities
having jurisdiction of the Work of this Contract are hereby
incorporated (in their form as effective on the date of execution of
the Owner-Contractor Agreement) into the Contract Documents as if
repeated in full herein and are intended wherever reference is made
in either the singular or plural to Code or Building Code, except as
otherwise specified. Contractor shall be responsible for such Code
compliance with regard to his Work on the Project.
1.2.7 Cross references and citations of Sections and Subsections in this
Document are for the convenience of the Contractor, the Owner, and
the Architect, and are not intended to be plenary or exhaustive nor
are they intended to be considered in interpreting the Contract or
any part of the Contract Documents.
2
<PAGE>
1.3 OWNERSHIP AND USE OF DOCUMENTS
------------------------------
1.3.1 All Drawings, Specifications and revisions thereto and copies
thereof are and shall remain the property of Owner and shall be
returned to Owner upon completion of the Project.
ARTICLE 2.
THE ARCHITECT
-------------
2.1 DEFINITION
----------
2.1.1 The Architect is the person lawfully licensed to practice
architecture, or an entity lawfully practicing architecture,
identified as such in the Owner-Contractor Agreement, and is
referred to throughout the Contract Documents as if singular in
number and masculine in gender. The term Architect means the
Architect or his authorized representative.
2.2 ADMINISTRATION OF THE CONTRACT
------------------------------
2.2.1 The Architect will provide administration of the Contract as
hereinafter described.
2.2.2 The Architect will be the Owner's representative during construction
and until final payment is made. The Owner's instructions to the
Contractor shall be provided to the Contractor in writing either
directly, with copy to Architect, or through the Architect. The
Architect will have authority to act on behalf of the Owner only to
the extent provided in the Contract Documents.
2.2.3 The Architect will visit the site at intervals appropriate to the
stage of construction and as required by the Owner to familiarize
himself generally with the progress and quality of the Work and to
determine in general if the Work is proceeding in accordance with
the Contract Documents. On the basis of his on-site observations as
an Architect, he will keep the Owner informed of the progress of the
Work, and will endeavor to guard the Owner against defects and
deficiencies in the Work of the Contractor.
2.2.4 The Architect will not be responsible for and will not have control
or charge of construction means, methods, techniques, sequences or
procedures, or for safety precautions and programs in connection
with the Work. The Architect will not be responsible for or have
control or charge over the acts or omissions of the Contractor,
Subcontractors, or any of their agents or employees, or any other
persons performing any of the Work. The failure of the Architect to
discover or to call to Owner's attention any defects and
deficiencies in the Work of the Contractor shall not excuse or
otherwise relieve Contractor of its obligations to Owner under the
Owner-Contractor Agreement.
2.2.5 The Architect and the Owner shall at all times have access to the
Work wherever it is in preparation and progress. The Contractor
shall provide facilities for such access so the Architect may
perform his functions under the Contract Documents and the Owner may
observe such.
2.2.6 The Architect, will be the interpreter of the requirements of the
Contract Documents and the performance thereunder by the Contractor.
2.2.7 Subject to Subparagraph 2.2.9, the Architect will render
interpretations necessary for the proper execution of progress of
the Work, with reasonable promptness and in accordance with any time
limit agreed upon.
3
<PAGE>
2.2.8 Claims, disputes and other matters in questions between the
Contractor and the Owner relating to the execution or progress of
the Work or the interpretation of the Contract Documents shall be
referred initially to the Architect for decisions, which he will
render in writing to Owner and Contractor within a reasonable time.
2.2.9 All interpretations and decisions of the Architect shall be
consistent with the intent of and reasonably inferable from the
Contract Documents and will be in writing or in the form of
drawings.
2.2.10 Both the Owner, with Architect's concurrence, and the Architect
independently will have authority to reject Work which does not
conform to the Contract Documents. Whenever, in Architect's opinion,
he considers it necessary or advisable for the implementation of the
intent of the Contract Documents, he will have authority to require
special inspection or testing of the Work in accordance with
Subparagraph 4.18.2 whether or not such Work be then fabricated,
installed or completed. However, neither the Architect's nor Owner's
authority to act under this Subparagraph 2.2.10 nor any decision not
to exercise such authority, shall give rise to any liability, duty
or responsibility of the Architect or Owner to the Contractor, any
Subcontractor, any of their agents or employees, or any other person
performing any of the Work, except as provided in Subparagraph
4.18.2.
2.2.11 The Architect will review and approve or take other appropriate
action upon Contractor's submittals such as Shop Drawings, Product
Data and Samples, but only for conformance with the design concept
of the Work, and with the information given in the Contract
Documents and applicable laws, rules and regulations. Such action
shall be taken with reasonable promptness so as to cause no delay in
the Work.
2.2.12 The Architect will prepare Change Orders in accordance with Article
12, and will have authority to order minor changes in the Work as
provided in Subparagraph 12.3.
2.2.13 Based upon observations at the site and upon an evaluation of the
Contractor's Application(s) for Payment, in consultation with the
Owner, the Architect shall determine the amount owing to the
Contractor, pursuant to the terms of the Owner-Contractor Agreement.
The Architect shall issue Certificate(s) for Payment to the Owner in
such amounts.
2.2.14 The Architect will conduct inspections to determine the Date of
Substantial Completion and the date of Final Completion and issue
such Certificates regarding completion in accordance with Sub-
Paragraphs 9.1.4 and 9.4.4 and will receive and review written
warranties and related documents required by the Contract Documents
and assembled by the Contractor, and will issue a final Certificate
for Payment upon compliance by Contractor with the requirements of
the Contract Documents.
2.2.15 The duties, responsibilities and limitations of authority of the
Architect as the Owner's representative during construction as set
forth in the Contract Documents will not be modified or extended
without the written consent of the Owner and the Architect.
2.2.16 In case of the termination of the employment of the Architect, the
Owner may appoint another Architect in which event he shall become
the Architect under the Contract Documents.
4
<PAGE>
ARTICLE 3.
THE OWNER
---------
3.1 DEFINITION
----------
3.1.1 The Owner is the person or entity identified as such in the Owner-
Contractor Agreement and is referred to throughout the Contract
Documents as if singular in number and masculine in gender. The term
Owner means the Owner or his authorized representative.
3.2 OWNER'S RESPONSIBILITIES
------------------------
3.2.1 The Owner shall furnish or provide reasonable access to all surveys
in its possession describing the physical characteristics and
utility locations for the Site, subject, however, to the provisions
of Sub-Paragraph 4.19. Such survey(s) shall establish the property
lines and permanent bench marks. The Owner shall provide the
Contractor with a legal description of the Site including any known
legal limitations or restrictions.
3.2.2 Except as provided expressly in the Owner-Contractor Agreement, the
Owner shall secure and pay for necessary permits, approvals,
assessments and charges required for the actual use or occupancy of
permanent structures or permanent changes in existing structures.
3.2.3 Information or services under the Owner's control shall be furnished
by the Owner upon Contractor's request with reasonable promptness to
avoid delay in the orderly progress of the Work.
3.2.4 The Contractor will be furnished free of charge three (3) sets of
Contract Documents. Any revised Drawings, Specifications or other
Contract Documents issued after execution of the Agreement shall be
furnished as necessary for proper performance of the Work. All other
sets requested by the Contractor's expense.
3.2.5 The foregoing are in addition to the other duties and
responsibilities of the Owner enumerated herein.
3.2.6 The Owner, its consultants and the Architect shall all times have
access to the Work whenever it is in preparation or progress. The
Contractor shall provide safe facilities for such access.
3.3 OWNER'S REPRESENTATIVES
-----------------------
3.3.1 The Owner may provide, on a full time or part time basis, such
construction consultants as it shall deem necessary or appropriate
to preserve and protect its interests. Upon receipt of written
notice from Owner designating such consultant(s), Contractor shall
afford them all rights of access and inspection as are permitted to
the Owner and to its Architect. However, no action or inaction on
the part of any such consultants shall be deemed an acceptance by
the Owner of any work which does not strictly conform to the
Contract Documents unless specifically approved by Owner in writing.
3.3.2 Owner shall provide a representative authorized to act for it under
the Contract Documents. Such representative shall be expressly
stipulated (as the designated "Owner's Representative") in the
Owner-Contractor Agreement or by subsequent written designation by
Owner.
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3.3.3 No observation of the Owner, its consultants or its Architect and no
inspections, tests or approvals by them shall relieve the Contractor
from his obligation to perform the Work in strict conformity with
the Contract Documents unless specifically approved by Owner in
writing.
ARTICLE 4.
THE CONTRACTOR
--------------
4.1 DEFINITION
----------
4.1.1 The Contractor is the person or entity identified as such in the
Owner-Contractor Agreement Documents and is referred to throughout
the Contract Documents as if singular in number and masculine in
gender. The term Contractor means the Contractor or his authorized
representative.
4.2 STANDARD OF PERFORMANCE
-----------------------
4.2.1 The Contractor recognized the relationship of trust and confidence
established between him and the Owner by this Agreement and
covenants with the Owner to furnish the highest and best skill,
attention, judgment and cooperation in performance of the Work as
measured against the prevailing industry standards of construction
contractors on comparable projects. The Contractor agrees to
cooperate fully with the Architect, to provide a high and efficient
level of business administration, management, coordination and
superintendence of the work.
4.3 REVIEW AND IMPLEMENTATION OF CONTRACT DOCUMENTS
-----------------------------------------------
4.3.1 Before submitting his bid or proposal to the Owner, and continuously
after the execution of the Contract, the Contractor shall carefully
study and compare the Contract Documents and shall at once report to
the Architect and the Owner any error, ambiguity, inconsistency or
omission that may be discovered, including any requirement which may
be contrary to any law, ordinance, rule, regulation, or order of any
public agency or authority, enacted as of the date of the Owner-
Contractor Agreement, bearing on the performance of the Work
including any building codes and drainage and sanitary requirements.
By submitting his proposal or bid for the Contract and the Work
under it, the Contractor agrees that the Contract Documents appear
accurate, consistent, and complete insofar as can be then reasonably
determined. Contractor agrees that the Contract Sum includes the
cost of all materials, equipment and labor and everything else which
will be required to comply with such ordinances, requirements, laws,
rules and regulations enacted as of the date of the Agreement.
4.3.2 The Contractor shall not proceed with any portion of the Work
affected by any error, ambiguity, inconsistency or omission upon its
discovery until further direction or instruction by the Architect.
If the Contractor has promptly upon discovery reported in writing
any error, ambiguity, inconsistency or omission, and has promptly
stopped the affected Work until instructed and otherwise followed
the instructions of the Owner or Architect, the Contractor shall not
be liable to the Owner for any damage or delay resulting from any
such errors, ambiguities, inconsistencies or omissions in the
Contract Documents.
4.3.3 However, no allowance for additional compensation or extension of
time for completion shall be permitted by the Contractor based on
claims of defects, errors, omissions, ambiguities or inconsistencies
in the Contract Documents to the extent that they were discoverable
upon exercise of reasonable diligence by the Contractor and such
discovery (and prompt notice) would have avoided or reduced their
impact on the work.
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4.3.4 The Contractor shall perform no portion of the Work at any time
without Contract Documents authorizing and describing such portion
of the Work or, where required, approved Shop Drawings, Product Data
or Samples for such portion of the Work.
4.4 SUPERVISION AND CONSTRUCTION PROCEDURES
---------------------------------------
4.4.1 The Contractor shall supervise and direct the Work, using his best
skill, attention and judgment. He shall be solely responsible for
all construction means, methods, techniques, sequences and
procedures and for coordinating all portions of the work under the
Contract. All Work performed hereunder shall be in a skillful and
workmanlike manner.
4.4.2 The Contractor shall at all times during regular work days maintain
an adequate management and supervisory staff of competent persons,
and an adequate and competent supply of workmen and material
necessary to carry out the Work and agrees further to complete the
Work in an expeditious and efficient manner consistent with the best
interest of the Owner.
4.4.3 The Contractor shall not be relieved of his obligations to perform
the Work in accordance with the Contract Documents either by the
activities or duties of the Owner, his consultants, or the Architect
in his administration of the Contract, or by inspections, tests or
approvals required or performed by persons other than the
Contractor.
4.4.4 The Contractor's Project Manager and Project Superintendent shall be
designated to Owner in writing prior to commencement of Work.
Contractor shall not change such designations thereafter without
prior written notice to Owner and Owner's consent, unless the
designated person ceases to be employed by Contractor. The Owner
may, by written notice to Contractor, object to any person or
persons designated by Contractor, originally or subsequently, as
Project manager or Superintendent, whom Owner deems objectionable
within its reasonable discretion. Upon such notice of objection,
Contractor shall promptly submit an alternative designation
reasonably acceptable to the Owner.
4.5 LABOR AND MATERIALS
-------------------
4.5.1 Unless otherwise provided in the Contract Documents, the Contractor
shall provide and pay for all labor, materials, fabrications,
assemblies, equipment, tools construction equipment and machinery,
water, heat, utilities, transportation, and all other facilities and
services necessary for the proper execution and completion of the
Work, whether temporary or permanent and whether or not incorporated
or to be incorporated in the Work.
4.5.2 The Contractor shall at all times enforce strict discipline and good
order among his employees and subcontractors shall require his
subcontractors to do the same.
4.5.3 All Work shall be executed in neat, skillful, workmanlike manner in
accordance with best recognized trade practices. Only competent and
skilled workmen who satisfactorily perform their duties shall be
employed on the Work. When requested by Owner, Contractor shall
discharge and shall not reemploy on the Work any person who is
deemed by Owner as unfit, unskilled, disorderly, dangerous,
insubordinate, incompetent, or otherwise objectionable.
4.5.4 Contractor shall timely place orders for sufficient quantities of
material (including equipment, fabrications and assemblies) from
reputable suppliers and strictly in accordance and subject to
requirements of the Contract Documents. Contractor shall provide
Owner Promptly with complete copies of all such orders.
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4.5.5 No substitutions or variations from the Contract Documents shall be
permitted in the work itself or any materials (including equipment,
fabrications or assemblies) comprising it, without the express prior
written authorization of such substitution or variation by Architect
or Owner.
4.5.6 Contractor will acknowledge receipt of materials and equipment
purchased for Owner for installation under the Contract Documents
and will provide storage and protection for such materials and
equipment.
4.5.7 Upon delivery of all materials (including fabrications, assemblies
and equipment), Contractor shall ascertain whether or not they
comply with contract requirements and shall reject all nonconforming
materials and have all nonconforming materials removed immediately
from the project site. All materials delivered to the job site shall
be stored and handled as to preclude inclusion of any foreign
substances or any discoloration or adulteration thereof and to
prevent any damage thereto which might reduce its effectiveness as
part of the Work.
4.5.8 Unless otherwise specifically indicated, where trade or brand names
appear in the Specifications they are used to indicate standards of
quality. However, this is intended to be an open specification
(except as otherwise designated), accessible to any reputable
manufacturer whose product is deemed by the Architect as equal to
that named or described and meets the quality, performance and other
requirements of Contract Documents. The Owner, however, shall have
the right to approve products submitted as being equal to those
specified and his decision shall be final and conclusive.
4.5.9 Should the Contractor desire to substitute another item of material
or equipment for one specified, he shall make such request for
substitution in writing to Architect, stating any credit or extra
involved and shall provide all required supporting data and samples
to justify his request. However, such substitution shall not be made
without express written authorization by Architect, based upon his
determination that the item proposed is equal to the one specified.
Further, even if so authorized, the Contractor shall be responsible
for its correct function and operation and its accommodation into
spaces allotted. In the event of a misfit, or change in Work being
required in work of any or all trades, on account of acceptance of a
substitution offered by the Contractor, the Contractor alone shall
bear the costs for extra work to make changes arising as a result of
the use of the substitute, including the cost of such architectural
or engineering analysis and drawing changes as may be required.
4.5.10 Whenever required in the opinion of the Owner or the Architect or
required by the Specifications for the proper determination of the
qualities of the materials to be furnished under the Contract
Documents, or to be used in the Work, the Contractor shall furnish
test specimens or samples of same, the costs of which shall be paid
as provided in Paragraph 4.18 of the General Conditions.
4.6 WARRANTY
--------
4.6.1 The Contractor warrants to the Owner and the Architect that all
materials and equipment furnished under this Contract will be new
unless otherwise specified, and that all Work (including all
materials and equipment) will be of the specified quality, free from
faults and defects and in conformance with the Contract Documents.
All Work not conforming to these requirements, including
substitutions not properly approved and authorized, may be
considered defective. If required by the Architect, the Contractor
shall furnish satisfactory evidence as to the kind and quality of
materials and equipment. This warranty is not limited by any other
provision of the Contract Documents. The Warranties set forth in
this paragraph and elsewhere in the Contract Documents shall survive
final acceptance of the Work.
