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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1996 or
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[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
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Commission file number 0-25606
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Wells Real Estate Fund VII, L.P.
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(Exact name of registrant as specified in its charter)
Georgia 58-2022629
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3885 Holcomb Bridge Road Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
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Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
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NONE NONE
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Securities registered pursuant to Section 12 (g) of the Act:
CLASS A UNITS
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(Title of Class)
CLASS B UNITS
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Aggregate market value of the voting stock held by non-affiliates:
Not Applicable
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PART I
ITEM 1. BUSINESS
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General
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Wells Real Estate Fund VII, L.P. (the "Partnership"), is a Georgia public
limited partnership organized on December 1, 1992, under the laws of the state
of Georgia, having Leo F. Wells, III and Wells Partners, L.P., a Georgia
partnership as general partners. The Partnership intends to acquire and operate
commercial and industrial real properties which are to be developed or are under
development or construction, and properties which are newly constructed or have
operating histories.
On April 6, 1994, the Partnership commenced an offering of up to $25,000,000 of
Class A or Class B limited partnership units ($10.00 per unit) pursuant to a
Registration Statement on Form S-11 filed under the Securities Act of 1933. The
Partnership did not commence active operations until it received and accepted
subscriptions for a minimum of 125,000 units on April 26, 1994. The Partnership
terminated its offering on January 5, 1995, and received gross proceeds of
$24,180,174 representing subscriptions from 1910 Limited Partners, composed of
two classes of limited partnership interests, Class A and Class B limited
partnership units.
As of December 31, 1996, the Partnership owned interests in the following
properties: (i) a three-story office building located in Appleton, Wisconsin;
(ii) two retail buildings located in Stockbridge, Georgia; (iii) a retail/office
building in Stockbridge, Georgia; (iv) a retail shopping center expansion in
Stockbridge, Georgia; (v) an office/retail center located in Roswell, Georgia;
(vi) a retail center located in Cherokee County, Georgia; (vii) an office
building located in Gainesville, Florida; (viii) a four-story office building
located in Jacksonville, Florida; and (ix) a retail center under construction in
Clemmons, Forsyth County, North Carolina. All of the foregoing properties were
acquired on an all cash basis and are described in more detail in Item 2 below.
Employees
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The Partnership has no direct employees. The employees of Wells Capital, Inc.,
the sole general partner of Wells Partners, L.P., a General Partner, perform a
full range of real estate services including leasing and property management,
accounting, asset management and investor relations for the Partnership. See
Item 11 - "Compensation of General Partners and Affiliates," for a summary of
the fees paid to the General Partners and their affiliates during the fiscal
year ended December 31, 1996.
Insurance
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Wells Management Company, Inc., an affiliate of the General Partner, carries
comprehensive liability and extended coverage with respect to all the properties
owned directly or indirectly by the Partnership. In the opinion of management of
the registrant, the properties are adequately insured.
2
Competition
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The Partnership will experience competition for tenants from owners and managers
of competing projects which may include the general partners and their
affiliates. As a result, the Partnership may be required to provide free rent,
reduced charges for tenant improvements and other inducements, all of which may
have an adverse impact on results of operations. At the time the Partnership
elects to dispose of its properties, the Partnership will also be in competition
with sellers of similar properties to locate suitable purchasers for its
properties.
ITEM 2. PROPERTIES.
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The Partnership owns interests in nine properties through its ownership in joint
ventures of which three are office buildings and six are retail centers. The
Partnership does not have control over the operations of the joint ventures,
however, it does exercise significant influence. Accordingly, investment in
joint ventures is recorded on the equity method. As of December 31, 1996, the
seven properties that are in operation had an occupancy rate of 89.2%. As of
December 31, 1995, the four properties that were in operation had an occupancy
rate of 89.6%.
The following table shows lease expirations during each of the next ten years
for all leases as of December 31, 1996, assuming no exercise of renewal options
or termination rights:
Partnership's Percentage of
Share of Total
Number of Annualized Annualized Percentage of Annualized
Year of Lease Leases Square Feet Gross Base Gross Base Total Square Gross Base
Expiration Expiring Expiring Rent (1) Rent Feet Expiring Rent
- ----------------------------------------------------------------------------------------------------------------------------
1997 8 13,330 133,817 14,332 4.63% 3.41%
1998 2 3,000 31,597 3,384 1.04% 0.81%
1999 10 17,495 262,276 116,384 6.08% 6.69%
2000 2 4,300 52,976 16,275 1.49% 1.35%
2001 8 18,289 291,729 141,564 6.35% 7.44%
2002 2 2,488 37,754 14,605 0.86% 0.96%
2003 0 0 0 0 0.00% 0.00%
2004 0 0 0 0 0.00% 0.00%
2005 (2) 3 67,529 718,353 308,869 23.46% 18.32%
2006 (3) 5 161,379 2,391,891 938,048 56.07% 61.01%
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40 287,810 $ 3,920,393 $ 1,553,460 100.00% 100.00%
(1) Average monthly gross rent over the life of the lease, annualized.
(2) Primarily expiration of CH2M Hill lease, Gainesville, Florida.
(3) Reflects expirations of Marathon Building, BellSouth, and Bertucci's.
3
The following describes the properties in which the Partnership owned an
interest as of December 31, 1996:
FUND V-VI-VII JOINT VENTURE
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On September 8, 1994, the Partnership, Wells Real Estate Fund V, L.P. ("Wells
Fund V") and Wells Real Estate Fund VI, L.P. ("Wells Fund VI"), both of which
are Georgia public limited partnerships affiliated with the Partnership through
common general partners, entered into a Joint Venture Agreement known as Fund V,
Fund VI and Fund VII Associates (the "Fund V-VI-VII Joint Venture"). The
investment objectives of Wells Fund V and Wells Fund VI are substantially
identical to those of the Partnership. The Partnership owns an interest in the
following property through the Fund V-VI-VII Joint Venture:
The Marathon Building
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On September 16, 1994, the Fund V-VI-VII Joint Venture purchased a three-story
office building for a purchase price of $8,250,000, excluding acquisition costs,
containing approximately 76,000 rentable square feet, located on approximately
6.2 acres of land in Appleton, Wisconsin (the "Marathon Building"). The funds
used by the Fund V-VI-VII Joint Venture to acquire the Marathon Building were
derived from capital contributions made by the Partnership, Wells Fund V and
Wells Fund VI totaling $3,470,958, $1,337,505, and $3,470,958, respectively, for
total contributions to the Fund V-VI-VII Joint Venture of $8,279,421 including
acquisition costs. The Partnership owns an approximately 42% equity interest in
the Fund V-VI-VII Joint Venture.
The entire Marathon Building is leased to Jaakko Poyry Fluor Daniel for a period
of twelve years, three and one-half months, with options to renew the lease for
two additional five-year periods. The annual base rent is $910,000. The current
lease expires on December 31, 2006. The lease agreement is a net lease in that
the tenant is responsible for the operational expenses including real estate
taxes.
The occupancy rate at the Marathon Building was 100% for 1996, 1995, and the
last three and one-half months of 1994. The average annual rental per square
foot in the Marathon Building was $12.13 for 1996, 1995 and 1994, the first year
of ownership.
FUND VI - FUND VII JOINT VENTURE
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On December 9, 1994, the Partnership and Wells Fund VI entered into a Joint
Venture Agreement known as Fund VI and Fund VII Associates ("Fund VI-Fund VII
Joint Venture"). As of December 31, 1996, the Partnership contributed $3,316,278
and Wells Fund VI had contributed $2,467,907, including its cost to acquire
land, to the Fund VI-Fund VII Joint Venture for the acquisition and development
of the Stockbridge Village III and the Stockbridge Village I Expansion. As of
December 31, 1996, the Partnership's equity interest in the Fund VI-VII Joint
Venture was approximately 57%, and Wells Fund VI's equity interest in the Fund
VI-VII Joint Venture was approximately 43%. It is anticipated that the
Partnership will contribute the remaining approximately $40,000 needed to
complete Stockbridge Village III. Following such additional funding from the
Partnership, it is estimated that the Partnership's equity interest in the Fund
4
VI-VII Joint Venture will be approximately 58%, and Wells Fund VI's equity
interest will be approximately 42% once the project is completed. The
Partnership owns interests in the following two properties through the Fund
VI-Fund VII Joint Venture:
Stockbridge Village III
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In April 1994, Wells Fund VI purchased 3.27 acres of real property located on
the north side of Georgia State Route 138 at Mt. Zion Road, Clayton County,
Georgia for a cost of $1,015,673. This tract of land is located directly across
Route 138 from the Stockbridge Village Shopping Center which was developed and
is owned by an affiliate of the Partnership. On December 9, 1994, Wells Fund VI
contributed the property as a capital contribution to the Fund VI - Fund VII
Joint Venture.
As of December 31, 1996, the Partnership had contributed $1,866,278 and Wells
Fund VI had contributed $1,017,907 to the Fund VI-Fund VII Joint Venture for the
acquisition and development of the Stockbridge Village III Property. As of
December 31, 1996, the Partnership's equity interest in the Fund VI-Fund VII
Joint Venture was approximately 57%, and Wells Fund VI's equity interest in the
Fund VI-Fund VII Joint Venture was approximately 43%.
Kenny Rogers Roasters is a 3,200 square foot restaurant which was completed in
March 1995, at a cost of approximately $400,000 excluding land. The term of the
lease is for nine years and eleven months commencing March 1, 1995. The initial
annual base rent payable is $82,320. In the fifth year, the annual base rent
payable increases to $87,600.
Construction began in January, 1995, on a second out-parcel building containing
approximately 15,000 square feet for approximately $1,500,000 excluding land.
Construction was substantially completed in October, 1995. In October, 1995,
Damon's Ribs occupied 6,500 square feet. The initial annual base rent is
$102,375 through March, 2001 and $115,375 thereafter.
The occupancy rate at the Stockbridge Village III Project was 87% in 1996 and
71% in 1995, the first year of occupancy. The average effective annual rental
per square foot at the Stockbridge Village III Project was $14.15 for 1996 and
$4.85 for the partial year of occupancy in 1995.
Stockbridge Village I Expansion
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On June 7, 1995, the Fund VI-Fund VII Joint Venture purchased 3.38 acres of real
property located in Clayton County, Georgia for a total price of approximately
$718,000. The Stockbridge Village I Expansion consists of a multi-tenant
shopping center containing approximately 29,000 square feet. Construction was
substantially complete in April, 1996, with Cici's Pizza occupying a 4,000
square foot restaurant. The term of the lease is for 9 years and 11 months
commencing in April, 1996. The initial annual base rent is $48,000. In the third
year, the annual base rent increases to $50,000, in the sixth year to $52,000,
and in the ninth year to $56,000. Four additional tenants have occupied 6,400
square feet at the property in 1996. Negotiations are being conducted to lease
the remaining space.
5
As of December 31, 1996, the Partnership contributed a total of $1,450,000 and
Wells Fund VI had contributed a total of $1,450,000 for a total contribution of
approximately $2,900,000 toward the development and construction of the
Stockbridge Village I Expansion.
The occupancy rate at the Stockbridge Village 1 Expansion was 36% for 1996, the
first year of occupancy. The average effective annual rental per square foot was
$2.69 for 1996.
FUND II-III-VI-VII JOINT VENTURE/HOLCOMB BRIDGE ROAD PROJECT
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On January 10, 1995, the Partnership, Fund II-Fund III Joint Venture, and Wells
Fund VI entered into a Joint Venture Agreement known as Fund II, III, VI and VII
Associates ("Fund II-III-VI-VII Joint Venture"). The Fund II-Fund III Joint
Venture is a joint venture between Wells Real Estate Fund III, L.P., a Georgia
public limited partnership having Leo F. Wells, III and Wells Capital, Inc. as
general partners, and an existing joint venture (the "Fund II-Fund II-OW Joint
Venture") formed by Wells Real Estate Fund II ("Wells Fund II"), a Georgia
public limited partnership having Leo F. Wells, III and Wells Capital, Inc. as
general partners, and Wells Real Estate Fund II-OW ("Wells Fund II-OW"), a
Georgia public limited partnership having Leo F. Wells, III and Wells Capital,
Inc. as general partners. The investment objectives of Wells Fund II, Wells Fund
II-OW, Wells Fund III and Wells Fund VI are substantially identical to those of
the Partnership.
In January 1995, the Fund II-Fund III Joint Venture contributed to the Fund
II-III-VI-VII Joint Venture approximately 4.3 acres of land at the intersection
of Warsaw Road and Holcomb Bridge Road in Roswell, Fulton County, Georgia (the
"Holcomb Bridge Road Property") including land improvements. Development is
substantially complete on two buildings containing a total of approximately
49,500 square feet.. Nine tenants occupied the 880 Holcomb Bridge Property as of
December 31, 1996, for an occupancy rate of 63%. The average effective annual
rental was $9.87 per square foot for 1996.
As of December 31, 1996, Fund II and Fund III Joint Venture had contributed
$1,729,116 in land and improvements for an equity interest of approximately
25.2%, Wells Fund VI had contributed $1,699,846 for an equity interest of
approximately 26.0%, and the Partnership had contributed $3,217,154 for an
equity interest of approximately 48.8%. The total cost to develop the Holcomb
Bridge Road Property is currently estimated to be approximately $5,100,000,
excluding land. It is anticipated that of the remaining cost of approximately
$183,000, $100,000 will be contributed by Wells Fund VI and $83,000 by Wells
Fund VII, after which the equity interests in the Fund II-III-VI-VII Joint
Venture will be 48.3% for the Partnership, 26.4% for Wells Fund VI, and 25.3%
for the Fund II-Fund III Joint Venture. The Partnership and Wells Fund VI have
reserved sufficient funds for this purpose..
FUND VII - FUND VIII JOINT VENTURE
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On February 10, 1995, the Partnership and Wells Real Estate Fund VIII, L.P.
("Wells Fund VIII"), a Georgia public limited partnership affiliated with the
Partnership through common General Partners, entered into a Joint Venture
Agreement known as Fund VII and Fund VIII Associates (the "Fund VII - Fund VIII
Joint Venture"). The investment objectives of Wells Fund
6
VIII are substantially identical to those of the Partnership. The Partnership
holds an approximate 38% equity interest in the Fund VII - Fund VIII Joint
Venture which owns and operates an office building and a retail/office building
as described below. As of December 31, 1996, the Partnership had contributed
$2,448,924 and Wells Fund VIII had contributed $4,002,732 for a total cost of
$6,451,656 to the Fund VII - Fund VIII Joint Venture for the acquisition and
development of the property. Although the ultimate percentages of ownership have
not yet been finalized, it is currently anticipated that the remaining cost of
approximately $128,000 in the Gainesville Property and $76,000 in the Hannover
Property will be contributed by the Wells Fund VIII, in which event upon
completion, the Partnership will own an approximate 36% equity interest in the
Fund VII - Fund VIII Joint Venture.
The Hannover Property
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On April 1, 1996, the Partnership contributed 1.01 acres of land located in
Clayton County, Georgia, and improvements thereon, valued at $512,000, to the
Fund VII-Fund VIII Joint Venture for the development of a 12,040 square foot,
single story combination retail/office building. As of December 31, 1996, the
Partnership had funded approximately $900,001 for the development of the
Hannover property, in addition to the cost of the land, and Wells Fund VIII had
contributed $150,000 to the joint venture for the development of the property.
The total cost to develop this property, including land, is estimated to be
approximately $1,638,000, and Wells Fund VIII has reserved the remaining
approximately $76,000 to complete the development.
A nine year, eleven month lease has been signed with Moovies, Inc., a video sale
and rental store, to occupy 6,020 square feet. The annual base rent for the
initial term of 36 months is $93,310.00, for the second term of 36 months,
$102,340.00, for the third term of 36 months, $111, 370.00, and the final term
of eleven months, $110,367.00. The lease provides for two five year extensions
at market rate. The tenant, which provided its own build-out from the existing
shell, moved into the building and opened for business June 22, 1996. The
lease will expire in 2006.
The average effective annual rental per square foot at the Hannover Property was
$8.14 for 1996, the first year of occupancy. The occupancy rate for 1996 was
50%.
Gainesville Property
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The Partnership made an initial contribution to the Fund VII - Fund VIII Joint
Venture of $677,534, which constituted the total purchase price and all other
acquisition and development costs expended by the Fund VII - Fund VIII Joint
Venture for the purchase of a 5.0 acre parcel of land in Gainesville, Alachua
County, Florida. Construction of a 62,975 square foot office building
containing 61,468 rentable square foot was completed in December, 1995. It is
anticipated that the total cost of the building will be approximately $5,017,000
after the remaining unoccupied tenant space is completed. The average effective
annual rental per square foot at the Gainesville property was $8.69 for 1996 and
$8.63 for 1995. Occupancy rate for 1996 and 1995 was 93.5%.
7
A 9 year, 11 month lease, to occupy 57,457 square feet has been signed with CH2M
Hill, Engineers, Planners, Economists, Scientists, with an option to extend for
an additional five year period. The annual base rent during the initial term
from 1996 through 1997 is $530,313 payable in equal monthly installments of
$44,193. The annual rent for the extended term will be at market rate.
Assuming no options or termination rights, the lease with CH2M Hill will expire
in the year 2005.
As of December 31, 1996, the Partnership had contributed $1,036,923 and Wells
Fund VIII had contributed $3,852,732 to the Fund VII - Fund VIII Joint Venture
toward the completion of this project..
FUND VI-VII-VIII JOINT VENTURE
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On April 17, 1995, the Partnership, Wells Fund VIII and Wells Fund VI formed a
joint venture known as the Fund VI, Fund VII and Fund VIII Associates (the "Fund
VI-VII-VIII Joint Venture"). The investment objectives of Wells Fund VI and
Wells Fund VIII are substantially identical to those of the Partnership. As of
December 31, 1996, the Partnership had contributed approximately $5,932,312 for
an approximately 36% equity interest in the Fund VI-VII-VIII Joint Venture which
is developing an office building in Jacksonville, Florida and a multi-tenant
retail center in Clemmons, Forsyth County, NC. As of December 31, 1996, Wells
Fund VI contributed $6,067,688 for an equity interest in the Fund VI-VII-VIII
Joint Venture of approximately 36%, and Wells Fund VIII had contributed
approximately $4,700,000 for an equity interest in the Fund VI-VII-VIII Joint
Venture of approximately 28%. The total cost to complete both properties is
anticipated to be approximately $17,700,000. Although the ultimate percentages
of equity interests in the Fund VI-VII-VIII Joint Venture have not yet been
finally determined, it is anticipated that Wells Fund VIII will contribute the
remaining cost of approximately $1,000,000 needed to complete construction of
both projects, in which event the ultimate equity interests in the Fund VI-VII-
VIII Joint Venture of the Partnership, Wells Fund VI and Wells Fund VIII would
be approximately 34%, 34%, and 32%, respectively.
BellSouth Property
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On April 25, 1995, the Fund VI-VII-VIII Joint Venture purchased a 5.55 acre
parcel of land in Jacksonville, Florida for a total of $1,245,059 including
closing costs. In May 1996, the 92,964 square foot office building was completed
with BellSouth Advertising and Publishing Corporation, a subsidiary of BellSouth
Company, occupying approximately 66,333 square feet and American Express Travel
Related Services Company, Inc. occupying approximately 22,607 square feet.
BellSouth occupied an additional 2,900 square feet in December, 1996. The land
purchase and construction costs totaling approximately $9,000,000 were funded by
capital contributions of $3,500,000 by the Partnership, $3,500,000 by Wells Fund
VI, and $2,000,000 by Wells Fund VIII.
8
The BellSouth lease is for a term of nine years and eleven months with an option
to extend for an additional five-year period at market rate. The annual base
rent during the initial term is $1,094,426 during the first five years and
$1,202,034 for the balance of the initial lease term. The American Express
lease is for a term of five years at an annual base rent of $369,851. BellSouth
and American Express are required to pay additional rent equal to their shares
of operating expenses during their respective lease terms.
The average effective annual rental per square foot at the BellSouth Property
was $14.15 for 1996, the first year of occupancy. The occupancy rate was 100%
for 1996.
Tanglewood Commons Shopping Center
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On May 31, 1995, the Fund VI-VII-VIII Joint Venture purchased a 14.683 acre
tract of real property located in Clemmons, Forsyth County, North Carolina. The
Fund VI-VII-VIII Joint Venture is constructing one large strip shopping center
building containing approximately 81,000 gross square feet on a 12.48 acre
tract. The remaining 2.2 acre portion of the property consists of four out-
parcels which have been graded and will be held for future development. As of
December 31, 1996, the Partnership had contributed $2,432,312, Wells Fund VI had
contributed $2,567,688, and Wells Fund VIII had contributed $2,700,000 for the
development of this project.
Total cost and expenses to be incurred by the Fund VI-VII-VIII Joint Venture for
the acquisition, development, construction and completion of the shopping center
are anticipated to be approximately $8,700,000. Norcom Development, Inc. is
supervising, managing and coordinating the design and construction of the
property. Shook Design Group, Inc. is the architect, and John S. Clark and
Company is the general contractor. Construction of the project began in March,
1996 and is scheduled to be substantially completed in the first quarter of
1997.
Harris Teeter, Inc., a regional supermarket chain, executed a lease for a
minimum of 45,000 square feet with an initial term of 20 years with extension
options of four successive five year periods with the same terms as the initial
lease. The annual base rent during the initial term is $488,250. In addition,
Harris Teeter has agreed to pay percentage rents equal to one percent of the
amount by which Harris Teeter's gross sales exceed $35,000,000 for any lease
year.
9
FUND I-II-II-OW-VI-VII ASSOCIATES
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On August 1, 1995, the Partnership, Wells Real Estate Fund I, a Georgia public
limited partnership ("Wells Fund I"), the Fund II-Fund II-OW Joint Venture and
Wells Fund VI formed a joint venture known as Fund I-II-II-OW-VI-VII Associates
(the "Fund I-II-II-OW-VI-VII Joint Venture"), which was formed to own and
operate the Cherokee Project described below. Wells Fund I is a Georgia limited
partnership having Leo F. Wells, III and Wells Capital, Inc., as general
partners. The investment objectives of Wells Fund I, the Fund II-Fund II-OW
Joint Venture and Wells Fund VI are substantially identical to those of the
Partnership.
CHEROKEE PROPERTY/FUND I-II-II-OW-VI-VII JOINT VENTURE
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The Cherokee Property consists of a retail shopping center known as "Cherokee
Commons Shopping Center" located in metropolitan Atlanta, Cherokee County,
Georgia (the "Cherokee Property"). The Cherokee Property consists of
approximately 103,755 net leasable square feet.
On June 30, 1987, the Partnership acquired an interest in the Cherokee Property
through a joint venture (the "Cherokee Joint Venture") between the Wells Fund
II-Fund II-OW Joint Venture and Wells Fund I.
As of December 31, 1996, Wells Fund I had contributed property with a book value
of $2,139,900, the Fund II-Fund II-OW Joint Venture had contributed property
with a book value of $4,860,100, Wells Fund VI had contributed cash in the
amount of $953,798 and Wells Fund VII had contributed cash in the amount of
$953,798 to the Fund I-II -II-OW-VI-VII Joint Venture. As of December 31, 1996,
the equity interests in the Fund I-II-II-OW-VI-VII Joint Venture were
approximately as follows: Wells Fund I - 24%, Fund II-Fund II-OW Joint Venture
- - 54%, Wells Fund VI - 11% and the Partnership - 11%.
The Cherokee Property is anchored by a 67,115 square foot lease with Kroger
Food/Drug which expires in 2011. Kroger's original lease was for 45,528 square
feet. In 1994, Kroger expanded to the current 67,115 square feet which is
approximately 65% of the total rentable square feet in the property. As of
December 31, 1996, the Cherokee Property was approximately 93% occupied by 19
tenants, including Kroger. Kroger, a retail grocery chain, is the only tenant
occupying ten percent or more of the rentable square footage. The other tenants
in the shopping center provide typical retail shopping services.
The Kroger lease provides for an annual rent of $392,915 which increased to
$589,102 on August 16, 1995 due to the expansion from 45,528 square feet to
67,115 square feet. The lease expires March 31, 2011 with Kroger entitled to
five successive renewals each for a term of five years at the same rental rate
as the original lease.
The occupancy rate at the Cherokee Property 93% in 1996, 94% in 1995, 91% in
1994, 89% in 1993, and 88% in 1992.
The average effective annual rental per square foot at the Cherokee Property was
$8.59 for 1996, $7.50 for 1995, $5.33 for 1994, $6.47 for 1993, and $6.46 for
1992.
10
ITEM 3. LEGAL PROCEEDINGS
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There were no material pending legal proceedings or proceedings known to be
contemplated by governmental authorities involving the Partnership during 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------- ---------------------------------------------------
No matters were submitted to a vote of the Limited Partners during the fourth
quarter of 1996.
11
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY
- --------- ---------------------------------------------------
HOLDER MATTERS
--------------
The offering for sale of Units in the Partnership terminated on January 5, 1995,
at which time the Partnership had 1,678,810 outstanding Class A Units held by a
total of 1,590 Limited Partners and 739,208 outstanding Class B Units held by a
total of 320 Limited Partners. The capital contribution per unit is $10.00.
There is no established public trading market for the Partnership's limited
partnership units, and it is not anticipated that a public trading market for
the units will develop. Under the Partnership Agreement, the General Partners
have the right to prohibit transfers of units.
Cash distribution from Net Cash from Operations are distributed to the Limited
Partners on a quarterly basis unless Limited Partners elect to have their cash
distributions paid monthly. Net Cash from Operations is defined in the
Partnership Agreement as Cash Flow less adequate cash reserves for other
obligations of the Partnership for which there is no provision. Under the
Partnership Agreement, distributions are allocated first to the Limited Partners
holding Class A Units (and limited partners holding Class B Units that have
elected a conversion right that allows them to share in the distribution rights
of limited partners holding Class A Units) until they have received 10% of their
adjusted capital contributions, as defined. Cash available for distribution is
then distributed to the General Partners until they have received an amount
equal to 10% of cash distributions. Any remaining cash available for
distribution is split between the Limited Partners holding Class A Units and the
General Partners in a ratio of 90% and 10% respectively. No distributions will
be made to the Limited Partners holding Class B Units. Holders of Class A Units
will, except in limited circumstances, be allocated none of the Partnership's
Net Loss, depreciation, amortization and cost recovery deductions. These
deductions will be allocated to Class B Units until their Capital account
balances have been reduced to zero. Cash distributions made to Limited Partners
holding Class A Units (and Limited Partners holding Class B Units that have
elected a conversion right) during 1995 and 1996 were as follows:
Per Class A Per Class A Per Class B Per Class B
Distributions for Unit Investment Income Unit Unit Unit
Quarter Ended Total Cash Distributed Return of Capital Return of Capital General Partner
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, 1995 $250,185 $0.15 $0.00 $0.00 $0.00
June 30, 1995 $239,098 $0.14 $0.00 $0.00 $0.00
September 30, 1995 $227,175 $0.14 $0.00 $0.00 $0.00
December 31, 1995 $189,753 $0.11 $0.00 $0.00 $0.00
March 31, 1996 $181,535 $0.11 $0.00 $0.00 $0.00
June 30, 1996 $193,460 $0.10 $0.00 $0.00 $0.00
September 30, 1996 $224,935 $0.12 $0.00 $0.00 $0.00
December 31, 1996 $297,534 $0.17 $0.00 $0.00 $0.00
12
The fourth quarter distribution was accrued for accounting purposes in 1996, and
was not actually paid to Limited Partners holding Class A Units until February
1997. The General Partners anticipate that cash distributions to Limited
Partners holding Class A units will continue in 1997 at a level at least
comparable with 1996 cash distributions on an annual basis.
ITEM 6. SELECTED FINANCIAL DATA
- --------- -----------------------
The following sets forth a summary of the selected financial data for the nine
months ended December 31, 1994 and the twelve months ended December 31, 1995 and
1996.
1996 1995 1994
---------------------------------------
Total Assets $20,312,730 $20,830,683 $20,193,840
Total Revenues 543,291 925,246 286,371
Net Income 452,776 804,043 203,263
Net Loss Allocated to
General Partners 0 (280) (220)
Net Income Allocated to
Class A Limited Partners 1,062,605 950,826 233,337
Net Loss Allocated to
Class B Limited Partners (609,829) (146,503) (29,854)
Net Income per Weighted Average (1)
Class A Limited Partner Unit .62 .57 .29
Net Loss per Weighted Average (1)
Class B Limited Partner Unit (.98) .20 (.09)
Cash Distributions per Weighted Average (1)
Class A Limited Partner Unit:
Investment Income .50 .55 .28
Return of Capital .00 .00 .00
(1) The weighted average unit is calculated by averaging units over the period
they are outstanding during the time units are still being purchased by
Limited Partners in the Partnership.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- --------- --------------------------------------------------
CONDITIONS AND RESULTS OF OPERATION
-----------------------------------
The following discussion and analysis should be read in conjunction with the
Selected Financial Data and the accompanying financial statements of the
Partnership and notes thereto.
This Report contains forward-looking statements, within the meaning of Section
27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of
1934, including discussion and analysis of the financial condition of the
Partnership, anticipated capital expenditures required to complete certain
projects, amounts of cash distributions anticipated to be distributed to Limited
Partners in the future and certain other matters. Readers of this Report should
be aware that there are various factors that could cause actual results to
differ materially from any forward-looking statement made in this Report, which
include construction costs which may exceed estimates, construction delays,
lease-up risks, inability to obtain new tenants upon the expiration of existing
leases, and the potential need to fund tenant improvements or other capital
expenditures out of operating cash flow.
RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITIONS
- ---------------------------------------------------------
General
- -------
As of December 31, 1996, the developed properties owned by the Partnership were
89% occupied. Depreciation expense increased from 1995 to 1996 due to a change
in the estimated useful lives of buildings and improvements from 40 years to 25
years which became effective in the fourth quarter of 1995. For further
discussion of depreciation expense, please refer to the notes to the
accompanying financial statements.
Gross revenue of the Partnership decreased to $543,291 in 1996 from $925,246 in
1995 due primarily to the decreased interest income on uninvested funds. Gross
revenues were $925,246 for the fiscal year ended December 31, 1995, as compared
to $286,371 for the nine months ended December 31, 1994. The increase for 1995
over 1994 was due primarily to rental income from the Marathon Building which
was leased for a full year in 1995.
Expenses of the Partnership decreased in 1996 approximately $30,000 due
primarily to the decrease in administrative expenses. Expenses remained
relatively stable for the twelve months ended December 31, 1995 when compared to
the nine month annualized expenses of 1994.
