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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
Wells Real Estate Fund IX, L.P.
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(Exact name of registrant as specified in its charter)
Georgia 58-2126622
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(State of incorporation or organization) (IRS Employer
Identification No.)
3885 Holcomb Bridge Road
Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
Securities to be registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of Class)
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Item 1. Description of Registrant's Securities to be Registered.
- ------- -------------------------------------------------------
For a description of the securities being registered under Section 12(g) of
the Securities Exchange Act of 1934, see pages 23 through 27, and pages 75
through 88 of the Prospectus dated January 5, 1996, contained in Post-Effective
Amendment No. 13 to Form S-11 Registration Statement of Wells Real Estate Fund
IX, L.P. filed with the Commission on December 27, 1996 (File No. 33-83852),
which are incorporated herein by reference.
Item 2. Exhibits.
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Below are the exhibits filed as a part of this Registration Statement:
1. Specimen of securities to be registered hereunder (filed herewith);
2. (a) Amended and Restated Agreement of Limited Partnership of Wells
Real Estate Fund IX, L.P., which was included as Exhibit B to the Prospectus
dated January 5, 1996, contained in Post-Effective Amendment No. 13 to Form S-11
Registration Statement of Wells Real Estate Fund VIII, L.P. and Wells Real
Estate Fund IX, L.P. filed with the Commission on December 27, 1996 (File No.
33-83852), which is incorporated herein by reference pursuant to Rule 12b-32
under the Securities Exchange Act of 1934;
(b) Subscription Agreement of Wells Real Estate Fund IX, L.P., which
was included as Exhibit C to the Prospectus dated January 5, 1996, contained in
Post-Effective Amendment No. 13 to Form S-11 Registration Statement of Wells
Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P. filed with the
Commission on December 27, 1996 (File No. 33-83852), which is incorporated
herein by reference pursuant to Rule 12b-32 under the Securities Exchange Act of
1934; and
3. Pages 23 through 27, and pages 75 through 88 of the Prospectus dated
January 5, 1996, contained in Post-Effective Amendment No. 13 to Form S-11
Registration Statement of Wells Real Estate Fund VIII, L.P. and Wells Real
Estate Fund IX, L.P. filed with the Commission on December 27, 1996 (File No.
33-83852) (filed herewith pursuant to Rule 12b-23(a)(3) under the Securities
Exchange Act of 1934).
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized.
Date: January 23, 1997 WELLS REAL ESTATE FUND IX, L.P.
(Registrant)
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
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Leo F. Wells, III
President
By: /s/ Leo F. Wells
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Leo F. Wells, III
General Partner
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registration Statement has been signed below by the following
person on behalf of the Registrant and in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Title Date
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<S> <C> <C>
/s/ Leo F. Wells Individual General Partner and January 23, 1997
- --------------------------- President (Chief Executive
Leo F. Wells, III Officer), Treasurer (Chief
Financial Officer) and Sole
Director of Wells Capital, Inc.,
the sole general partner of
Wells Partners, L.P.
</TABLE>
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EXHIBIT INDEX
The following documents are filed as exhibits to this report. Those
exhibits previously filed and incorporated herein by reference are identified
below by an asterisk. For each asterisked exhibit, there is shown below a
description of the previous filing.
<TABLE>
<CAPTION>
Exhibit Number
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<S> <C>
1 Specimen of securities to be registered hereunder
2(a)/*/ Amended and Restated Agreement of Limited
Partnership of Wells Real Estate Fund IX, L.P.
(Exhibit B to the Prospectus dated January 5,
1996, contained in Post-Effective Amendment No. 13
to Form S-11 Registration Statement of Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund
IX, L.P., File No. 33-83852)
2(b)/*/ Subscription Agreement of Wells Real Estate Fund
IX, L.P. (Exhibit C to the Prospectus dated
January 5, 1996, contained in Post-Effective
Amendment No. 13 to Form S-11 Registration
Statement of Wells Real Estate Fund VIII, L.P. and
Wells Real Estate Fund IX, L.P., File No. 33-83852)
3 Pages 23 through 27, and pages 75 through 88 of
the Prospectus dated January 5, 1996, contained in
Post-Effective Amendment No. 13 to Form S-11
Registration Statement of Wells Real Estate Fund
VIII, L.P. and Wells Real Estate Fund IX, L.P.
(File No. 33-83852)
</TABLE>
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Exhibit 1
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CERTIFICATE OF LIMITED PARTNERSHIP
WELLS REAL ESTATE FUND IX, L.P.
Number Units
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A LIMITED PARTNERSHIP ORGANIZED UNDER THE LAWS OF
THE STATE OF GEORGIA, NORCROSS, GEORGIA
This certifies that is the owner
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of limited partnership units of Wells Real Estate Fund
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IX, L.P., a Limited Partnership organized under the laws of the State of
Georgia. This Certificate is non-transferable and non-negotiable.
Units represented by this Certificate are subject to the terms, conditions
and limitations of the Amended and Restated Agreement of Limited Partnership,
and may only be sold or transferred in accordance with the provisions of Article
17 of the Amended and Restated Agreement of Limited Partnership.
IN WITNESS WHEREOF, the said Partnership has caused this Certificate to be
issued by its General Partner.
WELLS REAL ESTATE FUND IX, L.P.
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
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF UNITS OR ANY INTEREST
THEREIN, OR TO RECEIVE 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.
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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.
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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:
I. 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:
A. 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);
B. 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
C. 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.")
II. SALE PROCEEDS. Sale Proceeds (generally the net proceeds from any sale or
exchange of Partnership Properties) will be distributed as follows:
A. 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;
B. 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);
C. 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;
D. 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);
E. 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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F. 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.")
III. 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:
A. 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;
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, 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.")
IV. 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
25
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accounts, if any, until negative capital 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
26
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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 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%.
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<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
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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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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 unless Limited Partners owning more than 50% of the Units
consent in writing to any such transfer, sale or conveyance. (Section 17.1(a).)
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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.)
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
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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 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.)
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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 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
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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
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
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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 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
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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 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:
a. 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);
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b. Then, to the General Partners until they have received an amount
equal to 10% of the total amount thus far distributed; and
c. 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.)
V. 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:
a. 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;
b. Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received an amount equal to his Net Capital Contribution;
c. 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;
d. 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);
e. 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
f. 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
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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 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.
VI. 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:
a. 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;
b. 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
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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 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:
VII. a. 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;
b. 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
c. Then, 100% to the General Partners.
VIII. 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:
a. 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
b. 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.
IX. 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:
a. First, pursuant to the qualified income offset provision described
below;
b. Then, to Partners having negative Capital Accounts 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 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;
d. 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;
e. 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;
f. 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;
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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 10%
cumulative (noncompounded) return on his Net Capital Contribution over prior
distributions to such Limited Partner of Net Cash From Operations;
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 over prior distributions to such Limited
Partner of Net Cash From Operations;
i. 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
j. 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 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.
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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 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
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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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