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4.6.2 Without limiting the responsibility of liability of the Contractor
under the Contract, all warranties and attendant rights given by
manufacturers on materials or equipment incorporated in the Work are
hereby assigned by the Contractor to the Owner. If requested, the
Contractor shall execute formal assignments of said manufacturers'
warranties to the Owner. The Contractor shall not obtain any
materials or equipment under warranties which do not run directly to
the benefit of the Owner and all such warranties shall be directly
enforceable by the Owner.
4.6.3 The foregoing warranties, and those contained elsewhere in the
Contract Documents or implied by law shall be deemed cumulative and
not alternative or exclusive. No one or more of them shall be deemed
to alter or limit any other or any other remedy or right under the
Contract Documents or the law.
4.7 TAXES
-----
4.7.1 Unless otherwise provided in the Contract Documents, the Contractor
shall pay all sales, retail , occupational, service, excise, old age
benefit and unemployment compensation taxes, consumer, use and other
similar taxes as well as any other taxes or duties on the material,
equipment and labor for the Work or portions thereof provided by the
Contractor which are legally enacted by any municipal, county,
federal or state authorities or department or agency thereof at the
time of execution of the Owner-Contractor Agreement, whether or not
yet effective.
4.7.2 All records maintained by the Contractor pertaining to such taxes
and levies and payment thereof shall be made available to the Owner
at reasonable times for inspection, audit and copying.
4.8 PERMITS, FEES AND NOTICES
-------------------------
4.8.1 Except as provided in Subparagraph 3.2.2, the Contractor shall
secure and pay for building permits, and all other permits,
approvals, assessments, charges, governmental fees and licenses
necessary for the construction and proper execution and completion
of the Work, which are legally required as of the date of the Owner-
Contractor Agreement.
4.8.2 The Contractor shall give all notices and comply with all applicable
laws, ordinances, building codes, rules, regulations and lawful
orders of any public authority bearing on the performance of the
Work. If the Contractor observes that any of the Contract Documents
are at variance therewith in any respect, he shall promptly notify
the Architect and the Owner in writing of such non-compliance.
4.8.3 If the Contractor performs any Work knowing it to be contrary to
such laws, ordinances, rules or regulations, and without such notice
to the Architect and Owner, he shall assume full responsibility
therefor and shall bear all costs attributable thereto.
4.9 DOCUMENTS AND SAMPLES AT THE SITE
---------------------------------
4.9.1 The Contractor shall maintain at the site for the Owner and
Architect one copy of all Drawings, Specifications, Addenda,
approved Shop Drawings, Product Data and Samples, Change Orders and
other Modifications in good order. These shall be available to the
Owner and Architect.
4.9.2 In addition to the foregoing, Contractor shall maintain at the
Project site records of all contracts and documents which arise out
of the Contract Documents or the construction of the Project,
including, without limitation, the following: subcontracts;
materials and technical standards and specifications; routine
Project correspondence; job meeting minutes, memoranda and notes;
and any other related documents and revisions thereto. During
progress of the Work and prior to
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final payment, Contractor shall deliver to Owner duplicates of any
such documents that may be requested by Owner or as may be required
by the technical trade specifications or other Contract Documents.
4.9.3 Contractor shall maintain at the Project site a current marked set
of working drawing prints and specifications showing as built
conditions, configurations and locations, in order to facilitate the
preparation of as-built drawings.
4.9.4 Contractor shall maintain cost accounting records with respect to
the Cost of the Work on a cash basis in accordance with generally
accepted accounting principles.
4.9.5 From time to time and at any time after the execution of the
Agreement and after five (5) days' advance written notice to
Contractor, Owner shall have access to and the right to examine and
audit any pertinent books, documents, papers and records of
Contractor involving transactions related to the Contract Documents.
At the end of the Project construction, Contractor, if requested by
Owner, shall turn over such records, or copies thereof, to the
custody of Owner, and Owner may preserve such records for such
further period of time as Owner may elect.
4.10 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES
---------------------------------------
4.10.1 Shop Drawings are drawings, diagrams, schedules and other data
specifically prepared for the Work by the Contractor or any
subcontractor, manufacturer, supplier or distributor to illustrate
some portion of the Work.
4.10.2 Product Data are illustrations, standard schedules, performance
charts, instructions, brochures, diagrams and other information
furnished by the Contractor to illustrate a material, product or
system for some portion of the Work.
4.10.3 Samples are physical examples in the size, shape, finish and
quantity required by the specifications which illustrated materials,
equipment or workmanship and establish standards by which the Work
will be judged. Samples furnished under this Section are not to be
confused with full size on-the-site "Mock-Ups" called for in some
specification sections. At the option of Owner or Architect, Samples
will be subject to testing, and in such event such additional
Samples as may be necessary shall be supplied by Contractor at no
additional cost.
4.10.4 The Contractor shall prepare, review, approve and submit with
reasonable promptness and in such orderly sequence and time as to
cause no delay in the Work or in the work of the Owner or any
separate contractor, all Shop Drawings, Product Data and Samples
required by the Contract Documents.
4.10.5 The following provisions shall be applicable to the preparation and
submission of Shop Drawings and Product Data (as applicable):
(a) Shop Drawings shall be prepared in accordance with the following
minimum requirements:
(i) Sheets shall be numbered consecutively.
(ii) Shop Drawings shall indicate all working and erection
dimensions.
(iii) Shop Drawings shall show arrangements and sectional views.
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(iv) Shop Drawings shall indicate anchoring and fastening
details, including information for making connections to
other work. Contractor shall furnish installation
instructions to be followed in the field to achieve
manufacturer's designed and planned intentions.
(b) The form of Shop Drawings shall be as follows:
(i) Up to 8-1/2" x 14" in size may be either prints on opaque
paper, or reproducible sepia transparency.
(ii) Submissions larger than above shall be reproducible sepia
transparency.
(c) The following number of copies shall be submitted:
(i) Opaque submissions shall be in duplicate.
(ii) Sepia transparency submissions shall include one
reproducible, and two prints.
4.10.6 Contractor shall be responsible for the following review and
submittal procedures:
(a) Contractor shall review, approve and stamp with its approval
before submission all Samples, Shop Drawings and Product Data
specified by the Contract Documents or subsequently by
Architect as covered by Modifications. Shop Drawings, Product
Data and Samples shall be submitted only by Contractor. By
approving and submitting Shop Drawings and Samples, Contractor
thereby represents that it has determined and verified all
field measurements, field construction criteria, materials,
catalog numbers and similar data and that it has checked and
coordinated each Shop Drawing, Product Data and Sample with the
requirements of the Contract Documents. At the time of
submission Contractor shall inform Architect in writing of any
deviations in the Shop Drawings, Product Data or Samples from
the requirements of the Contract Documents.
(b) Contractor shall be responsible for the following verifications
for all items furnished to work with existing job conditions:
(i) Dimensions shall be checked against field measurements.
(ii) Items specified to have mechanical utilities shall be
coordinated with services as to location and character.
(iii) Items specified to have electric service shall be
coordinated with services as to volts, phase, hurtz,
feeders and ampere protection at panel.
(c) Contractor shall date each Sample, Product Data and Shop
Drawing submittal and indicate the name of the Project,
description or name of equipment, material, and product and
identify by specification section where it is specified, and
indicate location where it is to be used in the Work.
(d) Contractor shall accompany each Sample, Product Data and Shop
Drawing submitted to Architect with a transmittal letter, in
duplicate with a copy being mailed to Owner containing project
name, Contractor's name, number of samples, data or drawings,
titles and other pertinent data. The transmittal letter shall
outline deviations, if any, in Samples, Product Data or Shop
Drawings from requirements of Contract Documents.
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(e) Submissions made without Contractor's approval indicated
thereon will be returned for compliance with this requirements
before being reviewed by Architect.
(f) Contractor is responsible for obtaining and distributing
drawings after as well as before final approval to all
subcontractors who are concerned with coordination of the Work.
4.10.7 No portion of the Work requiring submission of a Shop Drawing,
Project Data or Sample shall be commenced until the submittal has
been approved by the Architect. All such portions of the Work shall
be in accordance with submittals approved by the Architect. Owner
shall not be responsible for the cost of any purchases which are
not in accord with Shop Drawings approved by the Architect.
4.10.8 The following provisions shall be applicable to Architect's review
of Samples, Product Data and Shop Drawings:
(a) Architect's acceptance is only for conformance with the design
concept of the Project and with information in Contract
Documents. Approval of a separate item does not constitute
approval of an assembly in which the item functions.
(b) Review of Shop Drawings, Product Data and Samples by Architect
shall not relieve Contractor of responsibility for deviations
and/or omissions from the Contract Documents, unless Contractor
has in writing called attention to such deviations and/or
omissions at the time of submissions of the Shop Drawings,
Product Data and Samples, nor shall it relieve Contractor of
the responsibility for errors and/or omissions of any kind in
Shop Drawings, Product Data and Samples, unless such
deviations, changes and/or omissions are duly reviewed as such
and noted by specific reference on the Shop Drawings, Product
Data or the Sample. When Contractor does call such deviations
and/or omissions to the attention of the Architect, Contractor
shall state in its letter whether or not such deviations,
changes and/or omissions involve any change in costs. If no
such change is mentions, it shall be assumed that no change in
cost is involved for making the change, deviation and/or
omission. Letters fully describing any deviation, change and/or
omission, together with the reasons therefor and the statement
of the amount of cost change, shall be submitted in duplicate
by Contractor to Owner and Architect together with the affected
drawings and specifications.
(c) Where only one Sample is called for, approval will be by letter
only; where two or more Samples are called for one Sample will
be returned with Architect's approval stamp and signature or
initials.
(d) One set of approved Shop Drawings and Product Data will be
returned, including an opaque print or a sepia, when a sepia is
submitted, with Architect's approval stamp and signature or
initials.
(e) Samples not complying with Contract Documents will be returned
noted "Not Approved," with a general description of corrections
and changes required noted thereon or in the transmittal. One
set of Product Data or Shop Drawings not complying with the
Contract Documents, including a set of opaque print or marked
up sepias when sepias are submitted, will be returned noted
"Not Approved" and with a general description of corrections
and changes required indicated thereon.
(f) Contractor shall make corrections and changes in unapproved
Samples, Product Data and Shop Drawings and shall resubmit such
Samples, Product Data and Shop Drawings in the same manner as
specified above, until Architect's approval is obtained. In the
transmittal letter accompanying Samples, Product Data and Shop
Drawings being resubmitted, Contractor shall direct specific
attention to revisions, if any, other than corrections
requested by Architect on previous resubmissions. Any such
resubmittal
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processes, however, necessitated by deficient prior submittals
requiring correction shall not be justified for extension of
the Contract Time or increase in the Contract Sum.
4.11 USE OF SITE
-----------
4.11.1 The Contractor shall confine operations at the site to areas
permitted by law, ordinances, permits and the Contract Documents.
The Contractor shall not unreasonably encumber the site with any
materials or equipment, and shall maintain the site in a neat,
orderly manner. Contractor, all Subcontractors and suppliers and
anyone directly or indirectly employed by or associated with any of
them, shall confine their ingress and egress to the Project site to
areas approved in advance by Owner and shall not use or permit any
such persons to use any other ingress or egress to or from the
Project site. Contractor shall assume full responsibility for any
damage to any such land or area, or to the Owner or occupant
thereof or of any land or areas contiguous thereto, resulting from
he performance of the Work.
4.11.2 Contractor shall take measures to control the blowing or spreading
of dust, smoke, dirt, mud and refuse from its Work to avoid
nuisance and inconvenience to others whether on or off the site.
These measures shall be in compliance with, without being limited
to, all applicable laws, and shall be subject to the Architect
approval. Contractor shall furnish all necessary labor and
materials such as water, approved chemicals, equipment.
4.11.3 Contractor shall be responsible for the removal or drainage of all
water interfering with the proper prosecution of his Work. It shall
at all times assure such drainage shall not be a nuisance or
inconvenience to Owner, other separate contractors or their work,
or the occupants or users of any other public or private area on or
off the site. This paragraph supplements, and does not supersede,
any drainage or dewatering called for elsewhere in the Contract
Documents.
4.11.4 Contractor agrees (a) to perform its Work on the Project (and to
have the Subcontractors and other parties so perform their work) so
as not to interfere with or disrupt the business operations of
Owner and (b) upon the request of Owner to immediately take all
steps necessary to permit Owner's business operations to continue
without interference or disruption.
4.12 CUTTING AND PATCHING WORK
-------------------------
4.12.1 The Contractor shall be responsible for all cutting, fitting or
patching that may be required to complete the Work or make its
several parts fit together properly.
4.12.2 The Contractor shall not damage or endanger any portion of the Work
or the work of the Owner or any separate contractors by cutting,
patching or otherwise altering any work, or by excavation. The
Contractor Shall not cut our otherwise alter the work of the Owner
of any separate contractor except with the written consent of the
Owner and of such separate contractor.
4.12.3 Patching of all finishes shall match any existing work to meet
Architect's approval.
4.13 CLEANING UP
-----------
4.13.1 The Contractor at all times shall keep the Project and sit free
from accumulation of waste materials or rubbish caused by his
operations. As the Work is performed, he shall remove all his waste
materials and rubbish from and about the Project and the Property,
and at the completion of the Work he shall remove, as well, all of
his tools, construction equipment, machinery and surplus materials,
the title to which has not been vested in Owner pursuant to the
Contract Documents. He shall replace any broken glass, remove
stains, spots, marks and dirt
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from painted decorated work, clean hardware, removed paint spots
and smears from all surfaces, clean fixtures and wash all concrete
masonry and tile and clean all glass.
4.13.2 If the Contractor fails to satisfy the obligations set forth in
Subparagraph 4.13.1, the Owner my do so and the cost thereof shall
be charged to the Contractor.
4.14 COMMUNICATIONS
--------------
4.14.1 The Contractor shall forward all communications directly to the
Architect, with a copy to the Owner, unless otherwise specifically
directed in writing by the Owner.
4.15 ROYALTIES AND PATENTS
---------------------
4.15.1 The Contractor shall pay all royalties and license fees. He shall
defend all suits or claims for infringement of any patent rights
and shall save the Owner harmless from loss on account thereof.
However, the Owner shall be responsible for all such loss when a
particular design, process, or the product of a particular
manufacturer or manufacturers is specified; provided, that if the
Contractor know or reasonably should have known, that the design,
process, or product specification is an infringement of a patent,
he shall promptly notify the Owner and Architect in writing of such
knowledge, otherwise he shall be responsible for such loss as may
result from his failure to give prompt notice.
4.16 INDEMNIFICATION
---------------
4.16.1 In consideration of the execution of the Owner-Contractor
Agreement, and receipt acknowledge by Contractor of Ten and No/100
($10.00) Dollars and other good and valuable consideration from
Owner to Contractor as payment for the promises given in this
Paragraph, the Contractor, to the fullest extent permitted by law,
shall indemnify and hold harmless the Owner, their agents,
employees, successors, and assigns from and against all liability,
claims, damages, losses, expenses and costs of any kind or
description (including, but not limited to, court costs and
attorney's fees and other related costs and expenses, losses and
damages, and any claim, damage, loss or expense attributable to
bodily injury, sickness, disease or death, or to injury to or
destruction of tangible property, including the loss of use
resulting (therefrom) arising out of or in connection with the
performance of the Work (including failure to comply with terms of
the Contract Documents or other breach or default) provided that
such liability, claim, damage, loss or expense is caused in whole
or in part by any act or omission of the Contractor, any
subcontractor or materialman, anyone directly or indirectly
employed by any of them or anyone for whose acts any of them may be
liable. Such obligation shall not be construed to negate, abridge
or otherwise reduce any other right or obligation of indemnity
which would otherwise exist as to any party or person described in
this Paragraph.
4.16.2 Contractor agrees that if any law or equity action is brought
against Owner and/or their agents or employees because of any of
the foregoing matters, whether or not any other party defendant
shall be joined in the action, Contractor shall, at is own expense,
settle or defend such action, paying all costs, expenses and
attorney's fees incurred and paying any judgement that may be
rendered therein against either Owner, or their agents and
employees or any or all of the foregoing parties, and, except to
the extent that any damage or expense is incurred as the result of
the act or omission which is the negligence of Owner or Architect,
as the case may be, neither Owner nor Architect shall be required
to make any contribution whatsoever to the payment of any such
judgement or settlement.
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4.16.3 In any and all claims against the Owner or the Architect or any of
their agents or employees by any employee of the Contractor, any
subcontractor, anyone directly or indirectly employed by any of
them or anyone for whose acts any of them may be liable, the
indemnification obligation under this Paragraph shall not be
limited in any way by any limitation on the amount or type of
damages, compensation or benefits payable by or for the Contractor
or any Subcontractor under Worker's or Workmen's Compensation Act,
disability benefit acts or other employee benefit acts.
4.16.4 As an additional and independent covenant of the Contract
Documents, Contractor shall procure, as additional protection to
Owner, an independent indemnification and hold harmless agreement
from each Subcontractor, providing for the protection set forth in
Paragraph 4.16.1 and 4.16.2.