Net income of the Partnership was $452,776 for fiscal year ended December 31,
1996, compared to $804,043 for 1995. The decrease in net income was mainly the
result of decreased interest earned. Net income was $804,043 for the fiscal
year ended December 31, 1995, as compared to $203,263 for the nine months ended
December 31, 1994. The increase in net income for 1995 over 1994 was due
primarily to the increased rental revenues for 1995 over 1994.
14
The Partnership made cash distributions to the Limited Partners holding Class A
Units of $0.50 per unit for fiscal year ended December 31, 1996, $0.55 per Unit
for the fiscal year ended December 31, 1995 and $0.28 per Unit for the nine
months ended December 31, 1994. No cash distributions were made to the Limited
Partners holding Class B Units for the fiscal years ended December 31, 1996,
December 31, 1995 and December 31, 1994. Distributions accrued for the fourth
quarter of 1996 were paid in February, 1997.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 121, "Accounting for the impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of", which is
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
established standards for determining when impairment losses on long-lived
assets have occurred and how impairment losses should be measured. The joint
ventures adopted SFAS No. 121, effective January 1, 1995. The impact of
adopting SFAS No. 121 was not material to the financial statements of the joint
ventures.
PROPERTY OPERATIONS
- -------------------
As of December 31, 1996, the Partnership's percentage ownership in properties
was as follows: 10.7% in the Cherokee Property, 41.7% in the Marathon Property,
57.2% in the Stockbridge Village III Property, 57.2% in the Stockbridge Village
I Expansion, 37.9% in the CH2M Hill Property, 48.8% in the Holcomb Bridge Road
Property, 35.5% in the BellSouth Property, and 37.95% in the Hannover Property.
As of December 31, 1996, the Partnership owned interests in the following
operational properties:
The Marathon Building/Fund V-VI-VII Joint Venture
- -------------------------------------------------
For the Year Ended December 31 Four Months Ended December 31
------------------------------ ------------------------------
1996 1995 1994
---- ---- ----
Revenues:
Rental Income $971,017 $971,017 $283,213
Expenses:
Depreciation $350,585 $243,428 $ 61,016
Management & Leasing Expenses 38,841 38,841 11,329
Other Operating Expenses 14,636 25,557 22,085
-------- -------- --------
404,062 307,826 94,430
-------- -------- --------
Net Income $566,955 $663,191 $188,783
======== ======== ========
Occupied % 100.00% 100.00% 100.00%
Partnership's Ownership % in Property 41.71% 41.71% 41.71%
Cash Distributed to Partnership $358,274 $353,719 $ 96,128
Net Income Allocated to the Partnership $236,477 $276,617 $ 78,799
15
Rental income for 1996 and 1995 was the same. Since the Marathon Building was
purchased in September 1994, comparative income and expense figures for the
years ended December 31, 1995, and December 31, 1994, are not available.
Depreciation expense increased for 1996 compared to 1995 due to the recording of
a full year's expense reflecting the change in estimated useful lives which was
made beginning in fourth quarter of 1995. In 1995, there was an increase in
depreciation expense, as compared to 1994, due to the change in estimated useful
lives of buildings and improvements as previously discussed under "General"
section of "Results of Operations and Changes in Financial Conditions". Other
operating expenses decreased from $25,557 in 1995 to $14,636 in 1996 due
primarily to payment of legal and administrative expenses in 1995 associated
with the first year of operating the property. Real estate taxes and all
operating expenses for the building are the responsibility of the tenant.
The Partnership has an equity interest of 41.71% in the Marathon Property
through is ownership in the Fund V-VI-VII Joint Venture.
For comments on the general competitive conditions to which the property may be
subject, See Item 1, Business, page 2. For additional information on tenants,
etc., refer to Item 2, Properties, Page 3.
Stockbridge Village III/Fund VI - Fund VII Joint Venture
- --------------------------------------------------------
For the Year Ended December 31 Eight Months Ended December 31
------------------------------- -------------------------------
1996 1995
---- ----
Revenues:
Rental Income $257,571 $88,239
Expenses:
Depreciation $ 84,642 $28,273
Management & Leasing Expenses 51,107 8,999
Other Operating Expenses 59,168 43,082
-------- -------
194,917 80,354
-------- -------
Net Income $ 62,654 $ 7,885
======== =======
Occupied % 87.00% 71.00%
Partnership's Ownership % in the
Fund VI - Fund VII Joint Venture 57.20% 56.10%
Cash Distributed to Partnership $ 87,697 $ 0
Net Income Allocated to the Partnership $ 35,808 $ 3,778
In April 1994, Wells Fund VI purchased 3.27 acres of land located in Clayton
County, Georgia. On December 9, 1994, Fund VI contributed the Stockbridge
Village III property ("Stockbridge Village III") as a capital contribution to
the Fund VI - Fund VII Joint Venture.
16
Construction was completed on a 3,200 square foot restaurant in March, 1995.
This retail building is leased to Kenny Rogers Roasters, a restaurant, for a
term of nine years and eleven months. The initial base rent is $82,320 with an
increase in the fifth year to $87,600 annually.
The second multi-tenant retail building containing approximately 15,000 square
feet was completed in October, 1995. Damon's Clubhouse, a restaurant, occupied
approximately 6,732 square feet beginning in October. The Damon's lease is for
a term of nine years and eleven months with initial base rent of $102,375 for
five years and increases to $115,375 for the remainder of the lease. Four
additional tenants have occupied approximately 5,850 square feet as of December
31, 1996.
The Stockbridge Village III Project incurred $23,026 for 1996 and $13,368 for
1995 property taxes.
The total cost to complete these buildings is anticipated to be approximately
$2,924,000. As of December 31, 1996, Wells Fund VI contributed $1,017,907,
including land acquisition costs, and the Partnership contributed $1,866,278 for
the acquisition and development of the Stockbridge Village III Project. Wells
Fund VII has reserved the approximately $40,000 estimated to be required for the
completion of Stockbridge Village III. The Partnership holds an approximately
57% equity interest in the Fund VI - Fund VII Joint Venture and Wells Fund VI
equity interest was approximately 43%.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
Stockbridge Village I Expansion/Fund VI - Fund VII Joint Venture
- ----------------------------------------------------------------
Nine Months Ended December 31
-----------------------------
1996
----
Rental Income $ 59,006
Expenses:
Depreciation 52,780
Management and Leasing Expenses 3,238
Other Operating Expenses 28,810
--------
84,828
Net Loss $(25,822)
========
Occupied % 36.00%
Partnership Ownership % in the
Fund VI - Fund VII Joint Venture 57.20%
Cash Distribution to the Partnership $ 0
Net Loss Allocated to the Partnership $(14,750)
17
On June 7, 1995, the Fund VI - Fund VII Joint Venture purchased 3.38 acres of
real property located in Clayton County, Georgia. The Stockbridge Village I
Expansion consists of a multi-tenant shopping center containing approximately
29,000 square feet. The majority of construction was completed in April, 1996
with Cici's Pizza tenants occupying a 4,000 square foot restaurant. The term of
the lease is for nine years and eleven months commencing April, 1996. The
initial base rent is $48,000. In the third year, annual base rent increases to
$50,000, in the sixth year to $52,000, and in the ninth year to $56,000. Four
additional tenants have occupied 6,400 square feet at the property as of
December 31, 1996. Negotiations are being conducted to lease the remaining
space.
Since this property opened in 1996, there is no comparable financial information
for prior years.
The Stockbridge Village I Expansion incurred $9,182 for 1996 property taxes.
It is projected that no additional funding will be required to complete tenant
build-out by the Partnership or Wells Fund VI.
For comments on the general competitive condition to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc., refer to Item 2, Properties, page 3.
Holcomb Bridge Road Property/Fund II-III-VI-VII Joint Venture
- -------------------------------------------------------------
Nine Months Ended December 31
-----------------------------
1996
----
Revenues:
Rental Income $255,062
Expenses:
Depreciation 181,798
Management and Leasing Expenses 28,832
Other Operating Expenses 101,600
--------
312,230
--------
Net Loss $(57,168)
========
Occupied % 62.90%
Partnership Ownership % in the
Fund II-III-VI-VII Joint Venture 48.80%
Cash Distribution to the Partnership $ 37,237
Net Loss Allocated to the Partnership $(27,597)
18
Since the Holcomb Bridge Property was under construction and not occupied until
first quarter 1996, comparative income and expense figures for the years ending
December 31, 1995 and 1994 are not available.
In January 1995, the Fund II - Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road to the Fund II, III, VI
and VII Joint Venture. Development is being completed on two buildings with a
total of approximately 49,500 square feet. As of December 31, 1996, nine
tenants occupied approximately 31,144 square feet of space in the retail/office
building under leases of varying lengths.
As of December 31, 1996, Fund II-Fund III Joint Venture contributed $1,729,116
in land and improvements for an equity interest of approximately 25.2%, Wells
Fund VI contributed $1,699,846 for an equity interest of approximately 26.0%,
and the Partnership contributed $3,217,154 for an equity interest of
approximately 48.8% equity interest. The total costs to develop the Holcomb
Bridge Road Property is currently estimated to be approximately $5,100,000,
excluding land. It is anticipated that of the remaining cost of approximately
$183,000, $100,000 will be contributed by Wells Fund VI and $83,000 by the
Partnership, after which the equity interests in the property will be 48.3% for
the Partnership, 26.4% for Wells Fund VI, and 25.3% for the Fund II-Fund III
Joint Venture. The Partnership and Wells Fund VI have reserved sufficient funds
for this purpose.
Real estate taxes were $37,191 for 1996.
For comments on the general competitive condition to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc., refer to Item 2, Properties, page 3.
The Hannover Retail Center/Fund VII-Fund VIII Joint Venture
- -------------------------------------------------------------
Nine Months Ended December 31
-----------------------------
1996
----
Revenues:
Rental Income $ 48,988
Expenses:
Depreciation 31,391
Management and Leasing Expenses 4,424
Other Operating Expenses 28,812
--------
64,627
--------
Net Loss $(15,639)
========
Occupied % 50.17%
Partnership Ownership % in the
Fund VII - Fund VIII Joint Venture 37.95%
Cash Distribution to Partnership $ 3,520
Net Loss Allocated to the Partnership $ (5,936)
19
On April 1, 1996, Fund VII - Fund VIII Joint Venture acquired a 1.01 acre tract
of land and a 12,000 square foot combination retail/office building known as the
Hannover Retail Center.
Moovies, Inc., a video sales and rental store, signed a nine year, eleven month
lease for 6,020 square feet and occupied the space and opened for business on
June 22, 1996. Accordingly, no comparative financial data is available for
prior years.
Real estate taxes were $9,650 for 1996.
For comments on the general competitive condition to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc., refer to Item 2, Properties, page 3.
Gainesville Property/Fund VII-Fund VIII Joint Venture
- -----------------------------------------------------
For the Year Ended December 31 One Month Ended December 31
------------------------------- ----------------------------
1996 1995
------------------------------- ----------------------------
Revenues:
Rental Income $534,276 $15,995
Expenses:
Depreciation $222,328 $18,091
Management & Leasing Expenses 80,258 960
Other Operating Expenses (1,380) 2,770
-------- -------
301,206 21,821
-------- -------
Net Income (Loss) $233,070 $(5,826)
======== =======
Occupied % 93.50% 93.50%
Partnership Ownership % in the
Fund VII-Fund VIII Joint Venture 37.95% 22.30%
Cash Distribution to Partnership $142,394 $ 2,735
Net Income (Loss) Allocated to
the Partnership $ 76,702 $(1,299)
In February, 1995, the Fund VII - Fund VIII Joint Venture acquired a 5.0 acre of
land located in Gainesville, Alachua County, Florida for the purpose of
constructing a 62,975 square foot (61,468 rentable square feet) office building.
A 9 year, 11 month lease to occupy 57,457 square feet was signed by CH2M Hill.
The annual base rent is $530,313 payable in equal monthly installments of
$44,193. The average effective annual rental rate at the Gainesville Property
was $9.22 per square foot. CH2M Hill occupied their portion of the building in
mid-December, 1995.
Real estate taxes were $75.00 for 1995, based on undeveloped land, and $79,235
for 1996.
20
For comments on the general competitive condition to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc., refer to Item 2, Properties, page 3.
BellSouth Property/Fund VI-VII-VIII Joint Venture
- -------------------------------------------------
Eight Months Ended December 31
------------------------------
1996
----
Revenues:
Rental Income $876,711
Interest Income 60,092
--------
936,803
--------
Expenses:
Depreciation 290,407
Management and Leasing Expenses 99,330
Other Operating Expenses 288,665
--------
678,402
--------
Net Income $258,401
========
Occupied % 100.00%
Partnership Ownership % in the
Fund VI, VII, VIII Joint Venture 35.50%
Cash Distribution to Partnership $170,963
Net Income Allocated to the Partnership $ 98,142
On April 25, 1995, the Fund VI-VII-VIII Joint Venture purchased 5.55 acres of
land located in Jacksonville, Florida. In May, 1996, the 92,964 square foot
office building was completed, with BellSouth Advertising and Publishing
Corporation occupying approximately 66,333 square feet and American Express
occupying approximately 22,607 square feet. Approximately 2,900 square feet of
additional space was occupied by BellSouth commencing in December, 1996,
bringing occupancy to 100%.
The initial term of the BellSouth lease is nine years and eleven months. The
annual base rent during the initial term is $1,048,061 for the first five years
and $1,150,878 for the balance of the initial lease term. The American Express
lease is for a term of five years at an annual base rent of $369,851. BellSouth
and American Express are required to pay additional rent equal to their share of
operating expenses during their respective lease terms.
21
Interest income was generated from construction dollars, not as yet funded on
construction, being invested in interest bearing accounts.
Since the building opened in May 1996, comparative income and expense figures
for the years ended December 31, 1995 and December 31, 1994 are not available.
The BellSouth Property incurred property taxes of $23,234 for 1996.
For comments on the general competitive condition to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc., refer to Item 2, Properties, page 3.
Cherokee Commons Shopping Center/Fund I-II-II-OW-VI and VII Joint Venture
- -------------------------------------------------------------------------
For the Year Ended December 31
--------------------------------
1996 1995 1994
-------- -------- ---------
Revenues:
Rental Income $890,951 $778,204 $ 552,823
Interest Income 73 180 50
-------- -------- ---------
891,024 778,384 552,873
Expenses:
Depreciation 429,419 277,099 172,583
Management and
Leasing Expenses 48,882 36,303 22,410
Other Operating Expenses 180,841 115,885 569,830
-------- -------- ---------
659,142 429,287 764,823
-------- -------- ---------
Net Income (Loss) $231,882 $349,097 $(211,950)
======== ======== =========
Occupied % 93.00% 94.00% 91.00%
Partnership Ownership % 10.70% 10.70% 0.00%
Cash Distribution to the
Partnership $ 72,510 $ 36,070 $ 0
Net Income Allocated
to the Partnership $ 24,830 $ 18,381 $ 0
Rental income increased in 1996 over 1995 due to the Kroger expansion which was
completed in November, 1994. Rental income for the year ended December 31, 1995
increased approximately $225,500 from the rental income for the year ended
December 31, 1994. This increase is due to excess rents relating to the Kroger
Expansion which, although completed in November of 1994, was billed
retroactively and paid in September, 1995. The decrease in occupancy is due to
the current vacancy of 2,380 square feet; however, a lease is being negotiated
for 1,200 square feet with anticipated occupancy in February, 1997. Operating
22
expenses of the property increased to $180,841 in 1996 from $115,885 in 1995.
The increase from 1995 to 1996 is due primarily to repairs and maintenance (roof
repairs, painting and tenant finish) and general and administrative expenses.
The decrease in operating expenses in 1995 over 1994 is due to retirement of
tenant improvements which resulted from the Kroger Expansion. The increase in
depreciation expense for 1996 as compared to 1995 and 1994 is a result of the
change in estimated useful lives of buildings and improvements which became
effective in the fourth quarter of 1995, as previously stated. Net income of
the property decreased to $231,882 in 1996 from $349,097 in 1995 and increased
from ($211,950) in 1994, due to the increase in operating expenses as discussed
above.
A lease amendment has been executed with Kroger expanding its existing store at
the Cherokee Commons Shopping Center from 45,528 square feet to 66,918 square
feet. In November, 1994, construction was completed on the Kroger expansion and
remodeling of the center. The total cost for both the Kroger expansion and
remodeling of the center was $2,807,367. The costs of this expansion were
funded in the following amounts: Wells Fund I, $94,679 and Fund II-Fund II-OW
Joint Venture $805,092 as of December 31, 1994; Wells Fund VI, $953,798, and the
Partnership, $953,798 as of December 31, 1996. The Partnership's ownership
percentage in the Cherokee Commons Shopping Center remained at 11.0% as of
December 31, 1996.
Real estate taxes were $63,696 for 1996, $63,694 for 1995, and $56,080 for 1994.
Since the Partnership did not make its initial capital contributions to the Fund
I - II - II-OW - VI-VII Joint Venture until August 1995, there were no cash
distributions made or net income allocated to the Partnership for 1994.
Allocations of cash distributions and net income to the Partnership began in
August of 1995.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
On April 6, 1994, the Partnership commenced an offering of up to $25,000,000 of
Class A or Class B Limited Partnership Units ($10.00 per unit) pursuant to a
Registration Statement on Form S-11 filed under the Securities Act of 1933. The
Partnership commenced active operations on April 26, 1994, when it received and
accepted subscriptions for 125,000 Units. The offering was terminated on
January 5, 1995, at which time the Partnership had sold 1,678,810 Class A Units
and 739,208 Class B Units, held by a total of 1,591 and 319 Limited Partners
respectively, for total Limited Partner capital contributions of $24,180,174.
After payment of $846,306 in acquisition fees and expense fees, payment of
$3,627,026 in selling commissions and organization and offering expenses and the
investment of the Partnership of $3,316,278 in the Fund VI-Fund VII Joint
Venture, $3,470,958 in the Fund V-VI-VII Joint Venture, $2,448,923 in the Fund
VII-Fund VIII Joint Venture, 5,932,312 in the Fund VI-VII-VIII Joint Venture,
$953,798 in the Fund I-II-II-OW-VI-VII Joint Venture, $3,217,154 in the Fund II-
III-VI-VII Joint Venture, and $2,547 in other acquisition expenses, the
23
Partnership was holding net offering proceeds of $364,872 of which $241,802 was
being held as working reserves and $123,070 is available in investment in
additional properties.
The Partnership's net cash used in operating activities decreased from $31,707
in 1995 to $10,805 in 1996 due to the decrease in expenses for printing and
administrative costs. The Partnership's net cash used in operating activities
of $31,707 in 1995 increased from net cash provided by operating activities of
$9,643 in 1994 due primarily to the increase in the Partnership's expenses for
professional fees and administration.
Net cash used in investing activities decreased from $14,971,002 in 1995 to
$736,960 due primarily to the decrease in investment in joint ventures and real
estate. Net cash used by investing activities increased to $14,971,002 in 1995
compared to $4,477,765 in 1994 due primarily to investment in joint ventures and
real estate coupled with a decrease in deferred project costs paid. Net cash
provided by financing activities decreased from $560,905 in 1995 to $0 in 1996,
and $20,023,392 in 1994 to $560,905 in 1995 due primarily to the decrease in
contributions received from Limited Partners.
The Partnership expects to continue to meet its short-term liquidity
requirements and budget demands generally through net cash provided by
operations which the Partnership believes will continue to be adequate to meet
both operating requirements and distributions to limited partners. At this
time, given the nature of the joint ventures in which the Partnership has
invested, there are no known improvements and renovations to the properties
expected to be funded from cash flow from operations.
The Partnership expects to make future real estate investments, directly or
through investments in joint ventures from limited partners' contributions.
It is anticipated that the Partnership will contribute approximately $40,000 to
the Fund VI-Fund VII Joint Venture for the completion of the Stockbridge Village
III Property and $83,000 to the Fund II-III-VI-VII Joint Venture for the
completion of the Holcomb Bridge Road Property, from Limited Partners' remaining
contributions.
Since properties are acquired on an all-cash basis, the Partnership has no
permanent long-term liquidity requirements.
Cash distributions of $0.50 per weighted average Unit were made to Class A
Limited Partners for the year ended December 31, 1996. The Partnerships
distributions for the fourth quarter of 1996 will be paid in February 1997 from
Net Cash from Operations. The Partnership anticipates that distributions will
continue to be paid on a quarterly basis from such sources on a level at least
consistent with 1996.
24
The Partnership is unaware of any known demands, commitments, events or capital
expenditures other than that which is required for the normal operations of its
properties that will result in the Partnership's liquidity increasing or
decreasing in any material way. The Partnership will fund any cash requirements
through operating cash flow.
INFLATION
- ---------
Real estate has not been affected significantly by inflation in the past three
years due to the relatively low inflation rate. It is common practice for the
Partnership to execute provisions in the majority of tenant leases to protect
the Partnership from the impact of inflation. These leases contain common area
maintenance charges (CAM charges), real estate tax and insurance reimbursements
on a per square foot basis, or in some cases, annual reimbursement of operating
expenses above a certain per square foot allowance. These provisions reduce the
Partnership's exposure to increases in costs and operating expenses resulting
from inflation. In addition, a number of the Partnership's leases are for terms
of less than five years which may permit the Partnership to replace existing
leases with new leases at higher base rental rates if the existing leases are
below market rate. There is no assurance, however, that the Partnership would
be able to replace existing leases with new leases at higher base rentals.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------- -------------------------------------------
The financial statements of the Registrant and supplementary data are detailed
under Item 14(a) and filed as part of the report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- --------- -------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
The Partnership's change in accountants during 1995 was previously reported in
the Partnership's Form 8-K dated September 11, 1995. There were no
disagreements with the Partnership's accountants or other reportable events
during 1996.
25
PART III
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP
- ---------- -----------------------------------
WELLS PARTNERS, L.P. Wells Partners, L.P. is a private Georgia limited
- --------------------
partnership formed on October 25, 1990. The sole General Partner of Wells
Partners, L.P. is Wells Capital, Inc., ("Capital") a Georgia Corporation. The
executive offices of Wells Capital, Inc. are located at 3885 Holcomb Bridge
Road, Norcross, Georgia 30092.
LEO F. WELLS, III. Mr. Wells is a resident of Atlanta, Georgia, is 53 years of
- -----------------
age and holds a Bachelor of Business Administration Degree in Economics from the
University of Georgia. Mr. Wells is the President and sole Director of Capital.
Mr. Wells is the 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. Mr. Wells is also currently the sole Director and
President of Wells Management Company, Inc., a property management company he
founded in 1983. In addition, Mr. Wells is the President and Chairman of the
Board of Wells Investment Securities, Inc., Wells & Associates, Inc., Wells
Management Company, Inc. and Wells Investment Securities, Inc. which are
affiliates of the General Partners. From 1980 to February 1985, Mr. Wells
served as Vice-President of Hill-Johnson, Inc., a Georgia corporation engaged in
the construction business. From 1973 to 1976, he was associated with Sax Gaskin
Real Estate Company and from 1970 to 1973, he was a real estate salesman and
property manager for Roy D. Warren & Company, an Atlanta real estate company.
26
ITEM 11. COMPENSATION OF GENERAL PARTNERS AND AFFILIATES
- ---------- -----------------------------------------------
The following table summarizes the compensation and fees paid to the General
Partners and their affiliates during the year ended December 31, 1996:
( A ) ( B ) ( C )
Name of Individual or Capacities in which served
Number in Group Form of Compensation Cash Compensation
- ------------------------------------------------------------------------------
Leo F. Wells, III General Partner $ 0.00
Wells Management Company, Property Manager - $ 103,785 (1)
Inc. Management & Leasing Fees
(1) The majority of these fees are not paid directly by the Partnership but are
paid by the joint venture entities which own properties for which the
property management and leasing services relate and include management and
leasing fees which were accrued for accounting purposes in 1996 but not
actually paid until January, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ---------- --------------------------------------------------------------
No Limited Partner is known by the Partnership to own beneficially more than 5%
of the outstanding units of the Partnership.
Set forth below is the security ownership of management as of February 28, 1997.
(2) (3)
(1) Name and Address of Amount and Nature of (4)
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- ---------------- ------------------- -------------------- ----------------
Class A Units Leo F. Wells, III 69.322 Units Less than 1%
(IRA, 401 (k) Plan)
No arrangements exist which would, upon operation, result in a change in control
of the Partnership.
27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------- ----------------------------------------------
The compensation and fees paid or to be paid by the Partnership to the General
Partners and their affiliates in connection with the operation of the
Partnership are as follows:
INTEREST IN PARTNERSHIP CASH FLOW AND NET SALE PROCEEDS
- -------------------------------------------------------
The General Partners will receive a subordinated participation in net cash flow
from operations equal to 10% of net cash flow from operations after the Limited
Partners holding Class A Units have received preferential distributions equal to
10% of their adjusted capital contribution. The General Partners will also
receive a subordinated participation in net sale proceeds and net financing
proceeds equal to 20% of residual proceeds available for distribution after the
Limited Partners holding Class B Units have received a return of their adjusted
capital contribution plus a 15% cumulative return on their adjusted capital
contribution; however, that in no event shall the General Partners receive in
the aggregate in excess of 15% of net sale proceeds and net financing proceeds
remaining after payments to Limited Partners from such proceeds of amounts equal
to the sum of their adjusted capital contributions plus a 6% cumulative return
on their adjusted capital contributions. The General Partners did not receive
any distributions from net cash flow from operations or net sale proceeds for
the year ended December 31, 1996.
PROPERTY MANAGEMENT AND LEASING FEES
- ------------------------------------
Wells Management Company, Inc., an affiliate of the General Partners, will
receive compensation for supervising the management of the Partnership
properties equal to the lesser of: (A)(i) 3% of the gross revenues for leasing
(aggregate maximum of 6%) plus a separate one-time fee for initial lease-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 cash 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; or (B) the
amounts charged by unaffiliated persons rendering comparable services in the
same geographic area. Wells Management Company, Inc. received $22,735 in
property management and leasing fees relating to the Partnership in 1995.
REAL ESTATE COMMISSIONS
- -----------------------
In connection with the sale of Partnership properties, the General Partners or
their affiliates may receive commissions not exceeding the lesser of (A) 50% of
the commissions customarily charged by other brokers in arm's-length
transactions involving comparable properties in the same geographic area or (B)
3% of the gross sales price of the property, and provided that payments of such
commissions will be made only after Limited Partners have received prior
distributions totaling 100% of their capital contributions plus a 6% cumulative
return on their adjusted capital contributions. No real estate commissions were
paid to the General Partners or affiliates for the year ended December 31, 1996.
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
- --------- ----------------------------------------------------
ON FORM 8-K
-----------
(a)1. Financial Statements
Information with respect to this Item is contained on Pages F-2 to F-43
of this Annual Report on Form 10-K.
(a)2. Financial Statement Schedule III
Information with respect to this Item begins on Page S-1 of this Annual
Report on Form 10-K.
(a)3. The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(b) No Reports on Form 8-K were filed with the Commission during the fourth
quarter of 1996.
(c) The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(d) See (a) 2 above.
29
SIGNATURES
----------
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 17th day of March,
1997.
WELLS REAL ESTATE FUND VII, L.P.
(Registrant)
By: /s/Leo F. Wells, III
--------------------
LEO F. WELLS, III
Individual General Partner and as President
of Wells Capital, Inc., the General Partner
of Wells Partners, L.P.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity as and on the date indicated.
Signature Title
- --------- -----
/s/Leo F. Wells, III Individual General Partner, March 17, 1997
- --------------------------- President and Sole Director of
Leo F. Wells, III Wells Capital, Inc.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRARS WHICH HAVE NOT BEEN REGISTERED PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material relating to an annual or other meeting of
security holders has been sent to security holders.
30
EXHIBIT INDEX
-------------
(Wells Real Estate Fund VII, L.P.)
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 such asterisked exhibit, there is shown below the
description of the previous filing. Exhibits which are not required for this
report are omitted.
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*3(a) Certificate of Limited Partnership of Wells Real Estate Fund VII,
L.P. (Exhibit 3(d) to Form S-11 Registration Statement of Wells
Real Estate Fund VI, L.P. and Wells Real Estate Fund VII, L.P.,
File No. 33-55908) N/A
*4(a) Agreement of Limited Partnership of Wells Real Estate Fund VII,
L.P. dated April 5, 1994 (Exhibit to Form 10-K of Wells Real Estate
Fund VII, L.P. for the fiscal year ended December 31, 1994, File
No. 0-25606) N/A
*4(b) First Amendment to Agreement of Limited Partnership of Wells Real
Estate Fund VII, L.P. dated April 5, 1994 (Exhibit to Form 10-K of
Wells Real Estate Fund VII, L.P. for the fiscal year ended December
31, 1994, File No. 0-25606) N/A
*10(a) Management Agreement dated April 5, 1994, between Wells Real Estate
Fund VII, L.P. and Wells Management Company, Inc. (Exhibit to Form
10-K of Wells Real Estate Fund VII, L.P. for the fiscal year ended
December 31, 1994, File No. 0-25606) N/A
*10(b) Leasing and Tenant Coordinating Agreement dated April 5, 1994,
between Wells Real Estate Fund VII, L.P. and Wells Management
Company, Inc. (Exhibit to Form 10-K of Wells Real Estate Fund VII,
L.P. for the fiscal year ended December 31, 1994, File No. 0-25606) N/A
*10(c) Custodial Agency Agreement dated April 1, 1994, between Wells Real
Estate Fund VII, L.P. and NationsBank of Georgia, N.A. (Exhibit
10(f) to Post-Effective Amendment No. 5 to Form S-11 Registration
Statement of Wells Real Estate Fund VI, L.P. and Wells Real Estate
Fund VII, L.P., File No. 33-55908) N/A
31
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*10(d) Joint Venture Agreement of Fund V, Fund VI and Fund VII Associates
dated September 8, 1994, among Wells Real Estate Fund V, L.P.,
Wells Real Estate Fund VI, L.P. and Wells Real Estate Fund VII,
L.P. (Exhibit 10(j) to Post-Effective Amendment No. 6 to Form S-11
Registration Statement of Wells Real Estate Fund VI, L.P. and Wells
Real Estate Fund VII, L.P., File No. 33-55908) N/A
*10(e) Agreement for the Purchase and Sale of Property dated August 24,
1994, between Interglobia Inc. - Appleton and NationsBank of
Georgia, N.A., as Agent for Fund V and Fund VI Associates (Exhibit
10(k) to Post-Effective Amendment No. 6 to Form S-11 Registration
Statement of Wells Real Estate Fund VI, L.P. and Wells Real Estate
Fund VII, L.P., File No. 33-55908) N/A
*10(f) Assignment and Assumption of Agreement for the Purchase and Sale of
Real Property dated September 9, 1994, between NationsBank of
Georgia, N.A., as Agent for Fund V and Fund VI Associates, and
NationsBank of Georgia, N.A., as Agent for Fund V, Fund VI and Fund
VII Associates (Exhibit 10(l) to Post-Effective Amendment No. 6 to
Form S-11 Registration Statement of Wells Real Estate Fund VI, L.P.
and Wells Real Estate Fund VII, L.P., File No. 33-55908) N/A
*10(g) Building Lease dated February 14, 1991, between Interglobia Inc. -
Appleton and Marathon Engineers/Architects/Planners, Inc. (included
as part of Exhibit D to Exhibit 10(k) to Post-Effective Amendment
No. 6 to Form S-11 Registration Statement of Wells Real Estate Fund
VI, L.P. and Wells Real Estate Fund VII, L.P., File No. 33-55908) N/A
32
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*10(h) Limited Guaranty of Lease dated January 1, 1993, by J. P. Finance
OY and Fluor Daniel, Inc. for the benefit of Interglobia Inc. -
Appleton (included as Exhibit B to Assignment, Assumption and
Amendment of Lease referred to as Exhibit 10(i) below, which is
included as part of Exhibit D to Exhibit 10(k) to Post-Effective
Amendment No. 6 to Form S-11 Registration Statement of Wells Real
Estate Fund VI, L.P. and Wells Real Estate Fund VII, L.P., File No.
33-55908) N/A
*10(i) Assignment, Assumption and Amendment of Lease dated January 1,
1993, among Interglobia Inc. - Appleton, Marathon
Engineers/Architects/Planners, Inc. and Jaakko Poyry Fluor Daniel
(included as part of Exhibit D to Exhibit 10(k) to Post-Effective
Amendment No. 6 to Form S-11 Registration Statement of Wells Real
Estate Fund VI, L.P. and Wells Real Estate Fund VII, L.P., File No.
33-55908) N/A
*10(j) Second Amendment to Building lease dated August 15, 1994, between
Interglobia Inc. - Appleton and Jaakko Poyry Fluor Daniel
(successor-in-interest to Marathon Engineers/Architects/Planners,
Inc.) (included as Exhibit D-1 to Exhibit 10(k) to Post-Effective
Amendment No. 6 to Form S-11 Registration Statement of Wells Real
Estate Fund VI, L.P. and Wells Real Estate Fund VII, L.P., File No.
33-55908) N/A
*10(k) Assignment and Assumption of Lease dated September 6, 1994, between
Interglobia Inc. - Appleton and NationsBank of Georgia, N.A., as
Agent for Fund V, Fund VI and Fund VII Associates (Exhibit 10(q) to
Post-Effective Amendment No. 6 to Form S-11 Registration Statement
of Wells Real Estate Fund VI, L.P. and Wells Real Estate Fund VII,
L.P., File No. 33-55908) N/A
33
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*10(l) Agreement for the Purchase and Sale of Real Property dated April 7,
1994, between 138 Industrial Ltd. and NationsBank of Georgia, N.A.,
as Agent for Wells Real Estate Fund VI, L.P. (Exhibit 10(s) to Form
10-K of Wells Real Estate Fund VI, L.P. for the fiscal year ended
December 31, 1994, File No. 0-23656) N/A
*10(m) Land and Building Lease Agreement dated August 22, 1994, between
KRR Stockbridge, Inc. d/b/a Kenny Rogers Roasters and NationsBank
of Georgia, N.A., as Agent for Wells Real Estate Fund VI, L.P.
(Exhibit 10(t) to Form 10-K of Wells Real Estate Fund VI, L.P. for
the fiscal year ended December 31, 1994, File No. 0-23656) N/A
*10(n) Joint Venture Agreement of Fund VI and Fund VII Associates dated
December 9, 1994 (Exhibit 10(u) to Form 10-K of Wells Real Estate
Fund VI, L.P. for the fiscal year ended December 31, 1994, File No.
0-23656) N/A
*10(o) Building Lease Agreement dated December 19, 1994, between Damon's
of Stockbridge, LLC d/b/a Damon's Clubhouse and NationsBank of
Georgia, N.A., as Agent for Fund VI and Fund VII Associates,
(Exhibit 10(v) to Form 10-K of Wells Real Estate Fund VI, L.P. for
the fiscal year ended December 31, 1994, File No. 0-23656) N/A
*10(p) Joint Venture Agreement of Fund II, III, VI and VII Associates
dated January 10, 1995 (Exhibit 10(w) to Form 10-K of Wells Real
Estate Fund VI, L.P. for the fiscal year ended December 31, 1995,
File No. 0-23606) N/A
*10(q) Fund VII and Fund VIII Associates Joint Venture Agreement dated
February 10, 1995 (Exhibit 10(g) to Post-Effective Amendment No. 1
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) N/A
34
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*10(r) Agreement for the Purchase and Sale of Real Property dated March
31, 1994 (Exhibit 10(h) to Post-Effective Amendment No. 1 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) N/A
*10(s) Letter Agreement amending Agreement for the Purchase and Sale of
Real Property dated July 27, 1994 (Exhibit 10(i) to Post-Effective
Amendment No. 1 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) N/A
*10(t) Letter Agreement amending Agreement for the Purchase and Sale of
Real Property dated October 27, 1994 (Exhibit 10(j) to Post-
Effective Amendment No. 1 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) N/A
*10(u) Letter Agreement between NationsBank of Georgia, N.A., as Agent for
Wells Real Estate Fund VII, L.P., as Landlord, and CH2M Hill, Inc.,
as Tenant (Exhibit 10(k) to Post-Effective Amendment No. 1 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) N/A
*10(v) First Amendment to Lease Agreement between NationsBank of Georgia,
N.A., as Agent for Wells Real Estate Fund VII, L.P., as Landlord,
and CH2M Hill, Inc., as Tenant (Exhibit 10(l) to Post-Effective
Amendment No. 1 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) N/A
*10(w) Second Amendment to Lease Agreement between NationsBank of Georgia,
N.A., as Agent for Wells Real Estate Fund VII, L.P., as Landlord,
and CH2M Hill, Inc, as Tenant (Exhibit 10(m) to Post-Effective
Amendment No. 1 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) N/A
35
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*10(x) Development Agreement between Wells Real Estate Fund VII, L.P. and
ADEVCO Corporation (Exhibit 10(n) to Post-Effective Amendment No. 1
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) N/A
*10(y) Owner-Contractor Agreement between Wells Real Estate Fund VII,
L.P., as Owner, and Integra Construction, Inc., as Contractor
(Exhibit 10(o) to Post-Effective Amendment No. 1 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) N/A
*10(z) Architect's Agreement between Wells Real Estate Fund VII, L.P., as
Owner, and Smallwood, Reynolds, Stewart, Stewart & Associates,
Inc., as Architect (Exhibit 10(p) to Post-Effective Amendment No. 1
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) N/A
*10(aa) Joint Venture Agreement of Fund VI, Fund VII and Fund VIII
Associates dated April 17, 1995 (Exhibit 10(q) to Post-Effective
Amendment No. 3 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) N/A
*10(bb) Agreement for the Purchase and Sale of Real Property dated February
13, 1995, between G.L. National, Inc. and Wells Capital, Inc.
(Exhibit 10(r) to Post-Effective Amendment No. 3 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) N/A
*10(cc) 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 (Exhibit 10(s) to
Post-Effective Amendment No. 3 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) N/A
36
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*10(dd) Development Agreement dated April 25, 1995, between Fund VI, Fund
VII and Fund VIII Associates and ADEVCO Corporation (Exhibit 10(t)
to Post-Effective Amendment No. 3 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) N/A
*10(ee) 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 (Exhibit 10(u) to Post-Effective
Amendment No. 3 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) N/A
*10(ff) Architect's Agreement dated February 15, 1995, between Wells Real
Estate Fund VII, L.P., as Owner, and Mayes, Suddereth & Etheredge,
Inc., as Architect (Exhibit 10(v) to Post-Effective Amendment No. 3
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) N/A
*10(gg) First Amendment to Joint Venture Agreement of Fund VI and Fund VII
Associates (Exhibit 10(dd) to Form 10-K of Wells Real Estate Fund
VI, L.P. for the fiscal year ended December 31, 1995, File No. 0-
23656) N/A
*10(hh) First Amendment to Joint Venture Agreement of Fund VI, Fund VII and
Fund VIII Associates dated May 30, 1995 (Exhibit 10(w) to Post-
Effective Amendment No. 4 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) N/A
*10(ii) Real Estate Purchase Agreement dated April 13, 1995 (Exhibit 10(x)
to Post-Effective Amendment No. 4 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) N/A
37
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ----------------------- -----------
*10(jj) 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. (Exhibit 10(y) to Post-Effective Amendment No.
4 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) N/A
*10(kk) Development Agreement dated May 31, 1995, between Fund VI, Fund VII
and Fund VIII Associates and Norcom Development, Inc. (Exhibit
10(z) to Post- Effective Amendment No. 4 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) N/A
*10(ll) Joint Venture Agreement of Fund I, II, II-OW, VI and VII Associates
dated August 1, 1995 (Exhibit 10(ii) to Form 10-K of Wells Real
Estate Fund VI, L.P. for the fiscal year ended December 31, 1995,
File No. 0-23656) N/A
*10(mm) Lease Modification Agreement No. 3 with The Kroger Co. dated
December 31, 1993 (Exhibit 10(k) to Form 10-K of Wells Real Estate
Fund I for the fiscal year ended December 31, 1993, File No. 0-
14463) N/A
10(nn) First Amendment to Joint Venture Agreement of Fund VII and Fund
VIII Associates dated April 1, 1996, filed herewith 39
10(oo) Lease Agreement with Moovies, Inc. dated May 20, 1996, filed
herewith 44
38
FIRST AMENDMENT TO
JOINT VENTURE AGREEMENT
OF
FUND VII AND FUND VIII ASSOCIATES
THIS FIRST AMENDMENT TO JOINT VENTURE AGREEMENT (the "First Amendment") is
made and entered into as of the 1st day of April, 1996, by and between WELLS
REAL ESTATE FUND VII, L.P. ("Fund VII"), a Georgia limited partnership having
Leo F. Wells, III and Wells Partners, L.P., a Georgia limited partnership, as
general partners, and WELLS REAL ESTATE FUND VIII, L.P. ("Fund VIII"), a Georgia
limited partnership also having Leo F. Wells, III and Wells Partners, L.P., a
Georgia limited partnership, as general partners (each of the parties hereto is
referred to herein as a "Venturer" and together as the "Venturers").
W I T N E S S E T H :
WHEREAS, the Venturers have previously formed a joint venture (the "Joint
Venture") pursuant to that certain Joint Venture Agreement of Fund VII and Fund
VIII Associates dated February 10, 1995 (the "Joint Venture Agreement"); and
WHEREAS, the Joint Venture was formed for the acquisition, ownership,
development, leasing, operation, sale and management of certain "Properties"
described on Exhibit "A" to the Joint Venture Agreement; and
WHEREAS, the Joint Venture has previously acquired and is currently
operating that certain property located in Alachua County, Florida, which is
described on Exhibit "A" to the Joint Venture Agreement (the "Florida
Property"); and
WHEREAS, the Venturers now desire to cause the Venture to acquire a second
parcel of property located in Clayton County, Georgia, which is more
particularly described on Exhibit "A" to this First Amendment (the "New
Property"), and the Venturers desire to amend the Joint Venture Agreement to
contemplate the acquisition and development of the New Property by the Venture.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree, and the Joint Venture Agreement is hereby
amended, as follows:
39
I.
AMENDMENT TO SECTION 1.24
Section 1.24 of the Joint Venture Agreement is hereby amended and restated
in its entirety as follows:
"1.24 "Property" means any particular tract of land (and all rights
--------
and appurtenances incident thereto) acquired and owned by the Venture and
all improvements located, constructed or developed thereon, as more
particularly described on Exhibit "A" hereto, as may be amended from time
to time, including that certain real property located in Alachua County,
Florida, as more particularly described on Exhibit "A" to the Joint Venture
Agreement, and that certain real property located in Clayton County,
Georgia, as more particularly described on Exhibit "A" to the First
Amendment to Joint Venture Agreement."
II.
AMENDMENT TO SECTION 3.1
Section 3.1 of the Joint Venture Agreement is hereby amended and restated
in its entirety as follows:
"3.1 Capital Contributions. Simultaneously with the execution of the
---------------------
Joint Venture Agreement, Fund VII transferred and contributed all its
right, title and interest in and to the Florida Property to the Venture as
its initial Capital Contribution, the Agreed Value thereof, and for which
Fund VII was deemed to have made an initial Capital Contribution totalling,
$677,534 (the purchase price and all acquisition and development costs and
expenses expended by Fund VII with respect to the Florida Property through
February 10, 1995). Thereafter, Fund VII has contributed $344,389 of
additional Capital Contributions to the Venture, and Wells Fund VIII has
contributed $3,852,732 as additional Capital Contributions to the Venture.
Accordingly, as of March 31, 1996, the Distribution Percentage Interest of
each of the Venturers was as follows:
Distribution
Percentage
Venturer Interest
-------- ------------
Fund VII 21%
Fund VIII 79%
Simultaneously with the execution of this First Amendment, Fund VII
shall be obligated and required to transfer and contribute all its right,
40
title and interest in and to the New Property to the Venture as an
additional Capital Contribution, the Agreed Value thereof being, and for
which Fund VII shall be deemed to have made an additional Capital
Contribution totalling, $1,334,192 (the purchase price and all acquisition
and development costs and expenses expended by Fund VII to date with
respect to the New Property). The Venturers shall from time to time make
additional Capital Contributions to the Venture in such amounts as are
agreed to by the Venturers."
III.
AMENDMENT TO EXHIBIT "A"
The Exhibit "A" of the Joint Venture Agreement is hereby amended by adding
Exhibit "A" hereto to, and making said Exhibit "A" hereto a part of, Exhibit "A"
to the Joint Venture Agreement.
IV.
RECERTIFICATION
Except as specifically amended hereby, the Joint Venture Agreement shall
continue and remain in full force and effect.
41
IN WITNESS WHEREOF, the undersigned Venturers have executed this First
Amendment to Joint Venture Agreement to Fund VII and Fund VIII Associates under
seal as of the day and year first above written.
WELLS REAL ESTATE FUND VII, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(As General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ------------------------------------
Leo F. Wells, III
President
/s/ Caryl Jamieson
- ----------------------------------- [Corporate Seal]
Unofficial Witness
/s/ Martha Jean Cory
- ----------------------------------
Notary Public
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: -------------------------------(SEAL)
Leo F. Wells, III
General Partner
/s/ Caryl Jamieson
- -----------------------------------
Unofficial Witness
/s/ Martha Jean Cory
- ----------------------------------
Notary Public
42
WELLS REAL ESTATE FUND VIII, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(As General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
(As General Partner)
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ------------------------------------
Leo F. Wells, III
President
/s/ Caryl Jamieson
- -----------------------------------
Unofficial Witness [Corporate Seal]
/s/ Martha Jean Cory
- ----------------------------------
Notary Public
Signed, sealed and delivered By: /s/ Leo F. Wells, III
in the presence of: ---------------------------------(SEAL)
Leo F. Wells, III
General Partner
/s/ Caryl Jamieson
- -----------------------------------
Unofficial Witness
/s/ Martha Jean Cory
- ----------------------------------
Notary Public
43
LEASE AGREEMENT
BETWEEN
FUND VII ASSOCIATES,
AS LANDLORD
AND
MOOVIES, INC.
AS TENANT
7355 N. HANNOVER PARKWAY NORTH
STOCKBRIDGE, GEORGIA 30281
MAY 20, 1996
INDEX
PAGE
ARTICLE I DEFINITIONS AND ENUMERATION OF EXHIBITS
Section 1.1 Basic Lease Provisions............................... 1
(a) Advance Deposit............................ 1
(b) Architect.................................. 1
(c) Common Areas............................... 1
(d) Consultant................................. 1
(e) Extension Terms(s)......................... 1
(f) Gross Rentable Area........................ 1
(g) Landlord's Contribution to Tenant's Work... 1
(h) Landlord's Mailing Address................. 1
(i) Landlord's Work............................ 1
(j) Lease Year................................. 2
(k) Liability Insurance Limits................. 2
(l) Premises................................... 2
(m) Ready For Occupancy........................ 2
(n) Rental Commencement Date................... 2
(o) Scheduled Completion Date.................. 2
(p) Security Deposit........................... 2
(q) Shopping Center............................ 2
(r) Tenants Gross Sales........................ 2
(s) Tenant's Mailing Address................... 2
(t) Tenant's Trade Name........................ 2
(u) Tenant's Work.............................. 2
(v) Term....................................... 2
(w) Use of Premises............................ 2
Section 1.2 Exhibits Enumerated.................................. 2
ARTICLE II CONSTRUCTION AND ACCEPTANCE OF PREMISES.............. 3
ARTICLE III RENT................................................. 3-5
ARTICLE IV PERCENTAGE RENT: SALES REPORTS AND RECORDS.......... 5
ARTICLE V COMMON AREAS......................................... 5-6
ARTICLE VI USE AND CARE OF PREMISES............................. 6
ARTICLE VII TENANT'S COVENANTS................................... 7
ARTICLE VIII MAINTENANCE AND REPAIR OF PREMISES,
ALTERATIONS AND LANDLORD'S RIGHT OF ACCESS........... 7-9
ARTICLE IX SIGNS, STORE FRONTS AND ROOF......................... 9
ARTICLE X UTILITIES............................................ 9
ARTICLE XI INDEMNITY AND NON-LIABILITY.......................... 9-10
ARTICLE XII PUBLIC LIABILITY INSURANCE........................... 10
ARTICLE XIII DAMAGE BY CASUALTY................................... 10-11
ARTICLE XIV EMINENT DOMAIN....................................... 11-12
PAGE
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ARTICLE XV ASSIGNMENT AND SUBLETTING............................ 12
ARTICLE XVI TAXES................................................ 13
ARTICLE XVII DEFAULTS AND REMEDIES................................ 13-16
ARTICLE XVIII HOLDING OVER......................................... 16
ARTICLE XIX SUBORDINATION........................................ 16-17
ARTICLE XX INSURANCE............................................ 17-19
ARTICLE XXI NOTICES.............................................. 19
ARTICLE XXII MISCELLANEOUS........................................ 19-22
EXHIBITS "A" THROUGH "H"
LEASE AGREEMENT
THIS LEASE AGREEMENT, entered into this 20th day
----
of May, 1996, by and between Fund VII Associates, hereinafter
---------
referred to as "Landlord", and Moovies, Inc., hereinafter referred
to as "Tenant."
W I T N E S S E T H T H A T:
In consideration of the obligation of Tenant to pay rent as
herein provided and in consideration of the other terms, covenants,
and conditions hereof, Landlord hereby leases to Tenant, and Tenant
hereby takes from Landlord, the Premises, as defined in Section
1.1(l), on the terms and conditions set forth herein.
TO HAVE AND TO HOLD the Premises for the Term, as defined in
Section 1.1(v), subject to the terms and conditions set forth
herein.
The parties hereto further agree as follows:
ARTICLE I
DEFINITIONS AND ENUMERATION OF EXHIBITS
1.1 In addition to other terms which are elsewhere defined in
this Lease, the following terms when used in this Lease shall have
the meanings set forth this section, and only such meanings, unless
such meanings are expressly limited or expanded elsewhere herein:
(a) ADVANCE DEPOSIT: $7,750.00 applied as First Months Rent.
(b) ARCHITECT: Joe Hiller, or such other firm which shall be
substituted by Tenant with the prior written approval of Landlord.
(c) COMMON AREAS: Those areas of the Shopping Center,
including all parking areas which are from time to time open for
joint use by the tenants of the Shopping Center or by the public
including, without limiting the generality of the foregoing,
driveways, truckways, delivery passages, walkways, concourses,
malls, planted areas, landscape areas, and public restrooms and
common truck loading and receiving areas which are not leased to or
reserved for individual tenants.
(d) CONSULTANT: Mike Watson, or such other firm which shall
be engaged by Landlord as a consultant with the respect to the
construction of the improvements on the Tenant's premises.
(e) EXTENSION TERM(S): So long as this Lease is in full force
and effect and Tenant: (i) is occupying and doing business from the
Premises at the time the election is exercised and at the effective
date thereof; (ii) is not in default under the Lease either at the
time of the election or at the effective date thereof; and (iii) has
maintained a history of payments within the applicable grace period,
if any, provided under the Lease; Landlord agrees that Tenant shall have the
right to extend the Term for up to two (2) successive periods of five (5) years
each by delivering written notice to Landlord at least six (6) months, but not
more than twelve (12) months, before the commencement of each such Extension
Term. Tenant's rights under this provision shall automatically and conclusively
expire if Tenant fails to deliver such written notice on or before such date.
All terms and conditions of this Lease shall apply during each such five (5)
year Extension Term. The rental during each Extension Term shall be determined
pursuant to Section 3.6, below. Notwithstanding any contrary provision hereof,
Tenant's rights under this Section 1.1(e) are personal and unique to Tenant and
are not transferable to any assignee, sublessee or other successor in interest
to Tenant.
(f) GROSS RENTABLE AREA: Floor area designed for tenant occupancy
and exclusive use, measured from the exterior of outside walls and store fronts
and from the center of party walls.
(g) LANDLORD'S CONTRIBUTION TO TENANT'S WORK: $44,653.28 ($26,593.28
of which is attributable to Tenant's performance of work in the Premises that is
typically performed by Landlord and the remainder of which reflects a $3.00 per
square foot contribution to Tenant's Work).
(h) LANDLORD'S MAILING ADDRESS: 3885 Holcomb Bridge Road,
Norcross, Georgia 30092, or such other address as may from time to
time be designated by Landlord in a written notice to Tenant.
(i) LANDLORD'S WORK
(j) LEASE YEAR: The term "Lease Year" shall mean each
successive twelve (12) calendar month period following the Rental
Commencement Date.
(k) LIABILITY INSURANCE LIMITS: As defined in Article XX.
(l) PREMISES: The Premises are deemed to contain 6,020
square feet of Gross Rentable Area.
(m) READY FOR OCCUPANCY: When Landlord's Work on the Premises
has been substantially completed (except for minor finishing
operations or items necessarily awaiting performance of Tenant's
Work) and Landlord has notified Tenant in writing that Tenant may
occupy the Premises.
(n) RENTAL COMMENCEMENT DATE: Either (i) the date on which
Tenant opens the Premises for business to the public, or (ii) sixty
(60) days after the date when Landlord delivers the Premises to
Tenant, whichever occurs first.
(o) SCHEDULED COMPLETION DATE: The date that is sixty (60)
days after the date hereof.
(p) SECURITY DEPOSIT: $7,750.00
(q) SHOPPING CENTER: The real estate depicted or described
on Exhibit "A" attached hereto; such contiguous real estate as
-----------
Landlord may from time to time designate in writing as being
included in the Shopping Center including the Common Areas; and
such improvements now and as may be constructed on such real estate
together with such changes, additions or deletions thereto as
Landlord may from time to time designate. Landlord reserves the
right to change the configuration and location of the Shopping
Center, the dimensions of the Shopping Center, and the Common Areas,
provided that reasonable access to the Premises and the parking
facilities provided within the Shopping Center shall not be
materially impaired.
(r) TENANTS GROSS SALES: As defined in Article IV.
(s) TENANT'S MAILING ADDRESS: 201 Brookfield Parkway, Suite
200, Greenville, South Carolina 29607 (Attention: Lease
Administrator-Real Estate) or such other address as may from time to
time be designated by Tenant in a written notice to Landlord.
(t) TENANT'S TRADE NAME: Moovies
(u) TENANT'S WORK
(v) TERM: The period of time commencing with the date of this
Lease and terminating nine (9) years and eleven (11) months after
the Rental Commencement Date, unless such terminating date is other
than the last day of a calendar month, in which event this Lease
shall terminate of the last day of the calendar month in which such date
falls.
(w) USE OF PREMISES: Subject to Tenant's rights of
assignment herein stated, the Premises shall be used and occupied
under the trade name MOOVIES for the purpose of (i) the retail sale
and rental of video cassette tapes (not to include adult or X-rated
titles), video games, video equipment, game equipment, video
software and hardware, video discs, CD ROM and any other items which
are a technological advancement, enhancement, improvement or
modification of the foregoing; (ii) the retail sale of food products
typically sold in a movie theater and any promotional items related
to Tenant's marketing or advertising products; and (iii) the retail
items of specialty logo items and other items consistent with the
MOOVIES concept.
(x) EXCLUSIVE USE. So long as Tenant is operating the
Premises for the Permitted Use and otherwise is not in default of
this Lease, Landlord shall not lease or sublease any premises within
the Building containing the Premises to any individual or entity
that is primarily engaged in the business of selling or renting
video cassettes. In the event of a breach by Landlord under this
paragraph, Tenant shall be entitled to pursue any available remedies
against Landlord at law or at equity (including injunctive relief).
1.2 The exhibits enumerated in this section (if used) and
attached to this Lease are incorporated in this Lease by this
reference and are to be construed as a part of this Lease.
Exhibit "D" Estimated charges for those items set forth
-----------
in Sections 5.3 and 16.2
Exhibit "F" Rules and Regulations
-----------
Exhibit "G" Special Stipulations
-----------
Exhibit "H" Sign Criteria.
-----------
ARTICLE II
CONSTRUCTION AND ACCEPTANCE OF PREMISES
2.1 Tenant agrees to accept the Premises "as is"; however,
notwithstanding the foregoing, Landlord warrants that the HVAC and
other utility systems serving the Premises at the time of the
delivery of the Premises to Tenant shall, at such time of delivery,
be in good working order.
2.2 Tenant has submitted to Landlord its prototype plans and
specifications covering Tenant's Work as specified in Exhibit "C",
-----------
which prototype plans and specifications have been approved by
Landlord. Tenant agrees to submit to Landlord within thirty (30)
days after the date of this Lease, any plans and specifications
covering any other work which Tenant proposes to do to in the
Premises. Such plans and specifications shall comply with all
requirements set forth in Exhibit "C". Tenant shall not commence
-----------
any work in the Premises until Landlord has approved the supporting
plans and specifications in writing.
2.3 Tenant agrees to accept possession of the Premises and to
proceed with due diligence to perform Tenant's Work and any other
work described in such plans and specifications which have been
approved by Landlord, and to install its fixtures, furniture, and
equipment in the Premises, all of which shall have first been
approved by Landlord in writing. Landlord approves Tenant's trade
dress, fixtures and furniture provided that the same are
substantially similar to the trade dress, fixtures and furniture
used by Tenant at its Eagle's Landing location. By occupying
the Premises, Tenant shall be deemed to have acknowledged that the
Landlord has complied with all of its covenants and obligations with
respect to the construction of the Premises, except for defects in
Landlord's Work which are latent at the time the Premises are
occupied. In the event of any dispute concerning work performed or
required to be performed in the Premises by Landlord or Tenant, the
matter in dispute shall be submitted to Landlord's architect for
determination and his certificate with respect thereto shall be
binding on Landlord and Tenant.
2.4 Tenant shall execute and deliver to Landlord at the
expiration or termination of this Lease, on Landlord's request, a
quit-claim deed to the Premises and the Shopping Center in
recordable form, designating Landlord as the grantee, and Tenant
hereby irrevocably appoints Landlord, its successors and assigns, as
the attorney in fact of Tenant to execute, seal and deliver such
quit-claim deed on behalf of Tenant should tenant refuse or fail to
do so within ten (10) days after Landlord shall give notice to
Tenant requesting the execution, sealing and delivering of such
quit-claim deed.
2.5 Landlord may, from time to time, do any one or more of
the following with respect to buildings, and/or the Common Areas
then existing in the Shopping Center or buildings and/or the Common
Areas to be constructed in the Shopping Center: (i) construct
alterations therein; (ii) construct additions thereto: (iii)
construct additional stories thereon: (iv) construct additional
buildings, freestanding or connected to then-existing buildings: (v)
construct deck or elevated parking facilities, freestanding or
connected to then-existing buildings; or (vi) rearrange, build upon
or eliminate any Common Areas. Notwithstanding the foregoing, in no
event shall any change (other than the pylon sign to be constructed
by Landlord for the Shopping Center) materially or adversely affect
Tenant's ingress and egress to and from, or visibility of, the
Premises. Should such a material or adverse change occur, within
sixty (60) days after the completion of such an obstruction, Tenant
shall have the right to cease operation, continuing to pay Rent and
any other amounts ordinarily due on a monthly basis, until a
substitute tenant suitable to Landlord shall be secured.
2.6 (a) Tenant agrees to open the Premises to the public for
business within sixty (60) days after the Premises are Ready for
Occupancy.
(b) In the event that Tenant fails to open the Premises
for business fully fixtured, stocked, and staffed on the Rental
Commencement Date, then, unless such delay is caused or occasioned
by Landlord, Tenant shall, in addition to any and all other remedies
(herein provided, pay to Landlord an additional rental of TWO
HUNDRED DOLLARS ($200.00) per day for each and every day that Tenant
shall fail to commence business as herein provided. Further, should
such failure to so open continue for more than thirty (30) days
beyond the Rental Commencement Date, then Tenant shall be deemed to
have vacated and abandoned the Premises and ceased its operations
therein and Landlord, at its option, shall have the rights and
remedies set forth in Section 17.2 hereof.
2.7 If in connection with construction or permanent financing
of the Shopping Center, a lender (or equity participant which
furnishes such financing) shall request or require modifications in
this lease, Tenant will be unreasonably withhold, delay, or defer
its consent thereto, provided that such modifications do not
increase materially the obligations of Tenant hereunder or
materially and adversely affect the interest of Tenant hereby
created. Further, if Landlord is required by the terms of the
documents evidencing or securing such financing to modify the terms
and provisions of this lease and Tenant refuses to agree to such
modification, Landlord shall have the right prior to the date the
Premises are Ready for Occupancy to cancel this lease if Tenant
refuses to approve in writing any such modification within fifteen
(15) days after Landlord's request therefor; provided that in no
event may this lease be cancelled for failure of Tenant to approve
any modifications of the Base Rent, Premises, Lease Term, Permitted
Use, and the provisions of Article III. If such right to cancel is
exercised, neither party shall have any further obligations or
liabilities hereunder, except that Landlord shall repay to Tenant
any Advance Deposit or Security Deposit made by Tenant.