4.17 LAYOUT
------
4.17.1 Contractor shall be responsible for the accuracy of the Project
lines and levels. Contractor shall compare carefully the levels
shown on the drawings with existing levels and shall call
Architect's and Owner's attention to any discrepancies before
proceeding with the Work. The Work shall be erected square, plumb,
level, true and line and grade, in the exact plane and to the
correct elevation and/or sloped to drain as indicated and/or as
necessary to drain.
4.18 TESTS
-----
4.18.1 If the Contract Documents, laws, ordinances, rules, regulations or
orders of any public agency or authority having jurisdiction
require any portion of the Work to be inspected, tested or
approved, the Contractor shall give the Architect and the Owner at
least 24 hours notice (to the extent that Contractor has such
advance notice) of its readiness so the Architect and Owner may
observe such inspecting, testing or approval. Unless otherwise
specifically provided in the Contract Documents, the Contractor
shall bear all cost of such inspections, tests or approvals.
4.18.2 If the Architect or Owner determines that any Work requires special
inspection, testing, or approval which subparagraph 4.18.1 does not
include, the Owner or the Architect may instruct the Contractor to
order such special inspection, testing or approval, and the
Contractor shall give notice as provided in subparagraph 4.18.1. If
such special inspection or testing reveals a failure of the Work to
comply with the requirements of the Contract Documents (including
any laws, ordinances, rules, regulations or orders of any public
agency or authority having jurisdiction) the Contractor shall bear
all costs thereof, including compensation for the Architect's
additional services made necessary by such failure; otherwise the
Owner shall bear such costs, and an appropriate Change Order shall
be issued.
4.18.3 Required certificates of inspection, testing or approval shall be
secured by the Contractor and promptly delivered by him to the
Architect.
4.19 SITE AND RELATED PHYSICAL CONDITIONS AFFECTING THE WORK
-------------------------------------------------------
4.19.1 Before submitting his bid or proposal, the Contractor shall be
responsible for having taken all steps reasonably necessary to
evaluate and ascertain the nature and location of the Work, nature
of the site and all physical characteristics and conditions
relative to it, and the general and local conditions which can
effect the Work or the cost or duration thereof. This shall include
but not be limited to Contractor's careful inspection and
examination of the site and examination of all surveys, records and
information relating to it in the Contract Documents or otherwise
provided by the Owner for inspection by the Contractor. Upon
reasonable advance notice to Owner, the Contractor may undertake
himself, at his own expense, such other physical testing
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or sampling of the site as he shall deem necessary to fully inform
himself of its physical conditions and characteristics.
4.19.2 Failure by the Contractor to fully aquatint himself with such
conditions which may affect the work, including but not limited to
conditions relating to transportation, handling, and storage of
materials, weather, topographic and/or other physical conditions,
availability of labor, water, roads or power, applicable laws,
ordinances or regulations, and the character and availability of
equipment and facilities needed prior to and during the prosecution
of the Work, shall not relieve the Contractor of his
responsibilities under the Contract Documents and shall not
constitute a basis for an adjustment of Contract Time or Contract
Sum under any circumstances.
4.19.3 The Owner assumes no responsibility for any understanding or
representations concerning such conditions or characteristics made
by any of his agents or representatives or by Architect prior to
the execution of the Owner-Contractor Agreement unless such
understanding or representations are expressly stated in the
Contract Documents.
4.19.4 The Owner shall provide Contractor reasonable access to such
information, surveys, data and records regarding subsurface and
other physical site characteristics and conditions which may have
been made by Architect or Owner or are otherwise in their
possession. These records are made available to Contractor for his
information; however, other than as expressly provided on the
Contract Documents, there is no express or implied warranty or
guarantee whatsoever as to the accuracy of any of the information
records nor any interpretation contained therein. Contractor
expressly recognizes this limitation and stipulates that his
opinions and interpretations regarding the character and condition
of the site upon which the Work is to be constructed is founded
only upon information and representations specifically made in the
Contract Documents and otherwise upon his independent observations,
examination and evaluation.
4.20 FOUNDATION SURVEY
-----------------
4.20.1 After completion of the foundation and before any part thereof has
been covered, Contractor shall promptly notify Owner and Architect
of such completion to permit the Owner, at his sole election, to
cause to be performed, a survey of the foundation to determine its
actual physical location in relation to all boundary lines and
servitudes.
4.21 START-UP
--------
4.21.1 Contractor shall be responsible for start-up of all systems and
equipment included in the Work and has included in the Contract Sum
sufficient allowances to cover contingencies which may arise in
connection with the start-up of individual systems, equipment and
the total facility. Full compliance with each manufacturer's
specifications and instructions shall be observed. Equipment which
has been specified to be furnished with manufacturer's supervision
of start-up shall be placed in operation only under of start-up
shall be placed in operation only under the supervision of
manufacturer's representative.
ARTICLE 5.
SUBCONTRACTORS
--------------
5.1 DEFINITION
----------
5.1.1 A subcontractor is a person or entity who has a direct contract
with the Contractor to perform any of the Work. The term
Subcontractor is referred to throughout the Contract Documents as
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if singular in number and masculine in gender and means a
subcontractor or his authorized representative. The term
Subcontractor does not include any separate contractor of the Owner
or his subcontractors.
5.1.2 A Sub-subcontractor is a person or entity who has a direct or
indirect contract with a Subcontractor to perform any of the Work.
The term Sub-subcontractor is referred to throughout the Contract
Documents as if singular in number and masculine in gender and
means a Sub-subcontractor or an authorized representative thereof.
5.2 AWARD OF SUBCONTRACTORS AND OTHER CONTRACTS
5.2.1 As soon as practicable after award of the Contract and prior to
entering into any Subcontracts, the Contractor shall furnish to the
Owner and the Architect in writing the names of the persons or
entities (including those who are to furnish materials or equipment
fabricated to a special design) proposed for each of the principal
portions of the Work or as otherwise expressly requested by
Architect. Such listing shall include sufficient identifying
information and description of qualifications so as to permit a
reasonable evaluation of such persons or entities. The Architect
will such persons or entities. The Architect will promptly reply to
the Contractor in writing stating whether or not the Owner or the
Architect, after due investigation, has reasonable objection to any
such proposed person or entity. Failure of the Owner or Architect
to reply promptly shall constitute notice of no reasonable
objection.
5.2.2 The Contractor shall not contract with any such proposed person or
entity to whom the Owner or the Architect has made reasonable
objection under the provisions of Subparagraph 5.2.1. The
Contractor shall not be required to contract with anyone to whom he
has a reasonable objection.
5.2.3 If the Owner or the Architect has and timely asserts reasonable
objection to any such proposed person or entity, the Contractor
shall submit a substitute to whom the Owner or the Architect has no
reasonable objection, and the Contract Sum shall be increased or
decreased by the difference in cost occasioned by such substitution
and an appropriate Change Order shall be issued; however, no
increase in the Contract Sum shall be allowed for any such
substitution unless the Contractor has acted promptly and
responsively in submitting names as required by Subparagraph 5.2.1.
5.2.4 The Contractor shall make no substitution for any Subcontractor,
person or entity previously selected if the Owner or Architect
makes reasonable objection to such substitution.
5.3 SUBCONTRACTOR RELATIONS
-----------------------
5.3.1 The Contractor shall not be discharged from any obligations to
Owner hereunder as a result of any subcontract. The Contractor
shall be as fully responsible to the Owner for the acts and
omissions of its Subcontractors and its suppliers of materials and
of persons either directly or indirectly employed by them as it is
for the acts and omissions of persons directly employed by it. The
responsibility of the Contractor for its Subcontractors and
suppliers shall not be diminished by the right of the Owner to
approve Subcontractors and suppliers or that the Owner may have
exercised or not the exercised that right or by any other right of
the Owner relating to Subcontractors or suppliers. Nothing
contained in the Contract Documents shall relieve the Contractor of
the responsibility for his Subcontractors or create any contractual
relation between any Subcontractor or material supplier and the
Owner.
5.3.2 Subcontracts and agreements for the acquisition of materials and
equipment shall be in an appropriate written form acceptable to the
Owner. The Contractor shall include in all such subcontracts and
agreements the pertinent terms and conditions of this Contract to
the fullest
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extent applicable and require that all work be performed in
accordance therewith. Further, such subcontracts or agreements
shall contain provisions which:
(a) Bind such Subcontractor or Supplier to the Contractor by the
terms of the Contract Documents and to assume toward the
Contractor all the obligations and responsibilities, which the
Contractor by those Documents, assumes toward the Owner, with
respect to the work of the Subcontractor or supplier;
(b) Preserve and protect the rights of Owner under the Contract
Documents with respect to the work to be performed under the
subcontract so that the subcontracting thereof will not
prejudice such rights;
(c) Bind such Subcontractor or Supplier to give to the Owner
written notice of any default under the subcontract or supply
agreement on the part of the Contractor and not to take any
action in respect of the default unless it remains uncured 30
days after the notice is given; and to accept payment or
performance under the subcontract by the Owner in lieu of
payment or performance by the Contractor, although the Owner
shall not be obligated to undertake the Contractor's payment
obligations thereunder;
(d) Require that all claims for additional cost or other damage and
extensions of time, with respect to subcontracted portions of
the Work shall be submitted to Contractor in sufficient time
and manner so that Contractor may comply in the manner provided
in the Contract Documents for like claims by Contractor upon
Owner should Contractor elect to pass such claims through to
Owner;
(e) Require that such Subcontractor or Supplier look only to the
Contractor and not to Owner or Owner's Lender for the
performance of any or all obligations owed the Subcontractor or
supplier;
(f) Require that such Subcontractor or supplier waive and
subordinate any lien, or claim or right of lien against the
Project or the land upon which it is situated as required by
Article 14 hereof;
(g) Contain a provision indemnifying Owner in accordance with
Paragraph 4.16 hereof;
(h) Waive all rights Owner, Architect, Contractor and Subcontractor
may have against one another for damages caused by fire or
other peril covered by property insurance described in
Subparagraph 11.3.6 hereof, except such rights as they may have
to the proceeds of such insurance.
(i) Permit assignment to Owner and assumption of all rights and
obligations thereunder, at Owner's sole election, upon written
notice, in the event of any termination of the Owner Contractor
Agreement.
(j) Require the Subcontractor to enter into similar agreements with
his Sub-subcontractors.
5.3.3 All subcontracts shall be entered by Contractor and copies of all
subcontracts greater than Fifty Thousand ($50,000.00) Dollars shall
be furnished to Owner.
5.3.4 The Contractor and all Subcontractors shall comply with all
applicable licensing laws for contractors prevailing within the
state in which the Project is located.
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5.3.5 The Contractor shall make available to each proposed Subcontractor,
prior to the execution of the Subcontract, copies of those of the
Contract Documents to which the Subcontractor will be bound by this
Paragraph 5.3, and necessary to inform them fully of the
requirements of the Contract documents which pertain to or which
might otherwise affect their work. Each Subcontractor shall
similarly make copies of such Documents available to his Sub-
subcontractors.
5.3.6 The Contractor shall have no financial interest in the payments made
under any subcontract or any contract for materials, labor,
services. equipment or appliances.
ARTICLE 6.
WORK BY OWNER, TENANT, AND SEPARATE CONTRACTORS
-----------------------------------------------
6.1 OWNER'S RIGHT TO PERFORM WORK AND TO AWARD SEPARATE CONTRACTS
-------------------------------------------------------------
6.1.1 The Owner reserves the right to perform any work related to the
Project with his own forces, and to award separate contracts in
connection with any other portions of the Project or other work on
the site under these or similar Conditions of the Contract. The
Owner specifically reserves the right to have the forces of any
tenant or its separate contractors enter upon the Project for the
purpose of constructing or installing furniture, fixtures and
equipment for the Project ("Tenant-Owner Improvements"), with
respect to any portions of the Work that have reached such a stage
of completion as to permit the construction and installation of
Tenant-Owner improvements. Such use and occupancy by the Owner, its
tenants or their separate contractors shall not modify any part of
the Contract Documents or be construed as constituting Substantial
Completion or acceptance of any part of the Work. However, the
Owner, his tenants, or their respective separate contractors,
agents, or employees shall be responsible for any damage caused by
them to the Work so occupied by them. If the Contractor claims that
delay or additional cost (other than as compensable under
Subparagraph 6.1.3) is involved because of such action by the Owner,
he shall make such claim as provided elsewhere in the Contract
Documents.
6.1.2 The Contractor shall afford the Owner, his Tenants and either of
their respective separate contractors reasonable opportunity for the
introduction and storage of their material and equipment and the
execution of their work, and shall connect and coordinate his Work
with theirs as required by the Contract Documents. The Contractor
agrees to permit the use and sharing of use of those facilities
necessary for the rapid completion of their work, including without
limitation, the Contractor's utilities, hoists, elevators,
scaffolding and other equipment at Contractor's actual costs
incurred and, if requested by the Owner, the Contractor shall
provide a separate entrance. Such use and sharing of Contractor's
facilities shall not extend the Contract Time.
6.1.3 The Contractor shall be reimbursed for actual cost or expenses
reasonable incurred by the Contractor as a result of such
construction, use or occupancy. To the extent possible, before such
costs or expenses are incurred, the Contractor will provide the
Owner or his applicable tenant with a lump sum or unit prices as the
Owner may request to cover such costs or expenses.
6.1.4 The Owner will provide for the coordination of the Work of his own
forces and of each separate Contractor with the Work of the
Contractor.
6.2 MUTUAL RESPONSIBILITY
---------------------
6.2.1 If any part of the Contractor's Work depends for proper execution or
results upon the work of the Owner or any separate contractor, the
Contractor shall, prior to proceeding with the Work,
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promptly report to the Architect and Owner any apparent
discrepancies or defects in such other work that render it
unsuitable for such proper execution and results. Failure of the
Contractor to so report shall constitute an acceptance of the
Owner's or separate contractor's work as fit and proper to receive
his Work.
6.2.2 Any cost caused by defective or ill-timed work shall be borne by the
party responsible therefor.
6.2.3 Should the Contractor wrongfully cause damage to the Work or
property of the Owner, any tenant of the Owner or to other work on
the site, the Contractor shall promptly remedy such damage or Owner,
at his option, may cause such damage to be remedied at the expense
of Contractor.
6.2.4 Should the Contractor wrongfully cause damage to the work or
property of any tenant of Owner or separate contractor, the
Contractor shall upon due notice promptly attempt to settle with
such other party (or otherwise resolves the dispute). If such
separate party issues or initiates proceedings against the Owner on
account of any damage alleged to have been caused by the Contractor,
the Owner shall notify in writing the Contractor who shall defend
such proceedings at the Contractor's expense, and if any judgment or
award against the Owner arises therefrom, the Contractor shall pay
or satisfy it and shall reimburse the Owner for all attorney's fees
and court costs which the Owner may have incurred.
6.3 OWNER'S RIGHT TO CLEAN UP
-------------------------
6.3.1 If a dispute arises between the Contractor and separate contractors
as to their responsibility for cleaning up as required by the
General Conditions of either such contract, the Owner may upon three
(3) days prior written notice clean up and charge the cost thereof
to the contractor responsible therefor as the Architect shall
determine.
ARTICLE 7.
TIME FOR COMPLETION
-------------------
7.1 DEFINITIONS
-----------
7.1.1 The Contract Time is the period of time after the Date of
Commencement of the Work allotted in the Owner contractor Agreement
in which to achieve Substantial Completion of the Work, as may be
adjusted by Change Order. The Contract Time shall commence on the
Date of Commencement of Work.
7.1.2 The Date of Commencement of the Work is the date established in a
notice to proceed.
7.1.3 The Date of Substantial Completion of the Work or designated portion
thereof is the date certified by the Architect pursuant to Article
9.1.
7.1.4 The Construction Schedule shall be the schedule of activities
derived by the Contractor pursuant to Paragraph 7.5 hereof showing
their sequences, durations and interrelationships and establishing
the Contractor's plans for accomplishing substantial completion
within the Contract Time.
7.1.5 The term "day" as used in the Contract Documents shall mean calendar
day unless otherwise specifically designated.
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7.2 PROGRESS AND COMPLETION
-----------------------
7.2.1 Time is of the essence in the performance of the Work by or on
behalf of the Contractor including particularly, but without
limitation, any times or durations for commencement, prosecution and
completion of the Work.
7.2.2 The Contractor shall begin Work on the Date of Commencement. The
Contractor shall thereafter prosecute the Work expeditiously and
diligently at such a rate to maintain progress in accordance with
the Construction Schedule and achieve Substantial Completion within
the Contract Time. The Contractor shall employ all such additional
labor, services and supervision including such extra shifts and
overtime as may be necessary to maintain progress in accordance with
the Construction Schedule and achieve Substantial Completion within
the Contract Time, all without an increase in the Contract Sum
unless expressly authorized by the Contract Documents.