ARTICLE III
RENT
3.1 PAYMENT OF BASE RENT: Tenant covenants and agrees to pay
Landlord for the Premises, without offset or deduction and without
previous demand therefor, rent at the rates hereinafter set forth
from the Rental Commencement Date and thereafter throughout the term
of this Lease (the "Base Rent"). All Base Rent shall be payable by
Tenant in monthly installments and shall be due and payable by
Tenant in advance on the first day of each and every calendar month.
The Base Rent payable each month by Tenant shall be as follows:
Monthly Per Square Foot Monthly Annually
- --------------- --------------- ---------- -----------
01-36 $15.50 $ 7,775.83 $ 93,310.00
37-72 $17.00 $ 8,528.33 $102,340.00
73-108 $18.50 $ 9,280.83 $111,370.00
109-119 $20.00 $10,033.33 $120,400.00
3.2 RENT AT BEGINNING OR END OF TERM: In the event that rent
commences hereunder on other than the first calendar day of a month,
or if the last day of the term of this Lease is other than the last
calendar day of a month, the rent due hereunder for the first and/or
last month, as the case may be, shall be prorated on a daily basis.
3.3 METHOD AND PLACE OF PAYMENT: All amounts of rent payable
under this Article III, as well as all other amounts payable by
Tenant to Landlord under the terms of this Lease, shall be paid at
Landlord's address for Notices as set forth herein, or at such other
place as Landlord may from time to time designate by written notice
to Tenant. All payments of rent or other amounts required to be
made to Landlord shall be in lawful money of the United States of
America, which may be paid by check, subject to collection. All
such rent shall be paid to Landlord without notice or demand. No
payment by Tenant or receipt by Landlord of a lesser amount than the
rent herein specified, nor any endorsement or statement on any check
or letter accompanying such check, shall be deemed an accord and
satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent or
pursue any other remedy provided in this Lease.
3.4 RENT TO BE NET TO LANDLORD: It is the intention of the
parties hereto that the rent payable hereunder shall be net to
Landlord so that this Lease shall yield, net to Landlord, the total
rent specified herein during the term of this Lease, as such rent
may be adjusted from time to time as provided in this Article III,
free of any charges, assessments, or
deductions of any kind and without abatement, deduction or setoff. Landlord
shall not be required to make any payment or be under any other obligation or
liability hereunder except as specifically provided herein.
3.5 BASE RENT PAYABLE DURING EXTENSION TERM(S): The monthly Base Rent
payable during the Extension Terms shall be calculated as follows: The monthly
Base Rent payable during each Extension Term shall be calculated at the market
rental rate then being charged (for the period including the applicable
Extension Term) by landlords under new leases in the rental market of the
Premises for a building, parking area and other improvements and appurtenances
similar to the Premises and in a shopping center similar to the Shopping Center.
Landlord and Tenant shall have until the date which is six (6) months prior to
the commencement of the Extension Term to agree on the amount of such market
rental rate for the Extension Term. If Landlord and Tenant fail to so agree on
the amount of such market rental rate for the Extension Term, such market rental
rate shall be determined on the basis of the appraisal process hereinafter set
forth. Either Landlord or Tenant shall initiate such appraisal process by
selecting a disinterested appraiser and giving written notice of such selection
to the other party. Within ten (10) days after receipt of such notice, the
other party shall likewise select a disinterested appraiser and shall give
written notice of such selection to the initiating party. In the event the
other party shall fail to select its appraiser and give notice thereof within
such ten (10) day period, only the appraiser who has been properly selected by
the initiating party shall make the appraisal contemplated herein. On or before
the date which is ten (10) days after the receipt by the initiating party of
such notice of the selection of an appraiser by the other party, Landlord and
Tenant shall cause the respective appraisers selected by them to select a third
disinterested appraiser. Each appraiser appointed hereunder shall be a member
of the American Institute of Real Estate Appraisers (or successor organization)
having at least ten (10) years experience in appraisal of rental rates for
commercial buildings in the greater metropolitan Atlanta, Georgia area. If the
appraisers selected by Landlord and Tenant are unable to agree on the third
appraiser within such ten (10) day period, either Landlord or Tenant may request
the appointment of a third appraiser by the then president of the Board of
Realtors in Atlanta, Georgia or any then similar existing body. Each appraiser
shall independently make appraisals of the market rental rate of the Premises.
Except as hereinafter provided, the market rental rate of the Premises for the
Extension Term shall be the average of the three (3) appraisals of the market
rental rate; provided, however, if the determination of the market rental rate
of one (1) appraiser is disparate from the median of all three (3)
determinations of market rental rate by more than twice the amount by which the
other determination is disparate from the median, then the determination of such
appraiser shall be excluded, the remaining two (2) determinations shall be
averaged, and such average shall be binding and conclusive on Landlord and
Tenant. In making the appraisal of the market rental rate, the appraisers shall
take into consideration the size of the building, the improvements, amenities
and parking areas provided, the obligations of Tenant under this Lease which
shall continue during the Extension Term, and such other factors as would
customarily be considered by appraisers. The market rental rate shall be
determined as though the Premises were in good working order and state of
repair. If the building or other improvements are damaged or destroyed at the
time such appraisal is being made, such appraisal shall be made as if such
improvements existing prior to said damage or destruction were fully restored.
Upon request of either party, Landlord and Tenant agree to promptly execute an
amendment to this Lease confirming the amount of the monthly Base Rent payable
during the Extension Term. Landlord shall pay the fees and expenses of the
appraiser selected by Landlord, Tenant shall pay the fees and expenses of the
appraiser selected by Tenant, and Landlord and Tenant shall each pay one-half
(1/2) of the fees and expenses of the third appraiser.
53
3.6 NO RIGHT OF SURRENDER: Except to the extent specifically provided in
this Lease, no happening, event, occurrence or situation during the term of this
Lease, whether foreseen or unforeseen, and however extraordinary, shall permit
Tenant to quit or surrender the Premises or shall relieve Tenant from its
liability to pay the rent or any other amounts due under this Lease, or shall
relieve Tenant from any of its other obligations under this Lease, and Tenant
waives any rights now or hereafter conferred upon it by statute, proclamation,
decree or order, or otherwise to quit or surrender the Premises or this Lease,
or any part thereof, or to any abatement, diminution, reduction or suspension of
rent on account of any such event, happening, occurrence or situation.
ARTICLE IV
PERCENTAGE RENTAL;
SALES REPORTS AND RECORDS
4.1
54
4.2 The term "Tenant's Gross Sales" or "Gross Sales", as used herein shall
be deemed to mean the gross proceeds from business done in or from any part of
the Premises, including without limitation, the entire sales price, whether for
cash or otherwise, of all merchandise (including gift and merchandise
certificates) sold, services, and other receipts from sales of all business
conducted in or from the Premises, including deposits not refunded to customers,
the entire sales price of merchandise sold as a result of orders filled or taken
at the Premises including mail and telephone orders, (even though taken or
filled elsewhere), and the gross proceeds from sales to employees, sales through
vending machines or other devices, and sales by any sublessee, concessionaire or
licensee or otherwise in or from the Premises. Each sale upon installment or
credit shall be treated as a sale for the full price in the month during which
such sale was made, irrespective of the time when Tenant shall receive payment
from its customer. No reduction from Gross Sales shall be made for uncollected
or uncollectible credit sales. Gross Sales shall not include, however, (i) any
sums collected and paid out for any sales or excise tax imposed by any duly
constituted governmental authority where the amount of such tax is separately
charged to the customer and paid by Tenant directly to the governmental
authority, or to a member of the Federal Reserve Bank system for the benefit of
the governmental authority, (ii) the exchange of goods or merchandise between
the stores of Tenant, if any, where such exchanges of goods or merchandise are
made solely for the convenient operation of the business of Tenant and not for
the purpose of consummating a sale which was made at, in, from or upon the
Premises and/or for the purpose of depriving the Landlord of the benefit of a
sale which otherwise would be made at, in, from or upon the Premises, (iii) the
amount of returns to shippers or manufacturers, (iv) the amount of any cash or
credit refund made upon any sale where the merchandise sold, or some part
thereof, is thereafter returned by Tenant's customer and accepted by Tenant, and
(v) sales of Tenant's fixtures not in the ordinary course of Tenant's business.
4.4 Within sixty (60) days after the expiration of each Lease Year and
within sixty (60) days after the termination of this Lease, Tenant shall prepare
and deliver to Landlord a statement of Tenant's Gross Sales during the Lease
Year (or portion thereof) certified to be correct by a certified public
accountant, if required by Landlord.
55
4.7 (a) Tenant shall keep the Premises open for business with the public
during all hours when the Shopping Center generally is open for business with
the public. Unless the hours during which the Shopping Center shall be open for
business with the public shall have been otherwise determined by Landlord,
Tenant shall keep the Premises open for business with the public on each
business day on Monday through Saturday, inclusive, from 11:00 A.M. to 10:00
P.M., and on Friday through Saturday 11:00 A.M. to 11:00 P.M., or such
extensions of the minimum as shall be determined by Landlord. Notwithstanding
the provisions of this Section, no Tenant shall be required to keep its Premises
open for business at any time prohibited by applicable law, ordinance, or
governmental regulations and Tenant shall be permitted to close the Premises
during reasonable periods for repairing, cleaning, or decorating the Premises,
with written permission from Landlord.
(b) Notwithstanding anything to the contrary in this Lease (including
subparagraph (a), above), Tenant shall have the right to cease its business
operations in the Premises and vacate the Premises (hereinafter referred to as
the "Go Dark Option") either after the end of the first (1st) Lease Year or
after the end of the fifth (5th) Lease Year during the Lease Term. If Tenant
desires to exercise the Go Dark Option after the end of the first (1st) Lease
Year, Tenant shall give Landlord written notice of its exercise of the Go Dark
Option within sixty (60) days after the end of the first (1st) Lease Year and
the Go Dark Option shall be effective on the date eighteen (18) months after the
Rental Commencement Date. If Tenant desires to exercise the Go Dark Option
56
after the end of the fifth (5th) Lease Year, Tenant shall give Landlord written
notice of its exercise of the Go Dark Option at any time after the end of the
fifth (5th) Lease Year and the Go Dark Option shall be effective on the date one
hundred eighty (180) days after the date of Landlord's receipt of Tenant's
notice. In the event that Tenant exercises the Go Dark Option: (i) Tenant shall
continue thereafter to pay all rent and other amounts when due and to perform
all other obligations of Tenant under this Lease (other than the obligations
suspended by the exercise of the Go Dark Option), (ii) the Exclusive Use
covenant described in Section 1.1(w) of this Lease shall be rendered null and
void and unenforceable by Tenant, (iii) Tenant or any affiliates of Tenant shall
not commence business operations primarily for the Permitted Use within a two
(2) mile radius of the Shopping Center, and (iv) Landlord shall have the right
to terminate this Lease at all times when the Go Dark Option has been exercised
or is in effect by giving Tenant written notice of its intent to terminate the
Lease, which termination shall be effective on the date thirty (30) days after
the date of Tenant's receipt of Landlord's notice.
ARTICLE V
COMMON AREAS
5.1 Landlord agrees that it will maintain parking facilities for the
Premises or in reasonable proximity thereto provided, however, that if a
portions or portions of the parking area shall be taken for any public or quasi
public use under any governmental law, ordinance or regulation or by right of
eminent domain or by private purchase under threat thereof, Landlord shall be
relieved of its obligations to provide parking facilities in accordance with
this section to the extent that such parking facilities cannot be provided
without unreasonable expense, or in reasonable proximity to the Premises. In
the event that more than twenty percent (20%)of the parking area are so taken,
then Tenant, may at its option, elect to terminate this Lease within thirty (30)
days of the date of such taking, which termination shall be effective ninety
(90) days after the date of Landlord's receipt of such notice.
5.2 Tenant, and its licensees, concessionaires, employees and customers
shall have the non-exclusive right to use the Common Areas as constituted from
time to time, such use to be in common with Landlord, other tenants of the
Shopping Center and other persons entitled to use the Common Areas, subject to
such reasonable rules and regulations as Landlord may from time to time
prescribe, provided that Landlord may require that automobiles owned by Tenant,
its licensees, concessionaires and employees be parked in specific portions of
the Common Areas or other parking areas outside the Shopping Center which are
in reasonable proximity thereto. Upon request by Landlord, Tenant shall furnish
to Landlord a complete list of the license numbers of all automobiles operated
by Tenant, its licensees, concessionaires and employees. If Tenant, its
licensees, concessionaires and employees fail to park their cars in the
designated Common Areas, Landlord shall have the right in its sole discretion to
(i) charge Tenant Ten Dollars ($10.00) per day per car parked in any Common
Areas other than those designated, and/or (ii) have such car(s) physically
removed from the building at Tenant's expense without any liability whatsoever
to Landlord. Tenant shall not interfere with the rights of other persons to use
the Common Areas. Landlord may temporarily close any part of the parking
facilities or other portions of the Common Areas for such periods of time as may
be necessary for (i) temporary use as a work area in connection with the
construction of buildings or other improvements within the Shopping Center or
contiguous property, (ii) repairs or alterations in or to the Common Areas or to
any sewers, utility facilities or distribution lines located within the Common
Areas, (iii) preventing the public from obtaining prescriptive rights in or to
the Common Areas, (iv) security reasons, or (v) doing and performing such other
57
acts (whether similar or dissimilar to the foregoing) in, to and with respect to
the Common Areas as in the use of good business judgement the Landlord shall
determine to be appropriate for the Shopping Center, provided however, that
Landlord shall use reasonable efforts not to unduly interfere with or disrupt
Tenant's business, ingress, egress and visibility.
5.3 Tenant agrees to pay as additional rent, as hereinafter provided, its
share of expense incurred by Landlord at its discretion for the operation and
maintenance of the Shopping Center, including without limiting the generality of
the foregoing, costs incurred for lighting, painting, clean, central trash
disposal (if Landlord elects to provide), traffic control, policing, inspecting,
landscaping, promotion and advertising, securing and management of the Shopping
Center, and repairing and replacing the Shopping Center, or any part thereof
together with a reasonable allowance for Landlord's direct overhead,
depreciation of maintenance equipment, hazard and public liability insurance and
property damage insurance, all water consumed the Shopping Center which is not
separately metered to tenants (single or multiple), but excluding depreciation
of Landlord's original investment in the Shopping Center. The share to be paid
by Tenant shall be that percentage of the cost of operation and maintenance of
the Shopping Center which the Gross Rentable Area of the Premises bears to the
Gross Rentable Area of the Shopping Center. Landlord may at its option make
monthly or other periodic charges based upon the estimated annual cost of
operation and maintenance of the Shopping Center, payable in advance but subject
to adjustment after the end of each calendar year on the basis of the actual
costs for such year. Within ninety (90) days after the close of each calendar
year, Landlord shall furnish to Tenant a detailed statement of the expenses
relating to the Shopping Center for such year, such statement to be prepared in
accordance with generally accepted accounting principles and to include Tenant's
proportionate share of the expenses relating to the Shopping Center computed as
herein provided. Any necessary adjustments shall be made fifteen (15) days
after delivery of such statement. Landlord's estimate of the initial amount
that Tenant will be required to pay pursuant to this Section 5.3 is set forth on
Exhibit "D" attached hereto.
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5.4 In the event Tenant is not billed directly by the appropriate
authority for water consumed on the Premises and/or for sewer rents or charges,
the bill rendered by Landlord for the above shall be based upon Tenant's
prorated share of such service as determined by Landlord and shall be payable by
Tenant within five (5) days of receipt of Landlord's bill, and such costs or
expenses incurred or payments which are made by the Landlord for water or sewer
service used on the Premises shall be deemed to be additional rent payable by
Tenant and collectible by Landlord as such.
5.5 Tenant shall direct its employees, agents and contractors not to park
cars or other vehicles on that portion of the Shopping Center depicted on
Exhibit "E" attached hereto.
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ARTICLE VI
USE AND CARE OF PREMISES
6.1 Subject to Section 4.7 of this Lease, Tenant shall in good faith
continuously throughout the Term of this Lease conduct and carry on in the
entire Premises the type of business described in Section 1.1(w) and the
Premises shall not be used for any other purpose. Tenant shall use Tenant's
Trade Name in the transaction of business in the Premises. Tenant shall not
sell, display or solicit sales in the Common Areas. Tenant shall not use or
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permit the use of any vending machines or public telephones on, at or about the
Premises without the prior written consent of Landlord. Tenant shall not commit
waste, perform any acts or carry on any practices which may injure the Shopping
Center or be a nuisance or menace to other tenants in the Shopping Center.
Tenant shall operate its business in a dignified manner and in accordance with
high standards of store operation so as to maintain a character in keeping with
the rest of the Shopping Center, and so as to produce the maximum Tenant's Gross
Sales and shall, subject to Section 4.7 of this Lease, at all times keep the
Premises properly equipped with fixtures, stocked with an adequate supply of
merchandise and attended by adequate personnel.
6.2 In the use and occupancy of the Premises, Tenant shall comply with all
laws and ordinances and all valid rules and regulations of the United States,
the State of GEORGIA__, City of STOCKBRIDGE, the County of CLAYTON and any
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other applicable government or agency thereof and all requirements of any public
or private agency having authority over insurance rates.
6.3 Tenant shall at all times keep the Premises at a temperature
sufficiently high to prevent freezing of water pipes and fixtures.
ARTICLE VII
TENANT'S COVENANTS
7.1 Tenant shall not, nor shall Tenant at any time permit any occupant of
the Premises to: (i) conduct or permit any fire, bankruptcy or auction sale
(whether real or fictitious) unless directed by order of a court of bankruptcy
or of competent jurisdiction, or conduct or permit any fictitious "Going Out of
Business" Sale; (ii) use, or permit to be used, the walkways or sidewalks
adjacent to such Premises, or any other area outside the Premises for the sale
or display of any merchandise or for any other business, occupation or
undertaking, or for outdoor public meetings, circus or other entertainment
(except for promotional activities in cooperation with the management of the
building or an association of merchants within the Shopping Center); (iii) use
or permit to be used, any sound broadcasting or amplifying device which can be
heard outside of the Premises; (iv) operate or cause to be operated any
"elephant trains" or similar transportation devices; (v) use or permit to be
used any portion of the Premises for any unlawful purpose or use or permit the
use of any portion of the Premises as regular living quarters, sleeping
apartments or lodging rooms or for the conduct of any manufacturing business;
(vi) use of the Premises for or conduct therein activities, the purpose for
which is excluded from or inconsistent with or not included within the purpose
for which the Premises may be used according to Section 1.1(w) of this Lease, or
(vii) use, operate or maintain the Premises in such manner that any of the rates
for any insurance carried by Landlord, or the occupant of any premises with the
Shopping Center, shall thereby be increased, unless Tenant shall pay to Landlord
or such occupant within the Shopping Center, as the case may be, an amount equal
to any such increase in rates, such payment to be made promptly on demand as
each premium which shall included such increase shall become due and payable.
7.2 Tenant (i) will not represent or advertise that it regularly or
customarily sells merchandise at "manufacturer's", "distributor's", or
"wholesale", "warehouse", "fire", "bankruptcy sale", or similar prices or other
than at retail prices; (ii) will keep all mechanical apparatus free of vibration
or noise which may be transmitted beyond the confines of the Premises; (iii)
will not cause or permit odors to emanate from the Premises; (iv) will not load
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or unload or permit the loading or unloading of merchandise, supplies or other
property except within the area designation by Landlord from time to time; and
(v) will not permit the parking or standing, outside of such designated area, of
trucks, trailers or other vehicles or equipment engaged in such loading or
unloading.
7.3 Tenant (i) will keep clean the inside and outside of all glass in the
doors and windows of the Premises; (ii) will replace promptly at its own expense
with glass of like kind and quality any plate or window glass; (iii) will
replace doors or door hardware of the Premises which may for any reason become
cracked or broken; (iv) will maintain the Premises in a clean, orderly and
sanitary condition and free of insects, rodents, vermin, and other pests; (v)
will not permit undue accumulation of garbage, trash, rubbish or other refuse in
the Premises; and (vi) will keep such refuse in proper containers inside the
Premises until such time as same is called for to be removed.
7.4 The rules and regulations as shown on Exhibit "F" are hereby made a
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part of this Lease, and Tenant agrees to comply with and observe the same.
Tenant's failure to keep and observe said rules and regulations shall constitute
a breach of the terms of this Lease in the manner as if the same were contained
herein as covenants. Landlord reserves the right from time to time to amend or
supplement said rules and regulations and to adopt and promulgate additional
rules and regulations applicable to the Premises and the Shopping Center.
Notice of such additional rules and regulations, and amendments and supplements,
if any, shall be given to Tenant and Tenant agrees thereupon to comply with and
observe all such rules and regulations, and amendments thereto and supplements
thereof, provided the same shall apply uniformly to all tenants of the Shopping
Center.
7.5 Tenant agrees to keep and maintain in full force and effect, from and
after the Rental Commencement Date and thereafter throughout the term of this
Lease, at Tenant's sole expense, (i) a maintenance contract with a reputable
heating and air conditioning contractor, with respect to the heating and air
conditioning equipment servicing the Premises, and (ii) a termite and pest
control contract with respect to the Premises with a reputable pest control
contractor. Such contracts shall provide for service to be rendered on a
regular periodic basis. Tenant shall deliver to Landlord certificates
evidencing such service contracts upon request of Landlord. Tenant shall
further maintain and clean the grease trap serving the Premises and dispose of
all waste therefrom properly and so as to keep the same clean and in good
operating condition and repair.
7.6 Tenant shall, at its expense, comply with all laws, statutes, codes,
acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations, directions and requirements of all federal,
state, county, municipal, or other local governments, departments, agencies,
subdivisions, courts, authorities, bureaus, branches, commissions, boards,
officials or officers or other governmental or quasi-governmental authorities
now or hereafter having or exercising jurisdiction over the Shopping Center or
any part thereof, foreseen or unforeseen, ordinary or extraordinary, which now
or at any time hereafter may be applicable to the use, operation or occupancy by
Tenant, its agents, contractors, employees, licensees, invitees and customers,
of the Shopping Center located on the Shopping Center or any part thereof or the
adjoining sidewalks or streets (collectively, all of the foregoing are herein
called "Legal Requirements") including, without limitation, all Environmental
Laws. Tenant shall not violate any laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all federal, state, county,
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municipal, or other local governments, departments, agencies, subdivisions,
courts, authorities, bureaus, branches, commissions, boards, officials or
officers or other governmental or quasi-governmental authorities now or
hereafter having or exercising jurisdiction over the Shopping Center or any part
thereof, foreseen or unforeseen, ordinary or extraordinary, which now or at any
time hereafter may be applicable to the use, operation or occupancy by Tenant,
its agents, contractors, employees, licensees, invitees and customers, of the
Shopping Center or any part thereof or the adjoining sidewalks or streets.
Tenant shall not use or permit or cause to be used, stored, placed, held or
disposed of on, under or at the Premises or any portion thereof, any Hazardous
Materials, except minimum amounts of such substances as are permitted by law to
be used in the normal operation of Tenant's business and which are in fact used
in full compliance with all Legal Requirements and Environmental Laws. Tenant
shall not be required to join any merchant's association.
7.7 Tenant at its expense will comply with all terms of any insurance
policy covering or applicable to the use, operation or occupancy by Tenant, its
agents, contractors, employees, licensees, invitees and customers, of the
Premises or any part thereof and all requirements of the issuer of any such
policy (collectively, the "Insurance Requirements"), whether or not compliance
shall require structural changes in the Premises or interfere with the use or
enjoyment of the Premises or any part thereof. Tenant shall not:
(a) Use or occupy or permit the Premises to be used or occupied, nor do,
or permit anything to be done, in, on or about the Premises, in whole or in
part, in a manner which would in any way make void or voidable any insurance
then in force with respect thereto or with respect to the Premises, or make it
impossible to obtain fire or other insurance thereon, or which will cause or be
apt to cause injury to the Premises or any part thereof, or which will
constitute a public or private nuisance;
(b) Injure, overload, deface or otherwise harm any equipment or
installation in or on the Premises or any part thereof, nor permit the emission
of any objectionable noise or odor other than such non-offensive smoke or odor;
nor
(c) Do or permit or suffer any waste to or upon the Premises or any part
thereof.
7.8 Anything herein to the contrary notwithstanding, Tenant may contest
any Legal Requirement or Insurance Requirement which it, in its reasonable
judgment, deems unreasonable or inapplicable and may defer compliance therewith
so long as said contest and/or noncompliance:
(a) Does not subject Tenant's interest in the Premises to the imminent
risk of sale or forfeiture;
(b) Does not imminently jeopardize the continuing operation of the
Premises or the validity or effectiveness of any insurance with respect to the
Premises;
(c) Does not subject Landlord to damages, fines, penalties or forfeiture
of its interest in the Premises; and
(d) Does not subject Landlord to any criminal liability; provided,
however, the risk of any casualty loss during any such contest shall be borne by
Tenant if such loss shall not be insured in full by reason of Tenant's failure
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to comply with any Legal Requirement or Insurance Requirement during such
contest; and further provided that Tenant shall not be permitted to defer
compliance therewith unless Tenant shall give Landlord prior written notice of
such contest and/or noncompliance and Tenant shall have furnished any security
required in such proceeding or reasonably required by Landlord to ensure
compliance. Tenant agrees that it shall indemnify, pay and save Landlord free
and harmless from and against any and all losses, damage, penalties, fees,
judgments, decrees and costs (including all attorney fees and expenses) in
connection with any such contest and/or noncompliance and that, promptly after
the final determination of any such contest, Tenant shall fully pay and
discharge the amounts which shall be levied, assessed, charged or imposed or be
determined to be payable therein, together with all penalties, fines, interest,
costs and expenses resulting therefrom (or may direct Landlord in writing to pay
any such amounts out of the security furnished to Landlord by Tenant, if any, in
connection with such contest) and will promptly comply with any Legal
Requirement or Insurance Requirement under which compliance is required. The
provisions of this Section 7.8 shall survive the expiration or earlier
termination of this Lease.
7.9 Tenant hereby indemnifies Landlord and agrees to hold Landlord
harmless from and against any and all loss, liability, damage, injury, cost,
expense and claims of any kind (including court costs, costs of litigation and
investigation, and attorney fees and expenses) whatsoever paid, incurred or
suffered by, or asserted against, Landlord for, with respect to, relating to, or
as a direct or indirect result of the presence in, on or under, or the escape,
seepage, leakage, spillage, discharge, injection, leaching, dumping, emission or
release onto, in or from the Premises of any Hazardous Materials arising out of,
in connection with or in any manner related to the use or occupancy of the
Premises by Tenant or from the presence of any Hazardous Materials in, on or
about the Premises which results from the act or omission of Tenant, its
employees, customers, agents, licensees, invitees, contractors, subcontractors
or representatives and which dates from or after the first day of the
commencement of construction of Tenant's Work or other activity by Tenant on the
Land, including, without limiting the generality of the foregoing, any loss,
liability, damage, injury, cost, expense or claim asserted or arising under any
Environmental Laws. Tenant shall not be liable for the presence of Hazardous
Materials on the Shopping Center if the same emanate from sources outside the
Shopping Center and are not placed, discharged or released by Tenant, its
employees, agents, licensees, contractors, subcontractors or representatives.
Notwithstanding any provision to the contrary contained in this Lease, the
indemnity contained in this Section 7.9 shall survive the expiration or earlier
termination of this Lease.
As used herein, the term "Environmental Laws" shall mean, any federal,
state, local or foreign law, statute, decree, ordinance, code, rule, regulation
or national consensus code, including, without limiting the generality of the
foregoing, the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of
1986 and subsequent amendments, the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act as amended by the Hazardous and Solid
Waste Amendments of 1984 and subsequent amendments, the Toxic Substance Control
Act of 1976, and any other federal, state or local so-called "Superfund" or
"Superlien" law or ordinance relating to the emission, discharge, release, or
threatened release into the environment of any pollutant, contaminant, chemical,
hazardous, toxic or dangerous waste, substance or material (including, without
limitation, ambient air, surface water, groundwater or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of such substances and any and all regulations,
codes, standards, plans, orders, decrees, judgments, injunctions, notices or
demand letters issued, entered, promulgated or approved thereunder. As used
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herein, the term "Hazardous Materials" shall mean any pollutants, contaminants,
chemicals, hazardous, toxic or dangerous waste, substance or material, or any
other substance or material regulated or controlled pursuant to any
environmental law now or at any time hereafter in effect, including, without
limiting the generality of the foregoing, asbestos, PCB'S, petroleum products,
or other substances defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," "regulated substances" or "toxic substances" in any
Environmental Laws.
ARTICLE VIII
MAINTENANCE AND REPAIR OF PREMISES,
ALTERATIONS AND LANDLORD'S RIGHT OF ACCESS
8.1 Landlord shall keep the foundation, the roof and the exterior walls of
the Premises (except plate glass, doors, door closures, door frames, store
fronts, windows and window frames located in exterior building walls) in good
repair, except that Landlord shall not be required to make any repairs
occasioned by the act of neglect of Tenant, its assignees, sublessees, servants,
agents, employees, invitees, licensees, or concessionaires, or the servants,
agents, employees, invitees, licensees, or concessionaires of Tenant's assignees
or sublessees or any damage caused by or as a result of Tenant's occupancy of
Premises, or any damage caused by break-in, burglary, or other similar acts in
or to the Premises. In the event that the Premises should become in need of
repairs required to be made by Landlord hereunder, Tenant shall give immediate
written notice thereof to Landlord; Landlord shall commence such repairs, if
possible, within fifteen (15) days of its receipt of such notice and will
diligently pursue such repair until complete. If possible, such repair shall be
complete within thirty (30) days of commencement.
8.2 Tenant shall, at its sole cost and expense, keep the Premises in a
safe, sightly, and serviceable condition and free from any infestation by
insects, rodents, or other pests, and, except as provided in Section 8.1, 13.1,
13.2 and 14.5 hereof, make all needed maintenance, repairs, and replacements for
the proper operation of Tenant's business within the Premises, including, but
not limited to, all maintenance, repairs, and replacements to (i) the heating,
ventilating, and air conditioning systems serving the Premises; (ii) the
exterior and interior portion of all doors, windows, window frames, plate glass,
door closures, door frames and store fronts; (iii) all plumbing and sewage
facilities within the Premises, including free flow up to the connection to the
main sewer line; (iv) all fixtures within the Premises; (v) all electrical
systems serving the Premises (whether or not located within the Premises); (vi)
all sprinkler systems serving the Premises; (vii) all interior walls, floors,
and ceilings; (viii) any of Tenant's Work; (ix) all repairs, replacements, or
alterations required by any governmental authority; and (x) all necessary
repairs and replacements of Tenant's trade fixtures required for the proper
conduct and operation of Tenant's business. If at any time and from time to
time during the Term, and any extensions and renewals thereof, Tenant shall fail
to make any maintenance, repairs, or replacements in and to the Premises as
required in this Lease, Landlord shall have the right, but not the obligation,
to enter the Premises and to make such maintenance, repairs, and replacements
for and on behalf of Tenant, and all sums expended by Landlord for such
maintenance, repairs, and replacement shall be deemed to be additional rent
hereunder and shall be payable to Landlord upon demand. At the termination of
this Lease, Tenant shall surrender the Premises in good condition, reasonable
wear and tear and loss by fire or other casualty alone excepted.
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8.3 Tenant shall not make any alterations, additions, or replacements to
the Premises, or any repairs required of Landlord under Section 8.1 of this
Lease, without the prior written consent of Landlord, which consent shall not be
unreasonably withheld for any interior and non-structural alterations, except
for Tenants's Work and the installation of unattached moveable fixtures which
may be installed without drilling, cutting, or otherwise defacing the Premises
and without affecting in any way the base building improvements or systems. All
alterations, additions, and improvements made in and to the Premises and all
floor covering that is cemented or adhesively fixed to the floor and all
fixtures (other than trade fixtures) which are installed in the Premises shall
remain in and be surrendered with the Premises and shall become the property of
Landlord at the expiration or sooner termination of this Lease. So long as
Tenant is not in default hereunder, Tenant shall have the right to remove its
trade fixtures from the Premises, provided that Tenant shall replace the same
with substitute items of equal or greater value and shall repair and restore any
damage to the Premises, caused or occasioned by such removal.
8.4 All Tenant's Work and all repairs, alterations, additions and
improvements done by Tenant within the Premises shall be performed in a good and
workmanlike manner, in compliance with all governmental requirements, and at
such times and in such manner as will cause a minimum of interference with other
construction in progress and with the transaction of business in the Shopping
Center. Whenever Tenant proposes to do any construction work within the
Premises, Tenant shall first furnish to Landlord plans and specifications
covering such work in such detail as Landlord may reasonably request. Such
plans and specifications shall comply with such requirements as Landlord may
from time to time prescribe for construction within the Shopping Center. In no
event shall any construction work be commenced with the Premises without
Landlord's written approval of such plans and specifications, which consent
shall not be unreasonably withheld.
8.5 Landlord shall have the right, but not the duty, to enter upon the
Premises at any time for the purpose of inspecting the same, or of making
repairs to the Premises, or making repairs, alterations, or addition to adjacent
property, or showing the Premises to lenders or to prospective purchasers of
tenants. Notwithstanding the foregoing, Landlord shall use its best efforts so
as not to unreasonably or materially and adversely interfere with the operation
of Tenant's business during such entry and shall, if at all possible, provide
Tenant with twenty-four (24) hours advance notice of such entry.
8.6 Tenant shall not suffer or permit any materialmen's, mechanics',
artisans or other liens to be filed or placed or exist against the land or
building of which the Premises are a part, or Tenant's interest in Premises by
reason of work, services or materials supplied or claimed to have been supplied
to Tenant or anyone holding the Premises or any part thereof through or under
the Tenant, and nothing contained in this Lease shall be deemed or construed in
any way as constituting the consent or request of Landlord, expressed or
implied, to any contractor, subcontractor, laborer or materialmen for the
performance of any labor or the furnishing of any materials for any
improvements, alterations or repairs of or to the Premises or any part thereof,
nor as giving Tenant any right, power or authority to contact for or permit the
rendering of any services or the furnishing of any materials that would give
rise to the filing of a materialmen's, mechanics' or other lien against the
Premises. If any such lien should, at any time be filed, Tenant shall cause the
same to be discharged of record within fifteen (15) days after the date of
filing the same. If Tenant shall fail to discharge such lien within such
period, then in addition to any other right or remedy of Landlord, Landlord may,
but shall not be obligated to, discharge the same either by paying the amount
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claimed to be due or by procuring the discharge of such lien by a deposit in
court or by posting a bond. Any amount paid by Landlord for any of the
aforesaid purposes, or for the satisfaction of any other lien not caused by
Landlord, and all reasonable expenses of Landlord in defending any such action
or in procuring the discharge of such lien, shall be deemed additional rent
hereunder and shall be repaid by Tenant to Landlord on demand.
8.7 Landlord shall not be liable to Tenant for any interruption of
Tenant's business or inconvenience caused Tenant or Tenant's assigns,
sublessees, customers, invitees, employees, licensees or concessionaires in the
Premises on account of Landlord's performance of any repair, maintenance or
replacement in the Premises or any other work therein pursuant to Landlord's
rights or obligations under this Lease so long as such work is being conducted
by Landlord in accordance with the terms of this Lease and without negligence by
Landlord.
ARTICLE IX
SIGNS, STORE FRONTS AND ROOF
9.1 Tenant shall not, without the prior written consent of Landlord, (i)
paint, decorate or make any changes to the store front of the Premises; (ii)
install any exterior lighting, awning, or protrusions, or any exterior signs,
advertising matter, decoration or painting; (iii) install any drapes, blinds,
shades, or other coverings on exterior windows and doors; (iv) affix any windows
or door lettering, sign decoration or advertising matter to any window or door
glass; or (v) erect or install any signs, window or door lettering, placards,
decorations, or advertising media of any type which can be viewed from the
exterior of the Premises, excepting only dignified displays or customary type in
store window; provided, however, that Landlord's consent to any interior, non-
structural changes or improvements to the Premises shall not be unreasonably
withheld. Tenant shall install at Tenant's expense an exterior sign conforming
to the general appearance of other signs on the Shopping Center and the Sign
Criteria and Tenant's standard sign package set forth in Exhibit "H" attached
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hereto. Tenant shall at all times keep all signs in good condition, in proper
operating order and in accordance with all applicable government regulations.
Use of the roof of the Premises is reserved to Landlord, and Landlord may
install upon the roof equipment, signs, antenna, displays, and other objects and
may construct additional stories above the Premises, provided any such use does
not unreasonably interfere with Tenant's occupancy of the Premises.
ARTICLE X
UTILITIES
10.1 Landlord agrees to cause to be provided such mains, conduits and
other facilities necessary to supply electricity, water, sewer, telephone and
gas (if available) to the Premises, in accordance with and subject to any
special provisions contained in Exhibit "C".
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10.2 Tenant shall promptly pay all charges for electricity, water, sewer,
telephone, gas (where applicable), and chilled water service (where applicable)
furnished to the Premises, and Landlord may, if it so elects, furnish one or
more such services to Tenant, and, in such event, Tenant shall purchase such
services as are tendered by Landlord and shall pay for such services at the
rates established therefor by Landlord, provided that such rates shall not
exceed the rates which would be charged for the same service if furnished
directly by the applicable public utility then furnishing such service. In the
event that at any time during the Term, or any extensions and renewals thereof,
Tenant shall fail to promptly pay any of the foregoing charges, Landlord shall
have the right, but not the obligation, to pay such charge or charges for and on
behalf of Tenant and such amounts so paid shall be deemed to be additional rent
hereunder and shall be payable by Tenant to Landlord upon demand.
10.3 Landlord shall not be liable in the event of any interruption in the
supply of any utilities including without limitation any heating and air-
conditioning if provided. Tenant agrees that it will not install any equipment
which will exceed or overload the capacity of any utility facilities serving the
Premises and that if any equipment installed by Tenant shall require additional
utility facilities, the same shall be install at Tenant's expense in accordance
with plans and specifications to be approved in writing by Landlord.
ARTICLE XI
INDEMNITY AND NON-LIABILITY
11.1 Tenant does hereby agree to indemnify and save Landlord harmless from
and against any and all liability for any injury to or death of any person or
persons or any damage to property in any way arising out of or connected with
the condition, use or occupancy of the Premises, of Tenant, its assigns or
sublessees or of the respective agents, employees, licensees, concessionaires or
invitees of Tenant, its assigns, or sublessees and from all costs, expenses and
liabilities, including, but not limited to, court costs and reasonable attorney
fees, incurred by Landlord in connection therewith, excepting however, liability
caused by Landlord's negligence.
11.2 Tenant covenants and agrees that Landlord shall not be liable to
Tenant for any injury to or death of any person or persons or for damage to any
property of Tenant, or any person claiming through Tenant, arising out of any
accident or occurrence on the Premises or any other portion of the Shopping
Center, including, without limiting the generality of the foregoing, injury,
death or damage caused by the Premises or other portions of the Shopping Center
becoming out of repair of caused by any defect in or failure of equipment,
pipes, or wiring, or caused by broken glass, or caused by the backing up of
drains, or caused by gas, water, steam, electricity, or oil leaking, escaping or
flowing into the Premises, or caused by fire or smoke, or caused by the acts or
omissions of other tenants of the Shopping Center.
11.3 Landlord shall not be responsible or liable at any time for any loss
or damage to Tenant's merchandise, equipment, fixtures or other personal
property or to Tenant's business; and Landlord shall not be responsible or
liable for any defect, latent or otherwise, in any building in the Shopping
Center or any of the equipment, machinery, utilities, appliances or apparatus.
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ARTICLE XII
PUBLIC LIABILITY INSURANCE
12.1 Tenant shall, at its sole costs and expense, procure and maintain
throughout the term of this Lease a policy or policies of insurance, insuring
Tenant, Landlord and any other persons designated by Landlord 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 the condition of the Premises, the use
or occupancy of the Premises or any construction work being done on the Premises
by Tenant, or if applicable, boiler explosion. The limits of such policy shall
be in an amount not less than the Liability Insurance Limits and shall be
written by an insurance company or companies reasonably satisfactory to
Landlord. Such polices shall be non-cancelable except after ten (10) days'
written notice to Landlord and designees of Landlord. Such policies or duly
executed certificates of insurance with respect thereto shall be delivered to
Landlord prior to the Rental Commencement Date and renewals thereof as required
shall be delivered to Landlord at least thirty (30) days prior to the expiration
of the respective policy terms.
12.2 Landlord shall procure and maintain throughout the term of this Lease
a comprehensive general liability insurance policy (hereinafter referred to as
"Landlord's Liability Insurance") providing coverage of not less than
$1,000,000, combined Bodily Injury and Property Damage Liability in separate
limits for each of Aggregate, Each Occurrence, Personal & Advertising Injury and
Fire Damage, limits of $50,000. Landlord, upon written request of Tenant, shall
promptly deliver to Tenant a certificate of Landlord's Liability Insurance.
ARTICLE XIII
DAMAGE BY CASUALTY
13.1 Tenant shall give immediate written notice to Landlord of any damage
to the Premises caused by fire or other casualty, and if Landlord does not elect
to terminate this Lease as hereinafter provided, Landlord shall proceed with
reasonable diligence and at its sole cost and expense to rebuild and repair the
Premises. Notwithstanding the foregoing, in the event that (i) the insurance
proceeds payable in connection with such damage and description shall be
insufficient to make such restoration, (ii) the building in which the Premises
are located shall be destroyed or substantially damaged by casualty not covered
by standard fire or extended coverage insurance, (iii) said building shall be
destroyed or rendered untenantable by any casualty to the extent of at least
fifty (50%) percent of the Gross Rentable Area of said building, (iv) Landlord
shall not have actual and unconditional receipt of the insurance proceeds
payable in connection with such damage and destruction, (v) the holder of any
mortgage, deed to secure debt, deed of trust, or other instrument in the nature
thereof which encumbers Landlord's interest hereunder or in the Premises shall
require that such proceeds shall be applied against any indebtedness owed to
such holder, or (vi) there shall be less than two (2) years remaining in the
Term, or any extension or renewal thereof, then, in any of such events, Landlord
may elect either to terminate this Lease or to proceed to rebuild and repair the
Premises. Landlord shall give written notice to Tenant of such election within
one hundred twenty (120) days after the occurrence of such casualty.
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13.2 Tenant agrees that during any period of reconstruction or repair of
the Premises, it will continue the operation of its business within the Premises
to the extent practicable. During the period from the occurrence of a casualty
until Landlord's repairs are completed, the Base Rent shall be reduced and
abated in proportion to the amount of Gross Rentable Area of the Premises which
is rendered untenantable as a result of such casualty; provided, however, that
if such damage or destruction is caused by the intentional or negligent acts or
omissions Tenant, it assignees, sublessees, servants, agents, employees,
invitees, licensees, or concessionaires, or the servants, agents, employees,
invitees, licensees, or concessionaires of Tenant's assignees or sublessees,
then, and in that event, the Base Rent shall not abate. Tenant shall not be
entitled to and hereby waives, releases, and relinquishes any and all claims
against Landlord for any compensation or damage for loss of use of all or any
part of the Premises or for any inconvenience or annoyance occasioned by any
such damage, destruction, repair, or restoration of the Premises, unless the
same is occasioned through the negligence of Landlord or its agents.
13.3 Tenant agrees at all times at its expense to keep its merchandise,
fixtures, Tenant's Work and its other property situated within the Premises
insured against fire, with extended coverage, to the extent of at least one
hundred percent (100%) of the full replacement cost thereof, without deduction
for depreciation. Such insurance shall be carried with companies reasonably
satisfactory to Landlord. Such insurance shall be non-cancelable except after
ten (10) days written notice to Landlord. Such policies or duly executed
certificates of insurance with respect thereto shall be delivered to Landlord
prior to the Rental Commencement Date and renewals thereof as required shall be
delivered to Landlord at least thirty (30) days prior to the expiration of the
respective policy terms. The proceeds of such insurance shall be payable to
Landlord and Tenant, jointly, for use by Tenant only, except with the consent of
Landlord, for the repair or replacement of merchandise, fixtures, Tenant's Work,
or other property which was situated within the Premises.
13.4 All fire and extended coverage insurance carried by Landlord or
Tenant covering losses arising out of destruction of or damage to the Premises
or its contents or to other portions of the Shopping Center shall, to the extent
reasonably obtainable, provide for waiver of subrogation against Landlord,
Tenant and other tenants in the Shopping Center, on the part of the insurance
carrier. Evidence of the existence of such waiver will be furnished by either
party to the other party on request.
13.5 In the event that fifty (50%) percent or more of the Gross Rentable
Area of the Building or the Shopping Center shall be destroyed or substantially
damaged by any casualty, notwithstanding that the Premises may be unaffected by
such casualty, Landlord may terminate this Lease by giving to Tenant thirty (30)
days prior written notice of Landlord's election to do so, which notice shall be
given, if at all, within ninety (90) days following the date of said occurrence.
Rent shall be adjusted as the of date of such termination.
13.6 Landlord also agrees to carry during the Lease Term all-risk property
insurance (hereinafter referred to as "Landlord's Property Insurance") covering
fire and extended coverage, vandalism and malicious mischief, sprinkler leakage
and all other perils of direct physical loss or damage insuring the improvements
and betterments located on the Premises and all appurtenances thereto (excluding
Tenant's property) for the full replacement value thereof. Landlord, upon
written request of Tenant, shall promptly deliver to Tenant a certificate of
Landlord's Property Insurance.
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ARTICLE XIV
EMINENT DOMAIN
14.1 If more than ten (10%) percent of the Gross Rentable Area of the
Premises is taken for any public or quasi-public use under any governmental law,
ordinance, or regulation, or by right of eminent domain, or by private purchase
under threat thereof, this Lease shall terminate upon the election of either
party effective on the date possession of a portion of the Premises is taken by
the condemning authority.
14.2 If less than ten (10%) percent of the Gross Rentable Area of the
Premises is taken for any public or quasi-public use under any governmental law,
ordinance, or regulation or by right of eminent domain, or by private purchase
under threat thereof, this Lease shall not terminate, or if more than ten (10%)
percent of the Gross Rentable Area of the Premises is so taken and this Lease is
not terminated in accordance with Section 14.1, then in either of such events
the Base Rental payable hereunder during the unexpired portion of the Term shall
be reduced by the percentage which the area taken bears to the area of the
Premises prior to the date possession of such portion of the Premises is taken
by the condemning authority.
14.3 If any portion of the Common Areas should be taken for any public or
quasi-public use under any governmental law, ordinance, or regulation, or by
right of eminent domain, or by private purchase under threat thereof, this Lease
shall not terminate, nor shall the rent payable hereunder be reduced, nor shall
Tenant be entitled to any part of the award made for such taking, except that
either Landlord or Tenant may terminate this Lease if the area of the Common
Areas remaining following such taking, plus any additional parking area provided
within a reasonable time by Landlord in reasonable proximity to the Shopping
Center, shall be less than seventy (75%) percent of the original area of the
Common Areas.
14.4 Any election to terminate this Lease following condemnation shall be
evidenced by written notice of termination delivered to the other party within
thirty (30) days after the date by which both Landlord and Tenant are notified
of such taking or such sale, and, in the event that neither Landlord not Tenant
shall so exercise such election to terminate this Lease, then this Lease shall
continue in full force and effect.
14.5 If this Lease is not terminated following any condemnation, Landlord
shall make all necessary repairs or alterations within the scope of Landlord's
Work necessary to make the Premises an architectural whole, and Tenant agrees
that promptly after completion of such work by Landlord, Tenant will proceed
with reasonable diligence and at its sole cost and expense to make all necessary
repairs or alterations within the scope of Tenant's Work necessary to make
Premises an architectural whole.
14.6 All compensation awarded for any taking (or the proceeds of private
sale under threat thereof), whether for the whole or a part of the Premises,
shall be the property of Landlord, whether such award is compensation for
damages to Landlord's or Tenant's interest in the Premises, and Tenant hereby
assigns all of its interest in any such award to Landlord; provided, however,
Landlord shall have no interest in any award made to Tenant for loss of business
or for the taking of Tenant's fixtures and personal property within the Premises
if a separate award for such items if made to Tenant.
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ARTICLE XV
ASSIGNMENT AND SUBLETTING
15.1 Tenant shall not assign or transfer all or any portion of its
interest in this Lease or in the Premises, or sublet all or any portion of the
Premises, without the prior written consent of Landlord. Landlord agrees that it
will not unreasonably withhold its consent to any proposed assignment or
subletting; provided, however, that Tenant acknowledges and agrees that Landlord
shall not be deemed to be unreasonable in taking the following items into
account: (i) the character, identity and reputation of the proposed assignee or
subtenant, (ii) its creditworthiness and credit history, (iii) its history of
operating a business similar to the Approved Use; and (iv) its proposed use of
the Premises (which must fall within the Approved Use). Tenant agrees to
furnish information reasonably requested by Landlord to assist Landlord in
making such determination. Without limiting the foregoing, Landlord reserves
the right to withhold consent to an assignment or subletting to any entity whose
primary business is the operation of "sports bars" or whose primary business is
the sale of alcoholic beverages. Any assignment or sublease without Landlord's
prior written consent shall be voidable, and, at Landlord's election, shall
constitute a default of Tenant hereunder. Consent by Landlord to one or more
assignments or sublettings shall not operate as a waiver of Landlord's rights
with respect to any subsequent assignment or subletting. If Tenant is a
partnership, a withdrawal or change (voluntary, involuntary, or by operation of
law) of any partner owning 20% or more of the partnership, or the dissolution or
liquidation of the partnership, shall be deemed an assignment of this Lease. If
Tenant consists of more than one person, any purported assignment (voluntary,
involuntary, or by operation of law) from any of such persons to any other
person or entity shall be deemed an assignment of this Lease. If Tenant is a
corporation, any dissolution or other reorganization of Tenant, or the sale or
other transfer of the controlling percentage of the capital stock of Tenant, or
the sale of fifty-one (51%) percent of the value of the assets of Tenant, shall
be deemed an assignment of this Lease. The phrase "controlling percentage"
means the ownership of, and the right to vote, stock possessing at least fifty-
one (51%) percent of the total combined voting power of all classes of Tenant's
capital stock issued, outstanding, and entitled to vote for the election of
directors. The foregoing provision shall not apply to corporations, the stock
of which is regularly traded through an exchange or over the counter. In
addition, notwithstanding the foregoing, a merger or consolidation with or into
Tenant shall not be deemed an assignment requiring the consent of Landlord under
this Paragraph 15.1. The term "sublet" shall be deemed to include the granting
of licenses, concessions, and any other rights of occupancy of any portion of
the Premises, excepting only customary leased department arrangements under
which such leased department is not operated under a separate name and is held
out to the public as an integral part of the Premises. The original Tenant
shall remain liable for all obligations under this Lease following any
assignment or subletting, even though Landlord has consented to such assignment
or subletting.
15.2 The term "Landlord" as used in this Lease means only the owner or
entity from time to time owning the building containing the Premises, so that in
the event of any sale or sales thereof, the Landlord who is a grantor in any
such sale shall be and hereby is, without further agreement, entirely freed and
relieved of all the obligations of Landlord hereunder. Any such sale or sales
of the Premises, unless pursuant to a foreclosure sale or deed in lieu of such
foreclosure, shall be subject to this Lease and it shall be deemed and construed
without further agreement that the purchaser at any such sale has assumed and
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agreed to carry out any and all obligations of Landlord under this Lease so long
as such purchaser shall be the owner of the building containing the Premises.
15.3 Tenant may pledge or otherwise encumber its interest under this Lease
only with Landlord's prior written consent, which shall not be unreasonably
withheld; provided, however, that such pledge or encumbrance is subordinate to
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this Lease and provided further that such consent may be conditioned upon other
reasonable requirements, including the payment of Landlord's reasonable
attorneys' fees actually incurred. Tenant has only a usufruct, not subject to
levy, sale of other transfer, whether voluntary or by operation of law, except
in accordance with this Article XV.
ARTICLE XVI
TAXES
16.1 Tenant shall be liable for and shall pay all taxes levied against
personal property, fixtures, and Tenant's Work in the Premises; if such taxes
for which Tenant is liable are levied against Landlord or Landlord's property
and if Landlord elects to pay the same or if the assessed value of Landlord's
property is increased by inclusion of any such items and Landlord elects to pay
the taxes based on such increase, Tenant shall pay to Landlord upon demand that
part of such taxes for which Tenant is liable hereunder.
16.2 Tenant agrees to pay as additional rent, its share of the general
real estate taxes, assessments, and governmental charges levied against the
Premises and the Shopping Center for each calendar year beginning with the
Rental Commencement Date and during the Term and any renewals or extensions
thereof. Said taxes, assessments, and governmental charges shall be
appropriately prorated during the first year and last year of the Term if such
years are less than full calendar years. The proportionate share to be paid by
Tenant shall be that percentage of said general real estate taxes, assessments,
and governmental charges which the Gross Rentable Area of the Premises bears to
the Gross Rentable Area of the Shopping Center. Landlord may at its option make
monthly or other periodic charges based upon the estimated annual taxes, payable
in advance but subject to adjustment after receipt of the tax statement by
Landlord. Landlord's estimate of the initial amount that Tenant will be
required to pay pursuant to this Section 16.2 is set forth on Exhibit "D"
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attached hereto.
16.3 Tenant agrees to pay as additional rent any rent tax or other tax
imposed upon rent payments or imposed upon Landlord based upon rent payments by
Tenant to Landlord; however, Tenant shall not be required to pay any income tax
of Landlord.
ARTICLE XVII
DEFAULTS AND REMEDIES
17.1 Defaults. Each of the following events shall constitute a default or
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event of default by the Tenant under this Lease:
(a) Tenant's failure to pay rent when the same shall be due and payable and
the continuance of such failure for a period of ten (10) days after receipt by
Tenant of notice in writing from Landlord specifying the nature of such failure;
provided, however, such notice and such grace period shall be required to be
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provided by Landlord and shall be accorded Tenant, if necessary, only one (1)
time during any consecutive twelve (12) month period, and an event of default
shall be deemed to have immediately occurred upon the second (2nd) failure by
Tenant to make a timely payment as aforesaid within any consecutive twelve (12)
month period, 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
or planning in connection with its obligations to make timely payment of rent
and other amounts due hereunder; or
(b) Tenant's failure to perform any of the other covenants, conditions and
agreements herein contained on Tenant's part to be kept or performed and the
continuance of such failure without the curing of same for a period of thirty
(30) days after receipt by Tenant of notice in writing from Landlord specifying
the nature of such failure; or
(c) If Tenant shall (i) file a petition commencing a voluntary case under
any applicable federal or state bankruptcy, insolvency or other similar law;
(ii) make a general assignment for the benefit of its creditors; (iii) file an
application for, or consent to, the appointment of any receiver or a permanent
or interim trustee of Tenant or of all or a substantial portion of its property;
(iv) file a petition seeking a reorganization of its financial affairs or to
take advantage of any bankruptcy, insolvency or similar law, or an answer
admitting the material allegations of a petition filed against it in any
proceeding under any such law; (v) take any action for the purpose of effecting
any of the foregoing; or (vi) be the subject of a decree or order for relief by
a court having jurisdiction in respect of Tenant in any involuntary case under
any applicable federal or state bankruptcy, insolvency or similar law; or
(d) Except as otherwise provided in Section 4.7 of this Lease, if Tenant
shall vacate or abandon the Premises or any substantial portion thereof during
the term of this Lease and such vacation or abandonment shall continue for a
period of thirty (30) days; or
(e) If the Premises or any portion thereof or any interest therein become
subject to a lien resulting from the entry of a final, non-appealable judgment
against Tenant and Tenant shall have failed to release, discharge or otherwise
bond such lien within thirty (30) days after written notice of such lien has
been given by Landlord to Tenant but in any event prior to foreclosure of such
lien; or
(f) If any proceedings brought against Tenant seeking any of the relief
mentioned in Section 17.1 shall not have been dismissed within sixty (60) days.
17.2 Landlord's Remedies. Upon the occurrence of any default or event of
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default as defined under Section 17.1 above, Landlord shall have the option to
pursue any one or more of the following remedies without any notice or demand
whatsoever, except as required herein:
(a) Landlord may terminate this Lease by written notice to Tenant, in which
event Tenant shall immediately surrender the Premises to Landlord, and if Tenant
fails to do so, Landlord may to the extent permitted by law and without
prejudice to any other right, remedy, or power which it may have, enter upon and
take possession of the Premises and expel or remove Tenant and any other person
who may be occupying the Premises or any part thereof, without being liable for
prosecution or any claim for damages therefor.
(b) Landlord may enter upon and take possession of the Premises, without
terminating this Lease, and expel or remove Tenant and any other person who may
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be occupying the Premises or any part thereof by dispossessory suit, without
being liable for prosecution or any claim for damages therefor. In addition,
Landlord shall have the right, but not the obligation, to relet the Premises or
any part thereof, at such rent and for such term and subject to such terms and
conditions as Landlord may deem reasonably advisable and receive the rent
therefor, after making such alterations and repairs as Landlord may deem
reasonably advisable in order to relet the Premises. Upon each such reletting
all rentals received by Landlord from such reletting shall be applied, first to
the payment of any charges or expenses outstanding and relating to the operation
or the ownership of the Premises; second, to the payment of any loss and
expense of such reletting, including brokerage fees and reasonable attorney fees
and costs of such alterations and repairs; third, to the payment of rental due
and unpaid hereunder; and the residue, if any, shall be held by Landlord and
applied in payment of future rent, additional rental, and other charges as the
same may become due and payable hereunder. Tenant agrees to pay to Landlord on
demand from time to time any deficiency that may from time to time arise by
reason of such reletting, with the right reserved to Landlord to bring from time
to time action(s) or proceeding(s) for the recovery of any deficits from time to
time remaining unpaid without having to await the end of the term for a final
determination of Tenant's account, and the commencement of any one or more such
actions or proceedings shall not bar or preclude Landlord's bringing other or
subsequent actions or proceedings for future such deficits. Any such reletting
herein provided for may be for the remainder of the term of this Lease or for a
longer or shorter period, and may be upon such other terms as Landlord in its
sole discretion shall determine. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect by written notice to
Tenant to terminate this Lease for such previous breach.
(c) In the event Tenant does not comply with its obligations under this
Lease, Landlord shall also have the right to appropriate injunctive relief.
(d) Should Landlord at any time terminate this Lease for any default or
breach by Tenant, in lieu of any other remedies available at law or under this
Lease, Landlord may recover from Tenant all damages Landlord may incur by reason
of such default or breach, including the cost of recovering the Premises, and
reasonable attorneys' fees; in addition, as liquidated damages and not as a
penalty, Tenant shall immediately become liable to Landlord for the accelerated
present value of the rent, including any other sums treated as additional rent
hereunder, and all other sums provided herein to be paid by Tenant during the
remainder of the Term (the "Rent Balance"), less the Net Rental Value of the
Premises, as hereinafter defined. The term "Net Rental Value" shall mean the
fair rental value of the Premises for the remainder of the Term reduced to
present value, taking into consideration such factors as the annual rental rate
per square foot of rentable area then being charged in the Shopping Center and
in comparable buildings in the same rental market as the Premises, the then-
existing condition of the Premises and the improvements located therein, and the
then-existing absorption and vacancy rates for space comparable to the Premises,
less the Landlord's reasonable costs, expenses and attorneys' fees incurred in
connection with the preparation of the Premises for reletting and for the
reletting itself, including such expenses as reasonable rental abatements, cash
inducements, lease buyouts and other concessions offered or to be offered to
prospective tenants of the Premises, the cost of reasonable tenant improvements
or remodeling credits, and applicable brokerage commissions. Provided, however,
the parties agree that in no event shall the Net Rental Value exceed the Rent
Balance. The parties agree that the damages caused by Tenant's default would be
difficult or impossible to accurately estimate and that this measure of damages
is a reasonable pre-estimate of the Landlord's probable loss resulting from
Tenant's breach.
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(e) Tenant hereby acknowledges that Landlord has entered into this Lease
with Tenant based upon the quality and nature of Tenant's business. Tenant
hereby agrees that if Landlord does undertake to relet the Premises it shall
not have any obligation to relet the Premises for any purpose other than for a
business of a quality and concept equal to the Approved Use or to any lessee who
is not reputable or who is not financially capable of performing the duties and
obligations imposed upon such lessee under the applicable lease or who does not
have experience in successfully operating a business pursuant to the Approved
Use. Tenant further agrees that any undertaking by Landlord to relet the
Premises shall not impose any obligation on Landlord to relet the Premises in
preference to the leasing by Landlord of any other property or premises of
Landlord. Landlord shall further not be required to subdivide the Land or to
partition the Premises for multiple tenant use in order to relet the Premises.
17.3 Right to Perform. If Tenant shall fail to pay any taxes or make any
----------------
other payment required to be made under this Lease or shall default in the
performance of any other covenant, agreement, term, provision or condition
herein contained, Landlord, without being under any obligation to do so and
without thereby waiving such failure or default, may make such payment or remedy
such other default for the account and at the expense of Tenant, immediately and
without notice in the case of emergency or in the event of non-payment of any
taxes, or in any other case provided Tenant shall fail to make such payment or
remedy such default within the applicable grace period specified in Section 17.1
hereof after Landlord shall have notified Tenant of such failure or default.