7.2.3 In executing the Owner-Contractor Agreement, the Contractor
represents that the Contract Time (as may be adjusted under the
Contract Documents) for construction and completion of the Work is
reasonable, taking into consideration the type of construction
planned and the site conditions, climatic conditions and industrial
conditions (including, without limitation, labor conditions)
prevailing in the area of the Project.
7.2.4 Should the Project or any portion there of not be completed in
accordance with the Construction Schedule or within the Contract
Time (as adjusted under the terms of the Contract Documents), Owner
shall have the right but not the obligation to occupy any portion of
the Project no so completed. In such event, Contractor shall not be
entitled to any extra compensation on account of said occupancy by
Owner or by Owner's normal full use of the Project nor shall
Contractor interfere in any way with said use of the Project, or be
relieved of any of its responsibilities under the Contract
Documents, including, without limitation, Contractor's obligation to
complete the Project in accordance with the Construction Schedule.
Occupancy by Owner hereunder shall be subject to the requirements of
Subparagraph 11.3.9 with regard to property insurance.
7.3 DELAYS AND EXTENSIONS OF TIME
-----------------------------
7.3.1 Except as otherwise specifically provided hereinafter and under
Paragraph 12.1 (Changes in the Work), the Contractor shall not be
entitled to an increase in the Contract Sum or payment or
compensation of any kind from the Owner for direct, indirect,
consequential, impact or other costs expenses or damages, including
but not limited to costs of acceleration or inefficiency, arising
because of delay, disruption, interference or hindrance from any
cause whatsoever, whether such delay, disruption, interference or
hindrance be reasonable or unreasonable, foreseeable or
unforeseeable, or avoidable or unavoidable; provided, however, that
this provision shall not preclude recovery of damages by the
Contractor for hindrances or delays due solely to fraud or bad faith
on the part of the Owner or its agents. Otherwise, the Contractor
shall be entitled only to extensions of the Contract Time as the
sole and exclusive remedy for such resulting delay, in accordance
with and to the extent specifically provided in the Contract
Documents.
7.3.2 The Contract Time shall be adjusted only as appropriate for Changes
in the Work (pursuant to Paragraph 12.1), Concealed Conditions
entitling contractor to such adjustment (pursuant to Paragraph
12.2), Suspension of Work (pursuant to Paragraph 19.2), Stopping of
Work (pursuant to Paragraph 16.1),and excusable delays (pursuant to
Subparagraph 7.3.4 ) and for no other reason. In the event the
Contractor requests an extension of the Contract Time based upon a
particular occurrence, he shall furnish such justification and
supporting evidence as the Architect may deem necessary for a
determination as to whether and to what extent the Contractor is
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entitled to an extension of time under the provisions of the
Contract. After receipt of such justification and supporting
evidence as is timely submitted, the Architect shall make a
determination extending the Contract Time only to the extent that
such occurrence shall actually have caused extension of the Project
duration. The Contractor acknowledges and agrees that actual delays
in activities which according to the Construction Schedule, do not
affect activities critical to completion within the Contract Time
will not be the basis for an extension of the Contract Time.
7.3.3 If the Architect finds that the Contractor is entitled to any
extension of the Contract Time, he shall advise the Contractor and
Owner in writing thereof. Appropriate adjustment reflecting such
increase in the Contract Time and any resultant changes in
activities affected shall then be made to the Construction Schedule.
A change Order shall be then duly issued under Article 12
effectuating these adjustments and extending the Contract Time.
7.3.4 Subject to other provisions of the Contract Documents, the
Contractor may be entitled to an extension of the Contract Time (but
no increase in the Contract Sum) for delays arising from the
following unforeseeable causes but only to the extent that they were
beyond the control and without the fault or negligence of the
Contractor or his Subcontractors or suppliers as follows:
(a) Labor disputes and strikes including those affecting
transportation.
(b) Acts of God, such as tornado, fire, hurricane, blizzard,
earthquake, typhoon or flood or similar unavoidable casualties
that cause damage to completed Work or stored materials or
otherwise cause delay.
(c) Abnormal adverse weather not reasonably anticipatable; however,
the Contract Time will not be extended due to normal seasonal
weather variations.
(d) Acts of the Public enemy, and unanticipated acts of the state,
federal or local government in its sovereign capacity.
(e) Acts of another separate contractor in the performance of a
contract with the Owner relating to the Project.
(f) Any act or neglect of the Owner or the Architect or any of their
agents or employees.
7.3.5 No extension of Contract Time shall be granted if, in the exercise
of reasonable prudence, Contractor, or anyone for whom the
Contractor is responsible, could have avoided the delay in the
progress of the Work. Delays otherwise allowable shall be reduced by
the amount of time that Contractor or anyone for whom the Contractor
is responsible, in the exercise of reasonable prudence, could have
avoided, reduced or made up such delays in the course of the
performance of subsequent portions of the Work, provided that
Contractor shall not be obligated to incur additional cost to make
up excusable delays. In the case of impending delay resulting from
any act or neglect of the Owner or Architect, which was or should
reasonably have been foreseen by Contractor, such prudence shall
include prompt notice thereof to Owner and Architect.
7.3.6 Other than pursuant to Paragraph 12.1, no claims for extension of
Contract Time for delay, disruption, interference or hindrance of
the Work hereunder or any portion thereof shall be valid unless a
notice of claim is filed with the Owner and the Architect within ten
(10) days of the first instance of such delay, disruption,
interference or hindrance and, in addition, unless a written
statement of the claim as hereinafter described is filed with the
Owner and the Architect within
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twenty (20) days of such first instance; otherwise all such claims
are waived by the Contractor. In the case of a continuous cause of
delay, only one written claim is necessary.
(a) Such notice of claim must clearly identify the instance of delay,
disruption, interference or hindrance and an estimate of the
probable effect of such delay on the progress of the Work.
(b) Such statement of the claim must provide all information required
by the scheduling requirements of the Contract Documents and
further provide the following specific information:
(i) Nature of the delay;
(ii) Date (or anticipated date) of commencement of delay;
(iii) Activities on the Construction Schedule affected by the
delay, and/or new activities created by the delay, and
their relationship with existing activities;
(iv) Identification of person (s) or organizations (s) or event
(s) responsible for the delay;
(v) Anticipated extent of delay;
(vi) Recommended action to avoid or minimize the delay.
(c) The Architect shall receive and process such claims for
extensions of time in accordance with the procedures set forth in
Paragraph 7.3 except that any Change Order issued shall only
amend the Contract Time.
(d) The failure of the Contractor to file any claims for extension of
time within the time limits prescribed herein and in the form and
manner required hereby shall be deemed a material prejudice to
the interests of the Owner and shall constitute an absolute
waiver of the claim and the right to file or thereafter prosecute
the same.
7.3.7 To the extent that Contractor is entitled to any increase in contact
sum for delay, disruption, interference or hindrance under this
Paragraph 7.3, an absolute condition precedent to such entitlement
shall be strict compliance with all requirements and procedures for
entitlement to an extension of time hereunder.
7.3.8 The Contractor shall keep the Owner and Architect constantly advised
to all factors which may affect the Contractor's progress toward
Substantial Completion time of the Work within the Contract Time.
7.4 OWNER'S RIGHT TO ACCELERATE
---------------------------
7.4.1 The Owner shall have the right to require, by Change Order issued
under Article 12, that completion of all or any portion of the Work
be accelerated to an earlier time. In the case of such acceleration,
the Contractor shall require his forces and Subcontractors to work
such overtime hours and take such other measures as reasonable
necessary to accomplish the acceleration. The Owner's obligation on
account of such acceleration shall be to reimburse the Contractor
for any increase on his cost for such acceleration. The Contractor
shall keep accurate records of such overtime hours and other premium
or acceleration costs and excuses resulting
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from such acceleration. Such reimbursement shall include overhead
and profit of the Contractor and his Subcontractors. This
subparagraph shall have no application to overtime work which the
Contractor is required to perform because of his failure to meet the
Construction Schedule, or, without limitation, because of any other
fault of the Contractor.
7.5 THE CONSTRUCTION SCHEDULE
-------------------------
7.5.1 The Contractor, immediately after being awarded the Contract, shall
be responsible for deriving a Construction Schedule (as more
particularly prescribed in the Supplementary Conditions), which
shall fully describe the intended method of accomplishing all the
various work and related activities necessary to completion of the
entire Project hereunder. Such Construction Schedule shall
demonstrate an expeditious, practicable and reasonable plan for
accomplishing Substantial Completion of the Work within the Contract
Time and Final Completion of the Project.
7.5.2 The Construction Schedule shall take fully into account
accomplishment of such interim milestones or requirements of Owner
for completion of portions of the Work at times earlier than the
full Contract Time. Such milestones and requirements, if any, shall
be as prescribed in the Supplementary Conditions.
7.5.3 A preliminary Construction Schedule shall be prepared and submitted
to Owner and to Architect in final proposed form, in the format
prescribed in the Supplementary Conditions, no later than ten (10)
days after the date of the Owner-Contractor Agreement or the Date of
Commencement of Work, whichever is earlier. This preliminary
Construction Schedule should incorporate the input of major
subcontractors, fabricators, and suppliers of materials or equipment
which are not readily available for delivery to the Project. In
submitting this preliminary Construction Schedule, Contractor
warrants and represents that in his opinion and that of his major
subcontractors, fabricators and suppliers, it presents a reasonable
and workable plan and sequence for timely performance of all Work
and further constitutes their intended plan and sequence for is
accomplishment.
7.5.4 The Contractor shall be entitled to no payment under this Owner-
Contractor Agreement unless and until the Contractor has so
submitted the preliminary Construction Schedule in required format.
7.5.5 The Owner and Architect shall review this preliminary Construction
Schedule as initially submitted; however, such review shall be only
to determine its compliance with Contract requirements regarding
substantial completion, final completion and any specified interim
completion milestones or requirements. Such review shall not require
an independent evaluation or determination by Owner or Architect of
the workability, feasibility or reasonableness of the Contractor's
proposed Construction Schedule.
7.5.6 Within ten (10) days after submission of the preliminary
Construction Schedule under Subparagraph 7.5.3 above, the Owner,
Architect and Contractor shall jointly meet to review the
preliminary Construction Schedule at the Contractor's Project office
and at a time established by written notice from Architect. Within
ten (10) days thereafter, Contractor shall submit a revised
Construction Schedule incorporating any changes deemed necessary by
the Contractor or directed by Owner or Architect. This revised
Construction Schedule shall thereafter be deemed the Construction
Schedule for the Project.
7.5.7 Thereafter, the Construction Schedule shall be revised and updated
in such manner and frequency as specified in the Supplementary
Conditions.
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7.5.8 The Construction Schedule shall be revised appropriately to reflect
accurately any adjustment extending the Contract Time allowed by
Architect including revision to the durations, sequences and
interrelationships of activities affected by the occurrences
permitting such adjustment.
7.5.9 The Contractor shall keep the Owner, the Architect and all of his
Subcontractors and material suppliers fully and completely informed
at all times of the content of the Construction Schedule, other
schedules and all other scheduling information applicable to or
which may effect the Work of all Subcontractors and material
suppliers. This information shall in all cases be furnished to the
Subcontractors and material suppliers in sufficient time to allow
them to adjust their plans so as to meet all required performance
dates relative to their portions of the Work.
7.5.10 To the extent that any provisions of this Paragraph 7.5 are at
variance with the scheduling requirements specified in the
Supplementary Conditions, the latter shall govern.
7.5.11 The Owner and the Architect shall be entitled to rely fully on the
content of the Construction Schedule (as it may be revised) in
planning and scheduling performance of their obligations under the
Contract Documents or of interrelated work by their own forces or
separate contractors.
ARTICLE 8.
PAYMENTS TO CONTRACTOR
----------------------
8.1 CONTRACT SUM
------------
8.1.1 The Contract Sum is as stated in the Owner-Contractor Agreement,
including adjustment thereto as authorized by the Contract
Documents. Such Contract Sum, (or the portion thereof authorized by
the Owner-Contractor Agreement) shall represent the total amount
payable by the Owner to the contractor for performance of the Work
under the Contract Documents.
8.2 SCHEDULE OF VALUES
------------------
8.2.1 Before the first Application for Payment and as a strict condition
precedent to payment under Article 8, the Contractor shall submit to
the Architect a Schedule of Values allocated to the various portions
of the Work aggregating and dividing the Total Contract Sum so as to
facilitate determination of progress and progress payment. The
Schedule of Values shall be prepared in such form and supported by
such data to substantiate its accuracy as the Architect may require.
The Schedule of Values shall be in a format consistent with that to
be used on the Application for Payment forms and shall segregate
each major work item and each subcontracted time on a single line,
with item numbers corresponding (if practicable) with specifications
section numbers. Further, it shall provide a preliminary schedule of
the Contractor's anticipated monthly Progress Payments. This
Schedule, unless objected to by the Architect shall be used only as
a basis for the Contractor's Applications for Payment.
8.3 APPLICATIONS FOR PAYMENT
------------------------
8.3.1 At least fifteen (15) days before the date for each progress payment
established in the Owner-Contractor Agreement, the Contractor shall
submit to the Architect an itemized Application for Payment duly
sworn and notarized on such for as required by Owner and based on
the previously approved Schedule of Values. It shall be supported by
such data information and documentation substantiating the
Contractor's right to payment as the Owner or the Architect may
require, and reflecting retainage, if any, as provided elsewhere in
the Owner-Contractor Agreement. To the extent of any delay in
submission of any Application for Payment in duly authorized form,
any specified date for progress payment shall be extended
commensurably.
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8.3.2 If approved in writing in advance by Owner, payments will be made on
account of materials or equipment not incorporated in the Work but
delivered and suitably stored at the site and suitably stored at
some other location approved by Owner in writing. Payments for
materials or equipment stored on or of the site shall be further
conditioned upon submission by the Contractor of bills of sale or
such other evidence or procedures satisfactory to the Owner to
establish the Owner's title to such materials or equipment or
otherwise protect the Owner's interest, including applicable
insurance and transportation to the site for those materials and
equipment stored off the site.
8.4 CERTIFICATES FOR PAYMENT
------------------------
8.4.1 The Architect will promptly review such Application and, within
seven days after the receipt of the Contractor's Application for
Payment, either issue a Certificate for Payment to the Owner, with a
copy to the Contractor, for such amount as the Architect determines
is properly due, or notify the Contractor in writing his reasons for
withholding a Certificate as provided in Subparagraph 8.6.1
8.4.2 The issuance of a Certificate for Payment will constitute a
representation by the Architect to the Owner, based on his
observations at the site as provide in Subparagraph 2.2.3 and the
certified data comprising the Application for Payment, that the Work
has progressed to the point indicated and that it therefore appears
the Contractor is entitled to payment in the amount certified.
8.5 PROGRESS PAYMENTS
-----------------
8.5.1 After the Architect has issued a Certificate for Payment and
provided the Contractor has complied with all requirements of
Subparagraph 8.5.2 and otherwise is not in default under the
Contract Documents, the Owner shall make payment in the amounts and
manner and within the time provided in the Contract Documents.
8.5.2 As a condition precedent to payment, Contractor shall submit on a
monthly basis at or prior to the time of receipt of each payment its
duly executed waiver of all rights and claims of lien on the Work or
the Project Site for the period for which payment is made, in the
form provided by Owner. Contractor shall also submit on a monthly
basis at the time of receipt of each monthly payment a similar
waiver for labor and materials furnished during the period for which
the previous Application for Payment was made in the form provided
by Owner and executed by each of the Subcontractors who performed
services for that previous period and paid receipts from suppliers
and materialmen who provided equipment or material in that previous
period.
8.5.3 The Contractor shall promptly pay each Subcontractor (including
suppliers not previously paid), upon receipt of payment form the
Owner, out of the amount paid to the Contractor on account of such
Subcontractor's Work, the amount to which said Subcontractor is
entitled, reflecting the percentage actually retained, if any, from
payments to the Contractor on account of such Subcontractor's Work.
The Contractor shall, by an appropriate agreement with each
Subcontractor, require each Subcontractor to make payments to his
Subcontractors in similar manner. Until such payment is actually
made, Contractor shall be considered to hold such funds as a
fiduciary in trust for the benefit of such subcontractors.
8.5.4 The Architect may, on request and at his discretion, furnish to any
Subcontractor, if practicable, information regarding the percentage
of completion or the amounts applied for by the Contractor and the
action taken thereon by the Architect on account of Work done by
such Subcontractor.
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8.5.5 Neither the Owner nor the Architect shall have any obligation to pay
or to see to the payment of any moneys to any Subcontractor or
supplier, except as may otherwise be required by law. However, if
the Contractor fails to pay any Subcontractor or supplier amounts
due them, the Owner shall upon seven(7) days notice to Contractor,
have the right to make payments out of any unpaid portion of the
Contract Sum to such parties as Owner may deem necessary to protect
its interest and those of Owner's Lender. Any such payments so made
by the Owner shall be considered as having been paid to Contractor.