Bills for any reasonable expense incurred by Landlord in connection therewith,
and bills for all reasonable costs, expenses and disbursements of every kind and
nature, including, without limitation, reasonable attorney fees and expenses
involved in collecting or endeavoring to enforce any right against Tenant, under
or in connection with this Lease, or pursuant to law, including, without
limitation, any such costs, expenses and disbursements involved in instituting
and prosecuting summary proceedings, as well as bills for any property,
material, labor or services provided, furnished or rendered, or caused to be
furnished or rendered, by Landlord to Tenant with respect to the Premises and
other equipment and construction work done for the account of Tenant (together
with interest at the Default Rate from the respective dates of Landlord's making
of each such payment or incurring of each such cost and expense), may be sent by
Landlord to Tenant monthly, or immediately, at Landlord's option, and shall be
due and payable in accordance with the terms of such bills as additional rent
under this Lease.
17.4 No Remedy Exclusive. Except with respect to Landlord's election to
-------------------
terminate this Lease pursuant to Section 17.2(d) of this Lease, no remedy herein
conferred upon or reserved to Landlord is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other remedy given under this Lease or now or
hereafter existing at law or in equity.
17.5 Interest and Late Charges. A late charge shall be imposed upon any
-------------------------
installment of rent or other payment required from Tenant which is not paid
within five (5) days of the date in the amount of $10.00 per day from the date
such payment was due until the date such payment is made and such late charge
shall be payable immediately to Landlord as additional rent hereunder. In
addition, any installment of rent or other payment required from Tenant which is
not paid within ten (10) days of the date when it was due shall bear interest at
the rate of twelve percent (12%) per annum or at the maximum rate allowed by
law, whichever is less. Such interest shall accrue from the date such payment
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was due until the date such payment is made, and such interest shall be payable
immediately to Landlord as additional rent hereunder. There will also be a
$50.00 charge by management should the check be returned by the bank for non-
sufficient funds (NSF).
17.6 Attorney Fees. If because of the occurrence of an event of default
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or any breach of any covenant or condition hereof by either party it shall
become necessary for the other party to employ an attorney to enforce or defend
any of such party's rights or remedies hereunder or to collect any amounts due
hereunder, the prevailing party's reasonable attorney fees and expenses incurred
in connection therewith shall be paid by the non-prevailing party.
17.7 Waiver of Redemption. Intentionally Deleted.
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17.8 Waivers. Failure of Landlord or Tenant to complain of any act or
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omission on the part of the other party no matter how long the same may
continue, shall not be deemed to be a waiver by said party of any of its rights
hereunder. No waiver by Landlord or Tenant at any time, express or implied, of
any breach of any provision of this Lease shall be deemed a waiver of a breach
of any other provision of this Lease or a consent to any subsequent breach of
the same or any other provision.
ARTICLE XVIII
HOLDING OVER
18.1 If Tenant remains in possession of the Premises after the termination
of this Lease and without the execution of a new lease, Tenant shall be deemed
to be occupying the Premises as a tenant at sufferance at a rent equal to the
rent herein provided plus fifty (50%) percent of such amount and otherwise
subject to all the covenants and provisions of this Lease in so far as the same
are applicable to a tenant at sufferance and in no event shall there be any
renewal of this Lease by operation of law.
ARTICLE XIX
SUBORDINATION
19.1 This Lease and all rights of Tenant hereunder are and shall be
subject and subordinate to the lien of all mortgages, deeds to secure debt,
deeds of trust, or other instruments in the nature thereof which may now or
hereafter affect Landlord's fee title to the Premises or Landlord's interest
hereunder and to any modifications, renewals, consolidations, extensions, or
replacements of any of the foregoing.
In confirmation of such subordination, Tenant, shall, upon demand at any
time or times, execute, seal and deliver to Landlord, without expense to
Landlord, any and all instruments in recordable form that may be requested by
Landlord to evidence the subordination of this Lease and all rights hereunder to
the lien of any such mortgage, deed to secure debt, deed of trust or other
instrument in the nature thereof, and each renewal, modification, consolidation,
replacement, and extension thereof; provided, however, that the holder of such
mortgage, deed to secure debt, deed of trust or other instrument agrees in
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writing to recognize Tenant's possession and interest in the Premises so long as
Tenant is not in default under this Lease, subject to reasonable limitations and
requirements by such holder.
In addition Tenant shall, upon Landlord's request, at any time or times,
execute, seal and deliver to Landlord without expense to Landlord, any and all
instruments that may be necessary to make this Lease superior to the lien of any
such mortgage, deed to secure debt, deed of trust, or other instrument in the
nature thereof, and each renewal, modification, consolidation, replacement, and
extension thereof, and if Tenant shall fail at any time to execute, seal and
deliver such instrument, Landlord in addition to any other remedies available to
it in consequence thereof, may execute, seal and deliver the same as the
attorney in fact of Tenant and in Tenant's name, place and stead, and Tenant
hereby irrevocably makes, constitutes, and appoints Landlord, its successors and
assigns, such attorney in fact for that purpose.
19.2 (a) If the holder of any mortgage, deed to secure debt, deed of
trust, or other instrument in the nature thereof shall hereafter succeed to the
rights of Landlord under this Lease, whether through possession or foreclosure
action or delivery of a new lease, then, at the option of such holder, Tenant
shall attorn to and recognize such successor as Tenant's landlord under this
Lease, and shall promptly execute and deliver any instrument that may be
necessary to evidence such attornment.
(b) Upon the attornment provided for in subsection (a) above, this Lease
shall continue in full force and effect as a direct lease between such successor
Landlord and Tenant, subject to all terms, covenants, and conditions of this
Lease; provided, however, that such holder, as successor landlord, shall not be
liable for returning to Tenant, nor crediting against any rent due hereunder,
any advance rentals previously paid by Tenant to Landlord or the Security
Deposit unless such holder has acknowledged the receipt of the Security Deposit.
ARTICLE XX
INSURANCE
---------
20.1 Worker's Compensation; Builder's Risk; General. Commencing on the
----------------------------------------------
date upon which Tenant begins construction of Tenant's Work or any other
activity upon the Premises (except for such other commencement dates as may be
expressly provided to the contrary in this Section 20.1 below) and thereafter
throughout the term of this Lease, Tenant shall, at the Tenant's sole cost and
expense and for the mutual benefit of Landlord and Tenant:
(a) maintain, or cause to be maintained, appropriate worker's compensation
insurance in respect of any work on or about the Premises performed by or at the
instance of Tenant and with respect to the Tenant's conduct of business on the
Premises, all in compliance with the worker's compensation laws of any public or
governmental authority;
(b) maintain such other insurance during the Extension Terms, in such
amounts, as may from time to time be reasonably required by Landlord against
other insurable hazards which at the time are commonly insured against in the
case of buildings similarly situated, due regard being given to the size,
location, use and occupancy of the Premises; and
76
(c) maintain or cause to be maintained, during the period of construction
of Tenant's Work and thereafter during the period of any alteration or
remodeling thereof, all-risk builder's risk insurance.
20.2 Hazard Insurance. From and after the date of completion of
----------------
construction of Tenant's Work, and in any event prior to the time that Tenant
shall cancel its all-risk builder's risk insurance policy described in Section
20.1(c) above, and thereafter throughout the term of this Lease, Tenant shall,
at Tenant's sole cost and expense for the mutual benefit of Landlord and Tenant,
keep the Premises (including both Landlord's Work and Tenant's work) insured
against loss or damage by fire, and such other casualties as are included in the
all-risk form of building insurance policy, in an amount not less than one
hundred percent (100%) of the then full replacement value of the Premises, and
providing for a deductible of not more than $5,000.00. Tenant shall also
maintain rent loss insurance with a broad form extended coverage endorsement in
an amount equal to the sum of at least twelve (12) months rent, taxes, insurance
premiums and all other rent and charges payable by Tenant pursuant to this
Lease.
20.3 Liability Insurance. Commencing on the date upon which Tenant begins
-------------------
construction of Tenant's Work or any other activity on the Land and thereafter
throughout the term of this Lease, Tenant shall, at Tenant's sole cost and
expense, and for the mutual benefit of Landlord and Tenant, maintain commercial
general liability insurance (whether through a blanket insurance policy or
otherwise), such insurance to afford protection of not less than $2,000,000.00
combined single limit (the "Liability Insurance Limits") in respect of either
(a) personal injury or death to any number of persons in any one accident
occurring upon, in or about the Premises, or (b) property damage. Such
insurance shall expressly include insurance against any loss, cost, damage,
liability, claim, or expense from incidents relating to products liability,
covering food or beverage served by Tenant at the Premises, and liquor
liability, for alcoholic beverages served by Tenant at the Premises. Such
insurance shall contain a "personal injury" endorsement covering claims arising
out of false arrest, false imprisonment, defamation of character, libel and
slander, wrongful eviction and invasion of privacy, without the exclusion of
coverage for claims of personal injury brought by employees, agents or
contractors of an insured.
20.4 Minimum Levels of Insurance. Commencing at the beginning of each
---------------------------
Extension Term, as applicable, Landlord may request, in writing, that Tenant
increase the levels of commercial general liability insurance set forth in
Section 20.3 hereof to reflect the levels of insurance customarily maintained
under then current practices for premises of the size, nature, location, use and
occupancy of the Premises, and Tenant agrees to comply with such request.
20.5 Assignment of Insurance Policies. As additional collateral and
--------------------------------
further security for the payment of the rent, Tenant does hereby transfer and
assign to Landlord all insurance policies of Tenant described in this Article
XX, together with the proceeds thereof. Landlord, at its option, is hereby
authorized to collect and receive all such proceeds and to give proper receipts
and acquittances therefor. Upon the termination of this Lease due to a default
by Tenant, and to the extent possible under the provisions of Tenant's insurance
policies, all right, title and interest of Tenant in and to all policies of
insurance of Tenant described in this Article XX shall likewise expire and
terminate and shall become the sole property of Landlord.
77
20.6 Policy Provisions.
-----------------
(a) All insurance provided for in this Article XX shall be effected under
valid and enforceable policies issued by insurers having a current A.M. Best
Company, Inc. policyholders' rating of "A" or better and a financial size
category of "Class XI" or higher, and licensed to do business in the State of
Georgia. If the A.M. Best Company, Inc. ratings shall cease to be published,
then, for purposes of this Lease, there shall be substituted therefor such
comparable alternative ratings as shall be agreed upon by Landlord and Tenant.
(b) All policies of insurance provided for in this Article XX, and/or the
certificates therefor, other than with respect to worker's compensation, shall:
(i) name Landlord and Tenant as the insureds, as their respective
interests may appear; and
(ii) provide that such policies shall not be cancelled or materially
changed without at least thirty (30) days' prior written notice to each insured
named therein.
(c) All policies of insurance maintained by Tenant shall contain a
provision whereby the insurer waives any rights of subrogation against Landlord.
As to any loss or damage which may occur and be collected under any insurance
policy, each party hereby releases the other from any amount of liability for
such loss or damage to the extent of the amounts collected.
20.7 Delivery of Policies. Upon the issuance thereof, and thereafter not
--------------------
less than thirty (30) days prior to the expiration dates of the expiring
policies, originals of the policies provided for in Sections 20.1, 20.2 and 20.3
or, if blanket policies are in existence, certificates thereof, shall be
delivered to Landlord.
20.8 Additional Insurance. Tenant shall not take out separate insurance
--------------------
concurrent in form, or contributing in the event of loss, with that required in
this Article XX to be furnished by, or which may reasonably be required to be
furnished by, Tenant, unless Landlord is included therein as an insured, and
unless the policies shall comply with all the other requirements of this Article
XX. Tenant shall immediately notify Landlord of the taking out of any such
separate insurance and shall deliver the policy or policies as provided in
Section 20.7 hereof.
20.9 Blanket Policies. Nothing in this Article XX shall prevent Tenant
----------------
from taking out insurance of the kind and in the amount provided for under this
Article XX under a blanket insurance policy or policies which cover the
properties owned or operated by Tenant as well as the Premises; provided,
however, that any such policy of blanket insurance shall specify therein, or
Tenant shall furnish Landlord with a written statement from the insurers under
such policies specifying, the amount of the total insurance allocated to the
Premises, which amount shall be not less than the amount required by this
Article XX. Tenant will furnish to Landlord, within thirty (30) days after the
filing thereof, with any insurance rate making body, copies of the schedule or
makeup of all property affected by any such policy of blanket insurance.
20.10 Apportionment of Premiums. At the expiration or sooner termination
-------------------------
of the term of this Lease, all transferable insurance policies of Tenant
described in this Article XX shall, if requested by Landlord, be transferred to
78
Landlord free of all right, title and interest of Tenant and those claiming
under Tenant, and Landlord and Tenant shall apportion prepaid or accrued
premiums as of such expiration or termination date less, if a default is then
uncured, the amount required to cure such default.
ARTICLE XXI
NOTICES
Whenever any notice is required or permitted hereunder, such notice shall
be in writing. Any notice or document required of permitted to be given to
Landlord hereunder shall be deposited in the United States Mail, postage
prepaid, certified mail, return receipt requested, addressed to the Landlord at
the address specified in Section 1.1 (h), and any such notice or document
required or permitted to be given to Tenant hereunder shall be delivered to the
Premises or deposited in the United States Mail, postage prepaid, certified
mail, return receipt requested, addressed to Tenant at the address specified in
Section 1.1 (s).
ARTICLE XXII
MISCELLANEOUS
22.1 Tenant agrees that upon the written request of the holder of any
mortgage, deed to secure debt, deed of trust, or other security instrument in
the nature thereof encumbering Landlord's interest hereunder or in the Premises,
Tenant shall send to such holder copies of all notices sent to Landlord, such
copies to be forwarded to such holder as and when such notices are sent to
Landlord and at the mailing address from time to time provided to Tenant by
either Landlord or such holder. In addition, Tenant agrees that it may not
exercise any of its remedies on account of a default by Landlord under this
Lease unless and until such holder shall have received written notice of such
default from Tenant and a period of thirty (30) days after receipt of such
notice for curing such default shall thereafter have elapsed.
22.2 The captions and the table of contents used in this Lease are for
convenience only and do not in any way limit or amplify the terms and provisions
hereof. Whenever the singular number is used the same shall include the plural,
and words of any gender shall include each other gender.
22.3 One or more waivers of any covenant, term or condition of this Lease
by either party shall not be construed as a waiver of any subsequent breach of
the same covenant, term or condition. The consent or approval by either party
to or of any act by the other party requiring such consent or approval shall not
be deemed to waive or render unnecessary consent to or approval of any
subsequent similar act.
22.4 Landlord hereby covenants and agrees that if Tenant shall perform all
of the covenants and agreements herein required to be performed on the part of
Tenant, Tenant shall, subject to the terms of this Lease, at all times during
the continuance of this Lease have the peaceable and quiet enjoyment and
possession of the Premises.
79
22.5 This Lease contains the entire agreement between the parties and no
agreement, representation or inducement shall be effective to change, modify or
terminate this Lease in whole or in part unless in writing and signed by the
parties.
22.6 At any time and from time to time, Landlord or Tenant, as the case
may be, on or before the date specified in a written request made by the
requesting party, which date shall not be earlier than ten (10) days from the
making of such request, shall execute, acknowledge and deliver to the requesting
party a certificate regarding factual matters under the Lease, including whether
or not:
(a) This Lease is in full force and effect;
(b) This Lease has been amended in any way;
(c) There are any existing defaults hereunder to the knowledge of the non-
requesting party and specifying the nature of such default, if any;
and
(d) The date through which rent has been paid.
Each certificate delivered to Landlord pursuant to this Section 22.6 may be
relied on by any prospective purchaser or transferee of the Shopping Center or
of Landlord's interest hereunder or by any mortgage of the Shopping Center or of
Landlord's interest hereunder or by any assignee of an such mortgage.
22.7 The terms, provision and covenants contained in this Lease shall
apply to, inure to the benefit of, and be binding upon the parties hereto and
their respective heirs, assigns, successors in interest and legal
representatives except as otherwise herein expressly provided, provided,
however, that all claims, demands, or causes of action which Tenant may at any
time thereafter have against Landlord because of Landlord's failure to comply
with any provisions hereof, shall be enforceable solely against Landlord's
right, title and interest in the Shopping Center and no other property of
Landlord shall be subject to any such claim, demand or cause of action.
22.8 Time is of the essence in this Lease.
22.9 The laws of the State of Georgia shall govern the interpretation,
validity, performance, and enforcement of this Lease. If any provision of lease
shall be held to be invalid or enforceable, the validity and enforceability of
the remaining provisions of this Lease shall not be affected thereby.
22.10 Tenant shall, on or before the last day of the Term hereof, or on
the sooner termination hereof, peaceably and quietly leave, surrender and yield
up unto Landlord the Premises, together with all alterations, additions,
improvements, fixtures and equipment including air conditioning equipment but
excluding trade fixtures and other personal property of Tenant, any lessee,
sublessee, licensee or concessionaire of Tenant, or any other occupant of the
Premises. Such alterations, additions, improvements, fixtures and equipment to
be in good order and repair, ordinary wear and tear, obsolescence, damage by
fire or other casualty, acts of God, condemnation, civil riot and commotion
excepted. All such trade fixtures and other personal property shall be removed
by Tenant on or before the last day of the Term hereof, and all such property
not so removed shall be deemed abandoned by Tenant and conveyed to Landlord
80
unless Landlord shall give notice to Tenant to remove all or any part hereof, in
which event Tenant shall promptly at its expense remove same, or Landlord may do
so at Tenant expense.
22.11 If any term, covenant, or condition of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term,
covenant, or condition to persons or circumstances other than those as to which
it is invalid or unenforceable, shall not be affected thereby and each term,
covenant, or condition of this Lease shall be valid and be enforced to the
fullest extent permitted by law.
22.12 Nothing herein contained shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent or of partnership or joint venture between the parties hereto, it being
understood and agreed that neither the method of computation of rent, not any
other provision contained herein, or any acts of the parties hereto, shall be
deemed to create any relationship between the parties hereto other than the
relationship of landlord and tenant.
22.13 Landlord and Tenant warrant to each other that neither of them has
had any dealings with any broker other than Wells & Associates, Inc. and Triton
Realty Group in connection with the negotiations or execution of this lease, and
Landlord and Tenant agree to indemnify and hold each other harmless from and
against any and all costs, expense, or liability for commissions or other
compensation or charges claimed by any broker or agent. Wells & Associates,
Inc. has represented Landlord in this transaction and is to be paid a
commission. Triton Realty Group has represented Tenant in this transaction and
is to be paid a commission by Landlord.
22.14 To the extent that the Special Stipulations set forth in Exhibit "G"
-----------
conflict with any of the printed provisions of this Lease, such Special
Stipulations shall control.
22.15 Use of Tenant's Name and Logo. Tenant agrees that Landlord shall
have the right, but not the obligation, to include Tenant's name and logo in any
advertising.
22.16 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 real property described in Exhibit "A" and the rent paid to Landlord
-----------
by tenants of the Shopping Center. 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 Shopping Center. In no event
shall any partner of Landlord nor any joint venturer in Landlord, nor any
officer, director or shareholder of Landlord or any such partner or joint
venturer of Landlord be personally liable with respect to any of the provisions
of this Lease.
81
IN WITNESS WHEREOF, Landlord and Tenant have set their hands and seals as
of the day, month and year first above written.
"LANDLORD":
FUND VII ASSOCIATES,
a Georgia limited partnership
By: Wells Real Estate Fund VII, L.P., a Georgia
limited partnership
By: /s/ Leo F. Wells, III
______________________________________
Leo F. Wells, III, general partner
By: WELLS PARTNERS, L.P., a Georgia limited
partnership, general partner
By: WELLS CAPITAL, INC., a Georgia
corporation
By: /s/ Leo F. Wells, III
_______________________________________
Leo F. Wells, III, President
[CORPORATE SEAL]
"TENANT":
MOOVIES, INC.
a Delaware corporation
By: _______________________________________
Title: ________________________________
Attest: _______________________________________
Title: ________________________________
82
EXHIBIT "D"
ESTIMATED CHARGES
FOR COMMON AREA MAINTENANCE, TAXES AND INSURANCE
COMBINED TOTALS: $2.00 PER SQUARE FOOT
It is understood that these charges are estimates only and are subject to change
as provided for in the body of this Lease.
83
EXHIBIT "F"
RULES AND REGULATIONS
1. All deliveries or shipments of any kind to and from the premises including
loading of goods, shall be made by way of the rear of the premises or at
any other location designated by Landlord, and only at such time designated
for such purpose by Landlord.
2. Tenant shall not use the public or common areas around the building for
business purposes or special events unless prior approval in writing has
been granted by the Landlord.
3. Plumbing facilities shall not be used for any other purpose than that for
which they are constructed, and no foreign substance of any shall be thrown
therein.
4. Tenant shall use, at Tenant's cost, a pest extermination contractor at such
intervals as Landlord may require, but no less often than once annually.
5. Tenant shall not place or permit:
a. Displays, decorations or shopping carts on the sidewalk in front of the
premises or upon any of the common area of the building;
b. anything to be displayed, stacked, hung from the ceiling, racked stored,
etc. on the sidewalks outside the shops unless the tenant:
1. obtains the Landlord's prior written approval; and
2. acquires adequate insurance coverage; and
3. accepts all liability for the sidewalk outside the shops.
c. any bicycles, motorized and non-motorized vehicle to park on the
sidewalks and only in designated places in common areas.
6. Prior to installation, the Landlord must approve in writing all signs of
any type which are to be installed or displayed in the common areas.
Unauthorized signs will be removed by Landlord without notice.
7. Soliciting for any reason in the common areas requires prior written
approval from the Landlord.
8. Distribution of sales flyers, pamphlets, or any type of advertising
literature in the common areas, on parked cars, etc. is only permitted with
the prior written approval of the Landlord. Distribution of sales flyers,
pamphlets, or any type of advertising literature by any other than the
tenants in the center is not permitted.
9. Landlord reserves the right to change Landlord's sign criteria so long as
the new sign criteria is uniformly enforced by the Landlord.
10. Tenant agrees to participate in trash pick-up as directed by Landlord.
84
11. Unless directly related to business, as stated in body of Lease, no animals
will be allowed on Common Areas.
12. Any damage caused to the roof of the premises by repair/service personnel
contracted by Tenant will be the responsibility of Tenant. Tenant should
caution all repair/service personnel to avoid stepping on blisters,
leaving foreign objects on roof, etc. All objects left on roof by Tenant
contracted repair/service personnel causing damage to the roof will be sole
responsibility of Tenant.
85
EXHIBIT "G"
SPECIAL STIPULATIONS
1. Notwithstanding anything to the contrary in this Lease, Landlord does
hereby agree to indemnify and save Tenant harmless from and against any and all
claims, demands, costs, expenses and liabilities, including, but not limited to,
court costs and reasonable attorney fees, arising from the negligence or willful
misconduct of Landlord, its agents, employees or contractors in or about the
Common Areas, except to the extent caused by Tenant's negligence or misconduct.
2. This Lease may be executed in multiple counterparts, each of which shall
be deemed an original, and all of such counterparts together shall constitute
one and the same instrument.
86
EXHIBIT "H"
SIGN CRITERIA
GENERAL CRITERIA
- ----------------
Each tenant is required to have one Primary Sign Unit.
Except as provided herein, no advertising placards, banners, posters,
pennants, flags, names, insignia, trademarks, or other descriptive material
shall be affixed or maintained upon either the interior or exterior of the glass
panels and supports of the show windows and doors, or upon the exterior walls of
the buildings.
All sign units, including additional symbols or logos, must be submitted to
Landlord for approval prior to fabrication, and installation. The cost of
fabrication and installation of each sign unit and permits shall be the
responsibility of Tenant. Sign construction is to be completed in compliance
with the instructions, limitations and criteria contained in this Exhibit. Any
installed non-conforming or unapproved sign shall be brought into conformance at
the non-conforming tenant's expense.
SPECIFICATIONS
- --------------
SIGN TEXT
The Sign shall not include the product sold except as part of the occupant's
trade name or insignia.
TYPOGRAPHY
The tenant shall arrange for the design and fabrication of the signs, in
conformance with the restrictions noted in this signage criteria manual.
Individual letters will be used on the primary signs. The style of the
typography shall be selected by Tenant with their use being contingent upon the
approval of Landlord. A maximum of ten degree slant to the right, from the
vertical, will be allowed. The average width of the letter stroke shall not
exceed 6".
LOCATION AND SIZE
Primary Sign Unit: One Only
The Primary Sign Unit shall consist of one line of sign text, mounted one inch
(1") from the masonry background by metal studs. Sign text shall be all upper
case letters with a height of not more than 24 inches or less than 12 inches.
The Primary Sign Unit shall be centered between the tenants' demising walls
immediately in front of the tenants' storefronts, with the maximum width not to
exceed 80% of the lineal leased frontage.
MATERIALS AND INSTALLATION
Primary Sign Unit
87
Letter to be fabricated with welded aluminum, .063" returns & backs, (Face
stroke to vary depending on size of letters) 4" depth, with 1/8" thickness
acrylic faces, and with one (1) single tube through 20" high, double tube 21"-
24" 15mm neon in each letter. Letter returns to have bronze enamel finish.
Letters to have Jewelite trim cap with bronze color. Letters to be mounted on
aluminum raceway that will be installed in continuous recessed power channel in
building fascia. Letters to be complete with proper size and number of 30 or 60
MA normal power factor 120 volt type transformers which will be located in the
aluminum raceway.
GUARANTEE AND GENERAL SPECIFICATIONS
The entire signage package shall be guaranteed for one (1) year from Date of
Installation against defects in material and workmanship. Defective parts shall
be replaced without charge.
All electrical signs shall bear the UL label, and their Installation must
comply with all local building and electrical codes.
All conductors, transformers and other equipment shall be concealed.
All bolts, fastenings, clips, etc., shall be painted to match sign mounting
surface.
No signmaker's label or other identification will be permitted on the exposed
surface of a sign, except for those required by local ordinance which shall be
placed in an inconspicuous location.
Sign contractor shall repair any damage to any work caused by his work.
Damage to the structure that is not repaired by the sign contractor shall become
Tenant's responsibility to correct.
Tenant shall be fully responsible for the operation of Tenant's sign
contractor and shall indemnify, defend and hold the parties harmless from
damages or liabilities on account thereof.
All exterior signs exposed to the weather shall be mounted at least 3/4" from
the building to permit proper dirt and water drainage. Each sign will also have
seepholes at the bottom to allow proper drainage.
All signs shall be fabricated using full welded construction.
COLOR
Primary Sign Unit
The color of the plastic letter face of the Primary Sign Unit shall be one of
the following:
Polycast Yellow #2037
Polycast Green #2108
Polycast White #7328
Polycast Red #2283
The metal side return of the letter shall be dark bronze. The exposed faces
of the raceway shall be painted to match the power channel cover.
88
APPROVAL
Tenant has submitted to Landlord for its approval the sign package attached
hereto as Exhibit "H-1". Landlord generally approves Tenant's sign package with
-------------
both parties' understanding that modification may be necessary to fit the
building containing the Premises and the Premises.
Landlord agrees to work with Tenant and the local government for the signage
for the Premises facing Hannover Parkway, Highway 138 and the back of the
building facing west on Highway 138.
Exact signage dimensions shall be submitted to Landlord for its approval, but
it is understood by the parties that Tenant's signage will be a minimum of 24"
in height, not to exceed 36" in height. Height and width of Tenant's signage
shall be proportional to the existing sign brand.
Colors of the plastic face letters shall be the same as currently exists on
other Moovies locations in the Atlanta metropolitan area.
Fabrication, materials and installation to follow specifications as outlined
in this Exhibit "H".
-----------
Pylon Signage: Attached hereto as Exhibit "H-2" is an architectural rendering
-------------
of the proposed pylon signage for the Shopping Center, which shall be placed at
the corner of Hannover Parkway and Highway 138. Landlord grants Tenant the
right to use the Pylon Sign as indicated on Exhibit "H-2" as long as Tenant is
-------------
current with all rent and additional rent payments and the Premises are being
operated for the Permitted Use. This right of use is personal to Tenant and may
not be available on an assignment of this Lease or a sublease of all or a
portion of the Premises. There will be a $100 per month promotion use charge to
Tenant for the pylon signage.
89
INDEX TO FINANCIAL STATEMENTS
-----------------------------
FINANCIAL STATEMENTS PAGE
- ---------------------------------------- -------
Independent Auditors' Reports F-2, F-3
Balance Sheets as of December 31, 1996 and 1995 F-4
Statements of Income for the Years
Ended December 31, 1996 and 1995,
and Nine Months Ended December 31, 1994 F-5
Statements of Partners' Capital for the Years Ended
December 31, 1996 and 1995, and
Nine Months Ended December 31, 1994 F-6
Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995, and
Nine Months Ended December 31, 1994 F-7
Notes to Financial Statements for
December 31, 1996, 1995 and 1994 F-8, F-43
F-1
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Real Estate Fund VII, L.P.:
We have audited the accompanying balance sheets of WELLS REAL ESTATE FUND VII,
L.P. (a Georgia public limited partnership) as of December 31, 1996 and 1995 and
the related statements of income, partners' capital, and cash flows for the
years then ended. These financial statements and the schedule referred to below
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits. The financial statements of Wells Real Estate Fund VII, L.P. for the
year ended December 31, 1994 were audited by other auditors whose report dated
January 13, 1995 expressed an unqualified opinion on those statements.
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 and schedule 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 Real Estate Fund VII,
L.P. as of December 31, 1996 and 1995 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 10, 1997
F-2
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' REPORT
The Partners
Wells Real Estate Fund VII, L.P.:
We have audited the balance sheet (which is not presented separately herein) of
Wells Real Estate Fund VII, L.P. (a limited partnership) as of December 31,
1994, and the related statements of income, partners' capital, and cash flows
for the period from inception (April 5, 1994) to December 31, 1994. In
connection with our audit of the financial statements, we have also audited the
information for the period ended DecemberE31, 1994 included in the DecemberE31,
1996 financial statement Schedule III--Real Estate and Accumulated
Depreciation. These financial statements and information included in the
financial statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and information included in the financial statement schedule 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 these 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 Real Estate Fund VII,
L.P. as of December 31, 1994, and the results of its operations and its cash
flows for the period from inception (April 5, 1994) to December 31, 1994 in
conformity with generally accepted accounting principles. Also in our opinion,
the related information for 1994 included in the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.
/s/KPMG PEAT MARWICK LLP
------------------------
January 13, 1995
Atlanta, Georgia
F-3
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
----------- -----------
NONOPERATING REAL ESTATE ASSETS:
Land $ 0 $ 534,262
Construction in progress 0 738,094
----------- -----------
Total nonoperating real estate assets 0 1,272,356
INVESTMENT IN JOINT VENTURES 19,625,041 18,110,964
CASH AND CASH EQUIVALENTS 366,301 1,114,066
DUE FROM AFFILIATES 291,778 156,825
DEFERRED PROJECT COSTS 9,002 126,613
ORGANIZATIONAL COSTS, less accumulated
amortization of $17,188 in 1996
and $10,938 in 1995 14,062 20,312
PREPAID EXPENSES AND OTHER ASSETS 6,546 29,547
----------- -----------
Total assets $20,312,730 $20,830,683
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 0 $ 178,413
Partnership distributions payable 296,706 191,558
----------- -----------
Total liabilities 296,706 369,971
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
PARTNERS' CAPITAL:
Limited partners:
Class A 15,698,900 14,457,205
Class B 4,317,124 6,003,507
----------- -----------
Total partners' capital 20,016,024 20,460,712
----------- -----------
Total liabilities and partners' capital $20,312,730 $20,830,683
=========== ===========
The accompanying notes are an integral part of these balance sheets.
F-4
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND FOR THE PERIOD FROM INCEPTION (APRIL 5, 1994)
TO DECEMBER 31, 1994
1996 1995 1994
---------- --------- --------
REVENUES:
Equity in income of joint ventures $ 457,144 $ 403,325 $ 78,799
Interest income 86,147 521,921 207,572
---------- --------- --------
543,291 925,246 286,371
---------- --------- --------
EXPENSES:
Partnership administration 55,688 97,733 65,881
Legal and accounting 28,577 17,220 12,539
Amortization of organization costs 6,250 6,250 4,688
---------- --------- --------
90,515 121,203 83,108
---------- --------- --------
NET INCOME $ 452,776 $ 804,043 $203,263
========== ========= ========
NET LOSS ALLOCATED TO GENERAL PARTNERS 0 $ (280) $ (220)
========== ========= ========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $1,062,605 $ 950,826 $233,337
========== ========= ========
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $ (609,829) $(146,503) $(29,854)
========== ========= ========
NET INCOME PER WEIGHTED AVERAGE CLASS A
LIMITED PARTNER UNIT $ 0.62 $ 0.57 $ 0.29
========== ========= ========
NET LOSS PER WEIGHTED AVERAGE CLASS B
LIMITED PARTNER UNIT $(0.98) $(0.20) $(0.09)
========== ========= ========
CASH DISTRIBUTION PER WEIGHTED AVERAGE
CLASS A LIMITED PARTNER UNIT $ 0.50 $ 0.55 $ 0.28
========== ========= ========
The accompanying notes are an integral part of these statements.
F-5
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND FOR THE PERIOD FROM INCEPTION (APRIL 5, 1994)
TO DECEMBER 31, 1994
Limited Partners
-------------------------------------------------------------------
Class A Class B Total
-------------------------- ----------------------- General Partners'
Original Units Amount Units Amount Partners Capital
-------- ---------- ------------- -------- ----------- -------- -----------
BALANCE, April 5, 1994 $ 100 0 $ 0 0 $ 0 $ 500 $ 600
Net income (loss) 0 0 233,337 0 (29,854) (220) 203,263
Limited partner contributions 0 1,631,409 16,314,094 706,087 7,060,867 0 23,374,961
Partnership distributions 0 0 (225,281) 0 0 0 (225,281)
Sales commissions 0 0 (1,631,408) 0 (706,087) 0 (2,337,495)
Other offering expenses 0 0 (793,899) 0 (343,599) 0 (1,137,498)
Class A conversion elections 0 (400) (3,400) 400 3,400 0 0
-------- ---------- ----------- -------- ----------- -------- -----------
BALANCE, December 31, 1994 100 1,631,009 13,893,443 706,487 5,984,727 280 19,878,550
Net income (loss) 0 0 950,826 0 (146,503) (280) 804,043
Limited partner contributions 0 47,800 478,000 32,721 327,212 0 805,212
Partnership distributions 0 0 (906,211) 0 0 0 (906,211)
Sales commissions 0 0 (47,800) 0 (32,721) 0 (80,521)
Other offering expenses 0 0 (23,900) 0 (16,361) 0 (40,261)
Class B conversion elections 0 13,518 112,847 (13,518) (112,847) 0 0
Return of capital (100) 0 0 0 0 0 (100)
-------- ---------- ----------- -------- ----------- -------- -----------
BALANCE, December 31, 1995 0 1,692,327 14,457,205 725,690 6,003,507 0 20,460,712
Net income (loss) 0 0 1,062,605 0 (609,829) 0 452,776
Partnership distributions 0 0 (897,464) 0 0 0 (897,464)
Class B conversion elections 0 134,503 1,076,554 (134,503) (1,076,554) 0 0
-------- ---------- ----------- -------- ----------- -------- -----------
BALANCE, December 31, 1996 $ 0 1,826,830 $15,698,900 591,187 $ 4,317,124 $ 0 $20,016,024
======== ========== =========== ======== =========== ======== ===========
The accompanying notes are an integral part of these statements.
F-6
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND FOR THE PERIOD FROM INCEPTION (APRIL 5, 1994)
TO DECEMBER 31, 1994
1996 1995 1994
----------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 452,776 $ 804,043 $ 203,263
----------- ------------ -----------
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Equity in income of joint ventures (457,144) (403,325) (78,799)
Distributions received from joint ventures 760,628 424,304 14,243
Distributions to partners from accumulated earnings (792,316) (887,739) (52,195)
Amortization of organization costs 6,250 6,250 4,688
Changes in assets and liabilities:
Prepaid expenses and other assets 23,001 24,760 (54,307)
Organization costs 0 0 (31,250)
Accounts payable (4,000) 0 4,000
----------- ------------ -----------
Total adjustments (463,581) (835,750) (193,620)
----------- ------------ -----------
Net cash (used in) provided by operating activities (10,805) (31,707) 9,643
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures (1,062,547) (13,890,625) (3,659,641)
Return of contributions in joint venture 500,000 0 0
Deferred project costs paid 0 (28,182) (818,124)
(Decrease) increase in construction payables (174,413) 174,413 0
Investment in real estate 0 (1,226,608) 0
----------- ------------ -----------
Net cash used in investing activities (736,960) (14,971,002) (4,477,765)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Limited partners' contributions 0 805,212 23,374,961
Sales commissions paid 0 (203,946) (2,214,071)
Offering costs paid 0 (40,261) (1,137,498)
Return of partner capital 0 (100) 0
----------- ------------ -----------
Net cash provided by financing activities 0 560,905 20,023,392
----------- ------------ -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (747,765) (14,441,804) 15,555,270
CASH AND CASH EQUIVALENTS, beginning of period 1,114,066 15,555,870 600
----------- ------------ -----------
CASH AND CASH EQUIVALENTS, end of period $ 366,301 $ 1,114,066 $15,555,870
=========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to real estate and joint
venture properties, net of deferred project costs
transferred between joint venture properties $ 117,611 $ 614,527 $ 150,914
=========== ============ ===========
Transfer of real estate assets to joint venture
for partnership interest $ 1,371,913 $ 0 $ 0
=========== ============ ===========
The accompanying notes are an integral part of these statements.
F-7
WELLS REAL ESTATE FUND VII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund VII, L.P. (the "Partnership") is a public limited
partnership organized on April 5, 1994 under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Partners,
L.P. ("Wells Partners"), a Georgia nonpublic limited partnership. The
Partnership has two classes of limited partnership interests, Class A and
Class B units. Limited partners 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. A majority vote on any of the above described
matters will bind the Partnership, without the concurrence of the general
partners. Each limited partnership unit has equal voting rights, regardless
of class.
The Partnership was formed to acquire and operate commercial real
properties, including properties which are either to be developed,
currently under development or construction, newly constructed, or have
operating histories. The Partnership owns an interest in several properties
through joint ventures between the Partnership and other Wells Real Estate
funds as follows: (i) a shopping center located in Cherokee County,
Georgia, the Cherokee Commons Shopping Center ("Cherokee Commons"); (ii) an
office/retail center in Roswell, Georgia; (iii) the Marathon Building, a
three-story office building located in Appleton, Wisconsin; (iv) the
Stockbridge Village III Retail Center, two retail buildings located in
Stockbridge, Georgia; (v) a retail center expansion in Stockbridge, Georgia
(vi) a four-story office building located in Jacksonville, Florida ("the
BellSouth property"); (vii) a retail center under construction in Clemmon,
Forsyth County, North Carolina; and (viii) an office building located in
Gainesville, Florida; and (ix) a retail office building in Stockbridge,
Georgia (Note 4).
USE OF ESTIMATES AND FACTORS AFFECTING THE PARTNERSHIP
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.
F-8
The carrying values of the real estate assets are based on management's
current intent to hold the real estate assets as long-term investments. The
success of the Partnership's future operations and the ability to realize the
investment in its assets will be dependent upon the Partnership's ability to
maintain rental rates, occupancy, and an appropriate level of operating
expenses in future years. Management believes that the steps it is taking
will enable the Partnership to realize its investment in its assets.
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 shares of
profits and losses in their individual income tax returns.
DISTRIBUTION OF NET CASH FROM OPERATIONS
Cash available for distribution, as defined by the partnership agreement, is
distributed to the limited partners on a quarterly basis. In accordance with
the partnership agreement, distributions first are paid to limited partners
holding Class A units until they have received a 10% return on their adjusted
capital contributions, as defined. Cash available for distribution is then
paid to the general partners until they have received an amount equal to 10%
of distributions. Any remaining cash available for distribution is split
between the limited partners holding Class A units and the general partners
on a basis of 90% and 10%, respectively. No distributions will be made to
the limited partners holding Class B units.
DISTRIBUTION OF SALES PROCEEDS
Upon sales of properties, the net sales proceeds are distributed in the
following order:
. To limited partners, on a per unit basis, until all limited partners
have received 100% of their adjusted capital contributions, as
defined
. To limited partners holding Class B units until they receive an
amount equal to the net cash available for distribution received by
the limited partners holding Class A units
. To all limited partners until they receive a cumulative 10% per annum
return on their adjusted capital contributions, as defined
. To all limited partners until they receive an amount equal to their
respective cumulative distributions
. To the all general partners until they have received 100% of their
capital contributions
. Thereafter, 80% to the limited partners and 20% to the general
partners
F-9
ALLOCATION OF NET INCOME, NET LOSS, AND GAIN ON SALE
Net income is defined as net income recognized by the Partnership, excluding
deductions for depreciation, amortization, and cost recovery. Net income, as
defined, 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
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 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: (a) allocations made pursuant to a qualified income offset
provision in the partnership agreement, (b) allocations to partners having
negative capital accounts until all negative capital accounts have been
restored to zero, (c) allocations to Class B limited partners in amounts
equal to 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, and (d)
allocations to Class A limited partners and general partners 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.
INVESTMENT IN JOINT VENTURES
BASIS OF PRESENTATION. The Partnership does not have control over the
operations of the joint ventures; however, it does exercise significant
influence. Accordingly, investments in joint ventures are recorded using the
equity method of accounting.
REAL ESTATE ASSETS. Real estate assets held by the joint ventures are stated
at cost less accumulated depreciation. Major improvements and betterments
are capitalized when they extend the useful life of the related asset. All
repairs and maintenance are expensed as incurred.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which is effective for fiscal years beginning after December 15, 1995. SFAS
No. 121 establishes standards for determining when impairment losses on long-
lived assets have occurred and how impairment losses should be measured. The
Partnership and the entities in which it holds a joint venture interest
adopted SFAS No. 121, effective January 1, 1995. The impact of adopting SFAS
No. 121 was not material to the financial statements Partnership or its
affiliated joint ventures.
F-10
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amount of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets
under SFAS No. 121 by determining whether the carrying value of such real
estate assets will be recovered through the future cash flows expected from
the use of the asset and its eventual disposition. Management has determined
that there has been no impairment in the carrying value of real estate assets
held by the Partnership or its affiliated joint ventures as of December 31,
1996.
Depreciation for buildings, building improvements, and land improvements are
calculated using the straight-line method over their useful lives. Effective
October 1, 1995, the Partnership and its affiliated joint ventures revised
their estimate of the useful lives of these assets from 40 to 25 years. This
change was made to better reflect the estimated periods during which such
assets will remain in service. The change had the effect on the Partnership,
through its ownership interest in joint ventures, of increasing depreciation
expense approximately $26,135 in the fourth quarter of 1995 and $228,415 in
the year ended December 31, 1996. Tenant improvements are amortized over the
life of the related lease or the life of the asset, whichever is shorter.
REVENUE RECOGNITION. All leases on real estate assets held by the joint
ventures are classified as operating leases, and the related rental income is
recognized on a straight-line basis over the terms of the respective leases.
PARTNERS' DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS. Cash available
for distribution and allocations of profit and loss to the Partnership by the
joint ventures are made in accordance with the terms of the individual joint
venture agreements. Generally, these items are allocated in proportion to
the partners' respective ownership interests. Cash is paid from the joint
ventures to the Partnership quarterly.
DEFERRED LEASE ACQUISITION COSTS. Costs incurred to procure operating leases
are capitalized and amortized on a straight-line basis over the terms of the
related leases.
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Partnership considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market accounts.
PER UNIT DATA
Net income (loss) per unit with respect to the Partnership for the year ended
December 31, 1996 and 1995 and for the period from inception (April 5, 1994)
to December 31, 1994 is computed based on the weighted average number of
units outstanding during the respective period.
F-11
RECLASSIFICATIONS
Certain 1995 and 1994 amounts have been reclassified to conform with the
1996 financial statement presentation.
2. DEFERRED PROJECT COSTS
The Partnership paid a percentage of limited partner contributions to the
Wells Capital, Inc. (the "Company"), the general partner of Wells Partners,
for acquisition and advisory services. These payments, as stipulated by the
partnership agreement, can be up to 6% of the limited partner contributions,
subject to certain overall limitations contained in the partnership
agreement. Fees paid through December 31, 1996 were $1,358,722 and
ultimately amounted to 3.5% of the limited partners' contributions received.
These fees are allocated to specific properties, as they are purchased or
developed and are included in capitalized assets of the joint ventures.
Deferred project costs at December 31, 1996 and 1995 represent fees not yet
applied to properties.
3. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1996 and 1995 represents the
Partnership's share of cash to be distributed for the fourth quarters of
1996 and 1995, respectively, as follows:
1996 1995
--------- -------
Fund I, II, II-OW, VI, and VII
Associates--Cherokee $ 18,925 $ 0
Fund II, III, VI, VII Associates 24,215 28,704
Fund V, VI, and VII Associates 89,320 87,227
Fund VI and VII Associates 23,735 (7,925)
Fund VI, VII, and VIII Associates 95,300 46,085
Fund VII and VIII Associates 40,283 2,734
--------- -------
$ 291,778 $156,825
========= ========
The Partnership entered into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. In 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 one-time initial lease-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 or (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 Partnership incurred management and leasing fees and lease acquisition
costs, at the joint venture level, of $103,785, $22,735, and $4,758 for the
years ended December 31, 1996,
F-12
and 1995 and the period from inception (April 5, 1994) to December 31, 1994,
respectively, which were paid to Wells Management.
The Company performs certain administrative services for the Partnership such
as accounting and other partnership 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. In the opinion of management, such allocation is a reasonable
estimation of such expenses.
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. INVESTMENT IN JOINT VENTURES
The Partnership's investment and percentage ownership in joint ventures at
December 31, 1996 and 1995 are summarized as follows:
1996 1995
---------------------- ------------------------
Amount Percent Amount Percent
----------- ------- ----------- -------
Fund I, II, II-OW, VI, and VII
Associates--Cherokee $ 929,897 11% $ 977,577 11%
Fund II, III, VI, and VII Associates 3,292,551 49 2,521,739 48
Fund V, VI, and VII Associates 3,405,643 42 3,527,440 42
Fund VI and VII Associates 3,410,542 57 3,315,395 56
Fund VI, VII, and VIII Associates 6,111,934 36 6,706,493 43
Fund VII and VIII Associates 2,474,474 38 1,062,320 22
----------- -----------
$19,625,041 $18,110,964
=========== ===========
The following is a rollforward of the Partnership's investment in joint ventures
for the years ended December 31, 1996 and 1995:
1996 1995
----------- ------------
Investment in joint ventures, beginning
of period $18,110,964 $ 3,793,226
Equity in income of joint ventures 457,144 403,325
Contributions to joint ventures 2,474,253 14,413,656
Distributions from joint ventures (895,581) (503,855)
Return of capital (521,739) 0
Other 0 4,612
----------- ------------
Investment in joint ventures, end of
period $19,625,041 $18,110,964
=========== ============
F-13
FUND I, II, II-OW, VI, AND VII ASSOCIATES--CHEROKEE
On August 1, 1995, the Partnership entered into a joint venture agreement with
Wells Real Estate Fund I, Fund II and II-OW, and Wells Real Estate Fund VI, L.P.
("Fund VI"). The joint venture, Fund I, II, II-OW, VI, and VII Associates--
Cherokee, was formed for the purpose of owning and operating Cherokee Commons, a
retail shopping center containing approximately 103,755 square feet, located in
Cherokee County, Georgia. Percentage ownership interests in Fund I, II, II-OW,
VI, and VII Associates--Cherokee were determined at the time of formation based
on contributions. Until the formation of this joint venture, Cherokee Commons
was part of the Fund I and II Tucker--Cherokee joint venture. Concurrent with
the formation of the Fund I, II, II-OW, VI, and VII Associates--Cherokee joint
venture, Cherokee Commons was transferred from the Fund I and II Tucker--
Cherokee joint venture.
F-14
Following are the financial statements for Fund I, II, II-OW, VI, and VII
Associates--Cherokee:
FUND I, II, II-OW, VI, AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
Assets
1996 1995
---------- ----------
Real estate assets, at cost:
Land $1,219,704 $1,219,704
Building and improvements, less accumulated depreciation of
$1,847,476 in 1996 and $1,418,057 in 1995 7,329,974 7,731,162
---------- ----------
Total real estate assets 8,549,678 8,950,866
Cash and cash equivalents 71,346 210,356
Accounts receivable 93,902 136,964
Prepaid expenses and other assets 78,527 92,633
---------- ----------
Total assets $8,793,453 $9,390,819
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 23,130 $ 27,754
Partnership distributions payable 112,817 203,987
Due to affiliates 78,375 68,762
---------- ----------
Total liabilities 214,322 300,503
---------- ----------
Partners' capital:
Wells Real Estate Fund I 1,970,363 2,103,666
Fund II and II-OW 4,746,274 5,028,796
Wells Real Estate Fund VI 932,597 980,277
Wells Real Estate Fund VII 929,897 977,577
---------- ----------
Total partners' capital 8,579,131 9,090,316
---------- ----------
Total liabilities and partners' capital $8,793,453 $9,390,819
========== ==========
F-15
FUND I, II, II-OW, VI AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
-------- --------- ----------
Revenues:
Rental income $890,951 $778,204 $ 552,823
Interest income 73 180 50
-------- --------- ----------
891,024 778,384 552,873
-------- --------- ----------
Expenses:
Depreciation 429,419 277,099 172,583
Operating costs, net of reimbursements 126,367 51,663 502,434
Property administration 42,868 39,316 44,624
Management and leasing fees 35,598 29,015 19,462
Lease acquisition costs 13,284 7,288 2,948
Legal and accounting 8,362 20,273 19,756
Computer costs 3,244 4,633 3,016
-------- --------- ----------
659,142 429,287 764,823
-------- --------- ----------
Net income (loss) $231,882 $349,097 $(211,950)
======== ========= ==========
Net income (loss) allocated to Wells Real Estate
Fund I $ 55,705 $ 95,490 $ (63,124)
======== ========= ==========
Net income (loss) allocated to Fund II and II-OW $126,517 $216,845 $ (148,827)
======== ========= ==========
Net income allocated to Wells Real Estate Fund VI $ 24,830 $ 18,381 $ 0
======== ========= ==========
Net income allocated to Wells Real Estate Fund VII $ 24,830 $ 18,381 $ 0
======== ========= ==========
F-16
FUND I, II, II-OW, VI AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
Wells Real Fund II Wells Real Wells Real Total
Estate and Estate Estate Partners'
Fund I II-OW Fund VI Fund VII Capital
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1993 $2,207,551 $4,639,064 $ 0 $ 0 $6,846,615
Net loss (63,123) (148,827) 0 0 (211,950)
Partnership contributions 100,000 805,092 0 0 905,092
Partnership distributions (104,234) (213,478) 0 0 (317,712)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 2,140,194 5,081,851 0 0 7,222,045
Net income 95,490 216,845 18,381 18,381 349,097
Partnership contributions 0 0 997,965 995,266 1,993,231
Partnership distributions (126,697) (269,900) (36,069) (36,070) (468,736)
Other (5,321) 0 0 0 (5,321)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 2,103,666 5,028,796 980,277 977,577 9,090,316
Net income 55,705 126,517 24,830 24,830 231,882
Partnership distributions (189,008) (409,039) (72,510) (72,510) (743,067)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 $1,970,363 $4,746,274 $ 932,597 $ 929,897 $8,579,131
========== ========== ========== ========== ==========
F-17
FUND I, II, II-OW, VI, AND VII ASSOCIATES--CHEROKEE
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
--------- ----------- ---------
Cash flows from operating activities:
Net income (loss) $ 231,882 $ 349,097 $(211,950)
--------- ----------- ---------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation 429,419 277,099 172,583
Changes in assets and liabilities:
Accounts receivable 43,062 7,111 (42,225)
Prepaid expenses and other assets 14,106 (42,937) (17,654)
Accounts payable and accrued expenses (4,624) (279,529) 278,837
Due to affiliates 9,613 9,909 (4,904)
--------- ----------- ---------
Total adjustments 491,576 (28,347) 386,637
--------- ----------- ---------
Net cash provided by operating activities 723,458 320,750 174,687
--------- ----------- ---------
Cash flows from investing activities:
Investment in real estate (28,231) (1,869,138) (609,489)
--------- ----------- ---------
Cash flows from financing activities:
Contributions from joint venture partners 0 2,100,403 706,962
Distributions to joint venture partners (834,237) (376,011) (237,808)
--------- ----------- ---------
Net cash (used in) provided by financing activities (834,237) 1,724,392 469,154
--------- ----------- ---------
Net (decrease) increase in cash and cash equivalents (139,010) 176,004 34,352
Cash and cash equivalents, beginning of year 210,356 34,352 0
--------- ----------- ---------
Cash and cash equivalents, end of year $ 71,346 $ 210,356 $ 34,352
========= =========== =========
Supplemental disclosure of noncash investing activities:
Deferred project costs applied by partners $ 0 $ 85,637 $ 0
========= =========== =========
FUND II, III, VI, AND VII ASSOCIATES
On January 1, 1995, the Partnership entered into a joint venture
agreement with Fund II and III Associates, and Fund VI. The joint
venture, Fund II, III, VI, and VII Associates, was formed for the purpose
of acquiring, developing, operating, and selling real properties. During
1995, Fund II and III Associates contributed, at cost, a 4.3-acre tract
of land from its 880 Property--Brookwood Grill to the Fund II, III, VI,
and VII Associates joint venture. During 1996, the Partnership and Fund
VI made contributions to the joint venture. Ownership percentage
interests were recomputed accordingly. Development is substantially
complete on two buildings containing a total of approximately 49,500
square feet. During 1996, leases commenced on approximately half of the
available space.
F-18
The following are the financial statements for Fund II, III, VI, and VII
Associates:
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
Assets
1996 1995
---------- ----------
Nonoperating real estate assets, at cost:
Land $ 0 $1,325,242
Land improvements 0 403,874
Construction in progress 0 2,662,448
---------- ----------
Total nonoperating real estate assets 0 4,391,564
---------- ----------
Operating real estate assets, at cost:
Land 1,325,242 0
Building and improvements, less accumulated depreciation of $181,798 4,568,805 0
Construction in progress 214,398 0
---------- ----------
Total operating real estate assets 6,108,445 0
---------- ----------
Total real estate assets 6,108,445 4,391,564
Cash and cash equivalents 675,703 1,321,378
Accounts receivable 67,334 0
Prepaid expenses and other assets 145,820 41,028
---------- ----------
Total assets $6,997,302 $5,753,970
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 204,970 $ 474,905
Partnership distributions payable 49,590 0
---------- ----------
254,560 474,905
---------- ----------
Partners' capital:
Fund II and III Associates 1,690,244 1,729,116
Wells Real Estate Fund VI 1,759,947 1,028,210
Wells Real Estate Fund VII 3,292,551 2,521,739
---------- ----------
Total partners' capital 6,742,742 5,279,065
---------- ----------
Total liabilities and partners' capital $6,997,302 $5,753,970
========== ==========
F-19
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF LOSS
FOR THE YEAR ENDED DECEMBER 31, 1996
Revenues:
Rental income $255,062
---------
Expenses:
Depreciation 181,798
Operating costs, net of reimbursements 75,018
Management and leasing fees 16,376
Legal and accounting 14,928
Lease acquisition costs 12,456
Partnership administration 10,286
Computer costs 1,368
---------
312,230
---------
Net loss $ (57,168)
=========
Net loss allocated to Fund II and III Associates $ (19,378)
=========
Net loss allocated to Wells Real Estate Fund VI $ (10,193)
=========
Net loss allocated to Wells Real Estate Fund VII $ (27,597)
=========
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Wells Wells Real Total
Fund II and Real Estate Estate Partners'
III Associates Fund VI Fund VII Capital
-------------- ----------- ---------- ----------
Balance, January 1, 1995 $ 0 $ 0 $ 0 $ 0
Partnership contributions 1,729,116 1,028,210 2,521,739 5,279,065
---------- ---------- ---------- ----------
Balance, December 31, 1995 1,729,116 1,028,210 2,521,739 5,279,065
Partnership contributions 0 761,259 835,646 1,596,905
Partnership distributions (19,494) (19,329) (37,237) (76,060)
Net loss (19,378) (10,193) (27,597) (57,168)
---------- ---------- ---------- ----------
Balance, December 31, 1996 $1,690,244 $1,759,947 $3,292,551 $6,742,742
========== ========== ========== ==========
F-20
FUND II, III, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
Cash flows from operating activities:
Net loss $ (57,168) $ 0
----------- -----------
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation 181,798 0
Changes in assets and liabilities:
Accounts receivable (67,334) 0
Prepaid expenses and other assets (104,792) (41,028)
Accounts payable and accrued expenses 88,532 22,256
----------- -----------
Total adjustments 98,204 (18,772)
----------- -----------
Net cash provided by (used in) operating activities 41,036 (18,772)
----------- -----------
Cash flows from investing activities:
(Decrease) increase in construction payables (358,467) 452,649
Investment in real estate (1,736,082) (2,595,190)
----------- -----------
Net cash used in investing activities (2,094,549) (2,142,541)
----------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 1,434,308 3,482,691
Distributions to joint venture partners (26,470) 0
----------- -----------
Net cash provided by financing activities 1,407,838 3,482,691
----------- -----------
Net (decrease) increase in cash and cash equivalents (645,675) 1,321,378
Cash and cash equivalents, beginning of year 1,321,378 0
----------- -----------
Cash and cash equivalents, end of year $ 675,703 $ 1,321,378
=========== ===========
Supplemental disclosure of noncash activities:
Contribution of real estate assets $ 0 $ 1,729,116
=========== ===========
Deferred project costs applied by partners $ 162,597 $ 67,257
=========== ===========
FUND V, VI, AND VII ASSOCIATES
On September 8, 1994, the Partnership entered into a joint venture
agreement with Wells Real Estate Fund V, L.P. ("Fund V") and Fund VI. The
joint venture, Fund V, VI, and VII Associates, was formed for the purpose
of investing in commercial real properties. In September 1994, Fund V,
VI, and VII Associates purchased a 75,000-square-foot, three-story office
building known as the Marathon Building in Appleton, Wisconsin.