8.5.6 No certificate for a progress payment, nor any progress payment, nor
any partial or entire use or occupancy of the Project by the Owner,
shall constitute an acceptance of any Work or performance not in
accordance with the Contract Documents. Any determination or
certification of the Architect shall be made for the limited purpose
of making monthly Progress Payments and shall not relieve the
Contractor of full responsibility for all defective materials and
workmanship and for its failure strictly to follow the Contract
Documents, notwithstanding the Owner or the Architect may have
observed the default or failure.
8.6 PAYMENTS WITHHELD
-----------------
8.6.1 The Architect may decline to certify payment and may withhold his
certificate in whole or in part, to the extent necessary reasonably
to protect the Owner, if, in his opinion, he is unable to make
representations to the Owner as to the accuracy of the facts and
estimates contained in the Contractor's Application for Payment. If
the Architect is unable to make such representations to the Owner
and to certify payment in the amount of the Application, he will
notify the Contractor as provided in Subparagraph 8.4.1. If the
Contractor and the Architect cannot agree on a revised amount, the
Architect will promptly issue a Certificate for Payment for the
amount in which he is able to make such representations to the
Owner. The Architect may also decline to certify payment or, because
of subsequently discovered evidence or subsequent observations, he
may nullify or modify the whole or any part of any certificate for
Payment previously issued, to such extent as may be necessary in his
opinion to protect the Owner from loss because of:
(a) Defective or nonconforming Work not remedied.
(b) Third party claims filed or reasonable evidence indicating
probable filing of such claims.
(c) Failure of the Contractor to make payments properly to
subcontractors or suppliers for labor, materials or equipment.
(d) Reasonable evidence that the Work cannot be completed for the
unpaid balance of the Contract Sum.
(e) Damage to the Owner or another contractor.
(f) Reasonable evidence that the Work will not be completed with the
Contract Time, or
(g) Unsatisfactory prosecution of the Work in accordance with the
Contract Documents.
8.6.2 When the above grounds in Subparagraph 8.6.1 are removed, payment
shall be made for amounts withheld because of them.
8.6.3 In the event that Architect should decline to certify or nullify a
prior certification regarding any portion of an Application for
Payment submitted by Contractor, the Owner shall pay only such
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amount as certified by Architect as justifiably due Contractor. Any
overpayment to Contractor shall, unless otherwise credited or
adjusted be repaid to Owner upon demand.
8.6.4 The Architect and the Owner shall have the right to contact
subcontractors and suppliers directly to ascertain (1) what amounts,
if any, are due to them from Contractor, and (2) the projected costs
of completing the remaining portion of their Work, and (3) the
scope, amount and substance of any claims and disputes between them
and Contractor.
8.7 SEMIFINAL PAYMENT UPON SUBSTANTIAL COMPLETION
---------------------------------------------
8.7.1 Upon Substantial Completion of the Work or designated portion
thereof (as established pursuant to Paragraph 9.1), the Contractor
shall submit a Semifinal Application for Payment.
8.7.2 Subject to the more specific provisions elsewhere in the Contract
Documents, the Semifinal Application for Payment shall provide for
continued retention by Owner of at least an amount equal to twice
the reasonably estimated cost or expense necessary to accomplished
the following:
(a) Completion of all uncompleted work items;
(b) Remedy of any uncorrected work not in accordance with the
Contract Documents.
(c) Satisfy any and all unresolved claims or liens filed or asserted
(or reasonably anticipated filing or assertion) against Owner,
its Lender, the Project or any of the Work by any person or
entity providing labor, materials, equipment or services through
or on behalf of the Contractor; and
(d) Compensating Owner and its separate contractors for any
unresolved claims of damage or injury caused by Contractor, or
anyone for whom it shall be held responsible under the Contract
Documents, which have been asserted or are reasonably anticipated
(including claims arising out of Contractor's breach or default
hereunder).
8.7.3 The Contractor's Application for Semifinal payment shall provide an
estimated amount for the continued retainage set forth in
Subparagraph 8.7.2 which Architect and Owner shall review and adjust
as they deem necessary to reasonably protect the Owner's remaining
interests. Architect shall then certify such application, as
adjusted, for payment of any balance owing for Work performed over
such adjusted retainage.
8.7.4 Upon final adjustment and certification by Architect of such
Semifinal Application for Payment, Owner shall issue payment in
accordance with the amount certified provided Contractor shall have
first provided the following:
(a) An Affidavit that all indebtedness of Contractor connected with
Work has been paid in full with the exception of amounts
specifically listed in the Semifinal Application and
certification as unresolved or unpaid;
(b) Waivers of all rights and claims of lien as described in
Subparagraph 8.5.2;
(c) Other waivers, releases or data required by Owner or Architect
establishing such payment or satisfaction; and
(d) Consent of surety, if any.
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8.8 FINAL COMPLETION AND FINAL PAYMENT
----------------------------------
8.8.1 Upon or prior to issuance of a written notice (under Subparagraph
9.4) by the Architect to the Owner and the Contractor that the Work
has reached final completion, Contractor shall submit his final
Application for Payment to Architect.
8.8.2 Such final Application for Payment shall include as a separate
attachment a final adjustment of accounts reflecting any and all
appropriate final accounting and adjustments of the contract
balances and Contract Sum including but not limited to:
(a) Cost of the Work (if the Owner-Contractor Agreement provides for
reimbursement of "cost").
(b) Additions and deductions resulting from the following:
(i) All Change Orders (and Change Order "cost" if appropriate
under the Contract Documents).
(ii) Allowances.
(iii) Unit Prices.
(iv) Deductions or Adjustments for defective or uncompleted
work.
(v) Bonuses, as applicable.
(vi) Deductions for liquidated or other damages.
(vii) Savings and other adjustments (as appropriate under the
Contract Documents).
(c) Total Contract Sum, as adjusted.
(d) Previous payments.
(e) Final Payment due to the Contractor.
8.8.3 As conditions precedent to final payment under the Contract
Documents, Contractor shall:
(a) execute and furnish a release of all claims and liens (except as
previously made in writing and identified as unsettled at the
time of the final Application for Payment) against Owner, its
Lender, the Project and the land upon which the Project is
situated arising under or by virtue of the Contract Documents,
including in the event of any termination as permitted by the
Contract Documents, claims or liens arising under or by virtue
of such termination;
(b) furnish written final releases and waivers of all rights to
claim or file liens properly executed by any and all
Subcontractors, vendors or others furnishing work, labor,
materials, machinery or fixtures for the performance of Work;
(c) furnish appropriate affidavits and other such other data in such
form designated by Owner as may be reasonably requested by Owner
to establish payment or satisfaction and of all payrolls,
material bills, and other indebtedness connected with the Work
for which the Owner, its lender or its property might in any way
be responsible; and
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(d) furnish a consent of surety, if any, to final payment.
If any Subcontractor or Supplier refuses to furnish a release or
waiver required by the Owner, the Contractor may furnish a bond
satisfactory to the Owner to indemnify him against any such lien. If
any such lien remains unsatisfied after all payments are made, the
Contractor shall refund to the Owner all moneys that the latter may
be compelled to pay in discharging such lien, including all costs
and reasonable attorney's fees.
8.8.4 Upon his review an approval of such application the Architect shall
prepare a final Change Order reflecting approved adjustments to the
Contract Sum not previously made by Change Orders.
8.8.5 Upon such final adjustment and issuance of any change order so
required and upon his review and approval of the final Application
for Payment, reflecting such adjustments, the Architect shall
promptly issue a final Certificate of Payment stating that to the
best of his knowledge, information and belief, and on the basis of
his observations and inspections, the Work has been completed in
accordance with the terms and conditions of the Contract Documents
and that the entire balance found to be due the Contractor and noted
in said final Certificate, is due and payable. The Architect's final
Certificate for Payment will constitute a further representation
that the conditions precedent to the Contractor's being entitled to
final payment as set forth in Subparagraph 8.8.3 have been
fulfilled.
8.8.6 Final payment shall be due and payable in the amount certified
thirty (30) days after Owner's receipt of such final Certificate of
Payment.
8.9 WAIVER
------
8.9.1 Subject to Subparagraph 8.9.2, neither inspection by Owner or
Architect, or by any of their duly authorized representatives; nor
any order, measurement, notice or certificate by Owner; nor any
order by Owner for the payment of money; nor final payment
hereunder; nor acceptance of any work or any extension of time; nor
any possession taken by Owner, shall operate as a waiver of any
provision of the Contract Documents or any right of the Owner
thereunder or of any right to damages under the Contract Documents
or under law. Any waiver by Owner of any breach of the Contract
Documents shall not be held to be a waiver of any other or
subsequent breach, and any waiver by Owner of any right to terminate
the Agreement shall not be held to be a waiver of any breach of the
Contract Documents, but Owner retains all of its rights to recover
damages therefor.
8.9.2 The making of final payment shall constitute a waiver of all claims
by the Owner except those arising from:
(a) Unsettled liens.
(b) Faulty or defective Work appearing after Substantial Completion.
(c) Failure of the Work to comply with the requirements of the
Contract Documents.
(d) Terms of any special warranties required by the Contract
Documents.
(e) Claims thereafter asserted by third parties against Owner, its
Lender or the Project arising out of or relative in any way to
the Work or the performance thereof by or on behalf of the
Contractor.
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8.9.3 The acceptance of final payment shall constitute a waiver of all
claims by the Contractor except those previously made in writing and
identified by the Contractor as unsettled at the time of the final
Application for Payment.
ARTICLE 9.
COMPLETION
----------
9.1 SUBSTANTIAL COMPLETION
----------------------
9.1.1 The Date of Substantial Completion of the Work or designated portion
thereof acceptable to Owner is the Date certified by the Architect
when construction is sufficiently complete, in accordance with the
Contract Documents, so that the Owner (or its tenants(s) can occupy
or utilize the Work or such designated portion thereof for the use
for which it is intended with all of the installations, parts and
systems relating thereto and required by the Work hereunder
functional, accessible, operable and usable by the Owner for their
full and unimpeded intended usage. Such completion shall include, as
applicable, all certificates of occupancy or other permits or
authorizations by governmental agencies having jurisdiction thereof,
necessary to permit such usage. Only minor or incidental corrective
work under punch lists and final cleaning (if required) beyond
cleaning needed for the Owner's full use may remain for Final
Completion.
9.1.2 When the Contractor considers the Work to be substantially complete,
he shall submit to the Owner and Architect written notice that the
Work, or such designated portion thereof, is substantially complete,
along with a list of items to be completed or corrected. The failure
to include any items on such list does not alter the responsibility
of the Contractor to complete all Work in accordance with the
Contract Documents. Within a reasonable time after receipt of
notice, the Architect shall make an inspection to determine the
status of completion.
9.1.3 Should the Architect determine that the Work has not reached
substantial completion, the Architect shall promptly notify the
Owner and Contractor in writing of his determination and the reasons
therefor. The Contractor shall promptly remedy deficiencies and
complete all incomplete Work and thereafter send another written
notice of substantial completion to the Owner and Architect who
shall within a reasonable time thereafter reinspect the Work.
9.1.4 When the Architect determines that the Work or such designated
portion is substantially complete, the Architect will prepare a
Certificate of Substantial Completion on AIA Form G704, or such
other form as the Owner shall stipulate, accompanied by the
Contractor's list of items to be completed or corrected, as verified
and amended by the Architect. The issuance of such certificate shall
establish the Date of Substantial Completion thereof. Such
certificate shall further state the responsibilities of the Owner
and Contractor for security, maintenance, heat, utilities, damage to
the Work and insurance, and shall set forth the time period within
which the Contractor shall remedy or complete items listed therein.
9.1.5 Warranties required by the Contract Documents shall commence on the
Date of Substantial Completion of the Work or designated portion
thereof, unless otherwise provided in the Certificate of Substantial
Completion.
9.1.6 If the appropriate governmental agencies refuse to issue a
Certificate of Occupancy or other necessary permits for reasons
other than fault of the Contractor, including without limitation
deficiencies in the Contract Documents, the requirement of such
Certificate will be deemed to be waived, unless the Contractor knew
or should have known of such deficiencies and failed to call it
timely to the attention of the Owner and Architect. The Contractor,
at the Owner's option,
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shall thereafter perform the Work necessary to obtain such
Certificate which shall be effected by Change Order.
9.2 COMPLETION AND CLOSEOUT SUBMITTALS
----------------------------------
9.2.1 As soon as practicable, but in no event later than twenty (20) days
after the Date of Substantial Completion, the Contractor shall:
(a) Fully complete all remaining items and correct all deficient
items, whether or not listed on the Certificate of Substantial
Completion;
(b) Organize, prepare and submit to Owner through Architect all
Closeout Submittal information (as defined in Paragraph 9.3); and
(c) To the extent not previously accomplished for Substantial
Completion, complete the start-up of all systems and equipment
and provide the Owner's designated personnel with instructions by
Contractor (or its supplier, subcontractor or manufacturer) in
care, use, cleaning, maintenance and operation procedures for
each item.
(d) To the extent not previously accomplished, complete all cleaning
and disposal operations required by governing codes, ordinances,
regulations, anti-pollution requirements and Contract Documents.
The entire Work (buildings and grounds) shall be cleaned as
specified by Architect and as required for Owner's intended use.
9.3 CONTRACTOR'S CLOSEOUT SUBMITTAL
-------------------------------
9.3.1 As a necessary part of completion of the Work under the Contract
Documents, the Contractor shall assemble and submit to the Owner
through Architect the following material and documentation:
(a) Except as otherwise provided by the Contract Documents, all
certificates and approvals of any governmental agency with
authority over the Project or the Work required for the full,
unrestricted use and occupancy thereof by Owner for its intended
purpose, including specifically, but without limitation:
(i) Certificate(s) of Occupancy.
(ii) Certificates of inspection for such systems and
installations (as applicable) as:
(A) elevators, moving stairs and walks,
(B) mechanical systems,
(C) plumbing systems,
(D) fire protection, and
(E) electrical systems.
(b) One record set of all the following project documentation:
(i) Project Manual (Specifications).
(ii) Project Drawings.
(iii) Addenda.
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(iv) Change Orders and Modifications to Contract.
(v) Owner's and Architect's Field Orders or written
instructions, sketches, etc.
(vi) Approved Shop Drawings, Product Data and Samples.
(vii) Testing laboratory reports.
(viii) All Construction samples and product samples.
(c) One record set of "as built" drawings, legibly marked
concurrently with the construction process including but not
limited to, the following:
(i) Depths of various elements of foundation in relation to
finish first floor datum;
(ii) Horizontal and vertical locations of underground utilities
and appurtenances, referenced to permanent surface
improvements;
(iii) Location of internal utilities and appurtenances concealed
in construction, referenced to visible and accessible
features of structure(s);
(iv) Field Changes of dimensions and details;
(v) Changes made by Field Orders, or Change Orders and not
shown on Contract Drawings (as amended); and
(vi) Details not on original Contract Drawings.
(d) One record set of "as built" specifications legibly marked so as
to indicate the manufacturer, trade name, catalog number, and
supplier of each product and item of equipment actually
installed.
(e) One record set of schematic diagrams covering installations of
all electrical, mechanical and pneumatic controls.
(f) Three duplicate sets, each separately bound and indexed in vinyl
covered three ring binders, of operating instructions and
maintenance recommendations for all Work, including, without
limitation, a printed parts list for all items which might be
subject to replacement. These instructions shall set forth all
of the information necessary for Owner to operate and make full
and efficient use of all equipment and systems comprising the
Work, and perform such maintenance and servicing as would
ordinarily be done by Owner or its personnel. They shall be
neatly typewritten in simple, non-technical language when
possible, with sufficient diagrams and explanation where
necessary to be readily understandable by average laymen.
(g) All keys and key schedules.
(h) All spare parts, maintenance materials and any materials or
equipment for which Contractor had been paid but which was not
actually incorporated into Work.
(i) The originals of all Warranties, Guaranties, Bonds, or
Certificate of Compliance required by the Contract Documents,
relative to the Work or its component parts, equipment and
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systems, including those given by Contractor, Subcontractors and
material manufacturers or suppliers. These shall be prepared in
a vinyl covered three ring binder and indexed in order of and in
specification sections or other contract requirements. All such
warranties, guarantees and certificates, if not issued directly
to Owner, shall by their terms be assignable to Owner and shall
be accompanied by duly executed documentation effecting such
transfer and assignment.
9.4 FINAL COMPLETION
----------------
9.4.1 When the Contractor considers the Work is fully complete and ready
for final inspection, the Contractor shall certify in writing to the
Owner and Architect that:
(a) Contract Documents have been reviewed by the Contractor.
(b) All work has been carefully inspected by the Contractor for
compliance with the Contract Documents.
(c) All work has been completed in accordance with Contract
Documents.
(d) Equipment and systems have been cleaned, tested and started up
in accordance with the Contract Documents and are operational.
(e) All Closeout Submittals required by Paragraph 9.3 have been
properly made.
(f) Work is fully completed and ready for final inspection.
9.4.2 The Architect and the Owner shall make an inspection to verify the
status of completion within a reasonable time after receipt of the
Contractor's certification required by Article 9.4.1.
9.4.3 If the Owner and the Architect determine that any of the Work is
incomplete or defective, the Architect shall promptly notify the
Contractor, in writing, of such incomplete or defective Work,
itemizing and describing such remaining items with reasonable
particularity. The Contractor shall immediately complete all items
and remedy all stated deficiencies, after which the Contractor shall
send another written certification to the Owner and the Architect
that the Work is fully complete. The Architect shall promptly
reinspect the Work.
9.4.4 When the Owner and Architect determine that the entire Work has been
fully and properly completed in accordance with the Contract
Documents, the Architect shall give written notice of final
completion to the Owner and the Contractor.
ARTICLE 10.
PROTECTION OF PERSONS AND PROPERTY
----------------------------------
10.1 SAFETY PRECAUTIONS AND PROGRAMS
-------------------------------
10.1.1 The Contractor shall be responsible for initiating, maintaining,
and supervising all safety precautions and programs in connection
with the Work.
10.2 SAFETY OF PERSONS AND PROPERTY
------------------------------
10.2.1 The Contractor shall take all reasonable precautions for the safety
of, and shall provide all reasonable protection to prevent damage,
injury or loss to:
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(a) All employees and subcontractors and sub-subcontractors and
their employees on the Project or performing the Work and all
other persons who may be affected thereby;
(b) All the Work and all materials and equipment to be incorporated
therein, whether in storage on or off the site, under the care,
custody or control of the Contractor or any of his
Subcontractors or Sub-subcontractors; and
(c) Other property at the site or adjacent thereto, including trees,
shrubs, lawns, walks, pavements, relocation or replacement in
the course of construction.
10.2.2 The Contractor shall give all notices and comply with all applicable
laws, ordinances, rules regulations and lawful orders of any public
authority bearing on the safety of persons or property or their
protection from damage, injury or loss. Specifically but without
limitation, Contractor and all of his Subcontractors shall
thoroughly familiarize themselves with all requirements of Public
Law 91-956 enacted by Congress, December 29, 1970, cited as the
"Occupational Safety and Health Act of 1970", and all amendments
thereto, commonly referred to as OSHA, and it shall be the
responsibility of the General Contractor to fully enforce and comply
with all of the provisions of this Act.
10.2.3 The Contractor shall erect and maintain, as required by existing
conditions and progress of the Work, all reasonable safeguards for
safety and protection, including posting danger signs and other
warnings against hazards, promulgating safety regulations and
notifying owners and users of adjacent utilities.
10.2.4 When the use or storage of explosives or other hazardous materials
or equipment is necessary for the execution of the Work, the
Contractor shall exercise the utmost care and shall carry on such
activities under the supervision of properly qualified personnel.
10.2.5 The Contractor shall promptly remedy all damage or loss to any
property referred to in this Paragraph 10.2. caused in whole or in
part by the Contractor, and Subcontractor, any Sub-subcontractor, or
anyone directly or indirectly employed by any of them, or by anyone
for whose acts any of them may be liable and for which the
Contractor is responsible under Subparagraph 10.2.1. except damage
or loss attributable solely to the negligent acts or omissions of
the Owner or Architect or anyone directly or indirectly employed by
either of them may be liable. The foregoing obligations of the
Contractor are in addition to his obligations under Paragraph 4.16.
10.2.6 The Contractor shall designate a responsible member of his
organization at the site whose duty shall be the prevention of
accidents. This person shall be the Contractor's superintendent
unless otherwise designated by the Contractor in writing to the
Owner and the Architect.
10.2.7 The Contractor shall not load or permit any part of the Work to be
loaded so as to endanger its safety.
10.3 EMERGENCIES
-----------
10.3.1 In any emergency affecting the safety of persons or property, the
Contractor shall act at his discretion to prevent threatened damage,
injury or loss.
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ARTICLE 11.
INSURANCE
---------
11.1 CONTRACTOR'S LIABILITY INSURANCE
--------------------------------
11.1.1 Before commencing the Work, Contractor shall have in effect and
maintain, until completion and final acceptance of the Work, all
insurance required under this Paragraph 11.1. Such insurance shall
name Owner as an additional insured and shall be carried with
companies duly qualified to do business in the State in which the
Project is located and acceptable to Owner, and Contractor shall
furnish to Owner copies of Certificates of Insurance of all such
policies. Such certificates shall bear the endorsement that they are
not to be canceled, changed or permitted to lapse until thirty (30)
days after the Owner has received written notice as evidenced by
return receipt of registered or certified mail, and it is agreed
further that as to lapsing such notice will not be valid if mailed
more than thirty-five (35) days prior to the proposed expiration
date of the policy. Such notice must be sent to Owner as indicated
elsewhere in the General Conditions and be clearly labeled on
outside of the envelope "INSURANCE CANCELLATION". Contractor shall
require each Subcontractor to provide coverage adequate to protect
Subcontractor and its employees. Upon request, Contractor shall
deliver Contractor's and/or any Subcontractor's insurance policies
to Owner for review. If the terms of coverage of such policies are
unacceptable to Owner, Contractor and/or Subcontractor shall revise
its coverage or obtain additional coverage as reasonably requested
by Owner. Owner's approval of Contractor's and any Subcontractor's
insurance shall not relieve or limit their liability under the
Contract Documents. In the event of the failure of Contractor to
furnish and maintain such insurance, then Owner shall have the
right, but not the obligation, to take out and maintain such
insurance for and in the name of Contractor and Contractor shall pay
the cost thereof and furnish all necessary information to permit
Owner to take out and maintain such insurance for the account of
Contractor. Contractor shall not allow any Subcontractor to commence
work on its subcontract until all such insurance required of
Subcontractor has been obtained.
11.1.2 Contractor shall purchase and maintain such insurance as will
protect it from claims set forth below which may arise out of or
result from Contractor's operations under the Contract Documents,
whether such operations be by Contractor or by any Subcontractor or
by anyone directly or indirectly employed by any of them, or by
anyone for whose acts any of them may be liable:
(a) Claims under Worker's or Workmen's Compensation, disability
benefit and other similar employee benefit acts;
(b) Claims for damages because of bodily injury, occupational
sickness or disease, or death of his employees;
(c) Claims for damages because of bodily injury, sickness or
disease, or death of any person other than its employees;
(d) Claims for damages insured by usual personal injury liability
coverage which are sustained (i) by any person as a result of an
offense directly or indirectly related to the employment of such
person by Contractor, or (ii) by any other person;
(e) Claims for damages, other than to the Work itself, because of
injury to or destruction of tangible property, including loss of
use resulting therefrom; and
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(f) Claims for damages because of bodily injury or death of any
person or property damage arising out of the ownership,
maintenance or use of any motor vehicle.
11.1.3 The liability insurance required by this Paragraph 11.1 shall be on
a comprehensive basis including:
(a) Premises - Operations (including X-C-U);
(b) Independent contractor's protection;
(c) Products and completed operations, which must be maintained for
one (1) year commencing with the issuance of the final
Certificate of Payment;
(d) Contractual, including specified provision for the Contractor's
obligations under Subparagraph 4.16.
(e) Owned, non-owned and hired motor vehicles; and
(f) Broad form coverage for property damage.
11.1.4 The insurance required in this Section 11.1 shall be in not less
than the following amounts:
(a) Worker's Compensation:
(i) Worker's or Workmen's Compensation - maximum permitted by
statute, unlimited, if permitted;
(ii) Employer's Liability - $100,000.
(b) Comprehensive General Liability.
Bodily injury and property damage having a combined single limit of $1,000,000
and including the following coverage:
(i) Personal Injury;
(ii) Independent Contractors;
(iii) Product and completed operations, which must be maintained
for one (1) year commencing with the issuance of the final
certificate of payment;
(iv) Umbrella liability coverage in the amount of $4,000,000.
(c) Automobile Liability:
(i) Bodily injury and death - $1,000,000/$100,000:
(ii) Property damage - $100,000.
37
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11.2 OWNER'S LIABILITY INSURANCE
---------------------------
11.2.1 Owner shall be responsible for purchasing and maintaining its own
liability insurance and, at its option, may purchase and maintain
such insurance as will protect it against claims which may arise
from operations under the Contract Documents.
11.3 PROPERTY INSURANCE
------------------
11.3.1 Unless otherwise provided, Contractor shall purchase and maintain
property insurance upon the entire work and the Project site in the
full amount of the Contract Sum, as Adjusted pursuant to the terms
of the Contract Documents. This insurance shall include interest of
Owner, Contractor, Subcontractors and Sub-subcontractors in the Work
and shall insure against the perils of fire and extended coverage
and shall include "all risk" insurance for physical loss or damage.
If the insurance which Contractor will maintain contains
deductibles, whichever party that has experienced the loss shall pay
the deductible for any loss which is subject to said deductibles and
as a result is not recoverable from an insurance carrier. Such
certificates shall bear the endorsement that they are not to lapse
until thirty (30) days after Owner and Lender has received written
notice as evidenced by return receipt of registered or certified
mail.
11.3.2 Any loss insured under Subparagraph 11.3.1 and 11.3.2 is to be
adjusted with Contractor and made payable to Contractor as trustee
for the insureds, as their interests may appear, subject to the
requirements of any applicable mortgagee clause and of Section
11.3.8. Contractor shall pay each Subcontractor a just and equitable
share of any insurance monies received by Contractor, and by
appropriate agreement, written where legally required for validity,
shall require each Subcontractor to make payments to its
subcontractors in similar manner.
11.3.3 Contractor shall file a Certificate of Insurance describing
Contractor's insurance coverage provided for hereunder with Owner
before an exposure to loss may occur.
11.3.4 If Owner requests in writing that insurance for risks other than
those described in Subparagraph 11.3.1 and 11.3.2 be included in the
property insurance policy, Contractor shall, if possible, include
such insurance, and the cost thereof shall be charged to Owner by
appropriate Change Order.
11.3.5 Owner, Contractor, and all Subcontractors waive all rights against
(a) each other and Subcontractors, Sub-subcontractors, agents and
employees each of the other, and (b) Architect and separate
contractors, if any, and their subcontractors, sub-subcontractors,
agents and employees, for damages caused by fire or other perils to
the extent covered by insurance obtained pursuant to this Section
11.3 or any other property insurance applicable to the Work, except
such rights as they may have to the proceeds of such insurance held
by Owner as trustee. The foregoing waiver afforded Architect, its
agents and employees shall not extend to the liability of Architect,
its agents or employees arising our to (a) the preparation or
approval of maps, drawings, opinions, reports, surveys, Change
Orders, designs or specifications, or (b) the giving of or the
failure to give is the primary cause of the injury or damage. Owner
or Contractor, as appropriate, shall require of Architect, separate
contractors, Subcontractors and Sub-subcontractors by appropriate
written agreements, similar waivers each in favor of all other
parties enumerated in this Section 11.3.6.
11.3.6 If, after such loss, no other special agreement is made, replacement
of damaged work shall be covered by an appropriate Change Order.
11.3.7 Contractor, as trustee, shall have power to adjust and settle any
loss with the insurers.
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11.3.8 If Owner finds it necessary to occupy or use a portion or portions
of the Work prior to Substantial Completion thereof, such occupancy
shall not commence prior to a time to which the insurance company or
companies providing the property insurance have consented by
endorsement to the policy or policies. This insurance shall not be
canceled or lapsed on account of such partial occupancy. Consent of
the insurance company or companies to such occupancy or use shall
not be unreasonably withheld.
11.3.9 Nothing in this Paragraph, however, shall alter the risk of loss,
excluding loss or damage resulting from faulty design, of all
improvements to be constructed and materials and equipment to be
sued in the Work, which shall remain with and upon the Contractor
until the Work has been fully completed and accepted by way of
issuance of final payment to Contractor. Without limiting this
liability, the Contractor shall be entitled to use the proceeds of
insurance obtained under this Paragraph to effect repairs to and
replacements of the Work in accordance with the foregoing
subparagraph.
11.4 LOSS OF USE INSURANCE
---------------------
11.4.1 Owner, at its option, may purchase and maintain such insurance as
will insure it against loss of use of this property due to fire or
other hazards, however caused. Owner waives all rights of action
against Contractor for loss of use of Owner's property, including
consequential losses due to fire or other hazards, however caused,
to the extent covered by insurance under this Section 11.4.1.
11.5 WRAP-UP
-------
11.5.1 In lieu of the insurance requirements set forth i Section 11.1
through 11.3 hereof, Owner shall have the right to purchase "Wrap-
Up" insurance for the Project to protect the interest of Owner,
Contractor, any separate contractor and all Subcontractors. In such
event, the Contract Sum shall be reduced to reflect the total amount
included therein to compensate Contractor and all Subcontractors for
the insurance coverage which would have been required under Section
11.1 hereof.
ARTICLE 12.
CHANGES IN THE WORK AND CLAIMS
------------------------------
12.1 CHANGE ORDERS
-------------
12.1.1 A Change Order is a written order to the Contractor signed by the
Owner and the Architect, issued after execution of the Contract,
authorizing a change in the Work or an adjustment in the Contract
Sum or the Contract Time. The Contract Sum and the Contract Time may
be changed only by Change Order. A Change Order signed by the
Contractor indicates his agreement therewith, including the
adjustment in the Contract Sum or the Contract Time; provided,
however, that the Contractor shall be obligated to proceed with any
duly executed Change Order regardless of whether it is signed by him
or not.
12.1.2 The Owner, without invalidating the Contract, may order changes in
the Work within the general scope of the Contract consisting of
additions, deletions or other revisions, the Contract Sum and the
Contract Time being adjusted accordingly. All such changes in the
Work shall be authorized by Change Order, and shall be performed
under the applicable conditions of the Contract Documents.
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12.1.3 Upon issuance of a Change Order signed by Owner and Architect the
Contractor shall proceed promptly with the Changed Work
notwithstanding any disagreement regarding the resulting adjustments
to the Contract Sum or Contract Time. In such case, the Contract Sum
and Contract Time shall be adjusted unilaterally by the amounts
shown in the Change order, subject to any reservation of rights
regarding such dispute preserved by written notice of claim by
Contractor (pursuant to Paragraph 12.5) to Owner and Architect prior
to proceeding with the work in question.
12.1.4 The cost or credit to the Owner resulting from a change in the Work
shall be determined in one or more of the following ways:
(a) By mutual acceptance of a lump sum properly itemized and
supported by sufficient substantiating data to permit
evaluation;
(b) By unit prices stated in the Contract Documents or subsequently
agreed upon;
(c) By cost to be determined in a manner agreed upon by the parties
and mutually acceptable fixed or percentage fee; or
(d) By the method provided in Subparagraph 12.1.4.
(e) The cost or credit to the Owner resulting from a change in the
Work, or extra work, not covered by unit prices, shall be based
on the following percentages added to material and labor costs:
Percentage allowance to the Contractor for overhead (including
Bond Premiums), and profit for extra work performed by Contractor
with his own forces shall be ten percent (10%). Percentage
allowance to the Contractor for overhead (including Bond
Premiums) and profit for extra work performed by the Contractor's
Subcontractors and supervised by the Contractor shall be five
percent (5%).
12.1.5 If none of the methods set forth in Clauses 12.1.4 (1), 12.1.4 (2),
12.1.4 (3), or 12.1.4 (4) is agreed upon, the Contractor, provided
he receives a written order signed by the Owner, shall promptly
proceed with the Work involved. The cost of such Work shall then be
determined by the Architect on the basis of the reasonable
expenditures and savings of those performing the Work attributable
to the change, including, in the case of an increase in the Contract
Sum, a reasonable allowance for overhead and profit. In such case,
and also under Subparagraphs 12.1.4.(3) and 12.1.4.(4) above, the
Contractor shall keep and present, in such form as the Architect may
prescribe, an itemized accounting together with appropriate
supporting data for inclusion in a Change Order. Unless otherwise
provided in the Contract Documents, cost shall be limited to the
following: cost of materials, including sales tax and cost of
deliver; cost of labor, including social security, old age and
unemployment insurance, and fringe benefits required by agreement or
custom; worker's or workmen's compensation insurance; bond premiums;
rental value of equipment and machinery; and the additional costs of
supervision and field office personnel directly attributable to the
change. Pending final determination of cost to the Owner, payments
on account shall be made on the Architect's Certificate for Payment.
The amount of credit to be allowed by the Contractor to the Owner
for any deletion or change which results in a net decrease in the
Contract Sum will be the amount of the actual net cost as confirmed
by the Architect. When both additions and credits covering related
Work or substitutions are involved in any one change, the allowance
for overhead and profit shall be figured on the basis of the net
increase, if any, with respect to that change.
12.1.6 If unit prices are stated in the Contract Documents or subsequently
agreed upon, and if the quantities originally contemplated are so
changed in a proposed Change Order that application
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of the agreed unit prices to the quantities of Work proposed will
cause substantial inequity to the Owner or the Contractor, the
applicable unit prices shall be equitably adjusted.