F-21
Following are the financial statements for Fund V, VI, and VII
Associates:
FUND V, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
Assets
1996 1995
---------- ----------
Real estate assets, at cost:
Land $ 314,591 $ 314,591
Building and improvements, less accumulated depreciation of $655,029 in 1996 and
$304,444 in 1995 7,712,875 8,063,460
---------- ----------
Total real estate assets 8,027,466 8,378,051
Cash and cash equivalents 214,145 209,127
Accounts receivable 142,358 81,341
---------- ----------
Total assets $8,383,969 $8,668,519
========== ==========
Liabilities and Partners' Capital
Liabilities:
Partnership distributions payable $ 214,145 $ 209,127
Due to affiliates 5,695 3,254
---------- ----------
Total liabilities 219,840 212,381
---------- ----------
Partners' capital:
Wells Real Estate Fund V 1,343,590 1,391,654
Wells Real Estate Fund VI 3,414,896 3,537,044
Wells Real Estate Fund VII 3,405,643 3,527,440
---------- ----------
Total partners' capital 8,164,129 8,456,138
---------- ----------
Total liabilities and partners' capital $8,383,969 $8,668,519
========== ==========
F-22
FUND V, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND FOR THE PERIOD
FROM INCEPTION (SEPTEMBER 8, 1994) TO DECEMBER 31, 1994
1996 1995 1994
-------- -------- ---------
Revenues:
Rental income $971,017 $971,017 $ 283,213
-------- -------- ---------
Expenses:
Depreciation 350,585 243,428 61,016
Management and leasing fees 38,841 38,841 11,329
Legal and accounting 7,331 13,715 6,779
Partnership administration 4,641 8,150 14,666
Computer costs 1,410 1,749 640
Operating costs 1,254 1,943 0
-------- -------- ---------
404,062 307,826 94,430
-------- -------- ---------
Net income $566,955 $663,191 $ 188,783
======== ======== =========
Net income allocated to Wells Real Estate Fund V $ 93,321 $109,161 $ 30,994
======== ======== =========
Net income allocated to Wells Real Estate Fund VI $237,157 $277,413 $ 78,990
======== ======== =========
Net income allocated to Wells Real Estate Fund VII $236,477 $276,617 $ 78,799
======== ======== =========
F-23
FUND V, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND FOR THE PERIOD
FROM INCEPTION (SEPTEMBER 8, 1994) TO DECEMBER 31, 1994
Wells Real Wells Real Wells Real Total
Estate Estate Estate Partners'
Fund V Fund VI Fund VII Capital
---------- ---------- ---------- ----------
Balance, September 8, 1994 $ 0 $ 0 $ 0 $ 0
Net income 30,994 78,991 78,798 188,783
Partnership contributions 1,428,887 3,631,736 3,621,872 8,682,495
Partnership distributions (37,800) (96,360) (96,128) (230,288)
---------- ---------- ---------- ----------
Balance, December 31, 1994 1,422,081 3,614,367 3,604,542 8,640,990
Net income 109,161 277,413 276,617 663,191
Partnership distributions (139,588) (354,736) (353,719) (848,043)
---------- ---------- ---------- ----------
Balance, December 31, 1995 1,391,654 3,537,044 3,527,440 8,456,138
Net income 93,321 237,157 236,477 566,955
Partnership distributions (141,385) (359,305) (358,274) (858,964)
---------- ---------- ---------- ----------
Balance, December 31, 1996 $1,343,590 $3,414,896 $3,405,643 $8,164,129
========== ========== ========== ==========
F-24
FUND V, VI, AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND FOR THE PERIOD
FROM INCEPTION (SEPTEMBER 8, 1994) TO DECEMBER 31, 1994
1996 1995 1994
--------- ---------- --------
Cash flows from operating activities:
Net income $ 566,955 $ 663,191 $188,783
--------- ---------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 350,585 243,428 61,016
Changes in assets and liabilities:
Accounts receivable (61,017) (61,017) (20,324)
Accounts payable 0 (3,000) 3,000
Due to affiliates 2,441 2,441 813
--------- ---------- --------
Total adjustments 292,009 181,852 44,505
--------- ---------- --------
Net cash provided by operating activities 858,964 845,043 233,288
Cash flows from financing activities:
Distributions to joint venture partners (853,946) (835,231) (33,973)
--------- ---------- --------
Net increase in cash and cash equivalents 5,018 9,812 199,315
Cash and cash equivalents, beginning of period 209,127 199,315 0
--------- ---------- --------
Cash and cash equivalents, end of period $ 214,145 $ 209,127 $199,315
========= ========== ========
FUND VI AND VII ASSOCIATES
On December 9, 1994, the Partnership entered into a joint venture
agreement with Fund VI. The joint venture, Fund VI and VII Associates,
was formed for the purpose of investing in commercial properties. In
December 1994, the Partnership contributed its interest in a parcel of
land, the Stockbridge Village III Retail Center, located in Stockbridge,
Georgia, to the joint venture. The Stockbridge Village III Retail Center
is comprised of two separate outparcel buildings totaling approximately
18,500 square feet. One of the outparcel buildings began operations
during 1995. The other outparcel began operations during 1996. On June 7,
1995, Fund VI and VII Associates purchased 3.38 acres of real property
located in Stockbridge, Georgia. The retail center expansion consists of
a multi-tenant shopping center containing approximately 29,000 square
feet.
During 1995, both the Partnership and Fund VI made contributions to Fund
VI and VII Associates and, during 1996, the Partnership made additional
contributions to the joint venture. Ownership percentage interests were
recomputed accordingly.
F-25
Following are the financial statements for Fund VI and VII Associates:
FUND VI AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
Assets
1996 1995
---------- ----------
Real estate assets, at cost:
Land $1,812,447 $1,812,447
Building and improvements, less accumulated depreciation of $165,695 in 1996 and
$28,273 in 1995 3,497,180 1,712,290
Construction in progress 115,438 970,980
---------- ----------
Total real estate assets 5,425,065 4,495,717
Cash and cash equivalents 505,724 1,396,815
Accounts receivable 93,166 33,925
Prepaid expenses and other assets 82,706 68,949
---------- ----------
Total assets $6,106,661 $5,995,406
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 103,535 $ 96,602
Partnership distributions payable 41,473 (14,308)
Due to affiliates 2,412 6,897
---------- ----------
Total liabilities 147,420 89,191
---------- ----------
Partners' capital:
Wells Real Estate Fund VI 2,548,699 2,590,820
Wells Real Estate Fund VII 3,410,542 3,315,395
---------- ----------
Total partners' capital 5,959,241 5,906,215
---------- ----------
Total liabilities and partners' capital $6,106,661 $5,995,406
========== ==========
F-26
FUND VI AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
--------- --------
Revenues:
Rental income $ 316,487 $ 88,239
--------- --------
Expenses:
Depreciation 137,422 28,273
Operating costs, net of reimbursements 50,299 31,835
Lease acquisition costs 34,153 2,546
Management and leasing fees 20,192 6,453
Partnership administration 19,123 6,871
Legal and accounting 14,277 3,240
Computer costs 4,188 1,136
--------- --------
279,654 80,354
--------- --------
Net income $ 36,833 $ 7,885
========= ========
Net income allocated to Wells Real Estate Fund VI $ 15,775 $ 4,107
========= ========
Net income allocated to Wells Real Estate Fund VII $ 21,058 $ 3,778
========= ========
Fund VI and VII Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1996 and 1995
and for the Period From Inception (December 9, 1994) to December 31, 1994
Wells Real Wells Real Total
Estate Estate Partners'
Fund VI Fund VII Capital
---------- ---------- ----------
Balance, December 9, 1994 $ 0 $ 0 $ 0
Partnership contributions 1,053,648 188,684 1,242,332
---------- ---------- ----------
Balance, December 31, 1994 1,053,648 188,684 1,242,332
Net income 4,107 3,778 7,885
Partnership contributions 1,529,340 3,118,321 4,647,661
Other 3,725 4,612 8,337
---------- ---------- ----------
Balance, December 31, 1995 2,590,820 3,315,395 5,906,215
Net income 15,775 21,058 36,833
Partnership contributions 0 151,306 151,306
Partnership distributions (57,896) (77,217) (135,113)
---------- ---------- ----------
Balance, December 31, 1996 $2,548,699 $3,410,542 $5,959,241
========== ========== ==========
F-27
FUNDS VI AND VII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND FOR THE PERIOD FROM INCEPTION (DECEMBER 9, 1994) TO DECEMBER 31, 1994
1996 1995 1994
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 36,833 $ 7,885 $ 0
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 137,422 28,273 0
Changes in assets and liabilities:
Accounts receivable (59,241) (33,925) 0
Prepaid expenses and other assets (13,757) (68,949) 0
Accounts payable 21,049 17,486 0
Due to affiliates (4,485) 6,897 0
----------- ----------- -----------
Total adjustments 80,988 (50,218) 0
----------- ----------- -----------
Net cash provided by (used in) operating
activities 117,821 (42,333) 0
----------- ----------- -----------
Cash flows from investing activities:
(Decrease) increase in construction payables (14,116) 49,116 30,000
Investment in real estate (1,060,466) (3,000,848) (1,272,332)
----------- ----------- -----------
Net cash used in investing activities (1,074,582) (2,951,732) (1,242,332)
----------- ----------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 145,002 4,396,851 1,242,332
Distributions to joint venture partners (79,332) (5,971) 0
----------- ----------- -----------
Net cash provided by financing activities 65,670 4,390,880 1,242,332
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (891,091) 1,396,815 0
Cash and cash equivalents, beginning of year 1,396,815 0 0
----------- ----------- -----------
Cash and cash equivalents, end of year $ 505,724 $ 1,396,815 $ 0
=========== =========== ===========
Supplemental disclosure of noncash items:
Deferred project costs applied by partners $ 6,304 $ 250,810 $ 0
=========== =========== ===========
FUND VI, VII, AND VIII ASSOCIATES
On April 17, 1995, the Partnership entered into a joint venture with Fund
VI and Wells Real Estate Fund VIII, L.P. ("Fund VIII"). The joint
venture, Fund VI, VII, and VIII Associates, was formed to acquire,
develop, operate, and sell real properties. On April 25, 1995, the joint
venture purchased a 5.55-acre parcel of land in Jacksonville, Florida. A
92,964-square-foot office building, known as the BellSouth property, was
completed and commenced operations in 1996. On May 31, 1995, the joint
venture purchased a
F-28
14.683-acre parcel of land located in Clemmons, Forsyth County, North
Carolina. The land is currently under development.
During 1996, Fund VI and the Partnership each withdrew $500,000 from the
joint venture in order to contribute needed funds to Fund II, III, VI,
and VII Associates. In addition, $23,160 and $21,739, respectively, of
deferred project costs related to these funds were unapplied when the
contributions were withdrawn. Ownership percentage interests were
recomputed accordingly.
Following are the financial statements for Fund VI, VII, and VIII
Associates:
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
Assets
1996 1995
----------- -----------
Nonoperating real estate assets, at cost:
Land $ 3,159,929 $ 4,461,818
Construction in progress 4,587,178 4,430,443
----------- -----------
Total nonoperating real estate assets 7,747,107 8,892,261
----------- -----------
Operating real estate assets, at cost:
Land 1,301,890 0
Building and improvements, less accumulated
depreciation of $290,407 in 1996 7,004,986 0
----------- -----------
Total operating real estate assets 8,306,876 0
----------- -----------
Total real estate assets 16,053,983 8,892,261
Cash and cash equivalents 929,683 7,347,927
Accounts receivable 27,851 33,000
Prepaid expenses and other assets 691,741 264,378
----------- -----------
Total assets $17,703,258 $16,537,566
=========== ===========
F-29
Liabilities and Partners' Capital
1996 1995
----------- -----------
Liabilities:
Accounts payable $ 203,275 $ 772,999
Partnership distributions payable 268,656 107,590
Due to affiliates 1,555 0
----------- -----------
Total liabilities 473,486 880,589
----------- -----------
Partners' capital:
Wells Real Estate Fund VI 6,268,458 6,866,299
Wells Real Estate Fund VII 6,111,934 6,706,493
Wells Real Estate Fund VIII 4,849,380 2,084,185
----------- -----------
Total partners' capital 17,229,772 15,656,977
----------- -----------
Total liabilities and partners' capital $17,703,258 $16,537,566
=========== ===========
F-30
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD FROM INCEPTION (APRIL 17, 1995)
TO DECEMBER 31, 1995
1996 1995
---------- --------
Revenues:
Rental income $ 876,711 $ 0
Interest income 147,581 270,723
Other income 150 0
---------- --------
1,024,442 270,723
---------- --------
Expenses:
Depreciation 290,407 0
Operating costs 262,090 12,792
Lease acquisition costs 50,388 0
Management and leasing fees 48,942 0
Legal and accounting 17,251 0
Property administration 15,975 10,980
Computer costs 642 0
---------- --------
685,695 23,772
---------- --------
Net income $ 338,747 $246,951
========== ========
Net income allocated to Wells Real Estate Fund VI $ 134,875 $108,199
========== ========
Net income allocated to Wells Real Estate Fund VII $ 131,609 $105,848
========== ========
Net income allocated to Wells Real Estate Fund VIII $ 72,263 $ 32,904
========== ========
F-31
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD FROM INCEPTION (APRIL 17, 1995)
TO DECEMBER 31, 1995
Wells Real Wells Real Wells Real Total
Estate Estate Estate Partners'
Fund VI Fund VII Fund VIII Capital
---------- ---------- ---------- -----------
Balance, April 17, 1995 $ 0 $ 0 $ 0 $ 0
Net income 108,199 105,848 32,904 246,951
Partnership contributions 6,871,903 6,711,976 2,085,890 15,669,769
Partnership distributions (113,803) (111,331) (34,609) (259,743)
---------- ---------- ---------- -----------
Balance, December 31, 1995 6,866,299 6,706,493 2,084,185 15,656,977
Net income 134,875 131,609 72,263 338,747
Partnership contributions 0 0 2,815,965 2,815,965
Partnership distributions (209,556) (204,429) (123,033) (537,018)
Return of contributions (523,160) (521,739) 0 (1,044,899)
---------- ---------- ---------- -----------
Balance, December 31, 1996 $6,268,458 $6,111,934 $4,849,380 $17,229,772
========== ========== ========== ===========
F-32
FUND VI, VII, AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD FROM INCEPTION (APRIL 17, 1995)
TO DECEMBER 31, 1995
1996 1995
----------- ------------
Cash flows from operating activities:
Net income $ 338,747 $ 246,951
----------- ------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 290,407 0
Changes in assets and liabilities:
Accounts receivable 5,149 (33,000)
Prepaid expenses and other assets (427,363) (264,378)
Accounts payable 37,480 0
Due to affiliates 1,555 0
----------- ------------
Total adjustments (92,772) (297,378)
----------- ------------
Net cash provided by (used in) operating activities 245,975 (50,427)
----------- ------------
Cash flows from investing activities:
(Decrease) increase in construction payables (607,204) 772,999
Investment in real estate (7,381,063) (8,892,261)
----------- ------------
Net cash used in investing activities (7,988,267) (8,119,262)
----------- ------------
Cash flows from financing activities:
Contributions received from joint venture partners 2,700,000 15,669,769
Return of contributions from joint venture partners (1,000,000) 0
Distributions to joint venture partners (375,952) (152,153)
----------- ------------
Net cash provided by financing activities 1,324,048 15,517,616
----------- ------------
Net (decrease) increase in cash and cash equivalents (6,418,244) 7,347,927
Cash and cash equivalents, beginning of period 7,347,927 0
----------- ------------
Cash and cash equivalents, end of period $ 929,683 $ 7,347,927
=========== ============
Supplemental disclosure of noncash items:
Deferred project costs contributed by partners, net $ 71,066 $ 669,769
=========== ============
FUND VII AND VIII ASSOCIATES
On February 10, 1995, the Partnership entered into a joint venture
agreement with Fund VIII. The joint venture, Fund VII and VIII
Associates, was formed to acquire, develop, operate, and sell real
properties. During 1995, the joint venture purchased a five-acre parcel
of land in Gainesville, Alachua County, Florida. A 62,975-square-foot
office building was constructed and began operations during 1995. In
April 1996, the Partnership contributed 1.01 acres of land located in
Stockbridge, Georgia, and improvements thereon to the joint venture for
the development of a 12,000 square-foot,
F-33
single-story combination retail/office building. The building was
completed and commenced operations in 1996.
Following are the financial statements for Fund VII and VIII Associates:
FUND VII AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
Assets
1996 1995
---------- ----------
Real estate assets, at cost:
Land $ 822,320 $ 288,058
Building and improvements, less accumulated depreciation of $235,083 in 1996 and
$15,609 in 1995 5,250,058 4,464,057
Personal property, less accumulated depreciation of $32,270 in 1996 and $2,482 in 1995 265,613 295,401
Construction in progress 6,186 0
---------- ----------
Total real estate assets 6,344,177 5,047,516
Cash and cash equivalents 248,432 0
Accounts receivable 0 15,995
Prepaid expenses and other assets 71,963 0
---------- ----------
Total assets $6,664,572 $5,063,511
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 51,293 $ 285,787
Partnership distributions payable 106,136 12,265
Due to affiliates 0 960
---------- ----------
Total liabilities 157,429 299,012
---------- ----------
Partners' capital:
Wells Real Estate Fund VII 2,474,474 1,062,320
Wells Real Estate Fund VIII 4,032,669 3,702,179
---------- ----------
Total partners' capital 6,507,143 4,764,499
---------- ----------
Total liabilities and partners' capital $6,664,572 $5,063,511
========== ==========
F-34
FUND VII AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR
THE PERIOD FROM INCEPTION (FEBRUARY 10, 1995) TO DECEMBER 31, 1995
1996 1995
-------- --------
Revenues:
Rental income $583,264 $ 15,995
Other income 320 0
-------- --------
583,584 15,995
-------- --------
Expenses:
Depreciation 249,262 18,091
Management and leasing fees 57,590 960
Lease acquisition costs 31,060 0
Legal and accounting 23,554 0
Partnership administration 17,202 0
Computer costs 2,073 0
Operating costs, net of reimbursements (14,588) 2,770
-------- --------
366,153 21,821
-------- --------
Net income (loss) $217,431 $ (5,826)
======== ========
Net income (loss) allocated to Wells Real Estate Fund VII $ 70,767 $ (1,299)
======== ========
Net income (loss) allocated to Wells Real Estate Fund VIII $146,664 $ (4,527)
======== ========
F-35
FUND VII AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR
THE PERIOD FROM INCEPTION (FEBRUARY 10, 1995) TO DECEMBER 31, 1995
Wells Real Wells Real Total
Estate Estate Partners'
Fund VII Fund VIII Capital
---------- ---------- ----------
Balance, February 10, 1995 $ 0 $ 0 $ 0
Net loss (1,299) (4,527) (5,826)
Partnership contributions 1,066,354 3,716,236 4,782,590
Partnership distributions (2,735) (9,530) (12,265)
---------- ---------- ----------
Balance, December 31, 1995 1,062,320 3,702,179 4,764,499
Net income 70,767 146,664 217,431
Partnership contributions 1,487,301 458,393 1,945,694
Partnership distributions (145,914) (274,567) (420,481)
---------- ---------- ----------
Balance, December 31, 1996 $2,474,474 $4,032,669 $6,507,143
========== ========== ==========
F-36
FUND VII AND VIII ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR
THE PERIOD FROM INCEPTION (FEBRUARY 10, 1995) TO DECEMBER 31, 1995
1996 1995
----------- -----------
Cash flows from operating activities:
Net income (loss) $ 217,431 $ (5,826)
----------- -----------
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation 249,262 18,091
Changes in assets and liabilities:
Accounts receivable 15,995 (15,995)
Prepaid expenses and other assets (71,963) 0
Accounts payable 51,293 0
Due to affiliates (960) 960
----------- -----------
Total adjustments 243,627 3,056
----------- -----------
Net cash provided by (used in) operating activities 461,058 (2,770)
----------- -----------
Cash flows from investing activities:
(Decrease) increase in construction payables (285,787) 285,787
Investment in real estate (136,623) (4,868,154)
Contributions from partners 536,394 4,585,137
----------- -----------
Net cash provided by investing activities 113,984 2,770
----------- -----------
Cash flows from financing activities:
Distributions to joint venture partners (326,610) 0
----------- -----------
Net increase in cash and cash equivalents 248,432 0
Cash and cash equivalents, beginning of year 0 0
----------- -----------
Cash and cash equivalents, end of year $ 248,432 $ 0
=========== ===========
Supplemental disclosure of noncash activities:
Deferred project costs applied by partners, net of deferred project costs transferred $ 37,387 $ 197,453
=========== ===========
Contribution of real estate assets $ 1,371,913 $ 0
=========== ===========
F-37
5. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended
December 31, 1996, 1995, and period from inception (April 5, 1994) to
December 31, 1994 were calculated as follows:
1996 1995 1994
-------- -------- --------
Financial statement net income $452,776 $804,043 $203,263
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in excess
of amounts for income tax purposes 228,415 26,135 0
Joint venture change in ownership 0 7,814 0
Expenses deductible when paid for income tax purposes, accrued
for financial reporting purposes 5,143 12,240 342
Rental income accrued for financial reporting purposes in excess
of amounts for income tax purposes (28,891) (37,830) (8,538)
-------- -------- --------
Income tax basis net income $657,443 $812,402 $195,067
======== ======== ========
The Partnership's income tax basis partners' capital at December 31,
1996, 1995, and 1994 was computed as follows:
1996 1995 1994
-------- -------- --------
Financial statement partners' capital 20,016,024 $20,460,712 $19,878,550
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 254,550 26,135 0
Joint venture change in ownership 7,814 7,814 0
Capitalization of syndication cost for income tax purposes, which
are accounted for as cost of capital for financial reporting
purposes 3,595,776 3,595,776 3,474,994
Accumulated rental income accrued for financial reporting purposes in
excess of amounts for income tax purposes (73,719) (46,368) (8,538)
Accumulated expenses deductible when paid for income tax purposes,
accrued for financial reporting purposes 16,186 12,582 342
Partnership's distributions payable 294,900 189,753 173,086
----------- ----------- -----------
Income tax basis partners' capital $24,111,531 $24,246,404 $23,518,434
=========== =========== ===========
F-38
6. RENTAL INCOME
The future minimum rental income due from the Partnership's respective
ownership interests in joint ventures under noncancelable operating
leases at December 31, 1996 is as follows:
Year ending December 31:
1997 $ 1,769,965
1998 1,802,851
1999 1,765,083
2000 1,698,344
2001 1,584,957
Thereafter 8,524,485
-----------
$17,145,685
===========
Three significant tenants contributed approximately 52%, 23%, and 14% of
rental income, which is included in equity of income of joint ventures,
for the year ended December 31, 1996. In addition, three significant
tenants will contribute approximately 26%, 24%, and 20% of future minimum
rental income.
The future minimum rental income due Fund I, II, II-OW, VI, and VII
Associates--Cherokee under noncancelable operating leases at December 31,
1996 is as follows:
Year ending December 31:
1997 $ 868,954
1998 750,926
1999 684,582
2000 633,827
2001 609,896
Thereafter 5,449,194
----------
$8,997,379
==========
One significant tenant contributed approximately 66% of rental income for
the year ended December 31, 1996. In addition, one significant tenant
will contribute approximately 93% of future minimum rental income.
F-39
The future minimum rental income due Fund II, III, VI, and VII Associates
under noncancelable operating leases at December 31, 1996 is as follows:
Year ending December 31:
1997 $ 456,659
1998 468,816
1999 431,682
2000 341,028
2001 244,106
Thereafter 506,949
----------
$2,449,240
==========
Four significant tenants contributed approximately 38%, 16%, 14%, and 11%
of rental income for the year ended December 31, 1996. In addition, two
significant tenants will contribute approximately 46% and 15% of future
minimum rental income.
The future minimum rental income due Fund V, VI, and VII Associates under
noncancelable operating leases at December 31, 1996 is as follows:
Year ending December 31:
1997 $ 980,000
1998 980,000
1999 980,000
2000 980,000
2001 980,000
Thereafter 4,950,000
----------
$9,850,000
==========
One significant tenant contributed 100% of rental income for the year
ended December 31, 1996 and will contribute 100% of future minimum rental
income.
The future minimum rental income due Fund VI and VII Associates under
noncancelable operating leases at December 31, 1996 is as follows:
Year ending December 31:
1997 $ 401,085
1998 411,332
1999 386,192
2000 353,426
2001 329,901
Thereafter 993,970
----------
$2,875,906
==========
Three significant tenants contributed approximately 34%, 26%, and 11% of
rental income for the year ended December 31, 1996. In addition, two
significant tenants will contribute approximately 34% and 17% of future
minimum rental income.
F-40
The future minimum rental income due Fund VI, VII, and VIII Associates
under noncancelable operating leases, including those leases signed at
properties under construction, at December 31, 1996 is as follows:
Year ending December 31:
1997 $ 1,907,377
1998 2,002,460
1999 2,004,859
2000 2,006,856
2001 1,865,797
Thereafter 12,647,664
-----------
$22,435,013
===========
Two significant tenants contributed approximately 75% and 25% of rental
income for the year ended December 31, 1996. In addition, two significant
tenants will contribute approximately 55% and 45% of future minimum
rental income.
The future minimum rental income due Fund VII and VIII Associates under
noncancelable operating leases at December 31, 1996 is as follows:
Year ending December 31:
1997 $ 623,623
1998 623,623
1999 628,138
2000 632,653
2001 632,653
Thereafter 2,572,705
----------
$5,713,395
==========
One significant tenant contributed 91% of rental income for the year
ended December 31, 1996. In addition, two significant tenants will
contribute approximately 83% and 17% of future minimum rental income.
F-41
7. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial
information for the years ended December 31, 1996 and 1995:
1996 Quarters Ended
------------------------------------------------------------------
March 31 June 30 September 30 December 31
--------- ----------- ------------ -----------
Revenues $157,876 $ 64,932 $132,231 $188,252
Net income 133,370 29,133 116,876 173,397
Net income allocated to Class A limited partners 220,170 227,333 261,135 353,967
Net loss allocated to Class B limited partners (86,800) (198,200) (144,259) (180,570)
Net income per weighted average Class A limited partner
unit outstanding $0.13 $0.15 $0.14 $0.20
Net loss per weighted average Class B limited partner
unit outstanding (0.12) (0.32) (0.27) (0.27)
Cash distribution per weighted average Class A limited
partner unit outstanding 0.11 0.10 0.12 0.17
1995 Quarters Ended
--------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- --------- ------------ -----------
Revenues $272,915 $266,736 $226,930 $158,665
Net income 232,917 226,424 206,285 138,417
Net loss allocated to general limited partners (234) (46) 0 0
Net income allocated to Class A limited partners 256,294 251,207 237,145 206,180
Net loss allocated to Class B limited partners (23,143) (24,738) (30,060) (68,562)
Net income per weighted average Class A limited partner
unit outstanding $0.15 $0.15 $0.14 $0.13
Net loss per weighted average Class B limited partner
unit outstanding (0.03) (0.03) (0.04) (0.10)
Cash distribution per weighted average Class A limited
partner unit outstanding 0.15 0.14 0.14 0.12
F-42
8. 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.
F-43
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
Gross Amount at Which Carried
Initial Cost at December 31, 1996
------------------------ -----------------------
Buildings Costs of Buildings
and Capitalized and
Description Encumbrances Land Improvements Improvements Land Improvement
- ---------------------------------- ------------ ---------- ------------ ------------ ---------- ------------
MARATHON BUILDING (a) None $ 314,591 $ 8,367,904 $ 0 $ 314,591 $ 8,367,904
STOCKBRIDGE VILLAGE III (b) None 1,015,674 0 1,946,898 1,062,720 1,899,852
STOCKBRIDGE VILLAGE I EXPANSION (c) None 712,234 0 1,915,954 749,727 1,763,023
880 PROPERTY (d) None 1,325,242 0 4,965,001 1,325,242 4,750,603
BELLSOUTH PROPERTY (e) None 1,244,256 0 7,353,027 1,301,890 7,295,393
TANGLEWOOD COMMONS (f) None 3,020,040 0 4,727,066 3,159,928 0
CHEROKEE COMMONS (g) None 1,142,663 6,462,837 2,791,654 1,219,704 9,170,950
HANNOVER RETAIL CENTER (h) None 512,001 869,037 137,449 534,262 981,239
GAINESVILLE PROPERTY (i) None 222,627 0 4,870,416 288,058 4,801,785
---------- ----------- ----------- ---------- -----------
Total $9,509,328 $15,699,778 $28,707,465 $9,956,122 $39,030,749
========== =========== =========== ========== ===========
Gross Amount at Which Carried
at December 31, 1996
----------------------------- Life on Which
Construction Accumulated Date of Date Depreciation
Description in Progress Total Depreciation Construction Acquired Is Computed (j)
- ---------------------------------- ----------- ------------ ----------- ------------ -------- ---------------
MARATHON BUILDING (a) $ 0 $ 8,682,495 $ 655,029 1991 09/16/94 20 to 40 years
STOCKBRIDGE VILLAGE III (b) 0 2,962,572 112,915 1995 04/07/94 20 to 40 years
STOCKBRIDGE VILLAGE I EXPANSION (c) 115,438 2,628,188 52,780 1996 06/07/95 20 to 25 years
880 PROPERTY (d) 214,398 6,290,243 181,798 1996 01/31/90 20 to 25 years
BELLSOUTH PROPERTY (e) 0 8,597,283 290,407 1996 04/25/95 20 to 25 years
TANGLEWOOD COMMONS (f) 4,587,178 7,747,106 0 05/30/95 20 to 25 years
CHEROKEE COMMONS (g) 6,500 10,397,154 1,847,476 1986 06/09/87 20 to 40 years
HANNOVER RETAIL CENTER (h) 2,986 1,518,487 31,390 1996 01/16/95 20 to 25 years
GAINESVILLE PROPERTY (i) 3,200 5,093,043 235,963 1995 01/20/95 20 to 25 years
---------- ----------- ----------
Total $4,929,700 $53,916,571 $3,407,758
========== =========== ==========
S-1
(a) The Marathon Building is a three-story, 75,000-square-foot building
located in Appleton, Wisconsin. It is owned by Fund V, VI, and VII
Associates. The Partnership owned a 42% interest in Fund V, VI, and VII
Associates as of December 31, 1996.
(b) Stockbridge Village III consists of two retail buildings located in
Stockbridge, Georgia. It is owned by Fund VI and VII Associates. The
Partnership owned a 57% interest in Fund VI and VII Associates as of
December 31, 1996.
(c) Stockbridge Village I Expansion is a 3.38-acre tract of real property
under development located in Clayton County, Georgia. It is owned by Fund
VI and VII Associates. The Partnership owned a 57% interest in Fund VI
and VII Associates as of December 31, 1996.
(d) The 880 Property is a 4.3-acre tract of real property under development
in Roswell, Georgia. It is owned by Fund II, III, VI, and VII Associates.
The Partnership owned a 48% interest in Fund II, III, VI, and VII
Associates as of December 31, 1996.
(e) The BellSouth Property is a four story, 92,964 square foot building
located in Jacksonville, Florida. It is owned by Fund VI, VII, and VIII
Associates. The Partnership owned a 35% interest in Fund VI, VII, and
VIII Associates as of December 31, 1996.
(f) Tanglewood Commons is a 14.68-acre tract of real property under
construction in Clemmons, Forsyth County, North Carolina. It is owned by
Fund VI, VII, and VIII Associates. The Partnership owned a 35% interest
in Fund VI, VII, and VIII Associates as of December 31, 1996.
(g) Cherokee Commons is a retail shopping center located in Cherokee County,
Georgia. It is owned by Fund I, II, II-OW, VI, and VII Associates--
Cherokee. The Partnership owned an 11% interest in Fund I, II, II-OW, VI,
and VII Associates--Cherokee at December 31, 1996.
(h) The Hannover Property consists of a one-story building located in
Stockbridge, Georgia. It is owned by Fund VII and VIII Associates. The
Partnership owned a 38% interest in Fund VII and VIII Associates as of
December 31, 1996.
(i) The Gainesville Property consists of a two-story building located in
Gainesville, Florida. It is owned by Fund VII and VIII Associates. The
Partnership owned a 38% interest in Fund VII and VIII Associates as of
December 31, 1996.
(j) Depreciation lives used for buildings are 40 years through September 30,
1995, changed to 25 years thereafter. Depreciation lives used for land
improvements are 20 years.
S-2
WELLS REAL ESTATE FUND VII, L.P.
(A Georgia Public Limited Partnership)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
Accumulated
Cost Depreciation
----------- ------------
BALANCE AT DECEMBER 31, 1994 $ 9,954,827 $ 61,016
1995 additions 33,309,103 1,707,849
1995 deductions (66,734) 0
----------- ----------
BALANCE AT DECEMBER 31, 1995 43,197,196 1,768,865
1996 additions 10,719,375 1,638,893
1996 deductions 0 0
----------- ----------
BALANCE AT DECEMBER 31, 1996 $53,916,571 $3,407,758
=========== ==========
S-3