12.2 CONCEALED CONDITIONS
--------------------
12.2.1 Should concealed conditions encountered in the performance of the
Work below the surface of the ground or should concealed or unknown
conditions in an existing structure be materially at variance with
the conditions indicated by the Contract Documents, or should
unknown physical conditions below the surface of the ground or
should concealed or unknown conditions in an existing structure of
an unusual nature, differing materially from those ordinarily
encountered and generally recognized as inherent in work of the
character provided for in this Contract, be encountered, the
Contract Sum and Contract Time, as appropriate, shall be equitably
adjusted by Change Order upon written notice of claim written by
either Owner or Contractor made within ten (10) days after the first
observance of the conditions.
12.3 MINOR CHANGES IN THE WORK
-------------------------
The Architect, with the Owner's concurrence, will have authority to order
minor changes in the Work not involving an adjustment to the Contract Sum
or an extension of the Contract Time and not inconsistent with the intent
of the Contract Documents. Such changes shall be effected by written order,
and shall be binding on the Contractor. the Contractor shall carry out such
written orders promptly.
12.4 CHANGE ORDER REQUESTS AND PROPOSALS
-----------------------------------
12.4.1 Should Owner or Architect contemplate imposition of a change to the
Work, Architect may issue a Change Order Proposal Request to the
Contractor to indicate contemplated changes in the Work. Within ten
(10) days from receipt of such a Request, the Contractor shall
submit to the Owner through the Architect, a Change Order Proposal
indicating his estimated price and its estimated effect, if any, on
the Contract Time for such changed work.
12.5 CLAIMS
------
12.5.1 Other than as provided in Paragraphs 12.1 and 12.2, the Contractor
shall not be entitled to any adjustment of Contract Sum or Contract
Time except in strict compliance with the procedures and under the
circumstances hereinafter set forth.
12.5.2 Should the Contractor contend that any other written or oral order
(which shall include direction, instruction, interpretation or
determination) from the Owner or Architect or other event or
occurrence shall cause a change in the Work entitling Contractor to
adjustment to the Contract Sum or Contract Time, the Contractor
shall:
(a) Provide a written Notice of Claim to Owner and to Architect
within ten (10) days after the occurrence of the event upon
which the claim is based. Such Notice of Claim must clearly
identify the order or event which is relied upon and contain a
clear statement of why it constitutes a basis for adjustment.
(b) Provide a written statement of claim to Owner and to Architect
within twenty (20) days after the occurrence of the event, which
statement shall include a clear, concise recital of the basis
upon which the claim is asserted, including a designation of the
provision or provisions in the Contract Documents on which claim
is based and the amount of time and compensation claimed. All
costs, expenses or damages and extensions of time
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claimed as a result of this alleged change shall be described in
reasonable detail under the circumstances together with complete
supporting documentation.
(c) To the extent that any adjustment to the Contract Time is
sought, the Contractor shall also fully comply with the
requirements of Subparagraph 7.3.5.
12.5.3 Upon receiving a Statement of Claim, the Architect shall review any
timely claim submitted by the Contractor within a reasonable time.
In conducting this review, the Architect shall have the right to
require the Contractor to submit such additional or supporting
documents, data and other information as the Owner and/or Architect
may require, and the failure to submit such additional documents,
data or other information within fifteen (15) days following written
request shall be deemed a waiver of the claim. Upon completion of
such review, the Architect, in consultation with Owner, shall issue
a Change Order amending the Contract Sum or Contract Time or both as
may be found proper. If the Contractor or Owner disputes the
determination made by the Architect as a condition precedent to any
further action to resolve such dispute, such party must notify the
other party and Architect in writing within five (5) days following
receipt of the decision of such dispute and permit the Architect
fifteen (15) additional days to reconsider and, if it deems it
appropriate, modify its decision.
12.5.4 The failure of the Contractor to assert any claim within the time
limits prescribed herein or in the form or manner precisely as
required hereby shall be deemed a material prejudice to the interest
of the Owner and shall constitute an absolute waiver of the claim
and the right to file or thereafter prosecute the same.
12.6 LIMITATION OF ENTITLEMENT
-------------------------
12.6.1 Except as provided in Paragraphs 12.1, 12.2 and 12.5, no order,
statement, or conduct of the Owner or the Architect shall entitle
the Contractor to any adjustment hereunder of the Contract Sum or
Contract Time. Nothing in this Article shall excuse the Contractor
from proceeding with the Contract as changed. Nothing contained in
this Article 12 shall operate to limit or extinguish any right or
defense of the Owner contained elsewhere in the Contract Documents
or available at law or in equity or constitute a waiver by the Owner
of any right or defense otherwise available.
ARTICLE 13.
UNCOVERING OF WORK AND CORRECTION OF WORK
-----------------------------------------
13.1 UNCOVERING OF WORK
------------------
13.1.1 If any portion of the Work shall be covered contrary to the request
of the Owner or Architect or to requirements specifically expressed
in the Contract Documents, it must, if required in writing by the
Owner, or the Architect be uncovered for his observation and shall
be removed and replaced at the Contractor's expense.
13.1.2 If any other portion of the Work has been covered which the Owner or
Architect has not specifically requested to observe prior to being
covered, the Owner or Architect may request to see such work and it
shall be uncovered by the Contractor. If such work be found in
accordance with the Contract Documents, the cost of uncovering and
replacement shall, by appropriate Change Order, be charged to the
Owner. If such Work would be found not in accordance with the
Contract Documents, the Contractor shall pay such costs unless it be
found that this condition was caused by the Owner or a separate
contractor in which event the Owner shall be responsible for the
payment of such costs.
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13.2 CORRECTION OF WORK
------------------
13.2.1 The Contractor shall promptly correct all Work rejected by the
Architect or the Owner as defective or as failing to conform to the
Contract Documents whether observed before or after Substantial
Completion and whether or not fabricated, installed or completed.
The Contractor shall bear all costs of correcting and/or replacing
all other Work damaged or destroyed by such replacement and re-
execution.
13.2.2 If it is determined that within one year after the Date of
Substantial Completion of the Work or designated portion thereof or
within one year after acceptance by the Owner of designated
equipment or within such longer period of time as may be prescribed
by law or by the terms of any applicable special warranty required
by the Contract Documents, any of the Work is defective or not in
accordance with the Contract Documents, the Contractor shall correct
it promptly after receipt of a written notice from the Owner to do
so unless the Owner has previously given the Contractor a written
specific acceptance of such condition. This obligation shall survive
termination or final completion of the Contract.
13.2.3 The Contractor shall remove from the Site all portions of the Work
which are defective or non-conforming and which have not been
corrected unless removal is waived by the Owner.
13.2.4 If the Contractor fails to correct defective or nonconforming Work
within the time period set forth in a written notice from the Owner
to the Contractor, the Owner, after written notice to the Surety, if
any, may, but shall not be required to, correct such defective or
nonconforming Work. All costs of such corrective action incurred by
the Owner plus a fee equal to ten percent (10%) of the costs of such
Work incurred by the Owner and all out-of-pocket expenses incurred
by the Owner shall be deducted from balance of Contract Sum due to
the Contractor, or if that is insufficient, the Contractor shall pay
the difference to the Owner upon demand.
13.2.5 If the Contractor does not proceed with the correction of such
defective or nonconforming Work within the time fixed by written
notice from the Owner to the Contractor, the Owner may remove such
defective or nonconforming Work and may store the material or
equipment at the expense of the Contractor. If the Contractor does
not pay the costs of such removal in storage within ten (10) days
additional written notice sell such Work at auction or at private
sale and shall account for the net proceeds thereof after deducting
all the costs that shall have been borne by the Contractor,
including compensation for the Architect's additional services made
necessary thereby and the Owner's out-of-pocket expenses together
with a fee of ten percent (10%) of such costs. If such proceeds of
the sale do not cover all costs which the Owner shall have borne,
the difference shall be charged to the Contractor and appropriate
Change Order shall be issued. If the unpaid balance of the Contract
Sum owing the Contractor is not sufficient to cover such amount, the
Contractor shall pay the difference to the Owner upon demand.
13.2.6 The Contractor shall bear the cost of making good all work of the
Owner or separate contractors or damage by such correction or
removal.
13.3 ACCEPTANCE OF DEFECTIVE OR NON-CONFORMING WORK
----------------------------------------------
If the Owner prefers to accept defective or nonconforming Work, he may do
so instead of requiring its removal and correction, in which case a Change
Order will be issued to reflect a reduction in the Contract Sum in an
amount appropriate and equitable. Such adjustment shall be effective
whether or not final payment has been made.
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13.4 NON-LIMITATION OF RIGHTS
------------------------
13.4.1 Nothing contained in Article 13 shall be construed to establish a
period of limitation with respect to any other obligation which
Contractor has under the Contract Documents or under any separate
warranty or guarantee required thereby, including, without
limitation, Paragraph 4.6 hereof, or under law. The establishment of
the time period of one year after date of substantial completion or
acceptance or such longer period of time as may be prescribed by law
or by the terms of any warranty or guarantee required by the
Contract Documents relates only to the specific obligation of
Contract to correct the Work, and has no relationship to the time
within which its obligation to comply with the Contract Documents or
applicable provisions of law may be sought to be enforced, nor to
the time within which proceedings may be commenced to establish
Contractor's liability with respect to its obligations other than
specifically to correct the Work.
ARTICLE 14.
TITLE TO WORK AND LIENS
-----------------------
14.1 UNENCUMBERED TITLE TO WORK
--------------------------
14.1.1 Contractor warrants and guarantees that title to all Work covered by
any Application for Payment, whether incorporated in the Project or
not, will pass to Owner free and clear of all liens, claims,
security interests or encumbrances upon the sooner of (i) the date
such Work is incorporated into the Project or (ii) the date
Contractor receives payment for such Work under Application for
Payment; and that no Work covered by an Application for Payment will
have been acquired by Contractor or by any other person performing
the Work at the Project Site or furnishing materials and equipment
for the Project, subject to an agreement under which an interest
therein or an encumbrance thereon is retained by the Seller or
otherwise imposed by Contractor or such other person.
14.2 LIEN RELINQUISHMENT AND REMOVAL
-------------------------------
14.2.1 The Contractor shall fully and promptly pay and discharge any and
all commitments and claims and wholly protect and save harmless
Owner and its property against any and all demands and claims which
may or could ripen into liens or claims of lien on the Project or
the property upon which it is situated. Further, the Contractor
shall not at any time suffer or permit any lien, attachment, or
other encumbrance under the laws of the State in which the Project
is situated or otherwise by any person or persons whomsoever to
remain on record against the Project or the property upon which it
is situated for any money due or any work done or materials
furnished relative to the Work or otherwise under the Contract
Documents or by reason of any other claim or demand against
Contractor or any Subcontractor. The Contractor shall impose similar
contractual requirements on its Subcontractors.
14.2.2 If Contractor fails to remove any mechanic's or other lien filed by
Contractor, its Subcontractors or materialmen, by satisfaction,
bonding or otherwise, Owner may retain sufficient funds, out of any
money due or thereafter to become due to Contractor by Owner, to pay
the same and to pay all costs incurred by reason thereof, including
reasonable attorneys fees and the cost of any lien bonds Owner may
elect to obtain. Additionally, without prejudice to any other rights
or remedies and at its sole election, Owner may pay said lien or
liens and costs out of any funds that are or that become due to
Contractor and that are at any time in the possession of the Owner.
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14.3 SUBORDINATION OF RIGHTS
-----------------------
14.3.1 The Contractor agrees to subordinate, and agrees to have its
Subcontractors subordinate, any lien or claim or right of lien
against the Project and its real property which the Contractor and
his Subcontractors may now or hereafter have on account of
construction labor, services or materials provided under the
Contract in connection with the Work or otherwise for the Project,
to any promissory note, loan agreement, mortgage, deed to secure
debt, or other instrument executed by Owner which creates a first
lien on the Project and the real property on which it is located,
including any extension, renewal, additional advance or other
modification thereof. The Contractor shall not, either in its own
right or through subrogation, assignment or otherwise, assert any
lien, privilege or claim which might prejudice or become superior to
the rights of the Lender under such first lien agreement granted by
the Owner. Contractor agrees further to execute any documentation
reasonably required by Owner or its Lender effectuating this
subordination.
ARTICLE 15.
CONTRACTOR DEFAULT AND OWNER'S REMEDIES
---------------------------------------
15.1 EVENTS OF CONTRACTOR'S DEFAULT
------------------------------
15.1.1 An Event of Default shall occur if the Contractor shall:
(a) Fail or refuse to maintain progress of the Work in accordance
with the Contract Requirements and Construction Schedule
(except to the extent that an extension of time is allowed; or
(b) Fail to prosecute the Work or any of its components in
accordance with the Contract Documents; or
(c) Make any material misrepresentation to the Owner (including but
not limited to misrepresentations in connection with any
Application for Payment); or
(d) Persistently or repeatedly refuse or fail to supply sufficient
properly skilled workmen or proper materials, to permit timely
prosecution of the Work; or
(e) Fail to make prompt payment to subcontractors, or for materials
or labor; or
(f) Disregard laws, ordinances, rules, regulations, or orders of
any public authority having jurisdiction; or
(g) Be adjudicated a bankrupt; or
(h) Make a general assignment for the benefit of his creditors; or
(i) Have a receiver appointed as a result of his insolvency; or
(j) Be declared in breach or default under any general Agreement of
Indemnity or other guarantee or indemnity agreement with a
surety or lender and such declaration not be revoked within ten
(10) days thereafter; or
(k) Otherwise commit a substantial violation of a provision of the
Contract Documents.
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15.1.2 Upon the happening of an Event of Default by Contractor, the Owner
may elect to give the Contractor written notice thereof. The
Contractor thereafter shall cure the default as soon as possible and
in any event within seventy-two (72) hours from the giving of the
notice of default.
15.2 OWNER'S REMEDIES FOR UNCURED CONTRACTOR DEFAULT
15.2.1 If the Contractor does not timely cure its default, as required by
Subparagraph 15.1.2 and upon 72 hours additional written
notification to Contractor and his surety, if any, the Owner may
exercise any one or more of the following rights and remedies:
(a) Termination
(i) Owner may terminate all or any portion of this Contract and
take possession of the Work or portions thereof, including
the Contractor's materials, tools, equipment, facilities,
supplies, machinery and appliances used or to be used in
connection with the Project, whether on or off the Project
site, and to cause the remaining Work to be finished by
another contractor or contractors as may be deemed
appropriate by the Owner. Such termination shall not relieve
the Contractor, his Surety, or any insurer of Contractor or
any liability or responsibility. Upon such termination and
written request by Owner, the Contractor shall assign its
full interests and rights to the Owner, in any or all of the
subcontracts and contracts with suppliers, or such part
thereof as the Owner may request, although the Owner shall
not be required to accept an assignment of, or otherwise
perform under any such contract. Owner shall be at liberty
to negotiate with and engage (for himself or for any other
contractors that Owner engaged to replace Contractor) any
Subcontractors, suppliers, or other that Contractor dealt
with prior to termination.
(b) Upon termination of all or any portion of the Work, Owner shall
not be obligated to make any further payment for any purpose
thereafter until all of such Work shall been completed, and all
subsequent cost necessary to complete the Work (including for
Architect's additional services necessitated thereby) shall be
paid for by Owner. If the cost to Owner for completing such Work
shall exceed the Contract Sum as adjusted in accordance with the
terms of the Contract Documents for the Work or any portion
thereof so terminated, such excess cost shall be a rightful
claim by Owner against the Contractor and such excess amount
shall be immediately due and payable and shall be paid by
Contractor to Owner upon demand. If the cost to Owner for
completing such Work shall be less than the Contract Sum as
adjusted under the Contract Documents for the Work or any
portion thereof so terminated, Owner shall pay any amounts which
Contractor had earned with respect to such Work prior to Owner's
termination thereof; provided, however, that Owner shall in no
event pay an amount greater than the difference between the
Contract Sum for the Work or the portion thereof terminated
hereunder and the amount previously paid to Contractor.
(c) If only a portion of Work has been terminated by Owner,
Contractor agrees to perform the remainder of the Work in
conformity with the Contract Documents and in such a manner as
not to interfere with Owner or others in their performance
completion of the portion of Work which was terminated.
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(d) After the Work has been completed, the Contractor may remove such
materials, tools, plant equipment and appliances as remain at the
Property but the Owner shall not be liable for anything that has
been lost, stolen, destroyed, consumed, worn or used.
(e) Withhold Money Due
The Owner may withhold an amount from any and all retainages and
Progress or other payments then due or thereafter to become due
to the Contractor sufficient to cover the costs of curing such
default until the default has been corrected fully by the
Contractor or in the event same is contested by the Contractor.
(f) Direct Additional Effort
The Owner may direct the Contractor to furnish additional labor,
materials and equipment that, in the Owner's opinion, would be
sufficient to perform the Work and to expedite the delivery of
materials in order to complete the Work as required under the
Contract Documents. The additional labor, materials and equipment
so furnished without adjustment of the Contract Sum by reason
thereof.
(g) Perform Work Without Termination
The Owner may, without prejudice to any other rights or remedies
and without terminating this Agreement, and upon seventy-two (72)
hours prior written notice perform the obligations in respect of
which the Contractor is in default (including without limitation,
obligations relating to the performance of the Work and
obligations relating to the payment of money) with its own forces
or by engaging other contractors. In such case an appropriate
Change Order shall be issued deducting from the payments then or
thereafter due the Contractor the cost of correcting such
deficiencies, including compensation for the Architect's
additional services and any attorneys fees, made necessary by
such default, neglect or failure. If the payments then or
thereafter due the Contractor are not sufficient to cover such
amount, the Contractor shall pay the difference to the Owner upon
demand.
(h) Demand and Seek Specific Performance
The Owner may demand that the Contractor specifically perform the
obligation in respect of which he is in default or the Owner may
seek a mandatory injunction requiring the Contractor to do so or
a prohibitory injunction restraining the Contractor from acting
contrary to this Agreement or the Contract Documents, including
in each case a temporary injunction. The Owner may obtain such
injunctive relief without having to show irreparable injury or
the absence of an adequate remedy at law.
15.3 OWNER'S REMEDIES FOR REPEATED DEFAULT
-------------------------------------
15.3.1 The Owner may exercise any one or more of the rights or remedies set
forth in Paragraph 15.2 above without first giving the Contractor or
its Surety, a notice and opportunity to cure if: (a) on two or more
prior occasions the Owner shall have justifiably given the
Contractor a notice of default with respect to a similar or related
default, or (b) the Event of Default arises under bankruptcy or
insolvency.
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15.4 NONWAIVER OF DEFAULT REMEDIES
-----------------------------
15.4.1 No election by Owner of or his failure to exercise any particular
rights or remedies set forth in Paragraph 15.2 and 15.3, shall
operate as a waiver of any other such rights or remedies; or prevent
it from exercising such rights or remedies, and the right of the
Owner to so act is without prejudice to its rights and without
waiver of the liabilities and obligations of Contractor or any
Subcontractors, as the case may be.
ARTICLE 16.
RIGHTS OF CONTRACTOR
--------------------
16.1 STOP WORK FOR NONPAYMENT OR SUSPENSION
--------------------------------------
16.1.1 If the entire Work should be suspended for a period of thirty (30)
days by order of Owner, or if Owner should fail to pay to Contractor
within fifteen (15) days after any payment becomes due and payable
to Contractor hereunder, through no act or fault of Contractor or
any Subcontractor or the agents or employees of either or any person
performing any of the Work under a contract with Contractor, then
upon seven (7) additional days' written notice to Owner and
Architect, Contractor may stop the Work until payment of the amount
owing has been received or the suspension order lifted.
16.1.2 The Contract Time shall be adjusted and the Contract Sum shall be
increased by the amount of the Contractor's reasonable duration and
costs of the shutdown, delay and startup, which shall be effected by
appropriate Change Order in accordance with Paragraph 12.1.
16.2 TERMINATION BY CONTRACTOR
-------------------------
16.2.1 If the Work is stopped for thirty (30) days by Contractor pursuant
to Paragraph 16.1, then upon seven (7) additional days written
notice to the Owner and Architect, the Contractor may terminate this
Agreement.
16.2.2 Upon such termination, the Contractor may recover from the Owner
payment for all Work executed and for any proven loss sustained upon
any materials, equipment, tools, construction equipment and
machinery, including reasonable profit but not any nondirect or
consequential damages.
ARTICLE 17.
ASSIGNMENT
----------
17.1 ASSIGNMENT
----------
17.1.1 The Contract Documents shall be binding upon the Owner and the
Contractor, their respective legal representatives, heirs,
successors and assigns. The Contractor shall not assign the whole or
any part of its obligations and undertakings under this Contract and
shall not assign any monies due or to become due hereunder without
the prior written consent of the Owner and the Lender. Any such
assignment by the Contractor of all or any part of the monies due or
to become due the Contractor under this Contract shall contain a
provision to the effect that the right of the assignee in and to any
monies due or to become due the Contractor hereunder shall be
subject to the prior claims of all persons, firms and corporations
for services rendered or materials supplies for the performance of
all claims of the Owner or of the Lender, or both, against the
Contractor in connection with the Contractor's performance under
this Contract and under the other Contract Documents. Any request by
the Contractor for the Owner to approve
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any assignment hereunder shall be accompanied by a written statement
for the Surety whereby the Surety consents to the assignment and
agrees that such assignment will not affect the Surety's obligation
under the Bond. No assignment by the Contractor hereunder shall
relieve the Contractor of any of its obligations under this Contract
or under the other Contract Documents. The Contractor acknowledges
that the Owner may assign its rights hereunder to the Lender and the
Contractor agrees to execute such written documents to perfect such
assignment.
ARTICLE 18.
DISPUTES
--------
18.1 OBLIGATION TO PROCEED AND PERFORM
---------------------------------
18.1.1 In the event of any claim, dispute or matter in question
(collectively called a dispute), pending resolution of the dispute
the Owner shall make payments of undisputed amounts. If the Owner
requires the Contractor to proceed with the Work in a manner
directed by the Owner pending resolution of the dispute, the
Contractor shall comply with the requirement but reserving his
rights to assert a request for an increase in Contract Time or
Contract Sum as may be applicable pursuant to Article 12.
18.1.2 Contractor shall carry on the Work and adhere to the Project
Schedule during and notwithstanding all disputes or disagreements
with Owner. No Work shall be delayed or postponed pending resolution
of any disputes or disagreements, except as Contractor and Owner may
otherwise agree in writing.
ARTICLE 19.
RIGHTS OF OWNER
---------------
19.1 CONDITIONS EXCUSING PERFORMANCE
-------------------------------
19.1.1 The Owner shall not be responsible for any failure or inability of
the Owner to perform any of its obligations hereunder by reason of
fire, flood, strike or labor dispute (whether legal or illegal),
embargo, earthquake, work stoppages, acts of any government, acts of
war, sanctions by civil or military authorities, rebellion, civil
commotion or any other reason beyond Owner's control, whether or not
similar to those listed, but does not include unavailability of
funds.
19.2 OWNER'S RIGHT TO SUSPEND WORK
-----------------------------
19.2.1 The Owner or the Architect may order the Contractor in writing to
suspend, delay or interrupt all or any part of the Work for such
period of time as he may determine to be appropriate for the
convenience of the Owner.
19.2.2 If the Performance of the Work is, for an unreasonable period of
time, suspended, delayed or interrupted by the Owner, an adjustment
of the Contract Sum shall be made for any increase in Contractor's
costs of performance (excluding profit) and of the Contract Time for
any increase in the time required for performance of the Work
necessarily caused by such unreasonable suspension, delay or
interruption, and the Contact modified in writing accordingly.
However, no equitable adjustment shall be made under this
Subparagraph for any suspension pursuant to Subparagraph 19.3.1, or
for which an equitable adjustment is provided or excluded under any
other provision of the Contract Documents and no adjustment shall be
made to the extent that performance would have been so suspended,
delayed or interrupted by any other cause, including the fault or
negligence of the Contractor. No claim for an equitable adjustment
under this Subparagraph shall be allowed before the Contractor shall
have notified the Owner and the
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Architect in writing of the act or failure to act involved and
unless the claims for increased costs or increased time required are
asserted in writing to the Owner and the Architect within ten (10)
days after the termination of such suspension, delay or
interruption.
19.3 OWNER'S RIGHT TO STOP WORK
--------------------------
19.3.1 If the Contractor fails to correct defective Work as required by
Paragraph 13.2, or persistently fails to carry out the Work or
supply labor or materials in accordance with the Contract Documents,
the Owner may order in writing the Contractor to stop the Work, or
any portion thereof, until the cause for such order has been
eliminated; however, this right of the Owner to stop the Work shall
not give rise to any duty on the part of the Owner to exercise this
right for the benefit of the Contractor or any other person or
entity.
ARTICLE 20.
BONDS
-----
20.1 PERFORMANCE AND PAYMENT BONDS
-----------------------------
20.1.1 Owner shall have the right to require Contractor to furnish Owner a
corporate surety performance bond and labor and material bond, each
in the amount of 100 percent of the Cost of the Work. The premiums
for these bonds will be paid by Owner. Owner shall have the right to
require Contractor to obtain corporate surety performance bonds and
labor and material bonds covering the work of any and all
Subcontractors whose respective portion of the Work totals Seventy-
Five Thousand ($75,000.00) Dollars or more; provided that, if the
construction Lender requires such bonds from other Subcontractors,
Contractor will obtain such required bonds. The premiums for such
bonds will be paid by the Contractor and, if such requirement is
made after the Contract Sum is agreed upon, reimbursed by the Owner.
The bonds shall be executed by a surety company authorized to engage
in such business in the state in which the Project is situated and
approved by the Owner. The form of the bonds shall be subject to
approval by Owner.
20.1.2 If the surety on any bond furnished by Contractor or any
Subcontractor is declared a bankrupt or becomes insolvent or its
right to do business is terminated in the sate where the Project is
located, Contractor shall within ten (10) days thereafter substitute
another bond and Surety, both of which must be acceptable to Owner.
ARTICLE 21.
MISCELLANEOUS PROVISIONS
------------------------
21.1 GOVERNING LAW
-------------
21.1.1 The Contract shall be governed by the laws of the State in which
the Project is located.
21.2 WRITTEN NOTICE
--------------
21.2.1 All applications for payment, notices, requests and other matters
required or permitted to be given hereunder shall be transmitted to
the addresses shown on the Owner-Contractor Agreement by letter,
telex, telegram, mailgram, cable or private commercial courier. Any
party may change the address for the giving of notices to it by
giving due notice of the new address to the other parties, provided
that the address must be a place in the United States of America
where the mails and either telexes, telegrams, mailgrams or cables
are regularly received.
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21.2.2 The notice shall be deemed given to the party when properly
transmitted to it at its address set forth in the Owner-Contractor
Agreement.
21.3 CLAIMS FOR DAMAGES
------------------
21.3.1 Should either party to the Contract suffer injury or damage to
person or property because of any act or omission of the other party
or of any of his employees, agents or others for whose acts he is
legally liable, claim shall be made in writing to such other party
within a reasonable time after the first observance of such injury
or damage.
21.4 NO WAIVER
---------
21.4.1 No action or failure to act or to require in any one or more
instances upon the strict performance of any one or more of the
provisions of the Contract Documents, or to exercise any right
herein contained or provided by law by the Owner, the Architect, or
the Contractor shall constitute a waiver or relinquishment of any
right or duty afforded any of them under the Contract, nor shall any
such action or failure to act constitute an approval of or
acquiescence in any breach thereunder, nor shall it be construed as
a waiver of the right to subsequently demand strict performance or
exercise such rights, and the rights shall continue unchanged and
remain in full force and effect, except as may be specifically
agreed in writing.
21.5 RIGHTS AND REMEDIES
-------------------
21.5.1 Except as set forth in Subparagraph 21.5.2, the duties and
obligations imposed by the Contract Documents and the rights and
remedies available thereunder shall be in addition to and not a
limitation of any duties, obligations, rights and remedies otherwise
imposed or available by law.
21.5.2 The Contractor agrees that he can be compensated by money damages
for any breach of this Contract which may be committed by the Owner
and hereby agrees that no default, act, or omission of the Owner or
the Architect, (except for failure to make payments as specifically
addressed in Article 16) shall constitute a material breach of the
Contract entitling the Contractor to cancel or rescind the
provisions of this Contract or (unless the Owner shall so consent or
direct in writing) to suspend or abandon performance of all or any
part of the Work. The Contractor hereby waives any and all rights
and remedies to which he might otherwise be or become entitled, save
only his right to money damages.
21.6 SIGNS AND ADVERTISING
---------------------
21.6.1 Contractor shall not place or maintain any advertising signs, bills
or posters, nor shall he allow same to be placed in or about the
site or structure, except with the prior written consent of the
Owner.
21.7 ATTORNEY FEES
-------------
21.7.1 Should it be necessary for Owner, Lender or Contractor to employ an
attorney to enforce any part of the Contract or the Contract
Documents, then the party adjudged in breach or default shall pay
the reasonable fee of such attorney and all other costs related to
such enforcement or defense.
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21.8 AGREEMENT READ AND UNDERSTOOD
-----------------------------
21.8.1 Each and every one of the Articles of the General Conditions and the
other Contract Documents has been read, examined and the meaning of
the foregoing is fully understood by the Contractor.
21.9 COMPLETE AGREEMENT
------------------
21.9.1 There are no understandings between parties to this Contract other
than as set forth herein and in the other Contract Documents, any
and all other verbal or written agreements or arrangements between
the parties hereto relative to any item or provision of this
Contract or of the other Contract Documents are hereby superseded
and voided.
21.10 INTEREST
--------
21.10.1 Payments due and unpaid under the Contract Documents shall bear
interest from the date payment is due at such rate as the parties
may agree upon in writing or, in the absence thereof, at the legal
rate prevailing at the place of the Project.
21.11 LABOR RELATIONS
---------------
21.11.1 Contractor shall use its best efforts to prevent and avoid labor
disputes and other labor problems which may affect the Work.
Contractor warrants and represents that it presently knows of no
fact, the existence of which might lead to a labor dispute which
might affect the Work.
21.11.2 In the event of any strike, picket, sympathy strike, work stoppage,
or other form of labor dispute at the Project whether directed at
the Contractor, other separate contractors, subcontractors,
suppliers or other persons, Contractor shall notwithstanding
continue to perform its Work required hereby without interruption
or delay. In the event the Contractor fails to continue its Work
without interruption or delay, because of any or such events, the
Owner, in addition to all other rights it has in the Contract
Documents and at law, may terminate the Contract after giving
Contractor seven (7) days written notice of its intent to do so for
reason of Contractor's failure to perform. Additionally, if
Contractor is party to one or more labor agreement, Contractor
shall take all reasonable action to avoid any Work stoppage,
Contractor shall within twenty-four (24) hours take all legal
action permitted by such labor agreements or by law in order to
expedite resumption of Work on this Project.
21.12 COVENANT NOT TO SUE
-------------------
21.12.1 Should the Owner elect to terminate the Agreement with the
Contractor for default as provided herein, then the Contractor
covenants that he will not file any suit or proceeding of any kind
against the Owner by reason thereof, until Owner shall have either
abandoned the Project or completed the Contractor's Work as
required under the Contract. If the Contractor should breach this
covenant not to sue, then Contractor shall be liable to the Owner
for all costs resulting to the Owner therefrom including, without
limitation, all attorney's fees expended by the Owner in defending
said suit or proceeding, unless a positive determination is made
therein that the Contractor's termination by the Owner was
motivated by fraud and bad faith and was without justification of
any kind.
21.13 UNENFORCEABILITY OF ANY CLAUSE
------------------------------
21.13.1 If any clause of this Contract is held as a matter of law to be
unenforceable or unconscionable, the remainder of the Contract
shall be enforceable without such clause.
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21.14 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------
21.14.1 The representations and warranties made by the parties in the
Contract Documents and pursuant thereto shall survive the
consummation of the transaction contemplate therein and continue in
full force and effect without limitation.
21.15 NOT TO BENEFIT THIRD PARTIES
----------------------------
21.15.1 No provision of this Contract shall in any way inure to the benefit
of any third party (including the public at large) so as to
constitute such person a third party beneficiary of this Contract
or of any one or more of the terms and conditions of this Contract
or otherwise give rise to any cause of action in any person not a
party to the Owner-Contractor Agreement, except as provided
elsewhere in the Contract Documents.
21.16 TERMINATION OR SUSPENSION BY THE OWNER FOR CONVENIENCE
------------------------------------------------------
21.16.1 The Owner may, without cause, order the Contractor in writing to
suspend, delay or interrupt the Work in whole or in part for such
period of time as the Owner may determine.
21.16.2 An adjustment shall be made for increases in the cost of
performance of the Contract, including profit on the increased cost
of the performance, caused by suspension, delay or interruption. No
adjustment shall be made to the extent:
(a) That performance is, was or would have been so suspended,
delayed or interrupted by another cause for which the
Contractor is responsible; or
(b) That an equitable adjustment is made or denied under another
provision of the Contract.
21.16.3 Adjustments made in the cost of performance may have a mutually
agreed fixed or percentage fee.
21.16.4 The Owner may terminate this Contract without cause for the Owner's
convince at any time before a Notice to Proceed is issued to the
Contractor. In such a case, this Contract will terminate and be of
no further force or effect, and the Contractor shall be entitled to
no compensation from the Owner.
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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
December 20, 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
December 20, 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
December 20, 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
December 20, 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
December 20, 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
December 20, 1996
